SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check appropriate box:
|_| Preliminary information statement
|_| Confidential for use of the Commission
only (as permitted by Rule 14c-5(d)(2))
|X| Definitive information statement
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
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(Name of the Registrant as Specified in Charter)
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Payment of Filing Fee (check the appropriate box)
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rule 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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|_| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
form or schedule and the date of filing.
(1) Amount previously paid:
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(2) Form schedule or registration number:
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(3) Filing party:
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(4) Dated filed:
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CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
1350 North Lake Shore Drive
Chicago, IL 60610
INFORMATION STATEMENT
This Information Statement has been mailed on or about January 30, 2000
to the holders of record on January 12, 2000 ("Record Date") of the Common
Stock. par value $.01 per share ("Common Stock") of CLASSICS INTERNATIONAL
ENTERTAINMENT, INC, a Delaware corporation ("Classics"). This Information
Statement is being transmitted to Classics's stockholders in connection with the
receipt on January 10, 2000 by the Board of Directors of written consents from
stockholders holding 11,380,291 shares of Common Stock (representing
approximately 60.3% of the issued and outstanding Common Stock) of Classics
approving amendments to the Classics' Certificate of Incorporation to effect the
following corporate actions:
1. changing the name of Classics to Piranha, Inc.;
2. increasing the number of authorized shares of Common Stock
from 30,000,000 shares to 100,000,000 shares; and
3. effecting a reverse stock split of the Common Stock so that
all issued and outstanding shares of Common Stock (including
outstanding options and warrants to purchase Common Stock)
will be reduced at the rate of 1 share for every 3.49 shares
of Common Stock prior to the reverse split.
THE BOARD OF DIRECTORS OF CLASSICS HAS APPROVED THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION AND HAS AUTHORIZED THE SENDING OF THIS INFORMATION
STATEMENT TO ALL STOCKHOLDERS OF CLASSICS.
The foregoing actions will be effective upon filing of an Amendment to
the Classics' Certificate of Incorporation with the Office of the Secretary of
State of Delaware which is expected to occur on or about February 26, 2000.
STOCKHOLDER INFORMATION
On the Record Date there were 18,868,916 shares of Classics' Common
Stock issued and outstanding. The approval of a majority of the outstanding
shares of Common Stock are required under the Delaware General Corporation Law
("DGCL") to effect the name change, reverse stock split and increase in
authorized shares of Common Stock. As of January 10, 2000, the Board of
Directors received written consents from the holders of 11,380,291 shares of
Common Stock authorizing the name change, reverse stock split and increase in
authorized shares of Common Stock. The written consents received represent
approximately 60.3% of the issued and outstanding shares of Common Stock.
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NO PROXIES ARE BEING SOLICITED BY THE BOARD OF DIRECTORS. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
ALL MEMBERS OF MANAGEMENT AND THE MEMBERS OF THE BOARD OF DIRECTORS
HOLD AN AGGREGATE OF 9,488,291 SHARES OF COMMON STOCK OR 50.2% OF CLASSICS'
ISSUED AND OUTSTANDING COMMON STOCK AS OF THE RECORD DATE AND HAVE DELIVERED
THEIR WRITTEN CONSENT TO THE CORPORATE ACTIONS.
The principal executive offices of Classics are located at 1350 North
Lake Shore Drive, Chicago, IL 60610. Classics' telephone number is (312)
664-7852.
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Annexed hereto are the following documents:
Appendix A Classics Form 10KSB including audited
financial statements for the fiscal year
ended December 31, 1998, as filed with the
Securities and Exchange Commission on
November 4, 1999.
Appendix B Classics' Form 10QSB for the fiscal quarter
ended September 30, 1999
Appendix C Form of Amendment to Certificate of
Incorporation
RECENT EVENTS EFFECTING CLASSICS
ACQUISITION OF IBP, INC.
Classics entered into a binding Letter of Intent dated as of November
17, 1999 to acquire a Nevada corporation named IBP, Inc. On December 30, 1999,
the Company and IBP entered into a definitive Agreement and Plan of Merger and
Reorganization ("Merger Agreement") and the transaction was consummated.
Pursuant to the terms of the Letter of Intent, Classics acquired all of the
capital stock of IBP through a merger of its specially formed subsidiary,
Classics Acquisition Corp., Inc. with and into IBP. As a result of the
acquisition, IBP became a wholly-owned subsidiary of Classics. The two
stockholders of IBP received an aggregate of 3,490,000 pre-reverse split shares
of Common Stock of Classics in exchange for all of their capital stock of IBP.
The IBP acquisition is intended to qualify as a tax free exchange pursuant to
Section 368 of the Internal Revenue Code. IBP was a private company owned by two
persons, Mr. Michael Steele and Mr. Carey Lotzer.
The Classics' Board of Directors determined to proceed with the
acquisition in order to obtain certain technology owned by IBP and its
shareholders regarding digital workflow processing and text stream data
compression. None of the technology is subject to a patent or trademark.
IBP was formed in November 1999 and to date IBP has not engaged in any
business operations other than development of the technology, and has no
revenues. IBP has not produced any financial statements to date and it is not a
condition to closing that any financial statements be produced by IBP in order
to close.
Pursuant to the Letter of Intent, Messrs. Lotzer and Steele have
entered into employment agreements with Classics and its subsidiaries. Mr.
Lotzer entered into a two-year employment contract on November 16, 1999 at an
annual salary of $150,000 year one and $200,000 year two. Mr. Lotzer will serve
in the capacity of Chief Scientist and will be appointed to the Board of
Directors in an annual alternation with Mr. Steele. As part of his employment
agreement, Mr. Lotzer has been granted the option to receive up to 200,000
performance based stock options at the strike price of $1.35 per share as well
as 100,000 incentive based stock options at a strike price of $5.00 per share.
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Mr. Steele entered into a two-year employment contract on November 16,
1999 at an annual salary of $150,000 per year. Mr. Steele will serve in the
capacity of Chief Information Officer and will be appointed to the Board of
Directors in an annual alternation with Mr. Lotzer. As part of his employment
agreement, Mr. Steele has been granted the option to receive up to 200,000
performance based stock options at the strike price of $1.35 per share as well
as 100,000 incentive based stock options at a strike price of $5.00 per share.
ACQUISITION OF ZIDEO.COM, INC.
Classics has closed on a definitive agreement dated as of December 8,
1999 to acquire an entity named Zideo.com, Inc. ("Zideo"). Zideo was a private
company and a wholly-owned subsidiary of DigiByte Corporation ("DigiByte") of
Chicago, Illinois. Pursuant to the terms of the definitive agreement, Classics
acquired all of the capital stock of Zideo through a cash only purchase. As a
result of the acquisition, Zideo became a subsidiary of Classics. DigiByte has
received $600,000 in cash of the total price of $750,000 in exchange for all of
their capital stock of Zideo. Classics issued a note for the remaining $150,000
portion which is due and payable on February 17, 2000.
The Classics' Board of Directors determined to proceed with the
acquisition in order to obtain certain licensing rights to technology owned by
DigiByte. Additionally, Classics' Board of Directors have determined that the
Zideo.com brand, the potential internet marketing opportunities associated with
Zideo.com and the future acquisition of certain personnel associated with Zideo
and its parent, DigiByte, as a result of acquisition, will be most beneficial to
Classics.
Zideo was formed in 1999 and to date, Zideo has not engaged in any
business operations, other than the development of a web page, and has no
revenues. Zideo has not produced any financial statements to date and it is not
a condition to closing that any financial statements be produced by Zideo in
order to close.
FILING OF REPORTS UNDER THE SECURITIES AND EXCHANGE ACT
In November, 1999 Classics filed its required Annual Report on Form
10SB for the fiscal year ended December 31, 1998 and Quarterly Reports on Form
10QSB for the quarters ended March 31, 1999, June 30, 1999 and September 30,
1999. As a result, Classics became a reporting company under the Securities and
Exchange Act of 1934. Classics had formerly been a reporting company under the
Securities and Exchange Act but had been delinquent in its filings. A copy of
the Form 10KSB for the fiscal year ended December 31, 1998, as well as the Form
10QSB for the quarter ended September 30, 1999 are enclosed.
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This Information Statement has been filed with the Securities and
Exchange Commission and mailed to stockholders to report the following events,
as described below.
CORPORATE NAME CHANGE
The Board of Directors has received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the issued and outstanding)
authorizing a change in the name from Classics International Entertainment Inc.
to Piranha, Inc. On January 11, 2000, the Board of Directors approved an
amendment to the Classics' Certificate of Incorporation to change the corporate
name. The name change will be effected through an amendment to the Certificate
of Incorporation to be file with the Secretary of State of Delaware.
The Board believes that the name change will more accurately reflect
the nature of the newly directed business activity of Classics. Specifically,
Piranha and its "PiranhaByte" products constitute a symbolic representation of
the intention of the technology focus of Classics to "take a byte out of" data
file structures. Data compression science represents the primary and central
focus of the newly structured company. Furthermore, Classics will be focusing on
Internet commerce. Piranha and PiranhaByte products are more reflective of
Internet names and representations.
Stockholders will not be required to submit their current share
certificates for exchange, and following the filing of the Amendment to the
Certificate of Incorporation with the Secretary of State of Delaware changing
the name of Classics, all new share certificates issued will be printed with the
new name of Piranha, Inc. The transfer agent has been advised of the proposed
name change and will make appropriate changes to its records to reflect the new
name. Classics will supply the transfer agent with new stock certificates which
will be used to replace old certificates as they are surrendered for transfer.
The affirmative vote of a majority of stockholders is required to
change the corporate name, which votes have been received by written consent.
NO DISSENTERS' RIGHTS
Under the Delaware General Corporation Law, holders of Common Stock are
not entitled to dissenters' rights with respect to the name change.
INCREASE IN AUTHORIZED SHARES
The Board of Directors has received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the issued and outstanding)
authorizing an increase in the authorized Common from 30,000,000 shares to
100,000,000 shares. On January 11, 2000, the Board of Directors approved an
amendment to the Classics' Certificate of Incorporation to increase the
authorized number of shares to 100,000,000 shares.
As of January 12, 2000, there were 18,868,916 shares of Common Stock
issued and outstanding; options and warrants to acquire an additional 3,242,857
shares; and 4,000,000 shares reserved for
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issuance under the Employee stock Option Plan. Additionally, the Series A, B and
D Preferred Stock of Classics is convertible into an aggregate 1,940,257 shares
of Common Stock.
The Board has approved the increase in authorized shares of Common
Stock because it believes that Classics will need additional shares for future
possible transactions such as acquisitions, to issue additional options to
employees, to issue additional convertible securities such as warrants to
consultants, and to have available shares in the event that Classics determines
to raise additional equity.
At present, Classics does not have any definitive agreement to acquire
any other entity. Additionally, Classics has no definitive agreement with any
underwriter or brokerage firm or any other person or entity to assist it in
raising any additional funds which might require the issuance of more shares of
Common Stock.
NO DISSENTERS' RIGHTS
Under the Delaware General Corporation Law, holders of Common Stock are
not entitled to dissenters' rights with respect to the increase of authorized
shares of Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT THE INCREASE IN THE AUTHORIZED
SHARES OF COMMON STOCK IS IN THE BESTS INTERESTS OF CLASSICS.
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REVERSE STOCK SPLIT
The Board of Directors has received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the issued and outstanding)
authorizing a reverse stock split so that each 3.49 outstanding shares will be
converted into 1 share of Common Stock outstanding ("Reverse Stock Split"). On
January 11, 2000, the Board of Directors approved an amendment to the Classics'
Certificate of Incorporation to effectuate the Reverse Stock Split.
By way of example, for every 3.49 shares held by a Classics'
stockholder, the stockholder would be deemed to own 1 one share after the split.
