SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
---------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _______ to _______
Commission File No. 0-18954
ODYSSEY PICTURES CORPORATION
-------------------------------------------------
(Exact name of registrant as specified in charter)
Nevada 95-4269048
- ------------------------ --------------------
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
16910 DALLAS PARKWAY, SUITE 104, DALLAS, TEXAS 75248
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including area code: (972) 818-7990
(972) 818-7829 FAX
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 the filing
requirement for at least the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 37,549,846 outstanding shares as of March
31, 2004.
ODYSSEY PICTURES CORPORATION
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2004, June 30, 2003, 2002 1
Consolidated Statements of Operations
for the Nine and three Month Period Ended
March 31, 2004, 2003 and 2002 2
Consolidated Statements of Cash Flows
for the Nine and three Month Period Ended
March 31, 2004, 2003 and 2002
3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's discussion and analysis of
Financial Condition and Results of Operations 7-10
PART II - OTHER INFORMATION 9-12
1. Legal proceedings.
2. Changes in securities and use of proceeds.
3. Defaults upon senior securities
4. Submission of matters to a vote of security holders
5. Certain relationships and related transactions
6. Events subsequent to the fiscal quarter
7. Exhibits and report
Signatures 13
Odyssey Pictures Corporation
Consolidated Statement of Operations
(unaudited)
March 31,2004 June 30, 2003 June 30, 2002
Assets ================== ============= =============
Cash $ 5,534 948 3,675
Accounts Receivable, net of allowances of 64,408, and 58,415, and -0-. 163,727 229,326 267,587
Notes Receivable, Net of allowances of -51007, and -0-, and -0- 34,030 - -
Advances in Films and Ventures 143,223 108,151 56,900
Other Assets, Prepaids and Deposits 139,440 100,142 166,500
----------------- ------------- -------------
Total Current Assets 485,955 438,567 494,662
----------------- ------------- -------------
Film Properties
Filmzone, Hallmark and Kimon Assets 3,148,929 3,148,929 3,404,635
Amortization and Depreciation (767,544) (690,306) (399,322)
----------------- ------------- -------------
Total Film Properties 2,381,385 2,458,623 3,005,313
----------------- ------------- -------------
Intangible Properties
Filmzone and Domain Interests 906,389 906,389 906,389
Amortization and Depreciation (249,993) (174,996) (75,000)
----------------- ------------- -------------
Total Intangible Properties 656,396 731,393 831,389
----------------- ------------- -------------
Other Assets
Production in Progress 63,563 61,533 4,500
Interest in Affiliates 123,248 123,248 123,248
Subsidiary Investments (Net of allowances of 50,000 and -0- and -0-) 411,668 461,668 461,668
----------------- ------------- -------------
Total Other Assets 598,479 646,449 589,416
----------------- ------------- -------------
Total Assets 4,122,215 4,275,032 4,920,780
================= ============= =============
Liabilities
Current Liabilities
Accounts Payable 1,209,502 1,187,415 890,036
Structured Payments and Other Payables 586,556 646,042 484,560
Accounts Payable to Affiliates 109,829 71,734 19,350
Short Term Loans 441,010 113,462 45,000
Accrued Interest Accumulated 240,821 240,821 228,021
Deposits and Other 235,584 235,584 235,584
Other Accrued Liabilities and Reserves 517,615 419,265 360,733
----------------- ------------- -------------
Total Current Liabilities 3,340,917 2,914,323 2,263,284
----------------- ------------- -------------
Other Liabilities
Other Notes Payable 1,066,884 1,023,038 968,022
Note to Affiliates 177,225 165,912 150,829
Contract Liabilties to Affiliated Parties 143,413 143,413 128,500
Contract Liabilties 550,850 482,102 214,651
Long Term Debt 150,000 100,000 -
----------------- ------------- -------------
Total Other Liabilities 2,088,372 1,914,465 1,462,002
----------------- ------------- -------------
Total Liabilities 5,429,289 4,828,788 3,725,286
================= ============= =============
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) 37,549,846;
32,982,039; 30,392,039 369,616 323,938 298,038
Accumulated deficit (37,552,537) (35,700,284) (33,780,164)
Capital in excess of par value 36,846,402 36,674,843 36,597,743
Current net income (970,555) (1,852,253) (1,920,123)
Total shareholders' equity (deficit) (1,307,074) (553,756) 1,195,494
----------------- ------------- -------------
Total Liabilities and Shareholders' Equity (Deficit) 4,122,215 4,275,032 4,920,780
================= ============= =============
The accompanying notes are an integral part of these financial statements.
