SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 033-67536
AMERICAN DREAM ENTERTAINMENT, INC.
---------------------------------
(Exact name of registrant as specified in charter)
Minnesota 59-3169033
-------------------------- ---------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1800 East Sahara Avenue, Suite 107, Las Vegas, Nevada 89104
----------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (702) 734-7557
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Check whether the issuer (1) 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.
[ X ] Yes [ ] No
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ]
State issuer's revenues for its most recent reporting period May 31,
2000........$-0-.
Aggregate market value of the voting stock held by non-affiliates of the
registrant at May 31, 2000 was $76,857,310.
<PAGE>
FORM 10-KSB - Index
PART I
Page
----
Item 1. Description of Business ................................ 2
Item 2. Description of Property................................. 9
Item 3. Legal Proceedings....................................... 9
Item 4. Submission of Matters to a Vote of Security Holders..... 9
PART II
Item 5. Market of the Registrant's Securities and
Related Stockholder Matters............................ 10
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 11
Item 7. Financial Statements and Supplementary Data............. 13
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures................ 13
PART III
Item 9. Directors and Executive Officers of the Registrant...... 13
Item 10. Executive Compensation.................................. 14
Item 11. Security Ownership of Certain Beneficial
Owners and Management.................................. 15
Item 12. Certain Relationships and Related Transactions.......... 16
Item 13. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K....................... 16
Signatures.............................................. 18
1
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about American Dream Entertainment, Inc.'s industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
American Dream Entertainment, Inc. is an entertainment company that has obtained
the exclusive license for the territory of the USA for a creative animated
cartoon property entitled "Robin and The Dreamweavers," aimed at the young adult
market. The license consist of a feature length animation movie and 26 half hour
episodes for all domestic media, including network and cable television and home
video. Lou Scheimer Productions in Los Angeles, California, well known for such
animated productions as Superman, Fat Albert & The Cosby Kids, Archie's, He-Man
and She-Ra, is in charge of the television production and will deliver the
feature film this Fall 2000 and the first 13 episodes by Spring 2001. Final
exhibition is planned at the "MIPCOM" conference in Cannes, France on October 2,
2000, the world-renowned marketplace for television and movie productions.
American Dream Entertainment, Inc. acquired the exclusive rights in the United
States for marketing and distributing the entire media properties known as
"Robin and The Dreamweavers." In March 1999, the Company entered into a License
and Royalty Agreement with Dreamweavers, N.V., a Curacao company, that developed
the "Robin and The Dreamweavers" concept which consists of a feature length
animation movie and 26 half hour episodes . This agreement granted the Company
exclusive rights in the North American market for the feature film, TV series,
Internet merchandising, music, video and publishing. The term of the agreement
is for a period of 15 years, with an option to extend the license for an
additional five-year period. In consideration of this License Agreement,
American Dream Entertainment, Inc. issued 16,000,000 shares of restricted common
stock to Dreamweavers N.V. and agreed to pay Dreamweavers, N.V. a royalty equal
to 3% of gross revenues. In addition, American Dream Entertainment, Inc. agreed
to pay $5,500,000, which shall be payable on the successful completion of a
private placement of the securities of American Dream Entertainment, Inc.
The "Robin and The Dreamweavers" concept consists of several media products, an
animated feature length movie for television, animated TV series, music CDs, an
Internet website with e-commerce capabilities and interactive games,
private-label fashions based on the character of "Robin," ancillary
merchandising products such as video games, toys, apparel, school supplies and
cosmetic products.
American Dream Entertainment, Inc. also license and intends to market music
properties based on the characters from the animated series. The Company plans
to aggressively exploit its proprietary characters and programs through the
licensing of merchandising products targeted at the 12 to 28 year old
demographic.
American Dream Entertainment, Inc. has assembled a management team with broad
experience and success in the field of animation and entertainment to exploit
its media properties. The team consists of experts and specialists in
production, sales, marketing, distribution, licensing and technical advice.
Importantly, in late October 1999, American Dream Entertainment, Inc. presented
its "Robin and The Dreamweavers" project at "MIPCOM" in Cannes, France. Because
of that presentation, the Company entered into an agreement with Tempo Media of
Denmark in cooperation with The Fremantle Corp., granting the exclusive rights
to sell the television productions of "Robin and The Dreamweavers" to the United
States.
2
<PAGE>
On April 10, 2000 American Dream Entertainment, Inc. acquired, 100% of the
common stock of Robinsdream Interactive N.V. ("RDI"), a Netherlands Antilles
company for the consideration of 600,000 common shares of American Dream
Entertainment, Inc. RDI is entitled to the exclusive exploitation of the "Robin
and The Dreamweavers" related trademarks and characters with regard to the
Internet and Interactive activities as well as to the sales of "Robin and The
Dreamweavers" related products through an online shop on the Internet on a
worldwide basis excluding the United States. According to a license agreement,
the license fee paid to Dreamweavers, N.V. is 15 to 20 percent of the net
revenues generated by Robinsdream Interactive N.V.
American Dream Entertainment, Inc. has not generated any media revenues to-date,
but plans to generate revenues, in the future, from the creation, development,
production, licensing and distribution of animated properties relating to "Robin
and The Dreamweavers" for exhibition in all domestic media, which include home
video, DVD, pay television and cable television markets. American Dream
Entertainment, Inc. has also developed plans to market music properties based on
the characters from the animated series.
In addition, American Dream Entertainment, Inc. is currently building a range of
complementary media products to attract the younger audience groups that are its
key target demographic. The company is in final negotiations with Lou Scheimer
Productions in Los Angeles to acquire the license of two additional animated
projects that satisfy the demand for animated media properties. These projects
consist of 26 half-hour animated episodes and include such concepts as Hollywood
2090, a futuristic Hollywood action-packed adventure; Cleo, Empress of the
Future, a family oriented cartoon with Cleopatra, the main character and her
confrontation with the Roman Empire.
The Company's principal office is located at 1800 East Sahara Avenue, Suite 107,
Las Vegas, Nevada 89104.
BUSINESS MODEL AND PRODUCTS
In March 1999, American Dream Entertainment, Inc. acquired the exclusive rights
in the United States to exploit the Media Property known as "Robin and The
Dreamweavers" under a License and Royalty Agreement granted by Dreamweavers N.V.
a Curacao Company that has developed the "Robin and The Dreamweavers" concept.
This concept consists of several media products, an animated feature length show
for television, animated television series, a soundtrack, an Internet Site and
games, a Robin private label (a fashion label with designs based upon the
character of "Robin"), ancillary merchandising products related to the video
games, toys, apparel, school supplies and cosmetic products.
The feature length animation movie, exploiting the characters of "Robin and The
Dreamweavers", in traditional cell animation technique for exhibition in all
domestic and international media, including home video and DVD and television,
is planned to be licensed to Television stations worldwide. "Robin", the main
character in the film and the series, who fights in a futuristic (cyber)world
for "good", the environment and for tolerance, is contemporary, hip, sexy and
wise in the ingenious way of today's young woman and appeals to all ages and
demographics, especially to those who enjoy house and dance music, hip hop music
and R&B. Due to the popularity and audience recognition of the main character,
the project can branch out in many directions. In addition to the media products
mentioned above including an animated television series, music CD's, an internet
web site and games and ancillary merchandising products, the "Robin and The
Dreamweavers" concept will consist of the "Robin and The Dreamweavers" private
label (a fashion label with designs based upon the character of "Robin").
We plan on launching our marketing campaign by establishing broadcasting
contracts with "Cable" television network companies. In addition, in conjunction
with these broadcasting contracts, we plan on establishing marketing agreements
for the merchandising of the music, fashion wear and related products under the
"Robin and The Dreamweavers" trade mark.
The feature length animation movie, the television animation series, music CD's
and DVD's ensure that an extensive multi-channel platform is established. The
film and the animated television series are expected to stimulate interest by
broadcasters and advertisers which will, in turn, create demand for additional
animated products, commercials during the broadcast, advertisements on the
various web-sites that target consumer sites and appeal to customers' specific
interests, data based "chat rooms", sales of CD's, clothing, school supplies and
videogames through a variety of distribution channels.