By way of another example, if a stockholder owns 10,000 shares, the stockholder
would be deemed to own 2,866 shares (after rounding). After completing the
reverse stock split, Classics will have approximately 4,406,566 shares of Common
Stock issued and outstanding. The reverse stock split will also similarly impact
the number of outstanding convertible securities such as options and preferred
stock.
The Board has agreed to implement the Reverse Stock Split because it
believes that the capital structure of Classics must be revised in order to
obtain an increase in the price of its Common Stock. Quotes for the Classics
Common Stock are currently available in the OTC Bulletin Board under the symbol
CIEI. On January 19, 2000, the high and low price of the Common Stock was
$3.3125 and $2.8125 respectively. The closing price was $3.00. The Board is
considering filing an application with the Nasdaq Stock Market for inclusion of
the Common Stock for listing on the Nasdaq National or SmallCap Market. The
Board believes that if the Common Stock were listed on the Nasdaq Stock Market
it would be beneficial to both current and future investors because it would
increase liquidity in the Common Stock. Additionally, future acquirers of the
Common Stock would be more willing to accept shares of the Common Stock if it
were traded on a more widely recognized market than the OTC Bulletin Board. The
Board believes that Classics' ability to complete transactions such as
acquisitions or mergers in which a party will be receiving shares of the
Classics' Common Stock will be enhanced if the Common Stock is listed on the
Nasdaq Stock Market.
Under the rules of the SmallCap Market, a company's Common Stock must
have a minimum bid price of $4.00. The rules of the Nasdaq National Market
require a minimum bid price of at least $5.00 per share. While there can be no
assurances that the price of the Common Stock on a post-split basis will
increase to the mathematical equivalent of the Reverse Stock Split ratio, and
thereafter maintain a price in excess of $4.00, the Board of Directors believes
that the only alternative currently available to raise the price of the Common
Stock to a level which might make it possible to obtain a listing on the Nasdaq
Stock Market. As there are certain other criteria to obtain listing on the
Nasdaq Stock Market, including subjective criteria in the discretion of the
Nasdaq Stock Market, there can be no assurance that our application to the
Nasdaq Stock Market will be accepted.
No fractional shares of new Common Stock will be issued for any
fractional new share interest. Rather, each Stockholder who would otherwise
receive a fractional new share of Common Stock as a result of the Reverse Stock
Split will receive the nearest whole share rounded up.
If the Reverse Stock Split is implemented, Classics will notify
Stockholders of the filing of the Amendment to the Certificate of Incorporation
with the Secretary of State of the State of Delaware and
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will furnish Stockholders of record as of the close of business on the Effective
Date with a Letter of Transmittal for use in exchanging certificates. The
Stockholders of Classics, promptly after the Amendment to the Certificate of
Incorporation becomes effective, will be requested to mail their certificates
representing their shares of Common Stock of Classics to the Exchange Agent
named in the Letter of Transmittal in order that a new stock certificate giving
effect to the Reverse Stock Split may be issued.
After giving effect to the Reverse Stock Split, there will be no
differences between those securities outstanding prior to the Effective Date of
the Amendment to the Certificate of Incorporation and those to be outstanding
after the Effective Date. The Reverse Stock Split will, however, result in
adjustments to the exercise price, conversion rates and number of shares
issuable upon the exercise or conversion of all outstanding preferred stock,
options and warrants.
Holders of shares of Classics's Common Stock are entitled to receive
such dividends as may be declared by Classics's Board of Directors. No dividends
on Common Stock have ever been paid by Classics, however, and Classics presently
intends to retain all future earnings for the expansion of its business and
consequently does not presently intend to pay cash dividends.
NO DISSENTERS' RIGHTS
Under the Delaware General Corporation Law, holders of Common Stock are
not entitled to dissenters' rights with respect to the Reverse Stock Split.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET
Upon the effectiveness of our initial public offering on October 19,
1993, our Common Stock commenced trading on the Small Cap Market of the Nasdaq
Stock Market ("NASDAQ") under the symbol "CIEI." Effective June 30, 1996, our
Common Stock was delisted and has subsequently traded on the OTC Bulletin Board.
Effective October 20, 1999, we were notified by the OTC of delisting from the
Bulletin Board due to non-filing of required reports under the Securities and
Exchange Act of 1934. In November 1999, Classics filed its 10-KSB and 10-QSB's
to become in compliance with reporting requirements of the Exchange Act. From
September 23, 1999 until October 20, 1999, the Company's stock traded under the
symbol "CIEIE." Effective January 6, 2000, the Common Stock commenced trading on
the OTC Bulletin Board. The following is the range of high and low bid prices
for the Company's stock for the periods indicated below:
COMMON STOCK HIGH LOW
$ $
Fiscal Year 1997:
1st Quarter ........................ .22 .06
2nd Quarter ........................ .105 .05
3rd Quarter ........................ .07 .06
4th Quarter ........................ .08 .04
Fiscal Year 1998:
1st Quarter ........................ .04 .03
2nd Quarter ........................ .03 .02
3rd Quarter ........................ .02 .01
4th Quarter ........................ .01 .005
Fiscal Year 1999:
1st Quarter ........................ .29 .29
2nd Quarter ........................ .235 .16
3rd Quarter ........................ .71 .69
4TH Quarter ........................ 3.8125 2.675
The above quotations represent prices between dealers; do not include
retail mark-ups, mark-downs, or commissions; and do not necessarily represent
actual transactions.
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APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The number of record holders of the Company's Common Stock is 127. Such
number of record owners was determined from the Company's stockholder records,
and does not include beneficial owners of the Company's Common Stock whose
shares are held in the names of various security holders, dealers and clearing
agencies. The Company believes there are more than 2,750 beneficial holders of
the Company's Common Stock.
To date, the Company has not paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. Future profits,
if any, will be used to fund the growth of the business.
To date, the Company has paid $138,375 of dividends on the Series A
preferred stock, however, the amounts which were due for the quarter ended
December 31, 1995, and all subsequent amounts have not yet been declared or
paid, nor have any amounts to date relating to the Series B and Series D
preferred stock been declared or paid.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 20, 2000, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the outstanding shares
of Common Stock, (ii) each Director, and (iii) all officers and Directors as a
group:
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS
Richard S. Berger ............................. 5,998,291 39%
1350 North Lake Shore Drive
#315 S
Chicago, IL 60610
Edward Sample ................................. ______________ ________
6060 North Central Expressway
Suite 560
Dallas TX 75206
Cary Lotzer ................................... 2,303,400 12.2%
1930 Palace Drive
Grand Prairie, TX 75050
Michael Steele ................................ 1,186,600 6.2%
2602 Palisades Place
Mesquite, TX 75181
Benjamin B. LeCompte III, ..................... 815,834(3) 5.3%
M.D
1575 N. Barrington, Suite 350
Hoffman Estates, IL 60194
R. Donald Ashley .............................. ____________ ________
6060 North Central Expressway
Suite 560
Dallas TX 75206
All officers and directors as a ............... 9,488,291 50.2%
group (5 person)(1)(2)
===============================================
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole investment power with respect to all shares of
Common Stock beneficially owned by them.
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(2) Excludes 412,500 shares of Series B Preferred Stock convertible
into 577,400 shares of Common Stock and a convertible note in the
principal amount of $200,000 convertible into 400,000 shares of Common
Stock.
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Exhibit A
10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
(Mark One)
+---+ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| X | SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
+---+
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
+---+
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
+---+ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ________________
Commission File No. 0-20190
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3859518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 North Michigan Avenue, Chicago, IL, 60611
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 664-7852
------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
TITLE OF EACH CLASS WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
<PAGE>
Check whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES NO X
Check if there is no 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.
The Issuer's revenues for its most recent fiscal year ended
December 31, 1998 were $0.
On October 29, 1999, the aggregate market value of the voting
stock of Classics International Entertainment, Inc. (consisting of Common Stock,
$.001 par value) held by non-affiliates of the Registrant was approximately
$9,104,500 (includes all shares) based on the average closing bid and asked
prices for such Common Stock on said date as reported by NASDAQ.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
On October 29, 1999, there were 17,378,916 shares of Common
Stock, $.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
--------------------------
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Classics International Entertainment, Inc. (the "Company") was
incorporated under the laws of the State of Delaware on November 20, 1992. The
Company had four subsidiaries: Moondog's, Inc., which on August 5, 1997, filed
for protection under Chapter 7 of the Bankruptcy laws; Dream Factory, Inc.,
which on May 2, 1996, filed for protection under Chapter 7 of the Bankruptcy
Laws; First Classics, Inc., the holder of a license for the exclusive use of the
Classics Illustrated copyrights, trade names and other intangibles, excluding
non-print media rights; and Classics Media Group, Inc., the exclusive licensee
of the Classics Illustrated properties for non-print media purposes. The Dream
Factory, Inc. and Moondog's, Inc. Bankruptcy cases were brought to closure in
September, 1996 and January, 1998, respectively.
GENERAL BUSINESS DEVELOPMENTS DURING LAST FISCAL YEAR
The company essentially has been a non-operating entity since it
discontinued its operations at the end of 1996.
FIRST CLASSICS
First Classics acquired the exclusive license for the use and
republication of the original library of 169 Classics Illustrated graphic novels
and 76 Classics Illustrated Juniors graphic novels in 1988. First Classics also
has the exclusive rights to create new versions of Classics Illustrated and
Classics Illustrated Juniors publications. A graphic novel combines storytelling
in a format which is more complex than that found in comic books and is
accompanied by sophisticated art work in the style of a comic strip. Graphic
novels contain a single continuous story and generally range in length from 48
to 64 pages.
FRAWLEY LICENSE AGREEMENT
In December 1988, First Publishing, a former subsidiary of the Company,
Classics Media and Berkley Publishing Corporation ("Berkley") (collectively, the
"Licensees") entered into an exclusive License Agreement (the "License
Agreement") with Frawley Corporation ("Frawley"). In 1989, the rights of First
Publishing under the License Agreement were assigned to First Classics,
currently a wholly owned subsidiary of the Company. The rights of Berkley under
the License Agreement were assigned to First Classics in 1991. The License
Agreement gives the Licensee(s) the exclusive and perpetual right to use certain
copyrights, trademarks, trade names and other intangible property related to
Classics Illustrated and Classics Illustrated Juniors (the "Property") owned by
Frawley in exchange for royalty payments ranging from three percent (3%) to ten
percent (10%) of the revenues derived from use of the Property by the Licensees.
Since the inception of the License Agreement in December 1988, the Licensees
have paid royalties to Frawley in excess of $95,000. The License Agreement
requires the Licensees to make minimum annual payments of $3,000 in order for
the license to remain in full force and effect. The next minimum payment is due
in December, 1999.
RECENT DEVELOPMENTS
The Company announced in September 1999 tht it had entered into a letter
of understanding to merge with Zideo.com, Inc. ("Zideo"), a wholly owned
subsidiary of DigiByte corporation. Zideo has developed a "player" which plays
all forms of digital entertainment media over the Internet. Zideo is also
developing a handheld version of the player for use with other forms of
entertainment. The merger is subject to various conditions including the
negotiation and execution of a definitive agreement and various other compliance
and regulatory issues. The Company is also required to settle all outstanding
liabilities prior to the merger. Accordingly, there can be no assurance that the
Company will complete any transaction with Zideo.
COMPETITION
There currently is only a minimal market for the Company's products.
EMPLOYEES
The Company currently has no employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's offices are located at 919 North Michigan Avenue,
Chicago, IL, 60611
ITEM 3. LEGAL PROCEEDINGS
In July, 1994, the Company discharged for cause, four officers of its Dream
Factory subsidiary. The officers who were discharged commenced an action against
the Company seeking approximately $19,000,000 arising out of the alleged
wrongful termination of their employment. The Company subsequently settled the
claims of two of these four officers in return for a payment obligation of
$600,000, which represented approximately $2,000,000 of the original claim.
While the Company believes that it has good and sufficient defenses and
counter claims in the forgoing legal matter, the Company would be adversely
affected to the extent of the damages recovered should the plaintiffs prevail.
