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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 0-18954
ODYSSEY PICTURES CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-4269048
- -------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1601 Elm Street, Dallas, Texas 75201
------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 720-1622
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____ No __x___
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.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 30, 1998 was approximately $1,879,832 (based on
the mean between the closing bid and asked prices of the Common Stock on such
date), which value, solely for the purposes of this calculation, excludes shares
held by Registrant's officers and directors. Such exclusion should not be deemed
a determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant.
As of September 30, 1998 there were outstanding 5,169,285 shares of Odyssey
Pictures Corporation's common stock, par value $.01 per share (the "Common
Stock").
ODYSSEY PICTURES CORPORATION
Form 10-K Report for the Fiscal Year
Ended June 30, 1997
TABLE OF CONTENTS
Page
PART I
Item 1. Business ........................................................... 1
Item 2. Properties ........................................................... 8
Item 3. Legal Proceedings .................................................. 8
Item 4. Submission of Matters to a Vote of
Security Holders ................................................... 13
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters .................................... 13
Item 6. Selected Financial Data ............................................ 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations ................... 14
Item 8. Financial Statements and Supplementary Data ........................ 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................. 41
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 41
Item 11. Executive Compensation ............................................ 43
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 47
Item 13. Certain Relationships and Related Transactions .................... 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 50
PART I
Item 1. Business
(a) General Development of Business
-------------------------------
Odyssey Pictures Corporation ("Odyssey" or the "Company"), formerly known
as Communications and Entertainment Corp., was formed in December 1989 as a
holding company. At such time, the Company had no material assets. In September
1990, Double Helix Films, Inc. ("Double Helix"), a producer of low budget films,
and Odyssey Entertainment Ltd. ("OEL"), an international film distribution
company, were merged with wholly-owned subsidiaries of the Company (the
"Mergers"). Subsequent to the Mergers, each of Double Helix and OEL became a
wholly-owned subsidiary of the Company. In June 1991, the Company sold Double
Helix and thereafter began to focus on the distribution of motion pictures in
overseas markets as its primary business.
A change in the entire Board of Directors of the Company (the "Board")
occurred on April 12, 1995 pursuant to the terms of a Settlement Agreement,
dated as of March 31, 1995 (the "Settlement Agreement"), by and among Robert
Hesse, Shane O'Neil, Lawrence I. Schneider, Henry N. Schneider, Robert E.
Miller, Jr., Russell T. Stern, Jr. (collectively, a group of shareholders
originally formed to effect a change in management control of the Company and
known as the "CECO Shareholders Committee"), the Company, OEL, Global
Intellicom, Inc., each of Jerry Silva, Robert Ferraro, N. Norman Muller, Thomas
W. Smith and David A. Mortman (constituting all the directors of the Company at
the time of the execution of the Settlement Agreement and hereinafter referred
to collectively as the "Former Directors"), and others.
As contemplated by the Settlement Agreement, on April 11, 1995, the Former
Directors increased the size of the Board from five to six directors and elected
Henry N. Schneider, a designee of the CECO Shareholders Committee, a new
director effective upon the closing of the Settlement Agreement. The closing of
the Settlement Agreement occurred on April 12, 1995 and, upon the closing, the
resignations of the Former Directors became effective. After the closing, Henry
N. Schneider, as sole remaining director of the Company, elected Lawrence I.
Schneider, Russell T. Stern, Jr., Patrick J. Haynes, III and Robert E. Miller,
Jr. as new directors of the Company. In addition to the change in the
composition of the Board, the Settlement Agreement provided for the settlement
of all outstanding litigation between the Company and the CECO Shareholders
Committee. The CECO Shareholders Committee disbanded upon the closing of the
Settlement Agreement. Effective September 8, 1995, each of Messrs. Haynes, Stern
and Henry N. Schneider resigned as directors of the Company and were replaced by
Stephen R. Greenwald and Ira N. Smith, each of whom was appointed to the Board
and, together with Lawrence Schneider, elected to executive management positions
to operate the business and affairs of the Company on a day-to-day basis.
On March 6, 1996, the Company declared a reverse one-for-six stock split of
its Common Stock (the "Reverse Split"), effective March 18, 1996. All share
amounts and per share prices reflected in this Report have been adjusted to give
effect to the Reverse Split.
Mr. Schneider resigned his executive position in September, 1997, and in
March, 1998, the Board of Directors appointed Mr. Johan Schotte as Chief
Executive Officer and Chairman of the Board of the Company. At the same time,
Mr. Pierre Koshakji was appointed to the Board and elected as President of the
Company. Mr. Johan Schotte expanded the Board to include additional independent
directors and Messrs. Greenwald and Smith agreed to terminate their existing
employment agreements in exchange for revised employment and consulting
agreements. In connection with the change in management, an affiliate of Mr.
Schotte purchased convertible deferred compensation notes from former management
and converted a portion of these notes into 667,648 shares of he Company's
common stock in April, 1998.
1
During the early 1990s, the Company developed an excellent reputation in
overseas markets for the distribution of quality motion picture entertainment, a
reputation which the Company's management believes it continues to enjoy despite
its recent difficulties. However, due to the changes in management control and
disruptions in the continuity of the Company's business following the change in
control in 1995, the Company has been unable to sustain any substantial
activities in the international distribution of motion pictures.
Under the leadership of Mr. Schotte, the Company will seek to re-establish
its position as a significant distributor of quality motion pictures by
establishing relationships and strategic alliances with major film studios and
successful writers, directors and producers. The Company also intends to
establish a permanent presence in Europe through select joint-venture partners.
In this connection, the Company purchased the assets of Sweden-based Kimon
Mediabright KB ("Kimon") in August, 1998, consisting of a film library with
worldwide and/or Scandanavian distribution rights and Scandanavian video
distribution rights to certain Hallmark Entertainment products.
While continuing to develop and re-establish the Company's film
distribution business, new management's objective going forward is to
aggresively build a diverse, global media company independent in ownership from
the major film and music companies. Management will seek to establish a group of
domestic and international companies providing both content and distribution in
film, music, publishing, sports, merchandising and other multimedia outlets. See
"Business - Narrative Description of Business - Business Strategy."
(b) Financial Information About Industry Segments
---------------------------------------------
Since the sale of its Double Helix subsidiary in 1991, the Company has been
engaged in only one industry segment and line of business, the international
distribution of motion pictures. See "Selected Financial Data."
(c) Narrative Description of Business
---------------------------------
Foreign Sales and Distribution Operations
- -----------------------------------------
General.
--------
The foreign distribution of films involves two principal activities - the
acquisition of rights from the licensor or the seller, usually the producer of
the film, and the licensing of the distribution rights to subdistributors in
foreign markets. In general, the rights obtained from the producer relate to all
media, including theatrical distribution, video and all forms of television.
However, the licensing of rights to subdistributors may exclude certain
territories and/or media.
It is unlikely that subdistributors would bypass the Company and deal
directly with the licensors of film rights. Historically, independent licensors
of film rights prefer to deal with a single sales agent/distributor rather than
deal with various subdistributors in foreign markets. Consequently, even if a
particular subdistributor attempted to perform the function of the Company, it
is unlikely that the film's licensor would be willing to deal with such
subdistributor. Furthermore, with respect to any particular film, the Company
would typically enter into an exclusive distributorship arrangement, thereby
precluding others from competing with the Company with respect to that film.
Moreover, in certain circumstances, the Company may also provide a financing
function for the production of a film which a subdistributor would generally be
unable to provide. See "Terms of Distribution Agreements."
2
Terms of Distribution Agreements. Foreign distribution is generally handled
by a distributor such as the Company which coordinates worldwide sales in all
territories and media. Overseas film sales companies rely on local
subdistributors to physically deliver the motion picture and related marketing
materials and to collect revenues from local exhibitors and other local
distributors of the film. Typically, the territorial rights for a specific
medium such as television exhibition are sold for a "cycle" of approximately
seven years, after which the rights become available for license for additional
cycles.
The film distribution business breaks down into two broad categories:
o Sales Agency Representation. As a sales agent, the Company would
undertake to represent and license a motion picture in all markets and media on
a best-efforts basis, with no guarantees or advances, for a fee of 15-20%, and
typically for a term ranging from seven to fifteen years.
o Distribution. As a distributor, the Company may provide the producer of
the film a guarantee of a portion of the budget of the project. This guarantee
may be in the form of a bank commitment to the producer, secured by license
agreements with foreign licensees, which is used by the producer to finance the
production. Typically, a distributor would receive a distribution fee of 25-35%
over a term ranging from 15 years to perpetuity. In addition, the distributor
may acquire a profit participation in the film project.
Once the rights to a picture are obtained either as sales agent or
distributor with minimum guarantee, the Company would then seek to license its
rights to subdistributors in the territories for which it has acquired
distribution rights. In general, the grant of rights to the subdistributors
includes all media other than satellite, although satellite is included in some
subdistributors' territories. The subdistributor in each territory generally
pays for its distribution rights with a down payment at the time the contract is
executed with the balance due upon delivery of the picture to the
subdistributor. (Delivery occurs upon the Company's acceptance of the master
negative and its obtaining access to the interpositive and certain other items
necessary for the distribution of the film). In certain instances, the
subdistributors' obligations for the payment due on delivery are secured by a
letter of credit. Sales take place primarily at three film markets - Cannes,
France in May; MIFED in Milan, Italy in October; and the American Film Market
("AFM") in Los Angeles in February.
In general, after financing (if any) is repaid, the Company applies the
distribution receipts from its subdistributors first to the payment of
commissions due to the Company, then to the recovery of certain distribution
expenses advanced by the Company, and third, to the extent not recouped as part
of the repayment of the financing, to the reimbursement of the Company for its
guarantee, if any, paid to the producer. Additional distribution receipts, if
any, are shared by the Company and the producer according to the percentages
negotiated in the agreement between the Company and the producer.
Independent Film Production and Product Acquisition
- ---------------------------------------------------
Overseas film distribution companies such as the Company primarily
represent independent producers of motion pictures (rather than motion picture
studios) in all overseas markets and all media, including theatrical release,
television and home video distribution, and cable or satellite-distributed
media.
Producers seek to be independent producers of motion pictures for a variety
of reasons, including greater creative control of a project and potentially a
greater profit participation through the retention of the copyright or the
ability to sell the film directly in particular markets. Often, young, new
directors and producers have no choice but to independently produce their
projects, and the motion picture industry has a long history of "breakthrough"
films produced at very low cost by first time producers and directors which
subsequently achieve considerable revenues. The Company has generally obtained
its product from among these independently produced films rather than from major
motion picture studios which typically have their own in-house distribution
networks. Nevertheless, from time to time, the Company has entered into "split
rights" arrangements with studios to represent a film in the overseas market.
3
The Company's management seeks to identify attractive projects very early
in their development, either through relationships with producers, directors and
agents or through industry announcements of new productions. In addition, the
Company's acquisitions personnel attends festivals and film markets, such as the
Sundance Film Festival and the Cannes Film Festival, in order to locate new
product.
Business Strategy
- -----------------
The Company's strategy is to capitalize on its reputation and the
experience of its management team to build a global media company independent in
ownership from the major film studios and music companies. The Company's new
Board of Directors and executive management intend to integrate the Company into
today's total entertainment and media environment. "Odyssey Media", or a name
more appropriate, will be established as the parent to a diversified group of
U.S. and international companies providing both content and distribution in
film, music, publishing, sports, merchandising and other multimedia outlets.
The value and growth of "Odyssey Media" is intended to be achieved
primarily through acquisition of, and joint ventures with, established private
and public media companies. Such companies may be attracted by the strategic
relations and access to business that the other Odyssey media companies may
provide; the international markets that Odyssey may participate in; and access
to the public markets for capital and exposure.
Such companies may be identified through the experience and the strong
international entertainment, sport, banking and private investment network
contacts that the executive management and Board of Directors possess. Targeted
companies would be acquired primarily through issuance of new equity capital,
stock swaps and other means.
The parent company will provide each company with strong corporate
governance policies, direction for its management, strategic planning guidance,
control and reporting systems, marketing assistance, cross promotion and other
promotional support, as well as with assistance with business and joint venture
development, merger and acquisition assistance, executive and management search
support, and other services. The emphasis will be to optimize each individual
company's success as well as the cross-success of the entire media company. The
proposed business strategy for each division of "Odyssey Media" is as follows:
Odyssey Pictures: The film production and distribution division will continue to
operate as Odyssey Pictures for the purpose of providing a presence in Hollywood
and New York and establishing a permanent presence in Europe through select
joint-venture partners. The foreign sales agency business unit of Odyssey will
be de-emphasized, since it would only be feasible as part of the Company's own
distribution network, which will be expanded as soon as new Odyssey properties
are ready for worldwide distribution. In order to insure a high quality regular
product flow, alliances will be sought with major film studios and successful
writers, directors and producers.
Odyssey Music: The music unit of Odyssey will be initiated from Europe through
exploitation and music publishing of the Techno/Dance music genre due to its low
investment cost versus high return, and will serve as a basis to penetrate the
U.S. market. This base will allow the launch of new acts via movie sound tacks.
A U.S. operation will be set up as soon as practicable.
Odyssey Publishing: Publishing will encompass all print and electronic media
including multi-media and Internet services as well as the traditional products
and services associated with magazines and other publications. When finally
viable, Odyssey Publishing will leverage intellectual property from the other
media properties, for example, book and multi-media products derived from motion
pictures.
4
Odyssey Sports: Ownership and management of sport teams and entertainment events
will be pursued at the minor and major league levels as a means of providing
content and avenues of advertising, promotion, and access to business for the
entire media company and its clients. It will also be pursued as an opportunity
for ancillary revenues through venue management and merchandising. At present,
the Company owns a minority interest in the Albuquerque Geckos, a second
division professional soccer team in New Mexico.
Odyssey Merchandising: Manufacturing, sourcing, and distribution of merchandise
will be pursued and grown by Odyssey as a natural business complement to all
other media companies as well as a stand-alone business unit.
Strategic Objectives
- --------------------
To properly build Odyssey Media, the Company's Board and executive
management will seek to implement the following strategies:
- - Create and implement strong corporate governance policies and the most
effective corporate infrastructure;
- - Properly capitalize the Company and seek a NASDAQ listing;
- - Acquire profitable media-related operations that will contribute to the
Company's near-term and long term earnings;
- - Leverage connections between investors and projects in Europe and the United
States; identify talent and management that will augment the Company's
abilities;
- - Limit risk in the manner companies are acquired and investments are financed;
- - Maintain a cost consciousness in acquisition, financing, production and
distribution activities.
Recent Acquisitions
- -------------------
In August, 1998, the Company completed the acquisition of the assets of
Sweden-based Kimon Mediabright KB ("Kimon"), valued at $4,500,000, in exchange
for 4,500,000 shares of the Company's subordinated convertible Preferred Stock,
Series B, having a value for conversion purposes of $1.00 per share. Kimon will
have the right to convert to Odyssey common stock between June 30, 2000 and
December 31, 2000 on a dollar-for-dollar basis based on the price of the
Company's common stock at the time of conversion. Kimon assets purchased consist
of a film library with worldwide and/or Scandanavian distribution rights and
Scandanavian video distribution rights to certain Hallmark Entertainment
products.
In connection with the change of control in March, 1998, the Company
acquired an 18% equity interest in each of two corporations affiliated with Mr.
Schotte, one of which is the owner of the Albuquerque Geckos, a second division
professional soccer team in New Mexico, and the other of which is a media
production company in Luxembourg. The Company issued one-year notes in the
aggregate amount of $450,000 in consideration of the purchase of the equity
interests in these companies.
Sales of Library Films
- ----------------------
On January 2, 1996, the Company entered into an agreement with Regency
International Pictures, B.V. ("Regency"), the Company's joint venture partner,
to sell the Company's interest in the related joint ventures through which it
held approximately 50% ownership interests in four theatrical motion pictures,
entitled "Switch", "Q & A," "Guilty by Suspicion" and "This Boy's Life".
Pursuant to the agreement with Regency, the Company received $1,000,000 on
January 23, 1996 and $500,000 on February 14, 1996, in exchange for all of the
Company's interests in the joint ventures. In addition, the Company retained a
contingent interest in certain receivables, not to exceed $212,500, and a
contingent interest in future revenues from the pictures.
5
On August 29, 1996, the Company entered into an agreement with Kinnevik
Media Properties, Ltd. ("Kinnevik"), pursuant to which the Company agreed to
grant to Kinnevik subdistribution rights in, and to sell to Kinnevik other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company received a total cash consideration of $1,075,000,
payable $500,000 on closing, $275,000 six months after closing, and $300,000
eighteen months after closing. In addition, the Company retained a continuing
right to receive revenues from certain of the films, valued by management at a
minimum of approximately $150,000. As part of the transaction, the Company
granted 100,000 stock options to Kinnevik, exercisable over a three year period
at the bid price of the Company's common stock in effect on August 5, 1996
($.625). The transaction with Kinnevik closed on October 7, 1996.
Recent Financings
- -----------------
In August and October of 1995, the Company concluded a private placement
pursuant to which it issued unsecured promissory notes to unaffiliated investors
in the aggregate amount of $312,500. The notes had a maturity date of one year
and accrued interest at the rate of 12% per annum. A total of 6.25 units were
sold at a purchase price of $50,000 per unit. In addition, warrants were issued
to the purchasers at the rate of 4,167 warrants for each unit sold, or a total
of 26,042 warrants (on a post Reverse Split basis). Each warrant certificate
entitled the holder thereof to purchase one share of common stock at an exercise
price of either $2.83 per share (the August warrants) or $2.37 per share (the
October warrants) over a three year period commencing one year after the closing
of the private placement. After paying expenses and commissions of $42,500, the
Company received net proceeds of $270,000 from the private placement. The notes
issued in the private placement were due to be paid by the Company upon their
respective due dates on August 28 and October 3, 1996.
