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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, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 0-18954
Odyssey Pictures Corporation
------------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-4269048
(State or other jurisdiction of (I.R.S. 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 December 15, 1998 was approximately $3,490,447 (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 December 15, 1998 there were outstanding 6,974,340 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, 1998
TABLE OF CONTENTS
PART I
Page
Item 1. Business .................................................. 2
Item 2. Properties ................................................ 9
Item 3. Legal Proceedings ......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ....... 14
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters ..................................... 15
Item 6. Selected Financial Data ................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 17
Item 8. Financial Statements and Supplementary Data ............... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant ........ 19
Item 11. Executive Compensation .................................... 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management .................................... 26
Item 13. Certain Relationships and Related Transactions ............ 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ...................................... 30
1
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. The balance of these notes were converted into
176,050 shares of common stock in October, 1998.
2
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. In December
1998, the Company hired Mr. Ian Jessel, who is past President of Miramax
International and who will join the Company's Board of Directors on January 1,
1999, to head up its film division.
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."
3
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.
4
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.
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.
5
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 tracks.
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.
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.
6
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.
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.
7
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.
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.
8
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.
In August, 1998, three unaffiliated investors loaned 4,000,000 Belgian
Francs (approximately $100,000) and received one year convertible notes with
interest at 10% per annum (the notes are convertible at a 15% discount to the
market price).
In September 1998 an unaffiliated third party loaned $25,000 to the Company
and received a six-month note with interest at 10% per annum.
In November 1998, the Company issued 200,000 common shares to an
unaffiliated party in exchange for $88,000 of barter credits.
In December 1998, (i) an unaffiliated party purchased 625,000 common shares
at $.30 per share for a total purchase price of $187,500 (see "Certain
Relationships and Related Transactions"); and (ii) counsel to the Company
converted $40,000 of accrued legal fees into 100,000 shares of common stock of
the Company.
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's principal office
is located in Dallas, Texas (see "Properties") and, as of December 15, 1998, the
Company had four full-time employees, consisting of Mr. Schotte, Mr. Koshakji,
Mr. Jessel and Mr. Greenwald, the CEO, President, CEO of the film division 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, 1998, there were approximately
$29,000,000 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, 1998, 1997,
and 1996 was $29,905, $69,002, and $38,772, respectively. In June, 1998, the
Company entered into a sublease for office space in Los Angeles, California with
an affiliate of the CEO of the Company. The sublease is on a month-to-month
9
basis at the rate of $1,500 per month. The Company intends to utilize these
premises for the months of June thru December, 1998. Commencing January 1, 1999,
and continuing until May 29, 2000, the Company intends to sublease approximately
5,000 square feet from an unaffiliated party at the rate of $12,823 per month.
(The proposed sublease is contingent upon the Company's ability to post a letter
of credit equal to six months' rent under the sublease). The premises are
located at 2049 Century Park East, Suite 2750, in Los Angeles, California. The
Company intends to sublease such portions of the premises as may be appropriate
from time to time during the term of the sublease.
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.
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.
10
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. In January 1998 the U.S. Bankruptcy Court of
the Southern District of New York approved a final settlement of the bankruptcy
of Hibbard Brown.
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's current management has paid
Mr. Shah the sum of $15,000 in July 1998 and in full settlement of all claims
against the Company.
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
11
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.
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 177,500 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.
12
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. The case was refiled
in California state court in August 1998 and the Company has retained counsel to
represent itself.
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.
13
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
by the current management in July 1998 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
Fahey, 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. In the Supreme Court
action, Mr. Silva was seeking money damages based on his claim that the Company
interfered with his right to sell his shares in the Company. The Civil Court
matter is an action to collect on a promissory note in the amount of $22,500.
Mr. Silva will discontinue both actions and the Company will authorize the sale
of Mr. Silva's shares in the Company under Rule 144, up to a maximum of 30,000
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.
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.