However, the ultimate outcome of the litigation cannot presently be determined.
Accordingly, excepting for having previously recorded the $600,000 settlement,
no additional provision for any liability that may result upon adjudication has
been made in the accompanying consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET
Upon the effectiveness of the Company's initial public offering on
October 19, 1993, the Company's Common Stock commenced trading in the
over-the-counter market and listed on the Small Cap Market of the NASDAQ Stock
Market ("NASDAQ") under the symbol "CIEI." Effective June 30, 1996, the company
was delisted, and has subsequently traded on the NASDAQ bulletin board.
Effective September 20, 1999, the Company was notified by NASDAQ of a potential
delisting from the bulletin board due to non-filing of required reports. Since
September 23, 1999 the Company's stock has traded under the symbol "CIEIE." The
following is the range of high and low bid prices for the Company's stock for
the periods indicated below:
COMMON STOCK HIGH LOW
Fiscal Year 1997:
1st Quarter .22 .06
2nd Quarter .105 .05
3rd Quarter .07 .06
4th Quarter .08 .04
Fiscal Year 1998:
1st Quarter .04 .03
2nd Quarter .03 .02
3rd Quarter .02 .01
4th Quarter .01 .005
Fiscal Year 1999:
1st Quarter .29 .005
2nd Quarter .235 .16
3rd Quarter .71 .07
The above quotations represent prices between dealers; do not include
retail mark-ups, mark-downs, or commissions; and do not necessarily represent
actual transactions.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The approximate number of record holders of the Company's Common Stock
is 172. Such number of record owners was determined from the Company's
stockholder records, and does not include beneficial owners of the Company's
Common Stock whose shares are held in the names of various security holders,
dealers and clearing agencies. The Company believes there are more than 2,100
beneficial holders of the Company's Common Stock.
To date, the Company has not paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. Future profits,
if any, will be used to fund the growth of the business.
To date, the Company has paid $138,375 of dividends on the Series A
preferred stock, however, the amounts which were due for the quarter ended
December 31, 1995, and all subsequent amounts have not yet been declared or
paid, nor have any amounts to date relating to the Series B and C preferred
stock been declared or paid.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and the Notes thereto appearing in this report.
BUSINESS
Since 1996, the Company has essentially been a non-operating entity
with no business activity conducted through its Classics Media Group subsidiary,
and only minimal business activity conducted through its First Classics, Inc.
subsidiary.
The value of the Company is driven by its being a pubic "shell," with a
substantial tax loss carry-forward, a substantial number of shareholders and in
excess of 20 market makers.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
LOSS FROM CONTINUING OPERATIONS
The Company discontinued its operations at the end of 1996 Accordingly,
no losses from continuing operations were reportable in the years ended
December 31, 1998 and 1997.
LOSS FROM DISCONTINUED OPERATIONS
The loss from discontinued operations was $21,882 for the year ended
December 31, 1998 and $251,197 for the year ended December 31, 1997.
EXTRAORDINARY GAIN - CANCELLATION OF DEBT
The extraordinary gain resulting from the cancellation of debt was
$218,515 for the year ended December 31, 1998 compared to no such gain for the
year ended December 31, 1997.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
Net income applicable to common stock was $32,833 for the year ended
December 31, 1998 compared to a net loss of $414,997 for the year ended December
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the company had working capital and total
capital deficiencies of $2,438,970.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS F-1
INDEPENDENT AUDITORS' REPORT F-2 - F-3
CONSOLIDATED BALANCE SHEET F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Classics International Entertainment, Inc.
and Subsidiaries
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of
Classics International Entertainment, Inc. and Subsidiaries as of December 31,
1998 and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects the financial position of Classics
International Entertainment Inc. and Subsidiaries as of December 31, 1998 and
the results of their operations and cash flows for the years ended December 31,
1998 and 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company incurred significant operating losses
of $22,000 and $251,000 in 1998 and 1997, respectively. Additionally, the
Company has working capital and total capital deficiencies in excess of
$2,400,000 each at December 31, 1998. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters are also described in Note 2 to the financial
statements.
F-2
<PAGE>
The accompanying financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
As discussed in Note 12 to the consolidated financial
statements, the Company is a defendant in litigation relating to an action
brought by former corporate officers alleging wrongful termination of their
employment contracts. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result upon
adjudication has been made in the accompanying consolidated financial
statements.
\S\ Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York , NY
October 27, 1999
F-3
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS $ 0
OTHER ASSETS 0
-----------------
$ 0
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,414,511
Dividends payable 488,850
Accrued liabilities 333,764
Stockholder loans and other notes payable 201,845
-----------------
TOTAL CURRENT LIABILITIES 2,438,970
-----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock $ 2,012,488
Common stock, $.001 par value, 30,000,000
Shares authorized; 17,378,916 shares issued 17,379
and outstanding
Additional paid-in capital 12,493,490
Stock subscription receivable (44,500)
Accumulated deficit (16,917,827)
-----------------
TOTAL STOCKHOLDERS' DEFICIT (2,438,970)
-----------------
$ 0
See notes to the consolidated financial statements
F-4
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997
--------------- ----------------
Loss from continuing operations $ 0 $ 0
Loss from discontinued operations (21,882) (251,197)
--------------- ----------------
Loss before extraordinary gain (21,882) (251,197)
Extraordinary gain - cancellation of debt 218,515 0
--------------- ----------------
Net income (loss) 196,633 (251,197)
Preferred stock dividends (163,800) (163,800)
--------------- ----------------
Net income (loss) applicable
to common stock $ 32,833 $ (414,997)
=============== ================
Basic and Diluted Income (Loss) Per Common Share:
Loss from continuing operations $ 0 $ 0
Loss from discontinued operations 0 (0.01)
Extraordinary gain 0.01 0
Preferred stock dividends (0.01) (0.01)
--------------- ----------------
Net income (loss) per common
share - basic and diluted $ 0 $ (0.02)
=============== ================
Average common shares outstanding 17,378,916 17,378,916
=============== ================
F-5
See notes to the consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Additional
Preferred Common Stock Paid-in Subscription Accumulated
Stock Shares Amount Capital Receivable Deficit Total
-------------- ---------- --------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 $ 2,012,488 17,378,916 $ 17,379 $ 12,493,490 $ (44,500) $ (16,535,663) $ (2,056,806)
Preferred dividends (163,800) (163,800)
Net loss (251,197) (251,197)
-------------- ---------- --------- -------------- ----------- ------------- -------------
BALANCE - DECEMBER 31, 1997 2,012,488 17,378,916 17,379 12,493,490 (44,500) (16,950,660) (2,471,803)
Preferred dividends (163,800) (163,800)
Net loss 196,633 196,633
-------------- ---------- --------- -------------- ----------- ------------- -------------
BALANCE - DECEMBER 31, 1998 $ 2,012,488 17,378,916 $ 17,379 $ 12,493,490 $ (44,500) $ (16,917,827) $ (2,438,970)
============== ========== ========= ============== =========== ============= =============
</TABLE>
F-6
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 196,633 $ (251,197)
Adjustments to reconcile net income
(loss) to net cash used in operations:
Loss from discontinued operations 21,882 251,197
Extraordinary gain - cancellation of debt (218,515)
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES 0 0
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES: 0 0
CASH FLOWS FROM FINANCING ACTIVITIES: 0 0
NET DECREASE IN CASH 0 0
CASH AT BEGINNING OF YEAR 0 0
------------ -------------
CASH AT END OF YEAR $ 0 $ 0
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest
and income taxes 0 0
============ =============
F-7
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. THE COMPANY
Classics International Entertainment, Inc. (the "Company")
was incorporated in Delaware on November 20, 1992. On December 31,
1992, the Company acquired Dream Factory, Inc. ("Dream Factory"),
First Classics, Inc. ("First Classics") and Classics Media Group, Inc.
("Classics Media"). On April 11, 1997, the Company acquired the
business and certain assets of Moondog's Inc. ("Moondog's") .
As of December 31, 1995, Dream Factory and Moondog's owned and
operated eleven retail stores and four departments which specialized in
the sale of pop culture wares. First Classics currently holds the
license in perpetuity for the exclusive use of the Classics Illustrated
copyrights, trade names and other intangibles excluding media rights.
Classics Media is the exclusive licensee of the Classics Illustrated
trademarks for non-print media.
In January 1996, nine of the retail stores were closed. The
Company discontinued its operations at the end of 1996. In May 1996,
Dream Factory filed for protection under Chapter 7 of the Bankruptcy
Act; Moondog's followed suit in August, 1997. The respective cases of
the above entities were brought to closure in September 1996 and
January 1998.
2. GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
incurred operating losses of $22,000 and $251,000 in 1998 and 1997,
respectively. Additionally, the Company had working capital and total
capital deficiencies of $2,400,000 each at December 31, 1998. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with respect to these
matters include restructuring its existing debt, raising additional
capital through future issuances of stock and debentures and ultimately
acquiring a viable business. The accompanying financial statements do
not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
F-8
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
B. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and disclosure of
contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
C. NET INCOME (LOSS) PER SHARE - Basic earnings (loss) per share was
computed using the weighted average number of shares of
outstanding common stock. Diluted per share amounts when
applicable also include the effect of dilutive common stock
equivalents from the assumed exercise of stock options.
D. INCOME TAXES - Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
4. ACCRUED LIABILITIES
At December 31, 1998, accrued liabilities consisted of the
following:
Consulting fees ........................................ $134,583
Interest ............................................... 100,710
OTHER .................................................. 98,471
---------
$333,764
=========
F-9
<PAGE>
5. STOCKHOLDER LOANS AND OTHER NOTES PAYABLE
At December 31, 1998, stockholder loans and other notes
payable consisted of the following:
Stockholder loans, interest free, unsecured and
payable on demand ............................................. $ 59,845
Notes payable with interest at 12% per annum,
unsecured and payable on demand ............................... 142,000
----------
$201,845
==========
6. PREFERRED STOCK
At December 31, 1998, Preferred Stock consisted of 5,000,000
authorized shares of $.001 par value of which the following were issued
and outstanding:
Common Shares
Issuable on
AMOUNT CONVERSION
------- ----------
Series A, 9% cumulative, convertible, redeemable;
220,000 shares issued and outstanding $1,100,000 220,000
Series B, 9% cumulative, convertible, redeemable;
412,500 shares issued and outstanding 529,988 577,400
Series C, 4% cumulative, convertible, redeemable;
500 shares issued and outstanding 382,500 1,142,857
------- ---------
$2,012,488 1,940,257
========= =========
7. COMMON STOCK
At December 31, 1998, the Company had common stock reserved of
5,333,114 common shares for issuance upon exercise of 3,392,857
outstanding common stock warrants and the balance for the
conversion of Preferred Stock.
8. EMPLOYEE STOCK OPTION PLAN
In November 1992, the Company adopted the 1992 Employee Stock
Option Plan (the "Option Plan"). The Option Plan provides for the grant
of options to qualified employees (including officers and directors) of
the Company to purchase an aggregate of 1,000,000 shares of Common
Stock. The Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Option Committee") whose
members are not entitled to receive options under the Option Plan. The
Option Committee has complete discretion to select the optionee and to
establish the terms and conditions of each option, subject to the
provisions of the Option Plan. Options granted under the Option Plan
may or may not be "incentive stock options" as defined in Section 422
of the Code ("Incentive Options") depending upon the terms established
by the Option Committee at the time of grant, but the exercise price of
options may not be less than 100% of the fair market value of the
Company's Common Stock as of the date of grant (110% of the fair market
value if the grant is an Incentive Option to an employee who owns more
than 10% of the outstanding Common Stock). Options may not be exercised
more than ten years after the grant. Options granted under the Option
Plan are not transferrable and may be exercised only by the respective
grantees during their lifetimes or by their heirs, executors or
administrators in the event of death. Under the Option Plan, shares
subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. No options are outstanding as of December 31, 1998.