3
<PAGE>
In addition to these products, American Dream Entertainment, Inc. intends in the
future to extend its product portfolio with other (entertainment) related
activities.
Proposed Products to be Offered
1. Animated Television. The Company will continue to attempt to acquire animated
television series for exhibition in all domestic and international media. Each
half-hour episode will be a complete story that deals with a contemporary social
issue relevant to young adults or mature themes.
2. Music CD's. As music plays an important role in the success of the various
animation projects, the best songwriters and most successful producers have been
contracted for the compositions. To ensure the contemporary music focus of the
projects, up and coming dance producers will provide new songs by well respected
performers. The music, with a high "house", "dance", "hip hop", "R&B" or "jazzy"
content, such depending on the specific animation project, will be available on
a (double) CD album.
3. Multi Media Platform. With the concept of "Robin and The Dreamweavers" still
in its premature phase, it had already become clear to its creators that the
current technological developments would not only provide the right expedient,
but also be the motive to launch the various projects of the Company as the
ultimate multi channel concepts. In this time of sending enormous data bulk in
seconds, streaming video on the computer, broadband, WAP technology and so on,
the possibilities of putting such multimedia concepts on the market will prove
to be endless. The Company focuses on the combination between television,
Internet, video's, games, database marketing, WAP and telecommunications to come
to an optimal use of the current multi channel possibilities, enabling the
Company to provide every segment in the target audience with the correct
information, services or products at the proper time.
The Company will utilize broad-based proprietary digital development techniques
to create leading edge entertainment contents. CDRom's, Internet web sites data
base marketing will, amongst others, feature multi-player game experiences,
sponsorship and marketing opportunities as well a gaming applets and shopping
components. The Internet sites will be used to create awareness of the
characters, cross promote all revenue streams, generating sales, advertising
revenues and subscription fees.
4. A "Robin and The Dreamweavers" Private Fashion Label. Capitalizing on unique
designs based upon the character of "Robin" and her friends, the Company will
develop a fashion label and will use "Robin" in numerous international
campaigns.
5. Ancillary Merchandising Products. As the main aim of the Company is to make
revenues out of licensing and merchandising of the various characters, the
Company will oversee the license and merchandising of consumer products, such as
video games, toys, apparel, school supplies, etc. As the various exciting,
intelligent and fantasy-full characters lend themselves perfectly to generating
income, the Company is looking into developing electronic gadgets such as a
pager memo watch and a pocket e-mail device and stationary, personal
care/cosmetic products and other young adult oriented merchandise.
Through identification with the main characters in the feature length animation
movie, the animation series on TV and all corresponding merchandising products,
the projects of the Company lend themselves to generating various streams of
revenues.
MATERIAL CONTRACTS
License and Royalty Agreements
The Company is the beneficiary to Licensing and Royalty Agreements in terms of
which the Company has obtained an exclusive license for a period of fifteen (15)
years, with the option to extend for an additional five (5) years, for the USA
rights to "Robin and The Dreamweavers."
4
<PAGE>
The full range of media products includes the following:
- Animated Feature Length Movie for Television
- Animated Television Series
- Music CD's
- Internet Web Site and Game
- A "Robin and The Dreamweavers" Private Label
- Ancillary Merchandising Products
American Dream Entertainment, Inc. is indirectly benefited through its
subsidiary Robinsdream Interactive, N.V. Robinsdream Interactive, N.V. entered
into a License Agreement with Dreamweavers, N.V. dated June 16, 1999 granting it
a license for a period of fifteen (15) years, with the option to extend for an
additional fifteen (15) years, for the exclusive exploitation of the "Robin and
The Dreamweavers" related trademarks and characters with regard to the Internet
and Interactive activities. In addition, this agreement grants Robinsdream
Interactive, N.V. the license for the sales of "Robin and The Dreamweavers"
related products through an online shop on the Internet on a worldwide basis
excluding the United States.
Television Distribution Agreements. American Dream Entertainment, Inc. entered
into an agreement with Tempo Media of Denmark, in cooperation with The Fremantle
Corporation, for the purchase of the exclusive rights to sell the television
production "Robin and The Dreamweavers" in the United States.
MARKETING AND DISTRIBUTION
American Dream Entertainment, Inc. has recognized the value of viewers in the
teen/young adult age group. This target group gains increased financial
independence beginning at age 13, at which time they typically go unsupervised
to the movies or malls, shop on their own, and make their own purchasing
decisions. Young adults have an average of $500 per month in disposable income.
They typically influence 20% of family spending which represents more than 20%
of the total dollar amount spent on CD's, Electronics, and Video games.
"Robin and The Dreamweavers" was created and designed to attract the appetite of
this market and stimulate purchases of ancillary products that include lines of
merchandise that are designed for the young adult market. Examples of these
products are clothing, accessories, compact discs, stationery items, fitness
Items, cosmetics, jewelry, watches, cell phones, home furnishing, bank accounts,
limited access credit cards, video games, and computers.
American Dream Entertainment, Inc. intends to use the following media outlets
for the exploitation of its products:
U.S. Television
---------------
Networks. The United States network television market is the most valuable
market to producers of animated programming. In the past, networks have
generally reached the largest audiences and paid the highest license fees,
enabling a producer to finance a more significant portion of its production
costs through network license fees than licensing the same program to cable
networks or first-run syndicates. Weekend morning children's programming
currently broadcasts on ABC, CBS, FOX, UPN and WB (the "Networks"). In addition,
FOX and WB broadcast animated programming for young audiences during weekday
mornings and afternoons. NBC has not broadcasted children's programming,
including animation, since 1992.
Syndication. Syndication provides an important first-run, as well as repeat,
broadcast market for animated programs. Traditionally, syndication has been
populated by programs that support merchandise and whose characters are featured
in toy lines, apparel and other consumer products. During the 1996-97 season,
syndicators such as Buena Vista Television Distribution, Saban Entertainment,
Bohbot Entertainment and Claster Television were distributing top rated
children's programs, both Monday through Friday and on Saturdays and Sundays.
Cable and Direct Broadcast Satellite ("DBS"). Cable and DBS are becoming more
popular with children. The growth in the number of cable channels and the
development of DBS provides additional outlets for animated programming. The
cable channels which currently broadcast animated programs include Nickelodeon,
USA Network, The Disney Channel, The Cartoon Network, The Comedy Channel, The
Family Channel, HBO, Showtime and MTV. Both Disney and Fox Kids Network recently
announced that they will be launching all-kids programming cable channels.
5
<PAGE>
Recent increases in the penetration and viewership for Turner-Warner Cartoon
Network may indicate that this avenue of distribution/exhibition will continue
to grow as an important outlet for animated programming. Notwithstanding
potential growth in the animated programming industry, other factors exert
contrary pressures on the number of slots available for animated programming and
we believe that there will be fewer slots available for such programming in the
coming seasons than existed in the past.
Growth in National Television
-----------------------------
The growth in the number national television outlets has created additional
demand for animated programming. The commercialization of the television
industry has encouraged a ratings/revenue-oriented focus among broadcasters,
thereby increasing the demand for higher quality television entertainment.
Animated programs produced in the United States have enjoyed wide acceptance
nationally. In addition, the national market has experienced an increase in the
number of cable and satellite programming services. These added programming
services have created an opportunity for distributors, including American Dream
Entertainment, Inc., to license simultaneously both traditional broadcast and
satellite programming rights within the same territory. Television, cable,
satellite and home video sales of animated programs produced in the United
States can account for the majority of the revenue for a given program. Because
the global demand has grown, it has created a need for and an opportunity to
produce internationally created animated programs. U.S. producers work
collaboratively with their international peers to develop and produce programs
for initial releases simultaneously throughout the world. American Dream
Entertainment, Inc. is concentrating its efforts on the U.S. market, which is
the largest and most lucrative market and the market for which it has obtained
exclusive rights under its Licensing and Royalty Agreement.
