SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file #: 33-87714
OLYMPIC ENTERTAINMENT GROUP, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0271810
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
2550 E. Desert Inn Road, Suite 338, Las Vegas, NV 89121
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 369-2588
---------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 Par Value NONE
- ---------------------------- ---------------------
(Title of Class) (Name of Each Exchange
on Which Registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
--------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. (1) Yes X No (2) Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ X ]
At December 31, 1998 there were 2,973,080 shares of common stock outstanding.
The aggregate market value of the common stock held by non-affiliates of the
registrant (i.e., excluding shares held by executive officers, directors and
control persons as defined in rule 405).
Documents incorporated by reference: None.
<PAGE>
PART I
Item 1. Business
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(a) General Development of Business
-------------------------------
Olympic Entertainment Group, Inc. (the "Company") is a multimedia educational
company and was incorporated on May 21, 1987 in the State of Nevada. The Company
was originally formed to finance, produce co-produce and distribute motion
pictures and television shows and pursued various opportunities through 1993,
when the Company's management decided to focus upon the development of a cable
television network for the distribution of children's nonviolent television
programming. From 1993 through 1995 the Company developed this concept and in
1995, launched the Children's Cable Network ("CCN"). To date, the Company has
had success in several markets but has experienced marginal or poor results from
the efforts of licensees and has determined it to be in the Company's interest
to seek to recapitalize the Company and to seek other venues of distribution.
(b) Narrative Description of Business
---------------------------------
The Company has created a children's educational division called Children's
Cable Network ("CCN" or the "Network"). Prior to January 1998, the Company
acquired, purchased, and licensed educational programming for the Children's
Cable Network; specializing in nonviolent, educational, informative and special
interest preschool programming, children's classics programs and G-rated
children's motion pictures. The Company's present lack of any revenue and any
cash reserves has resulted in cessation of these activities.
All reference to the Company in the following discussion of the business
activities of the Company includes Children's Cable Network.
Children's Cable Network
CCN provides award-winning, nonviolent, educational, informative and special
interest children's programming for television and in the process of providing
this programming, creates business opportunities for individuals and
syndications looking to get into the cable television broadcasting business.
Federal Legislation
The Federal Communications Act of 1984 requires cable operators to provide
channels for lease to the public in an attempt to enhance the diversity of
program choices available to cable subscribers. Generally, such allocation of
channels is referred to as "leased access." Section 612 of the Communications
Act of 1984 established a federal scheme through channel leasing to assure
access to cable systems by third parties unaffiliated with the cable operator.
Under the amendments to Section 612, cable operators were also permitted to
place programming from a qualified minority or educational programming source on
up to 33 percent of the cable system's designated leased access channels.
Additionally, the Cable Act of 1992 mandated that every cable system with more
than thirty-six channels and less than 55 activated channels must designate 10
percent of their capacity to leased access. Systems with greater than 55
activated channels must set aside 15 percent of their capacity to leased access.
In addition, the Federal Communications Act of 1984 provides individuals and
groups the opportunity to use the public, educational and government access
channels offered by the cable companies. Systems with fewer than 36 activated
channels are not required to make lease channel capacity available unless
otherwise required to do so by terms of the franchise in effect on December 29,
1994. The Cable Television Act of 1992 renewed government supervision of the
franchised cable television industry which was deregulated by the Cable Act of
1984. Both Acts are amendments to the Communications Act of 1934. The Cable
Television Act of 1992 ("1992 Act") authorized the FCC to implement rate and
<PAGE>
service regulation for certain basic cable television services and to create
regulations that will increase competition to franchised cable operators. On
April 1, 1993, the FCC announced several features of the rules it planned to
implement in connection with the 1992 Act. Most of the announced rules concerned
rate regulation for franchised services as well as a temporary rate freeze and
rollback. In order to promote competition with franchised cable operators, the
FCC announced program access regulations as part of the Act. These provisions
essentially allow competitive cable operators to purchase television programming
at fair prices. Management believes that these provisions of the Act may result
in lower operating costs for the Company, however, there can be no guarantee
that revisions in said regulation will not materially affect the Company.
The cable television industry is subject to both regulatory restrictions
implemented primarily by the Federal Communications Commission, ("FCC") and also
legislation which affects communications and broadcast industries in general.
The Children's Television Act of 1990 established new requirements including
that each broadcasting station must provide programs that serve the educational
and informational needs of young viewers. Accordingly, broadcasters must limit
the amount of advertising aired during children's programming and must provide
programs that meet the educational and informational needs of children.
Cable Affiliates
Prior to January 1, 1998, the Company licensed its programming to Cable
Affiliates who would cablecast this programming on their local cable systems
through the purchase of time on a leased access channel. The Company obtains
Cable Affiliates through business opportunity shows and seminars, direct mail
and business opportunity advertisements in national publications and on the
internet. The Company licensed only one Cable Affiliate in each cable system
market.
Employees
The Company currently has no employees in the corporate office in Las Vegas,
Nevada, having reduced its staff from eighteen employees in order to reduce
costs. The Company is being run by Directors.
Competition
The Company's business is very competitive. The Company is in competition with
many cable companies none of which specialize in nonviolent, educational
programming. Many competitors exist which have greater financial resources
and/or more experience in the delivery of programming than the Company. The
Company competes with all other broadcasters of children's programming. On cable
television competitors include The Family Channel, The Learning Channel, PBS,
Nickelodeon, and The Disney Channel. The Company intends to offer programming
Monday through Friday, 6:00 AM to 12:00 Noon which is potentially more weekly
air time of nonviolent, educational programming than all of the other
competitors.
Programming
The programs consist of nonviolent, educational, informative and special
interest programming which teach positive character development, morality, and
introduction to numbers, letters and music. Each program is approximately 25
minutes in length, which leaves 5 minutes of time for the Cable Affiliate to
sell commercial advertisements, sponsorships, and/or create and produce locally
originated programming.
The Company, through its own research, has located many award-winning children's
series produced since 1950, some of which the Company plans to obtain through
direct acquisition or licensing, provided the Company is able to raise the
capital necessary so to do. The programming for children includes puppet shows,
live action and animated characters, children's classic stories and music that
is designed to teach children in a fun and entertaining way.