The Notes and interest were not repaid as scheduled. The Company proposed
that Noteholders either defer maturity of their notes and exchange existing
warrants for shares, or cancel the notes and warrants in their entirety in
exchange for a greater number of shares. The Company offered to register any
shares issued in exchange for the notes. On August 12, 1997, the date the
registration became effective, a total of $262,500 of notes were exchanged for
595,455 shares of registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are in default.
In September, 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1,000,000 shares of the Company's
common stock (and an additional 1,000,000 warrants) in consideration of
$750,000. Following a dispute between the parties concerning the satisfaction of
certain conditions to closing, the parties reached a settlement in June, 1997,
pursuant to which the investor purchased 66,667 shares of common stock of the
Company for $50,000, or $.75 per share.
In September, 1996, the Company reached an agreement with Paramount
Pictures, pursuant to which Paramount would cancel the Company's contractual
guarantee of $2.7 million in full, in exchange for which the Company agreed to
(i) relinquish all further distribution rights to "Wuthering Heights"; (ii)
assign to Paramount all of its rights in any outstanding distribution agreements
for the film, and any receivables to be generated therefrom; (iii) guarantee
that Paramount would collect a total of $500,000 in sales revenue from existing
distribution agreements no later than January 15, 1997. Existing license
agreements yielded approximately $420,000 in net revenues prior to January 15,
1997 (of which the Company would have been entitled to retain approximately 20%
thereof in commissions). The Company paid $250,000 in net revenues to Paramount
and is currently in negotiations with Paramount regarding the timing of the
remaining $250,000 payment.
In January, 1997, prior counsel to the Company agreed to exchange a
promissory note in the face amount of $70,000 for 120,000 shares of the
Company's common stock.
6
In February, 1997, the Company completed the sale of 500,000 shares of
common stock and 500,000 common stock purchase warrants to four offshore
European investors for an aggregate consideration of $375,000. The warrants are
exercisable over a three year period (expiring February 25, 2000) at an exercise
price of $1.06 per share. One of the investors was Johan Schotte, who was
subsequently elected as CEO of the Company in March, 1998.
In April, 1997, Stephen R. Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the company in the
amounts of $50,000, $25,000 and $25,000, respectively. Each loan was payable on
demand and accrued interest at the rate of 2 points over prime per annum. The
notes were secured by a collateral assignment of the Company's 300,000 note
receivable from Kinnevik. In consideration of making the loans, the lenders
received five-year warrants to purchase shares of common stock of the Company,
exercisable at $1.00 per share. Messrs. Schneider and Miller each received
25,000 warrants and Mr. Greenwald received 50,000 warrants as consideration for
making the loans to the Company. In addition, two independent unaffiliated third
parties made additional $25,000 loans to the Company in June and August, 1997 on
the same terms and conditions as the loans made by Mr. Greenwald, Schneider and
Miller. In May, 1998, the loans of Mr. Schneider and one of the unaffiliated
parties were paid from the proceeds of the Kinnevik receivable. The remaining
lenders agreed to a rollover of their loans (aggregating $100,000) against a
second Kinnevik receivable and, in consideration, will receive an additional
50,000 warrants in the aggregate, exercisable at $1.00 per share over a three
year period. In September, 1998, all but $25,000 of these loans were repaid from
the proceeds of the Kinnevik receivable. The remaining lender, Robert E. Miller,
Jr., a director of the Company, agreed to a rollover of his $25,000 loan on an
unsecured basis for an additional six month period with interest at the rate of
10% per annum.
In September, 1997, the Company and Kinnevik Media Properties, Ltd.
executed an agreement pursuant to which Kinnevik agreed to purchase 500,000
shares of convertible, redeemable preferred stock of the Company, par value
$1.00 per share, for an aggregate purchase price of $500,000. Kinnevik agreed to
purchase the first $250,000 of preferred stock at the closing, an additional
$125,000 of preferred stock 90 days after closing, and the final $125,000 of
preferred stock 270 days (subsequently extended to 360 days) after closing. The
preferred stock would bear interest at the rate of 10% per annum which would be
paid in kind semi-annually by the issuance of additional shares of preferred
stock at a par value of $1.00 per share. Kinnevik would have the right for a
five-year period to convert the preferred stock into common stock of the Company
on a share-for-share basis. The Company would have the right to redeem the
preferred stock for $1.25 per share in the event the Company's common stock
traded at a price of $2.00 per share or more for a period of 20 consecutive
trading days. The Company agreed to help secure television distribution rights
for Kinnevik from third parties, and introduce various projects to Kinnevik from
time to time which may be of interest to Kinnevik. In the event Kinnevik
acquires any rights as a result of any introductions made by the Company, the
parties agree to mutually determine the value of such services and to redeem
shares of the preferred stock at $1.00 per share based on the aggregate value of
the services so determined.
The Company received $150,000 in funding from the Augustine Fund, L.P. in
July, 1998. In exchange for the financing, the Augustine Fund received a zero
coupon $150,000 convertible note as well as up to 150,000 transferable warrants,
exercisable at $1.60 per share for a three year period. Augustine can convert
into restricted shares of the Company's common stock at a discount to the market
price of Odyssey common stock at the time of conversion (i.e., at the lower of
the market price on the closing date, or 80% of the market price prior to
conversion). Augustine and certain Augustine associated parties were also issued
a total of 45,000 shares of restricted common stock in connection with the
transaction.
7
Competition
- -----------
The entertainment industry generally, and the film industry in particular,
are highly competitive. The Company's competition includes the smaller
independent producers as well as major motion picture studios and music
companies. Many of the Company's competitors have financial and other resources
which are significantly greater than those available to the Company.
Operations
- ----------
The Company's operations have been greatly reduced as a result of the
restructuring of the Company by new management. The Company maintains a single
office in Dallas, Texas (see "Properties") and, as of September 30, 1998, had
three full-time employees, consisting of Mr. Schotte, Mr. Koshakji, and Mr.
Greenwald, the CEO, President and Managing Director of the Company,
respectively.
Tax Loss Carryforward
- ---------------------
The Company is entitled to the benefits of certain net operating loss
carryforwards to reduce its tax liability. The utilization by the Company of
such tax loss carryforwards is limited under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the applicable regulations
promulgated thereunder. As of June 30, 1997, there were approximately
$27,000,000 in net operating loss carryforwards remaining to be used to reduce
tax liability. The utilization of approximately $4.9 million of these losses in
future periods will be limited to approximately $350,000 per year.
Item 2. Properties
----------
The Company presently conducts its operations out of leased premises at
1601 Elm Street, Dallas, Texas, consisting of approximately 2,500 square feet.
The premises are presently being made available to the Company as an
accommodation by a company affiliated with Mr. Johan Schotte, the CEO of the
Company. Rent expense for each of the fiscal years ended June 30, 1997, 1996,
and 1995 was $69,002, $38,772, and $297,287, respectively.
Item 3. Legal Proceedings
-----------------
On December 20, 1990, Hibbard Brown & Company, Inc. ("Hibbard Brown") filed
a complaint entitled Hibbard Brown & Company, Inc. v. Double Helix Films, Inc.,
Odyssey Entertainment Ltd. and Communications and Entertainment Corp. in the
Supreme Court of the State of New York, County of New York. The Complaint sought
payment of $300,000 under an agreement with the Company, Odyssey, Double Helix
and Hibbard Brown dated December 21, 1989 for certain investment banking
services allegedly performed in introducing Odyssey and Double Helix and
assisting them in consummation of the Mergers by which they became wholly-owned
subsidiaries of the Company. A counterclaim seeking recovery of $50,000 paid to
Hibbard Brown upon execution of the Agreement was asserted.
Hibbard Brown's motion for summary judgment was granted in October, 1991.
On January 30, 1992, the Company moved, by order to show cause, to renew and
thereupon deny, dismiss or stay Hibbard Brown's previously granted motion for
summary judgment on the ground that Hibbard Brown had intentionally concealed
the fact that it was an unauthorized foreign corporation transacting business in
New York. By Order dated March 2, 1992, the court granted the Company's motion
in part by renewing the action and staying judgment pending Hibbard Brown's
qualification in New York. On October 29, 1992, Hibbard Brown moved for an order
vacating the stay of judgment, a declaration that it was now an authorized
foreign corporation and reinstatement of the summary judgment granted in
October, 1991 or, in the alternative, to rehear its motion for summary judgment
on the original papers and grant judgment in its favor.
8
On January 29, 1993, Double Helix, Odyssey and the Company cross-moved for
an order granting reargument and/or renewal of Hibbard Brown's motion for
summary judgment and consolidating the litigation with an action that the
Company had brought against Hibbard Brown (described below), or staying the
issuance, entry and execution of judgment pending the resolution and trial of
the Company's action against Hibbard Brown.
On March 26, 1993, the court issued a Decision and Order vacating the stay
of entry of the $300,000 judgment against the Company and granting the Company's
cross-motion for a stay of execution pending the determination of the Company's
action against Hibbard Brown. The Company's cross-motions for reargument and
renewal and consolidation were denied.
By Decision and Order dated June 18, 1993, the court affirmed the stay of
execution of the judgment, but required the Company to obtain a bond to secure
the stay. The Company obtained a non-collateral bond.
On March 5, 1992, the Company instituted an action entitled Communications
and Entertainment Corp. v. Hibbard Brown & Company in the Supreme Court, New
York County, for the return of 150,000 shares of Common Stock previously issued
on the ground that Hibbard Brown failed to perform the required services.
Hibbard Brown counterclaimed for breach of contract.
In July 1993, after considerable pre-trial discovery, the Company and
Hibbard Brown moved for summary judgment. By Decision and Order dated August 11,
1993, the court denied both motions. Both parties appealed. On March 3, 1994,
the appellate court affirmed the denial of summary judgment.
On or about October 14, 1994, Hibbard Brown filed a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code with the United
States Bankruptcy Court, Southern District of New York. Consequently, the
Company's action against Hibbard Brown has been automatically stayed. The
Company has filed a Proof of Claim.
On or about September 11, 1992, Joseph Duignan brought an action in the
Superior Court of New Jersey, Mercer County, entitled Joseph Duignan v. Double
Helix Films Limited Partnership No. 1, L.P., Double Helix Films, Inc., Cinecom
International Films, Film Gallery, Inc., Stan Wakefield, Jerry Silva, Arthur
Altarac and Anthony Tavone (MER-L-4262-92). Jerry Silva, the only defendant who
was served, is former Vice Chairman of the Board of Directors of the Company.
Mr. Silva has demanded that the Company indemnify him against any expenses,
judgments, and amounts paid in settlement of the action. The Company contends
that it is not required to indemnify Mr. Silva because he breached his fiduciary
duties to the Company.
Mr. Duignan claims that he invested $75,000 to acquire a partnership
interest in Double Helix Films Limited Partnership No. 1 and that Mr. Silva
forged or caused to be forged his signature on a Subscription Agreement dated
July 28, 1986. The Complaint alleges claims for rescission, unjust enrichment
(against Double Helix), conversion, fraud, breach of contract, breach of
fiduciary duty and breach of covenants of good faith and fair dealing (against
Mr. Silva and Double Helix). Mr. Duignan seeks to recover compensatory damages,
including but not limited to, his alleged $75,000 investment, punitive damages
and attorney's fees. Mr. Silva has answered the Complaint.
On or about December 30, 1994, Krishna Shah, who allegedly served as
President of Double Helix from about July 1991 until about March 1993, brought
an action in the Superior Court of California, Los Angeles County, entitled
Krishna Shah v. Norman Muller, Communications and Entertainment Corp., ATC II,
Carnegie Film Group, Inc., Jerry Minsky, Perry Scheer, Susan Bender, Larry
Myers, Robert Hesse, Double Helix Films, Inc. and Does 1-100, alleging claims
for breach of an oral agreement to pay Mr. Shah $152,000 (which he allegedly
advanced for the benefit of Double Helix) and to give him a 19.5% ownership
interest in its corporate successors. The Company has paid Mr. Shah the sum of
$15,000 in full settlement of all claims against the Company.
9
In The Private Lessons Partnership v. Carnegie Film Group, Inc., Monogram
Pictures Corp., Filmways Entertainment Corp., ATC, Inc., Krishna Shah, Lonnie
Romati, Gerald Muller, Jerry Minsky and Does 1-100 (California Superior Court,
Los Angeles County, Case No. BC091840), the plaintiff asserted claims for breach
of oral contract, fraud in the inducement and fraudulent conveyance against Mr.
Shah, seeking damages in the amount of $315,000, plus further unspecified
compensatory damages and punitive damages. In August 1995, Mr. Shah filed a
cross-complaint against the Company, Double Helix Films and Norman Muller for
indemnification, apportionment of fault and declaratory relief. In addition to
compensatory damages, he seeks punitive and exemplary damages, emotional
distress damages and attorney's fees. The Company has answered the
cross-complaint.
On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and Cinecom
Entertainment Group, Inc. filed a Complaint in the Superior Court for the State
of California, County of Los Angeles, captioned Credit Lyonnais Bank Nederland
N.V. and Cinecom Entertainment Group, Inc. v. Odyssey Distributors, Ltd. and
Does 1 through 100 (No. BC 127790). They allege that Odyssey Distributors, Ltd.
(a subsidiary of the Company) collected but failed to remit to them assigned
distribution proceeds in the amount of $566,283.33 from the foreign distribution
of "Aunt Julia and the Scriptwriter" and "The Handmaid's Tale." The Complaint
alleges claims for breach of contract and breach of fiduciary duty and demands
damages in excess of $566,283, attorney's fees, an accounting, a temporary
restraining order and a preliminary injunction. In June 1995, the Court denied
plaintiffs an attachment and stayed the action pending arbitration in New York.
In September, 1996, the Court dismissed the Complaint. In December, 1996, the
Company settled the outstanding litigation with Generale Bank ("Generale")
(formerly known as Credit Lyonnais Bank Nederland N.V.) and Cinecom
Entertainment Group Inc. Pursuant to the settlement agreement, the Company
agreed to pay to Generale the sum of $275,000 in complete settlement of the
claim, payable $25,000 upon execution of the settlement agreement, $25,000 on
each of June 30 and December 31 in the years 1997, 1998 and 1999, and $100,000
on June 30, 2000. Interest on the installments (at the rate of LIBOR plus 1% per
annum) will be waived provided the Company remains in compliance with the agreed
upon payment schedule. The Company and Generale later agreed upon a new payment
schedule as follows: $25,000 on or before October 15, 1997 (payment was made);
$30,000 on each of April 15, 1998, June 30, 1998, December 31, 1998, June 30,
1999, and December 31, 1999; and $100,000 on June 30, 2000. The Company is in
receipt of a demand letter dated May 4, 1998. The letter demands that the
company Cure the non-payment of a $30,000 installment due April 15, 1998.
According to the agreement between the Company and Generale, the Company had ten
days after receipt of the letter to cure the default. The default has not yet
been cured. The consequences of not curing the default is the entry of a
confession of judgment already executed by the Company for the amount of
$275,000. This confession of Judgment is against Odyssey Distributors, Ltd., a
wholly owned but non-operating subsidiary of the Company.
In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject Films,
Inc. ("Greenwich") commenced an action entitled G.P. Productions, Inc. and
Greenwich Studios, Inc. v. Double Helix Films, Inc., Communications and
Entertainment, Inc., Krishna Shaw, Gerald Muller and Norman Muller in the United
States District Court, Southern District of Florida (Case No. 95-1188). Mr.
Muller has demanded that the Company indemnify him against any expenses,
judgments and amounts paid in settlement of the action. The Company contends
that, by virtue of Mr. Muller's breaches of fiduciary duty and violation of his
obligations to the Company, it is not required to provide indemnification.
GP and Greenwich allege that they are the exclusive owners of the films
"The Gallery" and "South Beach". They assert claims for copyright infringement,
unfair competition, breach of contract, accounting, conversion, civil theft,
conspiracy and fraudulent conveyance. The Complaint demands a recall of the
films, an attachment, preliminary and permanent injunctive relief, an
accounting, and unspecified compensatory, punitive and treble damages. The
Company's motion to transfer venue of the action was granted in November, 1995,
and the case was transferred to the United States District Court for the
Southern District of New York. There has been no activity in this matter since
the transfer of venue in 1995.
10
In September, 1995, the agent for the landlord for the premises formerly
occupied by the Company at 800 Third Avenue, New York, New York, filed a Summons
and Verified Complaint against the Company in the Supreme Court of the State of
New York, County of New York, entitled Joseph P. Day Realty Corp. v.
Communications and Entertainment Corp. The plaintiff alleged that it was due
$66,694 from the Company (plus interest) for rent allegedly owed during the
period from April through September, 1995. The Company had vacated the premises
on April 12, 1995. Summary judgment was awarded to the plaintiff on May 22, 1996
and a judgment was entered for $74,142 on May 31, 1996. In July, 1996, the
landlord commenced a second action for $121,000 for rent allegedly owed during
the period from October 1995 through July 1996. The Company reached a settlement
in these cases, pursuant to which the Company delivered 177,5000 registered
shares of the Company's common stock to each of the landlord and its agent in
full settlement of both actions.
In October, 1995, Canon Financial Services filed a Complaint in the
Superior Court of New Jersey entitled Canon Financial Services, Inc. v.
Communications and Entertainment Corp. The plaintiff is claiming that it is due
$47,499.83, plus damages, pursuant to a lease agreement. The Company has filed
an Answer in this action and plaintiff's motion for summary judgment has been
denied by the Court. No trial date has yet been set in this matter.
In December, 1995, Robert F. Ferraro, a former director of the Company,
brought an action against the Company in the Supreme Court of the State of New
York, New York County. The action was brought on a promissory note in the amount
of $25,000 and plaintiff obtained a judgment on a summary judgment motion. The
plaintiff has not yet moved to enforce the judgment and the Company is
considering whether or not it has a claim for indemnification against prior
management in connection with the issuance of the note.
