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Miracle's migraine: the color of money.

H0LLYW00D Film producers are scrambling for partners to co-finance their pics, with the lucky ones finding cash from the German stock market, British insurance agents, European bankers, or even grocery-store or FedEx magnates.

But if you're looking for a fiscal partner, don't pray for miracles.

Miracle Entertainment, launched by Tony Cataldo, Richard Abramson and thesp Martin Landau, claimed the ability to tully back major motion pictures as well as supply P&A for their release.

However, the recent and abrupt exit of Abramson -- shortly followed by the resignations of newly minted Miracle execs Neil Sacker, Gregg Hoffman and Julia Savay-Ross -- invites a closer look at this curious company.

Like many colorful indie stories, the tale of Miracle begins with Menahem Golan and Yoram Globus.

The Israeli cousins became famous for their flamboyant ways as they produced films that ranged from cheapo action thrillers to arthouse fare while running Cannon Pictures in the 1980s.

After the acrimonious breakup of Cannon in 1989, the two men did not work together for eight years. But in December 1997, Golan and Globus announced they had reunited to create First Miracle Pictures. Startup costs were funded by an unlikely source: a chain of Northern California health clubs owned by North American Health & Fitness.

The outfit announced ambitious plans to make seven pictures during its first year, with a total production outlay of $70 million. However, no production coin was in place.

Among the first titles on the slate was the $3 million "Cattle Call," directed by Martin Guigui, with Dom DeLuise in talks to star. The company also discussed acquiring international rights to another Guigui-directed film, "Wedding Band," made for less than $1 million and starring singer Debbie Gibson in a comedy set at a Jewish wedding.

Miracle's plans also included a foreign sales division headed by Peacock Films' Moshe Bibiyan and Simon Bibiyan; a library division that included Peacock's 52 titles (highlighted by "Ultimate Revenge" with Lou Diamond Phillips and "Look at Me, America" with Erik Estrada); and Miracle Music, headed by former personal manager, concert promoter and publisher John Apostol.

Six months later, the partnership began to collapse amid charges of fraud, missing money and breach of contract.

In May 1998, the Bibiyan brothers filed a "summons and notice" with the New York State Supreme Court, accusing Golan of fraud and breach of contract. Golan claimed the Bibyans were voted out by the board; the Bibiyans said they were fired when they began to ask why production monies went missing.

As the new Golan-Globus partnership began to dissolve, North American chairman Peter Benz continued his company's push into the movie biz. Registered as a Canadian corporation that acted as the holding company for the Delaware corporation California Athletic Clubs, it was traded on both Nasdaq's OTC bulletin board and the Canadian Dealing Network. In July 1998, the board declared its intention to get out of the health club business and changed its name to 1st Miracle Group while retaining its trading status under the symbol MVEE.

While it is unclear exactly how Golan and Globus fell out of the 1st Miracle picture, according to an auditor's report, 1st Miracle Group formed a wholly owned subsidiary to develop motion pictures and television shows on Dec. 15,1998, that was provided $1,089,923 in working capital to complete projects owned by 1st Miracle Group.

What happened to the money, however, is another matter.

"These funds were misappropriated," according to the auditors' report. "However, the individuals involved claimed that these payments offset amounts due them on earlier projects that did not involve 1st Miracle." Although 1st Miracle Group initiated a lawsuit to recover the funds, it was abandoned in 1999 and the money was written off.

In January 1999, Benz tapped Cataldo to head the new org as its chairman and CEO. Cataldo was not a movie exec; he was known as a turnaround guy for slumping public companies. His various top exec posts included stints at banking outfit Internet Systems and bank software manufacturers Hogan Systems and Management Technologies. Most recently, from August 1996 to December 1998, he was president and chairman of Senetek, a biotech company that focuses on therapeutic agents for sexual dysfunction.

As director and CEO of 1st Miracle Group, Inc. -- which was incorporated in New York on April 1, 1999, as a wholly owned subsid of the Canadian corporation with the same name -- Cataldo began announcing his vision for 1st Miracle, including a plan by which stars and filmmakers would receive equity stakes in the company and share profits in specific projects as well as a merger with Entertainment Internet, parent of online casting service CastNet.com. Neither scheme came to fruition.

Firestorm alliance

In November, however, 1st Miracle Group had another announcement: It would create an alliance with Martin Landau and Richard Abramson's Firestorm Pictures and, with the help of foreign presales and Firestorm's insurance-backed, $125 million P&A fund, the partnership would make studio-level films with very low risk.

Among the titles that Firestorm brought to the table were the thriller "Alicia's Book" and the comedy "Funny Money."

Landau is a longtime acting vet and Oscar-winner ("Ed Wood"); Abramson was an early manager of Paul Reubens (aka Pee-wee Herman), and took a producer's credit on "Pee-wee's Big Adventure" as well as the television series "Pee-wee's Playhouse."

After his relationship ended with Herman, Abramson produced the cop-dinosaur buddy comedy "T-Rex" starring Whoopi Goldberg. The film was perhaps most noteworthy for the flurry of lawsuits and judgments it inspired, including Goldberg's unsuccessful attempt in 1993 to get out of making the picture. Originally intended for release through New Line Cinema, it went out on Turner Home Video in 1995.

That year, Abramson also became the subject of a number of judgments levied against him in California courts in association with the picture in addition to a number of civil judgments.