<PAGE>
Library
The library of programs, many of which are award-winning, focus on educational
value as well as character and morality development. To date, each series of
programs is aimed at the 1 1/2 to 6 year old audience assisting them in their
preparation for school. The Company owns outright or licenses under long term
leases each of the following programs.
Olympic Entertainment Group, Inc.'s Library Of Programming
The Shari Show
26 1/2 hour episodes
The Shari Show takes place in the TV station called Bearly Broadcasting
where all of the positions are manned by puppets. Shari Lewis is the
secretary to the station manager, Mr. Bearly. As they put on the full
range of typical shows at Bearly Broadcasting, human interaction and
value judgments are explored and revealed. More than an entertainment
show for children of all ages, The Shari Show stimulates children's
senses of curiosity and humor, which creates involvement... a basic
measurement of the educational process. Shari Lewis and The Shari Show
have won seven (7) Emmys, the Peabody award and numerous other
prestigious awards for excellence. Programming on license.
Bill Cosby's PicturePages
80 1/2 hour episodes
Bill Cosby's PicturePages, winner of a Golden Globe award and Gold
Medalist of the International Film Festival of New York, helps children
develop important skills like following directions, drawing, hand-eye
coordination, clear thinking and numbers. PicturePages is the epitome
of educating children with love and laughter. Bill Cosby's unique
approach, which delights children and adults, is recommended by the
National Education Association. Programming on license.
Dusty's Treehouse
260 1/2 hour episodes
Dusty's Treehouse is a children's show designed for ages 2-6. The show
uses both adult and children mixed with puppets. Winner of eight (8)
Emmys and the coveted George Foster Peabody award, Dusty's Treehouse is
very entertaining, while at the same time teaches children how to cope
when someone was injured, what love is, to look both ways when crossing
the street, never let strangers into the house and other social and
practical skills for dealing with today's world. Owned by the Company.
Achievements In African-American History
10 1/2 hour programs
Achievements in African-American History documents in a ten part
series, the historical achievements of black women and men in the
fields of literature and poetry, cinema, religion, medicine and
science. This series features noted black personalities such as Abbey
Lincoln, Roscoe Lee Browne, Brock Peters and Lou Gossett, Jr., who
document through narration, dramatic scenes and readings, some of the
important historical contributions made by African- Americans. Owned by
the Company.
Hot Fudge
75 1/2 hour episodes
Hot Fudge is the recipient of two national honors, the Action for
Children's Television Award for Outstanding Contribution to Mental
Health Programming for children, and the San Francisco State College
Excellence in Broadcasting Award. This nationally recognized program
that combines live action and a delightful cast of puppets with
lessons, music and fun. Join the Hot Fudge Gang as they learn about the
<PAGE>
complexities of relationships, friendship, self esteem, feelings, and
cooperation, among many others, through song, live action skits, and
game shows. Each energetic show follows a single theme with engaging
dialogue And lively performances. Owned by the Company.
KidStreet
130 1/2 hour episodes
This highly exciting game show for children is also family oriented.
Three pairs of siblings, the red team, the blue team and the green
team, vie for victory and prizes by guessing how one sibling will
answer a set of questions. Points are awarded for correct answers and
the team with the most points wins the chance to solve the final
puzzle. The show motivates kids to learn problem solving skills and to
better understand their sisters and brothers. Programming on license.
Coming To Ametrica
2 1/2 hour episodes
Coming To Ametrica is a combination of live action and animation
designed to teach children as well as adults the metric system of
weights and measures. In this series, a spaceship kidnaps Admiral
Gordon and six young people who have been chosen to teach America the
metric system of measurements. While detained aloft in the spaceship
the Admiral and his young crew learn everything there is to know about
the metric system.
The spaceship computer uses lively and entertaining animation to teach
the skeptical Americans about liters, meters, and grams. They learn
that the metric system is used worldwide, and that once understood, it
is easier to use than gallons, yards and pounds. The series is fun,
entertaining and most of all, highly educational. Owned by the Company.
Metric Series
38 15 minute episodes
(approximately 600 minutes of animation)
A series of animation programs designed to teach children, as well as
adults, the metric system of weights and measures. The Metric Series
features a mild mannered character named Newton Joule who, when
conversion problems arise, turns into the superhero Metric Man to teach
children about liters, meters and grams. They learn the metric system
is used worldwide, and that once understood, it is easier to use then
gallons, yards and pounds. The series is fun, entertaining and most of
all, highly educational.
Scott McGrout Inside Out
1 30 minute special
A highly informative and entertaining film on body awareness. This
beautifully animated story introduces Scott McGrout who takes a
fascinating journey through the human body. This film teaches the child
how important each part of the body is and how each part works together
to keep the body healthy and strong. Owned by the Company.
Kerchoo - What Really Happens When You Catch A Cold
1 10 minute film short
In this imaginative film, Scott McGrout learns about the common cold.
Experiencing cold spells and sneeze quakes, Scott and the viewer watch
the body fight off Elvirus and her vacation companion, Common Cold.
Owned by the Company.
Rod Rocket
135 5 minute episodes (675 minutes of animation)
The exciting adventures of two astronauts in outer space in wonderful
animation. Owned by the Company.
<PAGE>
Feature-Length Films
Fifteen movies with Tarzan, Abbott and Costello, Danny Kaye and Shirley
Temple, among others.
Item 2. Properties
- ------------------
The Company presently leases no space and during the report period terminated
its leases in Burbank, California, and subsequently in Las Vegas, Nevada.
Item 3. Legal Proceedings
- -------------------------
The Company is currently involved in the following legal matters:
The Company is a Defendant in Civil Action 96 CV 1930, Capital Funding &
Financial Group, Inc., et al. vs. Olympic Entertainment Group, Inc. In this
cause, Plaintiff seeks refund of approximately $120,000 paid to the Company as
licensing fees in 1996. The Company intends to defend itself and pursue its
claims for licensing fees owed in excess of $100,000 and for damages caused by
Capital Funding through tortuous interference with various contracts. A default
judgment in excess of $1,000,000 was entered against the Company on November 2,
1998 under allegedly improper circumstances. The default order was stayed at a
subsequent hearing. A motion to set aside the judgment is pending.
