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
For the fiscal year ended June 30, 2003
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
0-18954
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Commission File No.
ODYSSEY PICTURES CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 95-4269048
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16910 Dallas Parkway, Suite 104, Dallas, Texas 75248
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(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 818-7990
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 [ X ] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this form 10-KSB or any amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2003 was approximately $6,482,387 (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 June 30, 2003 there were outstanding 32,411,934 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, 2003
TABLE OF CONTENTS
PART I
Item 1. Business............................................................ 1
Item 2. Properties..........................................................10
Item 3. Legal Proceedings...................................................11
Item 4. Submission of Matters to a Vote of Security Holders.................15
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters...............................................16
Item 6. Selected Financial Data.............................................17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................17
Item 8. Financial Statements and Supplementary Data.........................20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............................20
PART III
Item 10. Directors and Executive Officers of the Registrant..................21
Item 11. Executive Compensation..............................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management......25
Item 13. Certain Relationships and Related Transactions......................25
Item 14. Controls & Procedures...............................................27
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......28
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 the Company's common stock in
April, 1998. The balance of these notes was converted into 176,050 shares of
common stock in October 1998.
1
During the early 1990s, the Company developed an excellent reputation in
overseas markets for the distribution of quality motion picture entertainment, a
reputation that 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 was unable to sustain any substantial activities in
the international distribution of motion pictures.
Under the leadership of Mr. Schotte, the Company sought to re-establish its
position as a significant distributor of quality motion pictures by establishing
relationships and strategic alliances with independent and major film studios
along with successful writers, directors and producers. The Company also made
efforts to establish a permanent presence in Europe through select joint-venture
partners. In August of 1998, the Company purchased the assets of Sweden-based
Kimon Mediaright KB ("Kimon"), consisting of a film library with worldwide
and/or Scandinavian distribution rights and Scandinavian video distribution
rights to certain Hallmark Entertainment products.
While continuing to develop and re-establish the Company's film distribution
business, management's objective was to aggressively build a diverse, global
media company independent in ownership from the major film and music companies.
Management also sought to establish a group of domestic and international
companies providing both content and distribution in film, music, publishing,
sports, merchandising and other multimedia outlets. On July 6th of 2001, the
Board voted on the assignment of Mr. Foster to CEO and Chairman of the Board of
Odyssey Pictures Corporation. Mr. Schotte resigned as CEO and Chairman and was
appointed the position of Executive Vice Chairman on the Board. This change was
due to the approved transition by the Board for the further growth plans of
Odyssey. On December 7, 2001 Pierre Koshakji resigned as director to pursue
other interests. Mr. Koshakji is still involved with E3 Corporation in which the
Company owns an interest. Mr. Koshakji is owed $220,184 in past compensation. On
December 9, 2001 Mr. Schotte resigned from the board of directors to focus on
the Company's two related entities and other interests. Mr. Schotte lives in
Luxembourg and was the managing director of the Company's 99% subsidiary,
Odyssey Ventures Online Holding, S.A. He is also the controlling shareholder and
director general of Media Trust, S.A. of which the Company owns 18%. Recently
the Company held a shareholders' election for the removal of its three
directors, which included Media Trust, SA The Company demanded documentation of
disbursements and expenses previously reported in the accounts of the Company.
The Company pursued the control of the subsidiary and settlement of all accounts
is presently underway. The Company has offset all undocumented expenses from
prior management contracts and the resulting amounts were booked as expense or
loss accordingly. While the Company expects recovery, a reserve for losses has
been taken since the Company has adopted Statement of Financial Accounting
Standards No, 5 (SFAS 5), and, since a loss contingency may exist in this
matter.
On January 3, 2002, at a regularly scheduled board meeting, the board of
directors voted unanimously to elect Peter Bucher and Kjell Larsson to replace
vacant positions made available by the resignation of Mr. Schotte and Mr.
Koshakji. Mr. Bucher is a consultant in finance and resides in Germany. Prior to
forming his company, Dival AG, he has a career in banking including Deputy
Administrator with Schaffhaus Canton Bank and the Swiss Banking Association. Mr.
Larsson resides in Florida and owns 1,518,055 shares of Odyssey through Kemp
Entertainment, a company he formed with his wife in 1999. Larsson formed
TigerNet Order, Inc. a web consulting and marketing company through a Kemp
subsidiary and he had served as its President. TigerNetorder also has a Swedish
subsidiary providing similar services. Prior to moving to Florida he formed one
of the first video retail chains in Sweden and later became President of Scanbox
AB.
2
In January of 2002, the Company hired C. F. K. (Frank) Cole as the Chief
Financial Officer and also installed him as corporate secretary. Mr. Cole had
served in a consulting capacity for the company for several months following and
has been a venture capitalist and consultant in various capacities over the last
ten years. Prior to forming his own investment company Mr. Cole was CFO of a
Dallas based holding company in the commercial real estate business. He also
served as President of two of its subsidiaries involved in the property and
asset management business. Mr. Cole has a career in banking and corporate
financial consulting with some of the largest US companies involved in those
industries. Mr. Cole had one-year contract with the Company with ninety-day
notification clause. In July of 2002, Mr. Cole elected not to continue as CFO
due to personal reasons. He continued to assist with the Company until October
of 2002.
(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. In addition, in 1999 and 2000 the company
acquired interests in other technology segments of the communications industry
and, more specifically, formed a subsidiary (wholly owned) entitled Odyssey
Ventures Online Holding S.A., in Luxembourg. See "Selected Financial Data."
(c) Narrative Description of Business Foreign Sales and Distribution Operations
General.
The distribution of films involves two principal activities - the acquisition of
rights from the licensor or the seller, usually the producer or writer of the
film, and the licensing of the distribution rights to subdistributors in their
respective markets. In general, the rights obtained from the producer relate to
all media, including theatrical distribution, video and all forms of television.
In some cases, 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 due to detailed servicing requirements.
Furthermore, with respect to any particular film, the Company typically enters
into exclusive distributorship arrangements, 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.
A distributor such as the Company, which coordinates worldwide sales in all
territories and media, generally handles foreign distribution. 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 additional cycles.
The film distribution business breaks down into two broad categories:
1. Sales Agency Representation. As a sales agent, the Company undertakes 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 ranging from
15% to 25%, and typically for a term ranging from seven to fifteen years.
2. 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
ranging from 25% to 35% over a term ranging from 15 years to perpetuity. In
addition, the distributor may negotiate, or otherwise acquire, a profit
participation in the film project.
Once the rights to a picture are obtained (either as sales agent or distributor
which may involve a minimum guarantee), the Company then seeks 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 certain items necessary for the
distribution of the film). In some instances, the subdistributors' obligations
for the payment due on delivery are secured by a letter of credit. Although
there are a number of markets each quarter, major sales take place primarily at
three film markets:
1) "MIF" in Cannes, France each May;
2) "MIFED" in Milan, Italy each October; and,
3) "AFM" in Los Angeles each February. (Although in 2004, AFMA plans
to sponsor two markets annually, one in Mach and one in November)
In general, after financing (if any) is repaid, the Company applies the
distribution receipts from its subdistributors in the following manner:
1) First to the payment of commissions due to the Company,
2) Then second to the recovery of certain distribution expenses,
3) Then to the reimbursement of the Company for its minimum
guarantee or advance, if any, 4) Then finally to the producer.
The Company and the producer according to the percentages negotiated in the
agreement between the Company and the producer, if any, share additional
distribution receipts. Independent Film Production and Product Acquisition Film
distribution companies such as the Company primarily represent independent
producers of motion pictures (rather than motion picture studios) in all related
markets and all media, including theatrical release, television and home
video/DVD 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 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 a low
4
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", or
shared, arrangements with studios to represent a film in certain markets. The
Company's management seeks to identify attractive projects very early in their
development, either through relationships with producers, directors and agents
or other known suppliers of product, or through industry announcements of new
productions. In addition, the Company attends independent festivals and film
markets, such as the Sundance Film Festival, The New York Independent Film
Festival and the Cannes Film Festival, in order to locate new product.
Business Strategy
The Company's strategy is to capitalize on the reputation and the experience of
its management team to package, produce and distribute independent feature films
and expand its growth and infrastructure through acquiring or partnering with
other related entities, also utilizing the industry to obtain certain financing
for projects. The execution of the Company's strategy comes from operating the
following activities within each service it provides which, in turn, will
generate revenues from both fees and commissions.
1) Packaging - The Company expects to become involved with packaging
(the process by which one undertakes a particular film project in
screenplay form and assembles cast, crew, financing, introduces
banks and other institutions to the "package" (either for the
company or for the producer) and may establish partnerships from
contributing buyers in order to secure the distribution and
market position for the film, if actually produced. For this
activity, the company shall receive a percentage of the budget of
the film and perhaps an equity interest as well.
2) Produce - For film projects in script form that may be acquired
exclusively for the company, a separate schedule is provided
which will enable the packaging on an "in house" basis. That is,
to hire all crewmembers, contract a director, and assemble all
necessary elements for production and financing of the proposed
project. The Company, in this case, is also able to partner with
other production teams or distribution companies for added
security and in reducing risk in order for the project to have
market interest early on. The Company shall retain percentages of
the budget as well as receive fees as a producer and shall also
control a major portion of the equity resulting in an increased
chance for higher revenue portions from sales in the world and US
markets.
3) Distribute - The Company plans to acquire a certain number of
films per year as well as assemble a distribution package for
other films that are completed. This will generate commission
revenues from sales and marketing income for which the Company
can achieve its buyers' interest.
4) Related Entities - From time to time, the Company may be asked to
engage in financing and/or distribution activities for companies
that could fill the need for continued product. If conditions
were of a financially secure nature, management would attempt to
acquire or otherwise partner with these potential target
companies in order to expand its base and diversity as a
supplier.
5) Industry financing - Certain arrangements will be sought whereby
the markets can provide financing in advance for feature film
product.It is the Company's intention to seek alternate methods
of this "off-balance sheet" financing in order to secure more
product under its control.
5
Strategic Objectives
The above strategies are selected out of availability in the operations of a
business such as Odyssey, which is limited. Certain revenue periods are realized
at different times. By accommodating the above-mentioned strategies, the Company
will recognize revenues at different points of the processing. This will create
more opportunity for revenues to the Company and not just focus on one area of
revenue as historically produced. Management must select from the following
areas of daily management to accomplish this strategy:
- Follow similar guidelines from other companies that have proven
this process to be fruitful and incorporate them into
management's infrastructure;
- Properly capitalize the Company for its basic costs of seeing the
implementation begun and make sales contacts regularly;
- Begin the various stages of strategy in order to create a small,
but secure level of income in each area;
- Enhance the Company relationships with its investors and
investment bankers to focus on their participation as income and
Company performance improves.
- Seek assistance from outside sources on shared management of
libraries of films or limited exposure on new product to key
selected buyers for a reduced commission in order to attract
producers and new projects.
- Avoid risk-oriented projects and acquisitions with long startup
periods to revenue. Maintain a budget for operations and fixed
overheads as well as utilizing revenues from sales to finance
future marketing and distribution activities.
These activities will continue to result in losses until such time as the
Company is able to generate sufficient revenue to support its operations. We
have limited revenue, we have a history of losses, we may not be profitable in
the future, and will need additional financing to accommodate the above
activities.
Subsidiary Operations
During the year 2000 and into 2001, Odyssey has completed the acquisition of
Filmzone.com, an informational entertainment resource site that presently serves
the public for retrieval of current film information. The acquisition was added
as a subsequent part of the earlier announced Kimon acquisition. Odyssey plans
on renovating the site to serve the buyer markets in order to access the films
it acquires. The site will offer pricing and a high grade of technology where
the viewer can access the commercials, trailers and artwork as well as the
territories open for sale.
During the first part of 2001, along with the assistance of the Kimon Group and
Filmzone.com, Odyssey has developed its web site, which will announce its
activities and news, as well as its new films coming out in the future. The Web
site address is noted as "Odysseypix.com" and became "live" in the latter part
of 2001.
In March of 2000, the Company formed Odyssey Ventures Online Holding S.A., a
Luxembourg corporation ("OVO"), for the purpose of making investments in various
technology-related entities. OVO's original strategy was to invest and co-invest
with venture capital investment and management groups, with the intention of
developing products and services related to digital commerce, content and the
distribution thereof.
6
During the course of the fourth quarter of the fiscal year ending June 30, 2001,
management determined that the maintenance and costs of overseeing the assets of
OVO, with the long term benefits in technology business having to be revised
significantly, require a change in the earlier plans to pursue added investments
in related technological ("Tech") companies. Recent downgrades of outside
investments have affected the growth plans of many companies. The fact that the
Company has had numerous difficulties in securing its long term investment
capital and has had little or no financial activity, the prospects of future
investments and growth plans of subsidiary operations have been discontinued
although efforts are maintained to recover values and perhaps trade in other
capacities, which are and remain options to management. Odyssey has sought
recoupment of the value of these assets perhaps through a profitable (or
redeemable) transaction form former associates of the Company. It is the
intention of the Company to seek another buyers within the year and perhaps make
a sale of the assets, or liquidate the assets of the subsidiary in an orderly
manner. In the case of the latter, the Company has made a reserve and has made
significant write-downs of its valuation. A determination will be made during
the year if no buyer or alternative manner of selling the assets is found.
Since the formation of OVO in March, 2000, the Company has made the following
investments: (i) an investment of $500,000 for a 6.25% equity interest in
PurchasePooling.com, Inc., a web-based demand aggregating service developed to
enable government entities and businesses to realize significant cost savings by
combining their purchasing power on large-ticket capital equipment, as well as
other goods and services; (ii) an investment of $136,668 for a 25% equity
interest in Webtelemarketing.com, an Internet-based company specializing in
online recruiting by linking the supply and demand sides of the employment
industry; (iii) an investment of $25,000 for a 1% equity interest in Exchange
Enterprises, Inc., a privately held company that has developed a patent-pending
Internet cash card that allows consumers to purchase products and services
online without the use of credit cards or bank accounts. The interest in
Purchase Pooling was acquired in February of 2000. In September of 2000, OVO,
through a common relationship within the two entities of Purchase Pooling and
Edge Technologies, (EDGE is a major investor in Purchase Pooling) determined
that it would be profitable to acquire, through a stock swap, 264,000 shares in
Edge Technology. This resulted in a 30% ($150,000) devaluation of the Purchase
Pooling investment and a $150,000 basis for the Edge investment. This "dollar
for dollar" transaction resulted in no gain or loss was reported in the issuance
of the shares from Edge. This transaction was treated only as an extension of
investments into other technology-related entities and that management at the
time determined that it would be best to exercise diversity in investments when
it was limited on capital.
Development In April 1999, the Company purchased an option with the right of
first refusal to be the exclusive worldwide distributor of a motion picture
entitled "HARA." The film is an action-packed semi-biographical martial arts
love story. Prior management owned an indirect 50% equity interest, through its
affiliated companies, in Red Sun Productions, Inc., the rights holder of "HARA".
