SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 2002
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 0-18954
Odyssey Pictures Corporation
(Exact name of registrant as specified in its charter)
Nevada 95-4269048
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
16910 Dallas Parkway, Suite 104, Dallas, Texas 75248
(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 disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 30, 2001 was approximately $8,469,736 (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, 2002 there were outstanding 30,392,039 shares of Odyssey
Pictures Corporation's common stock, par value $.01 per share (the "Common
Stock").
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ODYSSEY PICTURES CORPORATION
Form 10-K Report for the Fiscal Year
Ended June 30, 2002
TABLE OF CONTENTS
Page
PART I
Item 1. Business..............................................................
Item 2. Properties............................................................
Item 3. Legal Proceedings.....................................................
Item 4. Submission of Matters to a Vote of Security Holders...................
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..
Item 6. Selected Financial Data...............................................
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................
Item 8. Financial Statements and Supplementary Data...........................
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................
PART III
Item 10. Directors and Executive Officers of the Registrant...................
Item 11. Executive Compensation...............................................
Item 12. Security Ownership of Certain Beneficial Owners and Management.......
Item 13. Certain Relationships and Related Transactions.......................
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......
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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
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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 were converted into
176,050 shares of common stock in October, 1998.
During the early 1990s, the Company developed an excellent reputation in
overseas markets for the distribution of quality motion picture entertainment, a
reputation which the Company's management believes it continues to enjoy despite
its recent difficulties. However, due to the changes in management control and
disruptions in the continuity of the Company's business following the change in
control in 1995, the Company 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. See "Business -
Narrative Description of Business - Business Strategy."
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 $202,500 in past compensation as
well as reimbursement for some business expenses and outstanding loans.
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
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control of the subsidiary and settlement of all accounts underway. The Company
has offset all undocumented expenses from prior management contracts and the
resulting amounts were booked as part of extraordinary gains and losses. While
the Company expects full recovery, a reserve for losses has been taken.
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 1,868,055 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 now serves 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.
In January the Company hired C. F. K. (Frank) Cole as the Chief Financial
Officer and also installed him as corporate secretary. Mr. Cole had been serving
in a consulting capacity for the company for several months and has been a
venture capitalist and consultant for 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 has one-year
contract with the Company with ninety-day notification clause. Mr. Cole has
elected not to continue as CFO due to personal reasons.
(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 foreign 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 foreign 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.
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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."
Terms of Distribution Agreements. Foreign distribution is generally
handled by a distributor such as the Company which coordinates worldwide sales
in all territories and media. Overseas film sales companies rely on local
subdistributors to physically deliver the motion picture and related marketing
materials and to collect revenues from local exhibitors and other local
distributors of the film. Typically, the territorial rights for a specific
medium such as television exhibition are sold for a "cycle" of approximately
seven years, after which the rights become available for additional cycles.
The film distribution business breaks down into two broad categories:
o 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.
o Distribution. As a distributor, the Company may provide the producer of
the film a guarantee of a portion of the budget of the project. This guarantee
may be in the form of a bank commitment to the producer, secured by license
agreements with foreign licensees, which is used by the producer to finance the
production. Typically, a distributor would receive a distribution fee 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 with 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.
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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.
Additional distribution receipts, if any, are shared by the Company and
the producer according to the percentages negotiated in the agreement between
the Company and the producer.
Independent Film Production and Product Acquisition
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 a greater profit participation through the retention of the
copyright or the ability to sell the film directly in particular markets. Often,
young, new directors and producers have no choice but to independently produce
their projects, and the motion picture industry has a long history of
"breakthrough" films produced at a low cost by first-time producers and
directors which subsequently achieve considerable revenues. The Company has
generally obtained its product from among these independently produced films
rather than from major motion picture studios which typically have their own
in-house distribution networks. Nevertheless, from time to time, the Company has
entered into "split rights", 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 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
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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 crew members, 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.
Strategic Objectives
The above strategies are selected out of necessity in the operations of a
business such as Odyssey. 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;
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- 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.
Subsidiary Operations
During the year 2000 and into 2001, Odyssey has completed the acquisition
of Filmzone.com, an informational entertainment resource site which presently
serves the public for retrieval of current film information. The acquisition was
added as a subsequent part of the earlier announced Kimon acqusition. 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 is expected to be "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.
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.
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
9
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 September, 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.
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 towards the acquisition of the
distribution rights to the film with the intention of producing it into a
feature length movie based upon the prospects of new financing for productions
becoming available. As of June 30, 2001, the financing has not become available
and the project remains in script form, but is registered as an asset of the
Company.
Library Films
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
"Financing").
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 which 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. 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 this
investment due to the lack of financial reporting since the inception of the
investment. The Company has obtained legal representation in Brussels on this
matter.
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Sales of Library Films
On January 2, 1996, the Company entered into an agreement with Regency
International Pictures, B.V. ("Regency"), the Company's joint venture partner,
to sell the Company's interest in the related joint ventures through which it
held approximately 50% ownership interests in four theatrical motion pictures,
entitled "Switch", "Q & A," "Guilty by Suspicion" and "This Boy's Life".