The Company is a Defendant in Lee Van Dyke, Judy Lynn Kloepfer and William G.
Chandler vs. Olympic Entertainment Group, Inc., et al., which was filed in
Superior Court of Los Angeles County, Case No. BC189116, seeking class action
status and alleging various allegations of violation of California securities
laws, breach of contract and violation of the California Business and
Professions Code. The Company intends to vigorously defend itself and deny that
it ever offered or sold any securities nor did it participate in the sale of
securities. The Company further intends to assert its rights to indemnity from
the other defendants which were licensed broadcast rights by the Company.
The Company is a defendant in Case No. A394431 in the District Court of Clark
county, Nevada, entitled Desert Inn Office III, Limited Partnership, et al. vs.
Olympic Entertainment Group, Inc., et al. The alleged total for rent and "build
out" charges is $229,765.43 according to the lawsuit. The Company has not
started nor has it responded to any discovery motions in this case.
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 ended December 31, 1998.
PART II
Item 5. Market for Registrant's Common Equity & Related Stockholder Matters
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) Market Information
(1) (i) None
(ii) Not applicable
(iii) Fiscal Year End Fiscal Year End
December 31, 1998 December 31, 1997
----------------- -----------------
Low Bid High Ask Low Bid High Ask
------- -------- ------- --------
<S> <C> <C> <C> <C>
First Quarter $0.25 $0.63 $0.56 $1.13
Second Quarter $0.13 $0.44 $0.50 $1.31
Third Quarter $0.03 $0.16 $0.41 $0.88
Fourth Quarter $0.01 $0.04 $0.44 $1.14
</TABLE>
<PAGE>
(iv) Not applicable
(v) Not applicable
(2) (a) Not applicable
(b) Holders
-------
(1) Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, Approximately 300
$0.01 Par Value
(2) Not applicable
(c) Dividends
---------
(1) There have never been any dividends declared by the Registrant.
(2) Registrant's losses do not currently indicate the ability to
pay cash dividends.
Item 6. Selected Financial Data
- -------------------------------
1998 1997
----------------------------
Income statement data:
Revenues $2,800 $1,736,491
Income (loss)
from Operations ($1,779,890) ($476,326)
Net interest expense ($35,185) ($28,680)
Income (loss)
before income taxes ($1,779,890) ($476,326)
Income taxes -- --
Net income
(loss) ($1,779,890) ($476,326)
1998 1997
- --------------------------------------------------------------------------------
Per share data:
Primary:
Net income (loss) ($0.60) ($0.18)
=========================
Weighted average shares
outstanding 2,973,080 2,626,390
Fully diluted:
Net income (loss) ($0.60) ($0.18)
=========================
Weighted average shares
outstanding 2,973,080 2,626,390
<PAGE>
Balance sheet data:
Working capital
(deficiency) ($1,234,670) ($404,694)
Total assets $101.323 $1,093,232
Long-term debt $-0- $16,623
Redeemable preferred stock $203,000 $203,000
Total stockholders' equity
(deficiency) ($1,336,347) $350,676
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The Company has continued to experience severe cash flow problems occasioned by
(i) no revenue from license renewal fees or new Broadcast Affiliates licenses;
(ii) the failure of the Optimist Group licensing program initiated in January
1998, and terminated by mutual consent on April 1, 1998; and (iii) the failure
of the TSR program to produce significant new revenue from its cause marketing
initiatives. Since January 1998, the Company has sought to reduce overhead and
expenditures by (i) eliminating all paid personnel; (ii) ceasing to pay salaries
to corporate officers; and (iii) terminating its leasehold office space at 2755
East Desert Inn Road, Suite 200, Las Vegas, Nevada 89121.
The Company is seeking a strategic financial partner to provide the necessary
capital to continue operations at a favorable level. Should the Company be
unsuccessful by June 30, 1999, it would seek to reorganize its debt and to sell
its programming in an orderly bankruptcy proceeding.
Results of Operations
The following table sets forth, for the fiscal years ended December 31, 1998 and
1997, certain items from the Company's Statement of Operations.
1998 1997
- ------------------------------------------------------------------------------
Revenues $2,800 $1,736,491
Expenses $1,622,384 $2,184,137
Income (loss) from Operations ($1,619,584) ($447,646)
Other income (expense) ($160,306) ($28,680)
Income before taxes ($1,779,890) ($476,326)
Provision for income taxes - -
Net income (loss) ($1,779,890) ($431,326)
========== ========
Earnings per Share
Primary:
Weighted Average
Common Shares Outstanding 2,973,080 2,626,390
===================================
Income (Loss) per Common Share ($0.60) ($0.18)
======================================
Fully Diluted:
Earnings per Share
Weighted Average
Common Shares Outstanding 2,973,080 2,626,390
===================================
Income (Loss) per Common Share ($0.60) ($0.18)
=================================
<PAGE>
Comparison of 1998 to 1997
The Company's activities during the first quarter of 1998 and all of 1997
consisted of developing the Company's products, licensing cable affiliates and
negotiating acquisitions of rights to various children's television programs.
Revenues were down in 1998 versus 1997 due to the fact that cable affiliates did
not renew their licensing rights, a marketing program with Optimists
International failed in April of 1998 and there were no new affiliates. The
Company recognizes revenue from the network license agreements when all
specified conditions have been made. During 1998 and 1997, the bulk of the
Company's sales were attributed to the sale of network license agreements. The
selling, general and administrative expenses dropped in 1998 versus 1997 as
management reduced employees, eliminated salaries and compensation, ceased
advertising and marketing, withdrew from its offices and sought outside
marketing and financial partners.
Comparison of 1997 to 1996
The Company's activities during 1997 and 1996 consisted of developing the
Company's products, licensing cable affiliates and negotiating acquisitions of
rights to various children's television programs. Revenues were down thirty-one
percent (31%) in 1997 versus 1996 due to the fact that cable affiliates did not
renew their license agreements when all specified conditions had been made.
