-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DQf994IZFe7cRWWIQ/0TC1SYux7uDZEtw8T4J7F4r3sgraou6SEfFSUdLRD3Ljwm z9SGwEE1pYG13OJ/jzXgQg== 0001016289-96-000005.txt : 19960808 0001016289-96-000005.hdr.sgml : 19960808 ACCESSION NUMBER: 0001016289-96-000005 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960807 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAR VENTURES INC CENTRAL INDEX KEY: 0001016289 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954580642 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20879 FILM NUMBER: 96604664 BUSINESS ADDRESS: STREET 1: 16661 VENTURA BLVD STREET 2: STE 214 CITY: ENCINO STATE: CA ZIP: 91436 BUSINESS PHONE: 8187840040 MAIL ADDRESS: STREET 1: 16661 VENTURA BLVD STREET 2: STE 214 CITY: ENCINO STATE: CA ZIP: 91436 10SB12G/A 1 AMENDMENT NUMBER 2 TO FORM 10SB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB/B GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or 12(g) of The Securities Exchange Act of 1934 MAR VENTURES INC. (Name of Small Business Issuer in its charter) Delaware 95-4580642 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 16661 Ventura Boulevard, Suite 214, Encino, California 91436 (Address of principal executive offices) (Zip Code) (818) 784-0040 (Issuer's telephone number) Securities to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered None None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 (Title of Class) PART I Item 1. Description of Business The Divestiture Background Mar Ventures Inc., a Delaware corporation (the "Company") was incorporated under the laws of the State of Delaware on March 27, 1996 as a wholly owned subsidiary of Bexy Communications, Inc., a Delaware corporation ("Bexy"). On April 16, 1996 Bexy contributed all of Bexy's operating assets to the Company pursuant to an Asset Transfer Assignment and Assumption Agreement ("Assignment Agreement"), (including the assets and liabilities associated with the health information activities of Bexy) in exchange for 452,000 shares of Company Common Stock (the "Company Stock") (representing 100 percent of the issued and outstanding shares of Company Stock). These assets include: furniture and fixtures of $1,222, accounts receivable of $43,920, program inventory of $54,566, cash of $2,500 and other assets of $6,722, or a total of approximately $108,920. Liabilities of $84,144 were assumed by the Company in connection with the Assignment Agreement. The Assignment Agreement provides for the Company to indemnify Bexy for any liabilities relating to the assets transferred by Bexy to Company or the conduct of the business of Bexy prior to the Closing Date. At a Special Meeting held on July 2, 1996, the stockholders of Bexy approved a Plan of Reorganization (the "Reorganization") as set forth in a certain Agreement and Plan of Reorganization dated as of April 16, 1996 (the "Reorganization Agreement") among Cheniere, the Cheniere Stockholders, Bexy and Buddy Young, the President and CEO and principal stockholder of Bexy and the sole officer and director of the Company ("Young"). Pursuant to the Reorganization, and following all regulatory approval, the outstanding capital stock of the Company (the "Company Stock") will be distributed to the stockholders of record of Bexy as of May 15, 1996 (the "Record Date") (the "Divestiture"). In consideration for the exchange of all of the issued and outstanding shares of common stock of Cheniere (the "Cheniere Shares"), Bexy issued to the Cheniere Stockholders shares of Common Stock of Bexy equal to approximately 93% (the "Exchange"), causing the former Bexy stockholders' interest in Bexy to be diluted to approximately 7%. As a result, Cheniere became a wholly-owned subsidiary of Bexy and the principal business of Bexy became the oil and gas exploration and exploitation business conducted by Cheniere, and the Company will continue the health information business historically carried on by Bexy. The Board of Directors of Bexy also approved the Reorganization and the Divestiture on April 16, 1996. In reaching this determination, the Bexy Board considered (i) Bexy's chronic losses from its existing line of business and the potential earnings that my be obtained in the oil and gas business and (ii) the benefits that may be obtained from separating two different businesses with different management and operating requirements. The Board weighed these benefits against (i) the possibility that, as a result of the distribution of Company Stock, stockholders may be deemed to receive taxable income without receiving any cash to pay such taxes, (ii) the loss of Bexy's net loss carryforward to shield future income, (iii) the possible inability to list the Company Stock on the Electronic Bulletin Board and (iv) the potential issuance of additional shares of Bexy Common Stock and preferred stock that would further dilute the Bexy stockholders interest in Bexy. In particular, the Board of Directors determined that the separation will give stockholders the flexibility to analyze and deal with their investments in those respective activities separately in accordance with their investment objectives and their views of the business prospects of those respective activities. 2 In addition, the Board of Directors determined that the separation will enable Bexy and Company to separately pursue the strategies best suited to their individual markets, goals and needs, thereby maximizing their respective business opportunities and stockholder values. A principal purpose of the Divestiture is to position the separate entities so that they will be able to pursue the strategies best suited to their individual markets, goals and needs. In addition, the Company will become an independent, publicly-traded company by means of the Divestiture, and the effectuation of the Divestiture will enable it to raise capital on its own. The Divestiture is intended to place the Company in a position to seek additional capital for its activities independently. It should be noted that, notwithstanding the approval of the Reorganization and the Divestiture by the stockholders of Bexy, the Board of Directors may determine, in light of the circumstances then existing, that to consummate the Divestiture would not be in the best interests of Bexy and the stockholders. At the closing of the Reorganization held on July 3, 1996 (the "Closing"), Young resigned as President and CEO and a member of the Board of Directors of Bexy and entered into a consulting agreement (the "Consulting Agreement") with Bexy having a two-year term and providing for payments of $75,000 per annum. In addition, at the Closing, pursuant to the Reorganization Agreement, Young and Bexy entered into agreements providing that Young will not sell more than 10,000 shares per month for a nine-month period after the Closing and that Bexy will not engage in a reverse stock split, other than as contemplated by the Reorganization Agreement, for an eighteen-month period after the Closing. In connection with the Divestiture, pursuant to the Reorganization Agreement, at the Closing, Young and Bexy entered into an indemnification agreement (the "Indemnification Agreement") pursuant to which Young agreed to indemnify Bexy, Cheniere and the Cheniere Stockholders against any cost, expense or other liability that any of them may suffer arising as a result of or in connection with (i) the operation of the business of Bexy prior to the Closing, (ii) any untrue statement or omission of material fact made by or with respect to Bexy or Young in the Proxy Statement and other proxy materials or the registration statement under the Securities Exchange Act of 1934 (the "Exchange Act") registering the Company Stock and (iii) any tax liability arising out of or in connection with the consummation of the transactions contemplated by the Divestiture. See Part 1, Item 7, "Certain Relationships and Related Transactions." Manner of Divestiture The Divestiture was approved by the Board of Directors of Bexy on April 16, 1996 and by the stockholders of Bexy at a Special Meeting of Stockholders on July 2, 1996. Bexy will distribute to its stockholders of record as of the Record Date (the "Divestiture Record Date"), one (1) share of Company Stock for each four (4) shares of Common Stock held at the Record Date (pre-reverse split). The Divestiture will be deemed to be effective as of July 3, 1996, the Closing Date of the Reorganization. To effect the Divestiture, Bexy will transfer to U.S. Stock Transfer Corporation (the "Divestiture Agent") for distribution to holders of 3 record of shares of Common Stock on the Record Date, in proportion to their ownership of shares of Common Stock on the Record Date. No certificates or scrip representing fractional shares of Company Stock will be issued to such stockholders of Bexy. In lieu of receiving fractional shares, each holder of Shares of Common Stock who would otherwise be entitled to receive a fractional share of Company Stock will receive one whole share if the fraction is equal to or greater than one-half, otherwise the fractional shares shall be canceled. Any shares