Pursuant to the agreement with Regency, the Company received $1,000,000 on
January 23, 1996 and $500,000 on February 14, 1996, in exchange for all of the
Company's interests in the joint ventures. In addition, the Company retained a
contingent interest in certain receivables, not to exceed $212,500, and a
contingent interest in future revenues from the pictures.
On August 29, 1996, the Company entered into an agreement with Kinnevik
Media Properties, Ltd. ("Kinnevik"), pursuant to which the Company agreed to
grant to Kinnevik subdistribution rights in, and to sell to Kinnevik other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company received a total cash consideration of $1,075,000,
payable $500,000 on closing, $275,000 six months after closing, and $300,000
eighteen months after closing. In addition, the Company retained a continuing
right to receive revenues from certain of the films, valued by management at a
minimum of approximately $150,000. As part of the transaction, the Company
granted 100,000 stock options to Kinnevik, exercisable over a three year period
at the bid price of the Company's common stock in effect on August 5, 1996
($.625). The transaction with Kinnevik closed on October 7, 1996.
Recent Financings
In August, 1998, three unaffiliated investors loaned 4,000,000 Belgian
Francs (approximately $100,000) and received one year convertible notes with
interest at 10% per annum (the notes are convertible at a 15% discount to the
market price). 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).
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In August, 1999, three unaffiliated investors 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 have been 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, two unaffiliated investors loaned 4,000,000 Belgian
Francs (approximately $100,000) and received one year convertible notes with
interest at 10% per annum (the notes are convertible at a 15% discount to the
market price). The notes have been extended through to September 30, 2001. Two
of the Belgian Franc loans have been repaid and the others have agreed to
renewals with a fixed amount of shares for possible conversion.
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.
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, 2002, the
Company had five full-time employees, consisting of Mr. John Foster, the CEO and
President of the Company, Mr. Frank Cole, along with three administrative
assistants in the Dallas office.
Tax Loss Carryforward
The Company is entitled to the benefits of certain net operating loss
carryforwards to reduce its tax liability. The utilization by the Company of
such tax loss carryforwards is limited under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the applicable regulations
promulgated thereunder. As of June 30, 2002, there were approximately
$35,700,287 in net operating loss carryforwards remaining to be used to reduce
tax liability. The utilization of approximately $4.9 million of these losses in
future periods will be limited to approximately $350,000 per year.
12
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, 2002 - $40,936
June 30, 2001 - $34,094
June 30, 2000 - $17,649
June 30, 1999 - $84,939
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 is
the entry of a confession of judgment already executed by the Company for the
amount of $275,000. This confession of Judgment is against Odyssey Distributors,
Ltd., a wholly owned but non-operating, 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
13
infringement, unfair competition, breach of contract, accounting, conversion,
civil theft, conspiracy and fraudulent conveyance. The Complaint demands a
recall of the films, an attachment, preliminary and permanent injunctive relief,
an accounting, and unspecified compensatory, punitive and treble damages. The
Company's motion to transfer venue of the action was granted in November, 1995,
and the case was transferred to the United States District Court for the
Southern District of New York. There has been no activity in this matter since
the transfer of venue in 1995.
In October, 1995, Canon Financial Services filed a Complaint in the
Superior Court of New Jersey entitled Canon Financial Services, Inc. v.
Communications and Entertainment Corp. The plaintiff is claiming that it is due
$47,499.83, plus damages, pursuant to a lease agreement. The Company has filed
an Answer in this action and plaintiff's motion for summary judgment has been
denied by the Court. No trial date has yet been set in this matter.
In December, 1995, Robert F. Ferraro, a former director of the Company,
brought an action against the Company in the Supreme Court of the State of New
York, New York County. The action was brought on a promissory note in the amount
of $25,000 and plaintiff obtained a judgment on a summary judgment motion. The
plaintiff has not yet moved to enforce the judgment and the Company is
considering whether or not it has a claim for indemnification against prior
management in connection with the issuance of the note. The judgment, in the
meantime, has been assigned to an outside collection agency who has been in
contact with Management of Odyssey and Odyssey has made payments in keeping the
matter from accelerating.
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 this year, 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
Tenato Tomacruz." Following the filing of the second action, the first action
was dismissed by stipulation in May 1997. The Company filed a motion to dismiss
the complaint in the second action and after a hearing on the motion in July,
1997, the Court dismissed the federal securities law claims as being time-barred
by the applicable statute of limitations, and dismissed the state securities law
claims for lack of subject matter jurisdiction. The lower court's dismissal of
this action was upheld on appeal by the Ninth Circuit. 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
14
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, 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 Messrs. Smith and Muller 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.
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. As for Mr. Muller and
Mr. Smith, the company intends to further clarify its stand on its position
within the company as earlier noted.
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 have 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, 2002.
Mr. Ian Jessel entered into a three year employment agreement with the
Company, commencing November 9, 1998 and continuing through November 9, 2001.
Mr. Jessel's responsibilities included management of the Company's Motion
Picture & Television Division. Mr 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 Mr. Jessel in fiscal 1999 and deferred
payment of the balance of the compensation due to him. In June, 1999, Mr. 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 Mr. Jessel. Mr. 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 Mr. Jessel's breach of his obligations under the
agreement. Discovery was ongoing in this matter and a trial date was set for
April 30, 2001. Amounts that could have been due to Mr. 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
Mr. Jessel have made an arrangement for repayment of the balance of this debt.
