SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________.
Commission File No. 2-96366-A
AFFINITY INTERNATIONAL MARKETING, INC.
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(Name of registrant as specified in its charter)
Florida 59-2483405
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2300 Glades Road, Suite 450, West Tower, Boca Raton, Florida 33431
------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: (561) 750-7200
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
28,990,756 shares of common stock of the Registrant were outstanding as of
May 15, 2001. As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price on
the OTC Bulletin Board, was approximately $440,677.
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS............................................ 1
ITEM 2. PROPERTIES.......................................... 1
ITEM 3. LEGAL PROCEEDINGS................................... 1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS............................................. 2
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS..................... 3
ITEM 6. SELECTED FINANCIAL DATA............................. 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................................... 5
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................... 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................ 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.......................................... 9
ITEM 11. EXECUTIVE COMPENSATION.............................. 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................... 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................ 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K................................. 11
SIGNATURES
PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 8 of this Form 10-K.
ITEM 1. BUSINESS
Incorporated in Florida on January 16, 1985, Affinity International
Marketing, Inc. (the "Company"), formerly Treasure and Exhibits International,
Inc. which was formerly Vanderbilt Square Corporation, originally engaged in the
business of equipment rental through our wholly owned subsidiary Hi-Tech
Leasing, Inc. At that time we also provided management services to Corrections
Services, Inc. ("CSI"). In July 1997, we sold our subsidiary to CSI and received
2,000,000 shares of CSI stock which were subsequently distributed to Company
shareholders as dividends. On September 10, 1997, we entered a letter of intent
to acquire an affiliated company, Michael's International Treasure Jewelry, Inc.
("Michael's"); and shortly thereafter the Company and Michaels, as co-lessees,
entered a lease purchase agreement with Seahawk Deep Ocean Technology, Inc. (and
its partners, collectively "Seahawk") to acquire certain Treasure and artifacts
(the "Artifacts") known as the Dry Tortugas Treasure. As a compliment to the
proposed Michaels acquisition, on March 19, 1998, we exercised our option to
purchase the Artifacts for $682,500 in cash, a $200,000 promissory note, and the
issuance of 9,500,000 shares of our common stock, with certain put options
attached. We borrowed the cash portion of this transaction, as well as the funds
to pay off the $200,000 not, from our affiliate First Capital Services, Inc.
("First Capital"). After completing a lengthy due diligence process, and the
determination that Michael's operations could not be audited, we abandoned the
Michael's acquisition. On December 31, 1998, we sold a portion of the Artifacts
to an unrelated third party purchaser in exchange for a $750,000 note
receivable. Simultaneously, the purchaser entered into a credit arrangement with
First Capital, who paid the Company the $750,000 and took a security interest in
those pieces of the Artifacts purchased. The purchaser subsequently defaulted on
its loan obligation to First Capital, who then accepted the pledged Artifacts in
lieu of foreclosure.
The Company has no operations and plans to locate and consummate a reverse
merger or reverse acquisition with an unidentified private entity. The Company's
ability to continue operations is contingent upon its ability to identify a
prospective target business.
In March 2001, we changed our name to Affinity International Marketing,
Inc.
Employees
Mr. Kenneth De Fillipo is the Company's only employee.
ITEM 2. PROPERTIES
Since September 1999, we utilized offices at 2300 Glades Road, Suite 450 in
Boca Raton, Florida, cost free from our affiliate First Capital.
ITEM 3. LEGAL PROCEEDINGS
In October 1999, Odyssey Marine Exploration, Inc. ("Odyssey") obtained a
default judgment against us in the approximate amount of $340,000 in connection
with its claims that the Company allegedly had failed to honor the put options
set forth in the Artifact purchase agreement. Thereafter Mr. Schwartz negotiated
and personally guaranteed a forbearance agreement which provided that Odyssey
would not execute on the judgment and would transfer its common stock of the
Company to Mr. Schwartz provided that Mr. Schwartz and/or the Company make
weekly payments of $25,000. After Mr. Schwartz paid approximately $100,000, we
defaulted on the remainder of the weekly payments. Mr. Schwartz and Odyssey
reached a subsequent oral agreement which provides that Odyssey will keep all of
its shares of the Company's common stock, provided such shares are free trading,
in consideration of the sum of $45,000.
1
In connection with the acquisition of the casino ship, we executed a lease
purchase option with Entertainment Cruises, Inc., which provided for monthly
lease payments of $80,000 payable in advance quarterly, as well as reimbursement
for insurance, crew costs and other operating expenses. Upon return of the
ship's first voyage, we discovered that the ship was materially unfit to sail in
high seas and/or in seas extending over three miles from the shoreline in that
the ship did not have sufficient stabilizers to provide sufficient passenger
comfort. We believed that this constituted a material breach of the
lease/purchase agreement and/or fraud in the inducement of the execution of such
agreement, and has prevented us from continuing our floating casino operations.
We returned the ship to the lessor, who then filed a lawsuit against the Company
claiming damages in excess of $1,000,000. We are aggressively defending this
lawsuit and are pursuing our counterclaims against the lessor, including fraud,
misrepresentation, breach of contract and warranty.
In connection with the cessation of our casino ship operations, Merrill
Stephens Dry Dock, Inc. sued us in the Dade County Circuit Court for
approximately $23,000 for services and materials allegedly provided in
connection with the building of a platform for the ship. We have retained
counsel to defend this matter and Mr. Schwartz has agreed to attempt to settle
this matter with personal funds. Terminal Plaza, Inc. a dock facility in Dade
County where we docked and loaded the ship has also sued us and obtained a
default judgment in the approximate amount of approximately $130,000 for claims
relating to a one year lease for office and dockage in Dade County. The lease
provided for monthly payments of $12,000 plus $1.00 per passenger in excess of
7,500. We have entered into a verbal agreement to settle this matter for
$15,000, which is subject to final documentation.
