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 JUNE 30, 2004
[ ] 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.)
12268 VIA LATINA
DEL MAR, CALIFORNIA 92914
(Address of principle executive offices)
(858) 481-2207
(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: 26,997,370 shares issued and
outstanding as of August 18, 2004
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -June 30, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Losses -Three and Six Months Ended
June 30, 2004 and 2003 and for the Period July 29, 1997 (Date of
Inception) through June 30, 2004 4
Condensed Consolidated Statements of Deficiency in
Stockholders' Equity for the Period July 29, 1997
(Date of Inception) through June 30, 2004 and for
the Period July 29, 1997 (Date of Inception)
through June 30, 2004
5
Condensed Consolidated Statements of Cash Flows - Six Months Ended June
30, 2004 and 2003 6
Notes to Unaudited Condensed Consolidated Financial Information - June 30,
2004 14-22
ITEM 2 Plan of Operations 23-26
ITEM 3 Controls and Procedures 27
PART II OTHER INFORMATION
ITEM 1 Legal proceedings 28
ITEM 2 Changes in securities and use of proceeds 28
ITEM 3 Defaults upon senior securities 28
ITEM 4 Submission of matters to a vote of security holders 28
ITEM 5 Other information 28
ITEM 6 Exhibits and Reports on 8-K 28
SIGNATURES 29
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2004 December 31, 2003
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 89,476 $ 1,062
Prepaid expense and other (Note C) 117,941 --
-------------- --------------
Total current assets 207,417 1,062
Property and equipment:
Office furniture, net of accumulated depreciation of
$1,190 and $1,020 at June 30, 2004 and December 31,
2003, respectively 500 670
Other assets:
Prepaid expense and other (Note C) 108,113 --
-------------- --------------
Total assets $ 316,030 $ 1,732
============== ==============
LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 837,854 $ 979,137
Other accrued liabilities 380,000 380,000
Notes payable (Note D) 1,387,365 1,136,165
Advances from related parties 287,066 264,401
Other advances 45,000 45,000
-------------- --------------
Total current liabilities 2,937,285 2,804,703
Convertible Notes payable, net of debt discount (Note
C) 29,167 --
-------------- --------------
Commitments and contingencies -- --
(Deficiency in) stockholders' equity (Note E):
Preferred stock, par value, $0.001 per share;
50,000,000 shares authorized; none issued and
outstanding at June 30, 2004 and December 31, 2003 -- --
Common stock, par value, $0.001 per share;
300,000,000 shares authorized; 24,464,557 and
21,818,255 shares issued at June 30, 2004 and
December 31, 2003, respectively 24,465 21,818
Additional paid-in-capital 42,576,052 40,557,036
Deficit during development stage (45,250,939) (43,381,825)
-------------- --------------
Total deficiency in stockholder's equity (2,650,422) (2,802,971)
-------------- --------------
Total liabilities and (deficiency in) stockholder's
equity $ 316,030 $ 1,732
============== ==============
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
For The Three months Ended For The Six months Ended (Date of
June 30, June 30, Inception) to
2004 2003 2004 2003 June 30, 2004
---- ---- ---- ---- --------------
Costs and Expenses:
Selling, general and administrative $ 767,641 $ 93,331 $ 1,667,509 $ 459,394 $ 11,780,483
Acquisition of Pacificap
Entertainment Holdings, Inc. (Note B) -- -- -- -- 29,160,000
Acquisition of Cineports.com, Inc. -- -- -- -- 2,248,461
Impairment of film library -- -- -- -- 372,304
Impairment of investment -- -- -- -- 62,500
Depreciation 85 85 170 170 197,375
------------ ------------ ------------ ------------ ------------
Total operating expenses 767,726 93,416 1,667,679 459,564 43,821,123
Loss from operations (767,726) (93,416) (1,667,679) (459,564) (43,821,123)
Other income (expenses):
Other income (expenses) -- -- -- -- 114,758
Interest income (expenses) (114,505) (26,756) (201,435) (79,504) (976,361)
------------ ------------ ------------ ------------ ------------
Total other income (expenses) (114,505) (26,756) (201,435) (79,504) (861,603)
Loss from continuing operations,
before income taxes and discontinued
operations (882,232) (120,172) (1,869,114) (539,068) (44,682,726)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss from continuing operations,
before discontinued operations (882,232) (120,172) (1,869,114) (539,068) (44,682,726)
Loss from discontinued operations -- -- -- -- (352,905)
Gain on disposal of discontinued
operations, net -- -- -- -- 78,974
------------ ------------ ------------ ------------ ------------
Net loss $ (882,232) $ (120,172) (1,869,114) $ (539,068) $(44,956,657)
============ ============ ============ ============ ============
Cumulative effect of accounting
change -- -- -- -- (294,282)
Net loss applicable to common shares $ (882,232) $ (120,172) $ (1,869,114) $ (539,068) (45,250,939)
============ ============ ============ ============ ============
Loss per common share (basic and
assuming dilution) $ (0.04) $ (0.00) $ (0.08) $ (0.02)
============ ============ ============ ============
Continuing operations $ (0.04) $ (0.00) $ (0.08) $ (0.02)