Dennis Morgan commenced an action against the Company in December, 1999 in
the Los Angeles Superior Court alleging that he was promised a position as
15
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. Mr. 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, Mr.
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 Mr. Morgan have made a payment arrangement which involves a period of time
in structured payments
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. Odyssey has
answered this complaint 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 June 30, 2002.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The following table sets forth the range of high and low bid information
for the Common Stock of the Company as reported by the Nasdaq Stock Market, Inc.
("Nasdaq") on a quarterly basis for each of the two preceding fiscal years. On
May 1, 1996, Nasdaq notified the Company that its shares of Common Stock were
being deleted from Nasdaq's SmallCap Market, effective May 2, 1996, because the
Company did not maintain a combined capital and surplus of $1,000,000, as
required by Section 1(c)(3) of Schedule D of the NASD By-Laws. Since May 2,
1996, the Company's shares have traded in the over-the-counter market on the OTC
Bulletin Board. The Company's Common Stock trades under the symbol OPIX.
16
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, mark-downs or commissions and may not necessarily represent actual
transactions.
Common Stock
Fiscal 2000 High Low
----------- ---- ---
First Quarter $ .69 $ .49
Second Quarter 1.11 .45
Third Quarter 1.19 .75
Fourth Quarter 1.55 .94
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
As of June 30, 2002, there were approximately 13,833 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.
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,
----------------------------
2002 2001 2000 1999
Income Statement Data
Revenues $ 167 $ 4 $ 146 $ 288
Income(loss) from continuing operations (542) (1,449) (1,208) (1,388)
Income(loss) from discontinued operations (1,378) -- -- --
Net income (loss) (1,920) (1,449) (1,208) (1,388)
Per Share Data*
Income(loss) from continuing operations (.024) (.08) (.09) (.22)
Income(loss) from discontinued operations (.066) -- -- --
Net income (loss) (.09) (.08) (.09) (.22)
Cash dividends -- -- -- --
Weighted average shares 22,540 17,214 13,103 6,459
Balance Sheet Data
Film costs 3,638 3,923 4,095 4,378
Total assets 4,921 5,796 5,936 5,439
Indebtedness 3,725 3,743 2,869 1,192
Shareholders' equity 1,196 2,053 3,067 2,161
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.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Results of Operations
Years Ended June 30, 2002 and 2001
Net loss for the year ended June 30, 2002 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. Revenues for the twelve months ended June 30, 2002
increased to $168,615 compared to $3,706 for the twelve months ended June
30, 2001. The latter part of this year, the Company had several new films
ready to be made available for delivery during the first two quarters of
the new year. In addition, the company is in post production for several
more film projects recently acquired. This increase is also related to
activities with the film library as well as new marketing from present
management.
Costs related to the revenues decreased to $106,050 for the twelve months
ended June 30, 2002 as compared to $152,953 for the twelve months ended
June 30, 2001. The relative decrease costs are primarily related to
reclassification of depreciation costs associated with the earlier
acquisition of the Kimon library and Hallmark film assets.
18
Selling, general and administrative expenses decreased by $128,218 to
$604,526 for the twelve-month period ended June 30, 2002 from $ 732,744
for the comparable period ending June 30, 2001. This decrease is primarily
due to corporate overheads being reduced in outside areas.
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 members of its board and also
received assistance from current shareholders. The Company was able to
acquire 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 new managerial staff to further assist in its future
performance.
Liquidity and Capital Resources
The Company's continued existence is dependent upon its ability to resolve
its liquidity problems. The company must achieve and sustain a profitable
level of operations with positive cash flows and must continue to obtain
financing adequate to meet its ongoing operation requirements. These
factors raise substantial doubt about the Company's ability to continue as
a going concern.
At June 30, 2002, the Company held approximately $3,675 of cash.
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 offshore investors.
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.
19
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted as a separate section of this
report commencing on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Reference is made to the Company's Reports on Form 8-K, dated September
24, 1997, and February 13, 1998, with respect to a change in accountants
for the Company.
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 new rulings, and has elected to maintain the
same relationship as in the past
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 49 Director, Chairman of the Board and
CEO/President
Patrick Speeckaert 55 Director, Compensation Committee,
Audit committee
Jean-Marie Carrara 44 Director
Peter Bucher 60 Director
Kjell Larsson 50 Director, Compensation Committee,
Audit Committee
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
(i)nvestments in motion picture projects for investors, distributors and
producers.
20
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 July 2000
to June 2001. His contract was extended through 2002, and he is currently
serving as Chairman, President and CEO of the Company effective July 1, 2001 to
present.
Patrick Speeckaert for more than the past seven years has served as Managing
Director of Morrow & Co., Inc. in New York City. Morrow & Co., Inc. is a leading
company specializing in advising international corporations with respect to
issues involving corporate governance, shareholder relations and solicitations.
