<PAGE> 1
As filed with the Securities and Exchange Commission on December __, 1996
File No. 333-13937
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
FILED AS A
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
QUINTEL ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 7900 22-3322277
- --------------- ----------------- ----------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Code Identification
incorporation) Number) Number)
One Blue Hill Plaza, Pearl River, New York 10965 (914) 620-1212
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JEFFREY L. SCHWARTZ, CHAIRMAN
QUINTEL ENTERTAINMENT, INC.
One Blue Hill Plaza, Pearl River, New York 10965 (914) 620-1212
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
MURRAY L. SKALA, ESQ.
FEDER, KASZOVITZ, ISAACSON,
WEBER, SKALA & BASS LLP
750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022-1200
(212) 888-8200
FAX: (212) 888-7776
---------------------
Approximate date of proposed sale to the public: Not Applicable.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other then securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
<PAGE> 2
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
ii
<PAGE> 3
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Maximum
Each Class Offering Proposed
of Price Maximum
Securities Amount to Per Aggregate Amount of
to Be Be Share Offering Registration
Registered Registered (1) Price(1) Fee
- ------------------------- ----------------------- --------------------- ------------------------- ----------------------
<S> <C> <C> <C> <C>
Common
Stock par
value 3,213,000
$.001............... shares (2) $8.75 $28,113,750 $8,519.32
Common
Stock
Underlying 320,000
Warrants............ shares (3) $8.25(4) $ 2,640,000 $ 800.00
========================= ======================= ===================== ========================= ======================
Total............... $28,113,750 $9,319.32(5)
========================= ======================= ===================== ========================= ======================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of
the registration fee pursuant to Rule 457(c).
(2) Consists of (i) 3,200,000 shares issued to the shareholders
of Psychic Readers Network, Inc. ("PRN"), Steven Feder,
Thomas Lindsey and Peter Stolz, in connection with the
acquisition on September 10, 1996, by a subsidiary of the
Company (NL Corp.) of PRN's interest in New Lauderdale L.C.,
a Florida limited liability company, of which the Company's
subsidiary, Calling Card Co., Inc., owned the remaining 50%
interest; and (ii) 13,000 shares of the 25,000 shares issued
to Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP,
counsel to the Company ("Feder Kaszovitz"), in consideration
for services rendered in connection with the Company's
December 1995 initial public offering.
(3) Represents shares underlying the warrants granted to Whale
Securities Co., L.P. ("Whale"), as partial compensation for
Whale's acting as underwriter of the Company's December 1995 initial
public offering.
(4) Represents the exercise price of the warrants.
(5) $8,519.32 of such registration fee already has been paid
with the filing of the Company's Registration Statement on
Form S-1 (File No. 333-13937), as filed with the Commission
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<PAGE> 4
on October 11, 1996. $39.22 of such registration fee was
paid by Feder Kaszovitz.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE AN AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
iv
<PAGE> 5
3,533,000 SHARES
QUINTEL ENTERTAINMENT, INC.
COMMON STOCK
This Prospectus covers 3,533,000 shares of Common Stock, par value
$.001 per share (the "Common Stock") of Quintel Entertainment, Inc., a Delaware
corporation (the "Company"), held by security holders of the Company, including
320,000 shares issuable by the Company upon the exercise of certain warrants
granted by the Company (the "Warrants"). Other than the proceeds received by the
Company from the exercise of the Warrants, the Company will not receive any
proceeds from the sale of the shares offered hereby. The holders of the shares
covered by this Prospectus intend to sell the shares offered hereby from time to
time for their own respective accounts in the open market at the prices
prevailing therein or in individually negotiated transactions at such prices as
may be agreed upon. Each such holder will bear all expenses with respect to the
offering of shares by him or her except the costs associated with preparing and
printing this Prospectus. The Common Stock of the Company is traded on the
NASDAQ National Market system under the symbol "QTEL." On December 11, 1996, the
last reported sale price of the Common Stock was $71/8.
SEE RISK FACTORS FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS (PAGE ___)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Square, 450 Fifth Street,
N.W., Washington D.C. 20549, and at the Commission's regional offices located at
500 West Madison Street, Suite 1800, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549 at prescribed rates.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. See "Risk Factors", page __.