In December 1998 we acquired the assets of an adult gaming facility in
Sunny Isles Beach, Florida, along with an assignment of the lease facility in
exchange for 1,500,000 shares of the Company's common stock and assumption of a
$750,00 note payable to First Capital. We also entered into a verbal agreement
with the seller to operate the facility on our behalf. We operated the adult
gaming facility until October 1999; and thereafter closed and vacated the
facility upon determining that the business was not viable. First Capital
accepted the gambling machines and related assets as settlement of amounts due
under the $750,000 note. The seller claimed $100,000 for past due management
fees for which and we have reached a settlement agreement with the seller for
$80,000. We have paid $25,000 of this amount and owe $55,000.
During the last quarter of 1999, Mr. Lee Summers, the Company's former
chief executive officer, sued us for alleged back wages in the approximate
amount of $40,000 in the Palm Beach County State Circuit Court. We have reached
an agreement to settle this matter for the issuance of approximately 150,000
shares of the Company's common stock. Although an agreement has been reached,
the consideration has not been transfered.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
2
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock trades on the Over the Counter Market on the
National Association of securities Dealers OTC Bulletin Board under the symbol
"AIMI". The following table sets forth the high and low closing sales prices for
the periods indicated.
High Low
------- --------
Calendar Year 2000
Fourth Quarter..................... $.17 .029
Third Quarter...................... .27 .10
Second Quarter..................... .76 .1625
First Quarter...................... .76 .135
Calendar Year 1999
Fourth Quarter..................... $.34 $.06
Third Quarter...................... .43 .06
Second Quarter..................... .28 .09
First Quarter...................... .38 .18
Calendar Year 1998
Fourth Quarter..................... $.28 $.03
Third Quarter...................... .16 .03
Second Quarter..................... .21 .03
First Quarter...................... .28 .12
The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
At May 15, 2001, the bid price of the Common Stock was $.02.
Holders
As of May 15, 2001, there were approximately 150 holders of record.
Additional shares of the Company's common stock are held by additional
shareholders at brokerage firms and/or clearing houses. The Company therefore,
was unable to determine the precise number of beneficial owners of common stock
as of May 15, 2001.
Dividends
The Company has never declared or paid any cash dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.
3
Sales of Unregistered Securities
In connection with our proposed acquisition of Michael's International
Treasure Jewelry, Inc. ("Michael's"); the Company and Michaels, as co-lessees,
entered a lease purchase agreement with Seahawk Deep Ocean Technology, Inc. (and
its partners, collectively "Seahawk") to acquire certain Treasure and artifacts
(the "Artifacts") known as the Dry Tortugas Treasure. On March 19, 1998, we
exercised our option to purchase the Artifacts for $682,500 cash, a $200,000
promissory note, and the issuance of 9,500,000 shares of common stock to
Seahawk, with certain put options attached.
On July 24, 1998, First Consolidated Financial Corp. ("First
Consolidated"), a closely held Florida corporation under common control with the
Company acquired 2,876,429 shares of restricted common stock of the Company from
Seahawk Deep Ocean Technology, Inc., a Colorado corporation which acquired the
shares as part of the consideration paid by the Company for the acquisition of
the Artifacts on or about March 19, 1998. Pursuant to the terms of the stock
purchase agreement, First Consolidated paid $450,677 to acquire the common stock
from Seahawk. First Consolidated paid approximately 40% at closing and the
balance by installment payments. First Consolidated's director and chief
executive officer is Mr. Larry Schwartz, who is a former president of the
Company.
On December 29, 1998 we acquired the assets of American Consolidated
Amusement, Inc., which consisted of approximately 200 gambling machines along
with a related 4000 square foot leasehold interest located in Sunny Isles Beach,
Florida, in consideration for the issuance of 1,500,000 shares of the Company's
common stock to American Consolidated Amusement, Inc. and assumption of a
$750,000 note owed to First Capital, which was secured by a pledge of the
gambling machines. During this same time period, we issued 1,500,000 shares of
common stock valued at $202,500 to Mr. Larry Schwartz in satisfaction of past
due management fees owed to First Consolidated Corp. and in consideration of his
personally guaranteeing certain corporate obligations.
Pursuant to the agreement between the Company, Mr. Larry Schwartz and
Odyssey Marine Exploration, Inc., executed on November 10, 1999 to forbear
execution of the default judgment acquired by Odyssey in the approximate amount
$340,000, Mr. Larry Schwartz acquired 480,000 shares of the Company's common
stock directly from Odyssey.
4
ITEM 6. SELECTED FINANCIAL DATA
The Company's historical figures as of and for the years ended December 31,
1996, 1997, 1998, 1999 and 2000 have been derived from its consolidated
financial statements and related notes. The historical figures that follow are
qualified by reference to our financial statements and the related notes thereto
set forth herein.
Years ended December 31,
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1996 1997 1998 1999 2000
-------- -------- -------- ------- -------
Income Statement Data:
Revenues............................ $ 227,902 $ 144,283 - - -
General and Administrative Expenses. 169,509 130,047 218,899 598,723 73,710
Net income (loss)................... 59,443 20,840 (999,146) (2,071,642) (73,710)
Net income (loss) per share......... $ 0.0 $ 0.0 $ (.04) $ (.07) $ (.00)
Weighted average shares
outstanding...................... 14,847,281 16,437,088 23,648,920 28,990,756 28,990,756
Balance Sheet Data:
Total assets........................ 1,063,919 195,938 3,471,597 21,261 18,886
Total liabilities................... 51,673 17,083 3,886,888 1,937,601 2,008,936
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such
difference are discussed in the section entitled "Certain Factors Affecting
Future Operating Results" beginning on page 7 of this Form 10-K.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Net revenues were $0 for the year ended December 31, 1999
compared to $0 for the year ended December 31, 2000. Realized and unrealized
gain in investments in marketable securities was $0 for the year ended December
31, 2000 compared to a loss of $(10,009) for the year ended December 31, 19999.