Jean-Marie Carrara is an international corporate strategist and technology
consultant. His areas of expertise include management of decision information
and data transmission safety and expertise in various technologies in the
telecommunications, textiles and recycling industries. Mr. Carrara serves as an
expert to the International Chamber of Commerce and continues to publish, teach,
and lecture at the university level in France. He holds a doctorate degree in
pharmacy, advanced degrees in biology, biochemistry and hematology, and advanced
degrees in management and finance.
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 where he is President of TigerNetOrder,
Inc., an Internet facilitator and service company specializing in E-Trade and
Web Stores. He has been involved with the film industry for over twenty years
and has produced and sold in all facets of the film business. Mr. Larsson is
also a shareholder of Odyssey Pictures through his company, Kemp Entertainment.
Meetings and Committees of the Board of Directors
For the fiscal year ended June 30, 2002, 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.
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, 2002, the Company's officers, directors and greater than 10%
stockholders complied with all filing requirements under section 16(a) except
that Messrs. Carrara and Foster did not file Form 3 Reports.
21
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
four most highly compensated executive officers who were executive officers as
of June 30, 2002, and other significant employees for whom inclusion in the
following table would be required but for 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 2002 168,000 -- -- -- --
President 2001 156,000 -- -- -- --
2000 49,250 -- -- -- 12,312
Options/Stock Appreciation Rights
The following table provides information with respect to stock options and
stock appreciation rights ("SARs") granted to the named executive officers
during the fiscal year ended June 30, 2001.
Individual Grants(1)
----------------------------------------
% of Total
Number of Options Potential Realized Value at
Securities Granted to Exercise Assumed Annual Rates of
Underlying Employees Price Stock Price Appreciation
Options in Fiscal Per Expiration For Option Terms
Granted Year Share Date 5% 10%
------- ---- ----- ---- -- ---
None
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.
22
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, 2001 and the period ending June 30, 2002.
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 from 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
23
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 balance of these notes
were converted into 176,050 shares of common stock in October, 1998.
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. 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 $14,000 per month and his contract was extended
through December 31, 2002. Most of Mr. Foster's accumulated and accrued salary
has gone unpaid and remains as a payable by the Company as of the end of June
30, 2002.
Compensation Committee Report and Compensation Committee Interlocks and Insider
Participation
24
Executive officer compensation is determined by the entire Board of Directors.
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.
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 Shares Percentage of
Beneficial Owner Status Beneficially Owned Class
- ---------------- ------ ------------------ -----
Patrick Speeckaert Director 2,000 Less than 1%
John Foster Director, 2,000 Less than 1%
President
Jean-Marie Carrara Director 2,000 Less than 1%
Kjell Larsson Director 1,868,055 6.6%
All Executive
Officers & --
Directors As
A Group (5 Persons) 1,874,055 6.8%
Item 13. Certain Relationships, Related and Subsequent Transactions.
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
25
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.
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 five unsecured promissory notes that, although they are with
individuals directly, have been booked under `notes payable' Media Trust.
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." The determination of the disposition of this advance
has not been decided upon as o the close of business on June 30, 2002 although
the Company wishes to seek its refund on any outstanding advances in general.
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.
26
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.
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.
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.
PART IV
Item 14. 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)
27
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 Lease for office premises at 16910 Dallas Parlway, 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)
28
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 Mediabright
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)
- --------------------------------------------
(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
29
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this Report.
(c) See (a)(3) above.
(d) None
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: November 1, 2002 By: /s/ John W. Foster
------------------------------
John W. Foster,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John W. Foster
- ------------------------- CEO, Chairman and ---------------
John W. Foster President
/s/ Kjell Larsson Director ---------------
- ------------------------
Kjell Larsson
/s/ Director ---------------
- ------------------------
Jean-Marie Carrara
/s/ Patrick Speeckaert Director ---------------
- ------------------------
Patrick Speeckaert
/s/ Director ---------------
- -------------------------
Peter Bucher
30
Want & Ender CPA, P.C.
