UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period from _________ to _________
Commission file number: 000-31048
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(Exact name of registrant as specified on its charter)
Nevada 33-0766069
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9150 Wilshire Boulevard, Suite 242
Beverly Hills, California 90212
(Address of principle executive offices)
(310) 246-0090
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: 54,276,501 shares issued and
outstanding as of May 12, 2005.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -March 31, 2005
and December 31, 2004 3
Condensed Consolidated Statements of Losses -Three
Months Ended March 31, 2005 and 2004 and for the
Period July 29, 1997 (Date of Inception) through
March 31, 2005 4
Condensed Consolidated Statements of Deficiency
in Stockholders' Equity for the Period July 29,
1997 (Date of Inception) through March 31, 2005 5-16
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004 and for
the Period July 29, 1997 (Date of Inception)
through March 31, 2005 17-18
Notes to Unaudited Condensed Consolidated
Financial Information - March 31, 2005 20-32
ITEM 2 Plan of Operations 33-36
ITEM 3 Controls and Procedures 37
PART II OTHER INFORMATION
ITEM 1 Legal proceedings 38
ITEM 2 Changes in securities and use of proceeds 38
ITEM 3 Defaults upon senior securities 38
ITEM 4 Submission of matters to a vote of security holders 38
ITEM 5 Other information 39
ITEM 6 Exhibits 39
SIGNATURES 40
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
March 31, 2005 December 31, 2004
--------------- ---------------
Current assets:
Cash and cash equivalents $ 28,774 $ 269,715
-------------- --------------
Total current assets 28,774 269,715
Property and equipment:
Office furniture, net of accumulated depreciation of $2,716 and $1,682 at March
31, 2005 and December 31, 2004, respectively 16,609 8,799
Other assets:
Prepaid interest 253,502 303,502
Financing Costs, net of accumulated amortization of
$114,304 and $63,637 at March 31, 2005 and December 31, 2004, respectively 371,986 422,653
Restricted cash (Note F) 7,778 235,903
Other 4,502 4,502
-------------- --------------
Total other assets 637,768 966,560
Total assets $ 683,151 $ 1,245,074
============== ==============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,087,975 $ 989,556
Other accrued liabilities 380,000 380,000
Notes payable , current portion (Note C) 1,118,165 1,131,165
Advances from related parties 302,027 275,190
Other advances 45,000 45,000
-------------- --------------
Total current liabilities 2,933,167 2,820,911
Notes payable, long-term portion, net of debt discount
(Note B) 853,926 603,262
(Deficiency in) stockholders' equity: Preferred stock, par value, $0.001 per
share; 50,000,000 shares authorized; none issued and outstanding at March 31,
2005 and December 31, 2004 (Note D) - -
Common stock, par value, $0.001 per share;1,500,000,000 and 300,000,000 shares
authorized at March 31, 2005 and December 31, 2004 respectively;
46,376,501 and 38,336,501 shares issued at March 31, 2005 and December 31, 2004,
respectively (Note D) 46,377 38,337
Additional paid-in-capital 45,821,863 45,788,003
Deficit accumulated during development stage (48,972,182) (48,005,439)
-------------- --------------
Total deficiency in stockholder's equity (3,103,942) (2,179,099)
-------------- --------------
Total liabilities and deficiency in stockholder's equity $ 683,151 $ 1,245,074
============== ==============
See accompanying notes to the unaudited condensed
consolidated financial information
3
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES
(Unaudited)
For the Period July 29,
1997 (Date of Inception)
For the Three Months Ended March 31, to March 31,
2005 2004 2005
-------------- -------------- --------------
Costs and Expenses:
Selling, general and administrative $ 496,051 $ 899,868 $ 13,721,209
Acquisition of Pacificap Entertainment
Holdings, Inc. - - 29,160,000
Acquisition of Cineports.com, Inc. - - 2,248,461
Impairment of film library - - 372,304
Impairment of investment - - 62,500
Depreciation 1,034 85 198,901
------------- ------------- -------------
Total operating expenses 497,085 899,953 45,763,375
Loss from operations (497,085) (899,953) (45,763,375)
Other income (expenses):
Other income (expenses) - - 114,758
Interest income (expenses) (469,658) (86,929) (2,755,352)
------------- ------------- -------------
Total other income (expenses) (469,658) (86,929) (2,640,594)
Loss from continuing operations, before
income taxes and discontinued operations (966,743) (986,882) (48,403,969)
Provision for income taxes - - -
------------- ------------- -------------
Loss from continuing operations, before
discontinued operations (966,743) (986,882) (48,403,969)
Loss from discontinued operations - - (352,905)
Income (loss) on disposal of
discontinued operations, net - - 78,974
------------- ------------- -------------
Net loss $ (966,743) $ (986,882) $ (48,677,900)
------------- ------------- ------------
Cumulative effect of accounting change - - (294,282)
Net loss applicable to common shares $ (966,743) $ (986,882) $ (48,972,182)
============= ============= =============
Loss per common share (basic and
assuming dilution) $ (0.02) $ (0.04) $ (8.67)
============= ============= =============
Continuing operations $ (0.02) $ (0.04) $ (8.67)
============= ============= =============
Discontinued operations $ - $ - $ (0.06)
============= ============= =============
Weighted average shares outstanding 41,957,057 22,518,449 5,649,211
============= ============= =============
See accompanying notes to the unaudited condensed
consolidated financial information
4
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Stock Common Stock
Shares Amount Shares Amount
--------- -------- -------- --------
Shares issued at date of inception (July 29, 1997) to founders in exchange for
contribution of organization costs valued at $27.38 per shares, as restated - $ - 422 $ 1
Net Loss - - - -
Balance at December 31, 1997 - $ - 422 $ 1
========== ======== ======== ========
Shares issued December 22, 1998 to consultants in exchange for services
valued at $.054 per shares - - 37,083 37
Shares issued December 22, 1998 to President in exchange for debt valued at
$.054 per shares - - 277,778 278
Operating expenses incurred by principal shareholder - - - -
Net loss - - - -
---------- -------- -------- --------
Balance at December 31, 1998 - $ - 315,283 $ 316
========== ======== ======== ========
Shares issued on April 13, 1999 for cash in connection with private placement at
$30.08 per share - - 133 -
Shares issued on April 13, 1999 to consultants in exchange for services
valued at $30.00per share - - 6,000 6
Shares issued May 28, 1999 in exchange for services valued at $.001 per share 855,000 855 - -
Contribution of shares to treasury on September 30, 1999 by principal shareholder - - (94,048) -
Shares issued on November 12, 1999 for cash in connection with private placement
at $3.00 per share - - 33,333 33
Release of shares held in treasury and acquisition of Cavalcade of Sports
Network, Inc on December 16, 1999 - - 94,048 -
Operating expenses incurred by principal shareholder - - - -
Net Loss - - - -
---------- -------- -------- --------
Balance at December 31, 1999 855,000 $ 855 354,749 $ 355
========== ======== ======== ========
See accompanying notes to consolidated financial statements
5
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
Additional During
Paid Development Treasury
in Capital Stage Stock Total
---------- ----------- --------- --------
Shares issued at date of inception (July 29, 1997) to founders in exchange for
contribution of organization costs valued at $27.38 per shares, as restated $ 11,552 $ - $ - $ 11,553
Net Loss - - - -
Balance at December 31, 1997 $ 11,552 - $ - $ 11,553
======== ========= ========= ========
Shares issued December 22, 1998 to consultants in exchange for services
valued at $.054 per shares 1,965 - - 2,002
Shares issued December 22, 1998 to President in exchange for debt valued at
$.054 per shares 14,722 - - 15,000
Operating expenses incurred by principal shareholder 8,925 - - 8,925
Net loss - (212,773) - (212,773)
-------- --------- --------- --------
Balance at December 31, 1998 $ 37,164 (212,773) $ - (175,293)
======== ========= ========= ========
Shares issued on April 13, 1999 for cash in connection with private placement at
$30.08 per share 4,000 - - 4,000
Shares issued on April 13, 1999 to consultants in exchange for services
valued at $30.00per share 179,994 - - 180,000
Shares issued May 28, 1999 in exchange for services valued at $.001 per share - - - 855
Contribution of shares to treasury on September 30, 1999 by principal shareholder 94 - (94) -
Shares issued on November 12, 1999 for cash in connection with private placement
at $3.00 per share 99,967 - - 100,000
Release of shares held in treasury and acquisition of Cavalcade of Sports
Network, Inc on December 16, 1999 282,050 - 94 282,144
Operating expenses incurred by principal shareholder 6,000 - - 6,000
Net Loss - (438,045) - (438,045)
-------- --------- --------- --------
Balance at December 31, 1999 $609,269 (650,818) - (40,339)
======== ========= ========= ========
See accompanying notes to consolidated financial statements
6
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Stock Common Additional Paid
Shares Amount Shares Stock Amount in Capital
--------- ------- -------- ------------ ---------------
Balance Forward 855,000 $ 855 354,749 $ 355 $ 609,269
Shares issued in March 2000 in exchange
for debt at $37.50 per share - - 2,060 2 77,245
Shares issued March 28, 2000 in
exchange for services at $37.50 pershare - - 70 - 2,625
Shares issued April 27, 2000 in
exchange for services at $37.50 per
share - - 250 - 9,375
Shares issued May 8, 2000 in exchange
for services at $37.50 per share - - 417 1 15,624
Shares issued May 17, 2000 in exchange
for services at 37.50 per share - - 833 1 31,249
Shares issued June 2000 in exchange for
debt at $37.59 per share - - 133 - 5,000
Shares issued June 2000 in exchange for
services at $37.46 per share - - 589 1 22,082
Shares issued July 25, 2000 in exchange
for debt at $37.88 per share - - 33 - 1,250
Shares issued August 2000, in exchange
for services at $37.50 per share - - 2,167 2 81,248
Conversion of preferred stock on
September 18, 2000 (855,000) (855) - - -
Shares issued October 13, 2000, in
exchange for services at $37.86 per
share - - 35 - 1,325
Shares issued October 30, 2000 in
exchange for services at $37.48 per
share - - 667 1 24,999
Shares issued November 9, 2000 in
exchange for services at $37.65 per
share - - 83 - 3,125
Shares issued December 1, 2000 in
exchange for services at $36.76 per
share - - 17 - 625
Operating expenses incurred by
principal shareholder - - - - 6,000
Net Loss - - - - -
---------- -------- ------------ ---------- ------------
Balance at December 31, 2000 - $ - 362,103 $ 363 $ 891,041
========== ======== ============ ========== ============
See accompanying notes to consolidated financial statements
7
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
During
Development Stage Total
----------------- --------------
Balance Forward (650,818) (40,339)