============ ============ ============ ============
Discontinued operations $ -- $ -- $ -- $ --
============ ============ ============ ============
Weighted average shares outstanding 24,054,667 24,402,251 23,286,558 22,600,420
============ ============ ============ ============
</table>
See accompanying notes to the unaudited condensed consolidated financial
information
4
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Common Additional
Preferred Common Stock Stock
Shares Stock Amount Shares Amount subscription
-------------- -------------- -------------- -------------- --------------
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 --
============== ============== ============== ============== ==============
Deficit
Accumulated
During
Paid in Development Treasury
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 $ -- $ -- $ 11,533
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 the unaudited condensed consolidated financial
information
5
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY
IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Subscription
-------------- -------------- -------------- -------------- --------------
BALANCE FORWARD 855,000 $ 855 354,749 $ 355 $ --
Shares issued in March 2000 in exchange
for debt at $37.50 per share -- -- 2,060 2 --
Shares issued March 28, 2000 in
exchange for services at $37.50 per
share -- -- 70 -- --
Shares issued April 27, 2000 in
exchange for services at $37.50 per
share -- -- 250 -- --
Shares issued May 8, 2000 in exchange
for services at $37.50 per share -- -- 417 1 --
Shares issued May 17, 2000 in exchange
for services at 37.50 per share -- -- 833 1 --
Shares issued June 2000 in exchange for
debt at $37.59 per share -- -- 133 -- --
Shares issued June 2000 in exchange for
services at $37.46 per share -- -- 589 1 --
Shares issued July 25, 2000 in exchange
for debt at $37.88 per share -- -- 33 -- --
Shares issued August 2000, in exchange
for services at $37.50 per share -- -- 2,167 2 --
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 -- --
Shares issued October 30, 2000 in
exchange for services at $37.48 per
share -- -- 667 1 --
Shares issued November 9, 2000 in
exchange for services at $37.65 per
share -- -- 83 -- --
Shares issued December 1, 2000 in
exchange for services at $36.76 per
share -- -- 17 -- --
Operating expenses incurred by
principal shareholder -- -- -- -- --
Net Loss -- -- -- -- --
-------------- -------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 2000 -- $ -- 362,103 $ 363 $ --
============== ============== ============== ============== ==============
Deficit
Accumulated
Additional During
Paid in Development Treasury
Capital Stage Stock Total
-------------- -------------- -------------- --------------
BALANCE FORWARD $ 609,269 $ (650,818) $ -- $ (40,339)
Shares issued in March 2000 in exchange
for debt at $37.50 per share 77,245 -- -- 77,247
Shares issued March 28, 2000 in
exchange for services at $37.50 per
share 2,625 -- -- 2,625
Shares issued April 27, 2000 in
exchange for services at $37.50 per
share 9,375 -- -- 9,375
Shares issued May 8, 2000 in exchange
for services at $37.50 per share 15,624 -- -- 15,625
Shares issued May 17, 2000 in exchange
for services at 37.50 per share 31,249 -- -- 31,250
Shares issued June 2000 in exchange for
debt at $37.59 per share 5,000 -- -- 5,000
Shares issued June 2000 in exchange for
services at $37.46 per share 22,082 -- -- 22,083
Shares issued July 25, 2000 in exchange
for debt at $37.88 per share 1,250 -- -- 1,250
Shares issued August 2000, in exchange
for services at $37.50 per share 81,248 -- -- 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 -- -- 1,325
Shares issued October 30, 2000 in
exchange for services at $37.48 per
share 24,999 -- -- 25,000
Shares issued November 9, 2000 in
exchange for services at $37.65 per
share 3,125 -- -- 3,125
Shares issued December 1, 2000 in
exchange for services at $36.76 per
share 625 -- -- 625
Operating expenses incurred by
principal shareholder 6,000 -- -- 6,000
Net Loss -- (856,968) -- (856,968)
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 2000 $ 891,041 $ (1,507,786) $ -- $ (616,382)
============== ============== ============== ==============
See accompanying notes to the unaudited condensed consolidated financial
information
6
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN
STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Preferred Common Stock
Shares Stock Amount Common Shares Stock Amount Subscription
-------------- -------------- -------------- -------------- --------------
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 $ --
============== ============== ============== ============== ==============
Deficit
Accumulated
Additional During
Paid in Development Treasury
Capital Stage Stock 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 the unaudited condensed consolidated financial
information
7
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDESNED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
(CONTINUED)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Additional
Preferred Stock Common Stock Paid in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