386 Park Ave. South Suite 1816
New York, NY. 10016
Report of Independent Accounts
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, 2002, 2001 and 2000 and the results
of their operations and their cash flows for the period ended June 30, 2002,
2001 and 2000 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-2
ODYSSEY PICTURES CORPORATION
Consolidated Balance Sheets
June 30, June 30, June 30,
2002 2001 2000
------------ ------------ ------------
Assets
Cash $ 3,675 $ 2,163 $ 31,215
Accounts receivable, net of allowances
of $0 and $0 272,087 87,406 208,511
Notes receivable 0 112,682 149,296
Film costs, net 3,637,896 3,923,405 4,095,824
Prepaid expenses and other 422,206 409,706 450,906
Investments net of reserves for losses 584,916 1,261,833 1,001,100
------------ ------------ ------------
TOTAL ASSETS $ 4,920,780 $ 5,797,196 $ 5,936,852
============ ============ ============
Liabilities and Shareholders' Equity (Deficit)
Liabilities
Accounts payable and accrued expenses 1,300,769 1,308,768 819,038
Management contracts/structured payments 847,061 950,719 709,545
Accrued interest 228,021 226,414 226,414
Due to producers and participants 230,584 250,000 250,000
Deferred revenues 0 0 29,000
Notes and loans payable 1,118,851 1,005,674 835,680
------------ ------------ ------------
Total Liabilities $ 3,725,286 $ 3,741,575 $ 2,869,678
============ ============ ============
Shareholders' Equity (Deficit)
Preferred stock, Series B, par value $.10 0 0 450,000
Authorized - 10,000,000 shares
Common stock, par value $.01;
Authorized - 40,000,000 shares
Issued and outstanding (net of treasury shares)-
28,033,705; 21,174,340; and 13,103,428 298,038 211,743 131,034
Capital in excess of par value 36,597,743 35,624,038 34,820,443
Accumulated deficit (35,700,287) (33,780,161) (32,334,304)
------------ ------------ ------------
Total shareholders' equity (deficit) 1,195,494 2,055,620 3,067,173
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 4,920,780 $ 5,797,195 $ 5,936,850
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Odyssey Pictures Corporation
FYE 6/30/2001 and Three Years Prior
Consolidated Statements of Operations
For the Years Ended June 30,
2002 2001 2000
------------ ------------ ------------
Revenue
$ 168,615 $ 3,706 $ 146,485
Expenses
Costs related to revenues 106,050 152,953 140,580
Officers salaries and expense 271,839
Selling, general and
administrative expenses 332,687 732,744 1,136,617
------------ ------------ ------------
710,576 885,697 1,277,197
------------ ------------ ------------
Operating income (loss) (541,961) (881,990) (1,130,712)
Other income (expenses)
Litigation settlements and legal fees (126,789) (471,236) --
Reserves for losses on investments (709,222) -- --
Financing fees (384,127) (38,148) --
Interest income 138 12,001 25,944
Interest expense (158,070) (68,776) (103,063)
Foreign Currency translations (92) -- --
------------ ------------ ------------
Income (loss) from operations
before provision for income taxes (1,920,123) (1,448,150) (1,207,831)
Provision / Benefit for income taxes --
NET INCOME (LOSS) $ (1,920,123) $ (1,448,150) $ (1,207,831)
============ ============ ============
Basic income (loss) per share (0.09) (0.08) (0.11)
Weighted average common
shares outstanding 22,540,417 17,213,988 11,093,198
============ ============ ============
Diluted income (loss) per share (0.09) (0.08) (0.11)
Weighted average common
shares outstanding 22,540,417 17,213,988 11,093,198
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
Odyssey Pictures Corporation
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for FYE 6/30/01 and 6/30/00
Preferred Stock-Series A Preferred Stock-Series B
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Balances - June 30, 1998 500,000 50,000 -- --
Issuance of shares of common stock as partial
consideration for loans made to company
Issuance of shares of preferred stock for
purchase of Kimon film library and other assets 4,500,000 450,000
Issuance of shares to officers in payment of notes
Issuance of shares of common stock in consideration
for barter services to be rendered
Issuance of shares in consideration for legal
services rendered
Issuance of shares of common stock to equity
investors
Issuance of shares of common stock to officer
as contract signing bonus
Issuance of shares in consideration for services
to be rendered
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest
Net loss
---------- ---------- ---------- ----------
Balances - June 30, 1999 500,000 $ 50,000 4,500,000 $ 450,000
========== ========== ========== ==========
Issuance of shares of common stock as partial
consideration for loans made to company
Issuance of shares of common stock to equity (500,000) (50,000)
investors
Net loss
Balances - June 30, 2000 -- -- 4,500,000 $ 450,000
========== ========== ========== ==========
Issuance of shares of common stock to equity (4,500,000) $ (450,000)
investors
Net loss
Balances - June 30, 2001 -- -- -- --
========== ========== ========== ==========
Issuance of shares in consideration for financial
services rendered
Issuance of shares of common stock to equity
investors
Net loss
Balances - June 30, 2002 -- -- -- --
========== ========== ========== ==========
Common Stock Capital in Total
Excess of Accumulated Shareholders'
Shares Amount Par Value Deficit Equity (Deficit)
------------ -------- ----------- ------------- -----------
Balances - June 30, 1998 5,617,503 $ 50,293 $27,552,973 $ (29,736,698) $(2,083,432)
Issuance of shares of common stock as partial
consideration for loans made to company 45,000 $ 450 $ 19,350 $ 19,800
Issuance of shares of preferred stock for
purchase of Kimon film library and other assets $ 4,050,000 $ 4,500,000
Issuance of shares to officers in payment of notes 830,055 $ 8,301 $ 251,943 $ 260,244
Issuance of shares of common stock in consideration