Shares issued in March 2000 in exchange for debt at $37.50 per share - 77,247
Shares issued March 28, 2000 in exchange for services at $37.50 per share - 2,625
Shares issued April 27, 2000 in exchange for services at $37.50 per share - 9,375
Shares issued May 8, 2000 in exchange for services at $37.50 per share - 15,625
Shares issued May 17, 2000 in exchange for services at 37.50 per share - 31,250
Shares issued June 2000 in exchange for debt at $37.59 per share - 5,000
Shares issued June 2000 in exchange for services at $37.46 per share - 22,083
Shares issued July 25, 2000 in exchange for debt at $37.88 per share - 1,250
Shares issued August 2000, in exchange for services at $37.50 per share - 81,250
Conversion of preferred stock on September 18, 2000 - (855)
Shares issued October 13, 2000, in exchange for services at $37.86 per share - 1,325
Shares issued October 30, 2000 in exchange for services at $37.48 per share - 25,000
Shares issued November 9, 2000 in exchange for services at $37.65 per share - 3,125
Shares issued December 1, 2000 in exchange for services at $36.76 per share - 625
Operating expenses incurred by principal shareholder - 6,000
Net Loss (856,968) (856,968)
------------ ----------
Balance at December 31, 2000 $ (1,507,786) $ (616,382)
============ ==========
See accompanying notes to consolidated financial statements
8
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Stock Common Stock
Shares Amount Shares Amount
-------- ----------- ---------- -------------
Balance Forward - $ - 362,103 $ 363
Shares issued in January 2001, in exchange for services at $37.50 per share - - 6,667 7
Shares issued in April 2001, in exchange for services at $37.50 per share - - 4,000 4
Shares issued in April 2001, in exchange for advances from officers at $37.50 per share - - 3,333 3
Shares issued in 2001, in exchange for services at $37.50 per share - - 2,500 3
Shares issued in 2001, in exchange for services at $37.50 per share - - 1,000 1
Fractional shares - - (5) -
Shares canceled in November 2001, for services that were not performed and
shares were previously issued in October 2001 - - (667) (1)
Shares issued in December 2001, to board of directors members for
services at 37.50 per share - - 2,100 2
Operating expenses incurred by principal shareholder - - - -
Net loss - - - -
---- ------- ----------- ----------
Balance at December 31, 2001 - $ - 381,031 $ 382
==== ======= =========== ==========
See accompanying notes to consolidated financial statements
9
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
During
Additional Paid Development Accumulated
in Capital Stage Total
------------- -------------- -------------
Balance Forward $ 891,041 $ (1,507,786) $ (616,382)
Shares issued in January 2001, in exchange for services at $37.50 per share 249,993 - 250,000
Shares issued in April 2001, in exchange for services at $37.50 per share 149,996 - 150,000
Shares issued in April 2001, in exchange for advances from officers at $37.50 per share 124,997 125,000
Shares issued in 2001, in exchange for services at $37.50 per share 93,747 - 93,750
Shares issued in 2001, in exchange for services at $37.50 per share 37,499 - 37,500
Fractional shares - - -
Shares canceled in November 2001, for services that were not performed and
shares were previously issued in October 2001 (24,999) - (25,000)
Shares issued in December 2001, to board of directors members for
services at 37.50 per share 78,748 - 78,750
Operating expenses incurred by principal shareholder 6,000 - 6,000
Net loss - (1,257,584) (1,257,584)
----------- ------------ -----------
Balance at December 31, 2001 $ 1,607,022 $ (2,765,370) $(1,157,966)
=========== ============ ===========
See accompanying notes to consolidated financial statements
10
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ----------- ----------- ----------
Balance Forward - $ - 381,031 $ 382
Shares issued in January 2002, in exchange for investment at
$37.50 per share - - 1,667 2
Shares issued in March 2002, in exchange for services at
$37.50 per share - - 8,333 8
Shares issued in June 2002, in exchange for services at
approximately $40.15 per share - - 18,890 19
Shares issued in June 2002, in exchange for debts at $37.50
per share - - 2,667 2
Shares issued in July 2002, in exchange for services at
$10.84 per share - - 717 1
Shares issued in July 2002, in connection with acquisition of
Cineports.com, Inc. at approximately $7.50 per share (Note B) - - 159,653 160
Shares issued in August 2002, in exchange for services at
approximately $10.84 per share - - 2,133 2
Shares issued in September 2002, in exchange for services at
approximately $10.84 per share - - 10,000 10
Shares issued in October 2002, in exchange for services at
approximately $11.69 per share - - 4,000 4
Shares issued in October 2002 for cash in connection with
private placement at $6.94 per share - - 18,018 18
Shares issued in October 2002, in exchange for interest at
approximately $11.68 per share - - 507 -
Shares issued in November 2002, in exchange for services at
approximately $8.70 per share - - 1,667 2
Shares issued in November 2002 for cash in connection with
private placement at $10.20 per share - - 1,000 1
Shares issued in November 2002 for cash in connection with
private placement at $7.50 per share - - 4,000 4
Shares issued in November 2002, in exchange for debts at
$37.49 per share - - 867 1
Shares issued in November 2002, in exchange for interest at
$37.56 per share - - 217 -
Shares issued in December 2002, in exchange for services at
approximately $12.26 per share - - 9,333 9
Warrants issued in connection with acquisition of Cineports
(Note B) - - - -
Options issued in exchange for services rendered (Note H) - - - -
Net loss - - - -
--------- ---------- ---------- ---------
Balance at December 31, 2002 - $ - 624,700 $ 625
========= ========== ========== =========
See accompanying notes to consolidated financial statements
11
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
Additional During
Paid in Development
Capital Stage Total
-------------- --------------- -------------
Balance Forward $ 1,607,022 $ (2,765,370) $ (1,157,966)
Shares issued in January 2002, in exchange for investment at
$37.50 per share 62,498 - 62,500
Shares issued in March 2002, in exchange for services at
$37.50 per share 312,492 - 312,500
Shares issued in June 2002, in exchange for services at
approximately $40.15 per share 758,356 - 758,375
Shares issued in June 2002, in exchange for debts at $37.50
per share 99,998 - 100,000
Shares issued in July 2002, in exchange for services at
$10.84 per share 7,769 - 7,770
Shares issued in July 2002, in connection with acquisition of
Cineports.com, Inc. at approximately $7.50 per share (Note B) 1,197,237 - 1,197,397
Shares issued in August 2002, in exchange for services at
approximately $10.84 per share 23,127 - 23,129
Shares issued in September 2002, in exchange for services at
approximately $10.84 per share 108,410 - 108,420
Shares issued in October 2002, in exchange for services at
approximately $11.69 per share 46,736 - 46,740
Shares issued in October 2002 for cash in connection with
private placement at $6.94 per share 124,982 - 125,000
Shares issued in October 2002, in exchange for interest at
approximately $11.68 per share 5,920 - 5,920
Shares issued in November 2002, in exchange for services at
approximately $8.70 per share 14,498 - 14,500
Shares issued in November 2002 for cash in connection with
private placement at $10.20 per share 10,199 - 10,200
Shares issued in November 2002 for cash in connection with
private placement at $7.50 per share 29,996 - 30,000
Shares issued in November 2002, in exchange for debts at
$37.49 per share 32,499 - 32,500
Shares issued in November 2002, in exchange for interest at
$37.56 per share 8,150 - 8,150
Shares issued in December 2002, in exchange for services at
approximately $12.26 per share 114,371 - 114,380
Warrants issued in connection with acquisition of Cineports
(Note B) 1,051,065 - 1,051,065
Options issued in exchange for services rendered (Note H) 661,365 - 661,365
Net loss - (5,210,614) (5,210,614)
------------- -------------- ------------
Balance at December 31, 2002 $ 6,276,690 $ (7,975,984) $ (1,698,669)
============= ============== ============
See accompanying notes to consolidated financial statements
12
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Share Common Share
Shares Amount Shares Amount
----------- ---------- ------------ ----------
Balance forward - $ - 624,700 $ 625
Shares issued in January 2003 in exchange for services at approximately
$4.63 per share - - 56,300 56
Shares issued in February 2003 in exchange for services at $2.10 per share - - 36,683 37
Shares issued in February 2003 for cash in connection with private placement
at $1.20 per share - - 6,667 6
Shares issued in February 2003 in exchange for services at $1.50 per share - - 6,667 6
Shares issued in April, 2003 in exchange for services at $.90 per share - - 14,000 14
Shares issued in April 2003 in exchange for expenses paid by shareholders at
$.90 per share - - 22,222 22
Shares issued in April 2003 in exchange for financing expenses at $.90 per
share - - 22,960 23
Shares issued in April 2003 for cash in connection with private placement at
$1.20 per share - - 4,333 4
Shares issued in May 2003 in exchange for financing expenses at $1.65 per
share - - 2,591 3
Shares issued in May 2003 in exchange for services at $1.50 per share - - 17,667 18
Shares issued in May 2003 for cash in connection with private placement at
$.90 per share - - 16,667 17
Shares issued in May 2003 in exchange for expenses paid by shareholders at
$.90 per share - - 22,167 22
Shares issued in July 2003 in exchange for services at $2.10 per share - - 13,850 14
Shares issued in July 2003 in exchange for debts at $.70 per share - - 14,334 14
Shares issued in July 2003 in exchange for financing expenses at $3.60 per
share - - 37,487 38
Shares issued in August 2003 in exchange for services at $3.14 per share - - 37,667 38
Shares issued in August 2003 in exchange for debts at $.81 per share - - 43,667 44
Shares issued in September 2003 in exchange for services at $1.80 per share - - 264,916 265
Fractional shares issued in September 2003 due to rounding resulted from
reverse stock split - - 1,210 1
Shares issued in October 2003 in exchange for financing expenses at $2.00
per share - - 50,000 50
Shares issued in October 2003 in exchange for services at $1.59 per share - - 2,405,000 2,405
Shares issued in November 2003 in exchange for services at $1.18 per share - - 43,000 43
Shares issued in November 2003 in exchange for interest expenses at $1.25
per share - - 10,000 10
Shares issued in November 2003 in exchange for financing expenses at $1.75
per share - - 14,000 14
Shares issued in December 2003 in exchange for services at $1.28 per share - - 29,500 29
Shares issued in connection with acquisition of Pacificap (Note B) - - 18,000,000 18,000
Net loss - - - -
---------- --------- ----------- ---------
Balance at December 31, 2003 - $ - 21,818,255 $ 21,818
========== ========= =========== =========
See accompanying notes to consolidated financial statements
13
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(FORMERLY CAVALCADE OF SPORTS MEDIA, INC.)