BALANCE FORWARD -- $ -- 381,031 $ 382 $ 1,607,022
Shares issued in January 2002, in exchange
for investment at $37.50 per share -- -- 1,667 2 62,498
Shares issued in March 2002, in exchange for
services at $37.50 per share -- -- 8,333 8 312,492
Shares issued in June 2002, in exchange for
services at approximately $40.15 per share -- -- 18,890 19 758,356
Shares issued in June 2002, in exchange for
debts at $37.50 per share -- -- 2,667 2 99,998
Shares issued in July 2002, in exchange for
services at $10.84 per share -- -- 717 1 7,769
Shares issued in July 2002, in connection
with acquisition of Cineports.com, Inc. at
approximately $7.50 per share (Note B) -- -- 159,653 160 1,197,237
Shares issued in August 2002, in exchange for
services at approximately $10.84 per share -- -- 2,133 2 23,127
Shares issued in September 2002, in exchange
for services at approximately $10.84 per share -- -- 10,000 10 108,410
Shares issued in October 2002, in exchange
for services at approximately $11.69 per share -- -- 4,000 4 46,736
Shares issued in October 2002 for cash in
connection with private placement at $6.94
per share -- -- 18,018 18 124,982
Shares issued in October 2002, in exchange
for interest at approximately $11.68 per share -- -- 507 -- 5,920
Shares issued in November 2002, in exchange
for services at approximately $8.70 per share -- -- 1,667 2 14,498
Shares issued in November 2002 for cash in
connection with private placement at $10.20
per share -- -- 1,000 1 10,199
Shares issued in November 2002 for cash in
connection with private placement at $7.50
per share -- -- 4,000 4 29,996
Shares issued in November 2002, in exchange
for debts at $37.49 per share -- -- 867 1 32,499
Shares issued in November 2002, in exchange
for interest at $37.56 per share -- -- 217 -- 8,150
Shares issued in December 2002, in exchange
for services at approximately $12.26 per share -- -- 9,333 9 114,371
Warrants issued in connection with
acquisition of Cineports (Note B) -- -- -- -- 1,051,065
Options issued in exchange for services
rendered (Note H) -- -- -- -- 661,365
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2002 -- $ -- 624,700 $ 625 $ 6,276,690
============ ============ ============ ============ ============
Deficit
Accumulated
During
Development Treasury
Stage Stock Total
------------ ------------ ------------
BALANCE FORWARD $ (2,765,370) $ -- $ (1,157,966)
Shares issued in January 2002, in exchange
for investment at $37.50 per share -- -- 62,500
Shares issued in March 2002, in exchange for
services at $37.50 per share -- -- 312,500
Shares issued in June 2002, in exchange for
services at approximately $40.15 per share -- -- 758,375
Shares issued in June 2002, in exchange for
debts at $37.50 per share -- -- 100,000
Shares issued in July 2002, in exchange for
services at $10.84 per share -- -- 7,770
Shares issued in July 2002, in connection
with acquisition of Cineports.com, Inc. at
approximately $7.50 per share (Note B) -- -- 1,197,397
Shares issued in August 2002, in exchange for
services at approximately $10.84 per share -- -- 23,129
Shares issued in September 2002, in exchange
for services at approximately $10.84 per share -- -- 108,420
Shares issued in October 2002, in exchange
for services at approximately $11.69 per share -- -- 46,740
Shares issued in October 2002 for cash in
connection with private placement at $6.94
per share -- -- 125,000
Shares issued in October 2002, in exchange
for interest at approximately $11.68 per share -- -- 5,920
Shares issued in November 2002, in exchange
for services at approximately $8.70 per share -- -- 14,500
Shares issued in November 2002 for cash in
connection with private placement at $10.20
per share -- -- 10,200
Shares issued in November 2002 for cash in
connection with private placement at $7.50
per share -- -- 30,000
Shares issued in November 2002, in exchange
for debts at $37.49 per share -- -- 32,500
Shares issued in November 2002, in exchange
for interest at $37.56 per share -- -- 8,150
Shares issued in December 2002, in exchange
for services at approximately $12.26 per share -- -- 114,380
Warrants issued in connection with
acquisition of Cineports (Note B) -- -- 1,051,065
Options issued in exchange for services
rendered (Note H) -- -- 661,365
Net loss (5,210,614) -- (5,210,614)
------------ ------------ ------------
BALANCE AT DECEMBER 31, 2002 $ (7,975,984) $ -- $ (1,698,669)
============ ============ ============
See accompanying notes to the unaudited condensed consolidated financial
information
8
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDESNED CONSOLIDATED STATEMENT OF DEFICIENCY
IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Additional
Preferred Share Common Share Paid in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
BALANCE FORWARD -- $ -- 624,700 $ 625 $ 6,276,690
Shares issued in January 2003 in exchange
for services at approximately $4.63 per share -- -- 56,300 56 260,434
Shares issued in February 2003 in exchange for
services at $2.10 per share -- -- 36,683 37 77,000
Shares issued in February 2003 for cash in
connection with private placement at $1.20 per share -- -- 6,667 6 7,994
Shares issued in February 2003 in exchange for
