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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22968
FOCAL CORPORATION
(Name of small business issuer in its charter)
UTAH 87-0363789
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 W. NORTH ST., #302 ANAHEIM,
CALIFORNIA 92801
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (including area code): (714) 635-8821
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.10 par value per share
---------------------------------------
(Title of Class)
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 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 in response 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. [X]
The registrant's revenues for its most recent fiscal year were -0-.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 17, 1997 was approximately $883,008.
The number of shares outstanding of the registrant's only class of Common
Stock, $0.10 par value per share, was 3,740,576 on March 17, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Focal Corporation ("Company") was incorporated in Utah on August 12, 1980 as
Petro Funding, Inc., for the purpose of acquiring, exploring and developing
natural resource properties. The Company changed its name to TVM Global
Entertainment, Inc. in November 1982, and to Cinema Features, Inc. in July 1983,
as part of the Company's plan to invest in movie production and distribution
rights. By January 1985, the Company had acquired the movie and video cassette
distribution rights for eight motion pictures. In 1989, the Company's movie
rights were independently appraised for audit purposes and the total cost base
of $2,100,000 was decreased by $770,000 to a revised value of $1,330,000.
In March 1993, after several years of unprofitable operations, the Company's
Board of Directors entered into negotiations to sell the Company's movie rights.
As a result of a shareholders meeting held on May 17, 1993, and with the
approval of the Company's shareholders, all of the Company's assets relating to
movie production and distribution were sold to an independent marketing firm in
exchange for $1,200,000 worth of restricted stock. See "Management's Discussion
and Analysis or Plan of Operations." Shortly thereafter, the shares of
restricted stock were distributed to the shareholders of the Company, on a pro
rata basis and without consideration, and the Company's Articles of
Incorporation were amended to change the name of the Company to Focal
Corporation. In addition to the name change, the amendment to the Company's
Articles of Incorporation effected a one-for-ten reverse stock split of the
Company's Common Stock, changed the par value of the Company's Common Stock to
$0.10 per share and established a new class of undesignated preferred stock.
During August 1993, the Company's Board of Directors approved a new business
plan to acquire and develop community shopping centers and other operating real
properties. In connection with the Company's new business plan, the Board of
Directors appointed Howard M. Palmer as President and Chairman of the Board. See
"Certain Relationships and Related Transactions." Through Mr. Palmer's
experience, coupled with a number of experienced consultants, including
independent architects, construction and civil engineers, developers, brokers
and attorneys, the Company initially intends to acquire existing shopping
centers anchored by national retail tenants with operations that generate
positive cash flows. As the Company's financial condition improves, and as
appropriate opportunities arise, the Company also intends to acquire
strategically-located vacant land suitable for the development of discount and
neighborhood shopping centers. The Company has never acquired a discount
shopping center, acquired vacant land suitable for development of a shopping
center or developed a shopping center. Accordingly, there is no assurance that
any shopping centers will be successfully acquired or developed in the future.
However, because the Company's President has over 25 years of experience in the
development, ownership and management of shopping centers, and because the
Company has engaged the services of independent consultants with many years of
experience in site analysis, property acquisition, land use regulations, anchor
tenant negotiations and the development of retail complexes with national
discount-oriented tenants, the Company believes it has in such individuals the
necessary expertise to accomplish the Company's business plan. It is
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intended that shopping centers which are either acquired or developed by the
Company will be operated, on a day-to-day basis, by professional managers
selected by the Company.
The Company is in various stages of negotiation to acquire properties in Las
Vegas, Nevada (three shopping centers), Santa Clarita, California (one shopping
center), Lancaster, California (one shopping center), Phoenix, Arizona (one
shopping center), San Bernardino, California (developable land), Victorville,
California (developable land) and Barstow, California (developable land). Each
of the shopping centers is anchored by a major national retailer (such as K-
Mart) on a long-term lease, and range in size from 77,000 square feet to 297,733
square feet. The unimproved parcels are zoned for commercial use, and the
Company has received preliminary indications of interest from major national
retailers to be the anchor tenants. The parcels range in size from 17 to 42
acres.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company occupies a small office in Anaheim, California provided by Palmer
Development Company, an affiliate of the Company's President. The Company
presently pays no rent. Management of the Company considers the office space to
be adequate to meet the current demands of the Company's business; however, the
Company is currently looking at larger office space in Orange County,
California, which will accommodate a small property management and
administrative staff. The Company expects to begin paying rent of approximately
$1,800 per month in late 1997.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and is not aware of any pending
or threatened litigation against the Company. James Collins, a former financial
consultant of the Company, has a stipulated judgment against the Company for
$24,000 in unpaid consulting fees. Jackson, DeMarco & Peckenpaugh, the Company's
former counsel, has recorded a $71,000 judgment (and lien against the Company's
assets) for unpaid legal fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Although previously traded in Utah pursuant to a Secondary Trading
Transactional Exemption under old Rule 177-14-2m of the Utah Uniform Securities
Act, there has been no active trading market for the Common Stock of the Company
since 1984. The Company's Common Stock is not listed on any exchange and is not
quoted or traded on the over-the-counter market. No broker maintains a position
or deals in the Company's Common Stock. No bid or asked prices are quoted in the
pink sheets or any local newspaper. Although the Company uses a transfer agent
to maintain
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its stock transfer ledgers, the Company is typically aware of any transactions
involving changes in record ownership.
As of March 17, 1997, there were 3,740,576 shares of the Company's Common
Stock issued and outstanding, held of record by 443 shareholders.
The Company has paid no dividends on its Common Stock and does not expect to
pay dividends in the foreseeable future.