of Company Stock held by Bexy which are not distributed shall be canceled. No holder of shares of Bexy Common Stock receiving shares of Company Stock will be required to pay any cash or consideration for the shares of Company Stock that he will receive in the Divestiture or to surrender or exchange Bexy Shares in order to receive shares of Company Stock. The Divestiture will not affect the number of outstanding Bexy Shares. Certain Federal Income Tax Aspects of the Divestiture The following summary is a general discussion of certain of the expected federal income tax consequences of the Divestiture. The summary does not discuss all aspects of federal income taxation that may be relevant to a particular stockholder of Bexy in light of his personal investment circumstances or to certain types of stockholders subject to special treatment under the federal income tax laws (for example, S corporations, banks, dealers in securities, life insurance companies, tax-exempt organizations and foreign taxpayers) applies solely to investors who hold their shares of the New Shares as capital assets within the meaning of Section 1221 of the Code, and does not discuss any aspects of state, local, or foreign tax laws. This discussion is provided for general information purposes only, and is not intended as tax advice. Each stockholder of Bexy is advised to consult his own advisor as to the specific tax consequences to such stockholder of the proposed transaction, including the application and effect of state, local, and foreign income and other tax laws. Bexy has received no written opinion on any of the following matters. No ruling has been or will be requested from the Service on any matters relating to the formation of Company or the Divestiture. The following discussion is based upon existing law, decisions, regulations, and rulings, all of which are subject to change, perhaps with retroactive effect. There can be no assurance that the Service will agree with the following discussion. Effects on Bexy Under Section 351 of the Code, the contribution of assets to and the assumption by Company will not result in the recognition of gain or loss by Bexy or to Company. Under Section 311(b) of the Code, the Divestiture of Company Stock by Bexy will result in the recognition by Bexy of taxable gain as if the Company Stock had been sold to the stockholders of Bexy at its fair market value. Accordingly, Bexy will recognize taxable gain on the Divestiture equal to the excess of the fair market value of such common stock over its adjusted basis in such stock. For federal income tax purposes, fair market value generally means the price at which the property would change hands between a willing buyer 4 and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all relevant facts. It is not possible to predict, with any certainty, the fair market value of the Company Stock to be distributed by Bexy on the date it is distributed. In analogous situations, where there has been a market for stock on an over-the-counter market, as is expected here, the Service has considered the quoted selling prices on the date of the Divestiture (or, on the date over-the-counter sales first occurred if such date is within a reasonable period of the date of Divestiture) as important evidence in determining the fair market value per share. Bexy's basis in the shares of Company Stock to be distributed equals approximately $25,000. Assuming a range of $.25 to $.50 per share for the quoted selling price of the shares of Company Stock immediately after the Divestiture and that fair market value equals the quoted selling price, the amount of taxable gain recognized by Bexy (after adjustment of such basis for such contribution as reduced by estimated taxes, fees, costs and expenses estimated to be deducted therefrom as described above) is estimated to range from $75,000 to $175,000 resulting in an imposition of federal income taxes estimated to range from $13,750 to $51,500. Bexy has a net operating loss carryforward of approximately $740,000 available to offset any tax liability arising out of the Divestiture. Accordingly, based on the above-estimated range of taxable gain to be recognized by Bexy on the Divestiture, no tax liability will be incurred by Bexy as a result of the Divestiture. Bexy believes that the net operating loss carry forwards will be sufficient to offset any tax liability arising out of the Divestiture. Effect on Stockholders of the Company The distribution to Bexy stockholders of the Company Stock will constitute a taxable distribution for federal income tax purposes. Under Section 301(b)(1) of the Code, the amount of the distribution to each stockholder of Bexy will equal the fair market value of the Company Stock received. Under Section 301(c)(1) of the Code, the Divestiture will be taxable as a dividend to the extent of Bexy's current and/or accumulated earnings and profits. Under Sections 301(c)(2) and 301(c)(3) of the Code, to the extent that the amount of the Divestiture exceeds Bexy's current and accumulated earnings and profits, the Divestiture will first be treated as a tax-free return of capital, causing a reduction (but not below zero) in the adjusted basis of the Common Stock held by a distributee (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by such distributee on a subsequent disposition of the Common Stock), and the balance in excess of such adjusted basis will be taxed as if it were capital gain recognized on a sale or exchange of such stock. For this purpose, the Company's current earnings and profits will be computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year, and without regard to the amount of the earnings and profits at the time the Divestiture was made. Since Bexy's current taxable year ends on August 31, 1996, the amount of earnings and profits, if any, of Bexy will not be ascertainable until after the Divestiture. Accordingly, there can be no assurance that earnings and profits will not be substantial and that stockholders of Bexy who receive Company Stock will not be deemed to have received dividend income. The portion of the Divestiture taxable as dividend income to a corporate stockholder of Bexy may be eligible for the 70% (or, in certain cases 80%) dividends-received deduction available under Section 243 of the Code, subject to certain taxable-income and holding-period requirements. However, to 5 the extent that the corporate shareholder incurs indebtedness that is directly attributable to an investment in the stock on which the dividend is paid, all or a portion of the dividends-received deduction may be disallowed. In addition, dividend income that is not subject to the regular federal income tax as a consequence of the dividends-received deduction may be subject to the federal alternative minimum tax. Corporate stockholders of Bexy should consult their tax advisors to determine how the Dividends Received Deduction and its limitations might apply to them. Corporate stockholders of Bexy should also consult their tax advisors to determine whether Section 1059 of the Code, which requires corporate stockholders to reduce the basis of the stock in the case of certain extraordinary dividends, is applicable to their receipt of the Company Stock. Under Section 1059, if a corporate holder of shares of Bexy receives an "extraordinary dividend" (as defined in Section 1059) from Bexy with respect to any share of such stock and has not held the underlying stock for more than two years before the dividend announcement date (i.e., the date on which Bexy declared, announced, or agreed to, the payment of such dividend, whichever is earliest), the basis of the underlying stock must be reduced (but not below zero) by the "nontaxed portion" of such dividends. The "nontaxed portion" generally is the excess of the amount of the dividend over the taxable portion (i.e., the taxable dividend less the applicable Section 243 deduction). Such a reduction in basis, generally will occur immediately before any disposition of the shares of Bexy, thereby increasing any gain realized by the holder on a sale redemption or other disposition of such stock. If the reduction exceeds such stock basis, the amount of such excess also will be taxable as gain from the sale or exchange of the shares of Bexy. On March 19, 1996, President Clinton released a set of legislative proposals as a part of his plan to balance the federal budget. These proposals include, among other things, proposals to (i) reduce the 70-percent dividends-received deduction to 50 percent, (ii) modify the holding period requirements for corporations claiming the dividends-received deduction, and (iii) require immediate gain recognition under Section 1059 of the Code for the non-taxed portion of certain extraordinary dividends (to the extent such non-taxed portion exceeds the shareholder's basis in the underlying stock. As currently proposed, the changes to the dividends-received deduction provisions would be effective for dividends paid or accrued more than 30 days after the enactment of final legislation, and the proposed changes to