for barter services to be rendered 200,000 $ 2,000 $ 86,000 $ 88,000
Issuance of shares in consideration for legal
services rendered 100,000 $ 1,000 $ 39,000 $ 40,000
Issuance of shares of common stock to equity
investors 1,500,000 $ 15,000 $ 425,693 $ 440,693
Issuance of shares of common stock to officer
as contract signing bonus 50,000 $ 500 $ 16,500 $ 17,000
Issuance of shares in consideration for services
to be rendered 181,667 $ 1,816 $ 104,000 $ 105,816
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest 348,721 $ 3,487 $ 158,738 $ 162,225
Net loss -- -- -- $ (1,389,773) $(1,388,946)
------------ -------- ----------- ------------- -----------
Balances - June 30, 1999 8,872,946 $ 82,847 $32,704,197 $ (31,126,471) $ 2,161,400
============ ======== =========== ============= ===========
Issuance of shares of common stock as partial 3,000,000 $ 30,000 $ 1,170,000 $ 1,200,000
consideration for loans made to company
Issuance of shares of common stock to equity $ (50,000)
investors 1,818,700 $ 18,187 $ 946,246 $ 964,433
Net loss $ (1,207,831) $(1,207,831)
Balances - June 30, 2000 13,691,646 $131,034 $34,820,443 $ (32,334,302) $ 3,067,175
============ ======== =========== ============= ===========
Issuance of shares of common stock to equity 4,101,239 $ 41,012 $ 408,988
investors 3,969,673 $ 39,697 $ 394,607 $ 434,304
Net loss $ (1,448,150) $(1,448,150)
Balances - June 30, 2001 21,762,558 $211,743 $35,624,038 $ (33,782,452) $ 2,053,329
============ ======== =========== ============= ===========
Issuance of shares in consideration for financial
services rendered 690,000 $ 6,900 $ 137,100 $ 144,000
Issuance of shares of common stock to equity
investors 7,939,481 $ 79,395 $ 836,605 $ 916,000
Net loss $ (1,920,123) $(1,920,123)
Balances - June 30, 2002 30,392,039 $298,038 $36,597,743 $ (35,702,575) $ 1,193,206
============ ======== =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
F-5
Issuance of shares to officers in payment of notes
Issuance of shares of common stock in consideration
for barter services to be rendered
Issuance of shares in consideration for legal
services rendered
Issuance of shares of common stock to equity (500,000) (50,000)
investors 1,818,700
Issuance of shares of common stock to officer
as contract signing bonus
Issuance of shares in consideration for services
to be rendered
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest
Net loss
Balances - June 30, 2000 (500,000) (50,000) -- -- 1,818,700
======== ======= ========== ========== ==========
Issuance of shares of common stock as partial
consideration for loans made to company
Issuance of shares to officers in payment of notes
Issuance of shares of common stock in consideration
for barter services to be rendered
Issuance of shares in consideration for legal
services rendered
Issuance of shares of common stock to equity
investors
Lot 201 7/14/2000 8
Lot 202 7/20/2000 5
UBS DE 7/21/2000 1000000
Brown Bros 7/24/2000 300000
Koby 7/27/2000 10000
Odyssey 8/4/2000 2006000
CLSA 8/10/2000 24
Kerker 8/21/2000 13889
CLSA 8/29/2000 11
CLSA 9/6/2000 1127
BFC Banque 9/7/2000 100000
Ferrier 9/27/2000 100000
CLSA 10/2/2000 27
Reittman 10/4/2000 25000
Lot 207 10/26/2000 27
Fondren 10/27/2000 50,000
Frank 10/27/2000 30,000
CLSA 10/19/2000 127
COMM 10/19/2000 657
COMM 10/19/2000 271
FARD 11/2/2000 200,000
Miller 11/8/2000 72,500
Kimon 4/1/2001 (4,500,000) (450,000) 4,101,239
Visilit 4/1/2001 60,000
Issuance of shares of common stock to officer
as contract signing bonus
Issuance of shares in consideration for services
to be rendered
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest
Net loss
Balances - June 30, 2001 (500,000) (50,000) (4,500,000) (450,000) 9,889,612
======== ======= ========== ========== ==========
Issuance of shares to officers in payment of notes
Issuance of shares of common stock in consideration
for barter services to be rendered
Issuance of shares in consideration for legal
services rendered
Issuance of shares of common stock to equity (50,000)
investors 18,187 946,246 964,433
Issuance of shares of common stock to officer
as contract signing bonus
Issuance of shares in consideration for services
to be rendered
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest
Net loss $(1,207,831) $(1,207,831)
Balances - June 30, 2000 18,187 946,246 (1,207,831) 3,067,175
========= ========== =========== ===========
Issuance of shares of common stock as partial
consideration for loans made to company
Issuance of shares to officers in payment of notes
Issuance of shares of common stock in consideration
for barter services to be rendered
Issuance of shares in consideration for legal
services rendered
Issuance of shares of common stock to equity
investors
Lot 201 7/14/2000 0 0 0
Lot 202 7/20/2000 0 0 0
UBS DE 7/21/2000 10,000 0 10,000
Brown Bros 7/24/2000 3,000 0 3,000
Koby 7/27/2000 100 0 100
Odyssey 8/4/2000 20,060 (66,841) (46,781)
CLSA 8/10/2000 0 0 0
Kerker 8/21/2000 139 0 139
CLSA 8/29/2000 0 0 0
CLSA 9/6/2000 11 0 11
BFC Banque 9/7/2000 1,000 0 1,000
Ferrier 9/27/2000 1,000 99,000 100,000
CLSA 10/2/2000 0 27 27
Reittman 10/4/2000 250 24,750 25,000
Lot 207 10/26/2000 0 27 27
Fondren 10/27/2000 500 49,500 50,000
Frank 10/27/2000 300 29,700 30,000
CLSA 10/19/2000 1 126 127
COMM 10/19/2000 7 650 657
COMM 10/19/2000 3 268 271
FARD 11/2/2000 2,000 198,000 200,000
Miller 11/8/2000 725 0 725
Kimon 4/1/2001 41,012 408,988 n/c
Visilit 4/1/2001 600 59,400 60,000
Issuance of shares of common stock to officer
as contract signing bonus
Issuance of shares in consideration for services
to be rendered
Issuance of shares of common stock in full
satisfaction of a loan and accrued interest
Net loss $(1,448,758) $(1,448,758)
Balances - June 30, 2001 98,896 1,749,841 (2,656,590) 2,052,720
========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