Oxford Transfer & Registrar Agency, Inc. in Portland, Oregon serves as
transfer agent for the Common Stock of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Plan of Operations
In May 1993, the Company discontinued its operations relating to movie
distribution and sold substantially all of its assets to Maverick Marketing
Management, Inc., a Nevada corporation ("Maverick"), in exchange for shares of
common stock of Maverick and shares of common stock of Interdec Corporation, a
Colorado corporation ("Interdec"), which were held by Maverick. All of the
shares of common stock of Maverick and Interdec were subsequently distributed to
the Company's shareholders on a pro rata basis and for no consideration. The
Company realized a $271,000 net gain on the sale of the assets to Maverick.
The Company's current plan of operations is to acquire commercial shopping
centers in the Western United States. The Company expects to target centers
anchored by long-term leases with national, credit-rated retail tenants and
which generate positive cash flows. The Company intends to acquire existing
shopping centers of approximately eight to 20 acres, which are expected to
include a major discount department store, a major supermarket and several
credit-rated retailers strategically spaced between the larger anchors. Some
complexes also will include separate out-lots suitable for family type
restaurants. In addition, as the Company's financial condition improves and as
appropriate opportunities arise, the Company plans to option or contract for
strategically-located vacant land suitable for the development of shopping
centers, such options or contracts to be subject to negotiating pre-building
leases with major retail tenants.
The Company's investment objective in considering each potential acquisition
is to achieve long-term capital appreciation through increased cash flow and
increased value of the acquired property. The Company will seek to accomplish
this investment objective through (i) selective acquisitions of shopping centers
which are strategically located and which generally provide positive cash flows,
(ii) improved operations of the shopping centers and lease-up of unleased space,
and (iii) where deemed appropriate, expansions, renovations and redevelopments
of these properties. A key criterion for property investments will be that they
offer the opportunity for growth in revenues from operations. The Company may
purchase or lease properties for long-term investment or sell such properties,
in whole or in part, when circumstances warrant. The Company may also
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity
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investments may be subject to existing mortgage financing and other indebtedness
which have priority over the equity interest of the Company.
Currently, the Company does not own or manage any shopping centers or other
real properties. In addition, the Company does not have funds necessary for the
acquisition or development of shopping centers. However, the Company intends to
rely on its management to successfully negotiate the acquisition of existing
shopping centers and vacant land in exchange for shares of the Company's Common
Stock or Convertible Preferred Stock. It is anticipated that each such
acquisition will be separately negotiated based on the owner's equity or tax
base in the subject property. No assurance can be given, however, that
management will be able to convince sellers of desirable properties to accept
the Company's securities in lieu of cash or a secured note. See "Description of
Business."
The Company currently intends to adhere to a policy of limiting the incurrence
of debt so that the Company's ratio of total debt to total equity on its
portfolio of shopping center properties does not exceed 70%. The Company may
from time to time modify its debt policy in light of then current economic
conditions, relative costs of debt and equity capital, the market value of
acquired properties, general conditions in the market for debt and equity
securities, fluctuations in the fair market value of the Company's Common Stock
and Convertible Preferred Stock, growth and acquisition opportunities and other
factors. Accordingly, the Company may increase or decrease the total debt to
total equity ratio beyond the limits described above.
Although the Company currently intends to acquire shopping centers in exchange
for shares of the Company's Common Stock or Convertible Preferred Stock, if the
Board of Directors determines that additional or other funding is required to
acquire the shopping centers, the Company may attempt to raise such funds
through equity offerings, debt financing or retention of cash flow, or a
combination of these methods. If the Board of Directors determines to raise
equity capital, it has the authority, without shareholder approval, to issue
shares of Common Stock or Convertible Preferred Stock in any manner (and on such
terms and for such consideration) it deems appropriate, including in exchange
for property. Existing shareholders have no preemptive right to purchase shares
issued in any offering, and any such offering might cause a dilution of a
shareholder's investment in the Company. Indebtedness incurred by the Company
may be in the form of bank borrowings, purchase money obligations to the sellers
of properties, secured and unsecured, and publicly and privately placed debt
investments. Such indebtedness may be recourse to all of the properties of the
Company or may be limited to the particular property to which the indebtedness
relates. The proceeds from any borrowings by the Company may be used for working
capital, to refinance existing indebtedness or to finance acquisitions,
expansions or development of new properties.
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Results of Operations
The Company had no revenue from operations during the fiscal years ended June
30, 1996 and 1995.
The Company's expenses during the fiscal years ended June 30, 1996 and 1995
amounted to $301,941 and $511,625, respectively. Expenses decreased by $209,684
primarily as a result of decreases in costs associated with due diligence
investigations of various real properties in California, Arizona, Nevada and
other areas. Fees and advances to professional advisors and real estate and
financial consultants accounted for a substantial portion of expenses in the
fiscal year ended June 30, 1995.
The Company had a net loss of $268,936 for the fiscal year ended June 30,
1996, and a net loss of $512,625 for the fiscal year ended June 30, 1995.
Because there was no revenue generated during those periods, these losses
generally represent the Company's operating expenses plus income tax.
Liquidity and Capital Resources
The Company's liquidity over the past two years has been materially and
adversely affected by continuing operating losses. The Company has experienced
total net losses of $781,561 for the two years ended June 30, 1996. As described
in Note 11 to the Company's financial statements, the Company currently has no
operations and is dependent on private debt and equity financing to fund its day
to day cash requirements. Accordingly, the independent auditors' report covering
the Company's financial statements is qualified as to the Company's ability to
continue as a going concern.
The Company is in the process of attempting to raise approximately $500,000
("Offering") for working capital. The offering is expected to consist of Common
Stock and Warrants to purchase Common Stock, and will be made to "accredited
investors" only pursuant to Regulation D under the Securities Act of 1933.
During January and April 1997, the Company raised $96,000 through the sale of
Convertible Notes. The Convertible Notes are convertible into 192,000 shares of
Common Stock. The purchasers of the Convertible Notes also received Warrants to
purchase an additional 192,000 shares of Common Stock.