14
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 1997 High Low
- ----------- ---- ---
First Quarter $ .87 $ .50
Second Quarter 1.37 .43
Third Quarter 1.07 .62
Fourth Quarter .81 .37
Fiscal 1998
First Quarter $.44 $.19
Second Quarter .22 .08
Third Quarter .88 .06
Fourth Quarter .82 .19
As of December 15, 1998, there were approximately 4576 record holders of
the Company's Common Stock.
15
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,
1998 1997 1996 1995 1994
Income Statement Data
Revenues............................. $41 $141 $1,011 $1,521 $14,797
Income(loss) from continuing
operations......................(1,119) 69 (4,960) (6,852) (7,607)
Income(loss) from discontinued
operations...................... -- -- -- (458) (766)
Net income (loss)....................(1,119) 69 (4,960) (7,310) (8,373)
Per Share Data*
Income(loss) from continuing
operations...................... (.25) .02 (2.17) (2.94) (3.18)
Income(loss) from discontinued
operations...................... -- -- -- (0.20) (0.32)
Net income (loss).................... (.25) .02 (2.17) (3.14) (3.50)
Cash dividends....................... -- -- -- -- --
Weighted average shares.............. 4,403 2,294 2,284 2,332 2,392
Balance Sheet Data
Film costs........................... 110 120 1,001 10,656 13,127
Total assets......................... 675 740 2,448 15,078 27,949
Indebtedness......................... 1,079 962 562 249 179
Shareholders' equity.................(2,083) (2,226) (2,749) 1,979 9,796
- ------------------------------------
* 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.
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Results of Operations
Years Ended June 30, 1998 and 1997
Net loss for the year ended June 30, 1998 was due to the fact that the
Company did not release any new films and did not enter into any new agreements
for the release of existing rights in films. Revenues for the twelve months
ended June 30, 1998 decreased to $42,630 compared to $141,202 for the twelve
months ended June 30, 1997. No new films became available for delivery during
either period.
Costs related to revenues decreased to $19,519 for the twelve months ended
June 30, 1998 as compared to $565,610 for the twelve months ended June 30, 1997.
The decrease is primarily related to the fact that there were lower film
revenues in the current year. Additionally, during the twelve months ended June
30, 1997, development and festival costs in the amount of $249,544 were written
off, litigation and settlement costs related 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 primarily 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 decreased by $613,316 to
$1,065,134 for the twelve month period ended June 30, 1998 from $1,678,450 for
the comparable period ending June 30, 1997. The decrease is primarily due to
decreases in personnel and related expenses.
There was no other income recognized in the twelve month period ended June
30, 1998. 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 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 Cinecom Entertainment Group
Inc.
Since the change in management control in March 1998, new management has
embarked on a program to reverse the unfavorable results by significantly
reducing overhead, taking steps to recapitalize the Company, acquiring interests
in new pictures in development or pre-production, and by acquiring equity
interests in two corporations, one of which is the owner of a professional
soccer team, and the other of which is a media production company.
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.
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
17
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.
Liquidity and Capital Resources
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. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
At June 30, 1998, the Company held approximately $4,331 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.
In August, 1998, three unaffiliated investors loaned 4,000,000 Belgian
Francs (approximately $100,000) and received one year convertible notes with
interest at 10% per annum (the notes are convertible at a 15% discount to the
market price).
In September 1998 an unaffiliated third party loaned $25,000 to the Company
and received a six-month note
with interest at 10% per annum.
In November 1998, the Company issued 200,000 common shares to an
unaffiliated party in exchange for $88,000 of barter credits.
In December 1998, (i) an unaffiliated party purchased 625,000 common shares
at $.30 per share for a total purchase price of $187,500 (see "Certain
Relationships and Related Transactions"); and (ii) counsel to the Company
converted $40,000 of accrued legal fees into 100,000 shares of common stock of
the Company.
18
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted as a separate section of this report
commencing on page F-1.