Home Video and DVD
------------------
The home video distribution business involves the promotion and sale of
videocassettes and videodisks to local, regional and national video retailers
(i.e. video specially stores, convenience stores, record stores and other
outlets), which then rent or sell such video cassettes and video disks to
consumers primarily for private viewing. When video cassettes are sold directly
to the public they are priced significantly lower than the prices charged to
wholesalers who will rent the video. This direct sale to consumers is commonly
referred to as the "sell-through market." In a typical home video deal, the
wholesale distributor will receive a non-refundable advance to be applied
against royalties which may range from 8% to 25% of the wholesale selling price
of a video cassette or disk. Due to the significant revenue that can be
generated from licensing and merchandising television characters, producers and
owners of animated characters seek to drive sales of toys and other licensed
products through the production and distribution of programs featuring their
characters. In addition to utilizing television to advertise products to
children, children's programming itself provides broad licensing and
merchandising opportunities. Characters developed in a popular series, and often
the series themselves, achieve a high level of recognition and popularity among
children, making them valuable assets for the licensing and merchandising
market, where they can provide attractive "branding" opportunities. The
children's market is one of the fastest growing segments in licensed
merchandising sales, relating to children-oriented products. Among the most
popular licensed items are toys, T-shirts, food, watches and soft vinyl goods
such as boots, backpacks and raincoats. In addition to the distribution venues
described above, a number of other sources of revenue exist for American Dream
Entertainment, Inc. for the exploitation of ancillary rights. For Instance,
interactive technology is rapidly evolving to integrate full motion video with
the personal computer, creating an increasing array of opportunities for
distribution rights in a market commonly referred to as "multimedia".
The Internet
------------
The video game market has grown exponentially since it was first introduced in
the late 1970s. Today, almost two-thirds of U.S. households have a cartridge
game system or a personal computer on which games can be played. In addition,
today's gamers are able to use advanced gaming systems, including networked PCs,
to challenge other players which is infinitely more interesting than playing
against the computer. The Internet has the potential of making multi-player
gaming explode. Currently, more than 5 million users are spending more than 5
hours a week on-line. However, gaming on the Internet has not yet taken off
because of several complex technological challenges, one of which is the problem
of "latency" or lag time. American Dream Entertainment, Inc. plans to develop a
real-time multi-player gaming over the Internet. This multiplayer game "Robin
and The Dreamweavers," will focus on environmental issues and will capitalize on
the natural desire to explore the world and participate in great adventures.
Participants will be able to check-out the latest multi-player episodic game
story and test their skills against millions of potential opponents. They will
also be able to participate in contests, tournaments, and special events that
are targeted to their individual game and leisure interests. This service will
6
<PAGE>
be speech-enabled, so players will be able to taunt their opponents, or cheer
their teams on, as they play. In addition, text and voice based chat areas will
provide a place to hang out with friends, meet other players and even plot
winning strategies with their teams. Industry insiders believe that one of the
next big waves will be PC-based, real-time multi-player internet games,
especially because PCs have much more built-in connectivity than traditional
video-game platforms.
American Dream Entertainment, Inc. will maintain an Internet Site that displays
information regarding the "Robin and The Dreamweavers" media products, and
general information about the Company and its progress in marketing products,
news relating to product improvements and new products, distribution agreements,
release dates of feature films, video series Internet games, and future
developments. In addition, American Dream Entertainment, Inc. will utilize the
Internet to display and market the various "Robin and The Dreamweavers" products
for direct sale over the Internet.
INDUSTRY
General
Animation has been a major entertainment medium for decades. Since cartoon
characters appear the same dubbed in any language, animation easily crosses
national and language barriers. In addition, animation generally does not become
"dated" as does live-action programming, allowing an animated series to be
enjoyed by each new generation of children.
Children are the primary target market for animated television programming.
Nielsen data indicate that children aged two to eleven are the nation's heaviest
consumers of television, watching an average of almost 22 hours each week.
Growth In advertising spending targeted at children and the expansion in the
number of television channels dedicated to children's programming around the
world have caused an increase in the demand for animated television programming.
Animated programming has expanded beyond the traditional Saturday morning
line-up. Monday through Friday mornings and afternoons now attract an even
greater number of young viewers than Saturday morning. There are many
programming blocks targeted toward children, including "The Disney Afternoon,"
Fox Children's Network and WB Kids. In addition, many first-run syndicates
provide programming blocks of animation Monday through Friday and on Sunday
mornings. Furthermore, programming successes such as "The Simpson's" and "Beavis
& Butthead", and more recently "King of the Hill", demonstrate that animation
also appeals to adults.
Increases in cable and satellite channels world wide and the privatization, new
entry and expansion in the international broadcast, satellite and cable industry
are providing additional opportunities for growth for animation companies,
especially those companies which own and distribute their own programs.
An increase in the number of channels and broadcasters world-wide, especially in
the United States, has caused an increase in competition among broadcasters.
This competition has had a negative impact on certain broadcasters that have had
difficulty competing. However, the more successful and committed programmers
have grown significantly. In this environment, access to distribution has
emerged as a more limiting factor and a key element of success.
Animation Production
The first step of a typical animation production is the creation of the script.
A story editor supervises the preparation of each episode's script by various
freelance script writers. Next, artists depict the story and action In
storyboards which provide a blueprint for the animation process. Voices and
songs are recorded and the recordings are analyzed and timed so that the
animation can be synchronized to the voice track. Based on the script and
storyboard, artists create character designs, as well as key background drawings
and paintings. These essential elements are assembled into a pre-production
package for each episode which is then shipped to an overseas subcontractor.
Subcontractors use the pre-production materials to perform most of the
labor-intensive aspects of production. Most of these subcontractors are located
In low-cost labor countries in the Far East, including South Korea, Taiwan,
China and the Philippines. When completed, the subcontractor ships the negative
and work-print for each episode to the producer. The film is then taken through
a post-production process which involves editing the picture and dialogue,
transferring the filmed Images to video tape, creating sound effects, composing
and producing the musical score and mixing and synchronizing the sound to the
picture. After the post-production process, an episode is ready for delivery.
7
<PAGE>
COMPETITION
American Dream Entertainment, Inc. will experience intense competition with
respect to its animated feature film, 26 half hour episodes and its animation
products.
Movie Studios. American Dream Entertainment, Inc.'s animated property will
compete with feature films and other family-oriented entertainment products
produced by major movie studios and later made for television, including Disney,
Pixar, DreamWorks SKG ("DreamWorks"), Warner Bros. Inc., Sony Pictures
Entertainment ("Sony"), Twentieth Century Fox Film Corporation ("Twentieth
Century Fox"), Paramount Pictures ("Paramount"), Lucasfilm Ltd. ("Lucasfilm"),
Universal Studios, Inc. and MGM/UA, as well as numerous other independent motion
picture production companies.
In 1998 and 1999, competition significantly intensified in the animated feature
film market. Family-oriented animated feature films released in 1998 and 1999
included the following:
Released in 1998:
- A Bug's Life by Pixar
- Quest for Camelot by Warner Bros.,
- The Rugrats Movie by Paramount,
- Prince of Egypt by DreamWorks, and
- Antz, a fully computer-animated movie by DreamWorks with its
affiliate Pacific Data Images ("PDI").
Released in 1999:
- Toy Story 2 by Pixar
- Pokemon: The First Movie by Warner Bros.,
- Tarzan by Disney, and
- Iron Giant by Warner Bros.
In 1998, the release of A Bug's Life achieved domestic box office revenues
exceeding $162 million, Antz, The Rugrats Movie and Prince of Egypt achieved
domestic box office revenues of over $91 million, $100 million and $98 million,
respectively. The release of Toy Story 2 in 1999 generated domestic box office
revenues that exceeded $241 million. Other animated family-oriented feature
films released during 1999, such as Pokemon: The First Movie, Tarzan, and Iron
Giant, achieved domestic box office revenues of over $85 million, $171 million,
and $23 million, respectively.