1
Odyssey Pictures Corporation
Consolidated Statement of Operations
(unaudited)
For the Three Months Ending For the Nine Months Ending
March 31, March 31,
2004 2003 2002 2004 2003 2002
============ ============ ============ ============= ============ ============
Revenue $(20,096) $ 4,500 $ 166,167 $ 71,734 $ 62,215 $ 167,082
Expenses
Costs related to revenues 0 0 53429 0 14608 104996
Selling, General and administrative expenses 183,228 28,021 85,064 536,106 436,073 440,814
------------ ------------ ------------ ------------- ------------ ------------
183,228 28,021 138,493 536,106 450,681 545,810
------------ ------------ ------------ ------------- ------------ ------------
Operating income (loss) (203,324) (23,521) 27,674 (464,372) (388,466) (378,728)
Other income (expenses)
Litigation and Settlements (3,678) (19,116) (168,523) (48,636) (97,134)
Interest income - -
Interest expense (57,109) (8,799) (57,003) (183,024) (62,759) (102,953)
Amortization of Film Costs (50,745) (50,745) (50,745) (152,235) (152,235) (152,235)
Other Income (Expense) - - - - (180,000) -
Foreign Currency translations - (2,400)
------------ ------------ ------------ ------------- ------------ ------------
Income (loss) from operations before (314,856) (83,065) (99,190) (970,555) (832,096) (731,050)
provision for income taxes
Provision / Benefit for income taxes
NET INCOME (LOSS) $(314,856) $ (83,065) $ (99,190) $(970,555) $(832,096) $(731,050)
============ ============ ============ ============= ============ ============
Basic income (loss) per share (0.01) (0.00) (0.00) (0.03) (0.03) (0.03)
Weighted average common shares outstanding 35,793,443 29,803,821 24,196,562 35,793,443 29,803,821 24,196,562
============ ============ =========== ============ ============ ============
Diluted income (loss) per share (0.01) (0.00) (0.00) (0.03) (0.03) (0.03)
Weighted average common shares outstanding 35,793,443 29,803,821 24,196,562 35,793,443 29,803,821 24,196,562
============ ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
2
Odyssey Pictures Corporation
Consolidated Statement of Cash Flows
(unaudited)
For the Nine Month Period Ended March 31,
2004 2003 2002
------------------ ----------------- -------------
Cash Flows From Operating Activities:
Net income (loss) (970,555) (832,097) (731,050)
Adjustments to reconcile net income (loss) to net cash
used in operating actvities:
Amortization of film costs 77,238 77,238 76,949
Additions to film costs
Other depreciation and amortization 74,997 74,997 25,000
Issuance of shares of common stock in consideration
for services rendered
Changes in assets and liabilities:
Accounts receivable, net of Doubtful accounts 11,063 (24,254) (168,363)
Notes receivable and advances (60,326) (13,279) -
Prepaid expenses and other (79,456) (77,001)
Accounts payable and accrued expenses 476,688 366,960 249,612
Notes Payable 6,000
Due to Producers and Participants
Deferred Revenues - CEO 116,858 - -
Accrued wages and Taxes and Structured Payments 65,000 127,650 (235,804)
Accrued interest 6,400 13,049
------------------ ----------------- -------------
Net cash used in operating activities (203,037) (295,841) (847,608)
------------------ ----------------- -------------
Cash Flows From Investing Activities:
Acquisition of fixed assets and Production Activity (2,031) - 160,883
Subsidairy Activity - - -
------------------ ----------------- -------------
Net cash used in investing activities (2,031) - 160,883
------------------ ----------------- -------------
Cash Flows From Financing Activities:
Net proceeds from private placement sale of common stock 132,599 3,000 590,000
(including conversion and excluding stock issued for services)
Net proceeds/payments - notes and loans payable 75,024 290,402 87,715
------------------ ----------------- -------------
Net cash provided by financing activities 207,623 293,402 677,715
------------------ ----------------- -------------
Net increase (decrease) in cash 4,586 (2,439) (9,010)
Cash at beginning of period 948 3,675 1,163
------------------ ----------------- -------------
Cash at end of period 5,534 1,236 (7,847)
================== ================= =============
The accompanying notes are an integral part of these financial statements.