General and administrative expenses. General and administrative expense
decreased by 88% from $598,723 for the year ended December 31, 1999 to $73,710
for the year ended December 3,1 2000. The decrease in general and administrative
expenses was primarily attributable to the absence of start-up costs associated
with the maiden voyage of our casino cruise ship and the acquisition of an adult
gaming complex in Sunny Isles, Florida, as well as leasing costs to berth the
ship which was partially offset by increased legal and accounting fees.
Losses from Continuing Operations. Losses from continuing operations
totaled $(73,710), for the year ended December 31, 2000, as compared to losses
of $(598,923) for the year ended December 31, 1999. This decrease is primarily
attributable to the absence of start-up costs associated with the maiden voyage
of our casino cruise ship and the acquisition of an adult gaming complex in
Sunny Isles, Florida, as well as leasing costs to berth the ship which was
partially offset by increased legal and accounting fees.
Losses from Discontinued Operations. In 2000 we had no losses from
discontinued operations. In 1999 we ceased operations related to the casino
operations, and sold a portion of the Artifacts for $750,000. The revenue and
related costs are included in discontinued operations. Loss from discontinued
operations totaled $(1,281,983) for the year ending December 31, 1999, compared
to a loss of $0. As a result, we had a net loss of $(2,071,642) for the year
ended December 31, 1999 compared to a net loss of $(73,710) realized in 2000.
5
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues were $0 for both the year ended December 31, 1998 and
for the year ended December 31, 1999. Realized and unrealized gain in
investments in marketable securities decreased by 393.5% from $3,410 for the
year ended December 31, 1998 to a loss of $10,009 for the year ended December
31, 1999. The loss on investments was attributable to a decline in the market
price.
General and administrative expenses. General and administrative expense
increased by $379,824 or 173.5% from $218,899 in 1998 to $598,723 in 1999. The
increase in general and administrative expenses was primarily attributable to
increased costs incurred in connection with operations of the casino cruise ship
and land based casino.
Losses from Continuing Operations. Losses from continuing operations
totaled $(1,149,176), for the year ended December 31, 1999, an increase of
$645,622 or 184.8% from losses of $(503,554) during 1998. This increase is
primarily attributable to increased interest expense and salary expense.
Losses from Discontinued Operations. In 1998 we abandoned our intended
acquisition of Michael's International Treasure Jewelry Inc., and began to
liquidate our investment of Artifacts. In 1999 we ceased operations related to
the casino operations, and sold a portion of the Artifacts for $750,000. The
revenue and related costs are included in discontinued operations. Losses from
discontinued operations totaled $1,281,983 for the year ending December 31,
1999, compared to losses of $785,592 for the year ended December 31, 1998. The
losses in 1999 are attributable to revenues of $287,000 which were offset by:
direct costs of $64,000; maintenance charges for the cruise ship of $77,000;
lease and berth space costs of $379,000 and accounting for a default judgment of
$130,000 pursuant to claims relating to berthing space of our casino ship;
settlement of a lawsuit involving claims for outstanding management fees
relating to the operation of the adult gaming facility in the amount of $80,000;
wages and subcontracting fees of $391,000; payroll tax of $34,000; marketing
costs of $85,000; and depreciation of $39,000; and other miscellaneous costs of
$289,000. During the year ended December 31, 1999, we also had a loss on
disposal of discontinued operations of $(181,483). We recorded an income tax
benefit of $541,000 in connection with losses from discontinued operations. As a
result, we had a net loss of $(2,071,642) for the year ended December 31, 1999
compared to a loss of $(999,146) for the year ended December 31, 1998.
Liquidity and Capital Resources
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
At December 31, 2000, we had a working capital deficit of $(1,997,672) and
a cash balance of $11,264. This compares to a working capital deficit of
$(1,923,962) and a cash balance of $4,095 at December 31, 1999. At December 31,
2000, we had current assets of $11,264 as compared to $13,639 at December 31,
1999; total assets of $18,886 at December 31, 2000 as compared to $21,261 at
December 31, 1999; current and total liabilities of $2,008,936 at December 31,
2000 as compared to $1,973,601 at December 31, 1999; a negative net worth of
$(1,990,050) at December 31, 2000 as compared to a negative net worth of
$(1,916,340) at December 31, 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
At December 31, 1999, we had a working capital deficit of $1,923,962 and a
cash balance of $4,095. This compares to working capital deficit of $3,115,791
and a cash balance of $1,544 at December 31, 1998. At December 31, 1999, we had
current assets of $13,639 as compared to $771,097 at December 31, 1998; total
assets of $21,261 at December 31, 1999 as compared to $3,471,597 at December 31,
1998; current and total liabilities of $1,937,601 at December 31, 1999 as
compared to $3,886,888 at December 31, 1998; and a negative net worth of
$1,916,340 at December 31, 1999 as compared to a negative net worth of $415,291
at December 31, 1998. The decrease in assets was principally the result of the
surrender of collateral in lieu of foreclosure, and a decrease in notes
receivable of $750,000 from the purchaser of the Artifacts and the recording of
net assets for discontinued operations.
6
During the year ended December 31, 1999, we had an increase in cash and
cash equivalents of $2,551, from $1,544 to $4,095. This increase in cash was
principally due to collections of $750,000 of notes receivables, loans from an
affiliate of $113,400, offset by cash used in losses from operations. As a
result of the loss incurred in 1999, operating activities used $860,932 in cash
during 1999 as compared to $321,001 during 1998.
Subsequent Events
In March 2001, we changed our name to Affinity International Marketing,
Inc.
Year 2000 Issue
We experienced no material failures and incurred no material costs or
losses as a result of the Year 2000 Issue.
Impact of Inflation
Inflation has not been a major factor in our businesses since inception.
There can be no assurances that this will continue.