During 1997 and 1996, the bulk of the Company's sales were attributed to the
sale of network license agreements. The selling and general and administrative
expenses were almost the same from $2,139,137 in 1997 to $2,140,163 in 1996.
Capital Resources & Sources of Liquidity
During 1998, the Company's working capital decreased to a substantially greater
deficiency compared to a deficiency of $404,694 at December 31, 1997, primarily
due to a decrease in Affiliate sales.
The Company's primary cash requirements are for operating expenses (primarily
labor and general and administrative expenses) and for the acquisition of rights
to additional television series. The Company's primary source of cash was from
Affiliate licensing fees.
At December 31, 1997, the Company's working capital increased was a deficiency
of $434,364 compared to a positive working capital figure of $162,294 at
December 31, 1996. This was primarily due to a substantial decrease in Affiliate
sales and licensing fees starting in July of 1997. Approximately $125,000 in
proceeds from a convertible debt financing during 1997 reduced the deficiency
for the year.
The Company's primary cash requirements were for operating expenses, primarily
labor and general and administrative expenses, and for the acquisition of rights
to additional television series. In 1996, the Company's primary source of cash
was from Affiliate licensing fees. Historically, the Company's primary source of
cash has been through program licensing.
Related Party Transactions
All deferred compensation to Officers and Directors was continued to be forgiven
during 1998.
Major customers
The Company made sales in excess of 10% of total revenues in 1998 to major
customers as follows:
Customer: Sales/% of total
- --------------------------------------------------------------------------------
Carousel Media Marketing $2,800 100%
<PAGE>
Employment Contract
During 1998, Mr. Orsatti and the Company mutually agreed to terminate all
deferred compensation features and a five-year compensation agreement entered
into on January 15, 1997. Mr. Orsatti retains executive options to purchase
400,000 shares of common stock at an exercise price of 80% of the fair value of
the stock at the grant date.
Item 8. Financial Statements
- ----------------------------
The following financial statements are filed with this report as pages F-1
through F-9 following the signature page:
Reference
Report of independent public accountants F-1
Balance sheets F-2
Statements of operations F-4
Statements of stockholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
There were no changes or disagreements with accountants on accounting and
financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The following table sets forth the name, age, and position held of each director
and officer of Olympic Entertainment Group, Inc.:
Name Age Position
- ---- --- --------
Dominic Orsatti 66 Chief Executive Officer and Chairman
John Holt Smith 57 Secretary and Director
Bonnie Houldsworth 44 Treasurer and Chief Financial Officer
- ---------------
Officers and Directors
Pursuant to the Bylaws, each Director shall serve until the annual meeting of
the stockholders, or until his or her successor is elected and qualified. It is
the intent of the Company to support the election of a majority of "outside"
directors at such meeting. The Company's basic philosophy mandates the inclusion
of directors who will be representative of management, employees and the
minority shareholders of the Company. Directors may only be removed for "cause".
The term of office of each officer of the Company is at the pleasure of the
Company's Board.
<PAGE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Dominic Orsatti, Chairman of the Board, Chief Executive Officer and Founder, was
formerly President of Orsatti Productions, Inc., a leading producer of
educational films. Among Orsatti Productions credits were an NBC Children's
Television Special, "All About Me", a musical television special, "Get Down",
hosted by Milton Berle, more than 100 educational films and two educational
children's record albums. Mr. Orsatti is the recipient of more than 18 major
industry awards, including four gold and three silver medal awards by the New
York International Film Festival and two Golden Babe awards awarded at the
Chicagoland Film Festival. Mr. Orsatti co-wrote and was executive producer of
the first place Telly award-winning "Coming To Ametrica" in 1993. He is also a
member of the Writer's Guild of America.
John Holt Smith, Corporate Secretary and Director, is a senior partner of Smith
& Associates and was formerly a partner in the Fort Worth, Texas firm of
McDonald, Sanders, Ginsburg, Phillips, Maddox & Newkirk. As a partner, he served
as Vice President of the United States Trust Company of New York and in that
capacity opened the Beverly Hills, California office of the company. Mr. Smith
subsequently returned to the practice of law to ultimately head the securities
department of the Los Angeles firm of Bushkin, Gaims, Gaines & Jonas. In that
capacity, Mr. Smith represented clients including Johnny Carson, Kareem
Abdul-Jabbar, Diane Keaton, Joan Rivers, Bill Cosby, David Letterman, Neil Simon
and many NBC personalities. Mr. Smith is currently engaged in the private
practice of law representing broker-dealers, individuals and entities raising
capital as well as preparing private placements and subsequent public offerings.
Mr. Smith is a two-time graduate of Vanderbilt University (B.A. 1963, LL.B.
1966) and a member of the State Bars in Texas and California.
Bonnie Houldsworth, Treasurer and Chief Executive Officer, started her public
accounting career at Laventhol & Horwath. Ms. Houldsworth has been a founding
principal in a Las Vegas public accounting firm since 1987, Houldsworth, Russo &
Company, which is a full service accounting firm in which she specializes in
accounting and auditing for highly regulated industries such as banks, mortgage
companies and gaming companies. Ms. Houldsworth obtained a Bachelor of Science
in Accounting in June 1984 from the University of Nevada, Las Vegas, and became
a licensed Certified Public Accountant in Nevada and California.
Item 11. Executive Compensation
- -------------------------------
The table below sets forth the payroll and consulting compensation for fiscal
1998 for the executive officers and directors of the Company.
Name of Individual Capacities in Which Served Compensation
- --------------------------------------------------------------------------------
Dominic Orsatti Chairman and Chief Executive Officer $-0-
John Holt Smith Secretary and Director $-0-
Bonnie Houldsworth Treasurer and Chief Financial Officer $-0-
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
As of December 31, 1998, there were 2,973,080 Common Shares outstanding. The
following tabulates holdings of Common Shares of the Company by each person who,
subject to the above, are holders of record or are known by Management to own
beneficially more than 5.0% of the Common Shares and, in addition, by all
directors and officers of the Company individually and as a group.