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
Additional during
Paid in Development
Capital Stage Total
--------------- -------------- ------------
Balance forward $ 6,276,690 $ (7,975,984) $(1,698,669)
Shares issued in January 2003 in exchange for services at approximately
$4.63 per share 260,434 - 260,490
Shares issued in February 2003 in exchange for services at $2.10 per share 77,000 - 77,037
Shares issued in February 2003 for cash in connection with private placement
at $1.20 per share 7,994 - 8,000
Shares issued in February 2003 in exchange for services at $1.50 per share 9,994 - 10,000
Shares issued in April, 2003 in exchange for services at $.90 per share 12,586 - 12,600
Shares issued in April 2003 in exchange for expenses paid by shareholders at
$.90 per share 19,978 - 20,000
Shares issued in April 2003 in exchange for financing expenses at $.90 per
share 20,641 - 20,664
Shares issued in April 2003 for cash in connection with private placement at
$1.20 per share 4,996 - 5,000
Shares issued in May 2003 in exchange for financing expenses at $1.65 per
share 4,272 - 4,275
Shares issued in May 2003 in exchange for services at $1.50 per share 25,882 - 25,900
Shares issued in May 2003 for cash in connection with private placement at
$.90 per share 14,983 - 15,000
Shares issued in May 2003 in exchange for expenses paid by shareholders at
$.90 per share 19,978 - 20,000
Shares issued in July 2003 in exchange for services at $2.10 per share 29,006 - 29,020
Shares issued in July 2003 in exchange for debts at $.70 per share 9,986 - 10,000
Shares issued in July 2003 in exchange for financing expenses at $3.60 per
share 134,915 - 134,953
Shares issued in August 2003 in exchange for services at $3.14 per share 117,762 - 117,800
Shares issued in August 2003 in exchange for debts at $.81 per share 35,456 - 35,500
Shares issued in September 2003 in exchange for services at $1.80 per share 280,085 - 280,350
Fractional shares issued in September 2003 due to rounding resulted from
reverse stock split (1) - -
Shares issued in October 2003 in exchange for financing expenses at $2.00
per share 99,950 - 100,000
Shares issued in October 2003 in exchange for services at $1.59 per share 3,826,895 - 3,829,300
Shares issued in November 2003 in exchange for services at $1.18 per share 50,707 - 50,750
Shares issued in November 2003 in exchange for interest expenses at $1.25
per share 12,490 - 12,500
Shares issued in November 2003 in exchange for financing expenses at $1.75
per share 24,486 - 24,500
Shares issued in December 2003 in exchange for services at $1.28 per share 37,871 - 37,900
Shares issued in connection with acquisition of Pacificap (Note B) 29,142,000 - 29,160,000
Net loss - (35,405,841) (35,405,841)
-------------- ------------- -----------
Balance at December 31, 2003 $ 40,557,036 $( 43,381,825) $(2,802,971)
See accompanying notes to consolidated financial statements
14
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Share Common Share
Shares Amount Shares Amount
---------- ---------- ------------ ------------
Balance forward
- $ 21,818,255 $ 21,818
Shares issued in January 2004 in exchange for accrued interest at
approximately $1.01 per share - - 145,166 145
Shares issued in January 2004 in exchange for services at approximately
$1.01 per share 125,000 125
Shares issued in February 2004 in exchange for services at $0.66 per share - - 537,886 538
Shares issued in February 2004 in exchange for expenses paid by
shareholders at $0.66 per share - - 150,000 150
Shares issued in March 2004 in exchange for services at $0.52 per share - - 293,250 293
Shares issued in April 2004 in exchange for services at approximately
$0.40 per share - - 615,000 615
Shares issued in May 2004 in exchange for services at approximately $0.25
per share - - 770,000 770
Shares issued in May 2004 in exchange for interest expense at
approximately $0.30 per share - - 10,000 10
Shares issued in July, 2004 in exchange for interest expense at
approximately $0.28 per share - - 44,275 45
Shares issued in July 2004 in exchange for services at approximately $0.27
per share - - 1,388,538 1,389
Shares issued in July 2004 in exchange for convertible notes payable at
approximately $0.07 per share - - 1,100,000 1,100
Shares issued in August 2004 in exchange for services at approximately
$0.02 per share - - 250,000 250
Shares issued in September 2004 in exchange for convertible notes payable
at approximately $0.01 per share - - 1,100,000 1,100
Shares issued in October 2004 in exchange for convertible notes payable at
approximately $0.01 per share - - 1,100,000 1,100
Shares issued in November 2004 in exchange for convertible notes payable
at approximately $0.01 per share - - 1,100,000 1,100
Shares issued in December 2004 in exchange for convertible notes payable
at approximately $0.01 per share - - 2,200,000 2,200
Shares issued in December 2004 in exchange for services at approximately
$0.02 per share - - 810,000 810
Shares issued in December 2004 in exchange for interest expense at
approximately $0.02 per share - - 197,025 197
Shares issued in December 2004 in exchange for acquisition costs at
approximately $0.02 per share - - 4,582,106 4,582
Beneficial conversion feature of convertible notes payable (Note E) - - - -
Value of warrants attached to convertible debentures (Note E) - - - -
Net loss - - - -
--------- --------- ----------- -----------
Balance at December 31, 2004 - $ 38,336,501 $ 38,337
--------- --------- ----------- -----------
See accompanying notes to consolidated financial statements
15
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
Additional during
Paid in Development
Capital Stage Total
------------- -------------- ------------
Balance forward 40,557,036 $(43,381,825) $(2,802,971)
Shares issued in January 2004 in exchange for accrued interest at
approximately $1.01 per share 146,473 - 146,617
Shares issued in January 2004 in exchange for services at approximately
$1.01 per share 126,125 126,250
Shares issued in February 2004 in exchange for services at $0.66 per share 325,828 - 326,366
Shares issued in February 2004 in exchange for expenses paid by
shareholders at $0.66 per share 127,350 - 127,500
Shares issued in March 2004 in exchange for services at $0.52 per share 151,637 - 151,930
Shares issued in April 2004 in exchange for services at approximately
$0.40 per share 243,635 - 244,250
Shares issued in May 2004 in exchange for services at approximately $0.25
per share 194,980 - 195,750
Shares issued in May 2004 in exchange for interest expense at
approximately $0.30 per share 2,990 - 3,000
Shares issued in July, 2004 in exchange for interest expense at
approximately $0.28 per share 12,354 - 12,400
Shares issued in July 2004 in exchange for services at approximately $0.27
per share 372,400 - 373,789
Shares issued in July 2004 in exchange for convertible notes payable at
approximately $0.07 per share 75,900 - 77,000
Shares issued in August 2004 in exchange for services at approximately
$0.02 per share 4,750 - 5,000
Shares issued in September 2004 in exchange for convertible notes payable
at approximately $0.01 per share 6,490 - 7,590
Shares issued in October 2004 in exchange for convertible notes payable at
approximately $0.01 per share 4,950 - 6,050
Shares issued in November 2004 in exchange for convertible notes payable
at approximately $0.01 per share 4,730 - 5,830
Shares issued in December 2004 in exchange for convertible notes payable
at approximately $0.01 per share 13,750 - 15,950
Shares issued in December 2004 in exchange for services at approximately
$0.02 per share 15,390 - 16,200
Shares issued in December 2004 in exchange for interest expense at
approximately $0.02 per share 3,742 - 3,939
Shares issued in December 2004 in exchange for acquisition costs at
approximately $0.02 per share 87,060 - 91,642
Beneficial conversion feature of convertible notes payable (Note E) 2,817,018 - 2,817,018
Value of warrants attached to convertible debentures (Note E) 493,415 - 493,415
Net loss - (4,623,614) (4,623,614)
Balance at December 31, 2004 45,788,003 $ (48,005,439) $(2,179,099)
------------ ------------- -----------
See accompanying notes to consolidated financial statements
16
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Preferred Share Common Share
Shares Amount Shares Amount
---------- --------- ------------ ------------
Balance forward - $ 38,336,501 $ 38,337
Shares issued in January 2005 in exchange for convertible
notes payable at approximately $0.01 per share - - 2,200,000 2,200
Shares issued in February 2005 in exchange for convertible
notes payable at approximately $0.01 per share - - 3,300,000 3,300
Shares issued in March 2005 in exchange for convertible
notes payable at approximately $0.01 per share - - 2,200,000 2,200
Shares issued in March 2005 in exchange for services at
$0.01 per share - - 340,000 340
Net loss - - - -
---------- -------- ---------- -----------
Balance at March 31, 2005 - $ 46,376,501 $ 46,377
========== ======== ========== ===========
See accompanying notes to the unaudited condensed
consolidated financial information
17
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Continued)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 2005
(Unaudited)
Deficit
Accumulated
Additional during
Paid in Development
Capital Stage Total
----------- -------------- ------------
Balance forward 5,788,003 $(48,005,439) $(2,179,099)
Shares issued in January 2005 in exchange for convertible
notes payable at approximately $0.01 per share 9,900 - 12,100
Shares issued in February 2005 in exchange for convertible
notes payable at approximately $0.01 per share 13,200 - 16,500
Shares issued in March 2005 in exchange for convertible notes payable at
approximately $0.01 per share 7,700 9,900
Shares issued in March 2005 in exchange for services at $0.01 per share 3,060 - 3,400
Net loss - (966,743) (966,743)
----------- ------------ -----------
Balance at March 31, 2005 45,821,863 $(48,972,182) $(3,103,942)
=========== ============ ===========