Our animated feature film will compete with feature films and other family
oriented entertainment products produced by major movie studios and later made
for television, including Disney, DreamWorks SKG ("DreamWorks"), Pixar, Warner
Bros., Inc., Twentieth Century Fox Film Corporation ("Twentieth Century Fox"),
Paramount Pictures ("Paramount"), Columbia Tri-Star Pictures Inc., Lucas film
Ltd. ("Lucas film"), Universal City Studios, Inc. and MGM/UA, as well as
numerous other independent motion picture production companies.
We believe that the primary competitive factors in the market for animated
feature films include creative content and talent, product quality, technology,
access to distribution channels and marketing resources. Because American Dream
Entertainment, Inc. is a new company with limited financial resources, there is
no assurance that we will be able to compete with these factors. However, we
intend, wherever possible to enter into contractual relationships with companies
which have been engaged in the communications, marketing and Internet business
for a significant period of time to allow the Company to utilize its assets and
management team productively.
8
<PAGE>
We expect competition to intensify and increase in this market in the future.
Currently, the majority of our potential competitors have longer operating
histories, greater name recognition, and significantly greater financial,
technical, marketing and other resources than American Dream Entertainment, Inc.
There can be no assurance that we will be able to compete successfully against
these competitors. Such competition could materially adversely affect our
business, operating results or financial condition.
EMPLOYEES
As of May 31, 2000, American Dream Entertainment, Inc. had (4) four employees.
We consider our relations with our employees to be excellent.
ITEM 2. PROPERTIES
We currently lease and occupy an office located at 20300 Ventura Boulevard,
Woodland Hills, California 91364-2313. Our monthly lease payment is $825.00.
This lease expires on July 31, 2001.
In addition, we currently lease and occupy an office located at 2325 Lakeview
Parkway, Alpharetta, Georgia 30004-1976. Our monthly lease payment is currently
$1,818.75. This lease is on a month-to-month basis.
We occupy an office located at Amsterdamseweg 511, 1181 BS AMSTELVEEN, THE
NETHERLANDS. This office is provided by Dreamweavers, N.V. and we currently pay
no rent.
ITEM 3. LEGAL PROCEEDINGS.
American Dream Entertainment, Inc. is not party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURTIY HOLDERS.
On May 28, 1999, pursuant to an action by Dreamweavers, N.V., as the holder of a
majority of our outstanding shares of Common Stock, an Amendment to our Articles
of Incorporation was filed with the State of Minnesota, which (i) changed our
corporate name from Federal Affordable Housing Corporation to American Dream
Entertainment, Inc. and (ii) increased our authorized Common Stock to 50,000,000
shares, par value $.0001. Dreamweavers, N.V., as the holder of a majority of the
outstanding shares of Common Stock, also appointed Mr. Dirk W. Peschar, Arjen de
Groot and Mr. Jules H. van Marken as our officers and directors and the former
officers and directors of Federal Affordable Housing Corporation resigned.
9
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Our Common Stock is listed and traded on the NASDAQ OTC Bulletin Board under the
symbol AMDM. As noted below, our Common Stock ceased trading in the fourth
quarter of 1997 and did not begin trading again until the second quarter of
1999. The transfer agent and registrar for the Common Stock is Computershare
Investor Services, (f/k/a American Securities Transfer and Trust, Inc.) 12039
West Alameda Parkway, Lakewood, Colorado 80226. The following table sets forth
for the periods indicated the high and low sale prices for shares of the Common
Stock as reported on the OTC. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
Sales Price
High Low
Fiscal Year Ended 1998
Fourth Quarter -- --
Third Quarter -- --
Second Quarter -- --
First Quarter -- --
Fiscal Year Ended 1999
Fourth Quarter -- --
Third Quarter -- --
Second Quarter -- --
First Quarter -- --
Fiscal Year Ended 2000
Fourth Quarter 12 8-1/2
Third Quarter 8-3/4 5-3/8
Second Quarter(1) 8-1/2 2-1/8
First Quarter -- --
(1) Our Common Stock recommenced trading on approximately September 28, 1999.
As of May 31, 2000, there were approximately 100 holders of record for our
common stock.
American Dream Entertainment, Inc.'s common stock is listed and traded on the
NASDAQ OTC Bulletin Board under the symbol AMDM. Accordingly, an investor may
find it more difficult to dispose of, or obtain accurate quotations as to the
market value of the common stock. Further, in the absence of a security being
quoted on NASDAQ, a market price of at least $5.00 per share or a company having
in excess of $4,000,000 in net tangible assets, trading in American Dream
Entertainment, Inc.'s securities may be covered by a Securities and Exchange
Commission ("SEC") rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with net worth in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and receive the
purchasers' written agreement to the transaction prior to the sale.
Consequently, the rule affects the ability of broker-dealers to sell our
securities and also may affect the ability of purchasers in this offering to
sell their securities in the secondary market.
Previously, the SEC adopted seven rules ("Rules") under the Securities Exchange
Act of 1934 requiring broker/dealers engaging in certain recommended
transactions with their customers in specified equity securities falling within
the definition of "penny stock" (generally non-NASDAQ securities priced below
$5.00 per share) to provide to those customers certain specified information.
10
<PAGE>
Unless the transaction is exempt under the Rules, broker/dealers effecting
customer transactions in such defined penny stocks are required to provide their
customers with: (1) a risk disclosure document; (2) disclosure of current bid
and ask quotations, if any; (3) disclosure of the compensation of the
broker/dealers and its sales person in the transaction; and (4) monthly account
statements showing the market value of each penny stock held in the customer's
account.
Recent changes to Rule 15c2-11 require that companies, such as American Dream
Entertainment, Inc., must be reporting issuers under Section 12(g) of the
Securities Exchange Act of 1934, as amended in order to maintain trading
privileges on the "Electronic Bulletin Board". As such our inability to file
form 10-K's, and other reports required under Section 12(g) on a timely basis
would adversely effect the marketability of our securities.
As a result of the aforesaid rules regulating penny stocks, the market liquidity
for American Dream Entertainment, Inc.'s securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of shareholders sell their securities in the secondary market.
DILUTION AND ABSENCE OF DIVIDENDS
We have not paid any cash dividends on our common stock and do not anticipate
paying any such cash dividends in the foreseeable future. Earnings, if any, will
be retained to finance future growth. We plan to issue our shares in private or
public offerings to obtain financing, capital or to acquire other businesses
that can improve our performance and growth. Future issuance and or sales of
substantial amounts of common stock could adversely affect prevailing market
prices in our common stock.
TRANSFER AGENT AND WARRANT AGENT
Computershare Investor Services, (f/k/a American Securities Transfer & Trust,
Inc.) of Denver, Colorado acts as the Company's Transfer Agent and Warrant
Agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Federal Affordable Housing Corporation was restructured March 5, 1999,
reflecting a new line of business for the exploitation of media products known
as "Robin and The Dreamweavers" within the United States. All assets and
liabilities were transferred to a newly formed subsidiary, AAA Homes, Inc. The
stock of AAA Homes, Inc. was distributed to our shareholders of record as of
February 1, 1999. In May, 1999 we changed our name to American Dream
Entertainment, Inc. to reflect this new line of business.
There have been no revenues from December 31, 1998 until May 31, 2000 in the
animated film business and we have incurred significant losses associated with
the promotion of our animated feature film. American Dream Entertainment, Inc.
does not expect to generate revenues until the "Robin and The Dreamweavers"
animated film is completed by Dreamweavers, N.V. and becomes contractually
available for telecasting or exhibition. The amount of distribution and
licensing revenues earned by American Dream Entertainment, Inc. will be
dependent on its distribution by others.
RESULTS OF OPERATIONS
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
There were no revenues for the years ended May 31, 2000 and 1999.
For the year ended May 31, 2000, total selling, general and administrative
expenses were $1,067,097 as compared to $383,432 for the previous fiscal year,
an increase of $683,665 or 179%. Of this $683,665 increase in selling, general
and administrative, approximately $305,000 consisted of consulting expenses
related to our promotional efforts. Legal fees and management fees increased
approximately $179,000 for the year ended May 31, 2000 as compared to the prior
year. Additionally, an increase of approximately $190,000 was due to
promotional, marketing, and administrative efforts associated with our animated
feature film.