3
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
March 31, 2004
1. Basis of Financial Statement Preparation
The Consolidated Financial Statements for Odyssey Pictures Corporation and
subsidiaries (collectively the "Company"), included herein, have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. Management has
included in the Company's consolidated financial statements amounts that are
based on estimates and judgments, which it believes are reasonable under the
circumstances. These financial statements should be read in conjunction with the
consolidated audited financial statements and the notes thereto included in the
Company's Report on Form 10-K for the period ended June 30, 2003. These
statements have been adjusted to conform to current reporting requirements and
the prior period statements have also been conformed to reflect the new reports
as well.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly (a) the financial position as of March
31, 2004, (b) the results of operations for the nine and three month periods
ended March 31, 2004, 2003 and 2002 and, (c) cash flows for the nine and three
month periods ended March 31, 2004, 2003, and 2002.
The consolidated balance sheet as of March 31, 2004, the consolidated statement
of income for the nine and three ended March 31, 2004 and the consolidated
statement of cash flows for the nine and three months ended March 31, 2004
contained within this Form 10-Q have not been reviewed by an independent public
accountant. On April 15, 2004, the audit committee of the Company engaged the
services of Michael F. Cronin ("Michael F. Cronin") as its new independent
accountant. Michael F. Cronin has been engaged to audit the financial statements
of the Company for the fiscal year ending June 30, 2004 and review the financial
statements of the Company for the quarter ending March 31, 2004. As of the date
of the filing of this report, Mr. Cronin has not completed the review of the
financial statements for this quarter. Pending any material changes upon future
review by our independent auditor, management will update the filing if
required.
2. General Management Overview and Summary
The company, although it has begun collecting from exploitation and sales
of its films, has not yet achieved sufficient cash flow to accommodate its past
nor current needs. There are benefits that have been recognized in the past year
of redeveloping the company and its position in the market, however, the company
will still be in need of additional capital in order to maintain its business
direction for the near future.
Of the company's needs, there are critical accounts that need to be
maintained with an additional input of capital. These are mainly company
payments for repeating costs as well as results of legal settlements from past
issues.
Product that the company has begun marketing is of independent producers
and the success of the exploitation of these films cannot be readily determined
and only based upon actual performance, The company believes that the market
impact of both its selling efforts plus the new releases forthcoming will
achieve a renewed interest in the product and fulfillment services Odyssey
offers. Some of the product information is as follows:
"FREE" has been completed and is ready for distribution in all
international markets. Recently, the film was licensed through Showtime to be
aired in the coming second quarter of 2004.
"Trance" in the New York Film Festival and won an award for best fantasy
feature. Odyssey has recreated its own motion logo for the credit presentation
of each of its films and has begun selling this film worldwide. Odyssey
estimates commission income will be in the range of 350,000 USD.
"Liars Club" had its first theatrical venue in Chicago, where it played
well and received very good reviews. Odyssey has begun selling this film
worldwide. Odyssey estimates commission will be in the range of 275,000 USD.
"Certain Guys" in a recent local festival and received an award for story
originality. Odyssey has begun selling this film worldwide. Odyssey estimates
commission will be in the range of 250,000 USD.
In addition, the company has been in discussion with other suppliers of
film and broadcast product and has intentions of forming certain alliances in
order to recognize a revenue-generating product.
4
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
March 31, 2004
3. Litigation - Accrued Settlements - Structured Payments
Included in structured payments and accrued liabilities are agreed amounts
for the settlements with Ian Jessel, Dennis Morgan, and related issues with the
Muller-Smith judgment, and other reserves for litigation and settlements.
4. Private Placement Information
During the quarter ended March 31, 2004, the Company did not raise any
funds through private placement(s) of the Company's common stock.
5. Related Transactions and Majority Owned Subsidiary
During the quarter ended June 30, 2001, the Company capitalized a venture
capital company domiciled in Luxembourg, named Odyssey Ventures Online Holding,
S.A. (OVO) with an issuance of 2 million shares of restricted Odyssey Pictures
Corporation stock. The Company then made cash available for OVO's investments
and expenses in excess of one million dollars in replacement of its stock
capitalization. Since the formation of OVO in March, 2000, the Company 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. In December, 2000, OVO
sold 30% of its investment in Purchase Pooling to Edge Technology Group, Inc.