In April of 2000, the Company made a refundable advance of $60,000 towards the
acquisition of the exclusive rights to exploit the film worldwide, when
completed. This advance was made with the intention of producing the project
into a feature length movie based upon the prospects of new financing for
productions becoming available. As of June 30, 2001, financing has not become
available and the project remains in script form, but was registered as an asset
of the Company under the classification of "deposits". It was prior management's
intention, at the time, to package and finance the film project. During the
course of the next year, there was a transition in management and, as well, a
significant change in the economics of film financing. It became known that the
prior management did not have the financing available for this project. New
management determined that it could not sustain the risks involved with
financing such a project and, requested that the deposit be returned. New
management has experience in the industry risks and further determined that
future financing may not become available for this project for a number of
reasons; some being the fact that the script itself would need substantial
expense in rewrites and would need to re-evaluated at a later date; there will
be no assurance that this particular genre of story will be marketable at that
time in the future; unknown elements may exist on the actual claim of rights and
7
the Company could not determine a true cost for a completed product. Therefore,
there would be no revenue results from which the Company could rely upon without
spending more funds. Management may decide to abandon the project altogether.
Under the latest accounting guides as issued under Statement of Position (SOP)
00-2, which presents new accounting, reporting, and disclosure requirements for
the motion picture industry, if it is determined that a property in development
will be disposed of, the entity should recognize a loss on these costs by
charging them to the current period income statement. The Company did issue a
demand for the return of the deposit and a reserve will be made for the prospect
of a loss against receiving the deposit in return.
At the close of business on June 30, 2003, the Company did not receive the
anticipated refund of the deposit and wrote the entire balance (consisting of
$67,000) off as a non-recoupable item. According to the rules as earlier noted,
the Company is required to disclose and write off the entire amount as and when
it is recognized or deemed uncollectible. The Company will seek all means
available to it to attempt to recover the loss.
Film Library
In August, 1998, the Company completed the acquisition of the assets of
Sweden-based 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 had 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 Scandinavian distribution rights and Scandinavian video
distribution rights to certain Hallmark Entertainment products. The Kimon Assets
are part of a negative pledge covenant of the Senior Secured Bond (see "Changes
in Securities and Use of Proceeds").
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, 1)
E3 Sports New Mexico, Inc. which is the owner of the Albuquerque Geckos, a
second division professional soccer team in New Mexico (subsequently transferred
to Sacramento), and the other of which is a consulting company in Luxembourg
("Media Trust"). The Company issued one-year notes in the aggregate amount of
$450,000 in consideration of the purchase of the equity interests in these
companies. (In June, 1999, the Company satisfied $135,000 of these notes, and
the accrued interest thereon of $27,225, by the issuance of 348,721 shares of
the Company's restricted common stock valued at $.465 per share). The Company's
equity interest in the entity that owns the professional soccer team has been
diluted by half, or to 9%, as a result of a capital increase/call in which the
Company did not participate. The company that owns the soccer team has declared
bankruptcy and the assets of E3 Sports are stock and a note in a bankrupt
company. Pursuant to this discovery, Odyssey has reserved all of this investment
as a loss. Media Trust S.A. is a Luxembourg business entity and the Company has
made demand for financial information on the investment. A reserve has been set
for the Company's investment in Media Trust due to the lack of financial
reporting since the inception of the investment. The Company has obtained legal
representation in Brussels on this matter.
Sales of Film Library
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.
8
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, 1998, three unaffiliated investors (referred to hereinafter as the
"Belgian Investment Group") 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). The notes
have been extended through to September 30, 2001 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.
Thereafter, the lender agreed to a six-month extension on the note (through
September, 1999) in consideration of an increase in the interest rate on the
loan to 12% per annum, and the issuance of 12,500 common stock purchase warrants
at $1.00 per share, exercisable through the year 2004.
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.
During the period between April, 1999 and September, 1999, the Company completed
four private placements to offshore investors, the first of which was completed
for 575,000 shares of common stock at a purchase price of $.30 per share
(resulting in gross proceeds to the Company of $172,500), and the latter three
of which were completed for an aggregate of 1,600,000 shares of common stock at
a purchase of $.40 per share (resulting in gross proceeds to the Company of
$400,000).
In August, 1999, the Belgian Investment Group renewed loans of 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). The notes were extended through to September 30, 2001.
During the period between September, 1999 and October, 2000, the Company
completed two series of private placements to offshore investors, the first of
which was completed for an aggregate of 3,000,000 shares of common stock at a
purchase price of $.40 per share (resulting in gross proceeds to the Company of
$1,200,000), and the second of which was completed for an aggregate of 960,000
shares of common stock at a purchase price of $1.00 per share (resulting in
gross proceeds to the Company of $960,000).
In August, 2000, the Belgian Investment Group 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 themarket
price). The notes have been extended through to September 30, 2001. Two of the
loans have been repaid and the others have agreed to renewals with a fixed
amount of shares for possible conversion into common shares.
In June 2002, the notes were extended and renewed into August 2003 and December
2003
In September, 2002, the company borrowed $50,000 for working capital needs in a
sixty-day note at 12% per annum. The note has since been renewed upon mutual
agreement of the Lender, who is also a shareholder of the company.
9
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 motion picture studios. Many of the Company's competitors
have financial and other resources, which are significantly greater than those
available to the Company. The Company faces competition in all aspects of the
business and cannot give the assurance that it will be able to compete
effectively. New markets require the Company to compete for licensees and
sub-distributors (as further defined herein) of Filmed/Video content with other
Internet-based Filmed/Video distributors through cassette tape and/or DVD.
Although our Joint Venture relationship assists us greatly in not seeking others
and compete for relationships with manufacturers and developers of transmission
services with playback and broadcast capabilities. The business of providing
content over the Internet is experiencing rapid growth and is characterized by
substantial technological changes, and there are new and varying established
companies entering into the same fields. Many of these companies have financial,
technological, promotional and other resources that are much greater than those
available to us and could use or adapt their current technology, or could
purchase technology, to provide a service directly competitive with 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 June 30, 2003, the
Company had three full-time employees, consisting of Mr. John Foster, the CEO
and President of the Company, along with two administrative assistants in the
Dallas office.
Tax Loss Carry forward
The Company is entitled to the benefits of certain net operating loss carry
forwards to reduce its tax liability. The utilization by the Company of such tax
loss carry forwards is limited under applicable provisions of the Internal
Revenue Code of 1986, as amended, and the applicable regulations promulgated
thereunder. As of June 30, 2003, there were approximately $37,552,540 in net
operating loss carry forwards 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 16910
Dallas Parkway, Dallas, Texas, consisting of approximately 2,500 square feet.
The premises are presently being made available to the Company through a
sublease agreement with JL Media Services LLC, an affiliated party to Mr.
Foster. Rent expense for each of the fiscal years is as follows:
-------------------- ------------
June 30, 2003 $44,398
-------------------- ------------
June 30, 2002 $40,936
-------------------- ------------
June 30, 2001 $34,094
-------------------- ------------
June 30, 2000 $17,649
-------------------- ------------
June 30, 1999 $84,939
-------------------- ------------
10
In May of 2003, the Company entered into a lease agreement to rent space for the
office of Kjell Larsson, director of sales and marketing, as an accommodation.
The term of the lease is until April of 2005 and has a monthly lease expense of
$321. There was a deposit of $624 paid according to the requirements of the
lease. The added obligation to the Company is as follows:
------------ ----------
2003 - $2,247
------------ ----------
2004 - $3,852
------------ ----------
2005 - $1,284
------------ ----------
ITEM 3. LEGAL PROCEEDINGS
On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and Cinecom
Entertainment Group, Inc. filed a Complaint in the Superior Court for the State
of California, County of Los Angeles, captioned Credit Lyonnais Bank Nederland
N.V. and Cinecom Entertainment Group, Inc. v. Odyssey Distributors, Ltd. And
Does 1 through 100 (No. BC 127790). They allege that Odyssey Distributors,
Ltd.(a subsidiary of the Company) collected but failed to remit to them assigned
distribution proceeds in the amount of $566,283.33 from the foreign distribution
of "Aunt Julia and the Scriptwriter" and "The Handmaid's Tale." The Complaint
alleges claims for breach of contract and breach of fiduciary duty and demands
damages in excess of $566,283, attorney's fees, an accounting, a temporary
restraining order and a preliminary injunction. In June 1995, the Court denied
plaintiffs an attachment and stayed the action pending arbitration in New York.
In September, 1996, the Court dismissed the Complaint. In December, 1996, the
Company settled the outstanding litigation with Generale Bank ("Generale")
(formerly known as Credit Lyonnais Bank Nederland N.V.) and Cinecom
Entertainment Group Inc. Pursuant to the settlement agreement, the Company
agreed to pay to Generale the sum of $275,000 in complete settlement of the
claim, payable $25,000 upon execution of the settlement agreement, $25,000 on
each of June 30 and December 31 in the years 1997, 1998 and 1999, and $100,000
on June 30, 2000. 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
default of this payment schedule. The consequences of not curing a default could
result in 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, non-active 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.
11
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 the Court has denied plaintiff's motion for summary judgment. 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. The judgment, in the
meantime, has been assigned to an outside collection agency that has been in
contact with Management of Odyssey and Odyssey has made payments in keeping the
matter from accelerating. As of the close of business on June 30, 2003, the
outstanding balance remains at approximately $27,500 and is confirmed as an
active judgment.
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. As of the end June 30, 2003, there has been
no contact with the plaintiff and no indication of any activity.
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 Renato 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 Ninth Circuit upheld the lower
court's dismissal of this action on appeal. The case was refiled in California
state court in August 1998. The Court granted motions to dismiss two of the
complaints filed by the Plaintiff, whereupon a third complaint was filed. More
recently, a fourth amended complaint has been filed adding claims that the
defendants, including the Company, violated provisions of the California
Securities Laws. There was no trial date set in this matter. In a related
action, Thomas Smith and Norman Muller ("Muller-Smith") former directors of the
Company and co-defendants in the Pfannebecker matter, filed an action against
the Company in the Los Angeles Superior Court seeking indemnification from the
Company in connection with their status as defendants in the Pfannebecker
matter. The Company intends to defend this action on the grounds that
Muller-Smith committed wrongful acts as directors of the Company and failed to
comply with various fiduciary obligations to the Company. The Company has met on
several occasions, through its legal counsel, to discuss and answer certain
attempts at settlement. Due to the nature and complications of this suit,
matters have generally been very slow to receive response to. In June of 2002,
the Plaintiff, along with the defendants and Odyssey's Counsel, attended a
hearing on the merits of the Class Action Status.
12
The Judge ruled in favor of the defendants in that there were no grounds to
continue this case as a class action. Subsequently, Odyssey was able to receive
a dismissal of this case. Odyssey, at the same time, entered into settlement
discussions with respect to any claims of indemnification and settled
outstanding possible claims and potential cross claims to all remaining
co-defendants for a nominal amount of money, with the exception of Muller-Smith.
The Company attempted to further clarify its stand on its position with
Muller-Smith as earlier noted, however; these attempts were unsuccessful for the
Company. The Company attempted also to discuss settlement activity, and these
settlement discussions did fail. The Company was not able to provide an amicable
solution to this matter of indemnification and reimbursement of expense (claimed
to be in excess of $350,000) and Odyssey posed its defense against Muller-Smith,
knowing that the end result could be an entry of judgment in favor of
Muller-Smith. A judgment, if awarded, would contain all collection rights and
remedies available to the judgment holder. In April of 2003, the California
Court upheld the indemnification claim for Muller-Smith and declared a judgment
against Odyssey in the amount of $360,000, which was promptly filed in
California and domesticated in New York and in Texas as well. The Company met
with Muller-Smith on April 21and sought settlement discussions with
Muller-Smith. In a subsequent conversation on May 6, the Muller-Smith refused
the opportunity to continue settlement discussions. Muller-Smith notified the
Company that an additional $100,000 was owed against the same claim. This
increased amount was being sought (and later was granted) as an addition to the
judgment as well. Should the Company not be able to resolve this issue by either
making full payment or entering into an amicable and affordable settlement
arrangement, then the Company would be severely hampered in its ability to
adequately manage the operations. The Company would expect to experience
continued business interruption, collection efforts, garnishments, and defending
this situation without a resolve will take a substantial amount of the Company's
time and resources. The Company will need to seek alternate means of
capitalization in order to meet not only its operating payments but also
possible payments in settlement. There are certain remedies in the Company's
attempts to perhaps confront the judgment and render the judgment unenforceable.
These include, but may not me limited to, future possible discoveries, which may
or may not be determined as acts of wrongful or criminal intent against the
Company, fraudulent actions or similar wrongful activities. Presently there are
numerous activities surrounding this issue, such as depositions, claims and
collection activities.
The Screen Actors Guild ("SAG") has also asserted that there are amounts owing
to several actors arising out of "Down Range." In September, 1999, SAG obtained
an arbitration award against Down Range for a total amount of $96,183, inclusive
of salaries to the actors, pension and health contributions and late fees. Down
Range was also ordered to pay $200 to the arbitrator. 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 has not been resolved. There
has been no activity on this matter from any source or other assertions as of
the close of business on June 30, 2003.
Mr. Ian Jessel ("Jessel") entered into a three-year employment agreement with
the Company, commencing November 9, 1998 and continuing through November 9,
2001. Jessel's responsibilities included management of the Company's Motion
Picture & Television Division. Jessel's compensation was 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. The agreement also provided for a
yearly bonus based upon the net profits of the film division and the Company.
The Company paid the sum of $50,000 to Jessel in fiscal 1999 and deferred
payment of the balance of the compensation due to him. In June 1999, Jessel
notified the Company that he was suspending services to the Company for failure
to pay his compensation on a timely basis. The Company believes it was justified
in deferring certain payments due to Jessel. Jessel commenced an action against
the Company in November 1999 in the Los Angeles Superior Court, seeking the
salary and other benefits he claims he is entitled to under his three-year
employment agreement. The Company intends to vigorously defend the action on
several grounds, including Jessel's breach of his obligations under the
agreement. Discovery was ongoing in this matter and a trial date was set for
13
April 30, 2001. Amounts that could have been due to Jessel were reserved in
accrued wages as a contingent amount. In December of 2000, management requested
mediation talks to begin and had made efforts to settle the ongoing litigation
matters. A settlement had been reached and had been voted as accepted by the
Board. All settlement discussion and offers have been reserved and are within
the reserved amount(s). As of June 30, 2002, the company had made significant
payments towards the balance of the settlement. Subsequently, the company and
Jessel have made an arrangement for repayment of the balance of this debt.