THE COMPANY
Quintel Entertainment, Inc. (the "Company") is engaged in developing
and marketing telephone entertainment services, consisting primarily of live
conversation and pre-recorded horoscopes and tarot card readings and live
psychic and diet/nutrition consultations. The Company also offers enhanced
voice-mail services which include various psychic, "personals" and other
theme-related entertainment services.
The Company's telephone entertainment services are accessed by dialing
"900" telephone numbers that are billed at premium per-minute rates.
Entertainment services consist primarily of live conversation and pre-recorded
horoscopes and tarot card readings and live psychic consultations designed to
capitalize on the current popularity of "new age" themes. "New age" refers to
astrological and psychic phenomena which can be explained through the use of
horoscopes, tarot card and psychic readings and prognostications. The Company
currently markets approximately twenty "900" number entertainment services, each
offering programs with distinct features.
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The Company's live psychic entertainment services permit callers to
engage in live one-on-one conversations with psychic operators and to receive
personalized information responsive to the caller's requests. The Company also
provides live tarot card entertainment services which permit callers to receive
a live tarot card reading.
Psychic Readers Network, Inc. ("PRN") currently provides the Company
with substantially all of its psychic operators and monitors and supervises the
quality of independent psychic operators provided to the Company. The Company
pays PRN a per minute fee based on caller connection time. See "Certain
Relationships and Related Transactions".
The Company offers several pre-recorded entertainment services,
including horoscopes, tarot card readings and numerology services. Some of such
services contain interactive features which permit callers to access a variety
of services by responding to pre-recorded messages, such as prompts for
birthdates.
The Company solicits consumers for its "900" number services by
providing access to toll-free "800" numbers for subjects of general interest and
as an introduction to the Company's "900" services. The Company's entertainment
services are available by calling designated "900" numbers from any telephone,
provided that "900 blocking" has not been ordered or imposed for such services
from such telephone. Fees are billed by regional carriers on the customers'
telephone statements.
The Company also currently offers enhanced voice-mail services which
provide customers with a network of theme-related entertainment services. The
Company currently offers voice-mail networks which include astrological and
psychic related entertainment services. These services, which include a
variety of live and pre-recorded programs, newsletters and gifts are made
available to each subscriber with his or her subscription to the Company's
enhanced voice-mail network. For a monthly fee, subscribers are assigned
personal voice mailboxes which can be used to communicate with other
subscribers, friends and family. Voice mailboxes are accessed by dialing
designated "800" numbers which are toll-free. Fees are billed on a monthly
basis by regional carriers on the subscribers' telephone statements.
Commencing in August 1994, the Company began offering entertainment
services similar to those provided with its voicemail services in a membership
club format, pursuant to which members were enrolled in theme-related membership
clubs and billed monthly for the term of their membership. In response to
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regional and local carrier constraints, the club format was changed to a voice
mail services format.
As enrollment in the Company's voice mail networks increased
significantly, consumer complaints also increased, causing certain regional and
local telephone carriers to discontinue billings. In response to actions by such
carriers, the Company repositioned the marketing of the voice-mail network
services ("VM Product"). The Company also continues to explore new billing
platforms for its entertainment services in order to assure continued acceptance
by telephone carriers in the future. In addition, the Company has taken several
steps to expand its customer service operations. The Company has recently
outsourced the majority of its customer service operations.
In March 1995, the Company and PRN formed New Lauderdale L.C. ("New
Lauderdale"), a Florida limited liability company, the successor to a joint
venture established in December 1994, for the purpose of creating, developing
and marketing theme-related membership clubs and related telephone entertainment
services.
On September 10, 1996, the Company acquired PRN's interest in New
Lauderdale in consideration for 3,200,000 shares (the "PRN Shares") of Common
Stock of the Company (the "Acquisition"), which shares are included in this
Prospectus.
The Company was incorporated under the laws of the State of Delaware in
November 1993 under the name U.S. Teleconnect, Inc. The Company's executive
offices are located at One Blue Hill Plaza, Pearl River, New York 10965, and its
telephone number is (914) 620-1212. Unless otherwise indicated, all references
in this Prospectus to the Company include Quintel Entertainment, Inc. and its
wholly-owned subsidiaries.