Certain Factors Affecting Future Operating Results
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. We believe that in order to
commence active operations, we must acquire an operating company. We will
continue to look for potential business opportunities; however we are solely
dependent upon the efforts of our chief executive officer in this area. We have
only limited funds available to aid in the search of a business opportunity and
there can be no assurance that we will raise additional capital to enable us to
acquire a suitable potential business opportunity, or that we will ever acquire
such business opportunity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
independent auditors' report thereon of Malone & Bailey, PLLC, appear beginning
on page F-1 of this report. See Index to Financial Statements.
7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 10, 2001, the client-auditor relationship between the Company and
Rachlin, Cohen & Holtz LLP ("RCH") ceased.
To the knowledge of the Company's current Board of Directors, RCH's report
of the financial statements of the Registrant for each of the past two fiscal
years did not contain any adverse opinion or disclaimer of opinion and was not
qualified or modified as to audit scope or accounting principles. However, the
report contained an explanatory paragraph expressing substantial doubt as to the
Company's ability to continue as a going concern.
During the Company's two most recent fiscal years and the subsequent
interim period preceding the termination of the client-auditor relationship on
April 10, 2001, to the knowledge of the Registrant's current Board of Directors,
there were no disagreements with RCH on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of RCH, would have caused RCH
to make reference to the subject matter of the disagreements in connection with
their audit report with respect to financial statements of the Company.
On April 4, 2001, the Company received a letter from RCH regarding a review
of its quarterly statements. The Board of Directors has acted on this matter and
the statements have now been reviewed by an independent accounting firm.
To the knowledge of the Registrant's current Board of Directors, during the
Registrant's two most recent fiscal years there was no disagreement or
difference of opinion with RCH regarding any "reportable event," as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
8
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Regarding Executive Officers and Directors
The following table sets forth the names, ages and offices of the present
executive officers and directors of the Company. The periods during which such
persons have served in such capacities are indicated in the description of
business experience of such persons below.
Name Age Position
-------------- ------ --------------
Kenneth A. De Fillipo 61 Chairman and Chief Executive Officer
Nick Bollettieri 69 Director
All officers serve at the discretion of the Board of Directors. There are
no family relationships among any of the directors or officers of the Company.
Kenneth A De Fillipo. Mr. De Fillipo has served as Chairman and Chief
Executive Officer of the Company since January 2001. Since 1994, Mr. De Fillipo
has served as Councilman/Vice Mayor of the City of North Miami Beach. Mr. De
Fillipo attended the University of Houston.
Nick Bollettieri. Mr. Bollettieri has served as Director of the Company
since February 2001. Mr. Bollettieri founded and has served as President of the
Nick Bollettieri Tennis Academy since 1978. The Nick Bollettieri Tennis Academy
is a full-time tennis boarding school dedicated to preparing students for
college within an environment that combines intense tennis training with a
specially designed academic curriculum. Mr. Bollettieri has been listed as one
of the most influential people in tennis by various publications including
Tennis Magazine, The Sporting Life, and the Sarasota Herald Tribune. Mr.
Bollettieri has received many awards for his accomplishments and community
service and has been the keynote speaker at a variety of events. Mr. Bollettieri
is world renowned for his involvement with players such as Andre Agassi, Jim
Courier, Monica Seles, Boris Becker, Martina Hingis, Anna Kournikova and the
Williams Sisters.
Compliance With Section 16(a) of Exchange Act
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. All of the filing requirements were
satisfied on a timely basis in 2000. In making these disclosures, the Company
has relied solely on written statements of its directors, executive officers and
shareholders and copies of the reports that they filed with the Commission.
9
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services to the Company is Chief Executive
Officer during the three years ended December 31, 2000 of each of the Company's
most highly compensated executive officers.
Long Term
Annual Compensation Compensation
Other Annual Stock
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(1)
- ---------------------------- ------ ---------- ----------- ---------------- ---------------
Lee Summers................. 1999 0 0 (1) (1)
Chief Executive Officer... 1998 0 0 (1) (1)
- ----------------
(1) The Company and Mr. Summer entered into a three year employment contract
commencing January 4, 1999 providing for annual compensation ranging from
$100,000 to $150,000; immediate issuance of 100,000 shares of the Company's
common stock and stock options at $.23 exercisable during the term of the
employment contract. On June 4, 1999 Mr. Summers left the Company and in
the fourth quarter of 1999, filed a law suit in the state circuit court of
Palm Beach County, Florida claiming alleged back wages of $40,000. He has
verbally agreed to accept 150,000 shares of the Company's common stock as
settlement of his claims; however the settlement is subject to final
documentation.
Compensation of Directors
No additional compensation of any nature is paid to any directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table is furnished as of May 15, 2001, to indicate beneficial
ownership of shares of the Company's Common Stock by (1) each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's Common Stock, (2) each director, and named officer of the Company,
individually, and (3) all officers and directors of the Company as a group. The
information in the following table was provided by such persons.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1) Percent of Class
-------------------- ------------------------ -----------------
Kenneth A. De Fillipo (2)................ - *
Nick Bollettieri (2)..................... - *
Larry Schwartz (2)(3).................... 4,154,824 (2) 14.3%
Seahawk Deep Ocean Technology, Inc.(4)... 2,802,084 9.7%
All executive officers and directors.....
as a group (2 persons).......... - *
- ---------------
* Less than one percent
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Business address is 2300 Glades Road, Boca Raton, Florida 33431
(3) Includes 2,174,824 shares owned by First Consolidated Financial Corp.,
which is owned and controlled by Mr. Schwartz.
(4) Address is 5102 S. Westshore Blvd., Tampa, Florida 33611.
10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has secured financing for its operations primarily from First
Capital Services, Inc. and First Consolidated Financial Corp. which are related
to the Company by means of a common controlling stockholder.