Although a payment schedule has not been determined until the Company can, or is
able to, adhere to one, the parties have been working amicably to afford
payments on an "as available" basis and, from time to time, have issued certain
reports and updates in order to maintain constant contact with Jessel on the
activities within the Company. There is and remains a risk, however, that if the
sum total of the payment is not paid or satisfied, or becomes significantly past
due and if Jessel may cease to coordinate with the Company (or vice versa) then
there could be enforcement of an allowed judgment. The amount of this judgment
could be in excess of $375,000 plus interest accrued. If such - enforcement
would be acted upon, then all rights and remedies afforded to a judgment holder
shall become effective and expose the Company to the collection of said
judgment. In this case, the Company would face significant expense in attempting
to defend or protect the judgment from being filed and such an instance would
require substantial management time and cash from operations to accommodate such
an action.
Mr. Dennis Morgan ("Morgan") commenced an action against the Company in
December, 1999 in the Los Angeles Superior Court alleging that he was promised a
position as head of a music division to be established by the Company and that
such oral agreement was intended to be confirmed in writing but never was.
Morgan brought claims against the Company and others for the purported breach of
an oral agreement, purported breach of an implied agreement, fraud and
fraudulent conveyances. The Company has served written discovery and is awaiting
responses to interrogatories and the production of documents. The Company
contends that there was no employment relationship with, nor any monetary
commitments to, Morgan, and that it committed no breach or wrongdoing. A trial;
date was set for this matter. The parties began discussing settlement terms in
order to alleviate the costs of ongoing litigation. As of the end of June, 2001,
the Company entered into preliminary settlement and expects satisfy any
outstanding complaints. The company has made payments towards this settlement
and shall continue to pay on a promissory note basis. As of June 30, 2002, the
company had made payments towards the balance of the settlement. Subsequently,
the company and Morgan have made a payment arrangement, which involves a period
of time in structured payments. Although a payment schedule has not been
determined until the Company can, or is able to, adhere to one, the parties have
been working amicably to afford payments on an "as available" basis and, from
time to time, have issued certain reports and updates in order to maintain
constant contact with Morgan on the activities within the Company. In April of
2003, a judgment was filed in the State of California in favor of Morgan. The
amount of this judgment is $225,000 plus accrued interest, although an
agreed-upon arrangement exists indicating non-enforcement as long a progress is
being made on the outstanding debt. If enforcement of this judgment would be
acted upon, then all rights and remedies afforded to a judgment holder shall
become effective and expose Odyssey to the collection process of said judgment.
In this case, the Company would face significant expense in attempting to defend
or protect the judgment from being filed and such an instance would require
substantial management time and cash from operations and/or outside sources to
accommodate such an action.
A Lawsuit was filed in the State of New York Watson, Farley and Williams v.
Odyssey Pictures Corp., Gold Leaf Pictures, Belgium, Johan Schotte, Chardonnay
Enterprise Ltd, and A Hero From Zero N.V. Complaint filed April 30, 2001, New
York Supreme Court, New York County. The complaint states a balance owing for
services rendered from the period beginning 1997 through to April of 2000. The
notice of complaint was received on August 10, 2001. The Company has answered
this complaint denying its position in the named defendants. The Company
contends that it did, in fact, pay any and all outstanding related legal bills
related to the Plaintiff's corporate involvement. The Company did hire counsel
in New York and has made an attempt to offer a settlement on behalf of the
remaining defendants. No response has been made from the Plaintiff on this
matter as of the close of business on June 30, 2002 as well as June, 30, 2003.
14
There is a pending litigation from another law firm in Los Angeles, Arter &
Hadden LLP, which is from representation in the above suits prior to specific
counsel moving to another firm currently representing the Company in some
matters. It is the Company`s intention to pay or settle this amount as and when
it is economically feasible to do so. The amount due is $30,000. In February of
2002, a default judgment was entered in the matter and the Company is making
arrangements to make payments over a period of time. The judgment was
domesticated in Texas and there is a local collection attorney assigned to this
in Dallas, Texas and they are pursuing collection activity. The party has
accepted a monthly payment arrangement to be made, yet the Company had not made
any payments as of the end of June 30, 2003..
The Company is subject to other legal proceedings that arise in the ordinary
course of its business and from prior management activities. Other than that as
disclosed above, in the opinion of present management, the aggregate liability,
if any, with respect to these other actions will not materially adversely affect
our financial position, results of operations or cash flows.
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.
Changes in Securities and Use of Proceeds
In March of 2001 the Board of Directors approved a $5 million US dollar
denominated Senior Secured debt issue (the "Senior Debt") with convertible
rights to common stock at maturity and in certain circumstances (such as
bankruptcy and/or financial defaults on other significant debt). Reserves of
shares for the potential conversion have been made. The Senior Debt requires
that the company not pledge any significant assets and gives the bondholders a
pledge on the "Kimon Library" assets. The Senior Debt carries an 8% interest
rate and matures on April 15, 2006. The Senior Debt is not registered in the
United States and is only available to non-US citizens. The Trustee received the
first subscription on August 29, 2001 for $160,000. The funds after financing
expenses of $14,364 were used to pay off two loans of 4 million francs (previous
paragraph) and some rent expenses of an office recently closed in Luxembourg. A
previous officer used the remaining funds for claimed expenses. Odyssey was
pursuing additional subscriptions as of the end of business on June 30, 2002.
During 2003, it was determined through the investment firm of Thurn and Taxis
that the terms of the subscription does not allow for a renewal into the year
extension, therefore the offering is no longer valid in the European markets.
Defaults Upon Senior Securities
An interest payment due on April 12, 2002 was made by a third party therefore
the Senior Secured Bond is in compliance with its requirements. The company does
not have sufficient cash to make its next semi-annual payment and, therefore,
risks the Bond being placed in default. There were no payments made during the
course of fiscal 2003 and the bond is in default. The Company has sought
additional capital from its European sources to assist in renewal of the note or
bringing in an alternate source, or sources, for a long-term position.
15
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 Small Cap 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. The
bid quotations represent inter-dealer prices and do not include retail mark-ups,
markdowns or commissions and may not necessarily represent actual transactions.
Common Stock
--------------------------------------
Fiscal 2001 High Low
--------------------------------------
First Quarter $1.52 $1.09
Second Quarter 1.38 .50
Third Quarter 1.00 .34
Fourth Quarter .45 .33
--------------------------------------
--------------------------------------
Fiscal 2002 High Low
--------------------------------------
First Quarter $ .38 $ .15
Second Quarter .34 .10
Third Quarter .61 .31
Fourth Quarter .47 .12
--------------------------------------
--------------------------------------
Fiscal 2003 High Low
--------------------------------------
First Quarter $ .215 $ .05
Second Quarter .165 .04
Third Quarter .10 .06
Fourth Quarter .12 .12
--------------------------------------
As of June 30, 2003, there were approximately 13,696 record holders of the
Company's Common Stock. This includes approximately 20 identified stock
brokerage firms, which typically hold stock for multiple customers in their own,
or "street" name. Confidentiality laws do not allow the Company to inquire on
actual numbers of customers held by these firms.
16
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,
2003 2002 2001
Income Statement Data ======= ====== =======
Revenues $ 66 $ 167 $ 4
Income(loss) from continuing operations (728) (542) (1,449)
Income(loss) from discontinued operations (1,124) (1,378) --
Net income (loss) (1,852) (1,920) (1,449)
Per Share Data*
Income(loss) from continuing operations (.026) (.024) (.08)
Income(loss) from discontinued operations (.041) (.066) --
Net income (loss) (.07) (.09) (.08)
Cash dividends -- -- --
Weighted average shares 27,579 22,540 17,214
Balance Sheet Data
Film costs 3,190 3,638 3,923
Total assets 4,275 4,921 5,796
Indebtedness 4,829 3,725 3,743
Shareholders' equity ( 554) 1,196 2,053
NOTE: Per share data and weighted average shares for all periods have been
restated to reflect the effect of a one-for-six reverse stock split in March
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Results of Operations for the Years Ended June 30, 2003, 2002 and 2001
Net loss for the year ended June 30, 2003 was due mainly to the fact that the
Company did not release any new films nor receive any income from its
investments through its subsidiary, and the Company wrote down significantly
most of its investments in and to affiliated entities from prior activities as
well as accruing for additional unusual expenses. This activity is the result of
management's change in the operations to form a more cohesive selling group and
in determining the true valuations according to the revenue sources that we are
attempting to generate as an overall Company and "focused industry" guideline.
In the past, the Company was fairly extended in areas that were not necessarily
its expertise and current management has sought to engage a more traditional
approach to the markets of selling, broadcast, and relying on its content,
rather than outside investments, to coordinate its sales efforts.
Revenues for the twelve months ended June 30, 2003 decreased to $65,636 compared
to $168,615 for the twelve months ended June 30, 2002 and $3,706 for the period
ending June 30, 2001. Primarily, this was the first results of the selling and
licensing of its library of films and in reviving some of its contacts from the
prior activity of distribution. At the end of June 30, 2003, the Company had
several new films ready to be made available for delivery during the first two
quarters of the new fiscal year. These new films came from independent sources
with which the Company and new management had made arrangements. Although there
17
are other film properties that the Company reviews and has in process, newer
productions for possible recognition into the Company's markets are harder to
determine due to factors beyond the Company's control. The factors are mainly
due to the independent market being in an economic slowdown and the shortage of
capital the Company has with which to perhaps negotiate for the acquisition of
higher profile properties. The Company is in post-production for several more
film projects recently acquired and it expected to have these available late in
the coming year (2004). The Company has an advantage, through a captive vendor,
(JL Media Services LLC) to allow for the post-production services to be used as
a method of acquiring films for little or no money as an advance. The Company
uses the services of the vendor to afford the completion of films that may need
such work in exchange for the international (or all worldwide) rights in selling
the product for a fee. New marketing from present management, specifically, the
attendance at new festivals and markets and the additional tools of promoting
through its Internet site (www.odysseypix.com), has been hampered due to the
market conditions and the extensive time it is taking to revive the buyer base
for the Company and distribute quality product as well as gain confidence from
buyers in consistent service.
Costs related to the revenues decreased to $ 14,615 for the twelve months ended
June 30, 2003 as compared to $106,050 for the twelve months ended June 30, 2002
and $152,953 for the same period ending Jun 30, 2001. The relative decrease in
costs are primarily related to reclassification of depreciation costs associated
with the earlier acquisition of the Kimon library and Hallmark film assets. In
the past, and after the transaction with Kimon was completed, all depreciation
costs were listed under "Cost of Goods". This was recorded properly if there was
revenue to be recognized along with such depreciation treatment. According to
the latest account rules as governed in revenue recognition and costs related
thereof, Assets are depreciated, as opposed to expensed, if they are expected to
generate value over a period of more than one year. The fact that there was less
revenue than expected or calculated or no revenue recognized from the Kimon
assets after purchase, the transaction as a whole, would be treated more as an
inventory item and therefore resulted in a depreciation, which should be
recorded within operations as an expense rather than a cost item. Additionally,
the acquisition of the Kimon asset resulted in the acquisition of Filmzone.com,
(a domain name for the web-site which will add to the Company's efforts in
selling and marketing) which also is a depreciation item to be included in
expense. Although this did not materially affect the overall asset of the Kimon
Library, a re-evaluation could occur and in the event that there is substantial
concern over the ability to generate revenue from this asset, further
write-downs may occur.
Selling, general and administrative expenses increased by $174,763 to $ 779,289
for the twelve-month period ended June 30, 2003 from $ 604,526 for the
comparable period ending June 30, 2002. For the period ending June 30, 2001, the
same expenses were 663,364. This increase is primarily due to the Company
experiencing high legal costs in defense and corporate cleanup work underway as
well as experiencing the added cost of work in progress and production needs for
finalizing films and making them ready to market. The Company has reduced its
travel related expenses as well as other corporate overheads in the outside
leases and expenses. In addition the Company continues to have to hire on a
contract basis several necessary companies and/or individuals to assist in
various markets, marketing and sales needs as well as to hire advisors on a part
time basis due to its limited litigation expertise. Since the change in
management control in July of 2001, new management has undertaken several steps
to reverse unfavorable results. The company developed a recapitalization program
with certain members of its board and also received assistance from current
shareholders. The Company was able to license several feature film products and
has entered into an arrangement with selling agencies to assist in its marketing
efforts for the international territories. In addition, the company has
developed relationships whereby it will be able to add to sales efforts in the
North American markets of Video and DVD sales on a direct basis. The Company has
also engaged one of its Board members, and has developed active participation
from some strategic alliances, to further assist in its future performance.
18
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.
The auditors' report on these financial statements contains an explanatory
paragraph indicating there is substantial doubt about our ability to continue as
a going concern. The Company relies heavily on its added interim loans, capital
contributions and increased equity placements from its current, and new,
shareholders. In addition, the Company continues its attempt to secure
additional funding through a variety of opportunities and is currently engaging
in negotiations to secure such funds. The Company cannot make assurances that it
will be successful in doing adding to its working capital to meet its
expenditure needs and service of its debts. There are no lines of credit
available to the Company. The Company cannot make assurances that additional
funds will be available from any of these sources on favorable terms, if at all.
At June 30, 2003, the Company held approximately $948 of cash.
Recent rulings require the Company to disclose certain off-balance sheet
transactions, contingencies and related debts. Section 401(a) of the
Sarbanes-Oxley Act requires public companies to disclose in the annual financial
reports, all material off-balance sheet transactions, arrangements, obligations
(including contingent obligations) and other relationships or with
unconsolidated entities or persons that may have a material current or future
effect on one or more of the company's financial measures. This disclosure is
required for filings for fiscal years ending on or after June 15, 2003. In
addition, companies are required to disclose (as of December 2003) a tabular
format depicting the relative obligations (as defined in FASB #45 and pursuant
to FIN 45) which encompasses a) contingent requirements by the Company, b)
guaranty against another entity's failure to perform, c) indemnification
agreement or indemnified parties, e) providing security to an indemnified party.
These disclosures are regardless of whether they appear as recordings of or on
the financial statements. The Company has decided to adopt the tabular method of
recording said disclosure effective as of June 30, 2003 and its presentation is
as follows:
TABLE OF CONTRACTUAL OBLIGATIONS AND DISCLOSURE
Account Description Total Less than 1 1-3 Years 3-5 Years More
Year than 5
- ----------------------------------- ------------- ---------------- --------------- ---------- ----------
Structured Payment Obligations 544,922 90,000 454,922 - -
Secured and Affiliate Obligations 375,148 160,000 215,148 - -
Obligations to Leased Premises 132,924 - 132,924 - -
MG Obligations 230,584 - 230,584 - -
Notes and Loan Obligations 1,260,412 1,160,412 100,000 - -
Accrued Salaries and Contract
Obligations 433,922 433,992 - - -
Other Term Liabilities Reflected
on the Balance Sheet 404,626 - 404,626 - -
Other Contingencies Not Reflected
on the Balance Sheet 515,000 515,000 - - -
19
In the past fiscal year, management has taken steps to fund the Company's
operations primarily through private placements of the Company's common stock
with investors in US and Europe. The Company also received financial support
from another company (JL Media Services LLC, an affiliate of an officer, John
Foster) in offsets to overheads and interim loans, which are secured by the
Company's assets. The Company continues to structure future capital plans and
has active offers from other outside investment groups, investor resources and
individuals who will assist in the financial support for growth and in its
efforts to regain market awareness. The Company has made progress in obtaining
additional funds, but does have a significant requirement for further outside
funds in order to retire its debts and potential contingencies as noted herein.