See accompanying notes to the unaudited condensed
consolidated financial information
18
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Three Months Ended March 31, For the Period July 29,
1997(Date of Inception) to
2005 2004 March 31, 2005
---- ---- -----------------
Cash flows from operating activities:
Net loss for the period from continuing operations $ (966,743) $ (986,882) $ (48,698,251)
Loss from discontinued operations - - (352,905)
Disposal of business segment, net - - 78,974
Adjustments to reconcile net losses to net cash (used
in) operating activities:
Cumulative effect of accounting change - - 294,282
Depreciation 1,034 85 198,901
Organization and acquisition costs expensed - - 11,553
Common stock issued in exchange for services 3,400 604,546 8,530,733
Common stock issued in exchange for previously incurred
debt - - 233,498
Common stock issued in exchange for interest - - 45,906
Common stock issued in exchange for expenses paid by
shareholders - 127,500 192,500
Common stock issued in connections with acquisition of
Pacificap - - 29,160,000
Common stock issued in connection with acquisition of
Battleship VFX, Inc. - - 91,642
Common stock issued in exchange for financing expenses - - 284,392
Common stock issued in connection with acquisition of
Cineports - - 1,197,396
Warrants issued in connection with acquisition of
Cineports - - 1,051,065
Stock options issued in exchange for services rendered - - 661,365
Preferred stock issued in exchange for services - - 855
Conversion of preferred stock - - (855)
Reverse of notes payable liability in dispute - - 15,280
Amortization and write-off of debt discount -
beneficial conversion feature of convertible notes
payable 247,387 - 1,019,006
Amortization and write-off of debt discount - value of
warrants attached to convertible notes payable 41,778 - 190,994
Amortization of financing costs 50,667 - 114,304
Amortization of prepaid interest 50,000 - 146,498
Impairment of film library - - 372,304
Write-off of acquired asset - - 5,000
Write-off of un-collectable other receivable - - 30,000
Debt forgiveness from creditors - - (139,992)
Write-off of capitalized production costs - - 150,273
Write off of other investment previously paid with
common stock - - 62,500
Expenses paid by principal shareholders - - 117,015
See accompanying notes to the unaudited condensed
consolidated financial information
19
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Period July 29,
1997(Date of Inception)
For The Three Months Ended March 31, to
2005 2004 March 31, 2005
--------------- -------------- --------------
(Increase) decrease in:
Prepaid expenses - - (4,502)
Other receivable - - (30,000)
Restricted cash 228,125 - (7,778)
Increase (decrease) in:
Cash disbursed in excess of available funds - 31,361 -
Accounts payable and accrued expenses, net 98,419 128,514 1,145,005
-------------- ------------- -------------
Net cash (used in) operating activities (245,933) (94,876) (3,833,042)
Cash flows from investing activities:
Acquisition of film library and footage production costs - - (183,080)
Acquisition of office furniture (8,844) - (19,325)
Cash acquired in connection with acquisition - - 35,207
-------------- ------------- -------------
Net cash (used in) investing activities (8,844) - (167,198)
Cash flows from financing activities:
Advances from related parties, net of repayments 26,836 9,614 257,438
Other advances, net - - 45,000
Proceeds from issuance of notes payable, net of
repayments (13,000) 84,200 1,240,665
Proceeds from issuance of long-term convertible debt,
net of costs and fees - - 2,513,711
Payment(s) on long-term convertible debt - - (300,000)
Proceeds from issuance of common stock - - 272,200
-------------- ------------- -------------
Net cash provided by financing activities 13,836 93,814 4,029,014
Net increase (decrease) in cash and equivalents (240,941) (1,062) 28,774
Cash and cash equivalents at the beginning of the period 269,715 1,062 -
-------------- ------------- -------------
Cash and cash equivalents at the end of the period $ 28,774 $ - $ 28,774
============== ============= =============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ - $ - $ -
Cash paid during the period for taxes - - -
Common stock issued in exchange for services 3,400 604,546 8,530,733
Common stock issued in exchange for previously incurred
debt - - 233,498
Common stock issued in exchange for interest expense - - 45,906
Common stock issued in exchange for accrued interest - 146,617 146,617
Common stock issued in exchange for expenses paid by
shareholders - 127,500 192,500
Common stock issued in connections with acquisition of
Pacificap - - 29,160,000
Common stock issued in connection with acquisition of
Battleship VFX, Inc. - - 91,642
Common stock issued in exchange for financing expenses - - 284,392
See accompanying notes to the unaudited condensed
consolidated financial information
20
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Period July 29,
1997(Date of Inception)
For The Three Months Ended March 31, to
2005 2004 March 31, 2005
-------------- -------------- --------------
Common stock issued in connection with acquisition of
Cineports - - 1,197,396
Warrants issued in connection with acquisition of
Cineports - - 1,051,065
Stock options issued in exchange for services rendered - - 661,365
Preferred stock issued in exchange for services - - 855
Conversion of preferred stock - - (855)
Write off of acquired asset - - 5,000
Write off of un-collectable other receivable - - 30,000
Debt forgiveness from creditors - - (139,992)
Write off of capitalized production costs - - 150,273
Write off of other investment previously paid with
common stock - - 62,500
Impairment of film library - - 372,304
Expenses paid by principal shareholders - - 117,015
Common stock issued in exchange for shareholder advances - - 45,500
Beneficial conversion feature of convertible notes
payable (Note B) - - 2,817,018
Value of warrants attached to convertible notes payable
(Note B) - - 493,415
Amortization and writ-off of debt discount - beneficial
conversion feature of convertible notes payable (Note B) 247,387 - 1,019,006
Amortization and write-off of debt discount - value of
warrants attached to convertible notes payable (Note B) 41,778 - 190,994
Capitalized financing costs in connection with issuance
of long-term convertible notes payable - - 486,290
Prepaid interest expense in connection with issuance of
long-term convertible notes payable - - 400,000
Common Stock issued in exchange
for convertible debenture (Note B) 38,500 - 145,640
Acquisition:
Assets acquired - - 379,704
Goodwill - - 490,467
Liabilities assumed - - (588,027)
Common stock issued - - (282,144)
------------- ------------- -------------
Net cash paid for acquisition $ - $ - $ -
============= ============= =============
Liabilities disposed of in disposition of business, net $ - $ - $ 79,374
Net cash received in disposition of business $ - $ - $ -
============= ============= =============
Acquisition of Pacificap:
Assets acquired - - -
Liabilities assumed - - -
Acquisition costs - - 29,160,000
Common stock issued - - (29,160,000)
------------- ------------- -------------
Net cash paid for acquisition $ - $ - $ -
============= ============= =============
See accompanying notes to the unaudited condensed
consolidated financial information
21
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the three month period ended March
31, 2005, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2005. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated December 31, 2004
financial statements and footnotes thereto included in the Company's SEC Form
10-KSB.
Business and Basis of Presentation
Pacificap Entertainment Holdings, Inc. (the "Company") is in the development
stage and its efforts in the past have been principally devoted to developing a
sports entertainment business, which will provide 24 hours per day broadcasting
from a library of nostalgic sports films and footage to paid subscribers. To
date the Company has generated no revenues, has incurred expenses, and has
sustained losses. Consequently, its operations are subject to all risks inherent
in the establishment of a new business enterprise. For the period from inception
through March 31, 2005, the Company has accumulated losses of $48,972,182.
The consolidated financial statements include the accounts of Pacificap
Entertainment Holdings, Inc. and its wholly-owned subsidiaries, Cavalcade of
Sports Network, Inc, Cineports.com, Inc., Sports Broadcasting Network, Inc. and
Ethnic Broadcasting Company, Inc. Significant intercompany transactions and
accounts have been eliminated in consolidation.
Stock Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of SFAS 123." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
and related interpretations. Accordingly, compensation expense for stock options
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of the grant over the exercise price of the related option.
The Company has adopted the annual disclosure provisions of SFAS No. 148 in its
financial reports for the year ended December 31, 2004 and will adopt the
interim disclosure provisions for its financial reports for subsequent period.
The Company has no awards of stock-based employee compensation outstanding at
March 31, 2005.
22
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES (Continued)
Stock Based Compensation (Continued)
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123R (revised 2004), "Share-Based Payment" which is a
revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation".
Statement 123R supersedes APB opinion No. 25, "Accounting for Stock Issued to
Employees", and amends FASB Statement No. 95, "Statement of Cash Flows".
Generally, the approach in Statement 123R is similar to the approach described
in Statement 123. However, Statement 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. Management has not
determined the impact that this statement will have on Company's consolidated
financial statements.