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<PAGE> 9
THE OFFERING
Securities Offered by the
Selling Stockholders. . . . . . 3,533,000 shares.
Common Stock outstanding
as of the date hereof
(including the 3,533,000
shares included in this
Prospectus). . . . . . . . . . . 18,452,402 shares
Use of Proceeds. . . . . . . . . Other than the proceeds
received from the
exercise of the Warrants,
the Company will not
receive any proceeds from
the sale of the shares.
See "Use of Proceeds."
Risk Factors . . . . . . . . . . An investment in the
shares being registered
hereby involves a high
degree of risk. See
"Risk Factors."
NASDAQ National
Market Symbol . . . . . . . . . . "QTEL"
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<PAGE> 10
RISK FACTORS
The shares offered hereby are speculative and involve a high degree of
risk. Prospective investors should carefully consider the following risk factors
before making an investment decision.
Limited Operating History. The Company commenced operations in August
1992 and has a limited operating history upon which an evaluation of the
Company's performance and prospects can be made. The Company's prospects must be
considered in light of the numerous risks, expenses, delays, problems and
difficulties frequently encountered in the establishment of a new business in a
highly regulated industry characterized by intense competition. The Company's
operating expenses have increased and can be expected to increase significantly
in connection with the Company's proposed advertising, marketing and promotional
activities (including substantial up-front cash expenditures required for the
purchase of media time). Accordingly, the Company's future profitability will
depend upon corresponding increases in revenues from operations. Unfavorable
general economic conditions, changes in government regulation or negative
consumer perceptions of "900" number services, resulting in decreased demand for
the Company's services, could have a material adverse effect on the Company's
future operating results. There can be no assurance that the Company's rate of
revenue will grow in the future or that the Company's future operations will be
profitable.
Dependence on Third-Party Carriers. The Company is dependent on long
distance carriers and numerous regional and local telephone companies
("carriers") to continue to transmit "900" number calls and to bill and collect
telephone charges and VM Product fees. Failure by carriers to provide such
services would have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease operations. Moreover,
changes in billing and collection and other business practices of carriers, for
regulatory or other reasons, could require the Company to modify its
arrangements with carriers or alter its operating and marketing methods at
substantial costs, which could have a significant impact on the Company and
exacerbate the risks inherent in its business. In particular, in response to
increasing consumer complaints and government regulations which impose
limitations and prohibitions on "800" number billing and collection practices,
in early 1994, numerous carriers discontinued billing consumers for calls made
to "800" number entertainment services. In light of these developments, the
Company modified its operations by discontinuing the practice of billing on a
pay-per-call basis for services accessed through "800" numbers. At the regional
telephone carrier level, five of the regional telephone carriers suspended
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billing of the Company's VM Products at different times during the first six
months of fiscal 1996. The Company believes that the suspensions were the
result of the carriers' belief that the Company and Enhanced Services Billing,
Inc. ("ESBI"), one of the Company's service bureaus which contracts directly
with carriers to provide billing and collection of monthly fees, were unable
to provide adequate customer services to VM Product customers in the regions
serviced by the carriers. The Company did not anticipate the increase in
customer service calls during the first three months of fiscal 1996 and was
not able to adequately handle the increased customer service call volume. Both
the Company and ESBI expanded their customer service operations in response to
such needs. Four of the five carriers, in reaching their decisions to suspend
billings, specifically addressed the Company's VM Product and the remaining
carrier addressed the billing platform that encompasses the Company's VM
Product. The Company has resumed billing the VM Product with the four carriers
that specifically addressed the difficulties associated with the VM Product.
For the carrier that addressed the difficulties associated with the billing
platform, the Company resumed billing through an alternate platform with
another service bureau. For four of these carriers, the suspensions each lasted
less than sixty (60) days and did not have a material impact on the Company's
cash flows and operations. For the fifth carrier, the suspension lasted several
months and resulted in lost revenues. During the first nine months of fiscal
1996, VM Product net revenues billed through this carrier approximated 5% of
total net revenues. Marketing shifts between the VM Product and "900" business
are expected to partially offset the impact of this carrier's suspension,
however, no assurance can be given that such offset will occur. See "Forward
Looking Information May Prove Inaccurate". Though the full amount of the impact
of the lost revenues is presently not known, the Company did incur marketing
and fulfillment costs in this carrier's region during the first six months of
fiscal 1996. Therefore, the impact to date has been significant as costs were
incurred without a corresponding revenue stream.