Consolidated Statements of Cash Flows
FYE 6/30/2000 and Three Years Prior
For the Years Ended June 30,
2002 2001 2000
----------- ----------- -----------
Cash Flows From Operating Activities:
Net income (loss) $(1,920,123) $(1,448,758) $(1,207,831)
Adjustments to reconcile net income (loss)
to net cash used in operating actvities:
Amortization of film costs 102,695 107,664 303,388
Additions to film costs 182,814 -- 30,583
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 (184,681) 116,627 25,101
Notes receivable and advances 112,682 119,449
Prepaid expenses and other (12,500) 40,200 70,000
Accounts payable and accrued expenses (7,999) 400,448 (13,967)
Structured payments and accrued management contracts (103,658) (631,002) 678,123
Accrued interest 1,607 (63,217)
----------- ----------- -----------
Net cash used in operating activities (1,610,163) (1,387,740) (58,371)
----------- ----------- -----------
Cash Flows From Investing Activities:
Acquisition of fixed assets (19,419) -- (544,500)
Subsidary Activity (including reserves for losses) 601,917 (179,668)
----------- ----------- -----------
Net cash used in investing activities 582,498 (179,668) (544,500)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net proceeds from private placement sale of common stock
(excluding stock issued for services) 916,000 405,000 1,153,490
Net proceeds/payments - notes and loans payable 113,177 1,133,356 (524,120)
----------- ----------- -----------
Net cash provided by financing activities 1,029,177 1,538,356 629,370
----------- ----------- -----------
Net increase (decrease) in cash 1,512 (29,052) 26,499
Cash at beginning of period 2,162 31,214 4,715
----------- ----------- -----------
Cash at end of period $ 3,675 $ 2,162 $ 31,214
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
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.
1. Summary of Significant Accounting Policies:
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 recently formed subsidiary
named Odyssey Ventures Online Holding S.A., which is based in
Luxembourg.
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.
c) Revenue Recognition:
Revenues from foreign theatrical, home video, television and pay
television licensing contracts are recognized when the film is
available for exhibition by the licensee and when certain other
conditions are met. Revenues from domestic theatrical distribution
of films are recognized as the films are exhibited.
Virtually all of the Company's revenues for the period ended June
30, 2002, 2001, and 2000, were from foreign distribution rights and
residuals relating thereto.
d) 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, 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
F-8
result in an ultimate loss, additional amortization is provided to
fully recognize such loss.
e) 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% ownership. The
Company has a 99% ownership in a venture capital company that has
equity investments in four other companies, one being publicly
traded. The fourth is an investment in FilmZone that is accounted as
inventory in progress after the Company acquired the remaining 50%
with cash. These investments are accounted for using the cost
method.
f) Earnings (Loss) Per Share:
Earnings (loss) per share are computed using the weighted average
number of common shares outstanding during the respective periods.
g) Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in
financial statements. Actual results could differ from those
estimates.
h) Fair Value of Financial Instruments:
The carrying value of cash, notes receivable and notes and loans
payable approximates fair value because of the short-term maturity
of these instruments.
i) Impact of Recently Issued Accounting Standards:
None to report.
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 has a one-year contract expiring on
F-9
December 31st of this year. In August Mr. Cole requested to decrease his
involvement in the Company due to personal needs. The Company agreed to
allow him to continue as Vice President of Finance and reduced his hours.
Mr. Foster will also handle the matters of CFO until a replacement can be
employed.
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 after the release of recent films coproduced or otherwise acquired
for distribution. In December the Company did enter into an exclusive
distribution agreement with a library of over 500 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 representative is
under contract for the Scandinavian market. The company attended its first
film market in several years in Los Angeles and has rejoined its
affiliation with the American Film Marketing Association.
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 and as of December 31, 2001, the
Company had five full-time employees, consisting of Mr. Foster, the CEO
and President, and Mr. Cole as Vice President of Finance and corporate
secretary, and two production-administrative assistants. The Company also
engaged several professionals in sales and film acquisition 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.
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. There were 4,101,283
shares issued for the 4,500,000 Preferred Shares.
F-10
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.
5. Income Taxes:
At June 30, 2002, the Company had a net operating loss carry forward of
approximately $35,700,287. 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 has entered into a settlement with Ian
Jessel (Ian Jessel vs. Odyssey Pictures Corporation) of which an amount
was agreed upon to be paid over a period of time. This amount has been
reduced from the accrued portion of the balance sheet and entered into
notes payable, resulting in an increase to the Notes Payable.
In June of 2001, the company borrowed funds through a related party of Mr.