Section 1059 would generally apply to distribution occurring after September 13, 1995. The Company cannot predict which, if any, of the President's proposals will ultimately become law, or, if enacted into law, what the effective date of such provisions would be. Shareholders should consider the potential effect of the President's proposals in making their investment decision. Back-Up Withholding A holder of Common Stock may be subject to "back-up withholding" at a rate of 31% with respect to certain "reportable payments," which generally include dividend payments. These back-up withholding rules apply if such holder, among other things, (i) fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed 6 under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to back-up withholding. Any amount withheld from a payment to such a holder under the back-up withholding rules is creditable against such holder's federal income tax liability, provided the required information is furnished to the Service. Back-up withholding will not apply, however, with respect to payments made to certain persons, including corporations, tax-exempt organizations and certain foreign persons, provided their exemption from back-up withholding is properly established. If Bexy does not have a Form W-9 for the back-up withholding rules apply to a stockholder, the Company stock distribution for such stockholder will be deferred until its value can be determined and 31% thereof withheld. Listing and Trading of Company Stock There currently is no public market for the Company Stock. A "when-issued" trading market may develop prior to the Divestiture Date and continue until the certificates have been mailed by the Divestiture Agent. The term "when-issued" means that shares can be traded prior to the time certificates actually are available or issued. Prices at which Company Stock may trade cannot be predicted. Until Company Stock is fully distributed and an orderly market develops, the prices at which such stock trades may fluctuate significantly. The prices at which Company Stock trades will be determined by the marketplace and may be influenced by a number of factors, including, among others, the depth and liquidity of the market for the Company Stock, investor perceptions of Company, Company's dividend policy and general economic and market conditions. This Registration Statement will become effective by operation of law 60 days after the filing thereof, unless accelerated. After such effectiveness, Company will be required to file annual, quarterly and other reports under the Exchange Act and comply with the SEC's proxy rules thereunder. Assuming it can fulfill and complete any prerequisites, Company intends to apply to the NASD to have its stock listed on the Electronic Bulletin Board under the symbol "MARV". However, the Company Common Stock is not currently eligible for inclusion on the Electronic Bulletin Board, and no assurance can be given that Company Stock will ever meet the requirements for inclusion on the Electronic Bulletin Board. Based on the stockholders of record of Bexy as of the Divestiture Record Date, Company initially will have approximately 936 holders of record of its Common Stock. Shares of Company Stock distributed to the stockholders of Bexy in the Divestiture, generally, will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of Company under the Securities Act. Persons who may be deemed to be affiliates of Company after the Divestiture generally include individuals or entities that control, are controlled by, or are under common control with, Company and may include certain officers and directors of Company as well as principal stockholders of Company. Persons who are affiliates of Company will be permitted to sell their shares of Company Stock only pursuant to an effective registration statement under the Securities Act or an exemption from registration thereunder, such as the exemption afforded by Section 4(1) of the Securities Act and Rule 144 thereunder. Divestiture Costs 7 The Company estimates that the printing, legal, accounting, Divestiture Agent and other fees and expenses incurred in connection with the Divestiture will be approximately $20,000. Such fees and expenses are being paid by the Company. Current Activities The current core business of Bexy, which will be continued by the Company, is the production of traditional television programming. In 1993, Bexy's management determined to enter the business of creating, publishing and distributing health-themed information for the general public through print and electronic media. However, to date, no significant revenues have been generated by this business. Television Programming The television programming currently being marketed include: (1) "FEELIN' GREAT," a weekly half hour television series hosted by former "Dynasty" star John James. This twenty six episode magazine style series helps viewers make personal lifestyle choices with timely up-to-date information. (2) "HEARTSTOPPERS -- HORROR AT THE MOVIES," a two hour made for television tribute to the horror film genre hosted by George Hamilton. "Heartstoppers" was produced in 1993 and showcases the best horror films from Hollywood and around the world, from the early days of motion pictures to the special effects of today's graphic and thrilling horror motion pictures. "Heartstoppers" is currently being distributed in the United States by MG Perin, Inc. and internationally by International Entertainment Incorporated ("IEI"). It is a seasonal program aimed at the October/Halloween season, and marketing efforts for "Heartstoppers" focus primarily on Japan, Australia, parts of Europe and Latin America. "Heartstoppers" aired in the United States and several foreign countries in October 1993, and was recently licensed to the Sci-Fi cable network. (3) "IT'S A WONDERFUL LIFE -- A PERSONAL REMEMBRANCE," a tribute by Frank Capra Jr. to his father. Mr. Capra's tribute is in color and is approximately 15 minutes in length. The black-and-white version of "It's A Wonderful Life" follows the tribute. In 1992 the program was licensed for a period of ten years to The Walt Disney Company's Disney Channel. The program is now being distributed throughout the world by IEI. IEI has licensed the program in approximately 17 countries, including Mexico, Spain, Sweden, England, Germany and Greece. Again, the film and tribute are also seasonal programming and are marketed accordingly. Bexy recently licensed the home video rights for "It's A Wonderful Life -- A Personal Remembrance" to Republic Pictures. (4) "CHRISTMAS AT THE MOVIES," a one hour special/tribute to class Christmas films co-owned and co-produced by Bexy in 1990 hosted by Gene Kelly. All American Communications, Inc. ("AAC") is the co-producer and distributor for this program. This special incorporates clips from such classic Christmas motion pictures such as "It's A Wonderful Life," "Santa Claus, The Movie," "When Harry Met Sally," "The Bells of Saint Mary's," "Meet John Doe," and "A Christmas Carol," to name but a few. As with Heartstoppers and It's A Wonderful Life, this special is focused upon a particular season of the year and is marketed accordingly. In addition to distributing the special in the United States, AAC has also licensed the special in 18 foreign countries, including 8 Canada, the United Kingdom, New Zealand and the Philippines, as well as parts of Europe and South East Asia. (5) "VICTIMS," a half hour television pilot for a first run strip series. The pilot show re-creates survivors' personal accounts of tragic, catastrophic and unexpected events that emotionally or physically altered their lives. Such events include being the victim or target of the "system," a criminal "scam," a natural disaster, a crime or some other life changing event. Bexy co-financed the pilot with First Media Entertainment, Inc. ("FME"). As a result of its investment in the pilot, Bexy acquired a one-half interest in the program, and the distribution rights to "Victims." Bexy has been unsuccessful in its efforts to license the program. Although the Company will continues to market the film library acquired from Bexy, management does not anticipate generating significant revenues as a result of this activity. Recent Business Developments In August 1994, Bexy and Hammond Productions ("Hammond") entered into an agreement for the purchase by Bexy from Hammond of all rights and title to "Feelin' Great." Under the terms of the agreement, Bexy acquired the twenty six half-hour episodes produced in 1994. The "Feelin' Great" television series was licensed to cable television in Canada and started airing in January 1995 on the Life Network, a new Canadian cable network. In August 1995, Bexy and Hammond amended the agreement to reassign the series to Hammond in consideration for the cancellation of amounts owed to Hammond by Bexy for the purchase of the series. Under the terms of the amendment, Bexy will continue to distribute the series throughout the world. During 1995, Bexy reduced the carrying value of its program library by $235,500 in order to