services at $1.50 per share -- -- 6,667 6 9,994
Shares issued in April, 2003 in exchange for services
at $.90 per share -- -- 14,000 14 12,586
Shares issued in April 2003 in exchange for expenses
paid by shareholders at $.90 per share -- -- 22,222 22 19,978
Shares issued in April 2003 in exchange for financing
expenses at $.90 per share -- -- 22,960 23 20,641
Shares issued in April 2003 for cash in connection
with private placement at $1.20 per share -- -- 4,333 4 4,996
Shares issued in May 2003 in exchange for financing
expenses at $1.65 per share -- -- 2,591 3 4,272
Shares issued in May 2003 in exchange for services
at $1.50 per share -- -- 17,667 18 25,882
Shares issued in May 2003 for cash in connection
with private placement at $.90 per share -- -- 16,667 17 14,983
Shares issued in May 2003 in exchange for expenses
paid by shareholders at $.90 per share -- -- 22,167 22 19,978
Shares issued in July 2003 in exchange for services
at $2.10 per share -- -- 13,850 14 29,006
Shares issued in July 2003 in exchange for debts
at $.70 per share -- -- 14,334 14 9,986
Shares issued in July 2003 in exchange for financing
expenses at $3.60 per share -- -- 37,487 38 134,915
Shares issued in August 2003 in exchange for services
at $3.14 per share -- -- 37,667 38 117,762
Shares issued in August 2003 in exchange for debts at
$.81 per share -- -- 43,667 44 35,456
Shares issued in September 2003 in exchange for
services at $1.80 per share -- -- 264,916 265 280,085
Fractional shares issued in September 2003 due to
rounding resulted from reverse stock split -- -- 1,210 1 (1)
Shares issued in October 2003 in exchange for financing
expenses at $2.00 per share -- -- 50,000 50 99,950
Shares issued in October 2003 in exchange for services
at $1.59 per share -- -- 2,405,000 2,405 3,826,895
Shares issued in November 2003 in exchange for services
at $1.18 per share -- -- 43,000 43 50,707
Shares issued in November 2003 in exchange for interest
expenses at $1.25 per share -- -- 10,000 10 12,490
Shares issued in November 2003 in exchange for financing
expenses at $1.75 per share -- -- 14,000 14 24,486
Shares issued in December 2003 in exchange for services
at $1.28 per share -- -- 29,500 29 37,871
Shares issued in connection with acquisition of Pacificap -- -- 18,000,000 18,000 29,142,000
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003 -- $ 21,818,255 $ 21,818 40,557,036
============ ============ ============ ============ ============
Deficit
Accumulated
during
Development Treasury
Stage Stock Total
------------ ------------ ------------
BALANCE FORWARD $ (7,975,984) $ -- $ (1,698,669)
Shares issued in January 2003 in exchange
for services at approximately $4.63 per share -- -- 260,490
Shares issued in February 2003 in exchange for
services at $2.10 per share -- -- 77,037
Shares issued in February 2003 for cash in
connection with private placement at $1.20 per share -- -- 8,000
Shares issued in February 2003 in exchange for
services at $1.50 per share -- -- 10,000
Shares issued in April, 2003 in exchange for services
at $.90 per share -- -- 12,600
Shares issued in April 2003 in exchange for expenses
paid by shareholders at $.90 per share -- -- 20,000
Shares issued in April 2003 in exchange for financing
expenses at $.90 per share -- -- 20,664
Shares issued in April 2003 for cash in connection
with private placement at $1.20 per share -- -- 5,000
Shares issued in May 2003 in exchange for financing
expenses at $1.65 per share -- -- 4,275
Shares issued in May 2003 in exchange for services
at $1.50 per share -- -- 25,900
Shares issued in May 2003 for cash in connection
with private placement at $.90 per share -- -- 15,000
Shares issued in May 2003 in exchange for expenses
paid by shareholders at $.90 per share -- -- 20,000
Shares issued in July 2003 in exchange for services
at $2.10 per share -- -- 29,020
Shares issued in July 2003 in exchange for debts
at $.70 per share -- -- 10,000
Shares issued in July 2003 in exchange for financing
expenses at $3.60 per share -- -- 134,953
Shares issued in August 2003 in exchange for services
at $3.14 per share -- -- 117,800
Shares issued in August 2003 in exchange for debts at
$.81 per share -- -- 35,500
Shares issued in September 2003 in exchange for
services at $1.80 per share -- -- 280,350
Fractional shares issued in September 2003 due to
rounding resulted from reverse stock split -- -- --
Shares issued in October 2003 in exchange for financing
expenses at $2.00 per share -- -- 100,000
Shares issued in October 2003 in exchange for services
at $1.59 per share -- -- 3,829,300
Shares issued in November 2003 in exchange for services
at $1.18 per share -- -- 50,750
Shares issued in November 2003 in exchange for interest
expenses at $1.25 per share -- -- 12,500
Shares issued in November 2003 in exchange for financing
expenses at $1.75 per share -- -- 24,500
Shares issued in December 2003 in exchange for services
at $1.28 per share -- -- 37,900
Shares issued in connection with acquisition of Pacificap -- -- 29,160,000
Net loss (35,405,841) -- (35,405,841)
------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003 $(43,381,825) $ -- $ (2,802,971)
============ ============ ============