9. INCOME TAXES
The following is a reconciliation of income taxes and amounts
computed using the U.S. Federal statutory rate and the effective tax
rate for the years ended December 31, 1998 and 1997:
1998 1997
--------- ---------
CONSOLIDATED PRE-TAX GAIN (LOSS) ...... $ 197,000 $(251,000)
========= =========
Tax (benefit) at Federal statutory rate 69,000 $ (88,000)
Effect of permanent differences ....... -- --
Effect of temporary differences ....... 6,000 26,000
Tax benefit not recognized ............ (75,000) 62,000
--------- ---------
TAXES PER FINANCIAL STATEMENTS ........ $ -- $ --
========== ==========
F-10
<PAGE>
9. INCOME TAXES (CONTINUED)
The Company has adopted Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this standard,
the Company records as an asset its net operating loss carryforward
("NOL") based upon current tax returns, and establishes a valuation
allowance to the extent of any NOL which will not be utilized in the
foreseeable future.
At this time, the Company can not reliably predict future
profitability. Accordingly, the deferred tax asset has been reduced in
its entirety by the valuation allowance.
As of December 31, 1998, the Company had net operating loss
carry forwards of approximately $14,000,000 expiring beginning in the
year 2007. A significant portion of these carry forwards are subject to
limitations on annual utilization due to "equity structure shifts" or
"owner shifts" involving "5 percent stockholders" (as defined in the
Internal Revenue Code), which resulted in more than a 50 percent change
in ownership.
10. RELATED PARTY TRANSACTIONS
The Company is provided with office and administrative
facilities under an informal arrangement with a principal shareholder.
Amounts charged to operations for such services in 1998 and 1997 were
$10,500 and $42,000, respectively.
11. LICENSE AGREEMENTS
The Company has the exclusive and perpetual right to use
certain trade names, copyrights, logos, trademarks and other intangible
property related to Classics Illustrated and Classics Illustrated
Juniors. The Company is obligated to remit royalties ranging from 3
percent to 10 percent, with a minimum of $3,000 per annum, of revenues
derived from such rights.
The Company has also entered into several licensing agreements
with other organizations granting rights to produce publications and
for the use of the Classics Illustrated name in return for royalties
over the term of such agreements.
F-11
<PAGE>
12. LITIGATION
In July 1994, the Company discharged for cause, four officers
of its Dream Factory subsidiary. The officers who were discharged
commenced an action against the Company seeking $19,000,000 arising
out of the alleged wrongful termination of their employment. Prior to
1997 the Company settled the claims of two officers for $600,000 which
represented $2,000,000 of the original claim.
While the Company believes that it has good and sufficient
defenses and counterclaims in the foregoing legal matter, the Company
would be adversely affected to the extent of the damages recovered
should the plaintiffs prevail. No provision for any liability that may
result upon adjudication has been made in the accompanying consolidated
financial statements.
13. EXTRAORDINARY GAIN
In January 1998, Moondog's bankruptcy case was closed
resulting in the cancellation of liabilities of $218,515. The
transaction is reflected in the 1998 financial statements as an
extraordinary gain.
F-12
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
The sole Director of the Company is Richard S. Berger, age 66. He holds
office until the next annual meeting of stockholders or until their successors
are elected and qualified.
RICHARD S. BERGER has been Chairman of the Company's Board of Directors
since November 1992. Mr. Berger has previously been a self-employed business
consultant in various industries including: cable television, publishing,
production of animated movies and commercials, plastics manufacturing, machining
(tool and die companies), environmental companies (waste water treatment,
contaminated soil removal, and CFC removal), and retailing (niche retailing such
as Big & Tall men's stores, and pop culture stores). He is currently involved
with several high-technology and internet related entities.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
========================= ============ ============= ============== ============= ==================================================
LONG TERM COMPENSATION
-------------------------- ------------ ==========
ANNUAL COMPENSATION AWARDS PAYOUTS
========================= ------------ ------------- -------------- ------------- ------------- ------------ ------------ ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-term
Other Restricted Incentive All Other
NAME AND PRINCIPAL SALARY Annual Stock Options/ Plan Compen-
------ COMPEN-
POSITION YEAR ($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS ($) SATION
--------- ---- --- -------- --------- ----------- ------- ----------- ------
========================= ============ ============= ============== ============= ============= ============ ============ ==========
Richard S. Berger, 1998 $ 8,000 0 0 0 0 0 0
1997 $32,000 0 0 0 0 0 0
Chairman (1,2) 1996 $18,000 0 0 0 0 0
========================= ============ ============= ============== ============= ============= ============ ============ ==========
</TABLE>
(1) See also "Certain Relationships and Related Transactions."
(2) No cash compensation has been paid since July, 1996. The unpaid amount
has been accrued and is reflected in the December 31, 1998 financial statements.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
No options or stock appreciation rights were issued in the last fiscal
year, nor are any outstanding as of December 31, 1998.
EMPLOYEE BENEFIT PLANS
1992 EMPLOYEE STOCK OPTION PLAN
In November, 1992, the Company adopted the 1992 Employee Stock Option
Plan (the "Option Plan"). The Option Plan was amended in September, 1993 to
include additional options under the Option Plan. The Option Plan provides for
the grant of options to qualified employees (including officers and directors)
of the Company to purchase an aggregate of 1,000,000 shares of Common Stock. The
Option Plan is administered by the Board of Directors or a committee of the
Board of Directors (the "Option Committee") whose members are not entitled to
receive options under the Option Plan. The Option Committee has complete
discretion to select the optionee and to establish the terms and conditions of
each option, subject to the provisions of the Option Plan. Options granted under
the Option Plan may or may not be "incentive stock options" as defined in
Section 422 of the Code ("Incentive Options") depending upon the terms
established by the Option Committee at the time of grant, but the exercise price
of options may not be less than 100% of the fair market value of the Company's
Common Stock as of the date of grant (110% of the fair market value if the grant
is an Incentive Option to an employee who owns more than 10% of the outstanding
Common Stock). Options may not be exercised more than 10 years after the grant.
Options granted under the Option Plan are not transferable and may be exercised
only by the respective grantees during their lifetimes or by their heirs,
executors or administrators in the event of death. Under the Option Plan, shares
subject to cancelled or terminated options are reserved for subsequently granted
options. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. No options are outstanding
as of December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1998,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
shares of Common Stock, (ii) each Director, and (iii) all officers and Directors
as a group:
<TABLE>
<CAPTION>
<S> <C> <C>
================================================================== ------------------------ =======================
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
PERCENTAGE OF CLASS
================================================================== ------------------------ =======================
Richard S. Berger 6,516,667(2) 37.4%
1350 North Lake Shore Drive
#315 S.
Chicago, IL 60610
================================================================== ------------------------ =======================
Benjamin B. LeCompte III, M.D. 2,815,834(3) 16.2%
1575 N. Barrington, Suite 350
Hoffman Estates, IL 60194
================================================================== ------------------------ =======================
All officers and directors as a group (1 person) 6,516,667 37.4%
(1)(2)(3)
================================================================== ------------------------ =======================
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Excludes an aggregate of 91,665 shares owned by Mr. Berger's adult
children, as to which Mr. Berger has no beneficial interest.
(3) Excludes 412,500 shares of Series B, 9% cumulative, convertible,
redeemable Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is provided with office and administrative facilities under
an informal arrangement with a principal shareholder. Amounts charged to
operations for such services in 1998 and 1997 were $10,500 and $42,000,
respectively.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following financial statements of the Company are included
in Part II, Item 7:
PAGE
Index to Financial Statements F-1
Report of Independent Auditor F-2, F-3
Consolidated Balance Sheet F-4
December 31, 1998
Consolidated Statement of Operations - F-5
Years ended December 31, 1998 and 1997
Consolidated Statement of Stockholders'
Deficit - Years ended December 31, 1998 and 1997 F-6
Consolidated Statement of Cash Flows -
Years ended December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-13
Year ended December 31, 1998
2. FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's Registration Statement on
Form SB-2, File No. 33-62762, and on previous Forms 10-KSB, and pursuant to 17
C.F.R. Sections 201.24 and 240.12b-32, are incorporated by reference to the
document referenced in brackets following the description of such exhibits.
4. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31,
1998.
<PAGE>
EXHIBIT NO. DESCRIPTION
*2.1 Agreement between Classics International Entertainment, Inc. and First
Publishing, Inc. for the acquisition of First Classics, Inc. dated
January 1, 1994.
*2.1.1 Agreement between Classics International Entertainment, Inc. and
Vulcanium Designs Corporation for the sale of First Publishing, Inc.
dated December 31, 1994.
*3.1 Certificate of Incorporation of the Registrant (Exhibit 3.1 to
Registration Statement on Form SB-2, File No. 33-62762)
*3.1.1 Certificate of Designation of Series A Preferred Stock
*3.2 By-Laws of the Registrant (Exhibit 3.2 to Registration Statement on
Form SB-2, File No. 33-62762)
*3.3 Amendment to By-Laws of Registrant (Exhibit 3.3 to Registration
Statement on Form SB-2, File No. 33-62762)
*3.4 Amended and Restated By-Laws (Exhibit 3.4 to Registration Statement on
Form SB-2, File No. 33-62762)
*4.1 Form of Underwriter's Warrants issued to the Underwriter (Exhibit 4.1
to Registration Statement on Form SB-2, File No. 33-62762)
*4.2 Form of Warrant (Exhibit 4.2 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.1 Agreement and Plan of Merger among the Registrant, First Publishing,
Inc. and FP Acquisition Corp. dated December 31, 1992 (Exhibit 10.1 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.2 Stock Purchase Agreement by and among Michael Raub, Lori Raub, Domenic
Corbo, James Percival, Jr., Mike Gold, Ken Levin, Dream Factory Inc.
and the Registrant dated December 31, 1992 (Exhibit 10.2 to
Registration Statement on Form SB-2, File No.33-62762)
*10.3 Amendment to Stock Purchase Agreement by and among Michael Raub, Lori
Raub, Domenic Corbo, James Percival, Jr., Mike Gold, Ken Levin, Dream
Factory, Inc. and the Registrant dated May 10, 1993 (Exhibit 10.3 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.4 Stock Purchase Agreement by and among the Registrant, Classics Media
Group, Ltd. and Classics Media Group, Inc. dated December 31, 1992
(Exhibit 10.4 to Registration Statement on Form SB-2, File No.
33-62762)
*10.5 Option Assignment between the Registrant and JLI Acquisitions,Inc.
dated December 31, 1992 (Exhibit 10.5 to Registration Statement on
Form SB-2, File No. 33-62762)
*10.6 Employment Agreement between the Registrant, Dream Factory, Inc. and
Michael Raub dated May 10, 1993 (Exhibit 10.6 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.7 Employment Agreement between the Registrant, Dream Factory, Inc. and
Lori Raub dated May 10, 1993 (Exhibit 10.7 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.8 Employment Agreement between the Registrant, Dream Factory, Inc. and
Domenic Corbo dated May 10, 1993 (Exhibit 10.8 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.9 Employment Agreement between the Registrant, Dream Factory, Inc. and
James Percival, Jr. dated May 10, 1993 (Exhibit 10.8 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.10 Employment Agreement between the Registrant, Dream Factory, Inc. and
Mike Gold dated May 10, 1993 (Exhibit 10.10 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.11 Consulting Agreement between the Registrant, Dream Factory, Inc. and
Kenneth Levin dated May 10, 1993 (Exhibit 10.11 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.12 License Agreement, as amended, by and among Berkley Publishing
Corporation, First Publishing, Inc., Classics Media Group, Inc. and
Frawley Corporation dated as of December 30, 1988 (Exhibit 10.12 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.13 Letter dated December 15, 1989 from Frawley Corporation consenting to
assignment of License Agreement from First Publishing, Inc. to First
Classics, Inc. (Exhibit 10.13 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.14 Letters dated December 30, 1988 from Frawley Corporation clarifying
terms of License Agreement (Exhibit 10.14 to Registration Statement on
Form SB-2, File No. 33-62762)
*10.15 Lease Agreement between 575 Boston Post Road Associates and Michael
and Lori Raub D/B/A Dream Factory dated September 14, 1987 (Exhibit
10.15 to Registration Statement on Form SB-2, File No. 33-62762)
*10.16 Lease Agreement between Vincent Gagliardi and Russell A. McDaniel and
Louis Wysocki dated April 28, 1989 (Exhibit 10.16 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.17 Indenture of Lease between Jora Realty Assoc., Michael Raub, Lori
Raub, James Percival and Mary Susan Percival dated October 18, 1989
(Exhibit 10.17 to Registration Statement on Form SB-2, File No.