<PAGE>
<TABLE>
<CAPTION>
Table 1 - Common Stock
----------------------
Name and Address Number of Shares of Percentage
of Beneficial Owner Common Stock Owned(1) of Ownership
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Dominic Orsatti(2) 800,000 26.90 Percent
2550 E. Desert Inn Road #338
Las Vegas, Nevada 89121
Nevada Entertainment Partners, Ltd.(2) 800,000 26.90 Percent
2550 E. Desert Inn Road #338
Las Vegas, Nevada 89121
John Holt Smith 8,000 .0027 Percent
1925 Century Park East #1600
Los Angeles, California 90067
All Directors and Officers as a Group (3) 808,000 27.1772 Percent
- --------------
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose
or direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
(2) Includes Nevada Entertainment Partners, Ltd., and Dominic Orsatti, the
managing general partner thereof, who together constitute a "group," as
that term is defined in Section 13D of the Securities Exchange Act of 1934,
as amended.
(3) Three individuals.
The following tabulates holding of Series "C" Preferred Shares of the Company
owned beneficially by all directors and officers of the Company individually and
as a group.
Table 2 - Series "C" Preferred Shares
-------------------------------------
Number of Series "C" Percent of
Name and Address Preferred Shares(1) Class
- -------------------------------------------------------------------------------------------
Dominic Orsatti(2) 12,000 36.58%
2550 East Desert Inn Road, Suite 338
Las Vegas, Nevada 89121
Nevada Entertainment Partners Ltd.(2) 12,000 36.58%
2550 East Desert Inn Road, Suite 338
Las Vegas, Nevada 89121
John Holt Smith 8,000 24.39%
1925 Century Park East #1600
Los Angeles, California 90067
All Directors & Officers
as a group (3) 20,000 60.97%
__________
<PAGE>
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose
or direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
(2) Includes Nevada Entertainment Partners, Ltd. and Dominic Orsatti, the
managing general partner hereof, who together constitute a "group," as that
term is defined in Section 13D of the Securities Exchange Act of 1934, as
amended.
(3) Three individuals.
Table 3 - Series "D" Preferred Shares
-------------------------------------
Number of Series "D" Percent of
Name and Address Preferred Shares(1) Class
- -------------------------------------------------------------------------------------------
Dominic Orsatti(2) 98,000 100%
2755 East Desert Inn Road, Suite 200
Las Vegas, Nevada 89121
Nevada Entertainment Partners Ltd.(2) 98,000 100%
2755 East Desert Inn Road, Suite 200
Las Vegas, Nevada 89121
All Directors & Officers
as a group (3) 98,000 100%
</TABLE>
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose
or direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
(2) Includes Nevada Entertainment Partners, Ltd. and Dominic Orsatti, the
managing general partner hereof, who together constitute a "group," as that
term is defined in Section 13D of the Securities Exchange Act of 1934, as
amended.
(3) Three individuals.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- ----------------------------------------------------------------
(a) Financial Statements
---------------------
Reference
---------
Report of independent public accountants F-1
Balance sheets F-2
Statements of operations F-4
Statements of stockholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7
(b) Reports on form 8-K
-------------------
None
(c) Exhibits
--------
None
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Olympic Entertainment Group, Inc.
We have audited the balance sheet of Olympic Entertainment Group, Inc. as of
December 31, 1998, and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Olympic Entertainment Group,
Inc. as of December 31, 1998, and the related statements of operations, changes
in stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1998, 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 10 to the
financial statements, the Company has suffered recurring losses from operations,
has made significant commitments and relies upon one major customer which raise
substantial doubts about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 10. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
May 21, 1999
F-1
<PAGE>
Olympic Entertainment Group, Inc.
Balance Sheet
As of December 31, 1998
Assets
1998
Current Assets:
Cash and cash equivalents $ 31
--------
Total current assets 31
Other Assets:
Film library 101,323
Deposits and other assets --
--------
101,323
--------
Total assets $101,354
========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Olympic Entertainment Group, Inc.
Balance Sheet
As of December 31, 1998
(Continued)
Liabilities and Stockholders' Equity
1998
Current Liabilities:
Notes payable $ 135,000
Current portion of long-term debt 36,787
Accounts payable - trade 607,429
Accrued expenses 455,485
Default judgement --
-----------
Total current liabilities 1,234,701
Long-term debt --
Commitments and contingencies
Redeemable preferred stock:
Preferred stock, 10% cumulative convertible
$.01 par value, 650,000 shares authorized,
101,500 and 106,500 sshares issued
and outstanding in 1996 and 1995
liquidating preference $1 per share 203,000
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 total shares authorized:
Preferred stock, convertible, 40,000 shares
authorized, 32,800 shares issued and
outstanding, $10 per share liquidating
preference (Series C) 65,600
Preferred stock, convertible, 98,000 shares
authorized, issued and outstanding, $3 per
share liquidating preference (Series D) 196,000
Common stock, $.01 par value, 20,000,000
shares authorized, 3,002,785 shares
issued and outstanding 30,028
Paid in capital 3,394,314
Common stock subscriptions 48,750
Accumulated deficit (5,071,039)
-----------
(1,336,347)
-----------
Total liabilities and
stockholders' equity $ 101,354
===========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Olympic Entertainment Group, Inc.
Statements of Operations
For the Years Ended December 31, 1998 and 1997
1998 1997
Revenue $ 2,800 $ 1,736,491
Costs and expenses:
General and administrative 1,622,384 2,184,137
----------- -----------
1,622,384 2,184,137
Income (loss) from operations (1,619,584) (447,646)
Other income and (expense):
Interest expense (35,185) (28,680)
Loss from disposal of assets (134,740)
Other income 9,619 --
----------- -----------
(160,306) (28,680)
Net income before income taxes (1,779,890) (476,326)
Provision for income taxes -- --
----------- -----------
Net income (loss) $(1,779,890) $ (476,326)
=========== ===========
Per share information:
Basic and diluted (loss) per share
Net income (loss) per share $ (0.60) $ (0.18)
=========== ===========
Weighted average shares outstanding 2,973,080 2,626,390
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Olympic Entertainment Group, Inc.