In January, 1996, an action was filed against the Company in which the
plaintiff sought damages in the amount of $33,849 for legal services rendered to
the Company and its subsidiaries. In June, 1997, the parties reached a
settlement in the matter, pursuant to which the Company agreed to pay $7,000 to
plaintiff, deliver 40,000 freely tradeable shares of the Company's common stock,
and deliver an additional cash amount to the extent the aggregate market value
of the shares on the date of delivery was less than $40,000. Payment of the
additional cash amount of $13,000 was completed in December, 1997.
In March, 1996, an action was filed against the Company in Los Angeles
Municipal Court by Judy Hart, in which the plaintiff claims that she is due
$17,920 pursuant to a promissory note. The Company has filed a cross-claim
seeking offsets against the amount due and other damages. On May 21, 1998, a
default judgment was entered on behalf of plaintiff in the amount of $22,261.
Subsequently, plaintiff filed a motion to include attorneys fees and costs in
the aggregate amount of approximately $17,000. The Company is attempting to
reach a settlement with plaintiff.
In March, 1996, a class action complaint was filed against the Company
entitled Dennis Blewitt v. Norman Muller, Jerry Minsky, Dorian Industries, Inc.
and Communications and Entertainment Corp. The complaint seeks damages in
connection with the Company's treatment in its financial statements of the
disposition of its subsidiary, Double Helix Films, Inc. in June, 1991. The
complaint seeks unspecified damages on behalf of all persons who purchased
shares of the Company's common stock from and after June, 1992. A second action,
alleging substantially similar grounds, was filed in December 1996 in Federal
Court in the United States District Court for the Southern District of
California under the caption heading "Diane Pfannebecker v. Norman Muller,
Communications and Entertainment Corp., Jay Behling, Jeffrey S. Konvitz, Tom
Smith, Jerry Silva, David Mortman, Price Waterhouse & Co., Todman & Co., and
Tenato Tomacruz." Following the filing of the second action, the first action
was dismissed by stipulation in May 1997. The Company filed a motion to dismiss
the complaint in the second action and after a hearing on the motion in July,
1997, the Court dismissed the federal securities law claims as being time-barred
by the applicable statute of limitations, and dismissed the state securities law
claims for lack of subject matter jurisdiction. The lower court's dismissal of
this action was upheld on appeal by the Ninth Circuit. Messrs. Muller, Smith and
Mortman, former directors of the Company, have asserted claims for
indemnification against the Company. The Company has advised the claimants that
it will not provide such indemnification based upon their wrongful actions and
failure to comply with various obligations to the Company.
11
In September, 1996, Film Bridge International, Inc. ("Film Bridge") filed a
complaint in Los Angeles County Superior Court, entitled Film Bridge
International v. Communications and Entertainment Corp., and Does 1 through 50,
Inclusive, contending that the Company had breached the terms of an alleged
joint venture agreement between the parties regarding the distribution rights to
certain films. On December 19, 1996, the Company filed a cross-claim against
Film Bridge alleging that, since the end of June, 1996, Film Bridge failed to
furnish the Company with a proper accounting of its revenues and expenses in
connection with the sale of foreign licenses of various films in which the
Company had an interest and had failed to make payment of at least $450,000 to
the Company for monies due and owing to the Company from the foreign sales of
such films. An agreement was reached between the parties in May, 1997, as a
result of which the Company received $336,000 of the monies being held by Film
Bridge, with the balance being retained by Film Bridge as sales commissions and
in full settlement of the litigation.
On November 21, 1996, the law firm of Halperin, Klein & Halperin (counsel
to Mr. Silva) commenced an action against the Company in the Civil Court of the
State of New York on a returned check in the amount of $5,000 for legal services
allegedly rendered to the Company. The check was originally issued to plaintiff
in April, 1995 in connection with the change of control of the Company at that
time. The Company has filed an Answer in the action and intends to defend the
matter on the basis of a failure of consideration.
In December, 1997, the Directors Guild of America ("DGA") obtained an
arbitration award against Down Range Productions, Inc., a wholly owned
subsidiary of Odyssey, on behalf of Kahn Brothers Pictures fso Michael Kahn,
Charles Skouras, and Scott C. Harris. Down Range was ordered to pay Kahn
Brothers Pictures the total sum of $155,041; Charles Skouras the sum of $32,360;
and Scott C. Harris the total sum of $8,868; plus interest at 18% per annum on
each of these amounts from April 1, 1997. Down Range was also ordered to pay the
DGA $2,500. Down Range was also ordered to assign to the DGA all of Down Range's
right, title and interest in the motion picture "Down Range," including the
screenplay for the motion picture, and Down Range was enjoined from licensing
the motion picture or the screenplay to any third party other than the DGA. Down
Range was also ordered to pay the arbitrator $2,250.
Kahn Brothers Pictures fso Michael Kahn also filed a claim against Down
Range Productions, Inc. and the Company with the Writers Guild of America West
(WGA) for unpaid writing services on "Down Range." That claim has been settled
for the amount of $15,000.
The Screen Actors Guild (SAG) has also asserted that there are amounts
owing to four actors (Dale Dye, John Philbin, Tegan West, and Kiljoy Productions
fso Kathleen Wilhoite), arising out of "Down Range." The company believes that
SAG has never instigated any arbitration or other proceeding to try to collect
on these claims. Additionally, there were two actors, Corbin Bernsen and Jeff
Fehey, who had pay-or-play contracts. The outcome of these contracts and the
actors' claims have not been resolved.
In April, 1998, the Company reached a settlement with Mr. Jerry Silva ( a
former director of the Company), regarding his actions against the Company in
the Civil Court and Supreme Court of the State of New York. Mr. Silva was
seeking money damages based on his claim that the Company interfered with his
right to sell his shares in the Company. Mr. Silva will discontinue the matters
and the Company will authorize the sale of Mr. Silva's shares in the Company
under Rule 144, up to a maximum of 25,000 shares per month.
In April, 1998, an action was commenced against the Company by Siegel &
Gale, a provider of brochure materials for the Company. The lawsuit seeks
payment of $48,695, plus costs, related to work done by Siegel & Gale for the
Company. The Company has not yet filed an Answer in this action and is in the
process of consulting with its counsel on the best course of resolving this
matter.
12
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 Registrant's Common Stock and Related Stockholder Matters.
---------------------------------------------------------------------
The following table sets forth the range of high and low bid information
for the Common Stock of the Company as reported by the Nasdaq Stock Market, Inc.
("Nasdaq") on a quarterly basis for each of the two preceding fiscal years. On
May 1, 1996, Nasdaq notified the Company that its shares of Common Stock were
being deleted from Nasdaq's SmallCap Market, effective May 2, 1996, because the
Company did not maintain a combined capital and surplus of $1,000,000, as
required by Section 1(c)(3) of Schedule D of the NASD By-Laws. Since May 2,
1996, the Company's shares have traded in the over-the-counter market on the OTC
Bulletin Board. The Company's Common Stock trades under the symbol OPIX.
No dividends have been declared or paid with respect to the Common Stock.
On March 6, 1996, the Company declared a reverse one-for-six stock split
(the "Reverse Split") of its Common Stock, effective on March 18, 1996. The
share prices reflected below for all periods prior to the Reverse Split have
been adjusted upward (by a multiple of six) to give effect to the Reverse Split
for such prior periods on a pro forma basis.
The bid quotations represent inter-dealer prices and do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Common Stock
------------
Fiscal 1996 High Low
- ----------- ---- ---
First Quarter $4.00 $2.12
Second Quarter 2.75 1.37
Third Quarter 2.37 1.50
Fourth Quarter 1.81 .40
Fiscal 1997
First Quarter $ .87 $ .50
Second Quarter 1.37 .43
Third Quarter 1.07 .62
Fourth Quarter .81 .37
As of September 30, 1998, there were 4576 record holders of the Company's
Common Stock.
13
Item 6. Selected Financial Data (in thousands, except per share data).
--------------------------------------------------------------
The following table sets forth the selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, and with Management's Discussion and Analysis of Financial
Condition and Results of Operations which appear elsewhere in this report.
For the Years Ended June 30,
1997 1996 1995 1994 1993
Income Statement Data
Revenues....................................... $ 141 $1,011 $1,521 $14,797 $31,430
Income (loss) from continuing operations....... 69 (4,960) (6,852) (7,607) (1,450)
Income (loss) from discontinued operations..... - - (458) (766) 187
Net income (loss).............................. 69 (4,960) (7,310) (8,373) (1,263)
Per Share Data (1)
Income (loss) from continuing operations....... .02 (2.17) (2.94) (3.18) (.057)
Income (loss) from discontinued operations..... - - (0.20) (0.32) 0.07
Net income (loss).............................. .02 (2.17) (3.14) (3.50) (0.50)
Cash Dividends................................. - - - - -
Weighted average shares........................ 2,294 2,284 2,332 2,392 2,551
Balance Sheet Data
Film costs..................................... 120 1,001 10,656 13,127 10,614
Total assets................................... 740 2,488 15,078 27,949 35,409
Indebtedness................................... 962 562 249 179 366
Shareholders' equity........................... (2,226) (2,749) 1,979 9,796 18,786
(1) Per share data and weighted average shares for all periods have been
restated to reflect the effect of a one-for-six reverse stock split in March
1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operation.
---------------------
Results of Operations
Years Ended June 30, 1997 and 1996
Operations for the fiscal year ended June 30, 1997 ("fiscal 1997") resulted
in net income of $68,808, compared with a net loss of $4,959,716 for the fiscal
year ended June 30, 1996 ("fiscal 1996"). The net income for fiscal 1997 is
primarily due to a gain of $818,776 from the sale of certain distribution and
subdistribution rights in certain films to a third party and recognition of a
$1,245,758 gain from cancellation of a contractual obligation related to the
Company's distribution rights in a motion picture which was partially offset by
a write-off of festival costs in the amount of $249,544, litigation and
settlement costs of $148,174 and a write-down in inventory costs of $435,102
relating to one motion picture. These write-offs were partially offset by a
write-off of $449,163 in participation liabilities related to a library that was
sold. The loss for fiscal 1996 is primarily the result of a $3,262,4798 loss on
the sale of interests in joint ventures relating to four theatrical films, and
from the continued decline in film distribution revenue.
Revenues declined to $141,202 for fiscal 1997 compared to $1,010,826 for
fiscal 1996. There were no new films which became available for delivery to the
Company in either period.
14
Costs related to revenues decreased to $565,610 for fiscal 1997 as compared
to $1,046,299 for fiscal 1996. The decrease is primarily related to the fact
that there were lower film revenues in the current year and from the write-offs
explained above.
Selling, general and administration expenses increased to $1,678,450 for
fiscal 1997 from $1,565,307 for fiscal 1996. The increase is primarily related
to higher salaries and professional fees during fiscal 1997.
As of June 30, 1997, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $27,000,000 expiring through
2011, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these operating losses will be limited to approximately $350,000
per year.
Years Ended June 30, 1996 and 1995
Operations for the fiscal year ended June 30, 1996 ("fiscal 1996") resulted
in a loss from continuing operations of $4,959,716, compared to a loss from
continuing operations of $6,851,458, for the fiscal year ended June 30, 1995
("fiscal 1995"). The loss for fiscal 1996 is primarily the result of a
$3,262,478 loss on the sale of interests in joint ventures relating to four
theatrical films, and from the continued decline in film distribution revenue.
The loss for fiscal 1995 is due to a substantial decline in revenues, as
compared to the previous fiscal year, and certain write-offs, including film
costs and receivables resulting from the settlement of litigation with Home Box
Office Inc. ("HBO"), costs associated with the sale or abandonment of film
development projects and unrecoverable distribution costs.
Revenues declined 34% to $1,010,826 for fiscal 1996 from $1,521,434 for
fiscal 1995. Revenues for both periods reflect the continued licensing of rights
in the Company's library of feature films. There were no new films which became
available for delivery to the Company in either period, partly due to prior
management's failure to acquire rights to new film projects.
Costs related to revenues for fiscal 1996 exceeded film distribution
revenues by $35,473, primarily due to the write-off of unrecoverable
distribution costs. For fiscal 1995, costs related to revenues exceeded revenues
by $3,223,896, primarily due to write-offs of approximately $2,518,000
associated with the settlement of litigation with HBO, and write-offs of film
development projects, film assets acquired in settlement of loans receivable and
unrecoverable distribution costs.
As of January 2, 1996, the Company entered into an agreement with its joint
venture partner to sell its related joint ventures through which it held
approximately 50% ownership interests in four theatrical motion pictures. As a
result of the sale, the assets and obligations of the joint ventures, heretofore
included in the consolidated financial statements of the Company, were
eliminated, including approximately $3,485,000 of funds held in joint venture
accounts, net film costs of approximately $6,051,000, payables due to producers
and participants of approximately $7,244,000, deferred income of $520,000 and
other net obligations of approximately $272,000.
Selling, general and administrative expenses decreased $2,140,156 (58%) to
$1,565,307 for fiscal 1996 from $3,705,463 for fiscal 1995. The reduction in
expenses is a direct result of new management's efforts to eliminate unnecessary
overhead. Expenses for fiscal 1996 reflect significant decreases in personnel
and related expenses, rent (due to the closure of the New York office and the
reduction of the Los Angeles office) and professional fees.
The decrease in interest income for fiscal 1996 is due to a reduction in
the average available cash balances, including funds held in joint venture
accounts.
Interest expense increased to $97,701 for fiscal 1996 from $19,498 for
fiscal 1995. The increased interest expense resulted primarily from the private
placement sale of an aggregate of $312,500 principal amount of 12% Senior
Unsecured Promissory Notes in August and October 1995.
15
The Company did not recognize any tax benefits related to its losses from
operations for the 1996 and 1995 fiscal years due to its inability to carry-back
such losses to prior years.
As of June 30, 1996, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $27,000,000 expiring through
2011, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these operating losses will be limited to approximately $350,000
per year.
Liquidity and Capital Resources
At June 30, 1997, the Company held approximately $9,000 of cash.
New management has taken significant steps to recapitalize and fund the
Company's operations.
The company signed an agreement with Kimon on July 14, 1998 to purchase the
assets of Kimon, valued at $4,500,000, in exchange for 4,500,000 Odyssey shares
of subordinated convertible preferred stock, Series B, having a value of $1.00
per share for conversion purposes. Kimon shall be able to convert to Odyssey
common stock between June 30, 2000 and December 31, 2000 on a dollar-for-dollar
basis based on the price of the Company's common stock at the time of
conversion. Kimon assets purchased consist of a film library with worldwide
and/or Scandanavian distribution rights and Scandanavian video distribution
rights to certain Hallmark Entertainment products.
In June, 1998, the company applied for, and was accepted for, trading on
the Berlin Stock Exchange, under the symbol "ODY." The German company Berliner
Freiverkehr (Atkien) assisted the Company in the application and signed an
agreement with the Company to serve as a market maker/coordinator in exchange
for 200,000 warrants having an exercise price of $1.55 per share, exercisable
during the two-year period commencing June 23, 1998.
The Company received $150,000 in funding from the Augustine Fund L.P. in
July 1998. In exchange for the financing, the Augustine Fund received a $150,000
convertible note as well as up to 150,000 transferable warrants, exercisable at
$1.60 per share for a three year period. Augustine can convert into restricted
shares of the Company's common stock at a discount to the market price of the
common stock at the time of the conversion (i.e., at the lower of the market
price on the closing date, or 80% of the market price prior to conversion).
Augustine and certain Augustine associated parties were also issued a total of
45,000 shares of restricted common stock in connection with the transaction.
16
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
ODYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants 18
Financial Statements:
Consolidated Balance Sheets
as of June 30, 1997 and 1996 19
Consolidated Statements of Operations for the
Years Ended June 30, 1997, 1996 and 1995 20
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Years Ended June 30,
1997, 1996 and 1995 21
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995 22-23
Notes to Consolidated Financial Statements 24-40
All schedules have been omitted because the requested information is not
required, or, because the information required is included in the financial
statements or notes thereto.
17
REPORT OF INDEPENDENT ACCOUNTANTS
VANT&ENDER C.P.A., P.C.
To the Board of Directors and Shareholders of
Odyssey Pictures Corporation
In our opinion, the accompanying consolidated balance sheet and related
consolidated statement of operations, shareholders' equity and of cash flow
present fairly, in all material respects, the financial position of odyssey
Pictures Corporation and its subsidiaries at June 30, 1997 and the results of
their operations and their cash flow for the period ended June 30, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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 test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 8 to the financial statement, the Company defaulted on
payments due August and October 1996 relating to notes payable. The Company
proposed to the noteholders to defer maturity of the notes and exchange
exisiting warrants for shares, or cancel the notes and existing warrants in
their entirety in exchange for shares. The Company offered to register any
shares issued in exchange for the notes as of August 12, 1997 the date the
registration become effective, all but one of the noteholder agreed to exchange
their notes for registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are default. Additionally, an unsecured
note of $179,000 is also in default. At this time, the ultimate outcome of this
matter cannot be determined.
As discussed in Note 9, the Company is a defendant in various lawsuits. The
Company has filed counteractions and preliminary hearings and discovery
proceedings on several actions are in progress. The ultimate outcome of the
litigation cannot be determined at present. Not all liabilities that may result
upon adjudication have been accrued in the accompanying financial statements.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and has insufficient working capital to meet its
current obligations and liquidity needs. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Want & Ender C.P.A., P.C.
Want & Ender C.P.A., P.C.