In 1996, he and Landau first teamed with Silver Street Pictures, a company that signed a first-look deal with MGM using a business plan virtually identical to Firestorm's. However, Silver Street did not produce any titles and collapsed after it attempted to sue Reliance Insurance over a pledge to provide a $100 million production fund.

Shortly after its Firestorm alliance, 1st Miracle Group changed its name to Miracle Entertainment in a move that, according to a Business Wire release, "more clearly reflects the current business of the company."

In that same release, Cataldo addressed concerns about the number of company shares outstanding, which was now rising well past the billion mark. Said Cataldo, "The company has paid consulting fees in cash and company stock to actors, producers and writers, fees that brought value to its shareholders."

By the end of Miracle Entertainment's fiscal year in April 2000, Cataldo was the sole chairman, with Canadian merchant bank president V. Terry Franzke and L.A. Laker John Salley appointed as board members and former Senetek chief financial officer Clifford D. Brune appointed VP and CFO.

In May, Cataldo announced that Firestorm and Miracle would merge. The new company, which planned to launch its fortunes with a remake of "Easy Rider," also announced that it planned to purchase or invest in a foreign sales company and acquire a management company as well as a television production company.

Move from OTC

While Miracle was declaring its bold vision, the company's shrinking per-share price had forced the shingle to move from the OTC to the pink sheets, the very lowest listing level of penny stocks.

Cataldo remained unbowed, saying, "We have $12 million in available capital, a $10 million credit line, $150 million in off-balance sheet financing and several completed films that are going to be distributed in either late summer or early fall.... We are moving this company forward and preparing its future on a main exchange."

Toward that end, Miracle Entertainment in March purchased all shares of the Nevada-based corporation K-9 Protection, which was owned by Benz.

Prior to the share purchase, K-9 had been a development stage company since it was formed in July 1996 -- a "blank check" outfit with no operating history other than organizational matters.

Although its trademark-protected name was designed for anti-theft systems and other services, K-9's business plan was never implemented. However, K-9 was registered in the United States and its 12(g) could eventually serve as 1st Miracle's passport onto major exchanges. K-9 changed its name to Miracle Entertainment Inc. and merged with 1st Miracle Entertainment.

In a July interview with CNN, Cataldo praised Abramson as having "an amazing amount of financing acumen," while Landau claimed, "We're going to make five films this year, in this calendar year."

As for the source of the production funding, Cataldo demurred. "We, you know, can't get into who's backing that just yet, but we will shortly, which is $150 million for films that we wish to produce."

By the time Miracle Entertainment filed its annual report on Aug. 14, it had dismissed auditor Berg & Co. and retained Goldstein & Morris to reaudit their 1998, 1999 and 2000 fiscal years. This was the third time Miracle had changed its auditors since 1998.

In a letter to the SEC's Richard Wulff dated June 29, Berg & Co. outlined their concerns with Miracle's accounting: "We are unable to be associated with the financial statements of FMG due to the scope limitation imposed by FMG management, and the disclosures made in the financial statements of FMG for the years (ending) April 30, 1999 and 1998 will need to be modified."

According to filings with the Ontario Securities Commission, between April and July of this year, 1st Miracle Group had a net loss of nearly $3.3 million -- an improvement over the year-earlier period, when it lost nearly $4.6 million. The company had no operating revenue in either period.

Still, Miracle seemed to be building up steam with the appointments of production co-presidents Sacker (late of Destination Films) and former Disney exec Hoffman, as well as international sales head Savay-Ross and other exec appointments.

Under the direction of Cataldo and Abramson, the execs began to canvas for Miracle with "the Miracle Finance System." According to a document distributed to producers, agents and studio execs, "through a series of unique arrangements, which are exclusive to Miracle, the company is able to provide 100% of the negative cost and 100% of the domestic P&A costs."

In addition, Miracle claimed that it had the funding to back all offers as well as to provide bridge and pre-production financing.

However, two weeks after Miracle announced its intention to fully finance "The Italian" directed by Stephen Gyllenhaal ("Losing Isaiah"), Abramson abruptly exited the company Nov. 10 following a public row with Cataldo and Landau at the Four Seasons restaurant.

Sources indicate that Cataldo then told Sacker, Hoffman and Savay-Ross that he had already arranged for some $175 million in production financing from two "major shareholders": Mohamed Hadid (co-chairman of one-time merger partner the Entertainment Internet) and board member Franzke.

At the meeting several days later, however, Hadid and Franzke admitted they had no investment funds immediately available and that the earliest they could line up financing would be the end of January -- the same time pre-production was slated to begin on at least two Miracle films.

Shortly after that meeting, Sacker, Hoffmann and Savay-Ross resigned from the company.

When asked to comment, Cataldo said "The company continues to move forward on its original business plan, which includes the financing of motion pictures."

For now, it remains unclear which films Miracle will continue developing. Sources close to one high-profile project, "Twisted," which was to be produced by Barry Josephson and Barry Sonnenfeld and helmed by George Armitage ("Grosse Pointe Blank"), tell Variety they will not proceed at Miracle.

To date, no Miracle-backed titles have found theatrical release. "After Sex" starring Brooke Shields, "Held For Ransom" starring Dennis Hopper, and "Very Mean Men," directed by Tony Vitale and starring Landau, were released via Blockbuster Video.

The company has more than a billion shares outstanding that sell for just under a penny per share, giving the company a market cap of just $10.7 million.
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Comment:Miracle's migraine: the color of money.
Author:HARRIS, DANA
Publication:Variety
Geographic Code:1USA
Date:Dec 11, 2000
Words:2022
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