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 37 Chairman of the Board
& Chief Executive Officer
Pierre Koshakji 36 President & Director
Stephen R. Greenwald 58 Managing Director &
Director
Robert E. Miller, Jr. 51 Director
Ian Jessel 53 Director
(As of January 1, 1999)
Set forth below is information regarding the business experience of the
current Directors and executive officers of the Company.
Johan Schotte is 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. Before joining 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.
19
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."
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."
Ian Jessel is an experienced film and television executive who served as
President of Miramax International during the period from 1992 to 1995, and as
President of Spelling Films International for the two-year period prior thereto.
During the 1980's, Mr. Jessel also held top executive positions at CBS
Theatrical Films, I.T.C. International, and Nelson Entertainment. Films released
during his presidency at Miramax International include Robert Altman's
"Pret-A-Porter," Chen Kaige's "Farewell My Concubine," Quentin Tarantino's "Pulp
Fiction," and Woody Allen's "Bullets Over Broadway." Mr. Jessel currently serves
as President and CEO of Condor Communications LLC, a company he founded in 1995
to co-finance, co-produce, and supervise the international distribution of,
quality motion pictures. (Mr. Jessel will join the Board of Directors on January
1, 1999).
Meetings and Committees of the Board of Directors
For the fiscal year ended June 30, 1998, 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.
20
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, 1998, the Company's officers, directors and greater than 10%
stockholders complied with all filing requirements under section 16(a) except
that (i) Messrs. Schotte and Koshakji each filed a Form 3 in October, 1998
reflecting their appointments to the Board of Directors in March 1998, and (ii)
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.
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, 1998.
Summary Compensation Table
Annual Compensation Long-Term
Securities
Name and Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
- -------- ---- ------ ----- ------------ ------- ------------
Johan Schotte 1998 5,000 -- -- -- 43,000(3)
Chief Executive
Officer; Chairman
Pierre Koshakji 1998 5,000 -- -- -- 43,000(3)
President
Stephen Greenwald 1998 83,000 -- -- -- 96,000(1)(2)
Chief Executive 1997 127,500 -- -- 100,000(2) 97,500(1)(2)
Officer; Co-Chairman 1996 60,000 -- -- 216,667(2) 75,000(1)(2)
Ira N. Smith 1998 79,626 -- -- -- 111,374(1)
President 1997 130,875 -- -- 100,000 94,125(1)
Co-Chairman 1996 60,000 -- -- 216,667 75,000(1)
Lawrence Schneider 1998 -- -- -- -- --
Co-Chairman 1997 89,167 -- -- 100,000 135,833(1)
1996 60,000 -- -- 216,667 75,000(1)
21
(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. During the fiscal year ended June 30,
1998, Messrs. Greenwald, Smith and Schneider deferred an additional $96,000 and
$111,374, respectively, of their annual compensation. (Mr. Schneider did not
receive any compensation during the 1998 fiscal year). 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, and for a discussion of the conversion of deferred compensation notes
by Mr. Greenwald and Mr. Schneider in November, 1998. 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."
(3) Represent deferred compensation which accrued during the fiscal year ended
June 30, 1998.
22
Options/Stock Appreciation Rights
No stock options or stock appreciation rights ("SARs") were granted to the
named executive officers during the fiscal year ended June 30, 1998.
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
Johan Schotte __ __ 125,000 __ 0 __
Pierre Koshakji __ __ __ __ __ __
Stephen Greenwald(1) __ __ 366,667 __ 0 __
Ira Smith __ __ __ __ __ __
Lawrence Schneider(1) __ __ 350,000 __ 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." For the fiscal year ending June 30, 1999 (through
December 15, 1998), Mr. Greenwald was issued an additional 25,000 stock
options in consideration of a rollover of his short term loans to the
Company, and Messrs. Schotte and Koshakji were each issued 103,385 stock
options as additional incentive compensation.