New York City, New York
June 23, 1998
18
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Balance Sheets
JUNE 30, JUNE 30,
1997 1996
--------------- ---------------
ASSETS:
Cash $8,790 $462,971
Funds held in joint venture accounts
Accounts receivable, net of allowances
of $0 and $53,788 292,251 996,574
Note receivable 300,000 0
Film costs, net 120,472 1,000,968
Other assets 17,998 27,945
--------------- ---------------
$739,511 $2,488,458
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Liabilities:
Accounts payable and accrued expenses $874,020 $698,985
Accrued wages 335,996 17,372
Accrued interest 64,601 46,272
Accrued rent 149,000 150,000
Due to producers and participants 560,499 3,760,142
Deferred revenues 19,800 3,000
Notes and loans payable 961,500 561,500
--------------- ---------------
2,965,416 5,237,271
--------------- ---------------
Commitments and contingencies
Shareholders' Equity (Deficit):
Preferred stock, par value $.10;
Authorized - 10,000,000 shares
Issued - none
Class A stock, par value $.01;
Authorized - 10,000,000 shares
Issued - none
Common stock, par value $.01;
Authorized - 40,000,000 shares
Issued and outstanding -
3,279,515 and 2,591,242 shares 32,796 25,913
Capital in excess of par value 26,358,583 25,911,366
Accumulated deficit (28,617,284) (28,686,092)
--------------- ---------------
Total shareholders' deficit (2,225,905) (2,748,813)
--------------- ---------------
$739,511 $2,488,458
=============== ===============
The accompanying notes are an integral part of these statements.
19
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Operations
For the Years
Ended June 30,
------------------------------------------
1997 1996 1995
REVENUES: $141,202 $1,010,826 $1,521,434
------------ ------------- -------------
EXPENSES:
Costs related to revenues 565,610 1,046,299 4,745,330
Selling, general and
administrative expenses 1,678,450 1,565,307 3,705,463
------------ ------------- -------------
2,244,060 2,611,606 8,450,793
------------ ------------- -------------
Operating income (loss) (2,102,858) (1,600,780) (6,929,359)
OTHER INCOME (EXPENSES):
Other income
Interest income 1,243 97,399
Interest expense (91,435) (97,701) (19,498)
Loss on sale of joint venture interests (3,262,478)
Other Income 2,263,101
------------ ------------- -------------
Income (loss) from continuing operations
before provision for income taxes 68,808 (4,959,716) (6,851,458)
Benefit for income taxes
------------ ------------- -------------
Income (loss) from continuing operations 68,808 (4,959,716) (6,851,458)
Loss from discontinued
operations (458,193)
------------ ------------- -------------
Net income (loss) $68,808 ($4,959,716) ($7,309,651)
============ ============= =============
Income (loss) per share:
Income (loss) from continuing operations $0.02 ($2.17) ($2.94)
Loss from discontinued
operations (0.20)
------------ ------------- -------------
Net income (loss) $0.02 ($2.17) ($3.14)
============ ============= =============
Weighted average common
shares outstanding* 2,993,809 2,283,611 2,331,579
============ ============= =============
Fully diluted income (loss) per share:
Income (loss) from continuing operations $0.02 ($2.17) ($2.94)
Loss from discontinued
operations (0.20)
------------ ------------- -------------
Net income (loss) $0.02 ($2.17) ($3.14)
============ ============= =============
Weighted average common
shares outstanding* 2,993,809 2,283,611 2,331,579
============ ============= =============
The accompanying notes are an integral part of these statements.
20
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Changes in Shareholders' Equity (Deficit)
Class A Stock Common Stock
--------------------- -------------------- Total
Amount Amount Capital in Treasury Shareholders'
($.01 Par ($.01 Par Excess of Accumulated Stock Equity
Shares Value) Shares Value) Par Value Deficit at Cost (Deficit)
Balances - June 30, 1993 2,554,132 $25,541 2,241,482 $22,414 $28,046,619 ($8,043,239) ($1,264,986) $18,786,349
Purchase of 402,200 shares
of treasury stock (616,815) (616,815)
Treasury shares retired
and cancelled (162,833) (1,628) (1,880,173) 1,881,801 0
Conversion of Class A stock (213,429) (2,134) 22,676 227 1,907
Net loss (8,373,486) (8,373,486)
---------- -------- ---------- -------- ------------ ----------- ------------- -----------
Balances - June 30, 1994 2,340,703 23,407 2,101,325 21,013 26,168,353 (16,416,725) -- 9,796,048
Conversion of Class A stock (254,148) (2,541) 27,002 270 2,271 0
Cancellation of
unexchanged shares (520,740) (5,207) (10,496) (105) 5,312 0
Automatic conversion of
Class A stock to Common (1,565,815) (15,659) 166,358 1,664 13,995 0
Dividend of shares of
subsidiary (507,114) (507,114)
Net loss (7,309,651) (7,309,651)
----------- -------- ---------- -------- ------------ ----------- ------------- -----------
Balances - June 30, 1995 -- -- 2,284,189 22,842 25,682,817 (23,726,376) -- 1,979,283
Issuance of shares to officers
in payment of notes 307,053 3,071 228,949 232,020
Cash payments in lieu of
fractional shares on
conversion of Class A stock (400) (400)
Net loss (4,959,716) (4,959,716)
----------- -------- ---------- -------- ------------ ----------- ------------- ------------
Balances - June 30, 1996 -- -- 2,591,242 $25,913 $25,911,366 ($28,686,092) -- ($2,748,813)
Issuance of shares to officers
in payment of notes 78,948 789 44,211 45,000
Re-issue of unexchanged shares
shares previously cancelled 65,825 659 (659) 0
Issuance of shares in consideration
for services rendered 43,500 435 33,665 34,100
Sale of shares to equity
investors 500,000 5,000 370,000 375,000
Net income 68,808 68,808
------------ -------- ---------- -------- ------------ ----------- ------------- ------------
Balances - June 30, 1997
-- -- 3,279,515 $32,796 $26,358,583 ($28,617,284) -- ($2,225,905)
============ ======== ========== ======== =========== ============= ============= ============
The accompanying notes are an integral part of these statement.
21
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Cash Flows
For the Years
Ended June 30,
-------------------------------------------
1997 1996 1995
Cash Flows from Operating Activities:
Net loss from continuing operations $68,808 ($4,959,716) ($6,851,458)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on sale of joint venture interest 3,262,478
Amortization of film costs 1,660,440 634,179 2,149,723
Additions to film costs (779,944) (185,401) (72,259)
Other depreciation and amortization 18,963 44,307 187,219
Provision for loss on investment
Equity in losses of subsidiary held for sale 64,605
Gain on sale of shares of subsidiary (5,062)
Issuance of shares of subsidiary stock
in payment of legal fees 155,905
Issuance of shares of stock in consideration
for services rendered 34,100
Issuance of shares of stock to officers
in payment of deferred compensation 45,000 232,020
Cash payments in lieu of fractional shares (400)
Decrease (increase) in assets net of sale of
joint venture interest:
Funds held in joint venture accounts 352,723 (1,799,603)
Accounts receivable, net 704,323 (406,331) 9,998,736
Note receivable (300,000)
Other (536) (5,500) 258,007
(Decrease) increase in liabilities net of
sale of joint venture interest:
Accounts payable and accrued expenses 510,988 (199,628) (576,731)
Issuance of note in payment of legal fees 70,000
Due to producers and participants (3,199,643) (115,701) (4,616,323)
Deferred revenues 16,800 3,000 38,875
-------------- -------------- --------------
Net cash used in continuing operations (1,220,701) (1,343,970) (998,366)
-------------- -------------- --------------
Discontinued operations:
Net loss (458,193)
Amortization 393,588
-------------- -------------- --------------
Total from discontinued operations -- -- (64,605)
-------------- -------------- --------------
Net cash used in operations (1,220,701) (1,343,970) (1,062,971)
-------------- -------------- --------------
Cash Flows from Investing Activities:
Collections of loans relating
to lending activities 393,588
Acquisition of fixed assets (8,480) (6,550) (10,633)
Investment in Global Intellicom, Inc. (1,049,002)
Proceeds from the sale of Global Intellicom, Inc. shares 326,440
Proceeds on sale of joint venture interest 1,500,000
Costs relating to investment
-------------- -------------- --------------
Net cash provided by (used in)
investing activities (8,480) 1,493,450 (339,607)
-------------- -------------- --------------
The accompanying notes are an integral part of these statements.
22
OSYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Consolidated Statements Of Cash Flows (Continued)
For the Years
Ended June 30,
----------------------------------------------
Cash Flows from Financing Activities: 1997 1996 1995
Note payable in settlement of Generale Bank
complaint 275,000
Net proceeds from the sale of
Senior Notes 270,000
Net proceeds from private placement
sale of common stock 375,000
Net proceeds from interim financing 125,000
-------------- -------------- --------------
Net cash provided by (used in) financing activities 775,000 270,000 --
Net increase (decrease) in cash (454,181) 419,480 (1,402,578)
Cash at beginning of period 462,971 43,491 1,446,069
-------------- -------------- --------------
Cash at end of period $8,790 $462,971 $43,491
============== ============== ==============
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year for-
Interest $48,240 $10,778 $19,498
============== ============== ==============
Income taxes $0 $0 $3,200
============== ============== ==============
Non Cash Investing and
Financing Activities:
Dividend of shares of Global Intellicom,Inc. ($507,114)
==============
Receipt of film assets in settlement of
loans receivable from ATC II, Inc. $393,588
==============
The accompanying notes are an integral part of these statements.
23
ODYSSEY PICTURES CORPORATION
(FORMERLY KNOWN AS)
COMMUNICATIONS AND ENTERTAINMENT CORP.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
a) Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and majority owned
or controlled joint ventures. All significant intercompany
accounts have been eliminated.
In March 1989, the Company entered into a joint venture
pursuant to which the Company and a non-affiliated entity
co-financed and co-produced a theatrical motion picture
entitled "Q&A", in which the Company had a 50.01% ownership
interest. In March 1990, the Company entered into two 50%
joint ventures (in which the Company exercised contractual
control) with the same entity to acquire the foreign
distribution rights of and distribute two motion pictures,
"Switch" and "Guilty By Suspicion". In December 1991, the
Company entered into a 50% joint venture (in which the Company
exercised control) with the same entity to acquire the foreign
distribution rights of and to distribute the motion picture
"This Boy's Life". The assets, liabilities, revenues and
expenses of the joint ventures have been included in the
consolidated financial statements of the Company. Minority
interests in operations and in net assets in these joint
ventures have been included in film costs and due to producers
and participants in the consolidated statements of operations
and of financial condition, respectively. In January 1996, the
Company sold its interests in the joint ventures (See Note 4).
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
b) Revenue Recognition:
Revenues from foreign theatrical, home video, television and
pay television licensing contracts are recognized when the
film is available for exhibition by the licensee and when
certain other conditions are met. Revenues from domestic
theatrical distribution of films are recognized as the films
are exhibited.
Virtually all of the Company's revenues for the fiscal year
ended June 30, 1997 and 1996 and approximately 62% of the
revenues for the fiscal year ended June 30, 1995, were from
foreign distribution rights. For fiscal 1996, approximately
50.2% of revenues were derived from one picture. One picture
accounted for approximately 28.3 % of revenues for the year
ended June 30, 1995.
c) Film Costs:
Film costs include (1) cost of production, (2) investment in
distribution rights, (3) marketing and distribution expenses,
and (4) development costs. Film costs are amortized, and
estimated residual and participation costs are accrued, on an
individual film basis in the ratio that the current year's
gross film revenues bear to management's estimate of total
ultimate gross film revenues from all sources.
24
Film costs are stated at the lower of cost or estimated net
realizable value on an individual film basis. Ultimate revenue
and cost forecasts for films are periodically reviewed by
management and revised when warranted by changing conditions.
When estimates of total revenues and costs indicate that a
film will result in an ultimate loss, additional amortization
is provided to fully recognize such loss.
e) Property and Equipment:
Depreciation of property and equipment is provided by the
straight-line method over their estimated useful lives of up
to eight years.
Maintenance and repairs are expensed as incurred. The cost of
renewals and betterments are capitalized. When assets are sold
or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resultant
gain or loss is included in current year operations.
f) Earnings (Loss) Per Share:
Earnings (loss) per share are computed using the weighted
average number of common shares outstanding during the
respective periods, adjusted for the dilutive effect, if any,
of outstanding stock options and warrants. On March 6, 1996,
the Board of Directors announced a one-for-six reverse stock
split (the "Reverse Stock Split") which became effective on
March 18, 1996. For comparative purposes, the number of
weighted average common shares outstanding and loss per share
reported in the accompanying consolidated statements of
operations, and share data included in the notes to the
consolidated financial statements, have been adjusted to
reflect the effect of the Reverse Stock Split for all periods
presented.
g) Use of Estimates:
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts and disclosures in financial statements. Actual
results could differ from those estimates.
h) Fair Value of Financial Instruments:
The carrying value of cash, notes receivable and notes and
loans payable approximates fair value because of the
short-term maturity of these instruments.
i) Impact of Recently Issued Accounting Standards:
In March 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"). This
Statement establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles to be
disposed of and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable
intangibles to be disposed of. FAS 121 is effective for
financial statements for fiscal years beginning after December
15, 1995. The Company will apply this Statement beginning in
fiscal 1997. The adoption of FAS 121 is not expected to have a
material effect on the financial statements of the Company.
25
In October 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation ("FAS 123"). This
statement establishes methods of accounting for stock-based
compensation plans. FAS 123 is effective for fiscal years
beginning after December 15, 1995. The Company expects to
continue to apply Accounting Principles Board Opinion 25 for
measurement of stock compensation and will provide the
disclosure required by FAS 123 beginning in fiscal 1997. The
adoption of FAS 123 is not expected to have a material effect
on the financial statements of the Company.
2. Change in Management Control:
In January 1995, a group of shareholders of the Company (the "CECO
Shareholders Committee") launched an effort to change the senior
management and Board of Directors of the Company.
Pursuant to a settlement agreement (the "Settlement Agreement") dated
as of March 31, 1995, among the members of the CECO Shareholders
Committee, the Company, the Company's subsidiary, Odyssey Entertainment
Ltd. ("Odyssey"), Global Intellicom, Inc. and each of the directors of
the Company at the time of signing, a change in the entire Board of
Directors occurred on April 12, 1995.
In March, 1998, the Board of Directors appointed Mr. Johan Schotte as
Chief Executive Officer and Chairman of the Board of the Company, and
Mr. Pierre Koshakji as President and Director of the Company. Former
management agreed to terminate their existing employment agreement in
exchange for revised employment and consulting agreements. An affiliate
of Mr. Schotte purchased convertible deferred compensation notes from
former management and converted a portion of those notes into 667,648
shares of the Company's common stock in April 1998.
In connection with the change in management, the Company acquired an
18% equity interest in two corporations affiliated with Mr. Schotte,
one of which is the owner of a professional soccer team in New Mexico,
and the other of which is a media production company in Luxembourg. The
Company issued one-year notes in the aggregate amount of $450,000 in
consideration of the purchase of the equity interests in these
companies.
3. Results of Operations and Management's Plans:
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems. The Company must achieve and sustain a
profitable level of operations with positive cash flows and must
continue to obtain financing adequate to meet its ongoing operation
requirements.
Net income for the year ended June 30, 1997 was due primarily from
various transactions which are explained in the category of "Other
Income" below. Net loss for the year ended June 30, 1996 is primarily
due to a loss of approximately $3.3 million on the sale of the
Company's interest in joint ventures relating to four theatrical motion
pictures, and due to insufficient revenues to offset normal expenses.
Revenues for the twelve months ended June 30, 1997 decreased to
$141,202 compared to $1,010,826 for the twelve months ended June 30,
1996. No new films became available for delivery during either period.
26
Costs related to revenues decreased to $565,610 for the twelve months
ended June 30, 1997 as compared to $1,046,299 for the twelve months
ended June 30, 1996. The decrease is primarily related to the fact that
there was lower film revenues in the current year. Additionally,
development and festival costs in the amount of $249,544 were written
off, litigation and settlement costs relating to the Film Bridge
settlement in the amount of $148,174 were expensed and $435,102 in
inventory costs related to the picture Downrange were written off. This
was partially offset by a write-off of $449,163 in participation
liabilities related to the Kinnevik Library which were settled
subsequent to the Kinnevik sale.
Selling,general and administrative expense increased by $113,143 (7.2%)
to $1,678,450 for the twelve month period ended June 30, 1997 from
$1,565,307 for the comparable period ending June 30, 1996. The increase
is primarily related to higher salaries and professional fees.
Other income for the twelve months ended June 30, 1997 consisted of a
$818,776 gain from the sale of certain distribution and subdistribution
rights in certain films to a third party, recognition of a $1,245,758
gain from the cancellation of a contractual obligation related to the
Company's distribution rights in "Wuthering Heights" and recognition of
a gain in the amount of $198,567 from the settlement of an outstanding
litigation with Generale Bank (formerly known as Credit Lyonnais Bank
Nederland N.V.) and Conecom Entertainment Group Inc. There was no other
income recognized in the respective twelve months ended June 30, 1996.
Since the change in management control in April 1995, new management
has embarked on a program to reverse the unfavorable results by
significantly reducing overhead, taking steps to recapitalize the
Company, and acquiring rights to existing film libraries and new
pictures in development or pre-production.
In August and October 1995, the Company received net proceeds of
$219,250 and $50,750, respectively, from the private placement of an
aggregate of $312,500 principal amount of 12% Senior Unsecured
Promissory Notes (See Note 10).
In January 1996, the Company entered into an agreement to sell its
interest in joint ventures relating to four theatrical motion pictures
pursuant to which it received net proceeds of $1,500,000 (See Note 4).