33-62762)
*10.18 Lease Agreement between Fyber Properties Broadriver Corner Limited
Partnership and Mike Raub dated June 20, 1990 (Exhibit 10.18 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.19 Lease between Connecticut Post Limited Partnership and Dream Factory,
Inc. dated February 13, 1992 (Exhibit 10.19 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.20 Lease between Westland Properties, Inc. and Dream Factory, Inc. dated
February 13, 1992 (Exhibit 10.20 to Registration Statement on Form
SB-2, File No. 33-62762)
*10.21 Lease between Muller Park Realty Company and Dream Factory, Inc. dated
March 1, 1993 (Exhibit 20.21 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.22 Registrant's 1992 Employee Stock Option Plan (Exhibit 10.22 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.23 License Agreement between National Audubon Society, Inc. and First
Publishing, Inc. dated August 1, 1991 (Exhibit 10.23 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.24 License Agreement between Dark Horse Comics, Inc. and First
Publishing, Inc. dated November 1, 1992 (Exhibit 10.24 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.25 Agreement between Dark Horse Comics, Inc. and First Publishing, Inc.
July 1, 1991 (Exhibit 10.25 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.26 Employment Agreement between Registrant, First Publishing, Inc. and
Mike Gold dated May 10, 1993 (Exhibit 10.26 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.27 Form of Financial Consulting Agreement between the Company and
Berkeley Securities Corporation (Exhibit 10.27 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.28 Employment Agreement between the Registrant and Geoffrey Talbot
(Exhibit 10.28 to Registration Statement on Form SB-2, File No.
33-62762)
*10.29 Employment Agreement between Registrant and Peter Cooper (Exhibit
10.29 to Registration Statement on Form SB-2, File No. 33-62762)
*10.30 Sublease between the Registrant and American Dental Assistants
Association dated July 1, 1993 (Exhibit 10.30 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.31 Modification to Amended Stock Purchase Agreement by and among Michael
Raub, Lori Raub, Domenic Corbo, James Percival, Jr., Mike Gold, Ken
Levin, Dream Factory, Inc. and the Registrant dated September 28,
1993.
*10.32 Letter Agreement by and among Michael Raub, Lori Raub, Domenic Corbo,
James Percival, Jr., Mike Gold, Ken Levin, Dream Factory, Inc., First
Publishing, Inc. and the Company dated September 28, 1993 (Exhibit
10.32 to Registration Statement on Form SB-2, File No. 33-62762)
*10.33 Lease between Madison Square Associates, L.P. and Dream Factory Inc.
dated November 22, 1993.
*10.34 Lease between Spring Valley Marketplace Shopping Center and Dream
Factory, Inc. dated November 30, 1993.
*10.35 Lease between Meadow Park Associates and Dream Factory, Inc. dated
December, 1993.
*10.36 Lease between Gilbert Bassin and The Dream Factory dated December 15,
1993.
*10.37 Lease between Paragano Associates, L.P. and The Dream Factory, Inc.
dated February 7, 1994.
*10.38 Lease between Danbury Mall Associates Limited Partnership and Dream
Factory, Inc. dated March 18, 1994.
*10.39 Lease between Albert B. Ratner Trustee and Dream Factory, Inc. dated
March 28, 1994.
*10.40 Lease between Sara Creek Property Company B.V. and Dream Factory Inc.
dated March 25, 1994.
*10.41 Lease between Meadowbrook Development Corp. and Dream Factory, Inc.
dated February 18, 1994.
*10.42 Lease between Gandol Realty Corporation and Dream Factory Inc. on or
about January 1, 1994.
*10.43 Lease between Chicago Title and Trust Company and Dream Factory, Inc.
dated June 15, 1994.
*22.1 Subsidiaries of the Registrant (Exhibit 22.1 to Registration Statement
on Form SB-2, File No. 33-62762)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CLASSICS INTERNATIONAL
ENTERTAINMENT, INC.
BY \S\Richard S. Berger
Richard S. Berger
Sole Director, and
Principal Accounting Officer
Dated: November 4, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
NAME AND POSITION DATE
November 4, 1999
\S\Richard S. Berger
Richard S. Berger
Sole Director, and
Principal Accounting Officer
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
(Mark One)
+---+ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| X | SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
+---+
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
+---+
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
+---+ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ________________
Commission File No. 0-20190
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3859518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 North Michigan Avenue, Chicago, IL, 60611
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 664-7852
------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
TITLE OF EACH CLASS WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
<PAGE>
Check whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES NO X
Check if there is no 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.
The Issuer's revenues for its most recent fiscal year ended
December 31, 1998 were $0.
On October 29, 1999, the aggregate market value of the voting
stock of Classics International Entertainment, Inc. (consisting of Common Stock,
$.001 par value) held by non-affiliates of the Registrant was approximately
$9,104,500 (includes all shares) based on the average closing bid and asked
prices for such Common Stock on said date as reported by NASDAQ.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
On October 29, 1999, there were 17,378,916 shares of Common
Stock, $.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
--------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
Classics International Entertainment, Inc. (the "Company") was
incorporated under the laws of the State of Delaware on November 20, 1992. The
Company had four subsidiaries: Moondog's, Inc., which on August 5, 1997, filed
for protection under Chapter 7 of the Bankruptcy laws; Dream Factory, Inc.,
which on May 2, 1996, filed for protection under Chapter 7 of the Bankruptcy
Laws; First Classics, Inc., the holder of a license for the exclusive use of the
Classics Illustrated copyrights, trade names and other intangibles, excluding
non-print media rights; and Classics Media Group, Inc., the exclusive licensee
of the Classics Illustrated properties for non-print media purposes. The Dream
Factory, Inc. and Moondog's, Inc. Bankruptcy cases were brought to closure in
September, 1996 and January, 1998, respectively.
GENERAL BUSINESS DEVELOPMENTS DURING LAST FISCAL YEAR
The company essentially has been a non-operating entity since it
discontinued its operations at the end of 1996.
FIRST CLASSICS
First Classics acquired the exclusive license for the use and
republication of the original library of 169 Classics Illustrated graphic novels
and 76 Classics Illustrated Juniors graphic novels in 1988. First Classics also
has the exclusive rights to create new versions of Classics Illustrated and
Classics Illustrated Juniors publications. A graphic novel combines storytelling
in a format which is more complex than that found in comic books and is
accompanied by sophisticated art work in the style of a comic strip. Graphic
novels contain a single continuous story and generally range in length from 48
to 64 pages.
FRAWLEY LICENSE AGREEMENT
In December 1988, First Publishing, a former subsidiary of the Company,
Classics Media and Berkley Publishing Corporation ("Berkley") (collectively, the
"Licensees") entered into an exclusive License Agreement (the "License
Agreement") with Frawley Corporation ("Frawley"). In 1989, the rights of First
Publishing under the License Agreement were assigned to First Classics,
currently a wholly owned subsidiary of the Company. The rights of Berkley under
the License Agreement were assigned to First Classics in 1991. The License
Agreement gives the Licensee(s) the exclusive and perpetual right to use certain
copyrights, trademarks, trade names and other intangible property related to
Classics Illustrated and Classics Illustrated Juniors (the "Property") owned by
Frawley in exchange for royalty payments ranging from three percent (3%) to ten
percent (10%) of the revenues derived from use of the Property by the Licensees.
Since the inception of the License Agreement in December 1988, the Licensees
have paid royalties to Frawley in excess of $95,000. The License Agreement
requires the Licensees to make minimum annual payments of $3,000 in order for
the license to remain in full force and effect. The next minimum payment is due
in December, 1999.
RECENT DEVELOPMENTS
The Company announced in September 1999 tht it had entered into a letter
of understanding to merge with Zideo.com, Inc. ("Zideo"), a wholly owned
subsidiary of DigiByte corporation. Zideo has developed a "player" which plays
all forms of digital entertainment media over the Internet. Zideo is also
developing a handheld version of the player for use with other forms of
entertainment. The merger is subject to various conditions including the
negotiation and execution of a definitive agreement and various other compliance
and regulatory issues. The Company is also required to settle all outstanding
liabilities prior to the merger. Accordingly, there can be no assurance that the
Company will complete any transaction with Zideo.
COMPETITION
There currently is only a minimal market for the Company's products.
EMPLOYEES
The Company currently has no employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's offices are located at 919 North Michigan Avenue,
Chicago, IL, 60611
ITEM 3. LEGAL PROCEEDINGS
In July, 1994, the Company discharged for cause, four officers of its Dream
Factory subsidiary. The officers who were discharged commenced an action against
the Company seeking approximately $19,000,000 arising out of the alleged
wrongful termination of their employment. The Company subsequently settled the
claims of two of these four officers in return for a payment obligation of
$600,000, which represented approximately $2,000,000 of the original claim.
While the Company believes that it has good and sufficient defenses and
counter claims in the forgoing legal matter, the Company would be adversely
affected to the extent of the damages recovered should the plaintiffs prevail.
However, the ultimate outcome of the litigation cannot presently be determined.
Accordingly, excepting for having previously recorded the $600,000 settlement,
no additional provision for any liability that may result upon adjudication has
been made in the accompanying consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET
Upon the effectiveness of the Company's initial public offering on
October 19, 1993, the Company's Common Stock commenced trading in the
over-the-counter market and listed on the Small Cap Market of the NASDAQ Stock
Market ("NASDAQ") under the symbol "CIEI." Effective June 30, 1996, the company
was delisted, and has subsequently traded on the NASDAQ bulletin board.
Effective September 20, 1999, the Company was notified by NASDAQ of a potential
delisting from the bulletin board due to non-filing of required reports. Since
September 23, 1999 the Company's stock has traded under the symbol "CIEIE." The
following is the range of high and low bid prices for the Company's stock for
the periods indicated below:
COMMON STOCK HIGH LOW
Fiscal Year 1997:
1st Quarter .22 .06
2nd Quarter .105 .05
3rd Quarter .07 .06
4th Quarter .08 .04
Fiscal Year 1998:
1st Quarter .04 .03
2nd Quarter .03 .02
3rd Quarter .02 .01
4th Quarter .01 .005
Fiscal Year 1999:
1st Quarter .29 .005
2nd Quarter .235 .16
3rd Quarter .71 .07
The above quotations represent prices between dealers; do not include
retail mark-ups, mark-downs, or commissions; and do not necessarily represent
actual transactions.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The approximate number of record holders of the Company's Common Stock
is 172. Such number of record owners was determined from the Company's
stockholder records, and does not include beneficial owners of the Company's
Common Stock whose shares are held in the names of various security holders,
dealers and clearing agencies. The Company believes there are more than 2,100
beneficial holders of the Company's Common Stock.
To date, the Company has not paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. Future profits,
if any, will be used to fund the growth of the business.
To date, the Company has paid $138,375 of dividends on the Series A
preferred stock, however, the amounts which were due for the quarter ended
December 31, 1995, and all subsequent amounts have not yet been declared or
paid, nor have any amounts to date relating to the Series B and C preferred
stock been declared or paid.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and the Notes thereto appearing in this report.
BUSINESS
Since 1996, the Company has essentially been a non-operating entity
with no business activity conducted through its Classics Media Group subsidiary,
and only minimal business activity conducted through its First Classics, Inc.
subsidiary.