reflect a lower of cost or market valuation on certain program inventory. In addition, Bexy wrote off its $10,000 investment in the "Victims" television series. Bexy's current activity in the domestic and international television market place is the continued exploitation of its non-health related programming and the marketing of the 26-episode television series entitled "Feelin' Great." The Company intends to continue the above activities of Bexy to seek additional opportunities in the film industry, and to expand its film library. The Health Information Market The health media marketplace is divided into three main segments: (1) "Wellness," which relates to everyone who is and seeks to remain in good health; (2) "Acute care," which includes people with a short-term illness possibly requiring a short hospital stay; and 9 (3) "Chronically ill," which are people suffering from a disease from which there is no recovery. The largest part of the health information market is the "wellness" market. The Company plans to initially develop and market products to this segment of the market. In the future, as the Company gains recognition in the health information market, it plans to expand its efforts to include the marketing of products to other market segments. Competition In the development and marketing of its diversified health media services the Company expects to compete with larger and better financed companies seeking to enter an emerging industry. Companies such as Krames Publishing, Hope Publishing, Crisp Publications and Great Performance, produce, publish and distribute health-themed videos, newsletters, magazines, books, CD-ROMs and other related products. Universities and hospitals, such as the Harvard Medical School, Cornell University, the Mayo Clinic and John Hopkins Hospital, have also established themselves as providers of health-themed information to the general public. The Company anticipates being able to compete in the health information market by delivering products that are entertaining as well as informative and by marketing these products to the general public in an innovative manner. Competition in the financing, development, production and distribution of television programming is highly intense. The Company's programming competes with other first-run programming, network re-runs and programs produced by local television stations. In addition, the Company competes for the creative services of producers, technical personnel, writers and performing artists. In both areas of competition, the Company competes with companies that have been acquiring, developing, producing and distributing programs for many years, many of which have greater financial resources than those of the Company. These competitors include large television and film studios such as Paramount, MCA, and 20th Century Fox, as well as other television distribution companies such as Republic Pictures and King World Entertainment. The Company's success is highly dependent on various unpredictable factors such as the viewing preferences of television audiences. The Company's programming competes not only with other television programming, including satellite and cable programming, but also with movie theaters, pre-recorded videocassette rentals, live performances and other forms of entertainment and leisure time activities. Item 2. Management's Discussion and Analysis or Plan of Operation The Company was formed on March 27, 1996 to hold and operate the operating assets and liabilities of Bexy as they existed as of that time and before the acquisition of the Cheniere oil and gas business. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements of Bexy, including the notes thereto, which appear elsewhere herein. Prior to April 16, 1996 the Company had no operations or assets or significant business activity. Since the Company was not incorporated until March 27, 1996, a proforma balance sheet is provided for the Company to reflect the contribution of assets as if it had occurred on 10 May 31, 1996. However, the financial information of Bexy is directly relevant to the future business of the Company since the Company will be continuing the business of Bexy. Results of Operations (Bexy) Nine Months Ended May 31, 1996 compared to nine months ended May 31, 1995 Revenues from the licensing of the Company's program library for the nine-month period ended May 31, 1996 were $49,758 compared to $101,867 during the comparable period in 1995. This substantial decrease resulted from the expiration of licensing agreements for the Company's program library and management's focus of the negotiation and consummation of the Reorganization. The cost of programs and distribution fees during the nine-month period ended May 31, 1996 decreased $96,446 or 77% from the comparable period in 1995 primarily because of the significant amortization costs incurred in such period in 1995. Expenses during the nine-month period ended May 31, 1996 increased $125,937 or 137% from the comparable period in 1995 primarily as a result of an increase of $56,971 in General and Administrative expense, additional expense of consulting fees incurred of $59,500 paid to the Company's majority stockholder during such period which was not incurred during such period in 1995, the increase in advertising expense to $10,101 during the nine-month period ended May 31, 1996 from $225 during the comparable period in 1995 and the increase in professional fees incurred to $35,144 from $6,066 during the comparable period in 1995. These increased expenses were partly offset by a reduction in rent incurred to $11,443 in the nine-month period ended May 31, 1996 compared to $26,381 incurred in the comparable period in 1995 and the elimination of expense attributable to interest and salaries of $6,328 and $8,216, respectively. The Company's net loss of the nine-month period ending May 31, 1996 increased by $83,946 or 76% from the comparable period in 1995. The increase in net loss was primarily the result of the substantial decrease in revenues and increase expenses described above, offset in part by lower cost of programs and distribution fees. Fiscal 1995 Compared to 1994 Revenues from the distribution of Bexy's film library showed a slight decrease of $4,574 from $130,228 in 1994 to $125,654 in 1995. Based on the continued lower than forecasted revenues of its film library, the Company re-evaluated the future market value of its program library in the fourth quarter and recorded a write-down to reflect its value at the lower of cost or market. The adjustment totaled $235,500 and was recorded in "Amortization of Film Costs" in the statements of operations. Expenses increased $33,933 from $169,182 in 1994 to $203,156 in 1995 as a result of increased consulting fees incurred in connection with Bexy's entry into the healthcare film industry and funding of certain start-up costs of a company owned by Bexy's majority shareholder. The net loss of $394,633 for the year ended August 31, 1995 11 includes non-cash expenses of amortization of program inventories of $249,044. Distribution and advertising costs related to programs amounted to $63,087. As of May 31, 1996, the Company had cash of $63,541 and shareholders' equity of $95,261. In their report on Bexy's financial statements for the fiscal year ended August 31, 1995, Bexy's independent auditors stated that Bexy's recurring losses from operation raised substantial doubt about Bexy's ability to continue as a going concern. Management of Bexy believes forecasted revenues and additional equity and debt financing will be adequate to finance Bexy's cash flow requirements during the balance of fiscal 1996. Management has also formulated additional plans to address the cash flow requirements of Bexy, including the sale or merger of Bexy and obtaining additional financing sources. Fiscal 1994 Compared to 1993 In 1993, Bexy determined to change its core business from the production of traditional television programming to the production, distribution and publishing of health-themed information for the general public, through print and electronic media. In fiscal 1993, Bexy's revenues were $317,946. In fiscal 1994 Bexy's revenues were $130,228, a decrease of $187,718. The primary reason for the decrease in revenues was that the Company did not produce and market any new programming during fiscal 1994. The revenues generated during fiscal 1994 were a result of the continued licensing of Bexy's existing film library. No revenues were generated by its health-themed information business. The film amortization expense reported during the 1994 period relates to Bexy's film library. The amortization of the film library is calculated based upon the estimated revenues to be received on the film library. Distribution costs remained relatively comparable at 40% of revenues in 1994 versus 42% in 1993. Total expenses decreased $96,691, or 36% from $265,873 in 1993 to $169,182 in 1994. The primary reason for the decrease relates to a reserve on advances to former employees recognized in 1993. Bexy completed production of "Heartstoppers -- Horror at the Movies" during the year ended August 31, 1993. License revenues earned during fiscal 1994 from its film library amounted to $130,228. The net loss of $213,620 for the year ended August 31, 1994 includes non-cash expenses of $122,630 from the amortization of program inventories. Distribution and advertising costs related to programs amounted to $52,036. Liquidity and Capital Resources At August 31, 1995, Bexy had working capital of $128,772. Development costs and operating expenses were financed through borrowings from 12 Bexy's majority stockholder and the sale of Common Stock totalling $235,966 in net proceeds. Cash flows from operations for the year ended August 31, 1995 were negative in the amount of $94,250, primarily because of lower than anticipated license revenues from Bexy's film library, cost incurred in connection with Bexy's entry into the healthcare film business and certain other start-up costs. During 1995, Bexy borrowed approximately $35,000 from its majority stockholder to fund current operations. In addition, Bexy repaid approximately $155,000 in borrowings from its majority stockholder. During September 1995, Bexy sold through a private placement 85,000 shares of Common Stock for total gross proceeds of $93,500. At May 31, 1996, Bexy's working capital decreased to $37,288. The cash and accounts receivable were insufficient to insure the Company's continued existence as a going concern and to pay Bexy's shares of the costs of the Reorganization and the Divestiture, estimated at $20,000. During the period ending May 31, 1996, Bexy had a negative cash flow from operating activities of $196,447. Management expects to meet its current cash requirements through license revenues, borrowings from a related party, Mr. Buddy Young as necessary and the sale of common stock. In the past, Mr. Young has advanced the Company's former parent, Bexy Communications, Inc., sums totalling $566,301 before repayments and Mr. Young has committed to loan additional amounts if deemed required by management and to suspend payments to accrued interest on consulting fees, if required. Item 3. Description of Property In August 1995, Bexy leased office space from an unaffiliated third-party under a one year lease, for $1,150 per month, located at 16661 Ventura Boulevard, Suite 214, Encino, CA 91436. The Company has assumed this lease. Item 4. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information concerning the beneficial ownership of the Company's outstanding Common Stock as of May 15, 1996, by each person known by the Company to own beneficially more than 5% of the outstanding Common Stock, by each of the Company's directors and by all directors and officers of the Company as a group. The table assumes the completion of the Divestiture and is based upon a distribution of 450,715 shares in the Divestiture. The actual number of shares of Company Stock distributed could be greater due to rounding of fractional shares. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their shares of Common Stock except to the extent that authority is shared by spouses under applicable law. Percentage of Name and Address Number of Shares Class Buddy Young and Rebecca Young as Trustees of the Young Family Trust 13 16830 Ventura Blvd., Suite 206, Encino, California 91436 258,334(1) 57.3% All Officers and Directors as a Group (1 person) 258,334 57.3% - -------------------- *Less than 1% (1) Does not include an aggregate of 20,833 additional shares which are held by the son and daughter of Young and their spouses for themselves and as custodians for their children. Young disclaims any beneficial ownership in such shares. Item 5. Directors, Executive Officers, Promoters and Control Persons. Buddy Young, age 60, has been Chief Executive Officer, Treasurer, Secretary and Director of the Company since inception. Item 6. Executive Compensation No compensation has been paid or accrued to any person since organization of the Company. No options were issued to the CEO of the Company during 1995. Item 7. Certain Relationships and Related Transactions Through April 19, 1996, Young, an officer, director and principal stockholder of the Company and/or Bexy, advanced funds to Bexy for operating expenses and film productions totaling $566,301 (before repayments), represented by promissory note(s) of Bexy assumed by the Company. The advanced funds accrue interest on outstanding amounts at a rate of 8% per annum. A portion of the funds raised through equity financing have been used to reduce the debt owed to Young. As of February 29, 1996, Bexy owed Young $37,208 in accrued and unpaid interest. This liability has been assumed by the Company and will be paid out of available funds. As of August 31, 1995 Bexy had expended $9,000 to help develop the business of International Quote Link, ("IQL"), a corporation that provides investor relations services to publicly held companies utilizing the worldwide Internet, and owned and controlled by Young, in return for an option to purchase IQL for $50,000 that expires on August 31, 1996. Neither Bexy nor the Company intends to execute this option and does not intend to have any future relationship with IQL. Pursuant to the Reorganization Agreement, at the Closing, Young and Bexy entered into a Consulting Agreement providing for the payment to Young of $75,000 per annum for a two-year period. In addition, at the Closing, Young and Bexy entered into agreements pursuant to which Young agreed not to sell more than 10,000 Company Shares per month for a nine-month period after the Closing Date and Bexy agreed not to engage in a reverse stock split, other than as contemplated by the Reorganization Agreement, for an eighteen-month period after the Closing Date. At the Closing, Young 14 also agreed to indemnify Bexy, Cheniere and the Cheniere Stockholders against certain liabilities, in connection with the Reorganization including liabilities relating to taxes arising in connection with the Divestiture. Item 8. Description of Securities The Company's authorized capital stock consists of 30,000,000 shares of Common Stock, par value $.001 per share, of which 452,000 shares are outstanding. The holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders and to vote on all matters on which a vote of stockholders is taken, except as otherwise provided by statute. The shares of Common Stock do not have cumulative voting rights. Therefore, the holders of a majority of shares voting for the election of directors can elect all of the directors then standing for election, if they choose to do so, and in such event the holders of the remaining shares voting for the election of directors will not be able to elect any directors. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor and, in the event of liquidation, dissolution or winding up of the Company, are entitled to share ratably in all assets remaining after payment of liabilities. The Company has no plan at present to pay any cash dividends on the Common Stock in the foreseeable future PART II Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters (a) Market Information This Registration Statement has been prepared in connection with the distribution (the "Divestiture") by Bexy to its stockholders of up to 452,000 shares of Common Stock, $.001 par value, of the Company owned by Bexy. Prior to the Divestiture, the Company was owned by Bexy. Accordingly, no public market for the Registrant's Common Stock has existed. The Registrant intends to apply for listing on the Electronic Bulletin Board sponsored by Nasdaq under the symbol "MARV." However, the Company Common Stock is not currently eligible for inclusion on the Electronic Bulletin Board and no assurance can be given that the Registrant's Common Stock will ever meet the requirements for inclusion on the Electronic Bulletin Board. Shares of the Company Common Stock distributed to Bexy stockholders in the Divestiture, generally, will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of the Company under the Securities Act of 1933 (the "Securities Act"). Persons who may be deemed to be affiliates of the Company after the Divestiture generally include individuals or entities that control, are controlled by, or are under common control with, the Company and may include certain officers and directors of the Company as well as principal stockholders of the Company. Persons who are affiliates of the Company will be permitted to sell their shares of the Company Common Stock only pursuant to an effective registration statement under the Securities Act or an exemption from registration thereunder, such as the exemption afforded by Section 4(1) of the Securities Act and Rule 144 thereunder. 