Statement of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
Additional Common
Common Preferred Paid-In Stock Accumulated
Shares Amount Shares Amount Capital Subscribed Deficit Total
------ ------ ------ ------ ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 2,938,681 $ 29,387 130,800 $261,600 $ 3,305,838 $ -- $(2,814,823) $ 782,002
Cancellation of shares
at par value (114,129) (1,141) -- -- 1,141 -- -- --
Common stock subscribed
for services -- -- -- -- -- 45,000 -- --
Net (loss) for the year -- -- -- -- -- -- (476,326) (476,326)
----------- -------- -------- -------- ----------- --------- ----------- -----------
Balance December 31, 1997 2,824,552 28,246 130,800 261,600 3,306,979 45,000 (3,291,149) 305,676
Shares issued for services 178,233 1,782 -- -- 87,335 -- -- 89,117
Common stock subscribed
for services -- -- -- -- -- -- -- 3,750
Net (loss) for the year -- -- -- -- -- -- (1,779,890) (1,779,890)
----------- -------- -------- -------- ----------- --------- ----------- -----------
Balance December 31, 1998 3,002,785 $ 30,028 130,800 $261,600 $ 3,394,314 $ 48,750 $(5,071,039) $(1,385,098)
=========== ======== ======== ======== =========== ========= =========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Olympic Entertainment Group, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
Operating activities:
Net income (loss) $(1,779,890) $ (476,326)
Adjustments to reconcile net income
(loss) to net cash:
Depreciation 8,921 20,197
Amortization of film costs 641,358 128,355
Common stock issued for services 89,117 --
Stock subscriptions issued for services 3,750 45,000
Film masters rights charged off 74,876 74,876
Loss on disposition of assets 134,740 --
(Increase) decrease in accounts receivable 73,039 304,465
(Increase) decrease in prepaid expenses -- 12,145
(Increase) in other assets 13,775 248
Increase (decrease) in accrued expenses 354,190 34,725
Increase (decrease) in deferred revenue -- --
Increase (decrease) in accounts payable 372,651 95,230
Increase in accounts payable - related party -- (76,956)
----------- -----------
Total adjustments 1,766,417 638,285
----------- -----------
Net cash provided by (used in) operating activities (13,473) 161,959
Cash flows from investing activities:
(Increrase) in film library -- (275,287)
Purchase of property and equipment -- (61,887)
----------- -----------
Net cash provided by (used in)
investing activities -- (337,174)
Cash flows from financing activities:
Advances to stockholder -- (87,200)
Proceeds from notes payable -- 125,000
Repayment of notes payable (2,000) --
Repayment of long-term debt -- (22,164)
----------- -----------
Net cash provided by (used in)
financing activities (2,000) 15,636
Net increase in cash and cash equivalents (15,473) (159,579)
Beginning cash 15,504 175,083
----------- -----------
Ending cash $ 31 $ 15,504
=========== ===========
Supplemental cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ -- $ --
The accompanying notes are an integral part of the financial statements.
F-6
</TABLE>
<PAGE>
Olympic Entertainment Group, Inc.
Notes to Financial Statements
December 31, 1998
Note 1. ORGANIZATION
The Company was incorporated on May 21, 1987, in the State of Nevada, and is in
the business of acquiring, licensing and distributing non-violent educational,
informational and special interest television programming for children. The
Company does business as the "Children's Cable Network" ("CCNII"), which is
comprised of individuals or entities, known as Broadcast affiliates, who license
the Company's programs to air in the various cable markets throughout the United
States. The Company commenced the sale of broadcast licenses to such affiliates
during 1995. The ceased its principal business activity during the first quarter
of 1998.
SIGNIFICANT ACCOUNTING POLICIES
Estimates:
The preparation of the Company's financial statements requires management to
make estimates and assumptions that effect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Fixed assets:
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. When assets
are retired or otherwise disposed of, the cost and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in operations for the period. The cost of repairs and maintenance is
charged to operations as incurred and significant renewals or betterments are
capitalized.
The Company depreciates its office equipment utilizing the straight line method
over a period of five years. The Company has recorded $4,337 and $20,197 of
depreciation expense for the years ended December 31, 1998 and 1997,
respectively. During the second quarter of 1998, the Company abandoned
substantially all of its office and computer equipment in connection with the
cessation of its operations. Additionally, the Company abandoned its rights
under a long term operating lease for its corporate offices including certain
leasehold improvements. The Company recognized a loss of $134,740 in connection
with the abandonment of these assets.
F-7
<PAGE>
Film library:
The Company amortizes the costs of its film library over the estimated economic
life of the film using the film forecast method in accordance with SFAS #53. The
amortization periods begin at the time the films are available for showing by
the Company's Broadcast Affiliates. When the Company concludes that any such
costs will not benefit future periods said costs are charged to operations for
the period.
During the year ended December 31, 1997 the Company made an adjustment to reduce
the carrying value of its film library of $74,876. Amortization charged to
operations during 1997 aggregated $128,355 (See Note 6). During the year ended
December 31, 1998, the Company ceased its principal business activities. In
connection therewith the Company reduced the carrying value of its film library
to its estimated net realizable value of $100,000 and charged an aggregate of
$717,557 to costs and expenses.
Revenue recognition:
The Company recognizes revenue from network license agreements not related to
specific programming over the term of the agreements. Revenue from the sale of
licenses for television program rights is recorded in accordance with SFAS #53,
which provides for recognition of revenue at the beginning of the license period
when specified conditions have been met.
Cash and cash equivalents
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with a maturity of less than three months.
Advertising
Advertising expenses are charged to expense upon first showing. Amounts charged
to expense were 7,839 and $39,937 for the years ended December 31, 1998 and
1997, respectively
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and accounts payable and accruals.