At June 30, 1996, the Company had total liabilities of $922,167, of which (i)
$225,412 represented expense reimbursements and loans payable to officers and
directors and their families (all of whom have agreed to defer payment until
such time as the Company is financially able to pay such payments), (ii)
$388,905 represented accounts payable to others (principally professional
advisors and real estate and financial consultants) and (iii) $35,874
represented accrued taxes. On that same date, the Company had assets totaling
$120,000, all of which represented a refundable loan commitment fee.
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Management believes that proceeds from the Offering will generate sufficient
working capital to conduct the business of the Company during the period that
the Company negotiates for and closes the acquisition of its first shopping
center. Once the Company has acquired a shopping center that meets the Company's
investment criteria, which include among other things, the ability to generate
positive cash flows, management believes that such cash flows will provide the
liquidity and capital resources necessary to conduct the business of the
Company. Management of the Company believes that between the funds generated by
the Offering and any cash flows resulting from the acquisition of a shopping
center, the Company will generate enough cash to support its operations over the
next twelve months.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company are submitted as a separate section of
this Form 10-KSB on pages F-1 through F-14.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Kelly & Company ("Kelly") resigned as the Company's Certifying Accountant
effective September 9, 1995.
The reports of Kelly on the Company's financial statements for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion.
However, the financial statements were prepared to reflect the uncertainty as to
the Company's ability to continue as a going concern.
In connection with the audit of the Company's financial statements for the
year ended June 30, 1994 and the interim period through the date of dismissal,
there was no disagreement between the Company and Kelly on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, and there was no reportable event required to be disclosed.
The Company requested that Kelly furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. A copy of that
letter, dated September 8, 1995, was filed as Exhibit 16 to the Company's Form
8-K dated September 25, 1995.
On September 25, 1995, the Company appointed Caldwell, Becker, Dervin, Petrick
& Company ("CBDP") as its new Certifying Accountant. The Company did not consult
with CBDP or any other accounting firm regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of opinion that might be rendered regarding the Company's financial statements,
nor did the Company consult with CBDP with respect to any accounting
disagreement or any reportable event at any time prior to the appointment of
such firm.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors*, executive officers and significant personnel of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Howard M. Palmer 64 Chairman of the Board,
President and Director
Leroy Hardy 59 Vice President and Director
Gerald W. May 57 Director
A. G. Kading 48 Treasurer
Richard C. Shinn 65 Secretary
</TABLE>
_______________
* The Company's Board of Directors have been operating with two vacancies and
will continue to do so until suitable candidates can be identified and agree
to join the Board.
HOWARD M. PALMER has been Chairman of the Board, President and a director of
the Company since 1993. Before that time, Mr. Palmer was the owner of Palmer
Development Company, a real estate development and investment firm in Anaheim,
California, for the last five years. Mr. Palmer has over 25 years of experience
developing neighborhood and discount shopping centers throughout the Western
United States. Mr. Palmer is a licensed real estate broker in California and a
graduate of the University of Southern California.
LEROY HARDY has been a director and the Vice President of the Company since
1993. In addition to his positions with the Company, Mr. Hardy has been
operating a computer accounting service firm in Denver, Colorado for the last
five years. Mr. Hardy also has served as an assistant vice president of
operations for the First National Bank and Trust Company of Wyoming and an
independent oil and gas landman. Mr. Hardy attended the University of Wyoming.
On July 13, 1992, Mr. Hardy filed for a reorganization under Chapter 13 of the
United States Bankruptcy Code in connection with a work-out with the Internal
Revenue Service pertaining to a tax liability. Under the reorganization, Mr.
Hardy and the IRS agreed to amount owing and a payment plan, which Mr. Hardy
satisfied. The Chapter 13 case was dismissed in June 1996.
GERALD W. MAY has been a director of the Company since 1993 and was the
Treasurer of the Company from 1993, to 1995. Mr. May has been an independent
accountant since 1977 and is a graduate of Creighton University, with a B.S. in
business administration.
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A. G. KADING has been Treasurer of the Company since 1995. From 1990 to 1995
he was president of Kading Company, a real estate development and construction
company. Prior to that he held various positions with real estate management,
development and construction companies.
RICHARD C. SHINN has been Secretary of the Company since 1997. Mr. Shinn is,
and for the past ten years has been, president of Bell Financial, Inc., a
financial consulting firm. He received a degree in business management from the
University of Texas.
All directors hold office until the next annual meeting of shareholders of the
Company and the election and qualification of their successors. Officers are
elected annually by, and serve at the discretion of, the Board of Directors.
All directors are reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' meetings and receive a $100 per meeting
director's fee.
Compliance with Beneficial Ownership Reporting Rules
Section 16(a) of the Securities Act of 1934, as amended ("Exchange Act"),
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of a registered class of the Company's Common
Stock to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission ("Commission"). Such officers,
directors and shareholders are required by Commission regulations to furnish the
Company with copies of all such reports that they file.
Based solely upon a review of copies of such reports furnished to the Company
during its fiscal year ended June 30, 1996 and thereafter, or any written
representations received by the Company from a director, officer or beneficial
owner of more than 10% of the Company's Common Stock ("reporting persons") that
no other reports were required, the Company believes that, during the Company's
1996 fiscal year, all Section 16(a) filing requirements applicable to the
Company's reporting persons were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
Effective October 1, 1993, Howard Palmer entered into an employment agreement
with the Company, pursuant to which Mr. Palmer is entitled to base cash
compensation of $120,000 per year. In September 1996, Mr. Palmer agreed to
accept 240,000 shares of Common Stock in lieu of one year's cash compensation.