11
<PAGE>
Interest expense was $511,000 for the year ended May 31, 2000 as compared to -0-
in the prior year. This increase was attributed to imputed interest on
shareholder advances at the Company's prevailing market rate.
Net loss was $1,578,842 for the year ended May 31, 2000, as compared to a net
loss of $372,243 for the previous fiscal year ended May 31, 1999. This
$1,206,599 increase in net loss is primarily attributed to consulting and
promotional efforts related to our animated feature film. In addition, this
increase was attributed to interest expense recorded on shareholder advances
during the fiscal year ended May 31, 2000. There were no revenues in the fiscal
year ended May 31, 2000 and 1999 to absorb selling, general, and administrative
expenses incurred during the years.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
There were no revenues for the year ended May 31, 1999. Revenues for the year
ended May 31, 1998 were $481,400 which consisted of the sales of real estate
involving 32 lots and 3 houses.
Cost of sales for the fiscal year ended May 31, 1998 were $457,275 which
represents a percentage of revenues of 95%. There were no cost of sales for the
fiscal year ended May 31, 1999.
For the year ended May 31, 1999, total selling, general and administrative
expenses were $261,069 as compared to $90,413 for the previous fiscal year, an
increase of $170,656 or 189%. Of this $170,656 increase in selling, general and
administrative, approximately $142,170 was due to promotional efforts associated
with our animated feature film which was not pertinent in the prior year.
The decrease in interest expense was primarily due to the sale of the 32 lots
and 3 houses and the complete payment of notes payable and long-term debt upon
sale of these properties. Interest expense for the fiscal year ended May 31,
1999 was $ -0- as compared to $20,555 in the previous year.
Net loss was $249,880 for the year ended May 31, 1999, as compared to a net loss
of $77,800 for the previous fiscal year ended May 31, 1998. This increase in net
loss is associated with promotional efforts related to our animated feature
film. In addition, there were no revenues in the fiscal year ended May 31, 1999
to absorb selling, general, and administrative expenses incurred during the
period.
LIQUIDITY AND CAPITAL RESOURCES
Management contemplates continuation of the Company as a going concern during
the initial development and marketing of its medial properties. American Dream
Entertainment, Inc. has sustained substantial operating losses in recent years
and has no revenue. Further, at May 31, 2000, current liabilities exceed current
assets by approximately $7,043,000 and total liabilities exceed total assets by
approximately $1,390,000. These factors raise substantial doubt about the
ability of the Company to continue as a going concern.
Our operations are currently funded through advances made on our behalf by
Dreamweavers, N.V. and its principal shareholders. Through May 31, 2000,
Dreamweavers has advanced approximately $1,227,851 on our behalf. These amounts
primarily relate to promotional costs and payments made to consultants,
advisors, reimbursement of travel expenses and lease expenses. We are not
presently generating sufficient revenues from operations to fund capital
requirements. Our ability to alleviate our working capital deficit and obtain
capital adequate to fund future costs associated with our operations and our
expansion plans and the $5,500,000 acquisition payment for the "Robin and The
Dreamweavers" license right is dependent upon Dreamweavers, N.V. and its
principal shareholders commitment to continue funding our operations, the
private placement of our securities and the realization of projected sales for
our products. There is no assurance that such revenues will be generated or that
other funding will be available.
INFLATION
Inflation has not proven to be a factor in the Company's business since its
inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
12
<PAGE>
YEAR 2000
To the best of our knowledge and belief, the Company has not experienced any
disruption in data processing on our financial reporting and operational systems
or malfunction in equipment containing microprocessors as a result of the year
2000 issue. We cannot be sure that some condition relating to the year 2000
exists, but has not been identified.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is presented at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by this item is incorporated by reference to the Form
8-K's filed on July 13, July 26 and August 6, 1999 regarding Changes in
Registrant's Certifying Accountant.
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS , PROMOTERS AND CONTROL PERSONS.
DIRECTORS
The members of American Dream Entertainment, Inc.'s Board of Directors as of May
31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dirk W. Peschar 42 Chairman of the Board of Directors
President, Chief Executive Officer
Arjen de Groot 37 Vice President of Operations, Director
Jules H. van Marken 66 Director
</TABLE>
Executive officers are elected by the Board of Directors and serve until their
successors are duly elected and qualify, subject to earlier removal by the Board
of Directors. Directors are elected at the annual meeting of shareholders to
serve for their term and until their respective successors are duly elected and
qualify, or until their earlier resignation, removal from office, or death. The
remaining directors may fill any vacancy in the Board of Directors for an
unexpired term. See "Board of Directors" for a discussion of the Directors'
terms.
Dirk W. Peschar is our President, Chief Executive Officer and Chairman of the
Board. Mr. Peschar is also a shareholder of Dreamweavers, N.V. Mr. Peschar
conceived of the "Robin and The Dreamweavers" concept in 1997. In the 1980's Mr.
Peschar was a client services director at Saatchi & Saatchi. His clients there
included high profile companies such as Proctor and Gamble and Mercedes Benz. In
1992, Mr. Peschar founded Shore Communications Network, a Netherlands
corporation, which was an advertising agency, specializing in fast moving
consumer products. He developed his business to four offices in The Netherlands
before it was sold in 1996. In 1996, Mr. Peschar was client Services Director
for Pay-Per-View Netherlands, where he met Mr. de Groot.
Arjen de Groot is our Vice President of Operations and a Director. From 1994
through 1997, Mr. de Groot was the financial director of Pay-Per-View,
Netherlands. Mr. de Groot is also a shareholder of Dreamweavers, N.V. In 1997,
Mr. de Groot met with Mr. Peschar and became involved in "Robin and The
Dreamweavers" project. Mr. de Groot has been an entrepreneur in The Netherlands
since 1985, and has been involved in numerous start-up business interests.
13
<PAGE>
Jules H. van Marken is a Director of the Company. Mr. van Marken is a retired
television pioneer and continues to consult businesses in the television and
entertainment industry. He was recently senior consultant for Graf Pay Per View
TV (New York), and in Europe for Phillips and KPN.
BOARD OF DIRECTORS
The Company's Bylaws fix the size of the Board of Directors at no fewer than one
and no more than 10 members, to be elected annually by a plurality of the votes
cast by the holders of Common Stock, and to serve until the next annual meeting
of stockholders and until their successors have been elected or until their
earlier resignation or removal. Currently, there are three (3) directors.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued by the Company for
the fiscal year ended May 31, 2000, to or for the account of the Chief Executive
Officer. No other executive officer of the Company received an annual salary and
bonus in excess of $100,000 or more during the stated period. Accordingly, the
summary compensation table does not include compensation of other executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Restricted
Other Annual Stock Options/ LTIP All Other
Name & Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dirk W. Peschar
President, CEO 1999 --- --- 18,000 --- --- --- ---
Dirk W. Peschar
President, CEO 2000 --- --- 60,000 --- --- --- ---
</TABLE>
------------------------
We do not have employment agreements with any of our employees. We do not have
any stock option plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The information provided in the table below provides information with
respect to each exercise of stock options during fiscal 2000 by each of the
executive officers named in the summary compensation table and the fiscal year
end value of unexercised options.
<TABLE>
<S> <C> <C> <C> <C>
-------------------------- --------------------- ------------------- ------------------------ -----------------------
(a) (b) (c) (d) (e)
-------------------------- --------------------- ------------------- ------------------------ -----------------------
-------------------------- --------------------- ------------------- ------------------------ -----------------------
Value of Unexercised
Number of Unexercised In-the Money Options
Shares Acquired options at FY-End at FY-End($)
Name Exercise Value Realize($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(1)
-------------------------- --------------------- ------------------- ------------------------ -----------------------
Dirk W. Peschar -0- -0- -0- -0-
===================
</TABLE>
14
<PAGE>
(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively. In calculating the dollar
value realized upon exercise, the value of any payment of the exercise
price is not included.