First Capital has provided primary financing with total outstanding loan amounts
of approximately $2,135,000. First Capital loaned funds to the Company pursuant
to a master loan agreement for a maximum of $2,000,000, which provided for
interest payable monthly at 12% and principal repayment on December 1, 2000. The
loan was secured by all of the Company's assets including the artifacts. In
addition, the Company accepted assignment of a loan in the amount of $750,000 in
connection with the purchase of the adult gaming complex. This note earned
interest at 12%, payable monthly, with the principal due on February 16, 2000
and was owed to First Capital. This note was secured by all the assets of the
adult gaming complex.
Both of these notes were satisfied in full, including unpaid interest of
approximately $350,000 in December 1999, with the surrender of collateral in
lieu of foreclosure.
First Consolidated provided financing in the amount of approximately $501,000
through December 31, 2000. First Consolidated is a major stockholder and is
owned by Larry Schwartz. The loan is due on demand, bears interest at 12% and is
uncollateralized.
The Company entered into transactions with various entities and individuals
affiliated by virtue of their position with the Company or stock ownership which
resulted in expenses to the Company as follows: consulting and professional fees
of $227,500 during 1999 and $30,000 during 1998; interest expense of $60,000 in
2000, $323,109 in 1999 and $98,692 during 1998; and management fees of $80,000
during 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements:
(i) Report of Independent Auditors
(ii) Consolidated Balance sheet as of December 31, 2000 and December
31, 1999
(iii)Consolidated Statement of Operations for the three years ending
December 31, 2000, 1999 and 1998
(iv) Consolidated Statement of Shareholders equity for the three years
ended December 31, 2000, 1999 and 1998
(v) Consolidated Statement of Cash Flows for the three years ended
December 31, 2000, 1999 and 1998
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None
(3) Exhibits
None.
(b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AFFINITY INTERNATIONAL MARKETING, INC.
By: /s/ Kenneth De Fillipo
--------------------------------------------
Kenneth De Fillipo
Chairman and Chief Executive Officer
Dated: May 17, 2001
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf or the registrant and in the capacities and or
the duties indicated.
Signature Title Date
/s/ Kenneth De Fillipo Chairman and Chief Executive Officer May 17, 2001
- -----------------------
Kenneth De Fillipo
/s/ Nick Bollettieri Director May 17, 2001
- -----------------------
Nick Bollettieri
12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Affinity International Marketing, Inc.
We have audited the accompanying balance sheet of Affinity International
Marketing, Inc. (formerly Treasure and Exhibits International, Inc.) as of
December 31, 2000, and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Affinity International
Marketing, Inc. (formerly Treasure and Exhibits International, Inc.) as of
December 31, 2000, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company is subject to certain significant risks and
uncertainties, which conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with regard to these
matters are also described in Note 2 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
these significant risks and uncertainties.
/s/ Malone & Bailey, PLLC
Houston, Texas
May 15, 2001
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Treasure and Exhibits International, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Treasure and
Exhibits International, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Treasure and Exhibits International, Inc. as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, the Company is subject to certain significant
risks and uncertainties, which conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also described in Note 2 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these significant risks and uncertainties.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
April 18, 2000
F-2
AFFINITY INTERNATIONAL MARKETING, INC.
(formerly Treasure and Exhibits International, Inc.)
BALANCE SHEET
December 31, 2000
December 31, December 31,
2000 1999
---------------- ---------------
ASSETS
Current assets:
Cash $ 11,264 $ 4,095
Investments - 9,544
---------------- --------------
Total current assets 11,264 13,639
Other 7,622 7,622
---------------- --------------
$18,886 $21,261
================ ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 384,145 $ 369,645
Notes payable - shareholder 580,384 523,549
Put option liability 1,044,407 1,044,407
---------------- ----------------
Total current liabilities 2,008,936 1,937,601
---------------- ----------------
Commitments and contingencies - -
Stockholders' Deficit:
Common stock, $.0001 par value;
50,000,000 shares authorized: 28,990,756
shares issued and outstanding 2,899 2,899
Additional paid-in capital 2,111,706 2,111,706
Accumulated deficit (4,104,655) (4,030,945)
---------------- ----------------
Stockholders' Deficit (1,990,050) (1,916,340)
---------------- ----------------
$18,886 $21,261
================ ================
See accompanying summary of accounting policies and notes to financial
statements
F-3
AFFINITY INTERNATIONAL MARKETING, INC.
(formerly Treasure and Exhibits International, Inc.)
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
------------------------------------------------
2000 1999 1998
------------- ------------- --------------
Revenues $ - $ - $ -
Costs of revenue - - -
------------- ------------- --------------
Gross margin - - -
------------- ------------- --------------
General and administrative 73,710 598,723 218,899
--------------
------------- -------------
Loss from continuing operations
(73,710) (598,723) (218,899)
Other income (expense):
Realized and unrealized
Gain (loss) on investments - (10,009) 3,410
Interest and dividend
Income - 556 1,935
------------- ------------- --------------
Loss before discontinued operations
(73,710) (608,176) (213,554)
------------- ------------- --------------
Discontinued operations:
Loss on disposal of discontinued operations
- (181,483) -
Loss from operations of discontinued
operations - (1,281,983) (785,592)
------------- ------------- --------------
- (1,463,466) (785,592)
------------- ------------- --------------
Net Loss $ (73,710) $ (2,071,642) $ (999,146)
============= ============= ==============
Loss per share:
Continuing operations $ (0.00) $ (0.02) $ (0.01)
Discontinued operations - (0.05) (0.03)
------------- ------------- --------------
$ (0.00) $ (0.07) $ (0.04)
============= ============= ==============
Weighted average shares outstanding:
28,990,756 28,990,756 23,648,920
See accompanying summary of accounting policies and notes to financial
statements
F-4
AFFINITY INTERNATIONAL MARKETING, INC.
(formerly Treasure and Exhibits International, Inc.)