While the VM Product is independent of the Company's "900" number
entertainment services and these difficulties do not impact the "900" number
portion of the Company's business and the carrier billing suspensions of the VM
Product are limited to the geographic regions serviced by the individual
carriers, no assurance can be given that carriers will not suspend product
billings for these or other services for the Company in the future. Failure by
carriers to bill and collect the Company's monthly membership fees or "900"
number fees would have a material adverse effect on the Company.
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<PAGE> 12
Limitations on Price and Access to "900" Numbers. In response to
pressure from and monitoring by regulatory authorities, carriers have
voluntarily placed limitations on amounts billed to consumers for per minute or
flat rate calls. AT&T, the primary long distance carrier currently utilized by
the Company for "900" services, limits amounts billed to consumers at $10 per
minute and $50 per flat rate call. Regional and local carriers also impose
limits on amounts billed to consumers. Although the Company's per minute rates
are substantially below the limits imposed by AT&T and its other carriers and
the Company does not offer flat per call rate service, there can be no assurance
that carriers will not reduce such limits or implement other billing
restrictions that would require the Company to alter its pricing structure or
other methods of operations. In addition, rates charged by carriers for
telephone services have increased and future increases would adversely affect
the Company's operating margins. Furthermore, consumers may request that
carriers block their ability to access "900" number services and carriers may
involuntarily block consumer access to such services if the consumer fails to
pay for "900" billed service. Blocking of substantial consumer access to "900"
number services could limit the market for the Company's services and adversely
affect the Company's results of operations.
Government Regulation. The telephone entertainment services industry is
subject to extensive, stringent and frequently changing federal, state and local
laws and substantial regulation under these laws by governmental agencies,
including the Federal Communications Commission ("FCC"), the Federal Trade
Commission ("FTC"), the Department of Justice, the United States Postal Service,
various state Attorneys General and state and local consumer protection
agencies. Regulations applicable to carriers and providers of telephone
entertainment services are interpreted and enforced by regulatory authorities
with broad discretion and impose significant compliance burdens and risks on the
Company. The FCC regulates carriers that transmit calls and bill and collect
charges, as well as the broadcast and cable television industry, including
networks and stations that carry the Company's infomercials and commercials. The
FTC, which is the federal regulatory authority with primary jurisdiction over
the advertising of "900" number services, is responsible for enforcing various
federal laws intended to protect consumers against deceptive trade practices and
false and misleading advertising, and has promulgated regulations governing,
among other things, advertising disclosures for telephone entertainment
services. In response to substantial complaints by consumers regarding
fraudulent telemarketing activities, the FTC has recently enacted additional
regulations governing telemarketing activities which, among other things, impose
various mandatory disclosure requirements on inbound and outbound telemarketing
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calls, prohibit the telemarketer from making false representations, and prohibit
certain deceptive and abusive telemarketing acts and practices. Such regulations
also restrict telemarketing calls from being placed between 9:00 p.m. and 8:00
a.m. without the prior consent of the person being called. The FTC can impose
substantial penalties for fraudulent telemarketing activities and, require the
telemarketer to disclose the product or service being offered, the cost of such
product or service, any restrictions that may apply before asking for a credit
card or bank information and, if there is a no refund policy, to disclose such
policy. In addition, the FTC has empowered state Attorneys General to seek
injunctions in federal courts for fraudulent telemarketing activities. The
Department of Justice and the United States Postal Service also enforce various
federal laws intended to prevent the use of wires or mail for fraudulent or
deceptive purposes.