In August 1996, the Company entered into an agreement, pursuant to
which the Company agreed to grant subdistribution rights in, and to
sell other distribution rights to, certain films in the Company's film
library. In exchange for these rights, the Company will receive a total
cash consideration of $1,075,000, payable $500,000 on closing, $275,000
six months after closing, and $300,000 eighteen months after the
closing. In addition, the Company will retain a continuing right to
receive revenues from certain of the films, valued by management at a
minimum of approximately $150,000. Additionally, the purchaser will
provide the Company with a $500,000 revolving line of credit to be
secured by accounts receivable and other contractual rights acquired by
the Company. As part of the transaction, the Company will grant 100,000
stock options, exercisable over a three year period at the bid price of
the Company's common stock in effect on August 5, 1996 ($.625). The
transaction closed on October 7, 1996
In September 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1 million shares of the
Company's common stock in consideration for $750,000 cash and warrants
to purchase up to 2 million shares of common stock. Following a dispute
between the parties concerning the satisfaction of certain conditions
to closing and the investor's indication of an unwillingness to
consummate the transaction, the parties reached a settlement in June
1997, pursuant to which the investor would purchase 66,667 shares of
Common Stock of the Company for $50,000, or $ .75 per share. The
proceeds will be used the pay legal costs related to the transaction.
27
In September, 1996, the Company reached an agreement with Paramount,
pursuant to which Paramount would cancel the Company's contractual
guarantee of $2.7 million in full, in exchange for which the Company
agreed to (i) relinquish all further distribution rights to "Wuthering
Heights"; (ii) assign to Paramount all of its rights in any outstanding
distribution agreements for the film, and any receivables to be
generated therefrom; and (iii) guarantee that Paramount will collect a
total of $500,000 in sales revenue from existing distribution
agreements no later than January 15, 1997. Existing license agreements
yielded approximately $420,000 in net revenues prior to January 15,
1997 (of which the Company would have been entitled to retain
approximately 20% thereof in commissions). The Company has paid over
$250,000 in net revenues and is currently in negotiations with
Paramount regarding the timing of the remaining $250,000 payment.
In December, 1996, the Company settled the outstanding litigation with
Generale Bank ("Generale") (formerly known as Credit Lyonnais Bank
Nederland N.V.) and Cinecom Entertainment Group Inc. Pursuant to the
settlement agreement with Generale, the Company agreed to pay to
Generale the sum of $275,000 in complete satisfaction of the claim,
payable $25,000 upon execution of the settlement agreement, $25,000 on
each of June 30, and December 31 in the years 1997, 1998 and 1999, and
$100,000 on June 30, 2000. Interest on the installments (at the rate of
LIBOR plus 1% per annum) will be waived provided the Company remains in
compliance with the agreed upon payment schedule. The Company has only
made one payment to Generale Bank in the amount of $25,000. In October,
1997, the Company entered into a revised payment schedule with Generale
Bank. The Company is in receipt of a demand letter dated May 4, 1998.
The letter demands that the Company cure the non-payment of a $30,000
installment due April 15, 1998. According to the agreement between the
Company and Generale Bank, the Company had ten business days after
receipt of this letter to cure this default. The consequences of not
clearing this default is the entry of a confession of judgement already
executed by the Company for an amount of $275,000. This confession of
judgement is against Odyssey Distributors Limited, a wholly owned
subsidiary of the Company. (see litigation)
In February, 1997, the Company completed a sale of 500,000 shares of
Common Stock and 500,000 Common Stock Warrants to four (4) offshore
European investors for an aggregate consideration of $375,000. The
warrants are exercisable over a three year period (expiring February
25, 2000) at an exercise price of $1.06 per share. One of the
investors, Johan Schotte, was retained by the Company as a financial
consultant for a period of one year from the date of closing at the
rate of $2,500 per month. The investors were also given the right to
designate one of the investors (or another third party), to serve as a
member of the Board of Directors of the Company.
In April, 1997, Stephen Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the Company in
the amounts of $50,000, $25,000 and $25,000, respectively. Each loan is
payable on demand and bears interest at the rate of 2 points over prime
per annum. The note is secured by a collateral assignment of the
Company's $300,000 note receivable from Kinnevik. In consideration of
making the loans, the lenders received five-year warrants to purchase
shares of Common Stock of the Company, exercisable at $1.00 per share.
Messrs. Schneider and Miller each received 25,000 warrants and Mr.
Greenwald received 50,000 warrants as additional consideration for
making the loans to the Company. In addition, an independent
unaffiliated third party made a $25,000 loan to the Company in June,
1997 on the same terms and conditions as the loans made by Mr.
Greenwald, Schneider and Miller.
In September, 1997, the Company and Kinnevik Media Properties, Ltd.
executed a letter agreement pursuant to which Kinnevik agreed, subject
to completion of due diligence and the approval of Kinnevik's Board, to
purchase 500,000 shares of convertible, redeemable preferred stock of
28
the Company, par value $1.00 per share, for an aggregate purchase price
of $500,000. Kinnevik would purchase the first $250,000 of preferred
stock at the closing, an additional $125,000 of preferred stock 90 days
after closing, and the final $125,000 of preferred stock 270 days after
closing. The preferred stock would bear interest at the rate of 10% per
annum which would be paid in kind semi-annually by the issuance of
additional shares of preferred stock at a par value of $1.00 per share.
Kinnevik would have the right for a five year period to convert the
preferred stock into common stock of the Company on a share-for-share
basis. The Company would have the right to redeem the preferred stock
for $1.25 per share in the event the Company's common stock trades at a
price of $2.00 per share or more for a period of 20 consecutive trading
days. The Company agreed to help secure television distribution rights
for Kinnevik from third parties, and introduce various projects to
Kinnevik from time to time which may be of interest to Kinnevik. In the
event Kinnevik acquires any rights as a result of any introductions
made by the Company, the parties agree to mutually determine the value
of such services and to redeem shares of the preferred stock at $1.00
per share based on the aggregate value of the services so determined.
In January, 1997, prior counsel to the Company agreed to exchange a
promissory note in the face amount of $70,000 in exchange for 120,000
Shares of the Company's Common Stock.
4. Sale of Joint Venture Assets:
As of January 2, 1996, the Company entered into an agreement (the
"Agreement") with Regency International Pictures, B.V., its joint
venture partner, to sell its interest in the related joint ventures
through which it held approximately 50% ownership interests in four
theatrical motion pictures, entitled "Q&A," "Switch,"Guilty By
Suspicion" and "This Boy's Life." The joint venture is defined as the
distribution agreements related to the aforementioned four motion
pictures. Individual agreements were created to finance, produce and
distribute each picture and to share in revenues generated from the
exploitation of them. Joint venture pictures were accounted for in the
same manner as any other picture that the Company distributed. Pursuant
to the Agreement, the Company received $1,500,000 in exchange for all
of its interest in the net assets and obligations of the joint
ventures. In addition, the Company retained a contingent interest in
certain receivables, not to exceed $212,500, and a contingent interest
in future revenues from the pictures.
5. Investment in Global Intellicom, Inc.:
On December 8, 1994, the Company acquired 3,300,000 shares of Global
Intellicom, Inc. ("Global") and subsidiaries, a Nevada corporation, for
$1,000,000, representing 66% of Global's 5,000,000 outstanding shares
of common stock. Simultaneously and pursuant to a contract of sale
entered into by Tech Acquisition Corp. ("Tech") (a wholly-owned
subsidiary of Global) on October 28, 1994, Global purchased certain net
assets of AMCOM Business Centers Corp.("AMCOM") (a Pennsylvania
corporation) subject to certain liabilities and obligations. On
December 8, 1994 Tech changed its name to AMCOM Business Centers Corp.
AMCOM is a wholesale distributor of computer hardware and related
products and serves customers throughout the United States.
The total purchase price of the net assets of AMCOM was $5,280,000,
$2,224,000 of which was paid to the sellers at closing. The balance of
the purchase price of $3,056,000 is payable by Global in installments
equal to 1% of gross sales effective January 1, 1994 (as defined by
agreement) in quarterly installments through December 1995 and monthly
thereafter until the obligation is satisfied. In addition, Global
agreed to reimburse AMCOM stockholders for all income taxes incurred by
them with respect to their distributive share of AMCOM's taxable income
for the period January 1, 1994 through the closing date.
29
During the quarter ended March 31, 1995, the then Board of Directors of
the Company declared a dividend to its shareholders consisting of
1,700,000 shares of the common stock of Global, and also delivered
522,641 shares of Global common stock to its former outside counsel in
payment of outstanding legal fees. Further, as of March 31, 1995 the
then Board of Directors entered into the Settlement Agreement with the
CECO Shareholder Committee which, among other things, provided for the
sale of the Company's remaining interests in Global to persons
affiliated with the prior Board. The sale closed on April 12, 1995.
6. Film costs:
Film costs are comprised of the following:
June 30,
-----------------------------
Component 1997 1996
--------- ---- ----
Films released, at cost $ 0 $ 2,750,000
Less accumulated amortization 0 1,798,290
---------- ------------
0 951,710
---------- ------------
Projects in development 120,472 49,258
---------- ------------
Total film costs $ 120,472 $ 1,000,968
========= ============
7. Income Taxes:
At June 30, 1997, the Company had a federal net operating loss carry
forward, for tax purposes, of approximately $27,000,000, expiring
through 2011. The utilization of approximately $4,900,000 of these
losses in future periods is estimated by the Company to be limited to
approximately $350,000 per year (the "annual earnout limitation").
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, which establishes accounting and reporting standards for
the effects of income taxes that result from an enterprise's activities
during the current and preceding years became effective for the Company
for its fiscal year ended June 30, 1994. The cumulative effect of
adopting SFAS 109 was immaterial and was recorded in the first quarter
of fiscal 1994.
8. Notes and Loans Payable:
Notes and loans payable as of June 30, 1997 and 1996 include $179,000
principal amount of 6% Convertible Subordinated Debentures, due July,
1997.
In April 1995, the Company issued a note in the principal amount of
$70,000 to its outside legal counsel for legal services performed. The
note was repayable in October 1995, together with interest at the rate
of 7%. In February 1996 the note holder agreed to extend the due date
to December 31, 1996. In connection with the extension, the Company
granted warrants to purchase 16,667 shares of the Company's common
stock at an exercise price of $1.88 per share, exercisable over a three
year period. The amount of the note will be reduced, as of December 31,
1996, by one-half of the amount by which the average closing price of
the stock, for the ten most recent trading days, exceeds the exercise
price of the warrants. In January, 1997, the Company agreed to exchange
the promissory note in the face amount of $70,000 in exchange for
120,000 shares of the Company's Common Stock.
30
In August and October 1995, the Company received net proceeds of
$219,250 and $50,750, respectively, from the private placement of an
aggregate of $312,500 principal amount of 12% Senior Unsecured
Promissory Notes (the "Notes"). The Notes are repayable with interest
on the earlier of (a) the closing of a public offering of the Company's
equity securities from which the Company receives gross proceeds of at
least $10,000,000, or (b) one year from the issuance date. The Company
also granted to the purchasers of the Notes an aggregate of 26,042
warrants (the "Warrants"), 20,833 of which are exercisable at $2.83 per
share and 5,209 of which are exercisable at $2.37 per share. Each of
the Warrants is exercisable at any time beginning one year after the
date of issuance and expiring four years after the date of issuance.
The Notes and interest were not repaid as scheduled. The Company
proposed that Noteholders either defer maturity of their notes and
exchange existing warrants for shares, or cancel the notes and warrants
in their entirety in exchange for a greater number of shares. The
Company offered to register any shares issued in exchange for the
notes. As of August 12, 1997, the date the registration became
effective, a total of $262,500 of notes were exchanged for 595,455
shares of registered stock. The remaining notes for $50,000 (held by a
single investor) have not been paid and are in default.
On July 17, 1997, unsecured long term notes of the Company in the
aggregate amount of $179,000 matured. Such notes were not paid on the
maturity date. The Company entered into an installment payment plan
extending over a 15 month period through March, 1999, and made the
first installment payment of $17,900 in January 1998. The company did
not make the March 1998 payment of $17,900 and is presently in default
of the payment schedule.
In April, 1997, Stephen Greenwald, Lawrence I. Schneider and Robert
Miller, Jr., all directors of the Company, made loans to the Company in
the amounts of $50,000, $25,000 and $25,000, respectively. Each loan is
payable on demand and bears interest at the rate of 2 points over prime
per annum. The note is secured by a collateral assignment of the
Company's $300,000 note receivable from Kinnevik. In consideration of
making the loans, the lenders received five-year warrants to purchase
shares of Common Stock of the Company, exercisable at $1.00 per share.
Messrs. Schneider and Miller each received 25,000 warrants and Mr.
Greenwald received 50,000 warrants as additional consideration for
making the loans to the Company. In addition, two independent
unaffiliated third parties made additional $25,000 loans to the Company
in June and August, 1997 on the same terms and conditions as the loans
made by Mr. Greenwald, Schneider and Miller. In May, 1998, the loans of
Mr. Schneider and one of the unaffiliated parties were paid from the
proceeds of the Kinnevik receivable. The remaining lenders agreed to a
rollover of their loans (aggregating $100,000) against a second
Kinnevik receivable and, in consideration, received an additional
50,000 warrants in the aggregate, exercisable for the extension at
$1.00 per share over a three year period.
31
9. Commitments and Contingencies:
Lease Commitments:
The Company leased office space in Los Angeles pursuant to an operating
lease which expired in May 1998, providing for monthly rental payments
of $5,301. Minimum payments under the lease aggregated $63,612 and
$58,311 for the fiscal years ending June 30, 1997 and 1998,
respectively.
The Company was party to a lease at 800 Third Avenue, New York, New
York 10022, which terminated in 1997. The Company vacated such office
space during the year ended June 30, 1995. In September 1995 the
landlord filed an action against the Company. The Company reached a
settlement with the landlord. (see Litigation). Rent expense for the
years ended June 30, 1997, 1996 and 1995 was $0, $38,772 and $297,287,
respectively.
Litigation:
On December 20, 1990, a suit was filed against the Company seeking the
payment of $300,000 for certain investment banking services allegedly
provided. In October 1991, the Court granted a judgment in favor of the
plaintiff. The judgment is stayed pending the determination of an
action brought by the Company against the plaintiff described below.
The Company has posted a non-collateralized bond pending the results of
an appeal. In a separate action, the Company filed a complaint against
the plaintiff claiming that services alleged to have been performed
were never performed and demanding the return of funds and securities
paid by the Company. In October 1994, the plaintiff filed a voluntary
bankruptcy petition under Chapter 11 of the United States Code.
Consequently, the Company's action has been automatically stayed. The
Company has filed a proof of claim.
On December 30, 1994, Krisna Shah, who allegedly served as President of
Double Helix Films from about July 1991 until about March 1993, filed
action against the Company, Norman Muller, a former Chairman and CEO of
the Company, and others in which he alleged among other things breach
of an oral agreement to pay him $152,000 (which he allegedly advanced
for the benefit of Double Helix) and to give him 19.5% ownership
interest in its corporate successors. The Company reached a settlement
with Mr. Shah in which the Company has paid $15,000 and quitclaimed any
and all rights, title, and interest it has to the film library known as
the "Double Helix Film Library.
On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and
Cinecom Entertainment Group, Inc. filed a complaint against the
Company's subsidiary, Odyssey Distributors, Ltd. They allege that
Odyssey collected but failed to remit to them assigned distribution
proceeds in the amount of $566,283.33 from the foreign distribution of
two pictures. The complaint alleges claims for breach of contract and
breach of fiduciary duty and seeks damages in excess of $566,283,
attorney's fees, an accounting, a temporary restraining order and a
preliminary injunction. In June 1995, the Court denied plaintiffs an
attachment and stayed the action pending arbitration in New York. In
September, 1996 the Court dismissed the Complaint. In December, 1996,
the Company settled the outstanding litigation with Generale Bank
("Generale") (formerly known as Credit Lyonnais Bank Nederland N.V.)
and Cinecom Entertainment Group Inc. Pursuant to the settlement
agreement with Generale, the Company agreed to pay to Generale the sum
of $275,000 in complete satisfaction of the claim, payable $25,000 upon
execution of the settlement agreement, $25,000 on each of June 30, and
December 31 in the years 1997, 1998 and 1999, and $100,000 on June 30,
2000. Interest on the installments (at the rate of LIBOR plus 1% per
annum) will be waived provided the Company remains in compliance with
the agreed upon payment schedule. The Company and General Bank later
agreed upon a new payment schedule as follows: $25,000 on or before
October 15, 1997 (payment was made); $30,000 on each of April 15, 1998,
32
June 30, 1998, December 31, 1998, June 30, 1999 and December 31, 1999;
and $100,000 on June 30, 2000. The Company is in receipt of a demand
letter dated May 4, 1998. The letter demands that the Company cure the
non-payment of a $30,000 installment due April 15, 1998. According to
the agreement between the Company and Generale Bank, the Company had
ten business days after receipt of this letter to cure this default.
The consequences of not clearing this default is the entry of a
confession of judgement already executed by the Company for an amount
of $275,000. This confession of judgement is against Odyssey
Distributors Limited, a wholly owned subsidiary of the Company.
In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject
Films, Inc.("Greenwich") commenced an action entitled G.P. Productions,
Inc., and Greenwich Studios, Inc. v. Double Helix Films, Inc.,
Communications and Entertainment, Inc., Krishna Shaw, Gerald Muller
and Norman Muller in the United States District Court, Southern
District of Florida (Case No. 95-1188). Mr. Muller has demanded that
the Company indemnify him against any expenses, judgements and amounts
paid in settlement of the action. The Company contends that, by virtue
of Mr. Muller's breaches of fiduciary duty and violation of his
obligations to the Company, it is not required to provide
indemnification.
GP and Greenwich allege that they are the exclusive owners of the films
"The Gallery" and "South Beach". They assert claims for copyright
infringement, unfair competition, breach of contract, accounting,
conversion, civil theft, conspiracy and fraudulent conveyance. The
Complaint demands a recall of the films, an attachment, preliminary and
permanent injunctive relief, an accounting, and unspecified
compensatory, punitive and treble damages. The Company's motion to
transfer venue of the action was granted in November, 1995, and the
case was transferred to the United States District Court of the
Southern District of New York. There has been no activity in this
matter since the transfer of venue in 1995.