Reclassifications
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
NOTE B - CONVERTIBLE PROMISSORY NOTES PAYABLE
A summary of convertible promissory notes payable at March 31, 2005 and December
31, 2004 is as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
Convertible notes payable ("Convertible Notes"); interest rate 10% per
annum; due two years from the date of the note; noteholder has the
option to convert unpaid note principal the Company's common stock at
the lower of (i) $0.35 or (ii) 50% of the average of the three lowest
intraday trading prices for the common stock on a principal market for
the twenty trading days before but not including conversion date. The
Company granted the noteholder a security interest in substantially
all of the Company's assets and intellectual property and registration
rights. $ 1,554,360 $ 1,592,860
Debt Discount - beneficial conversion feature, net of accumulated
amortization and accumulated write-off (upon repayment) of $566,296
and $344,875, respectively, at March 31, 2005; and $416,224 and
$341,051, respectively, at December 31, 2004. (783,964) (937,859)
Debt Discount - value attributable to warrants attached to notes, net
of accumulated amortization and accumulated write-off (upon repayment)
of $101,254 and $71,613, respectively, at March 31, 2005; and $75,984
and $70,819, respectively, at December 31, 2004. (131,994) (158,061)
------------ ------------
Subtotal $ 638,402 $ 496,940
23
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE B - CONVERTIBLE PROMISSORY NOTES PAYABLE (Continued)
(Continued) March 31, 2005 December 31, 2004
------------ ------------
Convertible notes payable ("Second Convertible Notes"); interest rate
10% per annum (default interest 15% per annum); due three years from
the date of the note; noteholder has the option to convert unpaid note
principal the Company's common stock at the lower of (i) $0.02 or (ii)
60% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the twenty trading days before
but not including conversion date. The Company granted the noteholder
a security interest in substantially all of the Company's assets and
intellectual property and registration rights. $ 1,400,000 $ 1,400,000
Debt Discount - beneficial conversion feature, net of accumulated
amortization of $107,833 and $14,343 at March 31, 2005 and December
31, 2004, respectively. (1,014,049) (1,107,539)
Debt Discount - value attributable to warrants attached to notes, net
of accumulated amortization of $18,124 and $2,411 at March 31, 2005
and December 31, 2004, respectively. (170,427) (186,139)
------------ ------------
Subtotal $ 215,524 $ 106,322
------------ ------------
Total 853,926 603,262
- -
Less: current portion
Long term portion $ 853,926 $ 603,262
============ ============
Convertible Note
The Company entered into a Securities Purchase Agreement with four accredited
investors on June 10, 2004 for the issuance of an aggregate of $2,000,000 of
convertible notes ("Convertible Notes"), and attached to the Convertible Notes
were warrants to purchase 2,000,000 shares of the Company's common stock. The
Convertible Notes accrues interest at 10% per annum, payable and due two years
from the date of the note. The noteholder has the option to convert any unpaid
note principal to the Company's common stock at a rate of the lower of (i) $0.35
or (ii) 50% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before but not
including conversion date.
As of December 31, 2004, the Company issued to the investors Convertible Notes
in a total amount of $2,000,000 in exchange for net proceeds of $1,356,565. The
proceeds that the Company received was net of prepaid interest of $400,000
calculated at 10% per annum for the aggregate of $2,000,000 of convertible notes
for two years, and related fees and costs of $243,435. Prepaid interest and
capitalized financing costs were amortized over the maturity period (two years)
of the convertible notes.
24
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE B - CONVERTIBLE PROMISSORY NOTES PAYABLE (Continued)
In accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Convertible Note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid-in capital. The Company recognized and measured an aggregate
of $1,695,135 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid-in capital and a
discount against the Convertible Note. The debt discount attributed to the
beneficial conversion feature is amortized over the Convertible Note's maturity
period (two years) as interest expense.
In connection with the placement of the Convertible Notes, the Company issued
non-detachable warrants granting the holders the right to acquire 2,000,000
shares of the Company's common stock at $0.24 per share. The warrants expire
five years from the issuance. In accordance with Emerging Issues Task Force
Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments
("EITF - 0027"), the Company recognized the value attributable to the warrants
in the amount of $304,865 to additional paid-in capital and a discount against
the Convertible Note. The Company valued the warrants in accordance with EITF
00-27 using the Black-Scholes pricing model and the following assumptions:
contractual terms of 5 years, an average risk free interest rate of 3.38%, a
dividend yield of 0%, and volatility of 74%. The debt discount attributed to the
value of the warrants issued is amortized over the Convertible Note's maturity
period (two years) as interest expense.
The Company amortized the Convertible Notes debt discount attributed to the
beneficial conversion feature and the value of the attached warrants and
recorded non-cash interest expense of $175,343 and $0 for the period ended March
31, 2005 and 2004, respectively. As December 31, 2004, the Company has repaid to
note holders $300,000 of principal amount in cash, and the note holders have
agreed to convert a portion of the principal amount into an aggregate of
6,600,000 shares of the Company's common stock, valued at $107,140. In
connection with the repayment and conversion of notes payable, the Company wrote
off the unamortized debt discount attributed to the beneficial conversion
feature and the value of the attached warrants in the amount of $341,051 and
$70,819, respectively, as of December 31, 2004. During the three month period
ended March 31, 2005, the note holders have agreed to convert additional
principal amount into an aggregate of 7,700,000 shares of the Company's common
stock, valued at $38,500. In connection with the conversion of notes payable
during the three-month period ended March 31, 2005, the Company wrote off the
unamortized debt discount attributed to the beneficial conversion feature and
the value of the attached warrants in the amount of $3,824 and $794,
respectively,
Second Convertible Note
The Company entered into a Securities Purchase Agreement with four accredited
investors on December 17, 2004 for the issuance of an aggregate of $2,800,000 of
convertible notes ("Second Convertible Notes"), and attached to the Second
Convertible Notes were warrants to purchase 2,800,000 shares of the Company's
common stock. The Second Convertible Notes accrues interest at 10% per annum
(15% if the Company is in default under the terms of the note agreement),
payable and due three years from the date of the note. The noteholder has the
option to convert any unpaid note principal to the Company's common stock at a
rate of the lower of (i) $0.02 or (ii) 60% of the average of the three lowest
intraday trading prices for the common stock on a principal market for the 20
trading days before but not including conversion date.
25
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE B - CONVERTIBLE PROMISSORY NOTES PAYABLE (Continued)
Second Convertible Note (Continued)
On December 17, 2004, the Company issued to the investors a Second Convertible
Note in the amount of $1,400,000, and the investors are obligated to provide the
Company with additional $1,400,000 of cash in exchange for two other convertible
promissory notes in the amount of $700,000 each. As of December 31, 2004, the
Company issued to the investors Second Convertible Notes in a total amount of
$1,400,000 in exchange for proceeds of $1,157,146, net of related fees and costs
of $242,854. The proceeds were deposited directly into an escrow account
pursuant to an Escrow Agreement the Company agreed with (Note F). Capitalized
financing costs were amortized over the maturity period (three years) of the
convertible notes. Pursuant to the Securities Purchase Agreement, the Company
was required to file a registration statement with the Securities and Exchange
Commission within 45 days after closing, which will include the common stock
underlying the secured convertible notes and the warrants. The registration
statment was not filed with the Securities and Exchange Commission until May
2005. At March 31, 2005, the Company was deemed in default under the terms of
the Agreement and accordingly had accrued interest at the Default Interest Rate
of 15% per annum
In accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Second Convertible Note. The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid-in capital. The Company recognized and measured an
aggregate of $1,121,883 of the proceeds, which is equal to the intrinsic value
of the imbedded beneficial conversion feature, to additional paid-in capital and
a discount against the Second Convertible Note. The debt discount attributed to
the beneficial conversion feature is amortized over the Second Convertible
Note's maturity period (three years) as interest expense.
In connection with the placement of the Second Convertible Notes, the Company
issued non-detachable warrants granting the holders the right to acquire
1,400,000 shares of the Company's common stock at $0.02per share. The warrants
expire five years from the issuance. In accordance with Emerging Issues Task
Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments ("EITF - 0027"), the Company recognized the value attributable to
the warrants in the amount of $188,550 to additional paid-in capital and a
discount against the Second Convertible Note. The Company valued the warrants in
accordance with EITF 00-27 using the Black-Scholes pricing model and the
following assumptions: contractual terms of 5 years, an average risk free
interest rate of 3.50%, a dividend yield of 0%, and volatility of 107%. The debt
discount attributed to the value of the warrants issued is amortized over the
Second Convertible Note's maturity period (three years) as interest expense.
The Company amortized the Second Convertible Notes debt discount attributed to
the beneficial conversion feature and the value of the attached warrants and
recorded non-cash interest expense of $109,204 and $0 for the period ended March
31, 2005 and 2004, respectively.
26
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE C - NOTES PAYABLE
Notes payable at March 31, 2005 and December 31, 2004 are as follows:
March 31, 2005 December 31, 2004
---------------- -----------------
12 % convertible subordinated payable, unsecured and due December 31, 2000;
Noteholder has the option to convert unpaid note principal together with accrued
and unpaid interest to the Company's common stock thirty (30) days following the
effectiveness of the registration of the Company's common stock under the
Securities Act of 1933 at a rate of $1.25 per share. In the event the unpaid
principal amount of the notes, together with any accrued and unpaid interest,
are not converted, or paid in full by December 31, 2000, then interest accrues
at 18% per annum until paid in full. The Company is in default under the terms
of the Note Agreements. $ 467,000 $ 467,000
12 % convertible subordinated payable, unsecured and due December 31, 2001;
Noteholder has the option to convert unpaid note principal together with accrued
and unpaid interest to the Company's common stock thirty (30) days following the
effectiveness of the registration of the Company's common stock under the
Securities Act of 1933 at a rate of $1.25 per share. In the event the unpaid
principal amount of the notes, together with any accrued and unpaid interest,
are not converted, or paid in full by December 31, 2001, then interest accrues
at 18% per annum until paid in full. The Company is in default under the terms
of the Note Agreements. 342,500 342,500
12 % convertible subordinated payable, unsecured and due December 31, 2002;
Noteholder has the option to convert unpaid note principal together with accrued
and unpaid interest to the Company's common stock thirty (30) days following the
effectiveness of the registration of the Company's common stock under the
Securities Act of 1933 at a rate of $1.25 per share. In the event the unpaid
principal amount of the notes, together with any accrued and unpaid interest,
are not converted, or paid in full by December 31, 2002, then interest accrues
at 18% per annum until paid in full. The Company is in default under the terms
of the Note Agreements. 31,250 31,250
Note payable on demand to accredited investor; interest payable monthly
at 18% per annum; unsecured; guaranteed by the Company's President 52,415 52,415
Note payable on demand to accredited investor; interest payable monthly
at 18% per annum; unsecured; guaranteed by the Company's President 100,000 100,000
Note payable in monthly installments of interest only at 4% per
annum; guaranteed by Company shareholder; maturity date of the loan is - 13,000
July 28, 2005.