The remainder of his compensation is being accrued. The Company also maintains a
reimbursement policy whereby executive officers are reimbursed for actual
expenses incurred in connection with the management of the Company and its
business.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 17, 1997, certain information with
respect to the beneficial ownership of the Company's Common Stock held by each
director and officer and by all directors and officers as a group, as well as
the identity of each person known to the Company to be the beneficial owner of
more than 5% of the Company's Common Stock and the respective beneficial
ownerships of those persons.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Ownership Percent of
of Beneficial Owner/(1)(2)/ of Common Stock Common Stock/(3)/
- --------------------------- ----------------------- ------------------
<S> <C> <C>
Howard M. Palmer/(4)/ 1,256,000 30.0%
Julia Murray/(5)/ 800,000 21.4%
Robert and Lynda Cullen/(6)/ 551,584 13.3%
1050 N. Anaheim Blvd.
Anaheim, California 92801
Estate of James T. Hays/(7)/ 302,018 8.0%
c/o Focal Corporation
518 Dwyer Drive
Anaheim, California 92801
David Pamintuan/(8)/ 263,930 6.4%
14605 W. Wild Oak Drive
Canyon Country, California 91351
Don Zink/(9)/ 254,500 6.5%
2100 Sepulveda Blvd., #24
Manhattan Beach, California 90266
William Jones 200,000 5.3%
P. O. Box 27282
Tempe, Arizona 85285
Leroy Hardy/(10)/ 79,783 2.1%
Gerald W. May/(11)/ 79,783 2.1%
All Directors and Officers 1,385,783 32.8%
as a Group (4 persons)
</TABLE>
__________________
(1) The address of each officer and director is c/o Focal Corporation, 1415 W.
North St., #302, Anaheim, California 92801.
(2) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares of Common Stock.
(footnotes continued at bottom of following page)
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the reorganization of the Company and the Board of
Directors' desire to acquire real estate assets, operating funds and additional
management personnel, the Company entered into an agreement dated July 29, 1993
among the Company, Focal Development Corporation of Nevada ("FDCN") (a Nevada
corporation controlled by the estate of James T. Hays) and Howard M. Palmer.
Pursuant to the agreement, Mr. Palmer became President of the Company and began
the process of locating and negotiating for shopping center properties through
his independent network of experienced retail site selectors, lease negotiators
and property managers. Each acquisition will be negotiated and approved by the
Company's Board of Directors on an individual basis. In connection with the
agreement, FDCN transferred its 404,839 shares of the Company's Common Stock as
follows: 160,000 shares to Mr. Palmer, 80,000 shares to Don Zink and the
balance to Mr. Hays. Mr. Zink subsequently transferred his 80,000 shares to a
business associate. Mr. Hays subsequently gifted his shares to various
individuals, including 64,054 shares to his wife. In addition, Coast Advisors,
Inc., an affiliate of Mr. Palmer, was issued 10,000 shares of the Company's
Common Stock in exchange for a $5,000 capital contribution.
In August 1993, Howard M. Palmer was issued 250,000 shares of the Company's
Common Stock in connection with his appointments as Chairman of the Board and
President of the Company. Mr. Palmer subsequently transferred these shares to
Coast Advisors, Inc., a Nevada corporation affiliated with Mr. Palmer.
__________________
(3) All percentages have been calculated to include warrants which are
immediately exercisable into shares of Common Stock by the particular
shareholder.
(4) Includes 556,000 shares which Mr. Palmer owns of record. Also includes (i)
260,000 shares held by Coast Advisors, Inc., a Nevada corporation
affiliated with Mr. Palmer and (ii) warrants to purchase 440,000 shares.
Mr. Palmer is the President and Chairman of the Board of Directors of the
Company.
(5) Consists of 800,000 shares held in an informal escrow pending performance
by Ms. Murray with respect to obtaining a $5,000,000 loan for the Company.
(6) Includes (i) 200,000 shares held of record by the Cullen Family Trust, a
trust administered by the Cullens, (ii) warrants to purchase 340,792 shares
held by the Cullen Family Trust and (iii) a convertible note held by the
Cullen Family Trust which is convertible into 10,792 shares.
(7) Prior to his death on July 17, 1994, Mr. Hays was the Secretary and a
director of the Company. Mr. Hays owned the Company's Common Stock as
follows: (i) 4,637 shares held directly by Mr. Hays, (ii) 50,000 shares
held by Mr. Hays and his wife as joint tenants, (iii) 27,568 shares held
directly by Mr. Hays' wife, (iv) 135,393 shares held by Focal Development
Corporation, a Colorado corporation controlled by Mr. Hays' wife ("FDC")
and (v) 29,783 shares held by Interdec Corporation, a Colorado corporation
affiliated with Mr. Hays ("Interdec"), and (vi) warrants to purchase 54,637
shares.
(8) Includes 66,680 shares which Mr. Pamintuan owns of record. Also includes
warrants to purchase 139,250 shares and convertible notes which are
convertible into 58,000 shares.
(9) Includes (i) 54,500 shares held by 1st S. I. Fund Trust, a trust
administered by Mr. Zink and (ii) warrants to purchase 200,000 shares.
(10) Includes 25,000 shares which Mr. Hardy owns of record. Also includes
29,783 shares held by Interdec, for which Mr. Hardy serves as an officer
and director and warrants to purchase 25,000 shares.
(11) Includes 25,000 shares which Mr. May owns of record. Also includes 29,783
shares held by Interdec, for which Mr. May serves as an officer and
director and warrants to purchase 25,000 shares.
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In September 1993 and for services rendered to the Company, the directors of
the Company were issued warrants to purchase shares of Common Stock as follows:
Howard M. Palmer, 410,000 shares; James T. Hays, 54,637 shares; Gerald W. May,
25,000 shares; and Leroy Hardy, 25,000 shares. The warrants issued to the
Company's directors are exercisable into Common Stock at $1.00 per share through
December 31, 1999. Other than the exercise price, the terms and conditions of
the warrants issued to the directors are identical to the warrants issued in the
Company's private placement of Common Stock and warrants in October 1993 through
June 1994. The fair market value of the Company's Common Stock, as determined by
the Company's Board of Directors, was $0.50 per share on the date of the grant
of the warrants.