The value of the Company is driven by its being a pubic "shell," with a
substantial tax loss carry-forward, a substantial number of shareholders and in
excess of 20 market makers.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
LOSS FROM CONTINUING OPERATIONS
The Company discontinued its operations at the end of 1996 Accordingly,
no losses from continuing operations were reportable in the years ended
December 31, 1998 and 1997.
LOSS FROM DISCONTINUED OPERATIONS
The loss from discontinued operations was $21,882 for the year ended
December 31, 1998 and $251,197 for the year ended December 31, 1997.
EXTRAORDINARY GAIN - CANCELLATION OF DEBT
The extraordinary gain resulting from the cancellation of debt was
$218,515 for the year ended December 31, 1998 compared to no such gain for the
year ended December 31, 1997.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
Net income applicable to common stock was $32,833 for the year ended
December 31, 1998 compared to a net loss of $414,997 for the year ended December
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the company had working capital and total
capital deficiencies of $2,438,970.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS F-1
INDEPENDENT AUDITORS' REPORT F-2 - F-3
CONSOLIDATED BALANCE SHEET F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Classics International Entertainment, Inc.
and Subsidiaries
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of
Classics International Entertainment, Inc. and Subsidiaries as of December 31,
1998 and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects the financial position of Classics
International Entertainment Inc. and Subsidiaries as of December 31, 1998 and
the results of their operations and cash flows for the years ended December 31,
1998 and 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company incurred significant operating losses
of $22,000 and $251,000 in 1998 and 1997, respectively. Additionally, the
Company has working capital and total capital deficiencies in excess of
$2,400,000 each at December 31, 1998. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters are also described in Note 2 to the financial
statements.
F-2
<PAGE>
The accompanying financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
As discussed in Note 12 to the consolidated financial
statements, the Company is a defendant in litigation relating to an action
brought by former corporate officers alleging wrongful termination of their
employment contracts. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result upon
adjudication has been made in the accompanying consolidated financial
statements.
\S\ Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York , NY
October 27, 1999
F-3
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS $ 0
OTHER ASSETS 0
-----------------
$ 0
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,414,511
Dividends payable 488,850
Accrued liabilities 333,764
Stockholder loans and other notes payable 201,845
-----------------
TOTAL CURRENT LIABILITIES 2,438,970
-----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock $ 2,012,488
Common stock, $.001 par value, 30,000,000
Shares authorized; 17,378,916 shares issued 17,379
and outstanding
Additional paid-in capital 12,493,490
Stock subscription receivable (44,500)
Accumulated deficit (16,917,827)
-----------------
TOTAL STOCKHOLDERS' DEFICIT (2,438,970)
-----------------
$ 0
See notes to the consolidated financial statements
F-4
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997
--------------- ----------------
Loss from continuing operations $ 0 $ 0
Loss from discontinued operations (21,882) (251,197)
--------------- ----------------
Loss before extraordinary gain (21,882) (251,197)
Extraordinary gain - cancellation of debt 218,515 0
--------------- ----------------
Net income (loss) 196,633 (251,197)
Preferred stock dividends (163,800) (163,800)
--------------- ----------------
Net income (loss) applicable
to common stock $ 32,833 $ (414,997)
=============== ================
Basic and Diluted Income (Loss) Per Common Share:
Loss from continuing operations $ 0 $ 0
Loss from discontinued operations 0 (0.01)
Extraordinary gain 0.01 0
Preferred stock dividends (0.01) (0.01)
--------------- ----------------
Net income (loss) per common
share - basic and diluted $ 0 $ (0.02)
=============== ================
Average common shares outstanding 17,378,916 17,378,916
=============== ================
F-5
See notes to the consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Additional
Preferred Common Stock Paid-in Subscription Accumulated
Stock Shares Amount Capital Receivable Deficit Total
-------------- ---------- --------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 $ 2,012,488 17,378,916 $ 17,379 $ 12,493,490 $ (44,500) $ (16,535,663) $ (2,056,806)
Preferred dividends (163,800) (163,800)
Net loss (251,197) (251,197)
-------------- ---------- --------- -------------- ----------- ------------- -------------
BALANCE - DECEMBER 31, 1997 2,012,488 17,378,916 17,379 12,493,490 (44,500) (16,950,660) (2,471,803)
Preferred dividends (163,800) (163,800)
Net loss 196,633 196,633
-------------- ---------- --------- -------------- ----------- ------------- -------------
BALANCE - DECEMBER 31, 1998 $ 2,012,488 17,378,916 $ 17,379 $ 12,493,490 $ (44,500) $ (16,917,827) $ (2,438,970)
============== ========== ========= ============== =========== ============= =============
</TABLE>
F-6
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 196,633 $ (251,197)
Adjustments to reconcile net income
(loss) to net cash used in operations:
Loss from discontinued operations 21,882 251,197
Extraordinary gain - cancellation of debt (218,515)
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES 0 0
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES: 0 0
CASH FLOWS FROM FINANCING ACTIVITIES: 0 0
NET DECREASE IN CASH 0 0
CASH AT BEGINNING OF YEAR 0 0
------------ -------------
CASH AT END OF YEAR $ 0 $ 0
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest
and income taxes 0 0
============ =============
F-7
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. THE COMPANY
Classics International Entertainment, Inc. (the "Company")
was incorporated in Delaware on November 20, 1992. On December 31,
1992, the Company acquired Dream Factory, Inc. ("Dream Factory"),
First Classics, Inc. ("First Classics") and Classics Media Group, Inc.
("Classics Media"). On April 11, 1997, the Company acquired the
business and certain assets of Moondog's Inc. ("Moondog's") .
As of December 31, 1995, Dream Factory and Moondog's owned and
operated eleven retail stores and four departments which specialized in
the sale of pop culture wares. First Classics currently holds the
license in perpetuity for the exclusive use of the Classics Illustrated
copyrights, trade names and other intangibles excluding media rights.
Classics Media is the exclusive licensee of the Classics Illustrated
trademarks for non-print media.
In January 1996, nine of the retail stores were closed. The
Company discontinued its operations at the end of 1996. In May 1996,
Dream Factory filed for protection under Chapter 7 of the Bankruptcy
Act; Moondog's followed suit in August, 1997. The respective cases of
the above entities were brought to closure in September 1996 and
January 1998.
2. GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
incurred operating losses of $22,000 and $251,000 in 1998 and 1997,
respectively. Additionally, the Company had working capital and total
capital deficiencies of $2,400,000 each at December 31, 1998. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with respect to these
matters include restructuring its existing debt, raising additional
capital through future issuances of stock and debentures and ultimately
acquiring a viable business. The accompanying financial statements do
not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
F-8
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
B. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and disclosure of
contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
C. NET INCOME (LOSS) PER SHARE - Basic earnings (loss) per share was
computed using the weighted average number of shares of
outstanding common stock. Diluted per share amounts when
applicable also include the effect of dilutive common stock
equivalents from the assumed exercise of stock options.
D. INCOME TAXES - Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
4. ACCRUED LIABILITIES
At December 31, 1998, accrued liabilities consisted of the
following:
Consulting fees ........................................ $134,583
Interest ............................................... 100,710
OTHER .................................................. 98,471
---------
$333,764
=========
F-9
<PAGE>
5. STOCKHOLDER LOANS AND OTHER NOTES PAYABLE
At December 31, 1998, stockholder loans and other notes
payable consisted of the following:
Stockholder loans, interest free, unsecured and
payable on demand ............................................. $ 59,845
Notes payable with interest at 12% per annum,
unsecured and payable on demand ............................... 142,000
----------
$201,845
==========
6. PREFERRED STOCK
At December 31, 1998, Preferred Stock consisted of 5,000,000
authorized shares of $.001 par value of which the following were issued
and outstanding:
Common Shares
Issuable on
AMOUNT CONVERSION
------- ----------
Series A, 9% cumulative, convertible, redeemable;
220,000 shares issued and outstanding $1,100,000 220,000
Series B, 9% cumulative, convertible, redeemable;
412,500 shares issued and outstanding 529,988 577,400
Series C, 4% cumulative, convertible, redeemable;
500 shares issued and outstanding 382,500 1,142,857
------- ---------
$2,012,488 1,940,257
========= =========
7. COMMON STOCK
At December 31, 1998, the Company had common stock reserved of
5,333,114 common shares for issuance upon exercise of 3,392,857
outstanding common stock warrants and the balance for the
conversion of Preferred Stock.
8. EMPLOYEE STOCK OPTION PLAN
In November 1992, the Company adopted the 1992 Employee Stock
Option Plan (the "Option Plan"). The Option Plan provides for the grant
of options to qualified employees (including officers and directors) of
the Company to purchase an aggregate of 1,000,000 shares of Common
Stock. The Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Option Committee") whose
members are not entitled to receive options under the Option Plan. The
Option Committee has complete discretion to select the optionee and to
establish the terms and conditions of each option, subject to the
provisions of the Option Plan. Options granted under the Option Plan
may or may not be "incentive stock options" as defined in Section 422
of the Code ("Incentive Options") depending upon the terms established
by the Option Committee at the time of grant, but the exercise price of
options may not be less than 100% of the fair market value of the
Company's Common Stock as of the date of grant (110% of the fair market
value if the grant is an Incentive Option to an employee who owns more
than 10% of the outstanding Common Stock). Options may not be exercised
more than ten years after the grant. Options granted under the Option
Plan are not transferrable and may be exercised only by the respective
grantees during their lifetimes or by their heirs, executors or
administrators in the event of death. Under the Option Plan, shares
subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. No options are outstanding as of December 31, 1998.
9. INCOME TAXES
The following is a reconciliation of income taxes and amounts
computed using the U.S. Federal statutory rate and the effective tax
rate for the years ended December 31, 1998 and 1997:
1998 1997
--------- ---------
CONSOLIDATED PRE-TAX GAIN (LOSS) ...... $ 197,000 $(251,000)
========= =========
Tax (benefit) at Federal statutory rate 69,000 $ (88,000)
Effect of permanent differences ....... -- --
Effect of temporary differences ....... 6,000 26,000
Tax benefit not recognized ............ (75,000) 62,000
--------- ---------
TAXES PER FINANCIAL STATEMENTS ........ $ -- $ --
========== ==========
F-10
<PAGE>
9. INCOME TAXES (CONTINUED)
The Company has adopted Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this standard,
the Company records as an asset its net operating loss carryforward
("NOL") based upon current tax returns, and establishes a valuation
allowance to the extent of any NOL which will not be utilized in the
foreseeable future.
At this time, the Company can not reliably predict future
profitability. Accordingly, the deferred tax asset has been reduced in
its entirety by the valuation allowance.
As of December 31, 1998, the Company had net operating loss
carry forwards of approximately $14,000,000 expiring beginning in the
year 2007. A significant portion of these carry forwards are subject to
limitations on annual utilization due to "equity structure shifts" or
"owner shifts" involving "5 percent stockholders" (as defined in the
Internal Revenue Code), which resulted in more than a 50 percent change
in ownership.
10. RELATED PARTY TRANSACTIONS
The Company is provided with office and administrative
facilities under an informal arrangement with a principal shareholder.
Amounts charged to operations for such services in 1998 and 1997 were
$10,500 and $42,000, respectively.
11. LICENSE AGREEMENTS
The Company has the exclusive and perpetual right to use
certain trade names, copyrights, logos, trademarks and other intangible
property related to Classics Illustrated and Classics Illustrated
Juniors. The Company is obligated to remit royalties ranging from 3
percent to 10 percent, with a minimum of $3,000 per annum, of revenues
derived from such rights.
The Company has also entered into several licensing agreements
with other organizations granting rights to produce publications and
for the use of the Classics Illustrated name in return for royalties
over the term of such agreements.