The Company faces extreme difficulties on acquiring additional funds at a time
when it is also attempting to gain revenue from its present and past assets. In
addition, economic conditions in the overall entertainment markets in which the
Company is exposed to (the Independent Markets) involve significant issues that
create added timing to get to market, preparation of product, acceptance by
International and Domestic buyers, and timely payment from those buyers. It is
uncertain the economy's recovery from the downturn that began in calendar 2001
and continues at present and the demand for our services and product will result
in "ready cash" being available in the future. Without added financing through
equity and/or debt, the Company is at risk in maintaining its day-to-day
existence as well as affording its plans for market entry of its product and
timely delivery. There can be no assurance that we would be able to obtain
financing or that such financing would be available on terms acceptable to us.
Should financing from outside sources not become available on an acceptable
level, there could be adverse conditions, which the Company will experience.
These include possible work stoppage, inability to operate on a consistent
level, and possibly resulting in further aggressive attempts from others in
litigation processes to make attempts to collect against the assets of the
Company.
During the period between April, 1999 and September, 1999, the Company completed
four private placements to offshore investors, the first of which was completed
for 575,000 shares of common stock at a purchase price of $.30 per share
(resulting in gross proceeds to the Company of $172,500), and the latter three
of which were completed for an aggregate of 1,600,000 shares of common stock at
a purchase of $.40 per share (resulting in gross proceeds to the Company of
$400,000). During the period between September, 1999 and October, 2000, the
Company completed two series of private placements to offshore investors, the
first of which was completed for an aggregate of 3,000,000 shares of common
stock at a purchase price of 40 cents per share (resulting in gross proceeds to
the Company of $1,200,000), and the second of which was completed for an
aggregate of 960,000 shares of common stock at a purchase price of $1.00 per
share (resulting in gross proceeds to the Company of $960,000). During the
period between October, 2001 and June 2002, the Company completed a series of
private placements to both offshore and US investors. These placements netted
capital to the company in the amount of $916,000 at a range of share pricing
from 25 to 07 cents per share.
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. The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern and,
therefore, has the ability to manage the recovery of its assets and satisfy its
liabilities in the normal course of its continued operation.
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. There have been no changes to the accountants of the company for the
period ended June 30, 2002. The board of the company did elect an audit
committee, as required under the new standard, and has elected to maintain the
same relationship as in the past. The new standard was adopted on April 1, 2002
and did not have a significant effect on the Company. As if the close of
business on June 30, 2003, there were no disagreement or conflicts with the
accountants.
20
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
- ------------------- --- --------
John W. Foster 50 Director, Chairman of the Board and
CEO/President
Patrick Speeckaert 56 Director, Compensation Committee,
Audit committee
Peter Bucher 61 Director
Kjell Larsson 50 Director, Compensation Committee,
Audit Committee, Sales
Set forth below is information regarding the business experience of the current
Directors and executive officers of the Company.
John Foster has been an independent financial consultant and analyst
specializing in turnaround situations and management restructuring in specific
industries including the entertainment and communications industry. He has
extensive background in information systems and data processing, and worked as a
consultant and investment advisor in determining strategies of financing and
investments in motion picture projects for investors, distributors and
producers. Mr. Foster served as interim President of the Company from January
2000 through June 2000, and was formally working in the position of President
from that time. His contract was extended through 2002 and 2003, and he is
currently serving as Chairman, President and CEO of the Company effective July
1, 2001 to present.
Patrick Speeckaert has served as Managing Director of Morrow & Co., Inc. of New
York, a leading company specializing in advising international corporations with
respect to issues involving corporate governance, shareholder relations and
solicitations, until 2003. Recently, Mr. Speeckaert became the President and
Chairman of OOJob America Inc. OOJob, based in New Canaan, Connecticut, is a
ten-year old European company specializing in computerized behavior and
professional assessments. Clients include large banks, retailers, manufacturers,
government and employment agencies.
Mr. Peter Bucher is an independent corporate investment advisor and consultant
based in Switzerland. His career in banking since the early 1960's includes
relationships with the Swiss Banking Association. He is currently active in his
community as political leader and maintains his business in investment banking
on a full time basis.
Mr. Kjell Larsson is based in Florida and has been involved with the film
industry for over twenty years. Mr. Larsson has produced and sold in all facets
of the film business and is also a shareholder of Odyssey Pictures through his
company, Kemp Entertainment. In 1972. Mr. Larsson pursued a technical career
receiving a Technical Engineer's Degree in Sweden and later, in his capacity of
sales and marketing, created one of the first video retail chains in the
Scandinavian Market, which resulted in the Presidency of the Swedish division of
Scanbox A/S, a major film and video distribution company in the Scandinavian
market. Serving as producer and co-producer of several feature films, Mr.
Larsson has significant background in developing a film project from start to
finish, including financing, budgeting and production. Mr. Larsson relocated to
Palm Coast, Florida in 1993. He also served as President of TigerNetOrder, Inc.,
an Internet facilitator specializing in E-Trade and Web Stores.
Meetings and Committees of the Board of Directors:
For the fiscal year ended June 30, 2003, there were seven meetings and/or
written consents in lieu of meetings of the Board of Directors. All Directors
attended or consented to in excess of 75% of the meetings (and consents in lieu
of meetings) of the Board of Directors during said fiscal year. The Board of
Directors does presently have, audit and compensation committees, as recently
required.
21
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,
2003, the Company's officers, directors and greater than 10% stockholders
complied with all filing requirements under section 16(a) except that Mr. Foster
did not file Form 3 Reports.
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, the
only compensated executive officer- as of June 30, 2003. Other significant
employees would not be required to be included in the table due to the fact that
such employees were not executive officers of the Company at the end of the most
recently completed fiscal year:
Summary Compensation Table
Annual Compensation
---------------------------------------- Long-Term Securities
Name and Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
-------- ---- ------ ----- ------------ ------- ------------
John Foster 2003 185,220 -- -- -- --
President /CEO 2002 176,400 -- -- -- --
2001 156,000 -- -- -- --
2000 49,250 -- -- -- 12,312
Options/Stock Appreciation Rights:
There were no issues with respect to stock options and stock appreciation rights
("SARs") granted to executive officers during the fiscal year ended June 30,
2003, nor in 2002, or 2001.
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
Note: No bonus has been paid or distributed in the past four quarters of fiscal
2003 or fiscal 2002.
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. In the period ending 2000, each Board
Member received 2000 shares of Common Stock in consideration for their
participation. There have been no other distributions of Stock to the Board
Members as of the end of June 30, 2003 and the same periods ending June 30, 2002
and 2001.
22
Compensation Agreements, Termination of Employment and Change-in-Control
Arrangements:
In March, 1998, Mr. Stephen Greenwald stepped down as CEO of the Company in
connection with a change in management control of the Company. In connection
with such change of management, Mr. Greenwald terminated his existing employment
agreement and entered into a new compensation arrangement with the Company. Mr.
Greenwald agreed to serve as managing director of the Company through December
31, 1999, and was 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 was to receive an additional $130,000, also
payable in varying monthly amounts during the two-year period ending December
31, 1999. In September, 1999, Mr. Greenwald resigned as a Director of the
Company to pursue other interests. He also agreed to settle all outstanding
payments due to him under his employment agreement, and to resign as a Managing
Director of the Company, in consideration of receiving a settlement payment of
$100,000, together with 200,000 shares of restricted common stock.
In connection with the change in management control of the Company in March,
1998, Mr. Ira Smith, a former officer and director of the Company (through
S.F.H. Associates, Inc.), agreed to serve in a consulting capacity to the
Company for the period beginning in March, 1998 through December 31, 1999.
Pursuant to such consulting agreement, Mr. Smith's consulting company was
entitled to receive the sum of $160,000 during such period, payable at the rate
of $8,000 per month, commencing May, 1998. In addition, in consideration of
terminating his then existing employment agreement with the Company, Mr. Smith
was entitled to receive an additional $100,000, payable in varying monthly
amounts during the term of the consulting agreement. Following a default by the
Company under the consulting agreement, Mr. Smith agreed to terminate his
consulting agreement with the Company in consideration of receiving a settlement
payment of $100,000, together with 200,000 shares of restricted common stock.
In connection with the change of control in the Company in March, 1998, 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 was fixed 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. The agreement with Mr. Schotte was extended for
an additional period of one year at the rate of $250,000 per year, and the
agreement with Mr. Koshakji was extended for a period of six months at the rate
of $5,000 per month. As of June 30, 2000, a substantial portion of the
compensation due to Messrs. Smith and Koshakji under their respective agreements
was past due for the period from January 1, 1998 through the fiscal year ended
June 30, 2000. Mr. Koshakji resigned his position as President of the Company on
September 30, 2000.
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 balances of these notes
were converted into 176,050 shares of common stock in October, 1998.
23
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. Messrs. Schotte and Koshakji each waived their right to receive a
warrant bonus for the fiscal year commencing July 1, 1999.
(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. No performance bonuses have been awarded under this plan.
(III)Market Cap Bonus: At the end of each fiscal year, beginning with the
fiscal year commencing July 1, 1998, 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.
Messrs. Schotte and Koshakji each waived their right to receive a market cap
bonus for the fiscal years commencing July 1, 1999 and July 1, 2000.
John Foster served as interim President of the Company from January, 2000
through June, 2000 at the rate of $9,850 per month. In July 2000, he became
President of the Company and agreed to a one-year extension of his agreement at
the rate of $12,000 per month, plus allowances, plus a 5% increase in salary on
an annual basis until otherwise contracted. There was no stock or stock
incentive arrangement included. In July of 2001, Mr. Foster continued as
President and was voted as Chairman and CEO by the Board of Directors. He
received a pay increase to $14,700 per month and his contract was extended
through June 30, 2002, with a 5% increase beginning July 1, 2002 through to June
30, 2003. A significant amount of Mr. Foster's salary has gone unpaid and
remains payable by the Company as of the end of June 30, 2003.
Compensation Committee Report and Compensation Committee Interlocks and Insider
Participation
The entire Board of Directors determines executive officer compensation.
Subsequent to the period ending June 30, 2002, the Board had appointed a
separate compensation committee to determine or set future 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.
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information concerning ownership of common stock,
as of September 25, 2000, by each person known by the Company to be the
beneficial owner of more than 5% of the common stock, each director and
executive officer, and by all directors and executive officers of the Company as
a group.
- --------------------------------------------------------------------------------
Name of Status Shares Percentage of
Beneficial Owner Beneficially Owned Class
================================================================================
Patrick Speeckaert Director 2,000 Less than 1%
John Foster Director, 2,000 Less than 1%
President/CEO
Kjell Larsson Director 1,518,055 4.7%
Peter Bucher Director -0- -0-
- --------------------------------------------------------------------------------
All Executive Officers
& Directors As
A Group (4 Persons) 1,522,055 4.7%
================================================================================
ITEM 13. CERTAIN RELATIONSHIPS, RELATED AND SUBSEQUENT TRANSACTIONS.
In September 2002, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue 02-15, which addressed the accounting for convertible debt for equity
exchanges. The EITF concluded that transactions where equity is used as payment
for debt conversions should be accounted for as induced conversions in
accordance with SFAS 84. SFAS 84 requires a non-cash charge to earnings for the
implied value of an inducement to convert from convertible debt to common equity
securities of the issuer. The accounting is to be applied prospectively for
convertible debt for equity exchanges completed after September 11, 2002, the
date of the EITF's consensus. We have applied the provisions of SFAS 84 to
convertible debt for equity exchanges transaction completed during the fourth
quarter, and all transactions have been expensed properly, with no material
changes from prior reporting periods.
In April, 1997, Robert E. Miller, Jr. (who resigned as a Director during the
fiscal year ended June 30, 2000) made a loan to the Company in the amounts of
$25,000. The 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 the loan, the lender received a five-year warrant to
purchase 25,000 shares of common stock of the Company, exercisable at $1.00 per
share. Mr. Miller agreed to a rollover of his loan to be paid from the proceeds
of a second Kinnevik receivable due in September 1998. In consideration of the
rollover, Mr. Miller received 12,500 warrants, exercisable over a five-year
period at $1.00 per share. Mr. Miller's loan was rolled over for a subsequent
six-month period on an unsecured basis with interest at the rate of 10% per
annum. Mr. Miller thereafter agreed to another six-month rollover (through
September, 1999), in consideration of which he received an additional 12,500
warrants exercisable over a five-year period at $1.00 per share, an increase in
the interest rate on his loan to 12% per annum, and an extension on the
expiration date of all warrants issued in connection with his loan to the year
2004. In December 1999, Mr. Miller converted his $25,000 loan into 57,876 shares
of common stock of the Company at a conversion price of approximately $.43 per
share. The "per share" price was based upon a formula of a predetermined and
mutually agreed-upon discount to the market and was expensed in interest during
that period, as well as credited from short-term notes during that same period.
25
In June, 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 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.). The loan is currently outstanding.
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 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 29,540 five-year
warrants have been issued to Media Trust, S.A. with exercise prices ranging from
$.38 per share to $.98 per share. The $2,500 loan to Media Trust S.A. was
outstanding as of June 30, 2001 along with the reconciliation of commissions, if
any, which may have been due to Media Trust. As of June 30, 2002, the company
has offset certain receivables to any outstanding balances, except for the fact
that there are four unsecured promissory notes that, although they are with
individuals directly, have been booked under `notes payable' Media Trust.
There was no activity with respect to the amounts left outstanding and owing to
the Company, in fiscal 2003, other than a request for reimbursement of
outstanding amounts owed to the Company. As of the close of business on June 30,
2003, there were amiable discussions underway as to the positive outcome of
these amounts being recovered.
During the fiscal year ended June 30, 2000, Mr. Koshakji loaned the Company
approximately $2,500, with such loan bearing interest at the rate of 18% per
annum (the same interest rate being charged to Mr. Koshakji for such funds).
In April, 1999, the Company purchased a refundable option for $60,000 to be the
exclusive worldwide distributor of a motion picture entitled "HARA." The film is
an action martial arts love story and was expected to start pre-production in
January, 2001. Former Management of the Company owns an indirect 50% equity
interest in Red Sun Productions, Inc., a production company, which owns all
rights to the film "HARA." As was mentioned earlier (Subsidiary Operations,
Development April 1999). The determination of the disposition of this advance
has not been decided upon as of the close of business on June 30, 2002 although
the Company wishes to seek its refund on any outstanding advances in general. As
mentioned earlier herein, the Company wrote off the entire balance as of the end
June 30, 2003.
Commencing in January of 2000, the Company accrued rent expense at the rate of
$1,000 per month for the use of office space in Luxembourg, which is owned by
Media Trust, S.A, a company affiliated with Mr. Schotte, the former CEO and
Chairman of the Company. As of June 30, 2002, there are no outstanding balances
owed in relation to this rent expense and the company has no further agreement
for lease of rental space under this former arrangement.