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.
23
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 at 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.
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. In November, 1998, Mr. Greenwald converted
$44,968 of deferred compensation notes into 145,058 shares of common stock at a
conversion price of $.31 per share, and Mr. Schneider converted $157,774 of
deferred compensation notes into 508,947 shares of common stock at a conversion
price of $.31 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."
24
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.
Mr. Ian Jessel entered into a three year employment agreement with the
Company, commencing November 9, 1998 and continuing through November 9, 2001. Mr
Jessel's compensation is set at a rate equal to $300,000 per annum for the first
year, $350,000 per annum for the second year, and $400,000 per annum for the
third year. Jessel shall be entitled yearly to a 10% bonus of the net profits of
the film division and to a 5% bonus, paid in the Company's stock, of the net
profits of the Company provided that the film division is responsible for one
half of such net profits or Jessel's bonus shall be proportionately reduced down
to a floor of 1% of 100% of the Company's net profits.
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. The balance of these notes
were converted into 176,050 shares of common stock in October, 1998.
25
In November, 1998, the Board of Directors of the Company authorized the
following bonus incentive compensation package for each of Messrs. Schotte and
Koshakji:
I) Warrants: 2% of the Company's total outstanding stock each
year, beginning with the fiscal year commencing July 1, 1998,
and each year thereafter. Warrants shall be priced at the
average bid price for the 10 consecutive trading days
preceding the issue date each year, and exercisable at any
time following the issue date. (Messrs. Schotte and Koshakji
were each issued 103,385 warrants as of July 1, 1998 at an
exercise price of $.74 per share).
II) Performance Bonus: Each year beginning with the fiscal year
ending June 30, 1999, and each year thereafter, if the
Company's gross revenues increase by 20% or more over the
gross revenues of the preceding year, the performance bonus
shall be the greater of either 1% of the revenue differential
or 2.5% of the EBITDA.
III) Market Cap Bonus: At the end of each fiscal year, beginning
with the fiscal year ending June 30, 1999, if the Company's
market capitalization increases from the preceding year based
on the average closing price for the 30 previous consecutive
trading days, the market capitalization bonus shall equal 1%
of the differential.
Compensation Committee Report and Compensation Committee Interlocks and Insider
Participation
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 December 15, 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.
26
Name & Address of Shares Percentage of
Beneficial Owner Status Beneficially Owned Class
Lawrence Schneider __ 944,631(1) 12.9%
116 E. 30th Street
New York, NY
Robert Miller, Jr. Director 214,833(2) 3.0%
900 4th Avenue
Seattle, WA
S.F.H. Associates Inc. __ 428,564(3) 5.9%
49 Woodland Drive
Oyster Bay, NY
Stephen R. Greenwald Managing 648,622(4) 8.8%
380 Lexington Avenue Director;
New York, NY Director
Johan Schotte CEO and 353,385(5) 4.9%
1601 Elm Street Chairman
Dallas, TX
Pierre Koshakji President & 103,385(6) 1.5%
1601 Elm Street Director
Dallas, TX
Ian Jessel Director 50,000 .7%
1601 Elm Street (As of 1/1/1999)
Dallas, TX
Lecoutere Finance S.A. __ 1,870,298(7) 25.3%
39 route de Remich
L-5650 Mondorf-les-Bains
Grand Duchy of Luxembourg
All Executive
Officers & __
Directors As
A Group (6 Persons) 1,370,225(8) 17.5%
(1) Includes presently exercisable options to purchase 333,333 shares of
common stock.
(2) Includes presently exercisable options to purchase 144,166 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 300,000 shares of
common stock.
(4) Includes presently exercisable options to purchase 375,000 shares of
common stock.