F-11
<PAGE>
12. LITIGATION
In July 1994, the Company discharged for cause, four officers
of its Dream Factory subsidiary. The officers who were discharged
commenced an action against the Company seeking $19,000,000 arising
out of the alleged wrongful termination of their employment. Prior to
1997 the Company settled the claims of two officers for $600,000 which
represented $2,000,000 of the original claim.
While the Company believes that it has good and sufficient
defenses and counterclaims in the foregoing legal matter, the Company
would be adversely affected to the extent of the damages recovered
should the plaintiffs prevail. No provision for any liability that may
result upon adjudication has been made in the accompanying consolidated
financial statements.
13. EXTRAORDINARY GAIN
In January 1998, Moondog's bankruptcy case was closed
resulting in the cancellation of liabilities of $218,515. The
transaction is reflected in the 1998 financial statements as an
extraordinary gain.
F-12
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
The sole Director of the Company is Richard S. Berger, age 66. He holds
office until the next annual meeting of stockholders or until their successors
are elected and qualified.
RICHARD S. BERGER has been Chairman of the Company's Board of Directors
since November 1992. Mr. Berger has previously been a self-employed business
consultant in various industries including: cable television, publishing,
production of animated movies and commercials, plastics manufacturing, machining
(tool and die companies), environmental companies (waste water treatment,
contaminated soil removal, and CFC removal), and retailing (niche retailing such
as Big & Tall men's stores, and pop culture stores). He is currently involved
with several high-technology and internet related entities.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
========================= ============ ============= ============== ============= ==================================================
LONG TERM COMPENSATION
-------------------------- ------------ ==========
ANNUAL COMPENSATION AWARDS PAYOUTS
========================= ------------ ------------- -------------- ------------- ------------- ------------ ------------ ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-term
Other Restricted Incentive All Other
NAME AND PRINCIPAL SALARY Annual Stock Options/ Plan Compen-
------ COMPEN-
POSITION YEAR ($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS ($) SATION
--------- ---- --- -------- --------- ----------- ------- ----------- ------
========================= ============ ============= ============== ============= ============= ============ ============ ==========
Richard S. Berger, 1998 $ 8,000 0 0 0 0 0 0
1997 $32,000 0 0 0 0 0 0
Chairman (1,2) 1996 $18,000 0 0 0 0 0
========================= ============ ============= ============== ============= ============= ============ ============ ==========
</TABLE>
(1) See also "Certain Relationships and Related Transactions."
(2) No cash compensation has been paid since July, 1996. The unpaid amount
has been accrued and is reflected in the December 31, 1998 financial statements.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
No options or stock appreciation rights were issued in the last fiscal
year, nor are any outstanding as of December 31, 1998.
EMPLOYEE BENEFIT PLANS
1992 EMPLOYEE STOCK OPTION PLAN
In November, 1992, the Company adopted the 1992 Employee Stock Option
Plan (the "Option Plan"). The Option Plan was amended in September, 1993 to
include additional options under the Option Plan. The Option Plan provides for
the grant of options to qualified employees (including officers and directors)
of the Company to purchase an aggregate of 1,000,000 shares of Common Stock. The
Option Plan is administered by the Board of Directors or a committee of the
Board of Directors (the "Option Committee") whose members are not entitled to
receive options under the Option Plan. The Option Committee has complete
discretion to select the optionee and to establish the terms and conditions of
each option, subject to the provisions of the Option Plan. Options granted under
the Option Plan may or may not be "incentive stock options" as defined in
Section 422 of the Code ("Incentive Options") depending upon the terms
established by the Option Committee at the time of grant, but the exercise price
of options may not be less than 100% of the fair market value of the Company's
Common Stock as of the date of grant (110% of the fair market value if the grant
is an Incentive Option to an employee who owns more than 10% of the outstanding
Common Stock). Options may not be exercised more than 10 years after the grant.
Options granted under the Option Plan are not transferable and may be exercised
only by the respective grantees during their lifetimes or by their heirs,
executors or administrators in the event of death. Under the Option Plan, shares
subject to cancelled or terminated options are reserved for subsequently granted
options. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. No options are outstanding
as of December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1998,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
shares of Common Stock, (ii) each Director, and (iii) all officers and Directors
as a group:
<TABLE>
<CAPTION>
<S> <C> <C>
================================================================== ------------------------ =======================
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
PERCENTAGE OF CLASS
================================================================== ------------------------ =======================
Richard S. Berger 6,516,667(2) 37.4%
1350 North Lake Shore Drive
#315 S.
Chicago, IL 60610
================================================================== ------------------------ =======================
Benjamin B. LeCompte III, M.D. 2,815,834(3) 16.2%
1575 N. Barrington, Suite 350
Hoffman Estates, IL 60194
================================================================== ------------------------ =======================
All officers and directors as a group (1 person) 6,516,667 37.4%
(1)(2)(3)
================================================================== ------------------------ =======================
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Excludes an aggregate of 91,665 shares owned by Mr. Berger's adult
children, as to which Mr. Berger has no beneficial interest.
(3) Excludes 412,500 shares of Series B, 9% cumulative, convertible,
redeemable Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is provided with office and administrative facilities under
an informal arrangement with a principal shareholder. Amounts charged to
operations for such services in 1998 and 1997 were $10,500 and $42,000,
respectively.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following financial statements of the Company are included
in Part II, Item 7:
PAGE
Index to Financial Statements F-1
Report of Independent Auditor F-2, F-3
Consolidated Balance Sheet F-4
December 31, 1998
Consolidated Statement of Operations - F-5
Years ended December 31, 1998 and 1997
Consolidated Statement of Stockholders'
Deficit - Years ended December 31, 1998 and 1997 F-6
Consolidated Statement of Cash Flows -
Years ended December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-13
Year ended December 31, 1998
2. FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's Registration Statement on
Form SB-2, File No. 33-62762, and on previous Forms 10-KSB, and pursuant to 17
C.F.R. Sections 201.24 and 240.12b-32, are incorporated by reference to the
document referenced in brackets following the description of such exhibits.
4. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31,
1998.
<PAGE>
EXHIBIT NO. DESCRIPTION
*2.1 Agreement between Classics International Entertainment, Inc. and First
Publishing, Inc. for the acquisition of First Classics, Inc. dated
January 1, 1994.
*2.1.1 Agreement between Classics International Entertainment, Inc. and
Vulcanium Designs Corporation for the sale of First Publishing, Inc.
dated December 31, 1994.
*3.1 Certificate of Incorporation of the Registrant (Exhibit 3.1 to
Registration Statement on Form SB-2, File No. 33-62762)
*3.1.1 Certificate of Designation of Series A Preferred Stock
*3.2 By-Laws of the Registrant (Exhibit 3.2 to Registration Statement on
Form SB-2, File No. 33-62762)
*3.3 Amendment to By-Laws of Registrant (Exhibit 3.3 to Registration
Statement on Form SB-2, File No. 33-62762)
*3.4 Amended and Restated By-Laws (Exhibit 3.4 to Registration Statement on
Form SB-2, File No. 33-62762)
*4.1 Form of Underwriter's Warrants issued to the Underwriter (Exhibit 4.1
to Registration Statement on Form SB-2, File No. 33-62762)
*4.2 Form of Warrant (Exhibit 4.2 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.1 Agreement and Plan of Merger among the Registrant, First Publishing,
Inc. and FP Acquisition Corp. dated December 31, 1992 (Exhibit 10.1 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.2 Stock Purchase Agreement by and among Michael Raub, Lori Raub, Domenic
Corbo, James Percival, Jr., Mike Gold, Ken Levin, Dream Factory Inc.
and the Registrant dated December 31, 1992 (Exhibit 10.2 to
Registration Statement on Form SB-2, File No.33-62762)
*10.3 Amendment to Stock Purchase Agreement by and among Michael Raub, Lori
Raub, Domenic Corbo, James Percival, Jr., Mike Gold, Ken Levin, Dream
Factory, Inc. and the Registrant dated May 10, 1993 (Exhibit 10.3 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.4 Stock Purchase Agreement by and among the Registrant, Classics Media
Group, Ltd. and Classics Media Group, Inc. dated December 31, 1992
(Exhibit 10.4 to Registration Statement on Form SB-2, File No.
33-62762)
*10.5 Option Assignment between the Registrant and JLI Acquisitions,Inc.
dated December 31, 1992 (Exhibit 10.5 to Registration Statement on
Form SB-2, File No. 33-62762)
*10.6 Employment Agreement between the Registrant, Dream Factory, Inc. and
Michael Raub dated May 10, 1993 (Exhibit 10.6 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.7 Employment Agreement between the Registrant, Dream Factory, Inc. and
Lori Raub dated May 10, 1993 (Exhibit 10.7 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.8 Employment Agreement between the Registrant, Dream Factory, Inc. and
Domenic Corbo dated May 10, 1993 (Exhibit 10.8 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.9 Employment Agreement between the Registrant, Dream Factory, Inc. and
James Percival, Jr. dated May 10, 1993 (Exhibit 10.8 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.10 Employment Agreement between the Registrant, Dream Factory, Inc. and
Mike Gold dated May 10, 1993 (Exhibit 10.10 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.11 Consulting Agreement between the Registrant, Dream Factory, Inc. and
Kenneth Levin dated May 10, 1993 (Exhibit 10.11 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.12 License Agreement, as amended, by and among Berkley Publishing
Corporation, First Publishing, Inc., Classics Media Group, Inc. and
Frawley Corporation dated as of December 30, 1988 (Exhibit 10.12 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.13 Letter dated December 15, 1989 from Frawley Corporation consenting to
assignment of License Agreement from First Publishing, Inc. to First
Classics, Inc. (Exhibit 10.13 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.14 Letters dated December 30, 1988 from Frawley Corporation clarifying
terms of License Agreement (Exhibit 10.14 to Registration Statement on
Form SB-2, File No. 33-62762)
*10.15 Lease Agreement between 575 Boston Post Road Associates and Michael
and Lori Raub D/B/A Dream Factory dated September 14, 1987 (Exhibit
10.15 to Registration Statement on Form SB-2, File No. 33-62762)
*10.16 Lease Agreement between Vincent Gagliardi and Russell A. McDaniel and
Louis Wysocki dated April 28, 1989 (Exhibit 10.16 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.17 Indenture of Lease between Jora Realty Assoc., Michael Raub, Lori
Raub, James Percival and Mary Susan Percival dated October 18, 1989
(Exhibit 10.17 to Registration Statement on Form SB-2, File No.
33-62762)
*10.18 Lease Agreement between Fyber Properties Broadriver Corner Limited
Partnership and Mike Raub dated June 20, 1990 (Exhibit 10.18 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.19 Lease between Connecticut Post Limited Partnership and Dream Factory,
Inc. dated February 13, 1992 (Exhibit 10.19 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.20 Lease between Westland Properties, Inc. and Dream Factory, Inc. dated
February 13, 1992 (Exhibit 10.20 to Registration Statement on Form
SB-2, File No. 33-62762)
*10.21 Lease between Muller Park Realty Company and Dream Factory, Inc. dated
March 1, 1993 (Exhibit 20.21 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.22 Registrant's 1992 Employee Stock Option Plan (Exhibit 10.22 to
Registration Statement on Form SB-2, File No. 33-62762)
*10.23 License Agreement between National Audubon Society, Inc. and First
Publishing, Inc. dated August 1, 1991 (Exhibit 10.23 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.24 License Agreement between Dark Horse Comics, Inc. and First
Publishing, Inc. dated November 1, 1992 (Exhibit 10.24 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.25 Agreement between Dark Horse Comics, Inc. and First Publishing, Inc.
July 1, 1991 (Exhibit 10.25 to Registration Statement on Form SB-2,
File No. 33-62762)
*10.26 Employment Agreement between Registrant, First Publishing, Inc. and
Mike Gold dated May 10, 1993 (Exhibit 10.26 to Registration Statement
on Form SB-2, File No. 33-62762)
*10.27 Form of Financial Consulting Agreement between the Company and
Berkeley Securities Corporation (Exhibit 10.27 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.28 Employment Agreement between the Registrant and Geoffrey Talbot
(Exhibit 10.28 to Registration Statement on Form SB-2, File No.