In February 2000, the maturity date of 500,000 common stock purchase warrants
held by Lecoutere Finance S.A. (an affiliate of Mr. Schotte) was extended for an
additional seven-year period through February 25, 2007. The warrants were
originally issued to Mr. Schotte and other investors in February, 1997 in
connection with a capital investment in the Company of $375,000. The warrants
were originally scheduled to expire on February 25, 2000. At the time of the
original investment, Mr. Schotte was not affiliated with the Company. The
warrants will continue to have the same exercise price of $1.06 per share.
26
In April of 2001, the Company's subsidiary, Odyssey Ventures Online Holding S.A.
formulated a subscription document in Luxembourg, specific to non-US investors
in seeking a capital amount totaling 5.0 million US Dollars. As of the close of
business on June 30, 2001, there were no subscribers or participants in the
subscription document and non were expected to participate in the near future.
As of the end of June 30, 2003 the subscription agreement has expired and there
is no further activity planned on this issue.
In May of 2001, management entered into discussion regarding the possible
restructure of the present management for and in consideration of certain
adjustments to the operational direction of company. It is contemplated that
certain assets and liabilities would be taken over by Mr. Schotte in an effort
to streamline the debts of Odyssey and the directions of its subsidiary, Odyssey
Ventures Online Holding S.A. During such a transition, Mr. Schotte would step
down as an employee of the Corporation to manage the subsidiary. The intention
would be to transact the eventual purchase or split of the subsidiary for
certain consideration. Such a transaction would be noted in forthcoming
quarterly reports, if approved and enacted upon. This transition would place Mr.
Foster in the position of CEO and Chairman of the Board. The Board has scheduled
such a meeting to occur on or before the end of November 2001. On July 6th of
2001, the Board voted on the assignment of Mr. Foster to CEO and Chairman of the
Board of Odyssey Pictures Corporation. Mr. Schotte resigned as CEO and Chairman
and was appointed the position of Executive Vice Chairman on the Board. This
change was due to the approved transition by the Board for the further growth
plans of Odyssey.
During the past two years, the president and CEO as well as certain parties,
including shareholders and entities, have made advances to the Company. These
advances are interest bearing and were made to the Company for working capital
purposes. These advances are included in due to related party transactions,
affiliates and notes payable in the accompanying financial statements. Also
included in these amounts were unpaid salaries and wages, net of advances, made
to the CEO of the Company.
ITEM 14. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
our management, including the chief executive officer, or CEO, and chief
financial officer, or CFO, of the effectiveness of the design and operation of
our disclosure procedures. Based on that evaluation, our management, including
the CEO and CFO, concluded that our disclosure controls and procedures were
effective as of June 30, 2003. There have been no significant changes in our
internal control over financial reporting during the 2002 calendar year that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
27
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 10-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)
10.01 1989 Long Term Incentive Plan (1)
10.02 Sub-Lease for office premises at 16910 Dallas Parkway, Suite 104, Dallas
Texas dated February 1, 2001 (8)
10.03 Settlement Agreement and Release between Paramount Pictures Corporation
and Odyssey Distributors, Ltd. (a wholly owned subsidiary of the Company),
and Guarantee agreement of the Company, each dated as of September 26, 1996
(9)
10.04 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)
10.05 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 Mediaright KB,a
Swedish limited partnership, dated July 14, 1998 (10)
10.33 Employment Agreement with Pierre Koshakji, dated March 2, 1998 (11)
10.34 Employment Agreement with Ian Jessel, dated December, 1998 (13)
10.35 Settlement Agreement with Stephen Greenwald, dated September, 1999 (13)
21.1 Subsidiaries of the Registrant (3)
28
- --------------------------------------------
(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) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended June 30, 1998, File No. 0-18954
(13) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the Fiscal Year Ended June 30, 1999, File No. 0-18954
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the last quarter of the
period covered by this Report.
(c) See (a)(3) above.
(d) None
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ODYSSEY PICTURES CORPORATION
Dated: October 14, 2003 by: /s/ John W. Foster
------------------------------
John W. Foster,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated have signed this report below.
/s/ John W. Foster
- -------------------------
John W. Foster
CEO, Chairman and President
/s/ Kjell Larsson
- ------------------------
Kjell Larsson
Director
/s/ Patrick Speeckaert
- ------------------------
Patrick Speeckaert
Director
/s/ Peter Bucher
- -------------------------
Peter Bucher
Director
30
Want & Ender CPA, P.C.
386 Park Ave. South Suite 1816
New York, NY. 10016
Report of Independent Accountants
To the board of directors and Shareholders of Odyssey Pictures Corporation:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statement of operations, shareholders' equity and of cash flows
present fairly, in all respects, the financial position of Odyssey Pictures
Corporation and its subsidiaries at June 30, 2003, 2002 and 2001 and the results
of their operations and their cash flows for the periods ended June 30, 2003,
2002 and 2001 in conformity with generally accepted accounting principals. These
financial statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principals used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The company is a defendant in various lawsuits. The company has filed
counteractions and preliminary hearings and discovery proceedings on several
actions are in progress. The ultimate outcome of the litigation cannot be
determined at present. Most liabilities that may result upon adjudication have
been accrued in the accompanying financial statements. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in note 3 to the financial statements, the
Company has suffered recurring losses from operations, as a net capital
deficiency and has insufficient working capital to meet its current obligations
and liquidity needs. The factors raise substantial doubt about the company's
ability to continue as a going concern managements plans in regard to these
matters are also described in note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
New York City, New York
/s/ Want & Ender, CPA
- ----------------------------
Want & Ender, CPA, P.C.
November 1, 2002
F-1
Odyssey Pictures Corporation
Consolidated Balance Sheet
Assets
June 30, 2003 June 30, 2002
=============== ==============
Cash $ 948 3,675
Account Receivable (Net of allowances of 58,415 and -0- ) 229,326 267,587
Advances in Films and Ventures 108,151 56,900
Other Assets, Prepaids and Deposits 100,142 166,500
--------------- --------------
Total Current Assets 438,568 494,662
--------------- --------------
Film Properties
Filmzone, Hallmark and Kimon Assets 4,055,318 4,311,024
Amortization and Depreciation (865,302) (474,322)
--------------- --------------
Total Film Properties 3,190,016 3,836,702
--------------- --------------
Other Assets
Production in Progress 61,533 4,500
Affiliates and Subsidiaries 584,916 584,916
--------------- --------------
Total Other Assets 646,448 589,416
--------------- --------------
Total Assets 4,275,032 4,920,780
=============== ==============
Liabilities
Current Liabilities
Accounts Payable 1,187,416 890,037
Structured Payments and Other Payables 717,776 503,910
Accrued Interest Accumulated 240,821 228,021
Deposits and Other 235,584 235,584
Other Accrued Liabilities and Reserves 419,265 360,733
--------------- --------------
Total Current Liabilities 2,800,861 2,218,285
--------------- --------------
Other Liabilities
Short Term Loans 113,462 45,000
Other Notes Payable 1,188,950 1,118,851
Contract Liabilties 625,515 343,151
Long Term Debt 100,000 -
--------------- --------------
Total Other Liabilities 2,027,926 1,507,002
--------------- --------------
Total Liabilities 4,828,788 3,725,287
=============== ==============
Shareholders' Equity
Preferred Stock, par value .10, Authorized 10,000,000 shares
- -
Preferred Stock, Series B, par value .10, Authorized 10,000,000 shares
- -
Common stock, par value $.01; Authorized 40,000,000 shares.
Issued and outstanding (net of treasury shares), 32,4323,938 28,033,70298,038
Accumulated deficit (35,700,284) (33,780,164)
Capital in excess of par value 36,674,843 36,597,743
Current net income (1,852,253) (1,920,123)
--------------- --------------
Total shareholders' equity (deficit) (553,756) 1,195,494
--------------- --------------
Total Liabilities and Shareholders' Equity (Deficit) 4,275,032 4,920,781
=============== ==============
The accompanying notes are an integral part of these financial statements
F-2
Odyssey Pictures Corporation
Consolidated Statements of Operations
For the Years Ended June 30,
2003 2002 2001
============== ============== ==============
Revenue $ 65,636 $168,615 $3,706
Expenses
Costs related to revenues 14,615 106,050 152,953
Officers salaries and expense 185,220 271,839 156,763
Selling, general and administrative expenses 594,069 257,687 506,601
-------------- -------------- --------------
793,904 635,576 816,317
-------------- -------------- --------------
Operating income (loss) (728,268) (466,961) (812,610)
============== ============== ==============
Other income (expenses)
Litigation settlements and legal fees (127,209) (126,789) (471,236)
Amortization Expense (390,980) (75,000) (49,380)
Reserves for losses on investments (322,706) (709,222) -
Financing fees (8,834) (384,127) (38,148)
Interest income - 138 12,001
Interest expense (274,256) (158,070) (68,776)
Foreign Currency translations - (92) -
-------------- -------------- --------------
Income (loss) from operations
before provision for income taxes (1,852,253) (1,920,123) (1,428,150)
Provision / Benefit for income taxes
NET INCOME (LOSS) $ (1,852,253) $ (1,920,123) $ (1,428,150)
============== ============== ==============
Basic income (loss) per share (0.07) (0.09) (0.08)
Weighted average common shares outstanding 27,578,560 22,540,417 17,213,988
============== ============== ==============
Diluted income (loss) per share (0.07) (0.09) (0.08)
Weighted average common shares outstanding 27,578,560 22,540,417 17,213,988
============== ============== ==============
The accompanying notes are an integral part of these financial statements
F-3
Odyssey Pictures Corporation
Consolidated Statements of Cash Flows
For the Years Ended June 30,
2003 2002 2001
---------------- ---------------- ---------------
Cash Flows From Operating Activities:
Net income (loss) (1,852,253) $ (1,920,123) $ (1,448,758)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization of film costs 390,980 102,695 107,664
Additions to film costs - 182,814 -
Other depreciation and amortization - 75,000 27,080
Issuance of shares of common stock in consideration for services rendered - 144,000 -
Changes in assets and liabilities:
Accounts receivable, net (29,254) (184,681) 116,627
Allowances for doubtful accounts 58,415 - -
Notes receivable and advances 9,100 112,682
Prepaid expenses and other and affiliate accounts 361,703 (12,500) 40,200
Accounts payable, accrued expenses and deposits 566,356 (7,999) 400,448
Structured payments and accrued management contracts 260,354 (103,658) (631,002)
Accrued interest 12,800 1,607 -
---------------- ---------------- ---------------
Net cash used in operating activities (221,799) (1,610,163) (1,387,740)
---------------- ---------------- ---------------
Cash Flows From Investing Activities:
Acquisition of fixed assets, production or distribution advances (35,635) (19,419) -
Subsidiary Activity (including reserves for losses) (76,649) 601,917 (179,668)
---------------- ---------------- ---------------
Net cash used in investing activities (112,284) 582,498 (179,668)
---------------- ---------------- ---------------
Cash Flows From Financing Activities:
Net proceeds from private placement sale of common stock
(excluding stock issued for services) 128,000 916,000 405,000
Net proceeds/payments - notes and loans payable 203,358 113,177 1,133,356
---------------- ---------------- ---------------
Net cash provided by financing activities 331,358 1,029,177 1,538,356
---------------- ---------------- ---------------
Net increase (decrease) in cash (2,726) 1,512 (29,052)
Cash at beginning of period 3,674 2,162 31,214
---------------- ---------------- ---------------
Cash at end of period 948 $ 3,674 $ 2,162
================ ================ ===============
The accompanying notes are an integral part of these financial statements
F-4
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
All schedules have been omitted because the requested information is not
required, or, because the information required is included in the financial
statements or notes thereto.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Continuation of the Company as a going
concern is dependent upon whether the Company will be able to raise enough funds
for its operations. If the Company is unable to obtain new funding, the
company's operations may be materially affected. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Risks and Uncertainties:
As is inherent in the Company's business, there are many and varying risks and
uncertainties. This is including the Company's limited abilities to generate
profitability over the past several years, its unproven business model and the
many changes that have been experienced in the foreign markets (as to buying and
government-imposed limitations, along with the changes in foreign demand for the
company's product), the Company has to depend on various alternatives that may
be presently unknown in nature. The Company's success will depend upon the
resurgence of the independent product, its ability to expand into other areas of
distribution (such an CD recordings, DVD's and Video markets) and other methods
of broadcast (such as Cable, secure internet access, direct satellite
transmission) and whatever may be or become available to independents during the
course of future business.
b. Reclassifications:
Certain items in the 2002 and 2001 financial statements have been
reclassified to conform to the 2003 presentation.
c. The application of the following accounting policies, which are
important to our financial position and results of operations,
requires significant judgments and estimates on the part of
management. For a summary of all of our accounting policies, including
the accounting policies discussed below, see note 2 to our audited
consolidated financial statements.
d. Generally Accepted Accounting Principles. Our consolidated financial
statements have been prepared in accordance with GAAP.
e. Accounting for Motion Pictures and Television Programs. In June 2000,
the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position 00-2
"Accounting by Producers or Distributors of Films" ("SoP 00-2"). SoP
00-2 establishes new accounting standards for producers or
distributors of films, including changes in revenue recognition,
capitalization and amortization of costs of acquiring films and
television programs and accounting for exploitation costs, including
advertising and marketing expenses.
a) Organization and Nature of Operations:
Odyssey Pictures Corporation (the "Company") was organized in December 1989 as a
Nevada corporation. It was primarily structured as a holding company for media
activities. The Company is currently engaged in the international distribution
of motion pictures, and manages certain investments through a subsidiary named
Odyssey Ventures Online Holding S.A., which is based in Luxembourg.
F-5
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
b) Principles of Consolidation:
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries and majority owned or controlled joint ventures. All
significant intercompany accounts have been eliminated. Certain
reclassifications have been made to prior year amounts to conform to the current
period presentation and new standards as issued.
c) Revenue Recognition:
In June 2000, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 00-2, "Accounting by Producers or Distributors of
Films" (SoP 00-2), which established new accounting standards for producers and
distributors of films as well as changes in revenue recognition and the methods
of accounting for exploitation or development and overhead costs. SoP 00-2
requires that advertising costs be expensed in accordance with SoP 93-7,
"Reporting on Advertising Costs" while all other exploitation costs are to be
expensed as incurred. Development costs for abandoned projects and indirect
overhead costs are to be charged to expense instead of being capitalized to film
costs. The Company adopted the pronouncement effective January 1, 2002 and the
effect on net income (loss) of recognizing these revenues is not material.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements ("SAB
101"), which summarized the SEC staff's view in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has reviewed its revenue recognition policies and revised them to
conform to SAB 101, specifically with respect to distributor-for-hire
arrangements. Accordingly, there were no restatements to be effected and there
is no material change in the statements herein.
Revenues from foreign theatrical, home video, television and pay television
licensing contracts are recognized when the film is available for exhibition by
the licensee and when certain other conditions are met. Revenues from domestic
theatrical distribution of films are recognized as the films are exhibited.