Note payable on demand to an investor; interest payable monthly at 10%
per annum; unsecured 75,000 75,000
Note payable on demand to an investor; interest payable monthly at 10%
per annum; unsecured 50,000 50,0000
----------- -----------
1,118,165 1,131,165
(1,118,165) (1,131,165)
----------- -----------
Less: current portion $ - $ -
=========== ===========
27
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE D - CAPITAL STOCK
The Company has authorized 50,000,000 shares if preferred stock, with a par
value of $.001 per share. As of March 31, 2005 and December 31, 2004, the
Company has no preferred stock issued and outstanding. The company has
authorized 300,000,000 shares of common stock, with a par value of $.001 per
share. On September 4, 2003, the Company effected a one one-for-thirty reverse
stock split of its authorized and outstanding shares of common stock, $.001 par
value. Total authorized shares and par value remain the unchanged. On February
9, 2005, the Company's board of directors and shareholders approved to increase
the authorized common shares from 300,000,000 shares to 1,500,000,000 shares,
par value remains the same. All references in the financial statements and notes
to financial statements, numbers of shares and share amounts have been
retroactively restated to reflect the reverse split. The Company has and
46,376,501 and 38,336,501 shares of common stock issued and outstanding as of
March 31, 2005 and December 31, 2004, respectively.
The Company's predecessor was Tren Property Corp., an inactive company with no
significant operations incorporated under the laws of the State of Delaware in
July 1997. The Company issued 422 shares of common stock to the initial
shareholders in exchange for initial organization costs. The stock issued was
valued at $11,553, which represents the fair value of the services received.
In April 1998, the shareholders of Tren Property Corp. exchanged all of their
outstanding shares on a share for share basis for shares of the common stock of
Gemma Global, Inc., an inactive company with no significant operations,
organized under the laws of the State of Nevada ("Company"). Tren Property Corp.
changed its name to Gemma Global, Inc.
In December 1998, the Company issued 37,083 shares of common stock to
non-employees in exchange for legal and financial advisory services rendered to
the Company. The stock issued was valued at approximately $2,002 per share,
which represents the fair value of the services received, which did not differ
materially from the value of the stock issued.
In December 1998, the Company issued 277,778 shares of common stock in exchange
for a $15,000 loan payable to the Company's principal shareholder and Chief
Executive Officer.
In March 1999, the Company was renamed Pioneer 2000, Inc. In December 1999 the
Company was renamed Cavalcade of Sports Media, Inc.
In April 1999, the Company issued 133 shares of common stock in exchange for
$4,000 in connection with a private placement memorandum.
In April 1999, the Company issued 6,000 shares of common stock to a non-employee
in exchange for financial advisory services rendered to the Company. The stock
issued was valued at $180,000, which represents the fair value of the stock
issued, which did not differ materially from the value of the services received.
In May 1999, the Company authorized and issued a series of 855,000 shares of the
Company's preferred stock as convertible preferred stock ("1999 Global Group
Series") to the Company's management and advisors who had been unsuccessful in
developing the Company's shoe apparel business segment in exchange for those
individuals continuing to devote their services to developing the shoe business
segment. The stock issued was valued at approximately $.001 per share, which
represents the fair value of the stock issued, which did not differ materially
from the value of the services rendered.
In December 1999, the Company issued 33,333 shares of common stock in exchange
for $75,000 and payment of $ 25,000 of Company expenses, in connection with a
private placement to accredited investors.
In connection with the acquisition of Cavalcade of Sports Network, Inc. in
December 1999, the Company assumed $380,000 of liability representing advances
by private investors to Cavalcade of Sports Network, Inc. Subject to the Company
registering its common stock, the Company has agreed to offer shares of the
Company's common stock to the investors in exchange for the advances based upon
the price per share of the registration.
In September 2000, the holders of the Company's preferred stock elected to
convert their shares to common stock of Global Group International, Inc. The
Company cancelled all previously issued and outstanding 855,000 shares of the
convertible preferred stock.
28
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE D - CAPITAL STOCK (Continued)
During the year ended December 31, 2000, the Company issued 2,226 shares of
common stock in exchange for debts assumed by the Company in connection with its
acquisition of Cavalcade of Sports Network, Inc. The Company valued the shares
issued at $83,497, which approximated the fair value of the shares at the dates
of issuance.
During the year ended December 31, 2000, the Company issued 5,128 shares of the
Company's common stock to consultants in exchange for services provided to the
Company. The Company valued the shares issued at $192,283, which approximated
the fair value of the shares issued during the periods the services were
rendered. The compensation cost of $192,283 was charged to income during the
year ended December 31, 2000.
During the year ended December 31, 2001, the Company issued 15,600 shares of the
Company's common stock to consultants in exchange for services provided to the
Company. The Company valued the shares issued at $585,000, which approximated
the fair value of the shares issued during the periods the services were
rendered. The compensation cost of $585,000 was charged to income during the
year ended December 31, 2001.
During the year ended December 31, 2001, the Company issued 3,333 shares of the
Company's common stock to the President of the Company in exchange for monies
advanced to the Company. The Company valued the shares issued at $125,000, which
approximated the fair value of the shares at the date of issuance.
In connection with the acquisition of Cineports, the Company issued an aggregate
of 159,653 shares of the Company's restricted common stock to Cineports's
shareholders in July 2002. The shares were valued at $1,197,396, which did not
differ materially from the fair value of the shares issued during the period the
acquisition occurred.
During the year ended December 31, 2002, the Company issued an aggregate of
55,073 shares of common stock to consultants for services in the amount of
$1,385,814. All valuations of common stock issued for services were based upon
the value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 3,533 shares of common stock in
exchange for $132,500 of previously incurred debt and 724 shares for $14,070 of
previously accrued interest. The Company also issued an aggregate of 23,018
shares of common stock in exchange for $165,200 net of costs and fees and 1,667
shares for $62,500 of investment. The Company determined the value of the
investment was impaired and recorded an impairment loss of $62,500 during the
year ended December 31, 2002.
In January 2003, the Company issued an aggregate of 56,300 shares of common
stock to consultants for services in the amount of $260,490. All valuations of
common stock issued for services were based upon the value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered.
In February 2003, the Company issued an aggregate of 43,350 shares of common
stock to consultants for services in the amount of $87,037. All valuations of
common stock issued for services were based upon the value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered. In addition, the
Company issued an aggregate of 6,667 shares of common stock in exchange for
$8,000 net of costs and fees.
In April 2003, the Company issued an aggregate of 14,000 shares of common stock
to consultants for services in the amount of $12,600. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 4,333 shares of common stock in exchange for $5,000 net
of costs and fees. The Company also issued an aggregate of 22,222 shares of
common stock to shareholders in exchange for operating expenses of $20,000
previously paid by the shareholders. NOTE D - CAPITAL STOCK (Continued)
In May 2003, the Company issued an aggregate of 17,667 shares of common stock to
consultants for services in the amount of $25,900. All valuations of common
stock issued for services were based upon the value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 16,667 shares of common stock in exchange for $15,000 net
of costs and fees. The Company also issued an aggregate of 22,167 shares of
common stock to shareholders in exchange for operating expenses of $20,000
previously paid by the shareholders.
29
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
In July 2003, the Company issued an aggregate of 13,850 shares of common stock
to consultants for services in the amount of $29,020. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered. In addition, the Company issued an
aggregate of 14,334 shares of common stock in exchange for $10,000 of previously
incurred debt.
In August 2003, the Company issued an aggregate of 37,667 shares of common stock
to consultants for services in the amount of $117,800. All valuations of common
stock issued for services were based upon value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered. In addition, the Company issued an
aggregate of 43,667 shares of common stock in exchange for $35,500 of previously
incurred debt.
In September 2003, the Company issued an aggregate of 264,916 shares of common
stock to consultants for services in the amount of $280,350. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.
In October 2003, the Company issued an aggregate of 2,405,000 shares of common
stock to consultants for services in the amount of $3,829,300. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.
In November 2003, the Company issued an aggregate of 43,000 shares of common
stock to consultants for services in the amount of $50,750. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. In addition, the Company
issued an aggregate of 10,000 shares of common stock in exchange for $12,500 of
accrued interest.
In December 2003, the Company issued an aggregate of 29,500 shares of common
stock to consultants for services in the amount of $37,900. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered.
The Company also issued an aggregate of 18,000,000 shares of its common stock
pursuant to a Plan and Agreement of Reorganization ("Plan") with Pacificap
Entertainment Holdings, Inc. ("Pacificap"). The Company accounted the shares
issued at the fair market value at the date of acquisition, which approximately
$29,160,000. The Company charged the acquisition costs of $29,160,000 to
operations for the year ended December 31, 2003 and the Company changed its name
to Pacificap Entertainment Holdings, Inc. subsequent to the acquisition.
During the year ended December 31, 2003, the Company issued an aggregate of
127,038 shares of common stock to its note holders in exchange for financing
expenses of $284,392.