DIRECTOR COMPENSATION
A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings except reimbursement of out-of-pocket expenses and options. Outside
directors will be reimbursed for out-of-pocket expenditures incurred in
attending or otherwise participating in meetings and may be issued stock options
for serving as a director. The Company has no other arrangements regarding
compensation for services as a director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership known to Company of shares of Company Common Stock owned as
of May 31, 2000 beneficially by (i) each person who beneficially owns more than
5% of the outstanding Company Common Stock, (ii) each director of the Company,
(iii) the Officers of the Company, and (iv) directors and executive officers of
the Company as a group:
Amount and Nature of
Name of Beneficial Owner(3) Beneficial Ownership(1) Percent of Class(2)
--------------------------- ----------------------- -------------------
Dirk W. Peschar (4) (5) 3,231,958 18.0%
Arjen de Groot (6) 840,311 4.7%
Jules H. van Marken --- 0%
Elenora Shumsky --- 0%
Dreamweavers, N.V. 6,162,000 34.4%
La Salle Group, Ltd. 980,000 5.5%
All directors and executive officers
as a group (4 persons) (5)(6) 4,072,269 22.7%
(1) Represents sole voting and investment power unless otherwise
indicated.
(2) Based on approximately 17,920,000 shares of Company Common Stock
outstanding as of May 31, 2000 plus, as to each person listed, that
portion of the unissued shares of Company Common Stock subject to
outstanding options which may be exercised by such person, and as to
all directors and executive officers as a group, unissued shares of
Company Common Stock as to which the members of such group have the
right to acquire beneficial ownership upon the exercise of stock
options within the next 60 days.
(3) The address of each individual is in care of the Company.
(4) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act.
(5) The number of shares shown in the above tables reflect indirect
ownership through Dreamweavers, N.V. Mr. Peschar owns 25.9% of
Dreamweavers, NV. and accordingly indirectly owns 9% of American Dream
Entertainment, Inc. (34% ownership of Dreamweavers, N.V. multiplied by
25.9%).
(6) The number of shares shown in the above tables reflect indirect
ownership through Dreamweavers, N.V. Mr. de Groot owns, personally or
through affiliate entities, 4.76% of Dreamweavers, N.V. and
accordingly indirectly owns 2% of American Dream Entertainment, Inc.
(34% ownership of Dreamweavers, N.V. multiplied by 5.2%).
These shares of Common Stock held by beneficial owners are "Restricted" within
the meaning of Rule 144 adopted under the Securities Act (the "Restricted
Shares"), and may not be sold unless they are registered under the Securities
Act or sold pursuant to an exemption from registration, such as the exemptions
15
<PAGE>
provided by Rule 144 and Rule 701 promulgated under the Securities Act. The
Restricted Shares were issued by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act and may only be sold
in accordance with the provisions of Rule 144 or Rule 701 of the Securities Act.
In general, under Rule 144 as currently in effect any person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
(1) 1% of the then-outstanding shares of common stock; and
(2) the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale, and
who has beneficially owned the shares for at least two years, would be entitled
to sell such shares under Rule 144(k) without regard to the volume limitation
and other conditions described above. While the foregoing discussion is intended
to summarize the material provisions of Rule 144, it may not describe all of the
applicable provisions of Rule 144, and, accordingly, you are encouraged to
consult the full text of that Rule.
The possibility of future sales by existing stockholders under Rule 144 or
otherwise may, in the future, have a depressive effect on the market price of
the Common Stock, and such sales, if substantial might also adversely affect the
Company's ability to raise additional capital.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 5, 1999, Dreamweavers, N.V., Curacao, a Netherlands Antilles
corporation, entered into a Royalty and License Agreement granting American
Dream Entertainment, Inc. an exclusive license agreement to exploit a medial
concept known as "Robin and The Dreamweavers". The holding company of this media
concept, Dreamweavers NV, owns 100% of the rights of the animated properties.
Upon execution of the License Agreement, the President, Secretary and Director,
Mr. Dick Metz, resigned and Mr. Dirk W. Peschar, a resident and citizen of The
Netherlands, was appointed President and Director of the Company. Mr. Peschar is
also the founder of Dreamweavers N.V.
Dreamweavers, N.V., was originally issued 16,000,000 shares of the Issuer's
Common Stock in connection with the Royalty and License Agreement and American
Dream Entertainment, Inc. agreed to pay Dreamweavers, N.V. $5,500,000, which
shall be payable on the successful completion of a private placement of the
securities of American Dream Entertainment, Inc., and a royalty of three percent
of gross revenue. Dreamweavers, N.V. has transferred 9,913,000 shares of the
Issuer's Common Stock to certain stockholders and consultants in connection with
pre-existing agreements and understandings. All but 2 of the 34 transferees are
non-U.S. resident/citizens, and all reissued shares contain a restricted legend
under Rule 144. Dreamweavers, N.V. currently owns 6,162,000 shares of the
Issuer's Common Stock, which includes 75,000 shares issued in connection with
the acquisition of RobinsDream Interactive, N.V., a Netherlands Antilles
corporation, of which Dreamweavers, N.V. held a 12.5% interest. Accordingly,
Dreamweavers, N.V. currently owns approximately 35.6% of the Issuer's
outstanding Common Stock.
Through May 31, 2000, Dreamweavers, N.V. and other related parties have advanced
us approximately $1,228,000.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements filed as part of this Report are set forth in Item
7 and are presented at page F-1 of this Report; which list is
incorporated herein by reference. The Financial Statement Schedules and
the Report of Independent Auditors as to Schedules follow the Exhibits.
16
<PAGE>
(a)(3) EXHIBITS.
(b) Reports on Form 8-K
(i) Form 8-K filed June 16, 1999 containing information regarding the
Change of Control and Acquisition of Royalty and License Agreement.
(ii) Form 8-Ks filed on July 13, July 26, and August 6, 1999, regarding the
change in our Certified Public Accountant.
(c) Exhibits. See the Indexes to Exhibits below.
INDEX TO EXHBITS.
All of the items below are incorporated by reference to the Registrant's
Registration Statement on Form SB-2, File No. 33-67536-A, effective March 10,
1995, except for Exhibits 3.1 and 99.3, which are included with the filing and
Exhibits 99.4 and 99.5, which were filed with the Form 8-K dated March 5, 1999,
which is included with this filing.
Number Description
------ -----------
3.1 Amendment to Articles of Incorporation changing name and increasing
authorized common stock - May, 1999 (3)
4.1 Form of Common Stock Certificate (Exhibit 4.A of Form SB-2)
4.2 Form of Investor's Stock Purchase Warrant Certificate (Exhibit 4.B of
Form SB-2)
99.3 Office Real Estate Lease - 20300 Venture Boulevard, Woodland Hills,
California - dated February 12, 1999 (3)
99.4 Agreement between Dreamweavers, N.V., Federal Affordable Housing
Corporation and AAA Homes, Inc. relating to restructuring and license
agreement (2)
99.5 Heads of the License and Royalty Agreement will Dreamweavers, N.V. for
"Robin and The Dreamweavers" concepts in the United States (2)
1. Filed herewith.
2. Filed as exhibits to Form 8-K filed on June 16, 1999.
3. Files as exhibits to Form 10-KSB filed on September 7, 1999
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
American Dream Entertainment, Inc.