In September 1993, Don Zink was issued warrants to purchase 200,000 shares of
the Company's Common Stock for financial and real estate services previously
rendered to the Company. The warrants issued to Mr. Zink contain the same terms
and conditions as those issued to directors of the Company and described above.
The fair market value of the Company's Common Stock, as determined by the
Company's Board of Directors, was $0.50 per share on the date of the grant of
the warrants. In addition, Mr. Zink was issued an additional 40,000 shares of
the Company's Common Stock pursuant to a consulting arrangement with the
Company, whereby Mr. Zink had rendered financial and real estate services to the
Company.
In September 1993, Robert and Lynda Cullen, as trustees for the Cullen Family
Trust, were granted warrants to purchase 120,000 shares of Common Stock at an
exercise price between $1.00 and $3.00 per share for consulting services
rendered to the Company. In December 1993 the Cullen Family Trust purchased
60,000 shares of Common Stock for $.50 per share and was granted warrants to
purchase an additional 60,000 shares of Common Stock in terms identical to those
described above. In February 1994, the Cullen Family Trust purchased 140,000
shares of Common Stock and was granted warrants to purchase an additional
140,000 shares of Common Stock on terms identical to those described above. In
January 1995, the Cullen Family Trust was granted warrants to purchase 10,000
shares of Common Stock on terms identical to those described above. In September
1995, the Cullen Family Trust acquired a Convertible Note in the principal
amount of $5,395.84, which is convertible into 10,792 shares of Common Stock
and, in connection therewith, was granted a warrant to purchase an additional
10,792 shares of Common Stock on terms identical to those described above.
At various times between October 1993 and June 1995, David Pamintuan
purchased an aggregate of 66,680 shares of Common Stock for $.50 per share, and
was granted warrants to purchase an additional 81,250 shares of Common Stock on
terms identical to those described above with respect to the Cullens. During
September and November 1995, Mr. Pamintuan acquired Convertible Notes in the
aggregate principal amount of $29,000, which are convertible into 58,000 shares
of Common Stock and, in connection therewith, was granted warrants to purchase
an additional 58,000 shares of Common Stock on terms identical to those
described above.
11
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3.1........... Articles of Incorporation of the Company.*
3.2........... Amendment to the Articles of Incorporation changing the
Company's name to TVM Global Entertainment, Inc.*
3.3........... Amendment to the Articles of Incorporation changing the
Company's name to Cinema Features, Inc.*
3.4........... Amendment to the Articles of Incorporation changing the
Company's name to Focal Corporation.*
3.5........... Restated Bylaws of the Company.*
3.6........... Amendment to the Articles of Incorporation authorizing
the Series A Convertible Preferred Stock.*
4.1........... Specimen stock certificate of the Company.*
10.1.......... Form of Warrant Certificate issued to directors of the
Company (schedule of directors receiving Warrants
attached thereto).*
10.2.......... Employment Agreement dated October 1, 1993 between the
Company and Howard M. Palmer.*
10.3.......... Agreement dated July 29, 1993 between the Company and
Howard M. Palmer, whereby the Company acquired operating
funds, management expertise and potential real estate
assets in exchange for Common Stock and future
consideration.*
10.4.......... Bill of Sale and Transfer of Rights in Movie Properties
dated June 27, 1993 between the Company and Maverick
Marketing Management, Inc.*
10.5.......... Form of Convertible Promissory Note.**
10.6.......... Purchase Agreement dated June 18, 1996, between the
Registrant and Gilbert Arizona Development
Corporation.**
12
<PAGE>
10.7.......... Amendment to Purchase Agreement and Escrow Instructions
dated June 26, 1995, between the Registrant and Myung
Hee Lee.**
_______________
* Filed as an exhibit to the Company's Registration Statement on Form 10-SB
dated November 26, 1993 or amendment thereto dated March 28, 1994
(Registration No. 0-22968) and incorporated herein by reference.
** Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995, and incorporated herein by reference.
(b) REPORTS ON FORM 8-K.
Inapplicable.
13
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 1996
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Prior Independent Auditors' Report F-3 - F-4
Balance Sheet as of June 30, 1996 F-5
Statements of Operations
For the Years Ended June 30, 1996 and 1995 F-6
Statement of Operations
From Inception of Development Stage to June 30, 1996 F-7
Statements of Shareholders' Equity (Deficit)
From Inception of Development Stage to June 30, 1996 F-8
Statements of Cash Flows
For the Years Ended June 30, 1996 and 1995 F-9
Statement of Cash Flows
From Inception of Development Stage to June 30, 1996 F-10
Notes to Financial Statements F-11 - F-14
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
April 29, 1997
To the Board of Directors
Focal Corporation
Anaheim, California
We have audited the accompanying balance sheet of Focal Corporation (a
development stage company) as of June 30, 1996, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the years ended
June 30, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit. The financial statements of Focal
Corporation (a development stage company) from inception (July 1, 1993) to June
30, 1994 were audited by other auditors whose report has been furnished to us
and is included in these financial statements. Our opinion insofar as it relates
to the amounts included for Focal Corporation (a development stage company) for
the period stated above, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Focal Corporation (a development stage company) as of
June 30, 1996, and the results of their operations and their cash flows for the
years ended June 30, 1996 and 1995 and from inception (July 1, 1993) to June 30,
1996, 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 12 to the
financial statements, there is doubt about the ability of the company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P.
Woodland Hills, California
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
Focal Corporation
We have audited the accompanying consolidated balance sheet of Focal Corporation
and subsidiary as of June 30, 1994, and the consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. 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. The financial statements of Focal Corporation as of June 30, 1993
were audited by other auditors whose report dated August 2, 1993 on those
financial statements included an explanatory paragraph that described the going
concern issue and management's plan in Note 2(b) of those financial statements.