See accompanying notes to the unaudited condensed consolidated financial
information
9
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY
IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JULY 29, 1997 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
Preferred Common Share
Shares Share 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
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 -- -- 293,250 294
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
Beneficial conversion feature of convertible notes payable (Note C) -- -- -- --
Value of warrants attached to convertible debentures (Note C) -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2004 -- $ 24,464,557 $ 24,465
============ ============ ============ ============
Deficit
Accumulated
Additional during
Paid in Development Treasury
Capital Stage Stock 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 146,472 -- -- 146,617
Shares issued in January 2004 in exchange for services at
approximately $1.01 per share 125,000 125 126,125 126,250
Shares issued in February 2004 in exchange for services at $0.66 per
share 325,827 -- -- 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
Beneficial conversion feature of convertible notes payable (Note C) 579,638 -- -- 579,638
Value of warrants attached to convertible debentures (Note C) 120,362 -- -- 120,362
Net loss -- (1,869,114) -- (1,869,114)
------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2004 42,576,052 $(45,250,939) $ -- $ (2,650,422)
============ ============ ============ ============
See accompanying notes to the unaudited condensed consolidated financial
information
10
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period July 29,
1997(Date of Inception)
For The Six Months June 30, to June 30,
2004 2003 2004
---- ---- ----
Cash flows from operating activities:
Net loss for the period from continuing operations $ (1,869,114) $ (539,068) $(44,977,008)
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 170 170 197,375
Organization and acquisition costs expensed -- -- 11,553
Common stock issued in exchange for services (Note E) 1,044,546 386,026 8,132,342
Common stock issued in exchange for previously incurred debt -- -- 233,498
Common stock issued in exchange for interest (Note E) 3,000 169,679 29,570
Common stock issued in exchange for expenses paid by
shareholders (Note E) 127,500 -- 192,500
Common stock issued in connections with acquisition of
Pacificap -- -- 29,160,000
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)
Amortization of debt discount - beneficial conversion feature
of convertible notes payable (Note C) 24,152 -- 24,152
amortization of debt discount - value of warrants attached to
convertible notes payable (Note C) 5,015 -- 5,015
Amortization of financing costs (Note C) 3,910 -- 3,910
Amortization of prepaid interest (Note C) 3,888 -- 3,888
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 -- 40,000 117,015
(Increase) decrease in:
Other receivable -- -- (30,000)
Increase (decrease) in:
Accounts payable and accrued expenses, net 5,334 (93,330) 894,884
------------ ------------ ------------
Net cash (used in) operating activities (651,599) (36,523) (2,306,652)
See accompanying notes to the unaudited condensed consolidated financial
information
11
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Period July
For The Six Months June 30, 29, 1997(Date of
Inception) to June
2004 2003 30, 2004
---- ---- --------
Cash flows from investing activities:
Acquisition of film library and footage production costs $ -- $ -- $ (183,080)
Acquisition of office furniture -- -- (1,690)
Cash acquired in connection with acquisition -- -- 35,207
-------------- -------------- --------------
Net cash (used in) investing activities -- -- (149,563)
Cash flows from financing activities:
Advances from related parties, net of repayments 22,665 4,368 242,478
Other advances, net -- -- 45,000
Proceeds from issuance of notes payable 251,200 -- 1,519,865
Proceeds from issuance of long-term convertible debt, net of
costs and fees 466,148 -- 466,148
Proceeds from issuance of common stock -- 28,000 272,200
-------------- -------------- --------------
Net cash provided by financing activities 740,013 32,368 2,545,691
Net decrease in cash and equivalents 88,414 (4,155) 89,477
Cash and cash equivalents at the beginning of the period 1,062 4,295 --
-------------- -------------- --------------
Cash and cash equivalents at the end of the period $ 89,476 $ 140 $ 89,477
============== ============== ==============
See accompanying notes to the unaudited condensed consolidated financial
information
12
PACIFICAP ENTERTAINMENT HOLDINGS, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Period July
For The Six Months June 30, 29, 1997(Date of
Inception) to
2004 2003 June 30, 2004
---- ---- --------
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 1,044,546 386,026 8,132,342
Common stock issued in exchange for previously
incurred debt -- -- 233,498
Common stock issued in exchange for interest expense 3,000 -- 29,570
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 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)
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 579,638 -- 579,638