Virtually all of the Company's revenues for the period ended June30, 2003, 2002,
and 2001, were from foreign distribution rights and continuing ancillary
revenues, such as foreign income from soundtracks or other revenue not
previously accounted for (known as "residuals") relating thereto.
Revenue is recognized in accordance with the provisions of SoP-02 and SAB 101.
The Company licenses certain film rights through international distribution
agreements either on a direct commission basis or that may require the payment
of minimum license fees known as "Minimum Guarantees" ("MG's'"). The MG's are
typically payable on delivery and acceptance by the Company of the respective
completed film and these MG's may be subject to further increase based on the
actual distribution results in the respective territory. Minimum Guarantees
related to contracts which contain holdback provisions precluding the
distributor from exploiting secondary markets until certain time periods have
lapsed are allocated across those markets and recognized as revenue when each
holdback provision expires. As of the close of business in June 30, 2002, the
Company had no films in distribution that neither require an MG nor were in a
"hold-back" restriction.
Revenue allocated to the primary market, usually the theatrical market (which
the Company is rarely involved with), is recognized as revenue on the date the
completed film is available for exploitation in the related territory and
certain other conditions of sale have been met pursuant to criteria specified by
SoP-00-2.
Cash payments, advances or other fees are recorded as and when collected, unless
all the conditions of revenue recognition have not been met. In the case of the
latter, revenues are recorded as deferred revenue until all conditions are met.
F-6
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
c) Film Costs:
Film costs include (1) development cost, (2) cost of production, (3) investment
in distribution rights, and (4) marketing and distribution expenses. Film costs
are amortized, subject to the adoption of the new accounting standards as noted
herein, and estimated residual and participation costs are accrued, on an
individual film basis in the ratio that the current year's gross film revenues
bear to management's estimate of total ultimate gross film revenues from all
sources. Film costs are stated at the lower of cost or estimated net realizable
value on an individual film basis. Ultimate revenue and cost forecasts for films
are periodically reviewed by management and revised when warranted by changing
conditions. When estimates of total revenues and costs indicate that a film will
result in an ultimate loss, additional amortization is provided to fully
recognize such loss.
Revenue from the sale or licensing of motion pictures and television programs is
recognized upon meeting all recognition requirements of SoP 00-2. Revenue from
the theatrical release of motion pictures is recognized at the time of
exhibition based on the company's participation in box office receipts. Revenue
from the sale of DVDs in the retail market, net of an allowance for estimated
returns, is recognized on the latter of shipment to the customer or "street
date" (when it is available for sale by the retail marketer). Under revenue
sharing arrangements, rental revenue is recognized when we are entitled to
receipts and such receipts are determinable. Revenues from television, cable,
pay-per-view or other transmitted broadcast methods are recognized when the
motion picture or television program is available to that respective market
(through licensees) for such broadcast. For television licenses that include
separate or restricted availability (sometimes referred to as "windows") during
a given license period, revenue is allocated over the "window" period. Revenue
from sales of international territories is recognized when the feature film or
television program is available to the distributor for exploitation and no
special conditions for delivery exist. Under most sales contracts, full payment
is required upon delivery. For contracts that provide for rights to exploit a
program on multiple media (e.g. theatrical, video, television) with a fee for a
single motion picture or television program where the contract specifies the
permissible timing of release to various media, the fee is allocated to the
various media based on management's assessment of the relative fair value of the
rights to exploit each media and is recognized as the program is released to
each media. For multiple-title contracts with a fee, the fee is allocated on a
title-by-title basis, based on management's assessment of the relative fair
value of each title. As of June 30, 2002, the Company had no multiple-title
contracts in the markets.
According to the new standards, the following changes in accounting have been
adopted:
- Advertising and marketing costs, which were previously capitalized to
investment in films and television programs on the balance sheet and
amortized using the individual film forecast method, are now expensed
the first time the advertising takes place.
- The capitalization of production costs is limited to revenue that has
been contracted for in the applicable markets until such time as the
criteria for recognizing revenues are met. Note, this is also
applicable to secondary markets, or reissue of product (after original
license contracts have expired).
Revenue recognized from ancillary markets is recorded at the time of receipt,
cine it is not traditionally included within the estimates of revenue with a
particular project's primary release, and may not ever become a realized
revenue, or the Company did not have those rights to exploit within its
distribution network.
F-7
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
d) Investments:
Investments consist of shares of common stock of four privately held
corporations. Two are corporations controlled by a previous CEO and Chairman,
Johan Schotte, where the Company has an 18% ("minority") ownership. The Company
wrote down 63% of the investment due to its internal evaluation and the prospect
of its eventual realization of any distributable profit or revenues being
doubtful as to the value as presented (see "Related Party Transactions, Item
13"). The Company has a 99% ownership in a venture capital company that has
equity investments in four other companies, one being publicly traded. This
investment is accounted for using the cost method. According to the Company's
recently adopted Statement of Financial Accounting Standards No. 94 (SFAS 94)
wherein the Company is required to report consolidated financial statements for
majority-owned subsidiaries in order to eliminate off-balance sheet financing
activities, the Company has elected to continue its cost method due to
exceptions (as defined within the guidelines of SFAS 94) as follows:
1) The Company considers this investment to be a non-consolidation event.
2) The subsidiary is a non-active and non-participating entity in the same
business as the Company.
3) A serious doubt as to the realization of the investment(s) made exists. In
this case, a significant write-down of the assets has been made.
4) There are no adjustments to be made to reflect subsequent changes in fair
market value.
5) The Company expects to regain control of the assets (as noted herein) and
liquidate them for its recorded value.
The fourth is an investment in Filmzone that is accounted as inventory in
progress after the Company acquired the remaining 50% in February of 2002 by
completing its acquisition agreement (as dated August 7, 2000) with cash. This
investment is accounted for using the cost method since it was the purchase of
an Internet Domain and not an operating entity. There was no effect on the
amortization schedules as the remaining funds were booked as a payable item and
therefore, were already booked at the time of the transaction.
e) Earnings (Loss) Per Share:
Earnings (loss) per share are computed using the weighted average number of
common shares outstanding during the respective periods.
f) Use of Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
g) Fair Value of Financial Instruments:
The carrying value of cash, notes receivable and notes and loans payable
approximates fair value because of the short-term maturity of these instruments.
h) Impact of Recently Issued Accounting Standards:
In the course of developing and evaluating accounting policies and procedures,
the Company used estimates, assumptions and judgments to determine the most
appropriate methods to be applied. Such processes are used in determining
capitalization of costs related to any film investments, potential impairment of
those investments, operating cost reimbursements, and taxable income. The
Company has not yet assessed the impact of the adoption of recently issued
accounting standards on our consolidated financial position, results of
operations or cash flows.
F-8
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
The Company has adopted recent requirements of Revenue recognition. Revenue from
the sale or licensing of motion pictures and television programs is recognized
upon meeting all recognition requirements of Statement of Position (SoP 00-2) as
further defined in the Revenue Recognition Policy noted herein.
Included in the Company's newly adopted standards, the Statement of Financial
Accounting Standards No. 145 (SFAS 145) will require gains and losses on
extinguishment of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. Extraordinary treatment will be required for certain extinguishments as
provided in APB No. 30. The provisions of SFAS No. 145 related to the SFAS No. 4
revision are effective for financial statements issued for fiscal years
beginning after May 15, 2002, however, early adoption is encouraged. Once
adopted, any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria in
APB No. 30 for classification as an extraordinary item should be reclassified.
Under staff accounting Bulletin 74 (SAB 74) the Company is required to disclose
certain information related to other new accounting standards, which have not
yet been adopted due to delayed effective dates.
2. CHANGES IN MANAGEMENT CONTROL
In January of 2000, the Board appointed Mr. John Foster as President of the
Company and also elected him to the Board of Directors. Mr. Foster still remains
as the Company's President and his contract was renewed for the periods ending
June 30, 2001 and 2002. Subsequently, Mr. Foster was nominated as CEO and
Chairman of the Board on July 6, 2001. Mr. Johan Schotte stepped down as CEO and
became Executive Vice Chairman. Mr. Schotte resigned from his board position on
December 12th. Mr. Pierre Koshakji, a previous President and Secretary of the
Company, resigned on December 9th. On January 3, 2002 the board of directors
filled these two vacancies with Mr. Peter Bucher and Mr. Kjell Larsson by
unanimous vote of the board. In January the Company hired Mr. C. F. K. (Frank)
Cole, as Chief Financial Officer. Mr. Cole was hired on a one-year contract
expiring on December 31st of 2002. In August of 2002, Mr. Cole requested to
decrease his involvement in the Company due to personal needs and requested to
re-establish his position as Vice President of Finance and reduce his hours. In
October of 2002, Mr. Cole discontinued his services to the Company. Mr. Foster
assumed the matters of CFO until a replacement can be employed. As of June 30,
2003, there was only one officer employed by the Company and the Company uses
various outside resources to assist in its daily operations and tasks.
3. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems. The Company must achieve and sustain a profitable level of
operations with positive cash flows and must continue to obtain financing
adequate to meet its ongoing operation requirements. To offset these factors,
the company has embarked on an aggressive capital campaign and has been in
development for determining it's most effective method of exploiting recently
acquired film rights and re-establishing its contacts in the foreign and US Home
Video markets. Since July 2001, new management has embarked on a program to
reverse the unfavorable results, by significantly reducing overhead and taking
steps to rebuild revenues. Net loss for the recent periods has been due to the
delay in receipt of revenue and getting to the markets at the time the
availability to release the films co produced or otherwise acquired for
distribution (which results are recorded in the Company's Film Costs). In
December the Company did enter into an exclusive distribution agreement with a
library of - films. The company has just begun the process of marketing this
library, which includes the development of sales materials, creating descriptive
listing sheets for licensees and to seek foreign sales representatives. One
sales representative is under contract for the Scandinavian market. The company
attended its first film market in several years in Los Angeles and rejoined its
affiliation with the American Film Marketing Association in 2002, however, in
2003, the Company was unable to continue its annual dues and expects to
re-establish its membership status as soon as economically feasible. The
F-9
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
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 and as of June 30, 2003, the Company had three full-time
employees, consisting of Mr. Foster, the CEO and President, an administrative
secretary, and a production-administrative assistant. The Company also engaged
Kjell Larsson to direct sales and marketing on a full time basis. The Company
also hires on occasion, several professionals in sales on a contract and
commission basis. These professionals are located in our major market areas of
Los Angeles and Europe. Additional staff is planned in the administrative and
sales areas, the latter of whom may be commission or contract basis.
a) Factors Affecting Operating Results
The Company has a significant investment in Film Costs, which contain relatively
most of its asset valuation. The Company has experienced difficulties in the
past in generating revenues to realize a value on its assets as indicated.
Several factors have hampered the Company's ability to effectively market and
sell or license the film titles it has. These reasons are mainly to the
following circumstances:
New management and new board members have had a limited period of time with
which to work together and evaluate the business and prospects. The Company's
operating history, coupled with the emerging nature of new markets for
independent films and other forms of broadcast as well as new technologies in
Internet-delivered Filmed/Video content, were either not available or built upon
in prior years, as may have been with other similar companies. Past economic
downturns in the Foreign markets and an overall decline in the independent
markets in general makes predicting future operating results difficult. In
addition, the Company's Licensee prospects must be considered in light of the
uncertainties encountered by past negative experiences with the Company.
Although management and certain board members have experience in providing
market expertise and positive results, this activity, along with the rapidly
evolving markets, (specifically for delivery of Filmed/Video content over the
Internet, from which the Company developed a joint venture with Kasstech, Inc.
as noted earlier), may create unknown and uncertain results. The result is the
Company's exposure to certain risks, which, as summarized, include the Company's
ability to:
1) Acquire and retain repeat buyers and licensees for Foreign Territories
the Company was once active in; and,
2) Build awareness, acceptance and confidence in new management's ability
to deliver; and,
3) Acceptance and awareness of Filmzone.com, the Content, the new formats
available (for the library product as well as the Company's new
product); and,
4) Renew or extend existing financial relationships and acquire new
content and new provider relationships; and,
5) Manage growth to stay competitive and fulfill customer demand; and,
6) Generate cash from operations and raise capital.
If the Company should fail to manage these risks successfully, it would
materially adversely affect financial performance. The above elements make
prediction of future revenue difficult. There are no assurances that the Company
will be able to predict our future revenue accurately. Because the Company has
had a significant amount of restoration of client base, films product and
delivery methods, revenue has suffered. Turnaround of assets acquired has been
delayed (as earlier mentioned). The Company's films are not obsolete, unsaleable
or marketable and, therefore, have not had to accelerate removal of asset values
or additional write-offs. The reason for this is due to offers, considerations
of contracts, inquiries from past customers ("Licensees") and other
relationships that management has had in the past with Licensees, and the
opportunities that exist in development of new contacts and applying the
Company's assets to new emerging markets.
F-10
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
In addition, the Company's past relationship through the Kimon transaction in
involves a "yet to be determined" value from its exclusive arrangement with
Hallmark Entertainment, as described herein, the results of this transaction and
its related activities are not known at this time.
The Company has had, and will continue to have, a number of fixed expenses and
may be unable to adjust spending in a timely manner to compensate for unexpected
revenue shortfalls. Accordingly, any significant shortfall in relation to any
expectations could cause significant declines in these and other operating
results. Quarterly revenue, expenses and operating results could vary
significantly in the future, and that period-to-period comparisons should not be
relied upon as indications of future performance. Due to the foregoing factors,
it is likely that in some future quarters our operating results will fall below
the expectations of securities analysts and investors, which could have a
material adverse effect on the trading price of our common stock.
b) Other factors which may affect Operations:
The loss of key employees could jeopardize our growth prospects.
The loss of the services of any of our executive officers or other key employees
could materially adversely affect our business. Our future success depends on
the continued service and performance of our senior management and other key
personnel, particularly of John W. Foster, Chairman and CEO, and President.
There are no employment agreements with any of our executive officers or other
key employees.
The Company's inability to hire new employees may hurt our growth prospects.
The failure to hire new personnel could damage the Company's ability to grow and
expand its business. The Company's future success depends on its ability to
attract, hire and retain highly skilled technical, managerial, editorial,
marketing/sales and customer service personnel, and competition for these
experienced individuals is considered high.