33-62762)
*10.29 Employment Agreement between Registrant and Peter Cooper (Exhibit
10.29 to Registration Statement on Form SB-2, File No. 33-62762)
*10.30 Sublease between the Registrant and American Dental Assistants
Association dated July 1, 1993 (Exhibit 10.30 to Registration
Statement on Form SB-2, File No. 33-62762)
*10.31 Modification to Amended Stock Purchase Agreement by and among Michael
Raub, Lori Raub, Domenic Corbo, James Percival, Jr., Mike Gold, Ken
Levin, Dream Factory, Inc. and the Registrant dated September 28,
1993.
*10.32 Letter Agreement by and among Michael Raub, Lori Raub, Domenic Corbo,
James Percival, Jr., Mike Gold, Ken Levin, Dream Factory, Inc., First
Publishing, Inc. and the Company dated September 28, 1993 (Exhibit
10.32 to Registration Statement on Form SB-2, File No. 33-62762)
*10.33 Lease between Madison Square Associates, L.P. and Dream Factory Inc.
dated November 22, 1993.
*10.34 Lease between Spring Valley Marketplace Shopping Center and Dream
Factory, Inc. dated November 30, 1993.
*10.35 Lease between Meadow Park Associates and Dream Factory, Inc. dated
December, 1993.
*10.36 Lease between Gilbert Bassin and The Dream Factory dated December 15,
1993.
*10.37 Lease between Paragano Associates, L.P. and The Dream Factory, Inc.
dated February 7, 1994.
*10.38 Lease between Danbury Mall Associates Limited Partnership and Dream
Factory, Inc. dated March 18, 1994.
*10.39 Lease between Albert B. Ratner Trustee and Dream Factory, Inc. dated
March 28, 1994.
*10.40 Lease between Sara Creek Property Company B.V. and Dream Factory Inc.
dated March 25, 1994.
*10.41 Lease between Meadowbrook Development Corp. and Dream Factory, Inc.
dated February 18, 1994.
*10.42 Lease between Gandol Realty Corporation and Dream Factory Inc. on or
about January 1, 1994.
*10.43 Lease between Chicago Title and Trust Company and Dream Factory, Inc.
dated June 15, 1994.
*22.1 Subsidiaries of the Registrant (Exhibit 22.1 to Registration Statement
on Form SB-2, File No. 33-62762)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CLASSICS INTERNATIONAL
ENTERTAINMENT, INC.
BY \S\Richard S. Berger
Richard S. Berger
Sole Director, and
Principal Accounting Officer
Dated: November 4, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
NAME AND POSITION DATE
November 4, 1999
\S\Richard S. Berger
Richard S. Berger
Sole Director, and
Principal Accounting Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
+---+ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| X | SECURITIES EXCHANGE ACT OF 1934
+---+
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
OR
+---+
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
+---+ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ________________
Commission File No. 0-20190
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3859518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 NORTH MICHIGAN AVENUE, SUITE 3400, CHICAGO, IL 60611 (Address of
principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 482-9006
- -----------------------------------------------------------------
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of October 29, 1999 was 17,378,916 shares.
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
<TABLE>
<CAPTION>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER
1999 1998
(UNAUDITED)
---------------------- --------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS $ 0 $ 0
OTHER ASSETS 0 0
---------------------- --------------------
$ 0 $ 0
====================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,414,511 $ 1,414,511
Dividends payable 611,700 488,850
Accrued liabilities 355,085 333,764
Stockholder loans and other notes payable 201,845 201,845
---------------------- --------------------
TOTAL CURRENT LIABILITIES 2,583,141 2,438,970
---------------------- --------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock $ 2,012,488 $ 2,012,488
Common stock, $.001 par value, 30,000,000
shares authorized; 17,378,916 shares issued
and outstanding 17,379 17,379
Additional paid-in capital 12,493,490 12,493,490
Stock subscription receivable (44,500) (44,500)
Accumulated deficit (17,061,998) (16,917,827)
---------------------- --------------------
TOTAL STOCKHOLDERS' DEFICIT (2,583,141) (2,438,970)
====================== ====================
$ 0 $ 0
====================== ====================
</TABLE>
F-1
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss from continuing operations .................$ 0 $ 0 $ 0 $ 0
Loss from discontinued operations ............... (7,139) (4,345) (21,321) (38,685)
-------- -------- -------- --------
Loss before extraordinary gain .................. (7,139) (4,345) (21,321) (38,685)
Extraordinary gain - cancellation of debt ....... 0 0 0 218,515
-------- -------- -------- --------
Net income (loss) ............................... (7,139) (4,345) (21,321) 179,830
Preferred stock dividends ....................... (40,950) (40,950) (122,850) (122,850)
-------- -------- -------- --------
Net income (loss) applicable to common stock ....$ (48,089)$ (45,295) $ (144,171)$ 56,980
======== ======== ======== =========
Basic and Diluted Income (Loss) Per Common Share:
Loss from continuing operations .................$ 0.00 $ 0.00 $ 0.00 $ 0.00
Loss from discontinued operations ............... 0.00 0.00 0.00 0.00
Extraordinary gain .............................. 0.00 0.00 0.00 0.01
Preferred stock dividends ....................... 0.00 0.00 (0.01) (0.01)
-------- -------- -------- --------
Net income (loss) per common share
- basic and diluted ...........................$ 0.00 $ 0.00 $ (0.01) $ 0.00
======== ======== ======== =========
Average common shares outstanding ............... 17,378,916 17,378,916 17,378,916 17,378,916
======== ======== ======== =========
</TABLE>
F-2
See notes to consolidated financial statements
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...............................$ (21,321)$ 179,830
Adjustments to reconcile net income (loss) to net
cash used in operations:
Loss from discontinued operations .......... 21,321 38,685
Extraordinary gain - cancellation of debt .. 0 (218,515)
------- --------
NET CASH USED IN OPERATING ACTIVITIES .................. 0 0
CASH FLOWS FROM INVESTING ACTIVITIES: .................. 0 0
CASH FLOWS FROM FINANCING ACTIVITIES: .................. 0 0
NET DECREASE IN CASH ................................... 0 0
CASH AT BEGINNING OF YEAR .............................. 0 0
------- --------
CASH AT END OF YEAR ....................................$ 0 $ 0
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
------- --------
Cash paid during the year for interest and
income taxes .........................................$ 0 $ 0
======= ========
F-3
See notes to consolidated financial statements
<PAGE>
CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION:
Classics International Entertainment, Inc. (the "Company") was incorporated
under the laws of the State of Delaware on November 20, 1992. The Company had
four subsidiaries: Moondog's, Inc., which on August 5, 1997, filed for
protection under Chapter 7 of the Bankruptcy laws; Dream Factory, Inc., which on
May 2, 1996, filed for protection under Chapter 7 of the Bankruptcy Laws; First
Classics, Inc., the holder of a license for the exclusive use of the Classics
Illustrated copyrights, trade names and other intangibles, excluding non-print
media rights; and Classics Media Group, Inc., the exclusive licensee of the
Classics Illustrated properties for non-print media purposes. The Dream Factory,
Inc. and Moondog's, Inc. Bankruptcy cases were brought to closure in September,
1996 and January, 1998, respectively.
NOTE 2 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements reflect all adjustments which,
in the opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented.
The results of operations for any interim period are not necessarily indicative
of the results attainable for a full fiscal year.
The financial statements have been prepared on the basis that the Company will
continue as a going concern. The ongoing losses and working capital deficiency
raise substantial doubt about the Company's ability to continue as a going
concern. Continued existence is dependent upon the Company's ability to raise
additional equity capital or debt financing, neither of which can be assured.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
These statements have been prepared by the Company and are unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
omitted. As such, these financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
F-4
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
The Company ceased its operations at the end of 1996. Hence there are no losses
from continuing operations subsequent to 1996.
LOSS FROM DISCONTINUED OPERATIONS
The loss from discontinued operations was $38,685 for the nine months ended
September 30, 1998 versus a loss of $21,321 for the nine months ended September
30, 1999.
EXTRAORDINARY GAIN - CANCELLATION OF DEBT
The extraordinary gain resulting from the cancellation of debt was $218,515 for
the nine months ended September 30, 1998 compared to no such gain for the
quarter ended September, 1999.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
Net income applicable to common stock was $56,980 for the nine months ended
September 30, 1998 compared to a loss of $144,171 for the nine months ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the company had working capital and total capital
deficiencies of $2,438,970. As of September 30, 1999, the company had working
capital and total capital deficiencies of $2,583,141.
The ongoing losses and working capital deficiency raise substantial doubt about
the Company's ability to continue as a going concern. Continued existence is
dependent upon the Company's ability to raise additional equity capital or debt
financing, neither of which can be assured.
F-5
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In July, 1994, the Company discharged for cause, four officers of its Dream
Factory subsidiary. The officers who were discharged commenced an action against
the Company seeking approximately $19,000,000 arising out of the alleged
wrongful termination of their employment. The Company subsequently settled the
claims of two of these four officers in return for a payment obligation of
$600,000, which represented approximately $2,000,000 of the original claim.
While the Company believes that it has good and sufficient defenses and counter
claims in the forgoing legal matter, the Company would be adversely affected to
the extent of the damages recovered should the plaintiffs prevail. However, the
ultimate outcome of the litigation cannot presently be determined. Accordingly,
excepting for having previously recorded the $600,000 settlement, no additional
provision for any liability that may result upon adjudication has been made in
the accompanying consolidated financial statements.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) No Exhibits
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) 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.
Dated: November 4, 1999
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
BY:\s\Richard S. Berger
Richard S. Berger
Sole Director and Principal Accounting Officer
<PAGE>
Exhibit C
Certificate of Amendment
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
Classics International Entertainment, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members filed with the minutes of the Board,
adopted a resolution proposed and declaring advisable the following amendments
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Classics
Entertainment International, Inc. be amended by changing Article
"FIRST" thereof so that, as amended, said Articles "FIRST" and "FOURTH
(a)" shall be and read as follows:
"FIRST The name of the Corporation is PIRANHA, INC.";
"FOURTH (a)The Corporation is authorized to issue One Hundred
and Seven Million (107,000,000) shares of capital stock,
consisting of One Hundred Million (1,000,000) shares of Common
Stock, $.001 par value per share, and Five Million (5,000,000)
shares of Preferred Stock, $.001 par value (the "Preferred
Stock"), of which 1,000,000 shares have previously been
designated Series A 9% Cumulative Convertible Redeemable
Preferred Stock, 1,100,000 have previously been designated
Series B Cumulative Convertible Redeemable Preferred Stock and
2,000 shares have previously been designated Series D 4%
Cumulative Convertible Redeemable Preferred Stock.
All the shares of Common Stock, par value $.001 per share,
issued and outstanding as of the date of the filing of this
Certificate of Amendment of the Certificate of Incorporation
are hereby subject to a reverse stock split of its Common
Stock, whereby every 3.49 shares of issued and outstanding
shares of Common Stock (and it being understood that the
number of shares of Common Stock issuable upon exercise or
conversion of all issued and outstanding Preferred Stock,
options, warrants and
<PAGE>
convertible securities of every kind and all options under the
Company's Employee Stock Option Plan) shall equal 1 share of
Common Stock following the filing of this Certificate of
Amendment."
SECOND: That in lieu of a meeting and vote of stockholders, a majority
of the stockholders have given written consent to said amendment in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware and written notice of the adoption of the amendment has been given
as provided in Section 228 of the General Corporation Law of the State of
Delaware to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Classics International Entertainment, Inc. has
caused this certificate to be signed by its President and Secretary this __ day
of February, 2000.
CLASSICS INTERNATIONAL
ENTERTAINMENT, INC.
BY
Name:
Title:
BY
Name:
Title: Secretary