Value of warrants attached to convertible notes
payable 120,362 -- 120,362
Amortization of debt discount - beneficial conversion
feature of convertible notes payable 24,152 -- 24,152
Amortization of debt discount - value of warrants
attached to convertible notes payable 5,015 -- 5,015
Capitalized financing costs in connection with
issuance of long-term convertible notes payable 93,852 -- 93,852
Prepaid interest expense in connection with issuance
of long-term convertible notes payable 140,000 -- 140,000
Acquisition:
Assets acquired -- -- 379,704
Goodwill -- -- 490,467
Accumulated deficit -- -- --
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 $ -- $ -- $ --
============ ============ ==================
See accompanying notes to the unaudited condensed consolidated financial
information
13
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 six month period ended June 30,
2004, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2004. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated December 31, 2003
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"), formerly Cavalcade of
Sports Media, Inc., 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. The Company is currently seeking to
develop a film finance and marketing business. 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 June 30, 2004, the
Company has accumulated losses of $45,250,939.
Change of Control
On September 19, 2003, the Company completed a Plan and Agreement of
Reorganization ("Plan") with Pacificap Entertainment Holdings, Inc., a
private-held company organized under the laws of the State of California with no
significant assets or operations. Pursuant to the Plan, all previously
outstanding common stock owned by Pacificap stockholders was exchanged for an
aggregate of 18,000,000 shares of the Company's common stock.
As a result of the transaction, the Company's control changed and the Company's
new management took the following steps to restructure the Company:
o Changed the Company's name to Pacificap Entertainment Holdings, Inc.
from Cavalcade of Sports Media, Inc.
o Focused the Company's efforts on developing a film financing and
marketing company modeled to restructure the risk profile of film
production, while maximizing the ancillary profits from marketing,
merchandising and licensing (see Note B).
o The Company's Board of Directors effected a one for thirty reverse
stock split (see Note D). All references in the consolidated
financial statements and notes to financial statements, numbers of
shares and share amounts have been restated to reflect the reverse
split.
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.
Reclassification
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
14
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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, 2003 and has adopted the
interim disclosure provisions for its financial reports for subsequent period.
The Company has no awards of stock-based employee compensation outstanding at
June 30, 2004.
NOTE B- BUSINESS COMBINATIONS
On September 19, 2003, the Company completed a Plan and Agreement of
Reorganization ("Plan") with Pacificap Entertainment Holdings, Inc.
("Pacificap"), a private-held company organized under the laws of the State of
California with no significant assets or operations. Pacificap is a film
financing and marketing company and is uniquely modeled to restructure the risk
profile of film production, while maximizing the ancillary profits from
marketing, merchandising and licensing.
Pursuant to the Plan, all previously outstanding common stock owned by Pacificap
stockholders was exchanged for an aggregate of 18,000,000 shares of the
Company's common stock. The Company accounted the shares issued in November 2003
at the fair market value at the date of acquisition. Subsequent to the
acquisition, the Company changed its name to Pacificap Entertainment Holdings,
Inc.
The following summarizes the acquisition of Pacificap:
Issuance of 18,000,000 shares of common stock $ 29,160,000
Assets acquired -
Liabilities assumed -
------------
Acquisition costs $ 29,160,000
============
NOTE C - CONVERTIBLE PROMISSORY NOTES PAYABLE
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 Note"), and attached to the convertible notes
were warrants to purchase 2,000,000 shares of the Company's common stock. The
Convertible Note 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.
On June 10, 2004, the Company issued to the investors a Convertible Note in the
amount of $700,000, and the investors are obligated to provide the Company with
additional $1,300,000 of cash in exchange for two other convertible promissory
notes in the amount of $600,000 and $700,000, respectively. As of June 30, 2004,
the Company received net proceeds of $466,148 for the $700,000 of convertible
note issued. The proceeds that the Company received was net of prepaid interest
of $140,000 calculated at 10% per annum for the aggregate of $2,000,000 of
convertible notes for two years, and related fees and costs of $93,852. Prepaid
interest and capitalized financing costs were amortized over the maturity period
(two years) of the convertible notes.