STATEMENTS OF STOCKHOLDERS' DEFCIT
Common stock
---------------------------- Additional Accumulated
Shares Amount paid-in capital Deficit Total
-------------- ------------- ----------------- ----------------- -----------
Balance at December 31, 1997
16,490,756 $1,649 $ 1,137,363 $(960,157) $ 178,855
Stock issued for artifacts,
net of put option
9,500,000 950 (950) - -
Stock issued for business
1,500,000 150 202,350 - 202,500
Stock issued for services
1,500,000 150 202,350 - 202,500
Net loss - - - (999,146) (999,146)
------------ ------------- ----------------- ----------------- -------------
Balance at December 31, 1998
28,990,756 2,899 1,541,113 (1,959,303) (415,291)
Put option waived - - 570,593 - 570,593
Net loss - - - (2,071,642) (2,071,642)
------------ ------------- ----------------- ----------------- -------------
Balance at December 31, 1999
28,990,756 2,899 2,111,706 (4,030,945) (1,916,340)
Net loss - - - (73,710) (73,710)
------------ ------------- ----------------- ----------------- -------------
Balance at December 31, 2000 $(1,990,050)
28,990,756 $ 2,899 $ 2,111,706 $(4,104,655)
============ ============= ================= ================= =============
See accompanying summary of accounting polices and notes to financial
statements
F-5
AFFINITY INTERNATIONAL MARKETING, INC.
(formerly Treasure and Exhibits International, Inc.)
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-----------------------------------------
2000 1999 1998
---------- ------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (73,710) $(2,071,642) $(999,146)
Adjustments to reconcile net loss to net cash
used in operating activities:
Expenses paid by affiliate - 887,510 395,804
Depreciation and amortization - 51,502 -
Stock issued for services - - 202,500
Realized and unrealized (gain) loss on sale
of marketable securities
9,544 10,009 (3,410)
Changes in assets and liabilities:
Other assets - (7,122) (500)
Accounts payable and accrued expenses
14,500 268,811 83,751
------------ ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES
(49,666) (860,932) (321,001)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITES
Principal payments received - 750,000
Principal payments received affiliates
- - 125,000
Loans and advances to
Affiliates - - (125,000)
------------ ------------- -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES
- 750,000 -
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from notes payable - affiliates
56,835 113,483 142,750
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH 7,169 2,551 (178,251)
Cash, beginning of period 4,095 1,544 179,795
------------ ------------- -------------
Cash, end of period $ 11,264 $ 4,095 $1,544
============ ============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ - $3,333
See accompanying summary of accounting policies and notes to financial
statements
F-6
AFFINITY INTERNATIONAL MARKETING, INC.
(formerly Treasure and Exhibits International, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The Company was organized as Vanderbuilt Square Corp. under the laws of the
State of Florida on January 16, 1985. On February 10, 1998, the name of the
Company was changed to Treasure and Exhibits International, Inc. In March 2001,
the Company changed its name to Affinity International Marketing, Inc.
The Company currently has no operations and plans to locate and consummate a
reverse merger or reverse acquisition with an unidentified private entity. The
Company's ability to commence operations is contingent upon its ability to
identify a prospective target business.
Reclassifications
Certain items presented during the year ended December 31, 1999 and 1998 have
been reclassified to conform with the presentation for the year ended December
31, 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the balance sheet. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over their estimated useful lives of the assets.
Impairment of long-lived assets
The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
F-7
Income taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax assets and liabilities are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
Basic Loss Per Share
Basic loss per share has been calculated based on the weighted average number of
shares of common stock outstanding during the period.
Diluted net loss per common share is computed by dividing the net loss, by the
weighted average number of common shares outstanding plus potential dilutive
securities. The potential dilutive securities had an anti-dilutive effect for
all years shown.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
NOTE 2 - GOING CONCERN
Going Concern Considerations
The accompanying consolidated financial statements have been presented in
accordance with generally accepted accounting principles, which assume the
continuity of the Company as a going concern.
As reflected in the consolidated financial statements, the Company incurred net
losses of approximately $73,000, $2,071,000 and $999,000 in 2000, 1999 and 1998,
and the financial position reflects a stockholders' deficiency of approximately
$1,990,000 as of December 31, 2000.
Currently the Company has no operations. During 1999, the Company discontinued
all of its business operations and surrendered all of its remaining assets to
First Capital Services, Inc., (First Capital) an entity related by common
control and ownership, in settlement of outstanding loans payable, in lieu of
foreclosure.
As discussed below, the Company is the defendant in several matters of pending
litigation resulting from various components of the discontinued operations, the
ultimate outcome of which is not presently susceptible to reasonable measurement
or estimation.
Management's plans with regard to these matters include:
Management plans to locate and consummate a reverse merger or reverse
acquisition with an unidentified private entity. The Company's ability to
commence operations is contingent upon its ability to identify a prospective
target business.
F-8
The Company is involved in several matters of pending litigation as follows:
In October 1999, Odyssey Marine Exploration, Inc. ("Odyssey") obtained a default
judgment against the Company in the approximate amount of $340,000 in connection
with its claims that the Company allegedly had failed to recognize the put
options set forth in the Artifact purchase agreement (see Note 3). Thereafter,
the former president ("President") of the Company negotiated and personally
guaranteed a forbearance agreement which provided that Odyssey would not execute
on the judgment and would transfer their common stock of the Company to the
President provided that the President and/or the Company made weekly payments of
$25,000. After the President paid approximately $100,000, the Company defaulted
on the remainder of the weekly payments, and the President and Odyssey reached a
subsequent oral agreement which provided that Odyssey keep all of its shares of
the Company's common stock, provided such shares are free trading, in
consideration of the sum of $45,000. The President had agreed to pay this amount
personally as he had already received 480,000 shares of the Company's common
stock from Odyssey pursuant to the first forbearance agreement.