Schotte and from a related investor to Odyssey in order to pay the initial
payment to Mr. Jessel. Part of the repayment of this amount is contributed
by a reduction of past management contracts due to E3, an affiliate of Mr.
Schotte.
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
has issued Warrants for 25,000 shares unregistered common stock
exercisable at a price of $0.40. The warrants expire in April of 2007.
Subsequent to the fiscal year end $50,000 was borrowed from an unrelated
party on a sixty day maturity. See "Subsequent Events".
7. Agreements to Satisfy Certain Liabilities Through Issuance of Common Stock
During the quarter ended March 31, 2002 satisfied consulting fees for
investment
F-11
banking services for past private placements with warrants for 500,000
shares at a price of 25 cents per share expiring on December 12, 2003 to a
private party. Other services were billed and expensed in this quarter
ending March 31, 2002 totaling $150,000 by the issue of 500,000 shares of
unregistered restricted shares of stock according to rule 144.
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 $2,500 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
allotments. This affected the overall increase in leased space by $205 per
month, or $2,457 annually. The Company has storage facilities to store its
older records and film materials and leases on a month-to-month basis of
$577 each month. Earlier in the year, the company consolidated its storage
space and the rental is now $395 per month.
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-12
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 in1998 by 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 exercised warrants for a purchase
price of $25,000 for $1.00 per share consideration. 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 two years.
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
F-13
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.
In April of 2002 the company raised $100,000 for debt reduction by the
sale of 625,000 shares of restricted stock. Along with the sale the
company 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 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. 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, 2002 and 2001, no stock was issued
to officers or directors.
Additional rights to warrants were granted after the end of the quarter,
see below "Subsequent Events".
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 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.
F-14
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
11. 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 a significant amount of this loan due to its expected
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
in1998 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. The company
has never received required financial reports from Media Trust and has
made attempts and as well as demands. Although the company is still
pursuing financial information from Mr. Schotte, its main principal, the
company has elected to write off substantial advances for lack of
information.
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
F-15
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.
In October of 2001, the company entered into a distribution 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. The terms
of this distribution agreement are based upon a commission and revenue
sharing arrangement in exchange for shares of stock in Odyssey as reported
at the end of each calendar quarter.
12. Extraordinary or non recurring items:
An affiliate of the Company's CEO, JL Media advanced substantial funds for
the overhead and operations of the Company from January to October of
2001. The Company began repaying these non-interest accruing advances in
October of 2001.
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.
Extraordinary costs associated with the litigation settlements, including
legal fees and interest on legal fees, was $126,789 for the period ending
June 30, 2002.
The Company expensed $234,000 in consulting fees tied to previous and
current marketing services begun by previous management. The services were
paid by the issuance of stock in December. The contract for services is
not being renewed.
The Company reserved an additional amount of funds for possible settlement
of past disputes referring to various lawsuits.
The company added an accelerated depreciation amount for Filmzone due to
its development and reposturing of the sales purpose for the website.
The company 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.
F-16
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.
13. Subsequent Events:
In September 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 Company in March 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 (in Luxembourg the term is
"Directeurs") 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. 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 although the Company expects full recovery.
The company entered into another settlement agreement with Ian Jessel (in
the lawsuit of Jessel vs. Odyssey Pictures Corporation, Johan Schotte, Red
Sun Productions, Inc, et. al. dated December 2000) and this agreement, the
parties agreed to issue stock for the final payments to Mr. Jessel and to
pay out the remaining cash portion over a period of time.
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.
In relation to the Pfannebecker, et. al. case filed in 1995, the Company
was settled all
F-17
claims regarding a possible class action status (the case was denied Class
Action status) as of July 2002. There are remaining issues with possible
claims of indemnification from former officers and directors, some of
which have been released as of October 2002 with no further obligations
from the Company.
F-18
Statement Under Oath of Principal Executive Officer and Principal Financial
Officer Regarding Facts and Circumstances Relating to Exchange Act Filings
I, John W. Foster, state and attest that:
(1) To the best of my knowledge, based upon a review of the covered
reports of Odyssey Pictures Corporation, and, except as corrected or
supplemented in a subsequent covered report:
o no covered report contained an untrue statement of a material fact
as of the end of the period covered by such report (or in the case
of a report on Form 8-K or definitive proxy materials, as of the
date on which it was filed); and
o no covered report omitted to state a material fact necessary to make
the statements in the covered report, in light of the circumstances
under which they were made, not misleading as of the end of the
period covered by such report (or in the case of a report on Form
8-K or definitive proxy materials, as of the date on which it was
filed).
(2) I have reviewed the contents of this statement with the independent
members of the Company's board of directors.
(3) In this statement under oath, each of the following, if filed on or
before the date of this statement, is a "covered report":
o The Annual Report on Form 10-K for the fiscal year ending June 30,
2002 as filed with the Commission, of Odyssey Pictures Corporation;
o all reports on Form 10-Q, all reports on Form 8-K and all definitive
proxy materials of Odyssey Pictures Corporation filed with the
Commission subsequent to the filing of the Form 10-K identified
above; and
o any amendments to any of the foregoing.
Signed:
/S/ John W. Foster
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John W. Foster
President and CEO