15
NOTE C - CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)
A summary of convertible promissory notes payable at June 30, 2004 and December
31, 2003 is as follows:
June 30, 2004 December 31, 2003
------------- -----------------
Convertible notes payable ("Convertible
Note"); 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. $ 700,000 $ --
Debt Discount - beneficial conversion
feature, net of accumulated amortization
of $24,152 and $0 at June 30, 2004 and
December 31, 2003, respectively. (555,486) --
Debt Discount - value attributable to
warrants attached to notes, net of
accumulated amortization of $5,015 and
$0 at June 30, 2004 and December 31,
2003, respectively. (115,347) --
--------- -------
Total $ 29,167 $ --
--------- -------
Less: current portion -- --
--------- -------
$ 29,167 $ --
========= =======
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 $579,638 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 Note, the Company issued
non-detachable warrants granting the holders the right to acquire 700,000 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 $120,362 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 3.50%, a dividend yield
of 0%, and volatility of 103%. 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 Note debt discount attributed to the
beneficial conversion feature and the value of the attached warrants and
recorded non-cash interest expense of $29,167 and $0 for the period ended June
30, 2004 and for the year ended December 31, 2003, respectively.
16
NOTE D - NOTES PAYABLE
Notes payable at June 30, 2004 and December 31, 2003 are as follows:
June 30, 2004 December 31, 2003
------------- -----------------
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. $457,000 $457,000
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 on demand to accredited
investor; interest payable monthly at 8%
per annum; unsecured 279,200 153,000
Note payable on demand to accredited
investor; interest payable monthly at
10% per annum; unsecured 75,000 --
Note payable on demand to accredited
investor; interest payable monthly at
10% per annum; unsecured 50,000 --
----------- -----------
1,387,365 1,136,165
Less: current portion (1,387,365) (1,136,165)
----------- -----------
$ -- $ --
=========== ===========
17
NOTE D - NOTES PAYABLE (CONTINUED)
During the year ended December 31, 2003, the Company issued an aggregate of
127,038 shares of its common stock to note holders in exchange for notes payable
and unpaid accrued interest. As of December 31, 2003, the conversion of debt to
equity has not been completed and the additional numbers of shares to be issued
are still to be determined. The Company accounted the 127,038 shares issued to
notes holders as of December 31, 2003 as financing expenses at the fair market
value of the time the shares were issued. Total financing expenses charged to
operations during the year ended December 31, 2003 amounted $ 284,392. In
January 2004, the Company issued an aggregate of 145,166 shares of its common
stock to note holders in exchange for accrued interest. The shares were valued
at the fair market value at the day the shares were issued, which approximately
$146,617 (Note E).
NOTE E - CAPITAL STOCK
The Company has authorized 50,000,000 shares if preferred stock, with a par
value of $.001 per share. As of June 30, 2004 and December 31, 2003, 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. 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 24,464,557 and 21,818,255 shares of common stock issued and
outstanding as of June 30, 2004 and December 31, 2003, 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.
18
NOTE E - CAPITAL STOCK (CONTINUED)
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.
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.
19
NOTE E - CAPITAL STOCK (CONTINUED)
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.
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.
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 (see
Note B).
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 (see Note C).
20
NOTE E - 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.
Share amounts presented in the consolidated balance sheets and consolidated
statements of stockholders' equity reflect the actual share amounts outstanding
for each period presented.
NOTE F - STOCK OPTIONS AND WARRANTS
Stock Options
Transactions involving options issued to consultants and shareholders as of June
30, 2004 are summarized as follows:
Number of Weighted Average
Shares Price Per Share
-------- ----------------
Outstanding at January 1, 2002 -- $ --
Granted 118,333 35.70
Exercised -- --
Canceled or expired -- --
-------- ----------
Outstanding at December 31, 2002 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 June 30, 2004 -- $ --
======== ==========
21
NOTE F - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants
Pursuant to the Agreement and Plan of Merger ("Agreement") in July 2002 to
acquire Cineports, the Company issued to Cineports's shareholders 206,091
warrants (6,182,733 warrants pre-stock split), each giving the holder the right
to purchase a share of the Company's common stock. Additionally, the Company
granted 700,000 warrants in June 2004 in connection with issuance of convertible
notes payable (Note C).