In September 1995, the agent for the landlord for the premises in New
York City previously occupied by the Company filed a Summons and
Verified Complaint against the Company. The plaintiff alleged that it
was due $66,694 from the Company (plus interest) for rent allegedly
owed during the period from April through September, 1995. The Company
vacated the premises on April 12, 1995. Summary judgment was awarded to
the plaintiff and a judgment was entered for $74,142 in May, 1996. In
July, 1996, the landlord commenced a second action for $121,000 for
rent allegedly owed during the period from October 1995 through July
1996. The Company reached a settlement in this case, pursuant which the
Company delivered 177,500 registered shares of the Company's Common
Stock to each of the landlord and its agent in full settlement of the
actions.
In October 1995 Canon Financial Services filed a complaint, in which it
claims that it is due $47,499.83, plus damages, pursuant to a lease
agreement. The Company has filed an Answer in this action and
plaintiff's motion for summary judgement has been denied by the Court.
No trial date has yet been set in this matter.
In January 1996, a former director brought an action against the
Company on a promissory note in the amount of $25,000. The plaintiff
obtained a summary judgment. The Company is considering whether or not
it has a claim for indemnification against former management in
connection with the issuance of the note.
In January 1996, an action was filed against the Company in which the
plaintiff sought damages in the amount of $33,849.98 for legal services
rendered to the Company and its subsidiaries. In June, 1997, the
parties reached a settlement in the matter, pursuant to which the
33
Company agreed to pay $7,000 to plaintiff, deliver 40,000 freely
tradeable shares of the Company's Common Stock to plaintiff, and
deliver an additional cash amount to the extent that the aggregate
market value of the shares on the date of delivery was less than
$40,000. Payment of the additional cash amount of $13,000 was completed
in December, 1997.
In March 1996, an action was filed against the Company in which the
plaintiff claims that she is due $17,920.49 pursuant to a promissory
note previously issued to her. The Company has filed a cross-claim
seeking offsets against the amount due and other damages. On May 21,
1998, a default judgement was entered on behalf of plaintiff in the
amount of $22,261.23. Subsequently, plaintiff filed a motion to include
attorney fees and costs in the amount of $39,121.95. The Company is
attempting to reach a settlement with plaintiff.
On or about March 25, 1996, a class action complaint was filed against
the Company entitled "Dennis Blewitt v. Norman Muller, Jerry Minsky,
Dorian Industries, Inc. and Communications and Entertainment Corp." The
complaint seeks damages in connection with the Company's treatment in
its financial statements of the disposition of its subsidiary, Double
Helix Films, Inc., in June 1991. The complaint seeks unspecified
damages on behalf of all persons who purchased shares of the Company's
common stock from and after June 1992. A second action, alleging
substantially similar grounds, was filed in December 1996 in Federal
court in the United States District Court for the Southern District of
California under the caption heading "Diana Pfannebecker v. N. Muller,
Communications and Entertainment Corp., Jay Behling, Jeffrey S.
Konvitz, Tom Smith, Jerry Silva, David Mortman, Price Waterhouse & Co.,
Todman & Co., and Tenato Tomacruz." Following the filing of the second
action, the first action was dismissed by stipulation in May 1997. The
Company filed a motion to dismiss the complaint in the second action
and after a hearing on the motion in July, 1997, the Court dismissed
the federal securities law claims as being time-barred by the
applicable statute of limitations, and dismissed the state securities
law claims for lack of subject matter jurisdiction. The lower court's
dismissal of this action was upheld on appeal by the Ninth Circuit.
Messrs. Muller, Smith and Mortman, former directors of the Company,
have asserted claims for indemnification against the Company. The
Company has advised the claimants that it will not provide such
indemnification, based on their wrongful actions and failure to comply
with various obligations to the Company.
On September 18, 1996, Film Bridge International, Inc. ("Film Bridge")
filed a complaint in Los Angeles County Superior Court, entitled "Film
Bridge International v. Communications and Entertainment Corp., and
Does 1 through 50, Inclusive," contending that the Company had breached
the terms of an alleged joint venture agreement between the parties
regarding the distribution rights to certain films. On December 19,
1996, the Company filed a cross-complaint against Film Bridge alleging
that, since the end of June, 1996, Film Bridge had failed to furnish
the Company with a proper accounting of its revenues and expenses in
connection with the sale of foreign licensees of various films in which
the Company had an interest and had failed to make payment of at least
$450,000 to the Company for monies due and owing to the Company from
the foreign sales of such films. An agreement was reached between the
parties in May, 1997, as a result of which the Company received
$336,000 of the monies being held by Film Bridge, with the balance
being retained by Film Bridge as sales commissions and in full
settlement of the litigation.
On December 2, 1997, the Directors Guild of America ("DGA") obtained an
arbitration award against Down Range Productions, Inc., a wholly owned
subsidiary of Odyssey Pictures Corporation, on behalf of Kahn Brothers
Pictures fso Michael Kahn, Charles Skouras, and Scott C. Harris. Down
Range was ordered to pay: Kahn Brothers Pictures the total sum of
$155,041; Charles Skouras the total sum of $32,360; and Scott C. Harris
the total sum of $8,868; plus interest at 18% per annum on each of
these amounts from April 1, 1997. Down Range was also ordered to pay
34
the DGA $2,500. Down Range was also ordered to assign to the DGA all of
Down Range's right, title and interest in the motion picture "Down
Range", including the screenplay for the motion picture, and Down Range
was enjoined from licensing the motion picture or the screenplay to any
third party other than the DGA. Down Range was also ordered to pay the
arbitrator $2,250.
Kahn Brothers Pictures fso Michael Kahn also filed a claim against Down
Range Productions, Inc. and the Company with the Writers Guild of
America West (WGA) for unpaid writing services on "Down Range". That
claim has now been settled for the amount of $15,000.
The Screen Actors Guild (SAG) has also asserted that there are amounts
owing to four actors (Dale Dye, John Philbin, Tegan West, and Kiljoy
Productions fso Kathleen Wilhoite), arising out of "Down Range". The
Company believes that SAG has never instigated any arbitration or other
proceeding to try to collect on these claims. Additionally, there were
two actors, Corbin Bernsen and Jeff Fehey who had pay-or-play
contracts. The outcome of these contracts and the actors claims have
not been resolved.
In April, 1998, the Company reached a settlement with Mr. Silva
regarding his action against the Company in the Supreme Court of the
State of New York. Mr. Silva will discontinue the matter and the
Company will authorize the sale of Mr. Silva's shares in the Company
under Rule 144, up to a maximum of 25,000 shares per month.
In April, 1998, an action was commenced against the Company by Siegel &
Gale, a provider of brochure material for the Company. The lawsuit
seeks payment of $48,695, plus costs, related to work done by Siegel &
Gale for the Company. The Company has not yet filed an Answer in this
action and is in the process of consulting with its counsel on the best
course of resolving this matter.
On November 21, 1996, the law form of Halperin, Klein & Halperin
(counsel to Mr. Silva) commenced an action against the Company in the
Civil Court of the State of New York on a returned check in the amount
of $5,000 for legal services allegedly rendered to the Company. The
check was originally issued to plaintiff in April, 1995 in connection
with the change of control of the Company at that time. The Company has
filed an Answer in the action and intends to defend the matter on the
basis of a failure of consideration.
10. Shareholders' Equity:
On March 6, 1996 the Board of Directors of the Company approved a
one-for-six reverse stock split of the outstanding shares of the
Company's Common Stock (the "Common Stock"). The Reverse Stock Split
was effective as of March 18, 1996 (the "Record Date"). On the Record
Date, each six shares of the Company's then outstanding Common Stock
(the "Old Common Stock") were automatically converted into one share of
the new Common Stock, par value $.01 per share (the "New Common
Stock").
No fractional shares of New Common Stock were issued. Rather, holders
of Old Common Stock who are entitled to receive fractional shares of
New Common Stock will be rounded up to the nearest whole share of New
Common Stock.
The Reverse Stock Split resulted in a net reduction of 11,408,973 in
the number on Common Shares outstanding, including 1,995 shares
issuable due to the rounding up of fractional shares.
Except for the number of shares of Common Stock outstanding after the
Reverse Stock Split, the Old Common Stock and the New Common Stock are
identical.
35
On February 14, 1995, the then Board of Directors of the Company
declared a dividend payable to holders of record on February 24, 1995
("the Dividend Record Date") of the Company's common stock and Class A
stock. The dividend consisted of 1,700,000 shares of common stock, $.01
par value per share, of Global Intellicom, Inc. that were owned by the
Company. Holders of the Company's common stock and Class A stock
received .1233 and .0786 shares, respectively, of Global common stock
for each share of the Company's stock. The dividend was recorded as a
reduction of capital in excess of par value.
The shares of Global common stock were distributed to an escrow agent
on the Dividend Record Date pending registration of the shares. The
Securities and Exchange Commission declared Global's registration
statement effective as of September 1, 1995 and, accordingly, the
escrow agent was authorized to distribute the dividend shares.
Communications and Entertainment Corp. was originally formed to
consummate the mergers of Double Helix Films, Inc. ("Double Helix") and
Odyssey Entertainment Ltd. pursuant to the Agreement and Plan of Merger
dated September 22, 1989 ("the Merger Agreement"). On September 6, 1990
the shareholders of Double Helix and Odyssey approved the Merger
Agreement. Pursuant to the terms of the Merger Agreement, each share of
common stock of Odyssey was convertible into one share of Class A stock
of the Company and each share of Double Helix common stock was
convertible into one share of the Company's common stock. Prior
management's instructions to the transfer agent required that any
shares of Odyssey or Double Helix outstanding at the time of the Merger
not tendered to the Company's transfer agent for exchange by March 31,
1995 should be canceled. Accordingly, 86,790 shares of the Class A
stock and 10,496 shares of the common stock reserved for exchange were
canceled. The par value of the shares canceled, of $5,837, was
transferred to capital in excess of par. Upon further research by
counsel to the Company, the instructions of prior management were
reversed, and all cancelled shares were reinstated, with the result
that $5,837 was transferred back to stated capital.
Additionally, in accordance with the Company's charter, all outstanding
shares of the Company's Class A stock, automatically converted, on
March 31, 1995, into shares of the Company's common stock at a rate of
.6375 shares of common stock for each share of Class A stock.
11. Stock Options and Warrants:
The number of options and warrants, and exercise prices in the
following paragraphs have been restated to give effect to a 1 for 6
Reverse Stock Split in March 1996.
The Company has an Incentive Stock Option Plan (The "Option Plan") for
its key employees providing for the granting of options to acquire
common stock. The maximum number of shares of common stock subject to
the Option Plan is 75,000, plus 5% of any increase in the number of
issued shares after the effective date of the Merger, excluding any
increase due to stock awards to key employees or as result of the
conversion of Class A stock. The price for the shares covered by each
option will not be less than 100% of the fair market value at the date
of grant (110% for holders of more than 10% of the company's common
stock). Options granted expire ten years from the date of grant (five
years for holders of more than 10% of the Company's common stock).
36
A summary of options under the plan is as follows:
Shares Exercise Price
Outstanding, June 30, 1993 63,250 $5.04 - $15.54
Granted 19,167 $9.00 - $13.86
Canceled (22,917) $9.00 - $15.36
--------
Outstanding, June 30, 1994 59,500 $5.04 - $15.54
Canceled (59,500) $5.04 - $15.54
--------
Outstanding, June 30, 1995 -0-
Outstanding, June 30, 1996 -0-
Outstanding, June 30, 1997 -0-
The Company issued an aggregate of 134,854 warrants to the purchasers
of common stock of the Company sold in private placements during fiscal
1992. The exercise prices range from $18.00 to $25.50 per share. 21,024
of such warrants were exercised during 1992 at $18.00 per share. During
the years ended June 30, 1995, 1994 and 1993, 58,652, 53,500 and 608
warrants, exercisable at $25.50, $18.00 and 18.00 per share,
respectively, expired, unexercised. The balance of the warrants,
exercisable at $18.00 per share, expired unexercised in July 1996.
An additional 70,833 warrants and options were granted during the year
ended June 30, 1992 to outside consultants for services in connection
with private placements. The exercise prices range from $12.00 to
$25.50 per share. 8,333 of such options were exercised in 1992 at
$12.00 per share. 4,167 options, exercisable at $16.50 per share,
expired, unexercised, during fiscal 1993. The balance expired,
unexercised, during fiscal 1995.
In fiscal 1992, the Board of Directors approved the grant of options,
to purchase 6,000 shares to the outside directors of the Company, for
their services as directors, at an exercise price of $18.96 per share.
An additional 6,000 options were granted during fiscal 1993 to the
outside directors, at an exercise price of $10.08. The options to the
directors have not yet been issued.
During the year ended June 30, 1993, 8,333 options were granted outside
of the plan, at an exercise price of $9.00, to an officer in connection
with an employment agreement. Such options expired during fiscal 1995.
Additionally, 1,667 options were granted, at an exercise price of
$9.00, to a director of the Company for services rendered. Such options
expired, unexercised, during fiscal 1997.
During fiscal 1993, warrants to purchase 12,500 shares were also
granted to outside consultants, for services rendered, at an exercise
price of $13.14 per share. Such options expired, unexercised, during
fiscal 1998. Warrants to purchase 70,833 shares were granted to outside
consultants for services rendered during fiscal 1994, at exercise
prices ranging from $7.50 to $21.00. 66,667 of such warrants,
exercisable at $9.00 to $21.00 per share, expired unexercised during
fiscal 1996. The balance of the warrants expired, unexercised, during
fiscal 1997.
In April 1995, following the change in management control, the Board of
Directors authorized the issuance of 8,333 options to each of five new
Directors and 16,667 options to the president of the Company. The Board
also authorized the issuance of a total of 10,000 options to two
outside consultants for services in connection with the proxy contest.
All such warrants are exercisable for a four year period commencing
October 13, 1995 at $3.92 per share.
37
In August and October 1995, the Company issued an aggregate of 26,041
warrants to purchasers of 12% Senior Unsecured Notes sold in private
placement. The exercises prices ranged from $2.37 to $2.83 per share.
With the exception of 4,167 warrants, which are exercisable through
August 1999 at $2.83 per share, all of the warrants issued in
connection with the private placement were exchanged by the warrant
holders for registered shares of common stock of the Company. In
connection with the private placement, the Company also issued 33,333
warrants to its outside counsel in consideration for legal services
performed, exercisable during the three year period commencing one year
from the date of issuance, at a price per share of $2.83.
During the year ended June 30, 1996, 769,167 warrants were granted
outside of the Plan to officers and directors, at exercise prices
ranging from $1.50 to $2.83. All such warrants were exercisable as of
June 30, 1998.
During fiscal 1996, the Company also granted 16,667 warrants, at an
exercise price of $1.88 per share, to its outside counsel in connection
with the extension of a note. Additionally, warrants to purchase
167,500 shares were granted to consultants for services rendered during
fiscal 1996, at exercise prices ranging from $.76 to $1.88 per share.
All such warrants were exercisable as of June 30, 1998.
During the fiscal year ended June 30, 1997, a total of 1,153,333
warrants were issued to officers, directors, employees, consultants and
third parties, exercisable at prices ranging from $ .625 per share to
$1.06 per share. The warrants are exercisable for periods ranging from
three to five years. None of such warrants was exercised during fiscal
1997 or fiscal 1998.
During the fiscal year ended June 30, 1998, a total of 254,260 warrants
were issued to third parties, exercisable at prices ranging from $1.00
per share to $1.65 per share. The warrants are exercisable for periods
ranging from two to five years. None of such warrants was exercised
during fiscal 1997 and 1998.
On July 1, 1998, a third party investor in the Company was granted the
right to acquire up to 150,000 transferable warrants having an exercise
price of $1.60 per share.
12. Related Party Transactions:
The firm of Goodkind, Labaton, Rudoff & Sucharow, of which David A.
Mortman, a former Director of the Company was a member, received legal
fees from the Company of $195,000 for the fiscal year ended June 30,
1995. Additionally, it received an aggregate of 522,641 shares of
common stock of Global Intellicom, Inc., a subsidiary of the Company,
valued at $155,905, in consideration of the cancellation of outstanding
legal fees.
The firm of David A. Mortman, P.C. and its predecessor firm, of which
David A. Mortman, a Director of the Company was a member, received
legal fees from the Company of $16,585 and $387,987 during the fiscal
years ended June 30, 1995 and 1994, respectively.
Lawrence I. Schneider, a former member of the Board of Directors of the
Company and one of three former Co-Chairmen in the Office of the
Chairman of the Company during the fiscal year ended June 30, 1996, was
also a principal of Global Capital Resources, Inc. during that period,
a New York based financial consulting services firm ("Global Capital").
During the 11 month period from May, 1995 through March, 1996, Global
Capital rendered financial consulting services to the Company in
connection with the change of management control of the Company. Such
services were rendered to the Company at the agreed upon rate of
$15,000 per month. However, in order to conserve the cash resources of
the Company, Global Capital agreed to accept stock options from the
Company in lieu of a cash payment. On March 6, 1996, the Board of
38
Directors of the Company (with Mr. Schneider abstaining from the
voting) authorized the issuance to Global Capital of stock options to
purchase 83,333 shares of Common Stock of the Company, exercisable over
a five-year period at the exercise price of $1.875 per share (after
adjustment for the Reverse Split).
During the fiscal years ended June 30, 1997 and 1996, the law firm of
Herbst & Greenwald, of which Mr. Greenwald, a director of the Company,
is a member, received fees for legal services rendered to the Company
in the amount of $21,564 and $9,075.