Date: September 13, 2000 By: /s/Dirk W. Peschar
------------------
Dirk W. Peschar
President & CEO
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dirk W. Peschar President and Chief Executive
-------------------------- Officer (Principal Executive September 13, 2000
Dirk W. Peschar Officer) and Director
/s/ Jules H. van Marken Director September 13, 2000
----------------------------------
Jules H. van Marken
/s/ Arjen de Groot Vice-President of Operations September 13, 2000
-------------------------- Director
Arjen de Groot
</TABLE>
18
<PAGE>
Consolidated Financial Statements
American Dream Entertainment, Inc.
and Subsidiaries
Years Ended May 31, 2000 and 1999
Independent Auditors' Report
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
Contents
Independent Auditors' Report on Consolidated Financial Statements.......... F-2
Consolidated Financial Statements:
Consolidated Balance Sheet............................................. F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Changes in Stockholders' Deficit............ F-5
Consolidated Statements of Cash Flows............................ F-6 - F-7
Notes to Consolidated Financial Statements....................... F-8 - F-14
<PAGE>
Independent Auditors' Report
Board of Directors
American Dream Entertainment, Inc. and Subsidiaries
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of American Dream
Entertainment, Inc. and Subsidiaries as of May 31, 2000 and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years ended May 31, 2000 and 1999. These consolidated
financial statements are the responsibility of the management of American Dream
Entertainment, Inc. and Subsidiaries. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Dream
Entertainment, Inc. and Subsidiaries as of May 31, 2000 and the results of its
operations and its cash flows for the years ended May 31, 2000 and 1999 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of approximately
$1,579,000 as of May 31, 2000 and has incurred substantial net losses in the
previous year. At May 31, 2000, current liabilities exceed current assets by
approximately $7,043,000 and total liabilities exceed total assets by
approximately $1,390,000. These factors, and the others discussed in Note 2,
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
/s/ Pender Newkirk & Company, CPAs
----------------------------------
Certified Public Accountants
Tampa, Florida
September 1, 2000
F-2
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheet
May 31, 2000
Assets
Current assets:
Cash $ 1,420
Other receivables 18,679
---------------
Total current assets 20,099
Other assets:
Trademark and license 5,501,600
Website development 147,781
Deposits 4,187
---------------
Total other assets 5,653,568
$ 5,673,667
===============
Liabilities and Stockholders' Deficit Current liabilities:
Due to stockholders $ 6,727,851
Accounts payable 195,363
Accrued expenses 140,000
---------------
Total current liabilities 7,063,214
Stockholders' deficit:
Common stock; $.0001 par value; 50,000,000 shares
authorized; 17,920,000 shares issued and outstanding 1,792
Capital in excess of par value 670,324
Accumulated deficit (2,105,657)
Accumulated other comprehensive income 43,994
---------------
Total stockholders' deficit (1,389,547)
$ 5,673,667
===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended May 31,
----------------------------------
2000 1999
----------------------------------
Revenues $ 0 $ 0
----------------------------------
Operating expenses:
General and administrative expenses (1,067,097) (383,432)
Interest expense (511,745)
Other income 11,189
----------------------------------
Net loss $ (1,578,842) $ (372,243)
==================================
Loss per share $(.08) $(.08)
==================================
Weighted average shares outstanding 18,252,712 4,891,230
==================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
Years Ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated
Capital In Other
Common Stock Excess Of Accumulated Comprehensive
Shares Amount Par Value Deficit Income
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 493,500 $ 49 $ 319,416 $ (154,572)
Corporate restructuring 506,500 51 (51)
Distributions of assets to
stockholders (166,792)
Issuance of common stock
for trademark and
license and consulting
agreement 16,980,000 1,698
Net loss for year (249,880)
Adjustment in connection
with pooling of interest 600,000 60 5,940 (122,363)
--------------------------------------------------------------------------------------
Balance, May 31, 1999 18,580,000 1,858 158,513 (526,815)
Shares returned and retired
due to termination of
an agreement (660,000) (66) 66
Imputed interest on
stockholder advances 511,745
Foreign currency
translation adjustment $ 43,994
Net loss for year (1,578,842)
----------------------------------------------------------------------------------------
Balance, May 31, 2000 17,920,000 $ 1,792 $ 670,324 $ (2,105,657) $ 43,994
========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Operating activities
Net loss $ (1,578,842) $ (372,243)
--------------------------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Imputed interest on stockholder advances 511,745
Write-off of prepaid offering costs 104,098
Increase in:
Other receivables (12,679)
Other assets (3,637) (550)
Accounts payable and accrued expenses (3,367) 245,491
--------------------------------
Total adjustments 596,160 244,941
--------------------------------
Net cash used by operating activities (982,682) (127,302)
--------------------------------
Financing activities
Advances from stockholders 984,102 189,103
Interest on mortgage (1,188)
Payments to stockholders (11,514)
Cash transfer to subsidiary (53,313)
Payments on prepaid offering costs (64,000)
--------------------------------
Net cash provided by financing activities 984,102 59,088
--------------------------------
Net increase (decrease) in cash 1,420 (68,214)
Cash, beginning of year 0 68,214
--------------------------------
Cash, end of year $ 1,420 $ 0
================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information and noncash investing and
financing activities:
During the year ended May 31, 1999, the Company transferred all of its
assets and liabilities that relate to the operations of Federal Affordable
Housing Corporation (subsequently known as American Dream Entertainment,
Inc.) to AAA Homes, Inc., its then wholly owned subsidiary. The net value of
those assets and liabilities was $166,792. Then all of the common stock of
AAA Homes, Inc. was distributed to stockholders of record as of February 1,
1999. The assets and liabilities distributed to AAA Homes, Inc. are as
follows:
Cash $ 53,313
Construction in progress 7,273
Mortgage receivable 222,688
Deposits 424
Stockholder payable (35,676)
Dividends payable (81,230)
------------
$ 166,792
============
On March 5, 1999, the Company acquired the trademark and license for "Robin
and The Dreamweavers" (see Note 1). The Company agreed to pay $5,500,000 on
the completion of a private placement offering. Also, 16,000,000 shares of
stock were issued at $.0001 per share.
During the year ended May 31, 1999, the Company issued 980,000 shares of
stock in connection with a consulting agreement for assistance with the
raising of capital. These shares of stock were valued at $.0001 per share.
The recipient of these shares also received $100,000 in consulting fees,
which were capitalized as prepaid offering costs. On December 2, 1999, the
consulting agreement was terminated and 660,000 shares of stock were
returned and retired. The $104,098 of prepaid offering costs that was
associated with this agreement was expensed during the year ended May 31,
2000.
During the years ended May 31, 2000 and 1999, the Company incurred website
development costs amounting to $113,262 and $34,519, respectively. The
website development was funded by the stockholder and accounts payable;
hence, this is a noncash transaction.
During the year ended May 31, 2000, the Company incurred a gain of $43,994
on foreign currency translation.
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
1. Background Information and Change In Control
American Dream Entertainment, Inc. is a Minnesota corporation incorporated on
March 5, 1993 as Federal Affordable Housing Corporation. Originally, the
principal line of business was developing land for the purpose of building and
selling residential housing. The Company changed its name to American Dream
Entertainment, Inc. on May 28, 1999, increased the shares authorized to
50,000,000, and established a par value of $.0001 per share. The corporate
headquarters is located in Las Vegas, Nevada.
On March 5, 1999, American Dream Entertainment, Inc. entered into a license and
royalty agreement with Dreamweavers N.V., a company organized under the laws of
Curacao. American Dream Entertainment, Inc. purchased the trademark and
exclusive right to market "Robin and The Dreamweavers" from Dreamweavers N.V.
and its affiliated companies. "Robin and The Dreamweavers" is a feature cartoon
film being produced by Dreamweavers N.V. This agreement includes the right to
distribute media products, as well as the feature film, together with licenses
for television production, music videos, and private label merchandising in the
United States of America. American Dream Entertainment, Inc. agreed to pay
$5,500,000, which shall be payable on the successful completion of a private
placement of the securities of American Dream Entertainment, Inc., and to pay a
royalty of three percent of gross revenue. As further consideration for the
granting of the exclusive license and royalty agreement in the United States of
America, American Dream Entertainment, Inc. issued 16,000,000 shares of its
restricted common stock to Dreamweavers N.V. The 16,000,000 shares represent
approximately 89 percent of the total outstanding stock of American Dream
Entertainment, Inc. These shares were valued at a par value of $.0001 since
American Dream Entertainment, Inc. was inactive and had not been trading.
On April 10, 2000, Robinsdream Interactive N.V. became a wholly owned subsidiary
of American Dream Entertainment, Inc. through an exchange of common stock of
companies under common control. This reorganization was accounted for in a
manner similar to a pooling of interest, and the accompanying consolidated
financial statements for 2000 are based on the assumption that the companies
were combined for the entire year. The 1999 financial statements were restated
to show the combined operations of both entities.