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
--------------- ----------- --------------------- --------------- ----------- --------------
$ 0.24 700,000 4.92 $ 0.24 700,000 $ 0.24
====== ======== ==== ======= ======= ========
Transactions involving warrants issued to non-employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at January 1, 2002 - $ -
Granted 206,091 36.00
Exercised - -
Canceled or expired - -
---------- --------
Outstanding at December 31, 2002 206,091 36.00
Granted - -
Exercised - -
Canceled or expired - -
---------- --------
Outstanding at December 31, 2003 206,091 36.00
========== ========
Granted 700,000 0.24
Exercised - -
Canceled or expired (206,091) 36.00
---------- --------
Outstanding at June 30, 2004 700,000 $ 0.24
========== ========
NOTE G - SUBSEQUENT EVENTS
Pursuant to the Securities Purchase Agreement with accredited investors dated
June 10, 2004 (Note C), the Company received proceeds in full subsequent to the
date of financial statements, and issued to the investors two additional
convertible promissory notes in the amount of $600,000 and $700,000 on July 13,
2004 and July 20, 2004, respectively. An aggregate of 1,300,000 warrants
attached to the convertible notes were also granted to the investors along with
the issuance of convertible notes.
22
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
telecommunications 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 amended annual report (10-KSB) dated May 13, 2003
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
23
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 2004 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 June 30, 2004, we have not generated any revenues. We
have incurred losses of $45,250,939 during this period. These losses stem from
expenses associated principally with equity-based compensation to employees and
consultants, acquisition costs, product development costs and professional
service fees.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, we had a working capital deficit of $2,729,868 as a result
of our operating losses from our inception through June 30, 2004. We generated a
cash flow deficit of $2,306,652 from operating activities from our inception on
July 29, 1997 through June 30, 2004. Cash flows used in investing activities was
$140,563 during this period. We met our cash requirements during this period
through the private placement of $272,200 of common stock, $ 1,986,013 from the
issuance of convertible notes (net of repayments and costs), and $287,478 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.
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.
24
The independent auditor's report on the Company's December 31, 2003 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.
PACIFICAP ENTERTAINMENT, INC.
Pacificap Entertainment, Inc. is a film finance and marketing company in the
entertainment industry. It is uniquely modeled to restructure the risk profile
of film production, while maximizing the ancillary profits from marketing,
merchandising and licensing. Pacificap's management has over 20 years of
experience in financing, marketing and merchandising in the movie, music, and
corporate industry.
Pacificap is taking a structured approach that evolved from altering the risk
profile of investing in movies, while participating in the equity profit of the
film. The Company believes that Pacificap will accomplish the following:
- Leveraging film-financing funding;
- Aligning with strategic content providers;
- Acting as a merchant bank from the risk profile in the production of
films;
- Developing continued cash flow from production fees, licensing fees,
marketing, and merchandising;
- Participating in the equity profit of each film without deploying
corporate capital;
PRODUCT RESEARCH AND DEVELOPMENT
We do not anticipate performing research and development for any products during
the next twelve months.
ACQUISITION OF PLANT AND EQUIPMENT AND OTHER ASSETS (FILM LIBRARY)
During the next quarter ending September 30, 2004, we plan to acquire Greystone
Producers Corporation (d/b/a Stock Video) Stock Video in a stock for stock
exchange. Stock Video is engaged in the business of recorded media production
and storage. The Company has utilized Stock Video's services for the past 36
months, and Stock Video houses the Cavalcade of Sports film library. We estimate
that the exchange will be approximately $500,000 worth of the Company's Common
Stock for all of the outstanding shares of Greystone Producers Corporation. We
do not anticipate the acquisition of any other material property, plant or
equipment during the next 12 months, other than computer equipment and
peripherals used in our day-to-day operations. We believe we have sufficient
resources available to meet our acquisition needs. We do not anticipate the
disposition of any material property, plant or equipment during the next 12
months.
NUMBER OF EMPLOYEES
From our inception through the period ended June 30, 2004, 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, CIO 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.
25
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 May of 2004 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.
26
PACIFICAP ENTERTAINMENT HOLDINGS, INC.
ITEM 3. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. As of June 30, 2004, 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. a)
27
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 April 2004, we issued an aggregate of 615,000 shares of common stock to
consultants for services rendered. These issuances are considered exempt from
registration under Section 4(2) of the Securities Act of 1933.
In May 2004, we issued an aggregate of 770,000 shares of common stock to
consultants for services rendered. We also issued an aggregate of 10,000 shares
of common stock to a noteholder in exchange for interest expense. These
issuances are considered exempt from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) 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)
(b) REPORTS ON FORM 8-K.
None.
28
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: August 23, 2004 By: /s/ EDWARD LITWAK
------------------
Edward Litwak
Chief Executive Officer
Date: August 23, 2004 By: /s/ EDWARD LITWAK
------------------
Edward Litwak
Chief Financial Officer
29