30
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE D - CAPITAL STOCK (Continued)
In January 2004, the Company issued an aggregate of 145,166 shares of common
stock to its note holders in exchange for $146,617 of accrued interest. The
Company also issued an aggregate of 125,000 shares of common stock to
consultants in exchange for services in the amount of $126,250. All valuations
of common stock issued for services were based upon value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered.
In February 2004, the Company issued an aggregate of 537,886 shares of common
stock to consultants in exchange for services in the amount of $326,366. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered. The Company
also issued an aggregate of 150,000 to a shareholder in exchange for $127,500 of
expenses previously paid by the shareholder on behalf of the Company.
In March 2004, the Company issued an aggregate of 293,250 shares of common stock
to consultants in exchange for services in the amount of $151,930. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered.
In April 2004, the Company issued an aggregate of 615,000 shares of common stock
to consultants in exchange for services in the amount of $244,250. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered.
In May 2004, the Company issued an aggregate of 770,000 shares of common stock
to consultants in exchange for services in the amount of $195,750. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered. The Company
also issued an aggregate of 10,000 shares of common stock to a noteholder in
exchange for interest expense of $3,000.
In July 2004, the Company issued an aggregate of 1,388,538 shares of common
stock to consultants in exchange for services in the amount of $373,789. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered. The Company
also issued an aggregate of 44,275 shares of common stock to a noteholder in
exchange for interest expense of $12,400. Additionally, the Company issued an
aggregate of 1,100,000 shares of common stock in exchange for convertible notes
payable of $77,000 (Note B).
In August 2004, the Company issued an aggregate of 250,000 shares of common
stock to a consultant in exchange for services in the amount of $5,000. All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered.
In September 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $7,590 (Note B).
In October 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $6,050 (Note B).
In November 2004, the Company issued an aggregate of 1,100,000 shares of common
stock in exchange for convertible note payable of $5,830 (Note B).
31
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE D - CAPITAL STOCK (Continued)
In December 2004, the Company issued an aggregate of 2,200,000 shares of common
stock in exchange for convertible note payable of $15,950 (Note B). The Company
valued the an aggregate of 6,600,000 shares of common shares issued during the
year ended December 31, 2004 at an aggregate of $112,420 and has accounted for
the conversion of debt, while the noteholders valued the common shares at
$107,140. At December 31, 2004, the Company has adjusted the principal amount of
the notes payable outstanding based on noteholder's calculation and has charged
to operations the difference of $5,280 as financing expense.
The Company issued an aggregate of 810,000 shares of common stock to a
consultant in exchange for services in the amount of $16,200. All valuations of
common stock issued for services were based upon value of the services rendered,
which did not differ materially from the fair value of the Company's common
stock during the period the services were rendered. The Company issued an
aggregate of 197,025 shares of common stock to in exchange for accrued interset
in the amount of $3,939. Additioannly, the Company issued an aggregate of
4,582,106 shares of its common stock, valued at $91,642, in connection with an
acquisition agreement with Battelship VFX, Inc. (`Battleship'). The Company
acquired no tangile assets and assumed no liabilities of Battleship. The Company
also entered into a consulting agreement with Battleship's sole owner. The
Company has accounted for the common shares issued as acquisition costs and has
charged $91,642 to operations during the year ended December 31, 2004.
In January 2005, the Company issued an aggregate of 2,200,000 shares of common
stock in exchange for convertible note payable of $12,100.
In February 2005, the Company issued an aggregate of 3,300,000 shares of common
stock in exchange for convertible note payable of $16,500.
In March 2005, the Company issued an aggregate of 2,200,000 shares of common
stock in exchange for convertible note payable of $9,900. The Company issued an
aggregate of 340,000 shares of common stock to consultants in exchange for
services in the amount of $3,400. All valuations of common stock issued for
services were based upon value of the services rendered, which did not differ
materially from the fair value of the Company's common stock during the period
the services were rendered.
NOTE E - OPTIONS AND WARRANTS
Stock Options
The Company did not grant any stock options during the period ended March 31,
2005 and 2004. All previously granted stock options expired as of May 2004.
Transactions involving options issued to consultants are summarized as follows:
Weighted Average
Number of Options Price Per Share
----------------- -----------------
Outstanding at January 1, 2003 118,333 $ 35.70
Granted - -
Exercised - -
Canceled or expired (101,667) 28.20
----------------- -----------------
Outstanding at December 31, 2003 16,666 81.00
Granted - -
Exercised - -
Canceled or expired (16,666) 81.00
----------------- -----------------
Outstanding at December 31, 2004 - $ -
================= =================
Granted - -
Exercised - -
Canceled or expired - -
----------------- -----------------
Outstanding at March 31, 2005 - $ -
================= =================
32
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE E - OPTIONS AND WARRANTS (Continued)
Warrants
The Company granted an aggregate of 3,400,000 warrants during the year ended
December 31, 2004 in connection with issuance of convertible notes payable (Note
B). The Company did not grant any compensatory warrants during the period ended
March 31, 2005 and 2004. The following table summarizes the changes in warrants
outstanding and the related prices for the shares of the Company's common stock,
after giving effect to 1:30 reverse split in common stock in September 2003.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- --------------------- -------------- ----------- --------------
$0.24 2,000,000 4.27 $0.24 2,000,000 $0.24
$0.02 1,400,000 4.72 0.02 1,400,000 0.02
----------- ------ ----- ----------- ------
3,400,000 4.45 $0.15 3,400,000 $ 0.15
=========== ====== ===== =========== ======
Transactions involving warrants issued to non-employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at January 1, 2003 206,091 $ 36.00
Granted - -
Exercised - -
Canceled or expired - -
---------------- ----------------
Outstanding at December 31, 2003 206,091 36.00
Granted 3,400,000 0.15
Exercised - -
Canceled or expired (206,091) 36.00
---------------- ----------------
Outstanding at December 31, 2004 3,400,000 $ 0.15
================ ================
Granted - -
Exercised - -
Canceled or expired - -
---------------- ----------------
Outstanding at March 31, 2005 3,400,000 $ 0.15
================ ================
NOTE F - ESCROW AGREEMENT
Pursuant to the Securities Purchase Agreement and an Escrow Agreement the
Company entered into on December 17, 2004 (Note B), the Company agreed to
deposit the proceeds from the issuance of the Second Convertible Note into an
escrow account, and the Escrow Agent has agreed to receive, hold and pay such
funds, upon the terms and subject to the conditions agreed by among the Company,
the investors, and the Escrow Agent.
33
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 2005
(unaudited)
NOTE F - ESCROW AGREEMENT (Continued)
The Escrow Agent shall hold the Escrow Account only in accordance with the terms
and conditions of the Escrow Agreement, and the Escrow Agent shall invest the
monies in the Escrow Account ("Escrow Amount") in an interest bearing bank
account with, or certificates of deposit or time deposits with, maturities of no
more than thirty (30) days issued by, a domestic commercial bank or such other
bank or other financial institution as it normally holds such funds. The Escrow
Agent shall release the Escrow Amount, or a portion thereof, upon receipt, at
any time, of joint written instructions from the Company and the investors
directing the manner in which the distribution of the Escrow Amount, or a
portion thereof, is to be made; provided, however, that the Escrow Amount shall
only be released to the Company for the acquisition of Battleship VFX, Inc.
(Note D); provided further than any remaining Escrow Amount subsequent to such
acquisition shall be released to the Company for working capital and general
corporate purposes. As of March 31, 2005 and December 31, 2004, the Escrow
Amount has not been released to the Company and the balance amounted $7,778 and
$235,903, respectively.
NOTE G - SUBSEQUENT EVENTS
Subsequent to the date of financial statements, the Company issued approximately
7.9 million shares of common stock to convertible noteholders in exchange for
approximately $21,000 of previously issued notes.
34
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto set forth in Item
1of this Quarterly Report. In addition to historical information, this
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions, which could cause actual results to differ
materially from Management's expectations. Factors that could cause differences
include, but are not limited to, expected market demand for the Company's
services, fluctuations in pricing for products distributed by the Company and
services offered by competitors, as well as general conditions of the
entertainment marketplace.
As previously reported, this corporation is in a development stage and has not
yet conducted any business so as to become an income producing entity. The
Company intends to continue utilizing capital raised from the sale of Capital
Notes and or equity. Our annual report (10-KSB) dated April 20, 2005 includes a
detailed Plan of Operations for this year. That annual report can be accessed on
EDGAR.
The following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. Several important factors could cause actual results to differ
materially from historical results and percentages and results anticipated by
the forward-looking statements. The Company has sought to identify the most
significant risks to its business, but cannot predict whether or to what extent
any of such risks may be realized nor can there be any assurance that the
Company has identified all possible risks that might arise. Investors should
carefully consider all of such risks before making an investment decision with
respect to the Company's stock. The following discussion and analysis should be
read in conjunction with the financial statements of the Company and notes
thereto. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment from our Management.
OVERVIEW
RESULTS OF OPERATIONS
The Company is in the development stage and to date, has not generated revenues.
The risks specifically discussed are not the only factors that could affect
future performance and results. In addition the discussion in this annual report
concerning us, our business and our operations contain forward-looking
statements. Such forward-looking statements are necessarily speculative and
there are certain risks and uncertainties that could cause actual events or
results to differ materially from those referred to in such forward-looking
statements. We do not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence By our Management over
time means that actual events or results are occurring as estimated in the
forward-looking statements herein.
As a development stage company, we have yet to earn revenues from operations. We
may experience fluctuations in operating results in future periods due to a
variety of factors., including our ability to obtain additional financing in a
timely manner and on terms favorable to us, our ability to successfully develop
our business model, the amount and timing of operating costs and capital
expenditures relating to the expansion of our business, operations and
infrastructure and the implementation of marketing programs, key agreements, and
strategic alliances, and general economic conditions specific to our industry.