(OTC Bulletin Board: EDGE) in return for 264,000 shares of the company. 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 down-grades 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. It
is the intention of the Company to liquidate the assets of the subsidiary in an
orderly manner. The company, as of June 30, 2002, has begun writing down these
investments. Charges to the company's operations in the period ending March 31,
2004 were $50,000.
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 9th Odyssey and Kasstech agreed to discontinue the share
contribution and reserves of stock.
The company signed an arrangement with Orpheus Entertainment, a manufacturer of
Video, DVD product and a distributor for all North American 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. Most of the
assets that will be acquired or distributed through this arrangement are from JL
Media Services LLC, from a related party transaction entered into in November
2001 (The Master Distribution Agreement). The Company has seven films to release
in the coming months for this outlet.
5
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
March 31, 2004
6. Capital
In December of 2003, the company borrowed $20,000 for working capital needs in a
sixty-day note at 12% per annum. The company also borrowed funds totaling $4,850
from an Officer during the course of this current quarter on terms to be repaid
as anticipated funds are received. The Company also borrowed $16,000 in
additional capital from a private source for 90 days at an interest rate of 12%
per annum.
JL Media Services LLC, an affiliate of Mr. Foster, also loaned additional funds
to the company during the quarter ending March 31, 2004. The funds are added to
the already outstanding secured notes that JL Media Services LLC has with the
company. These notes carry an interest rate of twelve percent (12%). The
interest is convertible into common stock if elected by the lender. Interest of
$13,500 was incurred and charged as of March 31, 2004.
In August 2003, the Company signed an addendum to the Securities Purchase
Agreement with the US investment company of La Jolla Cove Investors, Inc. 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 Issue 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.
The company renewed all of its notes with Auric Trading AG (the former Cofima
Finanz AG company in Zurich) including all accounts payable, into a series of
notes due December 2003. All are convertible into common shares if so elected.
At the end of December 2003, Auric notified the company that is requested to
convert a portion of its notes into shares of common stock pursuant to the
agreement entered into in December 2002 whereby Auric has the option of making
such conversion. Therefore, the Company agreed to issue 3,000,000 shares of
common stock to the holders of notes as instructed by Auric. The result of this
transaction was the reduction in 92,588.55 USD in debt, which totaled
approximately $285,000.
7. Contingent Liabilities
In December of 2002, the company entered into an arrangement to
post-produce and distribute the project entitled "FREE", a feature length motion
picture. In the agreement for this film, the company has the right to acquire
the asset for a sum of money and may obtain further rights through the exercise
of an option. As of March 31, 2004, the option period for the Company has been
extended due to excessive delays in delivery and added time needed to complete
the project.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months Ended March 31, 2004 and 2003
Revenues for the nine and three months ended March 31, 2004, including
amortization costs, increased to $71,734 from $62,215 for the comparable period
ended March 31, 2003. This increase is due to changes in the Company's beginning
to market and promote its active library and adding attention to creating
additional inventories and new film product. In addition, the Company has been
in development for its business plan and market entry strategy in order to fully
exploit its library and new product effectively. Two new films became available
for delivery during this period and they are being marketed at present. The
current three months show a negative sales figure. This is due to the fact that
the Company had credited an invoice due to discontinuance of a theatrical
arrangement on on e of its films. As this was the Company's first exposure to
this type of arrangement, the expected revenue was not as originally billed, as
this is typical within the independent market.
Costs related to revenues decreased to $0. for the nine and three month
period ended March 31, 2004 from $14,608 for the comparable nine and three
months ended March 31, 2003. This was due to the fact that the revenues reported
were due from licensing renewals, for which certain costs have already been
amortized and the fact that a portion of the revenue reported is reimbursements
of already-expensed items.
Selling, general and administrative expenses increased by $ 100,033 to $
688,341 for the nine and three month period ended March 31, 2004, from $ 588,308
for the comparable period in 2003. This increase in costs is primarily
attributed to the addition of necessary assistance in outside consultants and an
overall increase in rents and accrued salary (deferred) of management. In
addition, the company still continues to experience a significant expense for
its legal costs, mainly due to settlement efforts underway as well as costs
related to seeking alternate financing resources.