15 (b) Holders Based on the stockholders of record of Bexy, as of the Divestiture Record Date, the Company initially will have approximately 936 holders of record of its Common Stock as of the Divestiture Date. (c) Dividends The Company had not paid cash dividends on its Common Stock and does not intend to pay cash dividends on its Common Stock in the foreseeable future. Item 2. Legal Proceedings Not Applicable. Item 3. Changes in and Disagreements with Accountants Not Applicable. Item 4. Recent Sales of Unregistered Securities Upon incorporation of the Registrant on March 27, 1996 and in connection with the contribution of the assets relating to the health information business, the Registrant issued 452,000 shares of its Common Stock to Bexy. This transaction is exempt from the registration requirement of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof covering transactions not involving any public offering. Item 5. Indemnification of Directors and Officers The Company's Bylaws and the Delaware General Corporation Law provide for indemnification of directors and officers against certain liabilities. The Company's Bylaws and the Delaware General Corporation Law provide for indemnification of directors and officers against certain liabilities. Officers and directors of the Company are indemnified generally against expenses, actually and reasonably, incurred in connection with proceedings, whether civil or criminal, provided that it is determined that they acted in good faith, were not found guilty and, in any criminal matter, had reasonable cause to believe that their conduct was not unlawful. 16 PART F/S The Financial Statements of the Registrant, required by Regulation S-X, are set forth on pages 15 through 30. PART III Item 1 and Item 2, Index to Exhibits and Description of Exhibits The following exhibits required by Item 601 of Regulation S-B are filed herewith: Sequential Exhibit No. Document Description Page No. 3. Certificate of Incorporation and Bylaws 3.1. Certificate of Incorporation(P)(1) 3.2 Bylaws(P)(1) 10. Material Contracts 10.1. Asset Transfer, Assignment and Assumption Agreement ("Agreement") dated April 16, 1996, by and between Bexy Communications, Inc. and Mar Ventures Inc.(2) (1) Filed with original Form 10-SB (2) Revised version filed with Form 10-SB/A SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration Statement to be signed on its behalf by the undersigned duly authorized. Date: July 29, 1996 MAR VENTURES INC. By:/s/Buddy Young Buddy Young President 17 FINANCIAL STATEMENTS INDEX BEXY COMMUNICATIONS, INC. PAGE INDEPENDENT AUDITORS' REPORT 19 FINANCIAL STATEMENTS: Balance Sheet, August 31, 1995 20 Statements of Operations for the Two Years Ended August 31, 1995 21 Statements of Shareholders' Equity for the Two Years Ended August 31, 1995 22 Statements of Cash Flows for the Two Years Ended August 31, 1995 23-24 Notes to Financial Statements 25-28 Balance Sheet, May 31, 1996 29 Statements of Operations for the Nine Months Ended May 31, 1996 and May 31, 1995 30 Statements of Cash Flows for the Nine Months Ended May 31, 1996 and May 31, 1995 31 Notes to Interim Financial Statements 32 MAR VENTURES, INC. INDEPENDENT AUDITORS' REPORT 34 Balance Sheet, April 22, 1996 35 Notes to Financial Statement 36 Pro Forma Condensed Balance Sheet, May 31, 1996 37 - ----------------------------------------------------------------- 18 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Bexy Communications, Inc.: We have audited the accompanying balance sheet of Bexy Communications, Inc. (the "Company") as of August 31, 1995. We have also audited the statements of operations, shareholders' equity and of cash flows for the two years ended August 31, 1995. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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, such financial statements present fairly, in all material respects, the financial position of the Company at August 31, 1995, and the results of its operations and its cash flows for each of the two years ended August 31, 1995 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. November 9, 1995 19
BEXY COMMUNICATIONS, INC. BALANCE SHEET AUGUST 31, 1995 ASSETS CASH $ 114,134 ACCOUNTS RECEIVABLE 63,200 PROGRAM INVENTORY, Net 55,456 FURNITURE AND FIXTURES - Net of accumulated depreciation of $2,564 956 OTHER ASSETS 6,722 TOTAL ASSETS $ 240,468 ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 36,310 Accrued interest to related party 42,189 Note payable to related party 7,519 Deposits 2,000 Deferred income 16,000 --------- Total liabilities 104,018 --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, par value - $.01, 25,000,000 shares authorized, 1,558,947 issued and outstanding 133,654 Contributed capital 992,831 Accumulated deficit (943,361) Notes receivable from shareholders (46,674) --------- Total shareholders' equity 136,450 --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 240,468 =========
See accompanying notes to financial statements. 20
BEXY COMMUNICATIONS, INC. STATEMENTS OF OPERATIONS FOR THE TWO YEARS ENDED AUGUST 31, 1995 1995 1994 ---- ---- REVENUES $ 125,654 $ 130,228 --------- --------- COST OF PROGRAMS AND DISTRIBUTION FEES: Amortization of film costs 254,044 122,630 Distribution fees 63,087 52,036 --------- --------- Total cost of programs and distribution fees 317,131 174,666 --------- --------- EXPENSES: Advertising 2,300 22,552 General and administrative 65,227 54,227 Depreciation 1,208 850 Interest 9,593 10,167 Professional fees 108,315 60,105 Rent 16,513 21,281 --------- --------- Total expenses 203,156 169,182 --------- --------- NET LOSS $(394,633) $(213,620) ========= ========= NET LOSS PER SHARE $ (.27) $ (.17) ========= =========
See accompanying notes to financial statements. - ------------------------------------------------------------------------ 21
BEXY COMMUNICATIONS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE TWO YEARS ENDED AUGUST 31, 1995 COMMON STOCK SHARES CONTRIBUTED ACCUMULATED OUTSTANDING AMOUNT CAPITAL DEFICIT BALANCES, SEPTEMBER 1, 1993 7,164,333 $126,970 $502,575 $(335,108) ONE-FOR-SIX REVERSE STOCK SPLIT (5,970,277) SALE OF SHARES 120,833 1,208 181,767 ISSUANCE OF SHARES FOR SERVICES 45,062 451 12,179 CONSTRUCTIVE ISSUANCE OF SHARES RELATING TO THE PURCHASE OF PROGRAM INVENTORY 50,000 500 89,500 NET LOSS (213,620) BALANCE, AUGUST 31, 1994 1,409,951 129,129 786,021 (548,728) CANCELLATION OF CONSTRUCTIVE ISSUANCE (50,000) (500) (89,500) SALE OF SHARES 151,000 4,573 231,393 ISSUANCE OF SHARES FOR SERVICES 45,168 452 64,917 ISSUANCE OF SHARES FOR ROUNDING 2,828 NET LOSS (394,633) BALANCE, AUGUST 31, 1995 1,558,947 $133,654 $992,831 $(943,361) ========== ======== ======== =========
See notes to financial statements. 22 BEXY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS FOR THE TWO YEARS ENDED AUGUST 31, 1995 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(394,633) $(213,620) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 1,208 850 Amortization of film costs 239,044 122,630 Issuance of stock for services 65,369 12,630 Write-off of investment 10,000 Changes in operating assets and liabilities: Increase in accounts receivable (28,000) (22,151) Decrease in program inventory 3,083 Increase in other assets (4,601) (2,121) Decrease in accounts payable and accrued expenses (8,230) (24,149) Increase in deferred income 16,000 Increase in accrued interest expense 9,593 10,030 Increase in deposits 2,000 --------- --------- Net cash used by operating activities (94,250) (110,818) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures (2,577) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment on note payable (2,038) Borrowings from related party 34,519 38,000 Repayments to related party (155,000) Sale of common stock 189,292 49,975 Collections on note receivable 133,000 --------- Net cash provided by financing activities 201,811 85,937 --------- --------- NET INCREASE (DECREASE) IN CASH 107,561 (27,458) CASH, BEGINNING OF PERIOD 6,573 34,031 --------- --------- CASH, END OF PERIOD $ 114,134 $ 6,573 ========= ========= (Continued) 23 BEXY COMMUNICATIONS, INC. STATEMENTS OF CASH FLOWS - Continued FOR THE TWO YEARS ENDED AUGUST 31, 1995 1995 1994 ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ -0- $ -0- Cash paid for income taxes $1,566 $ 800