(5) Includes presently exercisable options to purchase 228,385 shares of
common stock; does not include 1,468,698 shares of common stock and
401,600 common stock purchase warrants held by a corporate affiliate of
Mr. Schotte, Lecoutere Finance S.A.; also does not include 2660 common
stock purchase warrants held by E3 Capital, and 29,537 common stock
purchase warrants held by Media Trust S.A., both corporate affiliates of
Mr. Schotte. (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) Includes presently exercisable options to purchase 103,385 shares of
common stock.
(7) Includes presently exercisable options to purchase 401,600 shares of
common stock. See note (5).
(8) Includes presently exercisable options to purchase 850,936 shares of
common stock.
27
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.
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. The balance of these notes were converted into 176,050 shares of common
stock in October, 1998. 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.
28
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").
In June, 1998, the Company entered into a sublease for office space in Los
Angeles with an affiliate of the CEO of the Company. The sublease is on a
month-to-month basis at the rate of $1,500 per month. The Company intends to
utilize the premises for the months of June thru December, 1998.
In November, 1998, the Company entered into the following related party
transactions with E3 Sports New Mexico, Inc., a company which is an affiliate of
Mr. Schotte and Mr. Koshakji (the CEO and President of the Company,
respectively) and in which the Company holds a minority interest: (i) the
Company purchased a $25,000 sponsorship from the Albuquerque Geckos, the
professional soccer team owned by the affiliate; and (ii) the Board authorized
the Company to loan up to $100,000 to the affiliate, payable no later than July
15, 1999 with interest at 15% per annum (the loan is secured by 10,000 shares of
E3 Sports new Mexico, Inc.).
In July, 1998, the Company entered into the following related party
transactions with Media Trust S.A., a company which is an affiliate of Mr.
Schotte and in which the Company holds a minority interest: (i) the Company has
agreed to make a $2,500 loan to the affiliate, payable in one year with interest
at 15% per annum; (ii) the Company engaged the affiliate to introduce
prospective investors to the company, in exchange for which the affiliate will
receive 10% of any investments made in the Company by persons or entities
introduced by the affiliate, together with five-year warrants (100 warrants per
$1,000 invested) at an exercise price equal to the market price of the Company's
stock on the date of the investment. In connection with convertible loans made
to the Company in 1998 by Belgian investors in the aggregate amount of
approximately $100,000, and the purchase of 625,000 shares of common stock of
the Company by Lecoutere Finance, S.A. in December, 1998 (see below), a total of
29,537 five-year warrants will be issued to Media Trust, S.A. with exercise
prices ranging from $.38 per share to $.98 per share.
In December, 1998, Lecoutere Finance, S.A., an affiliate of the CEO of
the Company, purchased 625,000 shares of common stock from the Company for an
aggregate consideration of $187,500 ($.30 per share). The price was based on the
average price of the Company's common stock for the 30 day period preceding the
date of purchase (i.e., $.37 per share), less a 20% discount due to the
restricted nature of the shares purchased. (See "Security Ownership of Certain
Beneficial Owners and Management").
29
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 as a separate
section of this report commencing on page F-1.
(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 (12)
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)
30
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)
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)
31
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 (12)
10.32 Asset Purchase Agreement between the Company and Kimon Mediabright
KB, a Swedish limited partnership, dated July 14, 1998 (10)
10.33 Employment Agreement with Pierre Koshakji, dated March 2, 1998 (11)
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)Incorporated herein by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended June 30, 1997, File No. 0-18954
(11)Incorporated herein by reference to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended June 30, 1997,
File No. 0-18954
(12)Filed herewith.
(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.
32
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: December 30, 1998 By: /s/ Johan Schotte
-------------------
Johan Schotte,
CEO and Chairman
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 12/30/98
Johan Schotte (Principal Executive & Financial Officer)
/s/ Pierre Koshakji President; Director 12/30/98
Pierre Koshakji
/s/ Stephen R. Greenwald Managing Director; 12/30/98
Stephen R. Greenwald Director
/s/ Robert E. Miller, Jr. Director 12/30/98
Robert E. Miller, Jr.
33