Interest expense increased to $183,024 for nine and three month period
ended March 31, 2004, from $62,759 for the comparable period ending March 31,
2003. This is mainly due to the refinancing of several notes as well as fees
associated with the refinancing.
The Company did not recognize any tax benefits related to its losses from
operations for either period due to its inability to carry-back such losses to
prior years.
As of March 31, 2004, the Company had a net operating loss carryforward of
approximately $38,523,092 expiring through 2015, some that may be available to
be used to reduce future tax liability. Due to limitations imposed by the
Internal Revenue Service, the utilization of approximately $4,900,000 of these
net operating losses could be limited to approximately $350,000 per year.
The Company's principal activities have been the acquisition of rights in
either completed or incomplete motion pictures and the licensing of these rights
to sub-distributors in foreign countries. As of March 31, 2004, the Company had
no agreements with sub-distributors relating to distribution commitments or
guarantees that had not been recognized in the statement of operations.
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 Company relies heavily on 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 March 31, 2004, the Company had a cash position of $ 5,534.
7
The Company had no material commitments for capital expenditures as of
March 31, 2004.
Costs associated with the litigation settlements, including legal fees and
interest on legal fees, were $ 168,523 for the nine month period ending March
31, 2004.
Compensation Committee Report and Compensation Committee Interlocks
and Insider Participation
Executive officer compensation is determined by the entire Board of Directors.
Subsequent to the period ending June 30, 2002, the Board 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.
Recent Accounting Pronouncements
- --------------------------------
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (hereinafter
"SFAS No. 150"). SFAS No. 150 establishes standards for classifying and
measuring certain financial instruments with characteristics of both liabilities
and equity and requires that those instruments be classified as liabilities in
statements of financial position. Previously, many of those instruments were
classified as equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has not yet determined the impact of the adoption of this statement.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149").
SFAS No. 149 amends and clarifies the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material
impact on the financial position or results of operations of the Company.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" (hereinafter "FIN 46"). FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. The provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company does not have any entities that require disclosure or new
consolidation as a result of adopting the provisions of FIN 46.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," ("SFAS No. 148"). SFAS 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. In addition,
it also amends the disclosure provisions of SFAS 123 to require prominent
disclosure about the effects on reported results of an entity's accounting
policy decisions with respect to stock-based employee compensation. The
provisions of the statement are effective for financial statements for fiscal
years ending after December 15, 2002. Prior to the issuance of SFAS No. 148, the
Company adopted the fair value based method of accounting for stock-based
employee compensation. Thus, the Company's financial reporting will not be
significantly effected by SFAS 148.
Item 4. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures: Based upon the evaluation
of disclosure controls and procedures as of November 19, 2002, the evaluation
date, the Company's Chief Executive Officer indicates that controls and
procedures of the Registrant designed to ensure that information required to be
disclosed by it in this report filed pursuant to the Securities Exchange Act of
1934 as amended, are in place.
b. Changes in Internal Controls: In order to facilitate the control of
information through the Company's Chief Executive Officer, its certifying
officer under this Item, additional restrictions on changes to existing
relationships, new relationships and flow of funds have been instituted as of
the evaluation date.
8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Lawsuit - Ian Jessel v. Odyssey Pictures Corp., Johan Schotte and Does 1 through
5 - Los Angeles Superior Court, State of California - Filed November 9, 2000.
Complaint for alleged breach of employment contract, fraud and fraudulent
conveyance - Plaintiff alleges breach of an employment contact where Plantiff
sought unspecified compensatory damages. Although the company was advised that
there are substantial defenses to this action, in December of 2001, the Company
entered into mediation talks for a settlement, which was later entered into and
accepted in February of 2001. In June of 2001, the first payment was made with
subsequent payments thereafter.
As of the period ending December 31, 2002, The "Jessel Agreement" (the lawsuit
filed in 1999 by Ian Jessel) has been settled and is required to have a payment
arrangement adhered to as well as a continuing consulting agreement. The prompt
payment of this agreement will keep a judgment of over $500,000 being filed
against the company (and former officers of the company). As of March 31, 2004,
there have been no payments made towards the agreement. The condition of this
settlement, and lack of any payments (unless other arrangements are made) could
result in either a 1) reinstatement of the lawsuit against the Company (and
former officers individually, as well as affiliated companies of the former
officers) or 2) the filing of a judgment against the Company (et. al.) with any
enforcement rights that a judgment may carry.