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION: During 1995, the Company reduced the carrying value of its program inventory by $235,500 in order to reflect a lower of cost or market valuation on certain program inventory. In addition, the Company wrote-off its investment ($10,000) in the "Victims" television series. During 1994, the Company issued a note payable amounting to $185,000 and common stock amounting to $90,000 for the acquisition of a program series entitled "Feelin' Great". During 1995, the Company negotiated with the seller to cancel the acquisition and the related debt and common stock. The program was returned to the seller. During 1995, the Company issued shares of common stock in exchange for notes receivable totalling $46,674. In addition, the Company issued 45,168 shares of common stock in exchange for services. See accompanying notes to financial statements. - ------------------------------------------------------------------------ 24 BEXY COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Information - Bexy Communications, Inc. (the "Company") was incorporated under the laws of the State of Delaware. The Company is engaged in the production and distribution of television programming, focusing on health information for the general public through print and electronic media that entertains as well as informs. Effective July 18, 1994, the Company approved a one-for-six reverse split of its outstanding common stock. Going Concern - The Company experienced significant operating losses for the fiscal years ended August 31, 1995 and 1994. The financial statements have been prepared assuming the Company will continue to operate as a going concern which contemplates the realization of assets and the settlement of liabilities in the normal course of business. No adjustment has been made to the recorded amount of assets or the recorded amount or classification of liabilities which would be required if the Company were unable to continue its operations. As discussed in Note 6, management has developed an operating plan which they believe will generate sufficient cash to meet its obligations in the normal course of business. Unclassified Balance Sheet - In accordance with the provisions of SFAS No. 53, the Company has elected to present an unclassified balance sheet. Concentration of Credit Risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. The Company has substantially all of its cash on deposit in one financial institution. The Company routinely assesses the financial strength of its customers and normally does not require collateral to support customer receivables. At August 31, 1995, the Company had four customers which accounted for approximately 81% of trade accounts receivable. Furniture and Fixtures - Furniture and fixtures are recorded at cost and depreciated over an estimated useful life of 3 years using the straight-line method. License Agreements - Revenue from television licensing agreements and the related film costs are recognized upon the execution of a 25 licensing agreement, provided certain conditions have been met, including availability of the film for broadcast. General and Administrative Expenses - The Company has expended approximately $12,000 through August 31, 1995 and an additional $24,000 through November 9, 1995 to fund certain start-up costs of a company owned by the Company's majority shareholder. In exchange for funding the start-up costs, the majority shareholder has granted the Company an option to purchase the company for $50,000. Income Taxes - The Company accounts for its income taxes in accordance with the provisions of Statement of Financial Accounting Standards 109 ("SFAS 109"). The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities. The Company has net operating loss carryforwards of approximately $740,000 and $269,000 available to offset future Federal and California taxable income, respectively. Such loss carryforwards expire starting in 2006 through 2008. Per Share Information - Net loss per share for the years presented is computed on the basis of the weighted average common shares outstanding. The number of shares used in the computation was 1,459,365 for the year ended August 31, 1995 and 1,256,444 for the year ended August 31, 1994. 26 2. PROGRAM INVENTORY Program inventory is stated at the lower of cost or estimated net realizable value, determined on a film-by-film basis. During 1995, the Company reduced the carrying value of its inventory by $235,500. Film costs include production, print and pre-release costs. These costs are amortized in the ratio of the current year's gross revenue to management's estimate of remaining gross revenues from all sources on an individual film basis. At August 31, 1995, the program inventory consisted of the following: "Heartstoppers...Horror At The Movies" A two-hour television program hosted by George Hamilton $ 416,636 "Christmas at the Movies" - A one-hour television program hosted by Gene Kelly 106,000 "It's A Wonderful Life - A Personal Remembrance" hosted by Frank Capra, Jr. 41,786 --------- Total 564,422 Less: accumulated amortization (508,966) Program Inventory, Net $ 55,456 ========= 3. NOTE PAYABLE TO RELATED PARTY Through August 31, 1995, a Trust controlled by Buddy Young, an officer, director and majority shareholder of the Company, advanced funds to the Company for operating expenses and film productions. The advanced funds accrue interest at a rate of 8% per annum. The balance of the note totalling $7,519 and accrued interest of $42,189 are currently due and are collateralized by the program inventory. 4. STOCK OPTION PLANS In November 1993, the Company adopted a nonqualified stock option plan that covers certain key employees, consultants and directors as determined by the Board. The aggregate number of shares of common stock that may be issued pursuant to options under the plan will not exceed 416,666. Price and terms are determined at the discretion of the Board. On November 11, 1993, the Board of Directors granted options to the President and principal shareholder. Options to acquire 58,333 shares of the Company's common stock were granted at an exercise price of $.60 per share. All of the shares are currently exercisable and expire on November 11, 2003. 27 5. COMMITMENTS AND CONTINGENCIES The Company leases its primary office space under a one-year lease agreement expiring July 1996. Monthly rent on such lease is $1,150. The Company has an option to extend the lease for one year. Total rent expense for all operating leases for the years ended August 31, 1995 and 1994 was $16,513 and $22,945, respectively. 6. MANAGEMENT PLANS In fiscal 1995 and 1994, the Company generated net negative cash flows from operating activities of $94,250 and $110,818, respectively. Management expects that the forecasted sales and additional equity and debt financing will be adequate to finance the 1996 cash flow requirements. If the Company does not achieve the forecasted sales, the Company may have difficulty in continuing as a going concern. Management has developed alternative plans which include but are not limited to, merging with another company and obtaining additional financing sources. 7. SUBSEQUENT EVENT (UNAUDITED) In September 1995, the Company sold 85,000 shares of its common stock for a total of $93,500. 28 - -----------------------------------------------------------------------
BEXY COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEET MAY 31, 1996 (Unaudited) ASSETS CASH $ 63,541 ACCOUNTS RECEIVABLE 68,800 PROGRAM INVENTORY, Net 52,756 FURNITURE AND FIXTURES - Net of accumulated depreciation of $3,464 622 OTHER ASSETS 4,600 TOTAL ASSETS $ 190,319 =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 39,849 Accrued interest expense to related party 37,209 Deposits 2,000 Deferred income 16,000 ----------- Total liabilities 95,058 ----------- SHAREHOLDERS' EQUITY: Common stock (par value - $.01, 25,000,000 shares authorized, 1,803,459 issued and outstanding) 147,404 Contributed capital 1,116,581 Accumulated deficit (1,138,489) Notes receivable from shareholders (30,235) ----------- Total shareholders' equity 95,261 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 190,319 ===========
See accompanying notes to financial statements. - ------------------------------------------------------------------------ 29
BEXY COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE NINE MONTHS ENDED MAY 31, MAY 31, 1996 1995 REVENUES $ 49,758 $ 101,867 --------- ---------- COST OF PROGRAMS AND DISTRIBUTION FEES 29,071 125,514 --------- ---------- EXPENSES: Advertising 10,101 225 Salaries 8,216 Consulting fees to majority shareholder 59,500 General and administrative 100,545 43,574 Depreciation 900 906 Interest 6,328 Professional fees 35,144 6,066 Rent 11,443 26,381 ---------- ---------- Total expenses 217,633 91,696 ---------- ---------- OTHER INCOME 1,819 4,162 ----------- ---------- NET LOSS $ (195,127) $ (111,181) ========== ========== NET LOSS PER SHARE $ (.16) $ (.08) ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,681,203 1,450,450 ========= =========
See accompanying notes to financial statements. - ------------------------------------------------------------------------ 30
BEXY COMMUNICATIONS, INC. STATEMENTS OF CASH FLOWS (Unaudited) FOR THE NINE MONTHS ENDED MAY 31, MAY 31, 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(195,127) $(111,181) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Amortization of film costs 2,700 58,255 Depreciation 900 906 Changes in operating assets and liabilities: Accounts receivable (5,600) (28,420) Other Assets 2,122 Accounts payable and accrued expenses 3,539 19,962 Accrued interest expense (4,981) 6,328 --------- -------- Net cash used by operating activities (196,447) (54,150) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and fixtures (566) Net change in notes receivable 16,439 51,788 ---------- -------- Net cash provided by investing activities 15,873 51,788 ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock 137,500 130,967 Repayment on note payable (5,000) Repayment to related party (7,519) (51,781) --------- -------- Net cash provided (used) by financing activities 129,981 74,186 --------- -------- NET (DECREASE) INCREASE IN CASH (50,593) 71,824 CASH, BEGINNING OF PERIOD 114,134 6,573 --------- -------- CASH, END OF PERIOD $ 63,541 $ 78,397 ======== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 4,983 $ 0 Cash paid for income taxes $ $ 1,221