As a result of limited capital resources and no revenues from operations from
its inception, the Company has relied on the issuance of equity securities to
non-employees in exchange for services. The Company's management enters into
35
equity compensation agreements with non-employees if it is in the best interest
of the Company under terms and conditions consistent with the requirements of
Financial Accounting Standards No. 148, "Accounting for Stock Based Compensation
- - Transition and Disclosure - an amendment of SFAS 123." In order to conserve
its limited operating capital resources, the Company anticipates continuing to
compensate non-employees for services during the next twelve months. This policy
may have a material effect on the Company's results of operations during the
next twelve months.
Revenues
We have generated no operating revenues from operations from our inception. We
believe we will begin earning revenues from operations in 2005 from actual
operation as the Company transitions from a development stage company to that of
an active growth and acquisition stage company.
Costs And Expenses
From our inception through March 31, 2005, we have not generated any revenues.
We have incurred losses of $48,972,182 during this period. These losses stem
from expenses associated principally with equity-based compensation to
consultants, acquisition costs, product development costs and professional
service fees.
Liquidity And Capital Resources
As of March 31, 2005, we had a working capital deficit of $2,904,393 as a result
of our operating losses from our inception through March 31, 2005. We generated
a cash flow deficit of $3,833,042 from operating activities from our inception
on July 29, 1997 through March 31, 2005. Cash flows used in investing activities
was $167,198 during this period. We met our cash requirements during this period
through the private placement of $272,200 of common stock, $2,213,711 and
$1,240,665 from the issuance of convertible and capital notes, respectively (net
of repayments, costs and fees), and $302,438 from advances from the Company's
officers, principal shareholders and third parties.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development and to acquire
desirable film library assets. We are actively engaged in negotiations with
interested investors and anticipate making a private equity placement at an
appropriate valuation and on terms acceptable to the existing shareholders. We
are also discussing possible joint venture arrangements to share or finance
costs, and pre selling advertising and or sponsorships to raise working capital.
We plan to raise sufficient capital to fund operations for the next 12 months
and to finance the timely acquisition and digitization of additional vintage
sports film footage. We currently have no commitments for financing. There is no
guarantee that we will be successful in raising the funds required.
We believe that our existing and planned capital resources will be sufficient to
fund our current level of operating activities, capital expenditures and other
obligations through the next 12 months. However, if during that period or
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations liquidity and financial condition.
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By adjusting its operations and development to the level of capitalization,
Management believes it has sufficient capital resources to meet projected cash
flow deficits. However, if during that period or thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations liquidity and
financial condition.
The independent auditor's report on the Company's December 31, 2004 financial
statements states that the Company's recurring losses and default under its debt
obligations raise substantial doubts about the Company's ability to continue as
a going concern.
The Company entered into a Securities Purchase Agreement with four accredited
investors on June 10, 2004 for the issuance of an aggregate of $2,000,000 of
convertible notes, and attached to the Convertible Notes were warrants to
purchase 2,000,000 shares of the Company's common stock. The Convertible Notes
accrues interest at 10% per annum, payable and due two years from the date of
the note. The noteholder has the option to convert any unpaid note principal to
the Company's common stock at a rate of the lower of (i) $0.35 or (ii) 50% of
the average of the three lowest intraday trading prices for the common stock on
a principal market for the 20 trading days before but not including conversion
date. As of May 12, 2005, $445,640 has been converted or paid down and
$1,554,360 was remaining.
As of December 31, 2004, the Company issued to the investors Convertible Notes
under the above described agreement in a total amount of $2,000,000 in exchange
for net proceeds of $1,356,565. The proceeds that the Company received was net
of prepaid interest of $400,000 calculated at 10% per annum for the aggregate of
$2,000,000 of convertible notes for two years, and related fees and costs of
$243,435. Prepaid interest and capitalized financing costs were amortized over
the maturity period (two years) of the convertible notes.
The Company entered into a Securities Purchase Agreement with four accredited
investors on December 17, 2004 for the issuance of an aggregate of $2,800,000 of
convertible notes, and attached to the Convertible Notes were warrants to
purchase 2,800,000 shares of the Company's common stock. The Convertible Notes
accrues interest at 10% per annum subject to certain default previsions which
increases the rate to 15% per annum, payable on quarterly beginning in 2005 on
March 31st, June 30th, September 30th and December 31st.and with note maturity
due three years from the date of the note. The noteholder has the option to
convert any unpaid note principal to the Company's common stock at a rate of the
lower of (i) $0.02 or (ii) 60% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including conversion date. As of March 31, 2005; the Company
is in default with certain provisions of the Agreement, therefore the rate in
effect as of March 31, 2005 is 15% per annum.
As of March 31, 2005, the Company issued to the investors Convertible Notes
under the agreement described above in a total amount of $1,400,000 in exchange
for net proceeds of $1,157,146 and the investors are obligated to provide the
Company with an additional $1,400,000 of cash in exchange for two other
convertible promissory notes, each in the amount of $700,000. The proceeds that
the Company received net of related fees and costs of $242,854. Capitalized
financing costs were amortized over the maturity period (three years) of the
convertible notes. As of March 31, 2005, the Company has accrued interest, at a
default rate of 15% per annum of approximately $59,836.
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Product Research And Development
We do not anticipate performing research and development for any products during
the next twelve months.
Number Of Employees
From our inception through the period ended March 31, 2005, we have relied on
the services of outside consultants for services and have had only three
employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We
anticipate that it may become desirable to add full and or part time employees
to discharge certain critical functions during the next 12 months. These
positions include a President, CFO, EVP of Operations and a Senior Sales and
Marketing executive. This projected increase in personnel is dependent upon our
ability to generate revenues and obtain sources of financing. There is no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected increase in the number of employees.
The Company also plans to use the advice of its Advisory Board on an as needed
basis. As we continue to expand, we will incur additional cost for personnel.
Trends, Risks And Uncertainties
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
Cautionary Factors That May Affect Future Results
Our annual report (10-KSB) filed in April of 2005 includes a detailed list of
cautionary factors that may affect future results. Management believes that
there have been no material changes to those factors listed, however other
factors besides those listed could adversely affect us. That annual report can
be accessed on EDGAR.
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PACIFICAP ENTERTAINMENT HOLDINGS, INC.
ITEM 3. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. As of March 31, 2005, the
Company's management carried out an evaluation, under the supervision of
the Company's Chief Executive Officer and the Chief Financial Officer of
the effectiveness of the design and operation of the Company's system of
disclosure controls and procedures pursuant to the Securities and Exchange
Act, Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were
effective, as of the date of their evaluation, for the purposes of
recording, processing, summarizing and timely reporting material
information required to be disclosed in reports filed by the Company under
the Securities Exchange Act of 1934.
b) Changes in internal controls. There were no changes in internal controls
over financial reporting, known to the Chief Executive Officer or Chief
Financial Officer that occurred during the period covered by this report
that has materially affected, or is likely to materially effect, the
Company's internal control over financial reporting.
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PACIFICAP ENTERTAINMENT HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. we are currently
not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse affect on our business,
financial condition or operating results.
ITEM 2 CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY
SECURITIES
In March 2005, we issued an aggregate of 340,000 shares of common stock to
consultants for services rendered. This issuance is considered exempt from
registration under Section 4(2) of the Securities Act of 1933.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
We are currently in default pursuant to secured convertible notes issued
pursuant to securities purchase agreements dated June 10, 2004 and December 17,
2004 (the "SPAs"). Pursuant to the SPAs, we are obligated to have two times the
number of shares that the secured convertible notes are convertible into
registered pursuant to an effective registration statement. We filed a
registration statement on Form SB-2, as amended, that was declared effective by
the Securities and Exchange Commission on July 16, 2004. As a result of the drop
in our stock price, the shares of common stock underlying the secured
convertible notes that were registered on the SB-2 are not sufficient to cover
the conversion of the secured convertible notes issued pursuant to the June 10,
2004 SPA.
In addition, pursuant to the December 17, 2004 SPA, we were required to file a
registration statement within 45 days of closing and have the registration
statement effective within 105 days of closing. On May 13, 2005, we filed a
registration statement on Form SB-2 registering shares underlying the
convertible notes. However, the registration statement did not register two
times the number of shares issuable upon conversion of all outstanding secured
convertible notes as required. This registration statement is currently being
review and has not been declared effective.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to a written consent of a majority of stockholders dated February 9,
2005 in lieu of a special meeting of the stockholders, the majority of
stockholders approved the following actions:
1. To Amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares of common stock, par value $.001 per
share, of the Company from 300,000,000 shares to 1,500,000,000 shares;
2. To ratify the selection of Russell Bedford Stefanou Mirchandani as
independent registered public accounting firm of the Company for the year ending
December 31, 2004;
3. To adopt the Company's 2005 Stock Incentive Plan; and
4. To elect four directors to the Company's Board of Directors, to hold
office until their successors are elected and qualified or until their earlier
resignation or removal.
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PACIFICAP ENTERTAINMENT HOLDINGS, INC.
PART II - OTHER INFORMATION
The Company filed a preliminary information statement, which received comments
from the SEC, and the Company is currently in the process of responding to those
comments. As a result, these actions have not yet been taken.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS
31.1 - Certification of Chief Executive Officer pursuant to Rule
13a-14 and Rule 15d-14(a), promulgated under the Securities and
Exchange Act of 1934, as amended
31.2 - Certification of Chief Financial Officer pursuant to Rule
13a-14 and Rule 15d 14(a), promulgated under the Securities and
Exchange Act of 1934, as amended
32.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)
32.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer)
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PACIFICAP ENTERTAINMENT HOLDINGS, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
Date: May 20, 2005 By: /s/ EDWARD LITWAK
----------------------
Edward Litwak
Chief Executive Officer
Date: May 20, 2005 By: /s/ EDWARD LITWAK
---------------------
Edward Litwak
Chief Financial Officer
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