On August 1, 1996, the Board of Directors of the Company offered to
reimburse the members of the CECO Shareholders Committee in kind for
all expenses incurred by such members in connection with the change of
management control of the Company effected in April, 1995. The Board
offered to reimburse such expenses by issuing stock options to the
committee members in an amount equal to one and one-third times the
amount of such expenses. Robert Miller, a director of the Company,
agreed to accept options to purchase 40,000 shares of the Company's
Common Stock, exercisable over a five-year period at an exercise price
of $ .75 per share, representing the then current market price of the
Company's Common Stock on the date of grant. In exchange, Mr. Miller
released his claim for reimbursement of approximately $30,000 of
expenses incurred by Mr. Miller in connection with the change of
control. Lawrence I. Schneider, a former director of the Company and
also a member of the CECO Shareholders Committee, has not agreed to
accept options in lieu of his claim for reimbursement of expenses in
connection with the change in control.
The Company has entered into a "first look" agreement with Presto
Productions, a production company in which Stephen R. Greenwald, a
Director of the Company, has an interest. Mr. Greenwald's interest in
Presto varies on a film-by-film basis. The Company believes that the
terms of its arrangement with Presto are no less favorable than could
be arranged with other independent third party producers.
In April, 1997, Stephen R. Greenwald, Lawrence I. Schneider and Robert
E. Miller, Jr. made loans to the Company in the amounts of $50,000,
$25,000 and $25,000 respectively. Each loan was payable on demand
bearing interest at the rate of 9.25% per annum and was secured by a
collateral assignment of the Company's $300,000 receivable due from
Kinnevik. In consideration of making such loans, the lenders received
five-year warrants to purchase shares of Common Stock of the Company,
exercisable at $1.00 per share. Messrs. Schneider and Miller each
received 25,000 warrants in consideration of their respective $25,000
loans to the Company, and Mr. Greenwald (or his designee) received
50,000 warrants in consideration of his $50,000 loan to the Company. In
March, 1998, the loan of Mr. Schneider was repaid in full from the
proceeds of the Kinnevik receivable. However, Messrs. Greenwald and
Miller agreed to a roll-over of their loans against a second Kinnevik
receivable due in September, 1998. In consideration of the roll-over,
Messrs. Greenwald and Miller will receive an additional 25,000 warrants
and 12,500 warrants, respectively, exercisable at $1.00 per share over
a three year period.
13. Subsequent Events:
The Company signed an agreement with Kimon Mediaright KB ("Kimon") on
July 14, 1998 to purchase the assets of Kimon, valued at $4,500,000, in
exchange for 4,500,000 Odyssey shares of subordinated convertible
preferred stock, Series B, having a value of $1.00 per share for
conversion purposes. Kimon shall be able to convert to Odyssey common
stock between June 30, 2000 and December 31, 2000 on a
dollar-for-dollar basis based on the price of the Company's common
stock at the time of conversion. Kimon assets purchased consist of a
film library with worldwide and/or Scandinavian distribution rights and
Scandinavian video distribution rights to Hallmark Entertainment
products.
39
In June, 1998, the Company applied for, and was accepted for, trading
on the Berlin Stock Exchange under the symbol "ODY". The German company
Berliner Freiverkehr (Aktien) assisted the Company in the application
and signed an agreement with the Company to serve as a market
maker/coordinator in exchange for 200,000 warrants having an exercise
price of $1.55 per share, exercisable during the two-year period
commencing June 23, 1998.
The Company received $150,000 in funding from the Augustine Fund L.P.
in July, 1998. In exchange for the financing, the Augustine Fund
received a $150,000 convertible note as well as up to 150,000
transferrable warrants, exercisable at $1.60 per share for a three year
period. Augustine can convert into restricted shares of the Company's
common stock at a discount to the market price of the common stock at
the time of the conversion (i.e., at the lower of the market price on
the closing date, or 80% of the market price prior to conversion).
Augustine and certain Augustine associated parties were also issued a
total of 45,000 shares of restricted common stock in connection with
the transaction.
Mr. Ira Smith, one of Odyssey's Directors on the Board, resigned as a
Director on July 2, 1998 to pursue other business interests.
40
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure.
-------------------------
Reference is made to the Company's Reports on Form 8-K, dated September 24,
1997, and February 13, 1998, with respect to a change in accountants for the
Company.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Johan Schotte 36 Chairman of the Board
& Chief Executive Officer
Pierre Koshakji 36 President & Director
Stephen R. Greenwald 57 Managing Director & Director
Robert E. Miller, Jr. 50 Director
Yves Bayle 36 Director
Set forth below is information regarding the business experience of the
current Directors and executive officers of the Company.
Johan Schotte is co-founder and chairman of Media Trust S.A. and Entertainment
Education Enterprises Corporation. Mr. Schotte has an extensive background in
banking and management, and holds an M.B.A. degree from the University of Dallas
in Irving, Texas. Until he joined Odyssey in 1998, he served as managing
director of Rocket Pictures, an international film production and distribution
company, for whom he produced the satirical comedy "Cannes Man" in 1996.
Pierre R. Koshakji is co-founder, and was President and director of,
Entertainment Education Enterprises Corporation (E3 Corporation), an
international sports, entertainment, and investment group. E3 Corporation has
offices in Dallas, Luxembourg and Los Angeles and has a professional affiliation
with the Lamar Hunt group of companies, Unity Hunt. Prior to E3 Corporation, Mr.
Koshakji served as Director of Business Development with Unity Hunt/Hunt Sports
Enterprises where he evaluated, negotiated, and implemented targeted
acquisitions and projects. He played a development role in establishing major
league soccer (MLS) and in establishing the two Hunt MLS teams in Columbus, Ohio
and in Kansas City, Missouri, and served as Senior Vice-President of Marketing
on the Las Vegas domed Stadium project as well as marketing consultant to the
San Francisco Giants new ball park at China Basin. Other positions and titles
Mr. Koshakji has held during his professional career include Deputy Executive
Director of the 1994 World Cup, Dallas Venue, including the responsibility of
liaison with the European Broadcast Union and International Broadcast Center,
the position of Director at KMPG Management Consulting in the country of Kuwait,
and electrical engineer at Chrysler Technologies Airborne Systems. Mr. Koshakji
graduated from Vanderbilt University BSEE with honors and received his Masters
of Business Administration at Southern Methodist University.
Stephen R. Greenwald served as Chief Executive officer and Co-Chairman in the
Office of the Chairman of Odyssey from September, 1995 through March, 1998.
Since 1990, Mr. Greenwald has been a consultant to banks and other clients in
the media and film business, most recently having served as chief executive
officer of Vision International, an international film distribution company
based in Los Angeles, from February,1994 through June,1996. Mr. Greenwald has
also been involved in financing and distributing independently produced motion
pictures including, among others, "Blue Velvet," "Dune," "King of Comedy,"
"Ragtime," "Crimes of the Heart," and "Manhunter." Mr. Greenwald also
co-produced the film "Amityville II: the Possession."
41
Robert E. Miller, Jr. is a private investor and principal shareholder of Word
Power Incorporated d/b/a Hollywood North Productions, a privately-held
development company for feature films and movies-of-the-week. Mr. Miller is also
Associate Director of Trade Task Group, Inc., a strategic planning consulting
firm where he has served as manager of client development since 1984. He is also
a board member emeritus of the International Standards Institute and a member of
the board of advisors of the World Film Institute, sponsors of "The Family Film
Awards."
Yves Bayle is a member of the Executive Committee of Banque Colbert (Luxembourg)
S.A., and a non-executive director of a number of investment companies and
funds. Prior to joining the bank in 1989, he spent a number of years with
several international banks located in Luxembourg. Mr. Bayle specializes in the
development of corporate services and in the structuring of collective
investment vehicles.
Meetings and Committees of the Board of Directors
For the fiscal year ended June 30, 1997, there were 12 meetings and/or
written consents in lieu of meetings of the Board of Directors. All Directors
attended or consented to each of the meetings (and consents in lieu of meetings)
of the Board of directors during said fiscal year. The Board of Directors does
not presently have any standing nominating, audit or compensation committees,
the customary functions of such committees being performed by the entire Board
of Directors. The Board of Directors intends to form such committees in the near
future.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all section 16(a) forms they file. To the Company's knowledge, based solely on a
review of the copies of reports furnished to the company during the fiscal year
ended June 30, 1997, the Company's officers, directors and greater than 10%
stockholders complied with all filing requirements under section 16(a) except
that Mr. Miller and Mr. Greenwald each failed to timely file a Form 4 in April,
1997 with respect to the acquisition of options for common stock. Messrs. Bayle,
Schotte and Koshakji each filed a Form 3 in October, 1998 reflecting their
respective appointments to the Board of Directors in September, 1997 (Mr. Bayle)
and March 1998 (Messrs. Schotte and Koshakji). Mr. Schotte filed a Form 4 in
October, 1998 reflecting the conversion of a note into shares of common stock of
the Company, and the acquisition of shares and warrants of the Company, in each
case by an affiliate of Mr. Schotte in April, 1998.
42
Item 11. Executive Compensation.
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer of the
Company and the four most highly compensated executive officers who were
executive officers as of June 30, 1997.
Summary Compensation Table
Annual Compensation Long-term
Securitites
Name and Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
Stephen Greenwald 1997 127,500 -- -- 100,000(2) 97,500(1)(2)
Chief Executive 1996 60,000 -- -- 216,667(2) 75,000(1)(2)
Officer, Co-Chairman 1995 -- -- -- --
Ira N. Smith 1997 130,875 -- -- 100,000 94,125(1)
President; 1996 60,000 -- -- 216,667 75,000(1)
Co-Chairman 1995 -- -- -- -- --
Lawrence Schneider 1997 89,167 -- -- 100,000 135,833(1)
Co-Chairman 1996 60,000 -- -- 216,667 75,000(1)
1995 -- -- -- 8,333 --
Joshua Grode 1997 40,000 -- -- -- --
Executive 1996 24,872 -- -- 33,333 --
Vice-President 1995 -- -- -- -- --
Marvin Grossman 1997 87,524 -- -- 35,000 --
Chief Financial 1996 -- -- -- -- --
Officer 1995 -- -- -- -- --
(1) Messrs. Greenwald, Smith and Schneider each deferred $75,000 of their
annual compensation during the fiscal year ended June 30, 1996 pursuant to
the terms of their respective compensation agreements with the Company.
During the fiscal year ended June 30, 1997, Messrs. Greenwald, Smith and
Schneider deferred $97,500, $94,125, and $135,833, respectively, of their
annual compensation pursuant to their compensation agreements. Pursuant to
such agreements, Messrs. Greenwald, Smith and Schneider were issued
convertible promissory notes for the amount of such deferred compensation,
payable in full within twelve months from the date of issue with interest
at 2% over prime. Such notes were converted into shares of common stock of
the Company on June 10 and June 30, 1996 at the average closing bid price
in effect for the common stock for the 10-day trading period immediately
preceding the date of each respective election. On June 10, $60,000 of
each note (plus accrued interest) was converted into 83,120 shares of
common stock at a price of $.75 per share, and on June 30, $15,000 of each
note was converted into 19,231 shares of common stock at a price of $.78
per share. On September 30, 1996, they each converted deferred
compensation notes of $15,000 for the quarter then ended into a total of
26,316 shares of common stock at a conversion price of $.57 per share. See
"Compensation Arrangements, Termination of Employment and
Change-in-Control Arrangements" for a more detailed explanation of the
terms of the compensation agreements between the Company and each of
Messrs. Greenwald, Smith and Schneider. Such compensation agreements
became effective on October 1, 1995, but were terminated in March, 1998 in
connection with a change in control of the Company.
(2) The cash compensation and stock options reflected as being paid to or
received by Mr. Greenwald in the foregoing table were actually paid to or
received by G & H Media, Ltd., a consulting firm of which Mr. Greenwald is
a principal and controlling party. The compensation to Mr. Greenwald does
not include compensation paid to a law firm of which Mr. Greenwald is a
member.
See "Certain Relationships and Related Transactions."
43
(3) Mr.Grode commenced employment with the Company on April 1, 1996.
His employment with the Company terminated on February 28, 1997.
(4) Although Mr. Grossman was elected to his present position with the Company
on May 22, 1996, he did not begin to receive compensation from the Company
until the commencement of the 1997 fiscal year in July, 1996.
Mr.Grossman's employment with the Company was converted into a part-time
consulting arrangement as of January 1, 1998.
Options/Stock Appreciation Rights
The following table provides information with respect to stock options and
stock appreciation rights ("SARs") granted to the named executive officers
during the fiscal year ended June 30, 1997.
Individual Grants
-----------------------------------------------
% of Total
Number of Options Potential Realized Value at
Securitites Granted to Exercise Assumed Annual Rates of
Underlying Employees Price Stock Price Appreciation
Options In Fiscal Per Expiration For Option Terms
Name Granted Year Share Date 5% 10%
- ---- ----------- ----------- -------- ---------- ---------------------------
Stephen Greenwalk 100,000(1) 28% $1.00 12/02/01 0 $14,000
Ira N. Smith 100,000 28% $1.00 12/02/01 0 $14,000
Lawrence Schneider 100,000 28% $1.00 12/02/01 0 $14,000
Joshua Grode -- -- -- -- - --
Marvin Grossman 35,000 9.8% $ .75 12/02/99 $2,100 $ 6,650
(1)The stock options reflected as being issued to Stephen R. Greenwald in the
foregoing table were actually issued to G & H Media, Ltd., a consulting firm of
which Mr. Greenwald is a principal and controlling party.
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year End In-the-Money-Options
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------
Stephen Greenwald(1) -- -- 366,667 -- 0 --
Ira N. Smith -- -- 316,667 -- 0 --
Lawrence Schneider(1) -- -- 350,000 -- 0 --
Joshua Grode -- -- 33,333 -- 0 --
Marvin Grossman -- -- 35,000 -- 0 --
(1) The chart includes 50,000 stock options for Mr. Greenwald, and 25,000
stock options for Mr.Schneider, in each case issued in connection with
short term loans made to the Company. See "Certain Relationships and
Related Transactions."
44
Repricing of Options
On December 2, 1996, the Board of Directors voted to lower the exercise
price of the following warrants to $1.00 per share to create further incentives
for management of the Company and to bring the warrant exercise price into line
with warrants granted to other parties performing services for the Company: With
respect to Lawrence Schneider, 8,333 warrants granted in April, 1995 at an
exercise price of $3.91 per share; 16,667 warrants granted in October, 1995 at
an exercise price of $2.83 per share; and 200,000 warrants granted in March,
1996 at an exercise price of $1.87 per share; with respect to Robert Miller,
8,333 warrants granted in April, 1995 at an exercise price of $3.91 per share;
33,333 warrants granted in October, 1995 at an exercise price of $2.83 per
share; and 25,000 warrants granted in March, 1996 at an exercise price of $1.87
per share; with respect to each of Ira Smith and G & H Media., Ltd. (an
affiliate of Stephen R. Greenwald), 16,667 warrants granted in October, 1995 at
an exercise price of $2.83 per share; and 200,000 warrants granted in March,
1996 at an exercise price of $1.87 per share. The closing bid price of the
Company's common stock on December 2, 1996 was $.69 per share.
Director Compensation
The Company does not have any standard arrangements pursuant to which
directors of the Company are compensated for services provided as a director.
All directors are entitled to reimbursement for expenses reasonably incurred in
attending Board of Directors' meetings.
Compensation Agreements, Termination of Employment and
Change-in-Control Arrangements
On October 1, 1995, Messrs. Greenwald, Smith and Schneider executed
compensation agreements with the Company (the "Agreements"), pursuant to which
the named parties agreed to render management services to the company for a
three year period ending October 1, 1998. Pursuant to these Agreements, each of
the parties agreed to serve as a Co-Chairman in the Office of the Chairman of
the Company and, in addition, Mr.Greenwald agreed to serve as Chief Executive
Officer. (In March, 1996, Mr. Smith also agreed to serve as President of the
Company). The Agreements were superseded by agreements executed on March 6,
1996. The subsequent agreements (also defined as the "Agreements") were
substantially identical to the original Agreements in all material respects with
respect to cash compensation but modified the provisions regarding the issuance
of stock options. (In the subsequent Agreement with Mr. Greenwald, the named
party is G & H Media, Ltd., rather than Mr. Greenwald individually; G & H Media,
Ltd. is a consulting firm of which Mr. Greenwald is a principal and controlling
party).
The Agreements provided for compensation a the rate of $15,000 per month,
$20,000 per month and $25,000 per month during the first, second and third years
of the respective terms of the Agreements. In September, 1997, the terms of the
Agreements were extended for an additional two-year period.
Each of Messrs. Greenwald, Smith and Schneider agreed that with respect to
each calendar quarter during the term of his respective Agreement, the following
percentage of his compensation would be paid: (i) no payment if the current
assets of the Company as of the end of the previous calendar quarter are less
than $500,000; (ii) one-third if the current assets of the Company as of the end
of the previous calendar quarter are more than $500,000 but less than
$1,000,000; (iii) two-thirds if the current assets as of the end of the previous
calendar quarter are more than $1,000,000 but less than $1,500,000; and (iv)
full payment if the current assets as of the end of the previous calendar
quarter are more than $1,500,000. Any portion of the compensation not paid would
be deferred and would be paid in twelve months with interest pursuant to a
promissory note issued by the Company, provided that the note could be converted
into common stock of the Company at any time prior to payment in full at the
average closing bid price in effect for the common stock for the 10-day trading
period immediately preceding the date of the conversion election.
45
During the quarter ended December 31, 1995, each of Messrs. Greenwald,
Smith and Schneider deferred 100% of their compensation for the quarter, or
$45,000 each. During each of the next two quarters, they deferred one-third of
their compensation, or a total of $30,000 each. On June 10 and June 30, 1996,
each of Messrs. Greenwald, Smith and Schneider converted their deferred
compensation notes of $75,000 (plus accrued interest) into a total of 102,351
shares of common stock at prices of $.75 and $.789 per share, respectively. On
September 30, 1996, they each converted deferred compensation notes of $15,000
for the quarter then ended into a total of 26,316 shares of common stock at a
conversion price of $.57 per share.