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 from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Focal
Corporation as of June 30, 1994, and the results of its operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 5 to the
consolidated financial statements, the Company has no operations, and has
negative working capital and a stockholders' deficit at June 30, 1994. The
Company's ability to achieve the described elements of its management plan are
uncertain due to the lack of any identifiable sources of capital necessary to
meet the required fiscal demands. The Company's financial position and operating
results raise substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also described in Note
5. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-3
<PAGE>
In addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
KELLY & COMPANY
/s/ Kelly & Company
Tustin, California
October 7, 1994
F-4
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
ASSETS
<S> <C>
REFUNDABLE LOAN COMMITMENT FEE (Notes 2 and 14) $ 120,000
DEFERRED TAX ASSET (Note 3) --
----------
Total Assets $ 120,000
==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 411
Accounts payable 388,905
Accrued payroll 10,333
Accrued payroll - president (Notes 11 and 13) 180,000
Accrued expenses - related parties (Note 11) 35,412
Accrued payroll taxes (Note 4) 33,434
Accrued income taxes 2,440
Interest payable 6,517
Notes payable (Note 5) 102,046
Loan payable - related party (Note 6) 10,000
Advances from president (Note 7) 2,669
Loan payable (Notes 8 and 14) 150,000
-----------
Total Current Liabilities 922,167
-----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock; 100,000,000 shares authorized, no shares
outstanding, no par value --
Common stock; 40,000,000 shares authorized, 2,690,676 shares
issued and outstanding, $0.10 par value (Note 13) 269,068
Additional paid in capital 1,923,393
Deficit accumulated before the development stage (1,739,945)
Deficit accumulated during the development stage (1,254,683)
-----------
Total Shareholders' Equity (Deficit) (802,167)
-----------
Total Liabilities and Shareholders' Equity (Deficit) $ 120,000
===========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-5
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
REVENUES (Note 1) $ 0 $ 0
OPERATING COSTS AND EXPENSES 301,941 511,625
OTHER INCOME
Relief of debt (Note 10) 34,605 0
--------- ---------
(Loss) Before Income Taxes (267,336) (511,625)
PROVISION FOR INCOME TAXES 1,600 1,000
--------- ---------
Net (Loss) $(268,936) $(512,625)
========= =========
(Loss) per common share and common share
equivalent (Note 9) $ (.10) $ (.21)
========= =========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-6
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1996
<TABLE>
<S> <C>
REVENUES $ 0
OPERATING COSTS AND EXPENSES 1,285,888
OTHER INCOME
Relief of debt (Note 10) 34,605
-----------
(Loss) Before Income Taxes (1,251,283)
PROVISION FOR INCOME TAXES 3,400
-----------
Net (Loss) $(1,254,683)
===========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-7
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1996
<TABLE>
<CAPTION>
Total
Common Stock Preferred Stock Additional Share-
---------------------- -------------------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
--------- --------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 1, 1993 -
Balance at
beginning of
development
stage 1,526,396 $ 152,640 -- $ -- $1,576,181 $(1,739,945) $ (11,124)
Stock issued
for services 349,960 34,996 21,484 56,480
Sale of stock 414,120 41,412 165,648 207,060
Net (Loss) (473,122) (473,122)
--------- --------- ------- -------- ---------- ----------- --------
Balance at
June 30, 1994 2,290,476 229,048 -- -- 1,763,313 (2,213,067) (220,706)
Stock issued
for services 114,800 11,480 45,920 57,400
Stock issued
to officer
in lieu of
salary 200,000 20,000 80,000 100,000
Sale of stock 75,400 7,540 30,160 37,700
Stock issued
for payment
of note 10,000 1,000 4,000 5,000
Net (Loss) (512,625) (512,625)
--------- --------- ------- -------- ---------- ----------- --------
Balance at
June 30, 1995 2,690,676 269,068 1,923,393 (2,725,692) (533,231)
Net (Loss) -- (268,936) (268,936)
--------- --------- ------- ----------- ---------- ----------- --------
Balance at
June 30, 1996 2,690,676 $ 269,068 -- $ -- $1,923,393 $(2,994,628) $(802,167)
========= ========= ======= =========== ========== =========== =========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-8
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING
ACTIVITIES:
Net (loss) $(268,936) $(512,625)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Operating expenses paid by issuance of stock -- 57,400
Compensation to officer paid by issuance of stock -- 100,000
Operating expenses paid by reduction of loan
commitment fee -- 30,000
Decrease in prepaid expenses -- 10,000
Increase in interest payable 4,030 2,487
Increase in accounts payable and accrued expenses 191,078 218,282
--------- ---------
Net Cash Flows (Used) by Operating Activities (73,828) (94,456)
--------- ---------
CASH FLOWS (USED) BY INVESTING ACTIVITIES:
Refundable loan commitment fee -- (150,000)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of notes payable 72,046 50,000
Issuance of common stock -- 37,700
Issuance of loan payable -- 150,000
Decrease in advances from president (2,331) --
--------- ---------
Net Cash Flows Provided by Financing Activities 69,715 237,700
--------- ---------
NET (DECREASE) IN CASH (4,113) (6,756)
CASH AT THE BEGINNING OF THE YEAR 3,702 10,458
--------- ---------
CASH (OVERDRAFT) AT THE END OF THE YEAR $ (411) $ 3,702
========= =========
ADDITIONAL DISCLOSURES:
Cash paid during each year for:
Interest $ 3,859 $ 1,500
========= =========
Income taxes $ 1,121 $ 1,000
========= =========
NON CASH INVESTING AND FINANCING
TRANSACTIONS:
Common stock issued in consideration of loan $ -- $ 5,000
========= =========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-9
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1996
<TABLE>
<S> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net (loss) $(1,254,683)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Non-cash compensation and promotion 83,960
Operating expenses paid by issuance of stock 57,400
Compensation to officer paid by issuance of stock 100,000
Operating expenses paid by reduction of loan commitment fee 30,000
Loss on write-off of assets (18,250)
Decrease in prepaid expenses 10,000
Increase in accounts payable and accrued expenses 620,170
Increase in interest payable 6,517
Net Cash Flows (Used) by Operating Activities (364,886)
---------
CASH FLOWS (USED) BY INVESTING ACTIVITIES:
Refundable loan commitment fee (150,000)
---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of notes payable 122,046
Issuance of common stock 244,760
Issuance of loan payable 150,000
Decrease in advances from president (2,331)
---------
Net Cash Flows Provided by Financing Activities 514,475
---------
NET (DECREASE) IN CASH (411)
CASH AT THE BEGINNING OF THE PERIOD 0
---------
CASH (OVERDRAFT) AT JUNE 30, 1996 $ (411)
=========
ADDITIONAL DISCLOSURES:
Cash paid during the period for:
Interest $ 5,359
=========
Income taxes $ 2,121
=========
NON CASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued in consideration of loan $ 5,000
=========
</TABLE>
The Accompanying Footnotes are an Integral Part of These Financial Statements
F-10
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Focal Corporation was incorporated in the State of Utah in 1980 as Petro-
Funding. The Company sold and distributed its assets from the movie distribution
business during May and June of 1993. The Company then changed the focus of its
business on July 1, 1993 to the acquisition, development and management of
commercial real estate, primarily shopping centers. The Company has not acquired
any properties as of the date of this report, and has not recognized any income
from the date of inception (July 1, 1993) to June 30, 1996. As the Company was
involved in other businesses prior to July 1, 1993, an accumulated deficit of
$1,739,945 had been incurred to the last day of those operations on June 30,
1993. Focal Corporation has not generated revenue since the sale and
distribution of assets from the movie distribution business during May and June
of 1993. As such, the accompanying financial statements have been prepared using
the accounting formats prescribed for development stage companies since July 1,
1993.
Income Taxes
The Company files federal income and state franchise tax returns. The Company
accounts for deferred income taxes using the liability method in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), which it
adopted during 1994. Deferred income taxes are computed based on the tax
liability or benefit in future years of the reversal of temporary differences in
the recognition of income or deduction of expenses between financial and tax
reporting purposes. The net difference between tax expense and taxes currently
payable is reflected in the balance sheet as deferred taxes. Deferred tax assets
and/or liabilities are classified as current and noncurrent based on the
classification of the related asset or liability for financial reporting
purposes, or based on the expected reversal date for deferred taxes that are not
related to an asset or liability.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 2 - REFUNDABLE LOAN COMMITMENT FEE
The Company has a refundable loan commitment deposit in an account with a bank.
This is a deposit toward a loan commitment fee for a pending project. The
project, for which the deposit was made, was due to close as of November 21,
1994; however, as of the date of the financial statements the project has not
closed and the deposit remains with the bank. The original deposit was $150,000.
As of June 30, 1996 $120,000 remains on deposit (see Note 8). As of the date of
the financial statements, the Company has incurred approximately $47,500 of
costs associated with this loan commitment. These costs will be applied against
the refundable deposit. See Note 14 regarding subsequent events.
NOTE 3 - INCOME TAXES
Deferred tax assets and liabilities are recorded based on the difference between
the financial statement and tax return bases of assets and liabilities. Deferred
tax assets and liabilities at the end of each period are determined using the
tax rate expected to be in effect when taxes on these accounts are expected to
be paid or recovered. Accordingly, the current period tax provision can be
affected by the enactment of new tax rates.
F-11
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 3 - INCOME TAXES (CONTINUED)
The net deferred tax amounts included in the accompanying balance sheet include
the following amounts of deferred tax assets and liabilities at June 30, 1996:
<TABLE>
<S> <C>
Deferred Tax Asset - Non-Current $ 506,600
Deferred Tax Liability - Non-Current --
---------
506,600
Valuation allowance (506,600)
---------
Net Deferred Tax Asset - Non-Current $ 0
=========
</TABLE>
The deferred tax asset results from ordinary loss carryforwards available to
reduce future taxable income. The valuation allowance account is established to
reduce the tax asset account to $0 because the operating losses may not be
utilized. The valuation allowance increased by $113,000 from June 30, 1995 to
June 30, 1996 as a result of additional operating losses.
As of June 30, 1996 and 1995, for income tax purposes, the Company had
approximately $1,251,000 and $984,000, respectively, of ordinary loss
carryforward available to reduce future taxable income through the year 2011.
NOTE 4 - ACCRUED PAYROLL TAXES
The Company has $33,434 of accrued payroll taxes which existed as of June 30,
1994 for individuals believed to be employees rather than independent
contractors. No assessment has been imposed for such taxes. However, because at
the present time there is no assurance that the taxes or applicable penalties
and interest will not be imposed, the estimated payroll taxes have remained
accrued. This accrual will expire June 30, 1997.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at June 30, 1996:
<TABLE>
<S> <C>
Note payable - David Pamintuan, with interest at 12%, due October 31, 1996 $ 16,500
Note payable - David Pamintuan, with interest at 12%, due November 14, 1996 12,500
Note payable - Frances and/or William Platts, with interest at 12%, due October 31, 1996 12,000
Note payable - Robert Erickson, with interest at 12%, due September 21, 1996 9,000
Note payable - Commercial Ventures, Inc., with interest at 12%, due October 30, 1996 5,000
Note payable - Mark Moss, with interest at 12%, due October 29, 1996 16,650
Note payable - Witta P. Baughn & Richard Baughn, with interest at 12%, due March 24, 1997 5,000
Note payable - Witta P. Baughn & Richard Baughn, with interest at 12%, due April 7, 1997 10,000
Note payable - Lynda & Robert Cullen, with interest at 12%, due October 31, 1996 5,396
Notes payable - various individuals, with interest at 10%, currently due 10,000
--------
$102,046
========
</TABLE>
None of these notes are collateralized. All of these notes, with the exception
of Commercial Ventures, Inc., have been renewed and are currently due. The note
payable to Commercial Ventures, Inc. was paid in full on January 24, 1997.