See accompanying notes to financial statements. - ------------------------------------------------------------------------ 31 PART I - FINANCIAL INFORMATION Item 1. BEXY COMMUNICATIONS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10- QSB and Regulation S-B. 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 only of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period to conform to the current periods presentation. The financial statements include the Company's wholly-owned subsidiary. Mar Ventures, Inc., a Delaware Corporation, which acquired substantially all of the assets and assumed substantially all of the liabilities of the Company on April 16, 1996. For further information refer to the Financial Statements and footnotes included in the Registrant's Annual Report on Form 10-KSB for the year ended August 31, 1995. The Results of Operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year ended August 31, 1996. Unclassified Balance Sheet - In accordance with the provisions of SFAS No. 53, the Company has elected to present an unclassified balance sheet. Per share information - Net loss per share for the periods presented is computed on the basis of the weighted average common shares outstanding. 2. REORGANIZATION AGREEMENT - The Company entered into an Agreement and Plan of Reorganization dated as of April 16, 1996 with Cheniere Energy Operating Co., Inc. ("Operating"), the stockholders of Operating and Buddy Young. Pursuant to the Reorganization Agreement, subject to approval of the Reorganization by the stockholders of the Company, the Company will, among other things issue shares of its Common Stock equal to approximately 93% of its then issued and outstanding Common Stock and distribute the shares of common stock of Mar Ventures to the Company's stockholders of record as of May 15, 1996. 32 3. GENERAL AND ADMINISTRATIVE EXPENSES - The Company has expended approximately $46,000 through May 31, 1996 to fund certain start-up costs of a company owned by the Company's majority shareholder. In exchange for funding the start-up costs, the majority shareholder has granted the Company an option to purchase the company for $50,000, which was terminated by the Company on April 16, 1996. 4. SUBSEQUENT EVENTS - On July 2, 1996, a date subsequent to the balance sheet date, the stockholders approved a plan of reorganization to change the Company's business from the television production and health information business to the business of oil and gas exploration and exploitation, as well as related changes in the capitalization and management of the Company. A one-for-three reverse split of the Common Stock previously declared by the Board of Directors of the Company became effective immediately after the approval of the Reorganization by the Company's stockholders. As part of the Reorganization, the Company issued new shares of its stock in exchange for all of the stock of Operating resulting in a change in control of the Company and distributed the shares of Mar Ventures to the Company's stockholders of record as of May 15, 1996. Mar Ventures remains responsible for the liabilities of the Company prior to the date of the Reorganization, including the Company's obligations under the Reorganization Agreement. 33 INDEPENDENT AUDITORS' REPORT To Mar Ventures, Inc.: We have audited the accompanying balance sheet of Mar Ventures, Inc. (the "Company") as of April 22, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit 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 statement is 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of the Company as of April 22, 1996 in conformity with generally accepted accounting principles. The accompanying financial statement has been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statement, the Company has minimal revenues and insufficient working capital to meet its current obligations which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statement does not include any adjustments that might result from the outcome of this uncertainty. May 8, 1996 34 MAR VENTURES, INC. BALANCE SHEET APRIL 22, 1996 ASSETS AMOUNT DUE FROM PARENT $4,520 STOCKHOLDERS' EQUITY Common stock, $.01 par value, 30,000,000 shares authorized; 452,000 shares issued and outstanding at April 22, 1996 $4,520 ====== See accompanying note to financial statement. - ------------------------------------------------------------------------ 35 MAR VENTURES, INC. NOTES TO FINANCIAL STATEMENT 1. Business Corporate Status - Mar Ventures, Inc. (the "Company") was incorporated in the state of Delaware on March 27, 1996. The Company is a wholly-owned subsidiary of Bexy Communications, Inc. ("Bexy"). There were no operations from March 27, 1996 to April 22, 1996. Going Concern - The financial statement has been prepared assuming the company will continue to operate as a going concern which contemplates the realization of assets and the settlement of liabilities in the normal course of business. No adjustment has been made to the recorded amount of assets or the recorded amount or classification of liabilities which would be required if the Company were unable to continue its operations. As discussed in Note 3, management has developed an operating plan which they believe will generate sufficient cash to meet its obligations in the normal course of business. 2. MERGER (Unaudited) On July 2, 1996, the shareholders of Bexy approved a Plan of Reorganization whereby Cheniere Energy Operating Company ("Cheniere") would acquire control of Bexy in an exchange of common stock. In conjunction with the above transaction, the shareholders approved the formation of Mar Ventures, Inc., a wholly-owned subsidiary, and the transfer of all assets and liabilities of Bexy to Mar Ventures, Inc. 3. MANAGEMENT PLANS During the fiscal year ended August 31, 1995, Bexy generated net negative cash flows from operating activities amounting to $94,250. Management expects that forecasted sales and additional equity and debt financing will be adequate to finance the cash flow requirements for the next twelve months. If the Company is unable to meet its forecasted sales and/or obtain additional equity or debt financing, the Company may have difficulty in continuing as a going concern. Management has developed alternative plans which include, but are not limited to, (1) suspension of payments to the Company's President and majority shareholder for consulting fees and accrued interest, and (2) the commitment by the Company's President and majority shareholder to personally fund any cash shortfalls for the next twelve months. 36 MAR VENTURES, INC. PRO FORMA CONDENSED BALANCE SHEET Mar Ventures, Inc. (the "Company") was incorporated in the State of Delaware in March 1996 and is a wholly-owned subsidiary of Bexy Communications, Inc. ("Bexy"). The Company was formed to receive the assets and liabilities of Bexy in connection with a proposed merger of Cheniere Energy, Inc. and Bexy. The Company has had no operations since inception. The following proforma condensed balance sheet presents the combined financial position of the Company as if the contribution of assets occurred on May 31, 1996. This combined balance sheet should be read in conjunction with the other financial information included in this registration statement, Bexy's Form 8-K dated July 17, 1996 and Proxy Statement dated July 2, 1996 (incorporated herein by reference) and the audited financial statements of Bexy for the year ended August 31, 1995 and related notes thereto included in its Form 10-KSB as incorporated herein by reference. 37 MAR VENTURES, INC.
PROFORMA BALANCE SHEET MAY 31, 1996 (Unaudited) MAR CONTRIBUTION VENTURES, OF BEXY ELIMINATION INC. ASSETS ENTRIES TOTAL ASSETS CASH $ 63,541 $ 63,541 ACCOUNTS RECEIVABLE 68,800 68,800 AMOUNT DUE FROM BEXY $4,520 $(4,520) PROGRAM INVENTORY, Net 52,756 52,756 FURNITURE AND FIXTURES 622 622 OTHER ASSETS 4,600 4,600 ------ -------- ------- -------- TOTAL ASSETS $4,520 $190,319 $(4,520) $190,319 ====== ======== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses $ 39,849 $ 39,849 Accrued interest expense to related party 37,209 37,209 Deposits 2,000 2,000 Deferred income 16,000 16,000 Amount due to Mar Ventures, Inc. 4,520 $(4,520) ------ -------- ------- Total liabilities 99,578 (4,520) 95,058 ------ -------- ------- -------- SHAREHOLDERS' EQUITY: Common stock (par value - $.01, 30,000,000 shares authorized, 452,000 issued and outstanding) $4,520 4,520 Contributed capital 120,976 120,976 Notes receivable from shareholders (30,235) (30,235) ------ -------- ----------------- -------- Total shareholders' equity 4,520 90,741 95,261 ------ -------- ------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,520 $190,319 $(4,520) $190,319 ====== ======== ======= ======== - ------------------------------------------------------------------------
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