The Company has entered into a term agreement whereby Mr. Ian Jessel may become
a consultant and assist in structuring a sales base for new films and assist in
Odyssey's repositioning in the marketplace. Terms of the negotiated arrangement
shall be payable on an 18 month term, in exchange for and consideration of the
past amounts owing, with an additional stock issue being made to him on a
quarterly basis. This would settle the matter with the Company and would assist
in forwarding the Company's movement into several areas it has not been able to
accommodate in the past.
Lawsuit - Dennis Morgan v. Odyssey Pictures Corp., Johan Schotte, Johan Schotte
Productions, Inc., Red Sun Productions, Inc., Media Trust, S.A. and Does 1
through 100 - Complaint filed December 15, 2000, Los Angeles Superior Court,
State of California.
Plaintiff alleged unspecified damages for alleged breach of oral contract,
breach of written contract, breach of implied contract, fraud, and negligent
misrepresentation of conveyance. The action had been served and the company
filed a demurrer to the Complaint. Although the company advised previously that
Mr. Morgan was not an employee of the company and there were substantial
defenses to the action, as of the end of October 2001, the company entered into
a settlement agreement to satisfy all outstanding complaints.
In the "Morgan Settlement" (the lawsuit filed in 1999 by Dennis Morgan), the
Parties have reached a settlement and have constructed a payment arrangement.
The prompt payment of this agreement will keep a judgment of over $250,000 being
filed against the company (and former officers of the company). As of March 31,
2004, there have been no payments made towards the agreement. The condition of
this settlement, and lack of any payments (unless other arrangements are made)
could result in either a 1) reinstatement of the lawsuit against the Company
(and former officers individually, as well as affiliated companies of the former
officers) or 2) the filing of a judgment against the Company (et. al.) with any
enforcement rights that a judgment may carry. In April 2003, the Company was
notified that the "Morgan Case" was issued a judgment in the amount of $250,000.
The Company is and has been in contact with counsel and has an agreement on
enforcement pending a continued payment plan being made.
Lawsuit - 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.Complaint for balance owing of services rendered from the period
beginning 1997 through to April of 2001. Odyssey has answered this complaint,
although it was not notified until August 10, 2001 denying its position in the
named defendants. Odyssey contends that it did, in fact, pay any and all
outstanding related legal bills related to the Plaintiff's corporate
involvement. Odyssey has offered 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 March 31, 2004.
Lawsuit - The "Pfannebecker Case" (lawsuit filed in 1996 seeking class action
status) has been dismissed. This lawsuit was the reason for the auditor's note
in their certification letter of Odyssey's past financials stating "all
liabilities cannot be known" for the company since this was ongoing and its
status a threat to the company. Odyssey is released from this claim in full with
the final declarations being distributed in court in January 2003.
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The "Mortman Settlement" (claim for indemnification and reimbursement of legal
fees regarding the Pfannebecker Case) has been settled and Odyssey was released
from any claims Mortman would purport to have with respect to reimbursement of
legal fees from the company.
The "Muller & Smith Case" (lawsuit filled for indemnification and reimbursement
of legal fees regarding the Pfannebecker Case) is, at the close of business on
March 31, 2004, still was an outstanding issue. 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 be limited to, possible future 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 and the company and management has experienced constant
business interruption in providing information and having to adhere to court
appearances during the post-judgment discovery process that is continuing on a
daily basis. Muller-Smith have sent notices for deposition for the CEO and have
engaged in depositions on two occasions. Muller-Smith received documents from
the Company based upon their requests and Muller-Smith claimed that the delivery
of these documents were inefficient and incomplete. Muller-Smith appealed to the
court in Texas and received an order compelling management to deliver certain
records and documents, to which management complied in February. Notices were
sent to the company to indicate that the documents were still incomplete.
Management contends that it has delivered what the company has in its possession
and still is attempting to satisfy the necessary requirements for pending post
judgment discovery to Muller-Smith. Further hearings and notices have been
received from Muller-Smith on these matters including the request for deposition
of board members as well. Management has offered a potential settlement through
one of the present shareholders and investors of the company, the details of
which are in discussion at present.
There is a perfected judgment issued to a law firm in Los Angeles, Arter &
Hadden LLP, which is from representation in the above suits prior to specific
counsel moving to another firm, which is currently representing the Company. 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. The judgment has been
filed in Texas as well and the Company is in continual discussion with the
collection attorney involved on behalf of Arter and Hadden. Whereas settlement
discussion have been underway, nothing has been offered from the Company as of
the close of business son March 31, 2004.