The carrying amounts of these financial instruments approximates fair value
because of their short-term maturities. Financial instruments that potentially
subject the Company to a concentration of credit risk consist principally of
cash and accounts receivable, trade. During the year the Company did not
maintain cash deposits at financial institutions in excess of the $100,000 limit
covered by the Federal Deposit Insurance Corporation. The Company has several
major customers, (see Note 9) the loss of which has had a material negative
impact upon the Company.
F-8
<PAGE>
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided in Note 2 pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
Earnings (loss) per share:
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
The earnings per share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares outstanding for the
period. Common stock equivalents are excluded from the computation if their
effect would be anti-dilutive.
Recent Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements of financial statements for earlier
periods will be required for comparative purposes. To date, the Company has not
engaged in transactions which would result in any significant difference between
its reported net loss and comprehensive net loss as defined in the statement.
F-9
<PAGE>
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred.
Effective January 1, 1998, the Company adopted SOP 98-1. Costs capitalized by
the Company during the year ended December 31, 1998 in accordance with these
guidelines were not significant.
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 131 did not affect results of
operations or financial position. To date, the Company has operated in one
business segment only.
Effective December 31, 1998, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and Other Post-retirement Benefits ("SFAS
132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Post-retirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 did not affect results of operations or
financial position. The Company is in its development stage and has not
initiated benefit plans to date which would require disclosure under the
statement.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company has not yet
determined what the effect of SFAS 133 will be on earnings and the financial
position of the Company, however it believes that it has not to date engaged in
significant transactions encompassed by the statement.
F-10
<PAGE>
Note 2. STOCKHOLDERS' EQUITY
During the periods covered by these financial statements and prior thereto, the
Company issued securities in reliance upon an exemption from registration with
the Securities and Exchange commission. Although the Company believes that the
sales did not involve a public offering and that it did comply with the
exemptions from registration, it could be liable for recession of said sales if
such exemption was found not to apply. The Company has not received a request
for rescission of shares nor does it believe that it is probable that its
shareholders would pursue rescission nor prevail if such action were undertaken.
During May 1996, in connection with a lawsuit settlement (see Note 8), the
Company issued common stock purchase warrants for 329,500 shares to an
individual. The warrants are exercisable for a period of eighteen months from
the date of issue at a price of $2.00 per share. The Company has not recorded
any expense related to the warrants as the estimated fair value of the warrants
is less than the exercise price at the grant date. The warrants expired
unexercised during 1998.
During the year ended December 31, 1997, the Company reacquired and canceled
certain of its shares issued for services which had not been completed. The
shares were retired at their par value.
During the year ended December 31, 1998, the Company issued an aggregate of
178,233 shares of its common stock to certain employees and a vendor for
services provided to the Company. The shares were valued at $.50 per share which
represents the market value of the stock at the dates at which the services
provided to the Company were substantially complete.
During July 1996, the Company adopted the 1996 Employee Stock Option Plan for
the benefit of certain employees, officers, directors and consultants. The
Company also filed a Registration Statement on Form S-8 to register these
shares. The number of common shares reserved under the plan is 800,000. The plan
provides that the option price on the grant date shall not be less than the fair
market value on such date. During July 1996 the Company issued 360,000 options
exercisable at $1.40 per share under the plan which expire after ten years
unless exercised. During December 1996, the Company granted additional options
under the plan for 370,000 shares exercisable at $.60 for a ten year period.
F-11
<PAGE>
Following is a summary of the transactions in the plan:
Range of Weighted
Shares Exercise Average
Prices Price
------- ------------ --------
Balance December 31, 1996 730,000 &.60 - $1.40 $ .99
Granted --
Canceled --
Exercised --
-------
Balance December 31, 1997 730,000 $.60 - $1.40 $ .99
Granted --
Canceled 335,000 $.60 - $1.40 $ .92
Exercised --
--------
Balance December 31, 1998 395,000 $.60 - $1.40 $ 1.08
Options available at
December 31, 1998 405,000
As of the date of the financial statements none of the options had been
exercised.
Note 3. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
The Company currently has net operating loss carryforwards aggregating
approximately $2,950,000 which expire beginning in 2003.
The principal difference between the Company's book operating losses and income
tax operating losses results from the issuance of and subscriptions for common
stock and preferred stock during 1994 and 1996 for services. The effects of
these differences are expected to be permanent in nature, therefore no deferred
tax asset had been recorded related thereto.
The Company did not provide Federal income taxes for the years ended December
31, 1998 and 1997 due to an operating losses incurred.
F-12
<PAGE>
The Company is unable to predict future taxable income that would enable it to
utilize the deferred tax asset arising from the future value of the net
operating loss and therefore the deferred tax asset of approximately $1,000,000
related thereto is fully reserved. The reserve balance increased by
approximately $430,000 as a result of the loss generated in the current year.
Note 4. RELATED PARTY TRANSACTIONS
The Company made $87,200 of cash advances to its president during 1997. The
advances were repaid during 1998 and as of December 31, 1998 $82,731 of
repayments had been made in cash or by payment of Company expenses by the
officer. The amount due to the officer at December 31, 1998 consists of the net
loan balance of $4,159 offset by an accrual of salary due to the officer
pursuant to an employment contract of $260,000.
The Company received legal services of $18,165 and $108,062 for the years ended
December 31, 1998 and 1997, respectively provided by a firm associated with one
of its directors and had a year end balance due such firm of $42,296.
Additionally, the Company purchased program rights and production costs from
another related entity of $113,625 during the year ended December 31, 1997.
During the year ended December 31, 1997, the Company purchased program rights
from an officer/stockholder in the amount of $18,000.
Note 5. NOTES PAYABLE AND LONG TERM DEBT
Long-term debt consists of an obligation arising from the settlement of a
lawsuit (see Note 8). Monthly payments of $2,000 per month, including interest
imputed at 8% per annum are due for a forty month period beginning June 1, 1996.
Principal payments due in the years ended December 31, 1998 and 1999 are $22,164
and $16,623, respectively. The loan is in default and all amounts due under the
loan at December 31, 1998 ($36,787) have been classified as a current liability.