F-8
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
1. Background Information and Change In Control (continued)
The following is a reconciliation of the amounts of net income previously
reported for May 31, 1999 with restated amounts:
Net income:
As previously reported by American Dream Entertainment, Inc. $ (249,880)
Acquired company - Robinsdream Interactive N.V. (122,363)
-------------
As restated $ (372,243)
=============
Robinsdream Interactive N.V. is a Netherlands Antilles corporation incorporated
on April 15, 1999. This company has the exclusive worldwide right, excluding the
United States of America, to market "Robin and The Dreamweavers" trademarks and
characters with regard to the Internet and interactive activities, as well as to
the sale of "Robin and The Dreamweavers" related products through an online shop
at the Internet.
2. Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplates continuation of the Company as a going concern.
However, the Company has sustained substantial operating losses in recent years
and has no revenue. Further, at May 31, 2000, current liabilities exceed current
assets by approximately $7,043,000 and total liabilities exceed total assets by
approximately $1,390,000. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. These consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
3. Significant Accounting Policies
The significant accounting policies followed are:
The consolidated financial statements include the accounts of American
Dream Entertainment, Inc. and its wholly owned subsidiary, Robinsdream
Interactive N.V. These entities will hereinafter be referred to as the
"Company." All significant intercompany accounts have been eliminated in
consolidation.
F-9
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
3. Significant Accounting Policies (continued)
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Company's trademark and license will be amortized on the ratio of
current gross revenues to expected total gross revenues. Estimates of
total gross revenues can change significantly due to the level of market
acceptance of film and television products. Accordingly, revenue
estimates are reviewed periodically and amortization is adjusted. Such
adjustments could have a material effect on results of operations in
future periods. As of May 31, 2000, no amortization has been recorded
since the film is still in production.
The Company has adopted Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." In accordance with SOP 98-1, the Company has capitalized
certain website development costs totaling $147,781 at May 31, 2000. The
estimated useful life of costs capitalized is three years. The
completion of the website was May 2000; therefore, no amortization was
taken for the year ended May 31, 2000.
The Company continually reviews the recoverability of the carrying value
of long-term assets using the methodology prescribed in SFAS 121. The
Company also reviews long-lived assets and the related intangible assets
for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of
these assets is determined by comparing the forecasted undiscounted net
cash flows of the operation to which the assets relate, to the carrying
amount including associated intangible assets of such operation. If the
operation is determined to be unable to recover the carrying amount of
its assets, then intangible assets are written down first, followed by
the other long-lived assets of the operation, to fair value. Fair value
is determined based on discounted cash flows or appraised values,
depending on the nature of the assets. As of May 31, 2000, the Company
has determined that no such impairment has occurred.
F-10
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
3. Significant Accounting Policies (continued)
In connection with the Company's private placement, offering costs are
deferred and are offset against the proceeds of the offering or expensed
if the total offering is unsuccessful, both on a pro rata basis. During
the year ended May 31, 2000, offering costs were expensed because the
related private placement offering was terminated and no funds were
raised.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
consolidated financial statements carrying amounts of existing assets
and liabilities and their respective income tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." SFAS No. 130 established
standards for the reporting and display of comprehensive income (net
income and other comprehensive income) and its components in
consolidated financial statements. Other comprehensive income includes
all non-stockholder changes in equity and is reflected in the
stockholders' deficit section of the consolidated balance sheets.
Other comprehensive income consists of foreign currency translation
adjustments associated with the translation of the functional
currencies of Robinsdream Interactive N.V. (Guilders) into the
reporting currency of American Dream Entertainment, Inc. (U.S.
Dollars).
Basic loss per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
for the period.
The Company records shares of common stock as outstanding at the time
the Company becomes contractually obligated to issue shares.
F-11
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
3. Significant Accounting Policies (continued)
The Company has not recognized revenue from the distribution of the film
because it is not yet available for its first telecast.
In July 2000, Statement of Position (SOP) No. 00-02, "Accounting by
Producers or Distributors of Film," was issued by the American Institute
of Certified Public Accountants. Under the new SOP, revenue should be
recognized only when all of the following conditions have been met:
- Persuasive evidence of a sale exists;
- The film is complete and has been delivered, or is available for
immediate and unconditional delivery;
- The licensing period has begun and the customer can begin to
exploit, exhibit, or sell the film;
- The fee is fixed or determinable; and
- Collection of the fee is reasonably assured.
The SOP is effective for years beginning after December 15, 2000. The
Company is assessing the impact this statement will have on the
consolidated financial statements.
The Company will recognize revenue on merchandising and other
development activity in accordance with Securities and Exchange
Commission (SEC) Staff Accounting Bulletin 101, `Revenue Recognition in
Financial Statements." Any deposits received in advance of revenue
recognition are reflected as a liability. As of May 31, 2000 and 1999,
the Company did not have any revenue.
The Company has imputed interest on its stockholder advances at the
Company's prevailing market rates. The imputed interest, which totals
$511,745, has been recorded as an expense and as an additional capital
contribution in accordance with SEC Staff Accounting Bulletin Topic 5:T.
4. Related Party Transactions
The Company has received advances and/or has had bills paid for by its
stockholders that amount to $1,227,851 as of May 31, 2000. These transactions
are non-interest bearing, are unsecured, and have no specific repayment terms.
These transactions were to pay for expenses on behalf of the Company and various
other related party charges in the approximate amounts of $1,000,000 and
$200,000 for the years ended May 31, 2000 and 1999, respectively.
F-12
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
4. Related Party Transactions (continued)
The Company entered into a license and royalty agreement with the new majority
stockholder. The Company has agreed to purchase from Dreamweavers N.V. and its
affiliated companies the trademark and exclusive right to distribute "Robin and
the Dreamweavers," a feature film, together with licenses for television
production, music videos, and private label merchandising, in the United States
of America for $5,500,000, which shall be payable on the successful completion
of a private placement of the Company's securities. As further consideration for
the granting of the exclusive license and royalty agreement, the Company issued
16,000,000 shares of its restricted common stock to Dreamweavers N.V. The
Company will pay a royalty fee of three percent of the gross revenues generated
from the marketing and/or operation of "Robin and The Dreamweavers." The initial
term of the agreement is for 15 years, which may be extended for an additional 5
years. As of May 31, 2000, no royalties have been accrued or paid.
Robinsdream Interactive N.V. entered into a license agreement with Dreamweavers
N.V. on June 16, 1999. This license grants Robinsdream Interactive N.V. the
exclusive worldwide right, excluding the United States of America, to market
"Robin and The Dreamweavers" trademarks and characters with regard to the
Internet and interactive activities. The term of the license is for a period of
15 years with an option to extend for an additional 15 years. As consideration
for the license agreement, the Company will pay a license fee that ranges
between 15 and 20 percent of net revenues of Robinsdream Interactive N.V.
The above transactions are not necessarily indicative of transactions that would
have been entered into by independent parties.
5. Income Taxes
Income tax consists of the following:
2000 1999
--------------------------
Deferred tax asset $ 574,000 $ 140,000
Less valuation allowance 574,000 140,000
--------------------------
Net deferred tax asset $ 0 $ 0
==========================
The amount of unused tax losses available to carry forward and apply against
future years' taxable income is approximately $1,688,000. Deduction of these
losses will be limited due to the change of control of the Company that took
place on March 5, 1999. The losses will expire in various years ending in 2020.
Management has established a valuation allowance equal to the amount of the
deferred tax assets due to the uncertainty of the Company's realization of this
benefit.
F-13
<PAGE>
American Dream Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended May 31, 2000 and 1999
6. Loss Per Share
The net loss per share amount is based on weighted average shares outstanding
for the years ended May 31, 2000 and 1999 of 18,252,712 and 4,891,230,
respectively.
Diluted net loss per share amounts are not presented because the Company has a
simple capital structure that consists of common stock and includes no potential
securities that would cause dilution of the number of shares.
7. Subsequent Event
Subsequent to year-end, the Company has borrowed $422,498, with interest at six
percent, pursuant to a note agreement. The agreement contains provisions that
state the note holder may convert the balance of the loan into a combination of
shares and warrants, and that 5,000 additional shares will be issued to the
lender at the time of repayment.
F-14