The Agreements also provided for the issuance of 200,000 stock options to
each of Messrs. Greenwald, Smith and Schneider, exercisable during the five-year
period commencing March 6, 1996 at an exercise price of $1.87 per share
(subsequently lowered to $1.00 per share by action of the Board of Directors in
December 1996). See "Options/Stock Appreciation Rights."
On December 2, 1996, the Board of directors granted 100,000 common stock
purchase warrants to each of Stephen R. Greenwald, Ira Smith and Lawrence
Schneider in consideration of services rendered to the Company. The warrants
were granted for a five-year period and are exercisable at a purchase price of
$1.00 per share.
In April, 1997, the Company granted additional common stock purchase
warrants to Stephen R. Greenwald (or his designee), Lawrence Schneider and
Robert Miller, Jr. in consideration of providing certain interim financing to
the Company. See "Certain Relationships and Related Transactions."
Lawrence Schneider resigned his executive position in September 1997. In
March, 1998, Messrs. Greenwald and Smith stepped down as CEO and President of
the Company, and Messrs. Johan Schotte and Pierre Koshakji were elected as CEO
and President in their stead.
In connection with the change of management in March, 1998, Messrs.
Greenwald and Smith terminated their existing employment agreements and entered
into new compensation arrangements with the Company. Mr. Greenwald agreed to
serve as managing director of the Company through December 31, 1999, and is
entitled to receive the sum of $130,000 during such period in varying monthly
payments. In addition, in consideration of terminating his existing employment
agreement, Mr. Greenwald is entitled to receive an additional $130,000, also
payable in varying monthly amounts during the two-year period ending December
31, 1999. The Company is currently in default under Mr. Greenwald's agreement,
entitling Mr. Greenwald to re-instate his former employment agreement.
Mr. Smith (through S.F.H. Associates, Inc.) agreed to serve in a consulting
capacity to the Company through December 31, 1999, and is entitled to receive
the sum of $160,000 during such period, payable at the rate of $8,000 per month,
commencing May, 1998. In adition, in consideration of terminating his existing
employment agreement, Mr. Smith is entitled to receive an additional $100,000,
payable in varying monthly amounts during the two-year period ending December
31, 1999. The Company is in default under the agreements with S.F.H Associates,
Inc. and Mr. Smith, as a result of which such parties have exercised their
contractual rights to double the payments due to them under such agreements.
Johan Schotte entered into a two-year employment agreement with the
Company, commencing as of January 1, 1998 and continuing through December 31,
1999. Mr. Schotte's compensation is set at $150,000 per year during such period.
Mr. Koshakji also entered into a two-year employment agreement with the Company
at the rate of $150,000 per annum. As of September 30, 1998, a substantial
portion of the compensation due to Messrs. Smith and Koshakji under their
respective agreements is past due.
In connection with the change of management, an affiliate of Mr. Schotte
purchased a total of $230,000 of deferred compensation notes from Messrs.
Greenwald and Smith, and converted approximately 75% of these notes into 667,648
shares of the Company's common stock in April, 1998.
Compensation Committee Report and Compensation Committee
Interlocks and Insider Participation
46
Executive officer compensation is determined by the entire Board of
Directors. The Board has not appointed or designated a separate compensation
committee to determine or set executive compensation. The Board's executive
compensation policy is intended to attract and retain key executives, compensate
them at appropriate levels and provide them with both cash and equity incentives
to enhance the Company's value for all of its stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following table sets forth information concerning ownership of common
stock, as of September 30, 1998, by each person known by the Company to be the
beneficial owner of more than 5% of the common stock, each director and
executive officer, and by all directors and executive officers of the Company as
a group.
Name & Address of Shares Percentage of
Beneficial Owner Status Beneficially Owned Class
- ----------------------------------------------------------------------------
Lawrence Schneider __ 480,101(1) 8.6%
116 E. 30th Street
New York, NY
Robert Miller, Jr. Director 202,333(2) 3.8%
900 4th Avenue
Seattle, WA
S.F.H. Associates Inc. __ 445,231(3) 8.1%
49 Woodland Drive
Oyster Bay, NY
Stephen R. Greenwald Managing 495,231(4) 8.9%
380 Lexington Avenue Director;
New York, NY Director
Johan Schotte CEO and 250,000(5) 4.7%
1601 Elm Street Chairman
Dallas, TX
Pierre Koshakji President & ___ ___
1601 Elm Street Director
Dallas, TX
Yves Bayle Director ___ ___
1601 Elm Street
Dallas, TX
All Executive
Officers &
Directors As
A Group (5 Persons)(6) ___ 947,564(7) 16.3%
(1) Includes presently exercisable options to purchase 350,000 shares
of common stock.
(2) Includes presently exercisable options to purchase 131,666 shares of
common stock; also includes 61,167 shares held jointly with Mr. Miller's
wife, and 9,500 shares held in an individual retirement account for Mr.
Miller's wife, as to which latter shares Mr. Miller disclaims beneficial
ownership.
(3) Includes presently exercisable options to purchase 316,667 shares of
common stock.
(4) Includes presently exercisable options to purchase 366,667 shares of
common stock.
47
(5) Includes presently exercisable options to purchase 125,000 shares of
common stock; does not include $57,501 principal amount of convertible
notes held by an affiliate of Mr. Schotte, which are convertible at market
value at time of conversion (i.e., based on the closing price of $.45 on
September 30, 1998, the notes could have been converted into 127,780
shares of common stock at that time); also does not include 125,000 shares
of common stock and 125,000 presently exercisable warrants held by each of
Gold Leaf Pictures Belgium bvba and A Hero from Zero N.V., both affiliates
of Mr. Schotte; also does not include 792,648 shares of common stock and
151,600 common stock purchase warrants held by another corporate affiliate
of Mr. Schotte, Lecoutere Finance S.A. (Mr. Schotte disclaims beneficial
ownership of all shares and warrants held by affiliated entities, although
based on Mr.Schotte's close business relationship with the other principal
shareholders of these entities, there exists the possibility that these
shareholders may act in concert with Mr. Schotte with respect to the
voting of these shares in the Company.
(6) The table does not include Dominique Verhaegen who resigned as a Director
of the Company in October, 1998 - Mr. Verhaegen is not the beneficial
owner of any shares of common stock of the Company.
(7) Includes presently exercisable options to purchase 623,333 shares of
common stock.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
On August 1, 1996, the Board of Directors of the Company offered to
reimburse members of the CECO Shareholders Committee in kind for all expenses
incurred by such members in connection with the change of management control of
the Company effected in April, 1995. (See "Change of Control"). The Board
offered to reimburse such expenses by issuing stock options to the committee
members in an amount equal to one and one-third times the amount of such
expenses. Robert Miller, a director of the Company, agreed to accept options to
purchase 40,000 shares of the Company's common stock, exercisable over a
five-year period at an exercise price of $.75 per share, representing the then
current market price of the Company's common stock on the date of grant. In
exchange, Mr. Miller agreed to release his claim for reimbursement of
approximately $30,000 of expenses incurred by Mr. Miller in connection with the
change of control. Lawrence Schneider, then a director of the Company and also a
member of the CECO Shareholders Committee, did not agree to accept options in
lieu of his claim for reimbursement of expenses in connection with the change of
control.
During the fiscal years ended June 30, 1997 and 1998, the law firm of
Herbst & Greenwald, of which Mr. Greenwald, a director of the Company, is a
member, received fees for legal services rendered to the Company in the amounts
of $21,563 and $5,000, respectively.
In April, 1997, Stephen R. Greenwald, Lawrence Schneider (then a director
of the Company), and Robert E. Miller, Jr. made loans to the Company in the
amounts of $50,000, $25,000 and $25,000, respectively. Each loan was payable on
demand, accrued interest at the rate of 9.25% per annum, and was secured by a
collateral assignment of the Company's $300,000 receivable due from Kinnevik.
See "Business-Sales of Distribution Rights." In consideration of making such
loans, the lenders received five-year warrants to purchase shares of common
stock of the Company, exercisable at $1.00 per share. Messrs. Schneider and
Miller each received 25,000 warrants in consideration of their respective
$25,000 loans to the Company, and Mr. Greenwald (or his designee) received
50,000 warrants in consideration of his $50,000 loan to the Company. Mr.
Schneider's loan was repaid in April, 1998 from the Kinnevik receivable.
However, Messrs. Greenwald and Miller agreed to a rollover of their loans to be
paid from the proceeds of a second Kinnevik receivable due in September, 1998.
In consideration of the rollover, Mr. Greenwald will receive 25,000 warrants and
Mr. Miller will receive 12,500 warrants, in each case exercisable over a
five-year period at $1.00 per share. Mr. Greenwald's loan was repaid in
September, 1998; Mr. Miller's loan was rolled over for a six month period on an
unsecured basis with interest at the rate of 10% per annum.
48
In March, 1998, Ira Smith and Stephen Greenwald stepped down as Co-Chairmen
in the Office of the Chairman of the Company, and Johan Schotte was appointed as
Chairman and CEO of the Company. In connection with the change in management, an
affiliate of Mr. Schotte purchased $230,000 face value of deferred compensation
notes from Messrs. Smith and Greenwald, and in April, 1998, converted
approximately 75% of those notes into 667,648 shares of the Company's common
stock. In addition, at the time of the change in management, the Company
purchased an 18% equity interest in each of two corporations affiliated with Mr.
Schotte, one of which is the owner of a second division professional soccer team
in New Mexico, and the other of which is a media production company in
Luxembourg. The Company issued one-year notes in the aggregate amount of
$450,000 in consideration of the purchase of the equity interests in these
companies.
In connection with Mr.Schotte's appointment as CEO and Chairman of the
Board, Mr. Greenwald agreed to terminate his existing employment agreement with
the Company and to enter into a new, two-year employment agreement, effective as
of January 1, 1998. Mr. Smith also agreed to terminate his existing employment
agreement. The Company entered into a new, two-year consulting agreement with
S.F.H. Associates, Inc., pursuant to which the consultant would provide the
consulting services of Mr. Smith for the two year period commencing as of
January 1, 1998. The Company also entered into a two-year contract with each of
Mr. Schotte and Mr. Koshakji, effective as of January 1, 1998, at the rate of
$150,000 per annum. (See "Executive Compensation").
49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a)(1) The response to this portion of Item 14 is submitted under Item 8,
page 17.
(a)(2) See (a)(1) above.
(a)(3) Exhibits
3.1 Articles of Incorporation, as amended through June 30, 1995(1)
3.2 Amendments to Articles of Incorporation filed in March and June, 1996(8)
3.3 Amendment to Articles of Incorporation filed in January, 1997 (9)
3.4 By-laws(1)
4.1 Indenture between Odyssey and Continental Stock Transfer and Trust
Company ("Continental") dated as of July 15, 1987(1)
4.2 Form of Supplemental Indenture between Continental and the Company(1)
4.3 Form of Common Stock Certificate(1)
4.4 Form of options granted of officers, directors and 5% stockholders(2)
4.5 Form of Warrant issued to purchasers parties to the 1995 Private
Placement completed September 30, 1995(5)
4.6 Form of 12% Unsecured Promissory Note issued to purchasers parties to
the 1995 Private Placement completed September 30, 1995(5)
4.7 Form of Stock Option Agreement by and between the Company and officers
and directors of the Company, for stock options issued in April 1995(5)
4.8 Form of Common Stock Purchase Warrant by and between the Company and
officers, directors, employees and consultants of the Company for
warrants issued during the fiscal year ended June 30, 1996(8)
4.9 Common Stock Purchase Warrant, dated March 6, 1996, between the Company
and G & H Media, Ltd. (assignee of Stephen R. Greenwald)(7)
4.10 Common Stock Purchase Warrant, dated March 6, 1996, between the
Company and Lawrence I. Schneider(7)
4.11 Common Stock Purchase Warrant, dated March 6, 1996, between the
Company and Ira N. Smith(7)
4.12 Form of Common Stock Purchase Warrant by and between the Company and
officers, directors, employees and consultants of the Company for
warrants issued during the fiscal year ended June 30, 1997 (9)
4.13 Preferred Stock Certificate, Series A, issued to Kinnevik Media
Properties, Ltd. in September, 1997 (10)
4.14 Convertible Note issued to Augustine Fund L.P. in July, 1998 (11)
4.15 Preferred Stock Certificate, Series B, issued to Kimon, Inc. in
September, 1998 (10)
10.1 1989 Long Term Incentive Plan(1)
10.2 Agreement of Settlement and Release, dated October 2, 1995,
by and between Home Box Office, Inc. and Odyssey(5)
50
10.3 Private Placement Memorandum used in connection with 1995 Private
Placement (the "1995 Private Placement Memorandum")(5)
10.4 Supplement to the 1995 Private Placement Memorandum(5)
10.5 Supplement No. 2 to the 1995 Private Placement Memorandum(5)
10.6 Supplement No. 3 to the 1995 Private Placement Memorandum(5)
10.7 Settlement Agreement, dated as of March 31, 1995, by and
between the Company, Odyssey, Global Intellicom, Inc., N.
Norman Muller, Thomas W. Smith, David Mortman, Robert Ferraro,
the CECO Shareholders Committee, Lawrence Schneider, Robert E.
Miller, Henry Schneider, Robert Hesse, Shane O'Neil, Patrick
Haynes, Russell T. Stern, Jr., Thurston Group, Inc., The
Insight Fund, L.P. and Lois Muller(3)
10.8 Memorandum of Agreement, dated as of August 24, 1995 between the
Company and Multipix Communications, Inc.(4)
10.9 Termination Agreement, dated as of January 2, 1996, between
Regency International Pictures, B.V. and Odyssey Distributors B.V.(6)
10.10 Employment Agreement dated October 1, 1995, between the Company and
Stephen R. Greenwald(6)
10.11 Employment Agreement dated October 1, 1995, between the Company
and Lawrence I. Schneider(6)
10.12 Employment Agreement dated October 1, 1995, between the Company
and Ira N. Smith (6)
10.13 Agreement, dated March 6, 1996, between Communications and
Entertainment Corp. and its wholly-owned subsidiary, Odyssey
Distributors, Ltd.(7)
10.14 Severance and Consulting Agreement, dated March 26, 1996,
between the Company and Shane O'Neil, and related
modifying agreement dated March 28, 1996(7)
10.15 Management Agreement between the Company and Stephen R. Greenwald,
dated March 6, 1996, superseding the Employment Agreement dated
October 1, 1995(8)
10.16 Management Agreement between the Company and Lawrence I. Schneider,
dated March 6, 1996, superseding the Employment
Agreement dated October 1, 1995(8)
10.17 Management Agreement between the Company and Ira N. Smith, dated
March 6, 1996, superseding the Employment Agreement dated
October 1, 1995(8)
10.18 Addendum to Management Agreements of Messrs. Schneider,
Greenwald and Smith(8)
10.19 Joint Venture Letter between the Company and Film Bridge
International, Inc., dated March 11, 1996(8)
10.20 Lease for office premises at 1875 Century Park East, Suite 2130,
Los Angeles, California, dated May 9, 1996(8)
10.21 Agreement dated August 29, 1996, between the Company and Kinnevik
Media Properties, Ltd.(8)
10.22 Agreement dated September 6, 1996 between the Company and
Mr. David Somerstein(8)
51
10.23 Settlement Agreement and Release between Paramount Pictures
Corporation and Odyssey Distributors , Ltd. (a wholly owned subsidiary
of the Company), and Guarantee agreement of the Company, each dated as
of September 26, 1996 (9)
10.24 Form of Settlement Agreement with Generale bank Nederland, N.V., dated
as of December 18, 1996 (9)
10.25 Stock Purchase Agreement between the Company and Kinnevik Media
Properties, Ltd., dated September 1997 (10)
10.26 Stock Purchase Agreement between the Company and Flanders Film S.A.
relating to purchase of minority stock interest in E3 Sports
New Mexico, Inc. and Media Trust S.A., and related promissory
notes for $135,000 and $315,000, dated March 2, 1998 (10)
10.27 Termination /Employment Agreement with Stephen R. Greenwald, dated
March 2, 1998 (10)
10.28 Termination Agreement with Ira Smith dated March 2, 1998 (10)
10.29 Consulting Agreement with S.F.H. Associates, Inc. for the services
of Ira Smith, dated March 2, 1998 (10)
10.30 Employment Agreement with Johan Schotte, dated March 2, 1998 (10)
10.31 Convertible Note issued to Augustine Fund, L.P. in
July, 1998 (see Item 4.14)
10.32 Asset Purchase Agreement between the Company and Kimon Mediabright
KB, a Swedish limited partnership, dated July 14, 1998 (10)
21.1 Subsidiaries of the Registrant(3)
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-4, File No. 33-34627.
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 33-43371.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed April 12, 1995, File No. 0-18954.
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed August 30, 1995, File No. 0-18954.
(5) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, File No. 0-18954.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995, File No. 0-18954.
(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, File No. 0-18954.
(8) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended June 30, 1996, File No. 0-18954.
(9) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 333-20701.
(10)Filed herewith.
(11)To be filed by amendment.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this Report.
(c) See (a)(3) above.
(d) None.
52
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.
ODYSSEY PICTURES CORPORATION
Dated: October 20, 1998 By: /s/ Stephen R. Greenwald
--------------------------
Stephen R. Greenwald,
Managing Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Johan Schotte CEO and Chairman 10/20/98
- ------------------ (Principal Executive &
Johan Schotte Financial Officer)
/s/ Pierre Koshakji President; Director 10/20/98
- -------------------
Pierre Koshakji
/s/ Stephen R. Greenwald Managing Director; 10/20/98
- ------------------------ Director
Stephen R. Greenwald
/s/ Robert E. Miller, Jr. Director 10/20/98
- ------------------------
Robert E. Miller, Jr.
Director
- --------------
Yves Bayle
53