4. ACQUISITION OF FILM ASSETS
On July 14, 1998, the Company entered into an Asset Purchase Agreement through a
Preferred stock issue with Sweden based Kimon Mediaright KB ("Kimon"), pursuant
to which the Company acquired certain intangible assets from Kimon valued at
$4,500,000. Kimon assets purchased consist of a film library with worldwide
and/or Scandinavian distribution rights and Scandinavian video distribution
rights to certain Hallmark Entertainment products. On February 26, 2000, all of
the Preferred Shares of Kimon were converted to Common Shares under a revised
valuation, which was due to an alteration of the original agreement dated July
14, 1998 whereas a "dollar-for-dollar" exchange was reduced for purposes of
re-evaluating Filmzone.com (a domain name with other possible services that the
Company can use in its sales efforts) was undertaken, According to the
valuation, an average discount was made on the exchange resulting in an exchange
to .91 per share. This conversion was not related to any inducement offer by the
Company, however, we due to the re-evaluation of the acquisition itself and was
exercised to the benefit of the Company. Therefore there were 4,101,283 shares
issued for the 4,500,000 Preferred Shares. Since the transaction from July 1998
was adjusted to the above discount along with certain "bonuses" and other
considerations being rescinded, the shares were required to be issued with the
restrictions that accompany new stock issues. All schedules related to the
transaction, such as the accounting for the asset of Filmzone.com (which
resulted in a deduction of the Kimon Library and an equal allocation to the
asset of Filmzone) and the amortization of both the Kimon Library and Filmzone
were properly allocated according to GAAP accounting guidelines.
In May of 2002 the company entered into an agreement to distribute certain films
from a local supplier.
The company engaged in its first marketing of film product that it had acquired
for sales and licensing for markets beginning June 2002.
F-11
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
5. INCOME TAXES
At June 30, 2003, the Company had a net operating loss carry forward of
approximately $35,700,287. Effective as of the beginning of fiscal 2002, the
Company adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (known as "SFAS 109"), on a prospective basis. SFAS 109
requires the Company to change its method of accounting for income taxes from
the deferred method to the liability method. Under the liability method,
deferred tax liabilities and assets are recognized for the tax consequences of
temporary differences between the financial reporting and tax basis of assets
and liabilities. There were no significant changes by the adoption of this
method and, as a result of the company's net operating losses at the period
ending June 30, 2003, no provision for income tax has been recognized.
The utilization of approximately $4,900,000 of these losses in future periods is
estimated by the Company to be limited to approximately $350,000 per year (the
"annual earn out limitation"). The use of these tax losses to offset against any
future gains in any one tax year may be limited if a change of control is deemed
to occur per United States tax regulations. As Management does not possess a
majority of the outstanding stock they cannot affect the occurrence of a change
of control event. The company has not filed a tax return since 1993 and is
currently in the process of completing all tax returns.
6. NOTES AND LOANS PAYABLE
In January of 2001, the company had entered into a settlement with Ian Jessel
(Ian Jessel vs. Odyssey Pictures Corporation) of which an amount of $385,000
plus interest of 10% per annum. This amount has been reduced from the accrued
portion of the balance sheet and entered into current structured notes payable,
resulting in an increase to the Notes Payable. The Settlement is in the form of
a note, with no specific payment arrangements due to the Company's inability to
make any payments on a regular basis. As the Company progresses in seeking
alternate financing, moderate payments have been made which have been acceptable
to Mr. Jessel.
In June of 2001, the company borrowed funds on an interim basis from a Non-US
investor who is also a shareholder of the Company in order to pay the initial
payment to Mr. Jessel, which was $140,000. The repayment of this interim note
occurred from the Company entering into a long-term debt arrangement with
another lender. The Settlement Note does carry a default clause which, if called
and not cured timely, could result in the filing of a judgment against the
Company in the total amount that would be due at that time, plus accrued
interest. Unsecured Promissory Notes: In August of 2001, two unsecured notes
previously recorded under Media Trust Notes Payable were paid in full, thus
reducing the liabilities to the Unsecured Promissory Notes by $98,550.
In April of 2002 the company received short-term loans from an individual to
accommodate certain cash needs. To facilitate these loans, the Company issued
warrants to purchase 25,000 shares unregistered common stock exercisable at a
price of $0.40. Pursuant to the required adoption of Statement of Financial
Accounting Standards No, 123 (SFAS 123), and in concert with the requirements
issued in the Emerging Issues Task Force 96-18 (EITF 96-18), there was no charge
to the issuance of the warrants since, firstly the note was funded and issued
and is an interest-bearing instrument charged in accordance with interest
expense requirements and, secondly the warrants were issued only as an
inducement for said loan and certain market conditions relate to achievement of
a specified market target price. The warrants expire in April of 2007.
In August of 2002, a series of overhead advances were made totaling $9,500 for
specific expenses by certain unrelated parties. The CEO loaned an additional
amount of funds to the Company to accommodate certain overhead expenses. These
advances were all made on short-term interest bearing loans.
F-12
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
In September, 2002, the Company borrowed $50,000 for working capital needs in a
sixty-day note at 12% per annum. The loan also repriced certain warrants already
outstanding to a price of six cents per share. The total warrants affected
306,666 shares and extended the final exercise date of all certificates to
September 23, 2005. Additional warrants could be required if the loan is not
paid per its terms. The repricing of the warrants was not recognized as an
accounting item and expensed due to the fact that there was no basis for the
original issue and the recent adoption of Statement of Financial Accounting
Standards No, 84 (SFAS 84) states a recognition in expense in the case of fair
market value for "debtor-induced conversion" of a convertible debt, or which
there was no change in such fair market value.
In November of 2002, the Company borrowed $30,000 from an unrelated party for
overhead use on a short-term basis. This was subsequently repaid upon the
successful closing of a private placement, as noted herein.
From February through to June of 2003, the Company received various loans and
advances for overhead expenses from a series of lenders, inclusive of the CEO,
totaling $39,000. These loans and advances all were made on a short-term
interest-bearing basis.
7. AGREEMENTS TO SATISFY CERTAIN LIABILITIES THROUGH ISSUANCE OF COMMON STOCK
During the quarter ended March 31, 2002, the Company satisfied consulting fees
for investment banking services related to past private placements with warrants
to purchase 500,000 shares at a price of 25 cents per share expiring on December
12, 2003 to a private party. Pursuant to the Company's adoption of Statement of
Financial Accounting Standards No, 123 (SFAS 123), and in concert with the
requirements issued in the Emerging Issues Task Force 96-18 (EITF 96-18), there
was no charge to the issuance of the warrants since, firstly work that was
performed was charged in the issuance of shares of stock (see below) and,
secondly the warrants were issued only as an inducement for future consultancy
issues, if requested by the Company and, lastly, certain market conditions
relate to achievement of a specified market target price. With respect to this
same party, services were expensed in the quarter ending March 31, 2002 totaling
$150,000 by the issue of 500,000 shares of unregistered restricted shares of
stock. According to the Company's adoption of Financial Accounting Standards No,
123 (SFAS 123), and in concert with the requirements issued in the Emerging
Issues Task Force 96-19 (EITF 96-19), a mutual fair-market valuation was placed
on the issuance and approved by management. This issue resulted in single
expense charged to services for the specified period.
In December of 2001, the Company issued 500,000 shares of common stock to a
private European company for its services in investment banking and financial
consultation for and on behalf of the Company.
In June of 2002, the Company issued 190,000 shares of common stock to two
parties for financial services and consulting arrangements as previously agreed
upon by management. These were specifically, 140,000 shares to one individual
and 50,000 shares for a private company for services.
In July of 2002, the Company issued 100,000 shares of common stock to a
private European company for its services in investment banking and financial
consultation for and on behalf of the Company.
In January of 2003, the Company issued a total of 215,000 common shares to
two parties in consideration of loans made to the Company. These were
specifically 140,000 shares to one private party and 75,000 shares to another.
F-13
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
During the period of January through March 2003, the Company reserved the
following shares to be issued: an aggregate of 827,807 shares towards employees
for payment of past services and considerations for continuing services.
Specifically, these were to three employees; one for a total of 77,807 shares,
one for 500,000 shares (in payment against past salary) and the other was for
250,000 shares (in partial payment of salary).
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments:
The Company conducts its operations out of sub-leased premises at 16910 Dallas
Parkway, Suite 104, Dallas, Texas 75248, which consists of approximately 2,500
square feet. The premises are presently being made available to the Company as a
sublease by another company related to Mr. Foster, named JL Media Services LLC.
Rent expense for the space is $ 2,500 per month, with a $5,000 deposit and will
continue for a period of five years, to March 1 of 2006. During the fiscal year
ending June 30, 2002, the lease payments increased per the master lease
agreement for expense allotment (approximately $2457 annually). In January of
2003, the expense allocation increased to where the proportionate amount for the
Company was $2835 per month. Therefore, the lease expense totaled $44,398 as
compared to $40,935 as of June 30, 2002 and $34,094 for the same period ending
6-30-01. The Company has storage facilities to store its older records and film
materials and leases on a month-to-month basis of $395 each month.
In May of 2003, the Company entered into a lease agreement to rent space for the
office of Kjell Larsson, director of sales and marketing, as an accommodation.
The term of the lease is until April of 2005 and has a monthly lease expense of
$321. There was a deposit of $624 paid according to the requirements of the
lease. The added obligation to the Company is as follows:
2003 - $2,247
2004 - $3,852
2005 - $1,284
The company has no other outstanding lease obligations.
9. SHAREHOLDERS' DEFICIT
The company continues to experience losses and an increasing loss carry forward.
The Deficit will continue to grow until the Company is able to increase revenues
to a point beyond break even. The Company does not release earnings and/or
revenue projections. The Company desires to utilize the losses for tax purposes
against potential future taxable earnings. The utilization of tax losses can be
significantly reduced if there is a change of control. As the Company is widely
held and freely traded the Company cannot control whether a change of control
might occur. Such an action would limit the taxable losses in any one year to a
formula equal to the applicable federal bond rate times the losses at the time
of change of control. Additionally the Company must file its tax returns
properly with the additional information required to be able to utilize the tax
losses. The Company is in the process and has engaged two firms to complete the
tax returns.
10. STOCK OPTIONS AND WARRANTS
During the fiscal year ended June 30, 1997, a total of 1,153,333 warrants were
issued to officers, directors, employees, consultants and third parties,
exercisable at prices ranging from $ 0.625 per share to $1.06 per share. The
warrants are exercisable for periods ranging from three to five years. None of
such warrants have been exercised. All are to expire this coming year.
F-14
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
The Company's stock has been relatively thinly traded and the Company cannot
predict the extent to which a trading market will develop. The common stock
trades on the Over-the-Counter Bulletin Board and is thinly traded compared to
larger more widely known companies in this same industry. Thinly traded common
stock can be more volatile than common stock trading in an active public market.
The Company cannot predict the extent to which an active public market for the
common stock will develop or be sustained in the future.
During the fiscal year ended June 30, 1998, a total of 254,260 warrants were
issued to third parties, exercisable at prices ranging from $1.00 per share to
$1.65 per share. The warrants are exercisable for periods ranging from two to
five years. None of such warrants have been exercised. All will expire this
year.
In July 1998, the Company entered into a consulting agreement with Media Trust
S.A., a company that is an affiliate of Mr. Schotte and in which the Company
holds a minority interest (see "Related Party Transactions") 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 a group investors (the "Belgian Investors") in the
aggregate amount of approximately US$100,000, and the purchase of 625,000 shares
of common stock of the Company by Lecoutere Finance, S.A. in December, 1998, a
total of 29,537 five-year warrants was issued to Media Trust, S.A. with exercise
prices ranging from 38 cents per share to 98 cents per share. None of these
warrants have been exercised. In July of 2002, the company did not renew the
consulting arrangement with Media Trust, but has an obligation ongoing for
commission obligations if one of its clients reinvests into Odyssey, up until
July 2003.
In December 1998, Lecoutere Finance S.A., an affiliate of the then CEO of the
Company, Johan Schotte (see "Related Party Transactions"), purchased 625,000
shares of common stock from the Company for an aggregate consideration of
$187,500 (30 cents 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 cents per share), less a 20% discount due to the restricted nature of
the shares purchased. On December 1, 1998, a total of 50,000 three-year warrants
were issued to three parties (one of which is an affiliate of the Company) in
consideration of extending the maturity date of loans to the Company. The
warrants have an exercise price of $1.00 per share. None of these warrants have
been exercised.
During the fiscal year ended June 30, 1999, a total of 467,660 warrants were
issued to officers, directors and holders of notes payable, exercisable at
prices ranging from $0.55 to $1.65. The warrants are exercisable for periods
ranging from two to five years, except for two officers' issuances that have no
expiration date. None of such warrants have been exercised. In October of 2000,
a non-related party was issued warrants for a purchase price of $25,000 for
$1.00 per share consideration. As of the close of business on June 30, 2003,
none of these warrants have been exercised. On December 12, 2001 an unaffiliated
party that arranged a private placement received for its services warrants of
500,000 shares with an exercise price of 25 cents per share. The warrants expire
in one year.
On April 19, 2002 the Company entered in a Joint Venture with a private company,
Kasstech, Inc., to exclusively sell its patent-pending digitization services for
a period of ten years. These services are believed to be technically the most
efficient available service for transmission of picture and sound through normal
phone lines with a possible 900 to 1 compression ratio. The Company is the
managing partner of the Joint Venture with all administrative and sales duties.
Originally Odyssey agreed to reserve shares of stock for possible funding into
the Joint Venture and to pay Kasstech and its owner for some of the rights and
services. On October 9, 2002, Odyssey and Kasstech agreed to discontinue the
share contribution and reserves of stock.
F-15
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
In April of 2002 the company raised $100,000 for debt reduction by the sale of
625,000 shares of restricted stock. The price of 6.25 cents per share was
calculated on the use of funds to reduce debt, versus the overall cost of
interest against the debt to be retired, which was past due. Had this debt not
been repaid at that time, the Company would have faced financial penalties since
the loan was not renewable. Along with the sale, thecompany granted warrants for
up to 125,000 shares of restricted stock at a price of 16 cents per share. This
price was later reduced to 6 cents per share in a subsequent transaction (see
"Subsequent Events").
In June of 2002, the Company raised $316,000 in multiple transactions by the
sale of restricted stock. The price for the shares ranged from 6.7 cents to 16
cents per share, depending on whether warrants or commissions were involved, and
were calculated on the use of funds to reduce debt as before stated. Some of the
sales included warrants for up to three years for the purchase of restricted
stock at a price of 16 cents per share. The funds were used for working capital
and debt reduction.
During the fiscal year ended June 30, 2002, 2001 and 2000, no warrants were
issued to officers, directors. During the Fiscal year ended June 30, 2003, no
stock was issued to officers or directors, however 750,000 shares were reserved
for future issue against salaries or contracts, which were past due and
considered as partial payments. Additional rights to warrants may have been
granted after the end of the year, see below "Subsequent Events".
In September of 2002, the company signed an arrangement with Orpheus
Entertainment, a manufacturer of Video, DVD and Compact Disc recordings and a
distributor for all North American and International markets. In this
arrangement, the company shall pay a number of registered shares for the
consultation and advice of marketing and placement of product into all markets.
The result of this type of stock arrangement will allow the Company to have a
higher margin on product it delivers to the market from the retail level for
video and DVD sales in North America on a direct basis. In addition, the Company
also signed an arrangement for distribution of its soundtracks and original
audio works with the same company for international distribution.
11. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March of 2001 the Board of Directors approved a $5 million US dollar
denominated Senior Secured debt issue (the "Senior Debt") with convertible
rights to common stock at maturity and in certain circumstances (such as
bankruptcy and/or financial defaults on other significant debt). Reserves of
shares for the potential conversion have been made. The Senior Debt requires
that the company not pledge any significant assets and gives the bondholders a
pledge on the "Kimon Library" assets. The Senior Debt carries an 8% interest
rate and matures on April 15, 2006. The Senior Debt is not registered in the
United States and is only available to non-US citizens. The Trustee received the
first subscription on August 29, 2001 for $160,000. The funds after financing
expenses of $14,364 were used to pay off two loans of 4 million francs (previous
paragraph) and some rent expenses of an office recently closed in Luxembourg. A
previous officer used the remaining funds for claimed expenses. Odyssey is
pursuing additional subscriptions.
In December of 2001, the Company completed a private placement of 2,000,000
shares to an accredited (non U.S.) investor resulting in gross proceeds to the
Company in the amount of $250,000.
In February of 2002, the Company completed a private placement of 1,000,000
shares to accredited (non U.S.) investor resulting in gross proceeds to the
Company in the amount of $250,000.
In April of 2002, the Company completed a private placement of 625,000
shares to an accredited investor resulting in gross proceeds to the Company in
the amount of $100,000.
F-16
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
In June of 2002, the Company completed four private placements to
accredited investors; the first of which was completed for 1,500,000 shares of
common stock resulting in gross proceeds to the Company of $100,000; the next
was for 2,124,481 shares of common stock resulting in $150,000 gross proceeds;
the next was for 465,000 shares of commons stock resulting in $50,000 gross
proceeds to the Company; The final one was for 225,000 shares of common stock
resulting in gross proceeds to the Company of $16,000.
The following is a summary of transactions of the Company for the fiscal period
ending June 30, 2003 involving sales of securities by the Company that were not
registered under the Securities Act of 1933 (the "Securities Act"):
In October of 2002, the Company issued 90,000 shares in a private placement
to an accredited U.S. investor, resulting in gross proceeds of $3,000 to the
company.
In May of 2003, the Company issued 2,500,000 shares to a U.S. private
investment company resulting in $100,000 gross proceeds to the company. The
terms of the share purchase requires a put and call agreement by and between
four individuals related to the company and extends to one year beyond its date
of issue.
In June 2003, the Company signed a Securities Purchase Agreement with a
U.S. private investment company for the sale of a $150,000 8% convertible
debenture and a warrant to purchase up 1,500,000 shares of our common stock. The
debenture bears interest at 8%, matures two years from the date of issuance and
is convertible into shares of our common stock. The number of common shares into
which this debenture may be converted is equal to the dollar amount of the
debenture being converted multiplied by eleven, minus the product of the
conversion price, multiplied by ten times the dollar amount of the debenture
being converted, divided by the conversion price. The conversion price is equal
to the lesser of (i) $.25; or (ii) 80% of the average of the three lowest prices
during the 20 trading days before but not including the conversion date. The
warrants expire in June 2006 and are exercisable at $1.00 per share. The warrant
holder is obligated to exercise the warrant concurrently with the conversion of
the debenture for a number of shares equal to ten times the dollar amount of the
debenture being converted. The total amount of 100,000 was funded to the company
with the investor holding back an agreed-upon $50,000 for future legal expense
and anticipated costs to be covered in relation to any future offering or added
registration needs.
12. DEFAULTS UPON SENIOR SECURITIES
An interest payment due on April 12, 2002 was made by a third party therefore
the Senior Secured Bond was in compliance with its requirements. The company
does not, and did not, have sufficient cash to make its past (Payment due on
October 2002) and next (April 2003) semi-annual payments and, therefore, risks
the Bond being placed in default. There were no payments made during the course
of fiscal 2003 and the bond is in default. The Company has sought additional
capital from its European sources to assist in renewal of the note or bringing
in an alternate source, or sources, for a long-term position.
F-17
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
13. RELATED PARTY TRANSACTIONS
In November 1998, the Company entered into the following related party
transaction with E 3 Sports New Mexico, Inc., a company which is an affiliate of
Mr. Schotte and Mr. Koshakji (at the time of the transaction 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 E 3 Sports New Mexico, Inc.). The loan has not been
repaid and the Company has terminated accruing interest. Current management is
pursuing information regarding Company interests. For the current year, the
company has elected to write off the entire amount listed as an asset which
totals 153,774 due to its uncollectible nature.
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
was issued to Media Trust, S.A. with exercise prices ranging from 38 cents per
share to 98 cents per share. In December 1998, Lecoutere Finance S.A., an
affiliate of the then CEO of the Company, purchased 625,000 shares of common
stock from the Company for an aggregate consideration of $187,500 (30 cents 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 (37 cents per share) less a
20% discount due to the restricted nature of the shares purchased.
On December 1, 1998, a total of 50,000 three-year warrants were issued to three
parties (one of which is an affiliate of the Company) in consideration of
extending the maturity date of loans to the Company. The warrants have an
exercise price of $1.00 per share. In October of 2000, a non-related party
exercised warrants for a purchase price of $25,000 for $1.00 per share
consideration. During the course of these transactions, the Company accumulated
a net deficit owed to Media Trust in the amount of $42,591 after certain
deductions and accommodations of expenses were met. Note that present management
never realized a value in the ongoing efforts of Media Trust, and that it was
entitled to 18% interest in Media trust net proceeds, combined with the fact
that the Company did not receive required disclosure in order to accurately
report to its shareholders, management elected to declare it right of offset and
deduct the liability from its exposure to affiliated and related entities and
transaction n order t so secure its position and protect and preserve the
Company's interest in its outside "interparty-related" investments (being that
of Mr. Schotte). In spite of its repeated demands and requests for payment
and/or reimbursement, there was no response. Being that the company has never
received required financial reports from Media Trust and has made attempts and
as well as demands, management elected to fully offset any outstanding amounts
owing and properly recorded these against current write-downs of assets
considered related in nature. Although the company is still pursuing financial
information from Mr. Schotte, the main principal and director of Media Trust,
with no response at this present time, the company has elected to write off
substantially all debts against advances and loans for lack of sufficient
information.
F-18
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
In October of 2001, the company entered into an Exclusive Film Distribution
Agreement ("Agreement") with JL Media Services LLC, a company specializing in
supply of feature films product and of which the current CEO has a minority
interest in ("Media"). The terms of this Agreement enables Odyssey to
exclusively sell and license feature films belonging to Media as well as new
productions for a commission in the total amount of 15% of the Gross Proceeds
(as earlier defined in Revenue Recognition) and deduct limited expenses the
Company may have incurred from the sales and marketing of each product. In
consideration for this exclusive arrangement, the Company shall pay, in shares
of common stock, an amount equivalent to the same 15% based upon quarterly
reports and upon the average trade price of each calendar quarter. This
Agreement extends for a period of fifteen years; however, the revenue share for
stock extends only for a period of five years, unless otherwise adjusted by the
Parties.
In March 2002, the Company gave notice to the Managing Director of it s 99%
owned Luxembourg subsidiary, Odyssey Ventures Online Holdings, S.A ("OVO"), that
it was removing all Directors and replacing them with members of the Odyssey
Pictures Corporation Board. The Company has hired legal counsel in Brussels to
recover the assets of the subsidiary to facilitate the Company in either a sale
or its assets or an orderly liquidation. While the Company was advised that the
action in March was legally binding, the Company's legal counsel delivered
formal notice to further formalize the actions taken in July. The Company is in
the process of exploring all avenues for full recovery of these assets,
inclusive of possible lawsuit. However, in light of the recent adoption by the
Company in Statement of Financial Accounting Standards No, 5 (SFAS 5, loss
contingency), a reserve was established referring to any potential losses.
As of June 30, 2003, the Company had two loans payable to one of its
stockholders, of which the balance owing along with accrued interest was $54,570
and $10,740. The note bears an interest rate of 12% per annum and is due upon
demand.
As of June 30, 2003, the Company had two additional loans payable to one of
its stockholders, of which the balance owing along with accrued interest was
$51,480 and $20,254. The note bears an interest rate of 12% per annum and is due
upon demand.
14. EXTRAORDINARY OR NON-RECURRING ITEMS
A related party to the Company's CEO, JL Media Services LLC, advanced funds and
services for overheads and operations of the Company from January to October of
2001. The Company began repaying towards a formal note between the parties,
which was dated effective January 2001, in October of 2001. The note carries an
interest of 12% per annum and has provisions to be increased from time to time
depending upon the operations, services and overhead needs of the Company,
should it be necessary. As of the end of the period of June 30, 2002 the Company
owed $192,035 in interest and principal, which became due and payable on March
1, 2002. The Company sought, an was granted, a renewal for said loan effective
as of the due date of March, 1, 2002 through to a new due date of January 1,
2003, with no penalties.
In January of 2003, the Company sought, and was granted, an additional extension
of the Note for a period of 10 months, or to October 30, 2003, with no payment
or penalty. The provisions of the loan also include the acceptance of shares of
stock in the Company for payments of interest, if so elected. As of June 30, the
Company owed JL Media Services LLC a total of $215,148.
The company reversed some expenses claimed by a previous officer due to lack of
documentation. The Company wrote off a prior entry for a deposit on the
production of a film project where an option period had elapsed. The item was
carried as a prepaid asset. These items are netted out in Non-recurring items.
F-19
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
For the period ending June 30, 2002, the Company expensed $125,000 in consulting
fees tied to previous and current marketing services begun by previous
management. The valuation of the charge was made pursuant to the Company's
adoption of Statement of Financial Accounting Standards No, 123 (SFAS 123), as
earlier described, as a present fair-market value and as mutually accepted by
both parties
Unusually high costs associated with the litigation settlements, including legal
fees and interest on legal fees, were $126,789 for the period ending June 30,
2002. There were additional unusually high costs associated with the same issues
for the following year. As of June 30, 2003, the Company expensed a total of
82,355 in excess litigation expense along with $58,068 in extra charges and late
fees, and also added a reserve in the amount of $127,209 for future expectation
of settlements and expense.
The services were paid by the issuance of the 500,000 shares of stock in
December. The contract for services is not being renewed. An additional $98,000
was expensed for consideration of continuation of services and fees for note
extensions from a financial consultant, Cofima Finanz, AG in Zurich,
Switzerland. The amount was placed in an interest-bearing term note, with a
scheduled payment date not beginning in next fiscal year. Pursuant to the
guidelines as established and adopted by the Company in Statement of Financial
Accounting Standards No, 5 (SFAS 5, loss contingency), an accounting reserve for
possible liabilities was established referring to various lawsuits as express
earlier herein. As this reserve was recently established, a total of $250,000 in
"other accrued" expenses has been charged during the fiscal periods ending
6-30-01 and 6-30-02 inclusively. As earlier mentioned in Item 3, Legal
Proceedings, the Company has attempted to settle all lawsuits and disputes. The
Company, although it has settled the major lawsuits (two of which are in a
"workout" stage) and still has two known judgments totaling $65,000, and has
been dismissed from a possible class-action suit, still faces ongoing litigation
on the Muller-Smith case. As there are remaining motions and discovery underway
at present, the motions and results of the discovery have not yet been decided
upon. Due to the inherent uncertainties of litigation (even though the
litigation is beyond its preliminary stage), the Company cannot accurately
predict the ultimate outcome of the motions. The Company's defense will possibly
be a continuing effort that has a significant expense, which it may not be able
to afford. Even at this juncture, should the Company lose its defense, there
could possibly be a judgment entered which would be in excess of $300,000. In
addition, due to the Company being unable to meet its current obligations when
due, or timely, there could be others who may elect to sue for non-payment.
The company added a one-time expense for Filmzone due to its development and
reposturing of the sales purpose for the website. Pursuant to the Company's
adoption of Statement of Financial Accounting Standards No, 95 (SFAS 95), as
earlier described, it was determined that a significant amount ($75,000) was
considered to be a development expense and, accordingly to such ruling, is
considered an expense, which was deducted from operations.
The company reduced is valuation of the Odyssey Ventures Online Holdings, SA
("OVO") assets mainly due to its determination of liquidity and recent
recognition of certain startup expenses. In addition, and pursuant to the
Company's adoption of Statement of Financial Accounting Standards No, 95 (SFAS
95), as earlier described, it was determined that a significant amount ($67,293)
was considered to be a development expense and, accordingly to such ruling, is
considered an expense, which was deducted from operations. The company wrote off
all of the development expense relating to the OVO initial startup. In light if
the recent write-down (as opposed to the Company's earlier adoption of the
AICPA's Statement of Position SOP 98-5, where all startup expenses were to be
written off as incurred) the Company had been exposed to expenses under its own
obligation from prior management and in advancing initial funds for OVO. These
advances were maintained under Subsidiary investments since the Company was
supposed to be reimbursed upon OVO subsequent and anticipated funding. As this
did not occur, and in view of the earlier disclosures, a reserve has been
expensed.
F-20
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
The company reduced its valuation of the Media Trust SA investment and note
receivable due to undeterminable recovery. The company wrote off its loan to the
Geckos Soccer team, a once partially owned affiliate of E3 Sports New Mexico,
Inc., due to its unexpected recovery.
15. SUBSEQUENT EVENTS
In July of 2003, a complaint was filed in the State of Florida between Distinct
Web Creations, Inc. and the Company and names the individual, John W. Foster, as
defendants. The complaint is for non-payment of services resulting from an
assumed contract for the transaction of Filmzone.Com and Filmzone LLC, a Florida
Limited Liability Company, as completed in early 2001. The amount owing on the
claim is $12,000 and seeks the repayment of this amount plus unspecified
damages. The Company has engaged counsel in Florida and will vigorously defend
its position for both the Company and for Mr. Foster. Discovery process is
underway.
In August 2003, the Company signed an addendum to the Securities Purchase
Agreement with the US investment company for the sale of a $100,000 8%
convertible debenture and a warrant to purchase up 2,500,000 shares of our
common stock. This debenture was secured additionally with third party property
related to the Kasstech Joint Venture wherein 30% of those proceeds, plus
additional considerations on future funding, will be used for the venture. The
Company also agreed to issue 120,000 shares of stock in consideration for the
third party property participation.
In August of 2003, the Company completed and registered an S-8 prospectus in
satisfaction of consultation fees and contract labor pursuant to the rules and
regulations afforded in such registration under "Advice and Consulting
Agreements". The Company was able to satisfy a total of $50,000 in outstanding
fees due for earlier work performed against consulting agreements, and continued
work to be performed that the Company needed assistance with.
In August of 2003, the Company received notice of a federal tax lien being filed
in the amount of $27,210 for non-payment of federal payroll tax deposits. The
Company has filed an appeal to the lien and notice and is expected to fully pay
any and all amounts owning as soon as funds become available.
In September of 2003, the Company completed its first recognized sale of one if
its films to a U.S. Television distributor. A licensing agreement was entered
into for a period of time with a minimum guarantee and a revenue sharing
relationship for Video and DVD sales.
F-21