The lessor of the casino cruise ship filed a claim to enforce the full terms of
the lease, including payment of late fees and costs, alleging damages in excess
of $1,000,000. The Company intends to defend the claim to its full ability and
pursue all counterclaims against the lessor that are available.
In 1999, the lessor of the berth filed a claim to enforce the full terms of the
lease including fees and costs. The lessor has received a default judgment in
the amount of $130,000.
In March 2000, the Company was named as a defendant in litigation filed by an
entity which performed services on the casino cruise ship. The litigation is
seeking payment in full of all charges as yet unpaid, approximately $20,000,
plus costs. The Company is attempting to negotiate a settlement.
Summary
The conditions described above regarding going concern considerations and
pending litigation raise substantial doubt as to the ability of the Company to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of these
significant risks and uncertainties.
NOTE 3 - DISCONTINUED OPERATIONS
Acquisition and Partial Sale of Artifacts
On October 1, 1997, the Company entered into a one year Lease/Purchase Agreement
with Seahawk Deep Ocean Technology, Inc. (Lessor) and Michael's (Co-Lessee) for
the "Dry Tortugas Treasure" (the Treasure). The Lease/Purchase Agreement
obligated Seahawk to lease the Treasure to the Co-Lessees for a term of one
year. The lease provided for quarterly lease payments of $67,500.
It was the Company's intention to display these artifacts at Michael's flagship
store in Key West, Florida.
On March 19, 1998, the Company exercised its option to purchase the Treasure.
Consideration named in the agreement amounted to $2,497,500, comprised of
$682,500 cash, a $200,000 promissory note and 9,500,000 shares of the Company's
restricted common stock valued at $1,615,000. The Company retained the right to
repurchase up to 8,000,000 shares of the restricted common stock at prices
ranging from $.135 to $.15 per share. The repurchase option expired June 10,
1998.
F-9
(when?) The Company granted the artifacts seller a one year right, commencing
March 19, 1999, to put all or any of the 9,500,000 shares of restricted common
stock to the Company at per share prices ranging from $.085 to $.17 per share.
Subsequent to March 19, 1999, substantially all the outstanding shares pursuant
to this agreement were put to the Company at a per share cost of $.17. As a
result of this action, the amount related to this put option ($1,615,000) has
been reflected in the accompanying financial statements as a liability
(estimated liability related to put option) in 1998. In 2000, the put option in
connection with 3,356,429 common shares has been waived. As a result, $570,593
has been removed from the liability and reflected in equity in 1999.
Substantially all cash required to purchase the artifacts was borrowed from
entities affiliated by common control and ownership. The artifacts were pledged
as collateral for the resulting notes payable.
On December 31, 1998, the Company sold a portion of the artifact collection to
an unrelated third party ("the Purchaser") in consideration for a $750,000 note
receivable. The note bore interest at 12% and was due June 30, 1999. On December
31, 1998, the Purchaser entered into a credit arrangement with First Capital, an
entity related to the Company by common control. First Capital, which is in the
business of asset-based lending and factoring, agreed to lend the Purchaser
$750,000 and accept the artifacts purchased as collateral. First Capital then
paid the Company pursuant to the terms of the note receivable with the
Purchaser. The Purchaser subsequently defaulted on its obligation to First
Capital and First Capital accepted the artifacts in lieu of foreclosure.
Due to the fact that the cost of the artifacts sold was not reliably
determinable, this transaction has been accounted for on the cost recovery
method, whereby the cost has been reduced by the amount of the selling price,
and no gain or loss has been recognized in the accompanying financial statements
in connection with the partial sale of the artifact collection.
During 1999, the Company defaulted on its obligation to First Capital and, on
December 31, 1999, entered into an agreement with First Capital, whereby First
Capital accepted the remaining artifact collection in lieu of foreclosure.
Gaming Operations
Lease of Casino Cruise Ship
On October 30, 1998, the Company entered into a one-year lease/purchase option
for a casino cruise ship. The lease payments were $80,000 monthly, payable
quarterly, in advance. At the lease signing, a maintenance reserve of $50,000
was to be established by the Company. In addition, the Company was to reimburse
the lessor for monthly insurance, taxes, crew costs and other running expenses.
The lease/purchase option contained an option to purchase the vessel at any time
prior to the end of the lease term for $6,000,000. Fifty percent of all lease
payments paid would be credited to the purchase price. The lease was personally
guaranteed by the Chief Executive Officer and major stockholder of the Company.
The Company intended to operate the casino cruise ship as a floating gambling
casino and restaurant, sailing from Miami, Florida.
F-10
The Company funded the entry into casino cruise ship operations, including
initial payments pursuant to the lease purchase option, with additional
borrowings from entities affiliated by common control and ownership.
The ship had its maiden voyage with customers in January 1999. During 1999, the
Company was not able to operate the casino facility with positive cash flow and,
as a result, was not able to comply with the terms of the lease, therefore; the
lessor took possession of the boat.
In October 1999, the lessor instituted litigation seeking full payment of all
unpaid amounts plus damages pursuant to the lease purchase option, which the
litigation alleges is in excess of $1,000,000.
Berth and Lease Agreement
On December 7, 1998, the Company entered into a berth and lease agreement for a
term of twelve months. The lease provided berth space for the casino cruise
ship, together with office space, to be used for ticketing and reservations. The
monthly rent was $12,000, plus $1.00 per passenger in excess of 7,500 passengers
per month.
In June 1999, the lessor instituted litigation seeking payment under the lease
of all unpaid amounts plus damages. The Company has not made the lease payments
called for in the lease commencing with April 1999. The Company vacated the
space May 1, 1999. The lessor, pursuant to litigation, received a default
judgment in the amount of $130,000.
Acquisition of Adult Gaming Complex
In December 1998, the Company acquired the assets of a newly constructed, at
that time unopened, adult gaming complex in exchange for the assumption of
$750,000 of debt and the issuance of 1,500,000 shares of Company common stock.