Total interest expense of $8,749 and $3,987 is included in operating expenses as
of June 30, 1996 and 1995, respectively.
F-12
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 6 - LOAN PAYABLE - RELATED PARTY
Loan payable - related party consisted of the following
at June 30, 1996:
Loan payable - Kenneth Palmer, son of Howard Palmer,
with interest at 12% due June 27, 1996 $10,000
=======
This loan is not collateralized. Renewal of this loan is at the discretion of
the holders. However, management expects renewal to occur in the normal course
of business for the foreseeable future. Total interest expense of $1,286 is
included in operating expenses as of June 30, 1996.
NOTE 7 - ADVANCES FROM PRESIDENT
Advances from president consisted of the following
at June 30, 1996:
Advance - Howard Palmer, president of the Company,
no stated terms $ 2,669
=======
NOTE 8 - LOAN PAYABLE
The Company received an unsecured loan from a non-related third party. The loan
was due on November 21, 1994 (the anticipated closing date of the pending
project as referenced in Note 2); however, as of the date of the financial
statements, the pending project has not closed and the loan has not been paid.
Upon either closing or termination of the pending project, the full $150,000 is
payable to the non-related third party. Interest is not accruing on this payable
(see Note 14).
NOTE 9 - LOSS PER COMMON SHARE
Primary loss per common and common equivalent share, assuming no dilution, is
computed based on the weighted average number of shares of common stock and
common stock equivalents outstanding during each year. The number of weighted
average common and common equivalent shares, as applicable, outstanding during
the years ended June 30, 1996 and 1995 was 2,690,676 and 2,453,368,
respectively. Fully diluted per share data is not presented as the effects would
be antidilutive.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an employment contract with its president that
provides for a monthly salary and annual vacation pay. The contract expired on
June 30, 1996. At the present time, due to lack of Company funds, this amount is
being accrued. However, the president of the Company has elected to waive his
rights to all vacation pay earned during fiscal year 1996 and, as such, no
amounts have been accrued for that period.
The Company has settled two lawsuits about disputed consultants' claims that
were originally for $115,896. The parties have agreed to settle for $94,660,
which is included in accounts payable. The remaining $21,236 has been recognized
as income and is included in relief of debt.
F-13
<PAGE>
FOCAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company has accrued expenses of $35,412 due to officer and directors of the
Company at June 30, 1996. Subsequent to the year end, the Company issued 240,000
shares of common stock valued at $120,000 to Howard Palmer, president of the
Company, in lieu of salary for the calendar year 1995. For the period January
through June 1996, salary to Howard Palmer of $60,000 has been accrued.
NOTE 12 - UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The financial statements have been prepared assuming the Company will continue
as a going concern. The Company currently has no operations and is dependent
upon funds from a private placement for funding its day-to-day cash
requirements. The Company has been directing its efforts to acquiring well-
leased, existing ten to twenty acre discount shopping centers, anchored by major
national retail tenants. The Company has located properties in Arizona,
California and Nevada that fit its investment criteria and is exploring ways to
finance the acquisition of these properties. If the Company is able to acquire
these properties, the properties may generate adequate revenues for the Company
to finance its operations. The Company's president, who has been in the discount
shopping center development business for over twenty-five years, is currently
working with representatives of national retail chains to select possible sites
in various areas for future development of shopping centers. The Company
proposes to construct the facilities and lease them back to the retailers on
long term leases. At the present time there is no assurance that these events
will take place. The effect of the foregoing matters raises substantial doubt
about the ability of the Company to continue as a going concern. As discussed in
Notes 5 and 6, the Company is also dependent upon creditors not calling the
loans.
NOTE 13 - WARRANTS TO PURCHASE COMMON STOCK
In connection with the restructuring of the Company, 260,000 warrants were
issued to certain individuals to purchase common stock. Each warrant represents
the right to purchase one share of the Company's common stock at prices ranging
from $1 to $3 per share. The warrants expire on December 31, 1999.
In connection with the issuance of stock and notes payable during 1995, the
Company issued 300,200 warrants to purchase common stock at prices ranging from
$1 to $3 per share. The warrants expire on December 31, 1999.
In connection with the issuance of stock and notes payable during 1996, the
Company issued 513,512 warrants to purchase common stock at prices ranging from
$1 to $3 per share. The warrants expire on December 31, 1999.
Along with shares of common stock issued to two individuals, 300,000 warrants
were issued, exercisable at prices ranging from $1 to $3 per share, expiring on
December 31, 1999.
On July 31, 1996, the Company issued 240,000 warrants to Howard Palmer in lieu
of $120,000 salary, which was unpaid as of June 30, 1996.
NOTE 14 - SUBSEQUENT EVENTS
On October 3, 1996, the loan commitment deposit of $120,000 was withdrawn. In
addition, the related loan payable of $150,000 was removed. Associated costs of
$47,631 were paid out of the loan proceeds, which along with the loan payable of
$30,000 that was forgiven, allowed the Company to recognize $77,631 as income.
F-14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOCAL CORPORATION
Dated: May 27, 1997 By: /s/ HOWARD M. PALMER
--------------------------------
Howard M. Palmer, Chairman of the
Board and President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/s/ HOWARD M. PALMER Chairman of the Board and May 27, 1997
- ---------------------- President (Principal
Howard M. Palmer Executive Officer)
/s/ A. G. KADING Treasurer May 27, 1997
- ---------------------- (Principal Financial
A. G. Kading and Accounting Officer)
/s/ LEROY HARDY Vice President and May 27, 1997
- ---------------------- Director
Leroy Hardy
/s/ GERALD W. MAY Director May 27, 1997
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Gerald W. May