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. The Company has indicated to Distinct Web Creations that it desires to
settle the open amounts on an amicable basis. Odyssey is being represented by a
law firm in Florida and has instructed them to assist in a settlement that may
be affordable for the Company to enter into.
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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. The Company
continues to experience business interruption from additional motions and
discoveries from these lawsuits. Results of these motions and discoveries have
not yet been decided. Due to the inherent uncertainties of litigation and
because the litigation is not at a final or "controllable" stage, Company cannot
accurately predict the ultimate outcome of the litigation processes.
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 2. 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 Belgian francs
and some rent expenses of an office recently closed in Luxembourg. A previous
officer used the remaining funds for claimed expenses.
Odyssey is no longer pursuing additional subscriptions to this Bond as it has
expired and its offering is no longer available.
The company renewed all of its notes with Auric Trading AG (the former Cofima
Finanz AG company in Zurich) including all accounts payable, into a series of
notes due December 2003. All are convertible into common shares if so elected.
At the end of December 2003, Auric notified the company that is requested to
convert a portion of its notes into shares of common stock pursuant to the
agreement entered into in December 2002 whereby Auric has the option of making
such conversion. Therefore, the Company agreed to issue 3,000,000 shares of
common stock to the holders of notes as instructed by Auric. The result of this
transaction was the reduction in 92,588.55 USD in debt, which totaled
approximately $285,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
An interest payment was due on April 12, 2002 and was made by a third
party, therefore the Senior Secured Bond was in compliance with its
requirements. The company did not have sufficient cash to make its next
semi-annual payment (due October 15, 2002) and therefore, risks the Bond being
placed in default. The company has received demand from its agent (Investment
Bank Luxembourg) for immediate payment. As of March 31, 2004, no payment has
been made against the bond, but management is making plans to address the
restructuring of any amounts due as soon as possible.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 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 that is headquartered there, 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 a settlement of all accounts underway. The
Company has offset all undocumented expenses from prior management contracts and
the resulting amounts were booked as gains and losses. While the Company expects
full recovery, a reserve for losses has been taken.
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The Company in March gave notice to the Managing Director of its 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 for 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
of 2002. The company, as of June 30, 2002, reduced is valuation of the OVO
assets mainly due to their determination of liquidity. In addition, the company
wrote off all of the development expense relating to the OVO initial startup.
The Company is in the process of exploring all avenues for full recovery of
these assets. A reserve has been taken against any potential losses and,
although the Company expects full recovery, this resulted in $180,000
contribution of losses for the period ending March 31, 2004. Further meetings
have been scheduled to attempt collection and satisfaction of these outstanding
amounts on an amicable basis.
The Company reversed some expenses claimed by the former officer due to lack of
documentation. The Company seeks the recoupment of an advance on a film project
made. The Company wrote off this prior entry as the item was carried as a
prepaid asset. This item will appear in Non-recurring items.
The Company, as of June 30, 2002, reduced its valuation of the Media Trust SA
investment and note receivable due to undeterminable recovery.
The Company, as of June 30, 2002, 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.
ITEM 6. EVENTS SUBSEQUENT TO THE FISCAL QUARTER
In April of 2004, the pending judgment for Mr. Jessel was entered in the amount
of approximately 369,000. It is anticipated that this will be settled upon
through the recent agreement for consulting services, for which Mr. Jessel will
be representing the company's productions in the foreign markets to assist in
rejuvenating the sales and marketing activity of the company.
On April 15, 2004, the audit committee of the Company engaged the services of
Michael F. Cronin ("Michael F. Cronin") as its new independent accountant.
Michael F. Cronin has been engaged to audit the financial statements of the
Company for the fiscal year ending June 30, 2004 and review the financial
statements of the Company for the quarter ending March 31, 2004.
The law firm of Jackson Walker has filed for a motion for withdrawal in its
representation of Odyssey. This motion was subsequently granted, although
Odyssey did not agree to the motion, and became effective on May 19, 2004.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits. None
Reports on Form 8-K. None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ODYSSEY PICTURES CORPORATION
By: /s/ John W. Foster
------------------------
John W. Foster
CEO and Chairman
DATED: May 27, 2004
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