Notes payable consists of a short term loan of $10,000 made in March 1993 from
an individual pursuant to a debenture bearing interest at 10% per annum and
originally due on March 30, 1994. The holder of the debenture has the right to
convert the debenture into common stock of the Company at the rate of one share
of common stock for each one dollar due on the debenture. During March, 1994,
the holder of the debenture agreed to extend the due date on the debenture to
March 30, 1995.
F-13
<PAGE>
The note has not been extended and is considered to be due on demand by the
holder.
Also included in notes payable are a series of four notes aggregating $125,000
which were issued by the Company in December 1997, The notes were due during
September 1998 with interest at 10% per annum payable quarterly. The notes are
secured by an aggregate of 250,000 shares of the Company's common stock
controlled by an officer of the Company. The fair value of the pledged shares is
equivalent to the face amount of the notes at the issue date of the notes. The
notes are considered to be due on demand.
Note 6. FILM LIBRARY
At December 31, 1998, the Company's film library consisted of the following:
License costs $ 912,935
Mastering costs 43,235
---------
956,170
Less accumulated amortization (856,170)
---------
$ 100,000
During 1997 the Company incurred $275,287 of costs in connection with the rights
to air certain programming, including film mastering costs, through the medium
of cable television. The amortization of such costs during the year ended
December 31, 1987 amounted to $128,355.
During 1997, the Company charged off to expense the value of film masters
delivered to network affiliates that have not renewed their license agreements.
During 1998, in connection with the cessation of the Company's principal
business operations, the Company made a reduction of the carrying amounts of the
film rights and masters of $717,557, which reduced the carrying amounts to an
estimated net realizable value of $100,000. The Company believes that it could
realize a minimum of this amount from the sale of or other use of the film
library.
F-14
<PAGE>
Note 7. COMMITIENTS AND CONTINGENCIES
During August, 1997, the Company entered into a lease for office space in Las
Vegas, Nevada for a sixty month period ending August 31, 2002 at a monthly
rental of $4,445, increasing by approximately 3.5% per year throughout the
lease. Rent expense was $160,883 and $143,158 for the years ended December 31,
1998 and 1997, respectively. In connection with the cessation of its principal
business activity in 1988, the Company abandoned its rights pursuant to the
lease. The landlord has commenced legal action to recover unpaid rent and build
out costs aggregating $229,765. The Company has accrued the full amount of the
claim in trade accounts payable.
Note 8. LITIGATION
Capital Funding & Financial Group, Inc. et al. v. Olympic Entertainment Group,
Inc., et al. Colorado state court, Case No. 96-CV-001980.
The claim by the plaintiff is for the refund of $120,000 in licensing fees paid
to the Company in 1996 and for other damages. The Company had filed a counter
claim and based on the opinion of its Colorado attorney as of April 26, 1998 had
not made any accrual pursuant to the case for the year ended December 31, 1997.
As a result of the Company's cessation of its principal business operations, the
Company was forced to abandon its counterclaim effort California. A trial was
held in Colorado in November 1998 and the plaintiff was awarded a default
judgement of $1,000,000, including punitive damages of $520,000. A motion to set
aside the default judgement has been made by the Company and stayed by the
Court. The Company's Colorado attorney believes that the motion to set aside the
judgement will be approved as the plaintiff has been subject to numerous cease
and desist orders for violation of state securities regulations which may be
directly related to the case. The Company has not accrued any amount of the
default judgement in the foregoing financial statements.
Lee Van Dyke et al. v. Olympic Entertainment Group, Inc., et al. Superior Court
of Los Angeles County, Case No. BC189116.
The plaintiffs seek class action status and allege violations of California
securities laws, breach of contract and violation of the California Business and
Professions Code. The suit has not been certified by the Court for class action
status.
F-15
<PAGE>
The Company is also named as an adverse party in a cross-complaint filed in the
same case filed by Pacific Health Management, Inc. d/b/a Carousel Media
Marketing (Carousel). The cause of action relates to the sale of limited
partnership investment units to investors by Carousel.
Carousel had been the Company's major customer during the years ended December
31, 1996 and 1997. The Company maintains that it did not materially participate
in the sale of the securities. The Company cannot predict the possible outcome
of the case nor estimate the range of potential damages that might arise
therefrom.
Note 9. INFORMATION ABOUT MAJOR CUSTOMERS
The Company, whose customers arrange for programming to air on local cable
systems in their respective licensed territories under leased access rules of
the Federal Communications Commission, made sales in excess of 10% of total
revenues for the years ended December 31, 1998 and 1997 to Carousel Media
Marketing in the amount of $2,800 and $1,735,000 which constituted 100% of the
Company's sales in those years. No amounts were due from Carousel at December
31, 1998 or 1997.
Note 10. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going concern"
basis which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business.
The Company has incurred operating losses during the years ended December 31,
1998 and 1997 aggregating $1,779,890 and $476,326, respectively and the Company
has a working capital deficit of $1,234,670 at December 31, 1998. There can be
no assurance that profitable operations will be attained due to the Company's
cessation of its principal business operation.
Profitable operations are dependent upon, among other factors, the Company's
ability to obtain equity or debt financing, the ability of management to
restructure its liabilities either by repayment at less than face value or by
conversion to equity and the Company's ability to locate and merge with a
profitable business operation. Management is exploring plans for a merger of the
Company with another operating entity and is attempting to restructure its
liabilities.
F-16
<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 this 29th day of May, 1999:
Olympic Entertainment Group, Inc.
By: /s/ Dominic Orsatti Date: 05/29/99
--------------------------------- ---------------
Dominic Orsatti, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following person on behalf of the Registrant and in the
capacity and on the date indicated.
NAME & POSITION DATE
/s/ Dominic Orsatti May 29, 1999
- --------------------------------------
Dominic Orsatti,
Chairman & Chief Executive Officer
/s/ John Holt Smith May 29, 1999
- -------------------------------------
John Holt Smith
Corporate Secretary & Director
/s/ Bonnie Houldsworth May 29, 1999
- -------------------------------------
Bonnie Houldsworth
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,323
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<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 101,354
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