The debt that was assumed was owed to First Capital, a related party, and was
collateralized by all assets of the adult gaming complex.
The Company entered into a verbal management agreement with the seller to
operate the adult gaming facility on the Company's behalf in exchange for a fee.
In 1999, the Company entered into a settlement agreement with the management
company, whereby the Company was to pay $80,000 in full settlement of all
obligations under the previous verbal agreement, and the management company was
to vacate the premises. In September 1999, the Company paid $25,000 pursuant to
this agreement; $55,000 remained unpaid.
In December 1999, the Company determined that the adult gaming facility was not
a viable business operation and closed the facility permanently.
On December 15, 1999, the Company surrendered all remaining assets of the adult
gaming facility to First Capital in settlement in lieu of foreclosure of all
amounts due under the note payable assigned to the Company in the purchase.
F-11
Lease Assignment - Adult Gaming Complex
In connection with the acquisition of the adult gaming complex, the Company
accepted assignment of the lease for the facility which the adult gaming complex
occupied. The lease was for a term of 2 years and provided for a monthly rent of
$6,500. In October 1999, the Company vacated the premises and ceased making
lease payments. The landlord has made no claim for unpaid rent.
Summary
During 1999, the Company surrendered, in lieu of foreclosure, all assets in
connection with the gaming operations, and the artifacts acquired, in settlement
of outstanding principal and interest due to First Capital, an affiliate.
Principal $ 2,134,874
Interest 349,760
----------------
$ 2,484,634
================
Consequently, the results of operations and estimated operating loss through the
date of disposal relating to these operations have been presented as
discontinued operations in the accompanying statements of operations.
The following represents the summarized results of operations of the
discontinued operations for the year ended December 31:
1999 1998
-------------- --------------
Revenues $ 292,920 $ 750,000
Expenses 1,574,903 1,535,592
-------------- --------------
$(1,281,983) $ (785,592)
============== ==============
The following represents the loss on disposition:
Debt distinguished $ 2,484,634
Net assets surrendered 2,666,117
--------------
Loss on disposal $ (181,483)
==============
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has the following related party loans and advances outstanding as of
December 31, 2000 and 1999:
2000 1999
------------- -----------
Note payable to entity related to common stockholder,
due February 15, 2000, interest at 12% due monthly
$22,750 $22,750
Note payable - stockholder, due February 15, 2000, interest at
12% due monthly 2,000 2,000
Loan due to stockholder, pursuant to settlement agreement
55,000 55,000
------------- -----------
79,750 79,750
First Consolidated Financial Corp. 500,634 443,799
------------- -----------
$ 580,384 $ 523,549
============= ===========
The Company has secured financing for its operations primarily from the
following two parties who are related to the Company by means of a common
controlling stockholder:
F-12
First Capital Services, Inc. (First Capital)
First Consolidated Financial Corp. (First Consolidated)
First Capital has provided primary financing with total outstanding loan amounts
of approximately $2,135,000. First Capital loaned funds to the Company pursuant
to a master loan agreement for a maximum of $2,000,000, which provided for
interest payable monthly at 12% and principal repayment on December 1, 2000. The
loan was secured by all the Company's assets including the artifacts. In
addition, the Company accepted assignment of a loan in the amount of $750,000 in
connection with the purchase of the adult gaming complex. This note earned
interest at 12%, payable monthly, with the principal due on February 16, 2000
and was owed to First Capital. This note was secured by all the assets of the
adult gaming complex.
Both of these notes were satisfied in full, including unpaid interest of
approximately $350,000 in December 1999, with the surrender of collateral in
lieu of foreclosure.
First Consolidated provided financing in the amount of approximately $501,000
through December 31, 2000. First Consolidated is a major stockholder and is
owned by the Company Chief Executive Officer. The loan is due on demand, bears
interest at 12% and is uncollateralized.
Related Party Transactions
The Company entered into the following transactions with various entities and
individuals affiliated by virtue of common management or stock ownership:
2000 1999 1998
------------ ----------- -----------
Consulting and professional fees
$ - $ 227,500 $ 30,000
Interest expense $ 60,000 $ 327,109 $ 98,692
Management fee $ - $ 80,000 $ -
NOTE 5 - COMMITMENTS
Facilities Lease
In February 1999, the Company entered into a lease for office facilities for a
term of three years. In August 1999, the Company vacated the space.
Employment Agreement
On January 4, 1999, the Company entered into an employment agreement with the
Chief Executive Officer who also served as President/director. The agreement was
for a three-year term, and provided for, among other things, annual compensation
ranging from $100,000 to $150,000, employee benefits and twelve months severance
upon termination. In addition, the agreement provides for the issuance of
200,000 shares of common stock and immediately vesting stock options to purchase
common stock at $.23 per share. In June 1999, this employment agreement was
terminated. The employee has filed litigation and is seeking damages.
NOTE 6 - MARKETABLE SECURITIES
2000 1999
------------ ----------
Cost $40,180 $40,180
Unrealized loss (40,180) (30,636)
----------- ----------
Market value $ - $ 9,544
=========== ==========
F-13
NOTE 7 PROPERTY AND EQUIPMENT
The Company had Artifacts with a cost of $1,747,500 and the adult gaming
facility with a cost of $952,500 in 1998. No depreciation was provided in 1998
as these assets were not placed in service until 1999. Depreciation expense in
1999 was $51,502. All assets were surrendered in lieu of foreclosure as of
December 31, 1999 in settlement of amounts owed to First Capital.
NOTE 8 - INCOME TAXES
No provision for federal income taxes has been recorded as the Company incurred
net operating losses through December 31, 2000. At December 31, 2000, the
Company had net operating loss carryforwards of approximately $3,130,000. The
federal net operating loss carryforwards expire in various amounts through 2020,
subject to certain limitations.
No deferred taxes have been recorded and a 100% valuation allowance is required
because of the uncertainty regarding the realization of the deferred tax assets.