The principal federal regulation governing pay-per-call operations is
the Telephone Disclosure and Dispute Resolution Act of 1992 ("TDDRA"). Among
other things, TDDRA provides guidelines with respect to pricing and marketing of
telephone entertainment services, including services offered through "800" and
"900" numbers. The recently enacted Telecommunications Act of 1996 (the "TCA")
amends TDDRA by requiring that billing authorization for pay-per-call "800"
number services be in writing and specifically requires: disclosure to consumers
of pricing information, disclosure of information relating to the provider, a
provider's agreement to notify the customer of changes in billing rates in
advance, disclosure of customer payment options, and the customer's signature to
create an obligation to pay for such "800" number services. The Company utilizes
toll-free "800" numbers in connection with the marketing of voice-mail services
and consumer solicitation. While management believes that the new requirements
set forth in the provisions of the TCA are not applicable to the Company's
operations, based on its belief that its "800" number services are not
pay-per-call services, as such term is defined under TDDRA, as amended by the
TCA, pursuant to the TCA, the FTC is empowered to adopt rules that expand the
definition of pay-per-call to encompass additional services. The FTC is
currently expected to initiate a rule-making concerning the definition, as well
as other pay-per-call reforms later this year. There can be no assurance that
federal or state governmental agencies will not interpret the existing
provisions of the TDDRA, or that the FTC will not revise the definition of
pay-per-call in a manner which would make it applicable to the Company's "800"
number services, in which event, the Company may be required to materially
change the method in which it markets certain of its entertainment services.
Compliance with such requirements, if determined to be applicable, could have a
material adverse effect on the Company's business.
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The FCC recently issued an "Order and Notice of Proposed Rulemaking",
setting forth rules implementing the TCA. The regulations revised the existing
rules to conform with the requirements of the TCA. In addition, the FCC has
proposed a rule that will require all pre-subscription agreements to be in
writing, rather than only those offered through toll-free "800" numbers. The
proposed rules also require that the written pre-subscription agreement be
separate or easily severable from any promotions or sweepstakes. Furthermore,
carriers are authorized to terminate service to an information provider that
cannot provide a written pre-subscription agreement for disputed charges. In the
event a regulatory agency should deem the rules applicable to the Company's
operations, such proposed rules could have a materially adverse effect on the
Company.
The Company's operations in Canada are also subject to Canadian
regulations governing "900" number services and consumer protection regulations
which govern advertising and other business activities.
State Attorney General Matters. All of the Company's entertainment
services and advertisements are reviewed by the Company's regulatory counsel,
and management believes that the Company is in substantial compliance with all
material federal and state laws and regulations governing its provision of "800"
and "900" number entertainment services, all of its billing and collection
practices and the advertising of its services and has obtained or is in the
process of obtaining all licenses and permits necessary to engage in
telemarketing activities. Although the Company from time to time receives
requests for information from, or is forwarded consumer complaints by,
regulatory authorities, the Company has not been subject to any enforcement
actions by any regulatory authority. Nevertheless, civil investigative demands
have been received from the Attorneys' General of the States of Idaho, Missouri,
New York, Pennsylvania and Texas, as well as from the Tennessee Public Service
Commission, seeking certain information relating to the Company. In addition, a
proposed assurance of discontinuance has been received by the Oregon Department
of Justice, which the Company has not yet determined whether or not to accept.
Lastly, certain information relating to the Company's programs also has been
subpoenaed by the Attorney General of the State of Texas from West Outbound and
from the Attorneys' General of the States of Texas and Idaho from ESBI. The
Company believes that the information has been sought as part of pending
investigations in connection with certain of the Company's marketing activities.
The investigation by the State of Idaho has been discontinued. The Pennsylvania
Attorney General's investigation has concluded with issuance of a warning letter
to the Company. The Company has responded and is continuing to respond to the
subpoenas
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issued by the New York Attorney General's office. While such investigation is
still ongoing, management believes it will be able to amicably resolve any
outstanding issues with such state. In the event the Company is able to resolve
such outstanding issues, it is possible that the Company may be required to
modify the manner in which it advertises its products and services in New York
State. No assurance can be given, however, that management will be able to
amicably resolve the outstanding issues with New York State and the failure to
do so may have a materially adverse effect on the Company. Management further
believes that while the other remaining investigations also will not result in
enforcement actions or claims which would have a material adverse effect on the
Company, there can be no assurance that this will be the case. Amendments to or
interpretations and enforcement of existing statutes and regulations, adoption
of new statutes and regulations and the Company's expansion into new
jurisdictions and "900" number services could require the Company to continually
alter methods of operations, modify the content or use of its services or the
manner in which it markets it services, which could result in material
interruptions in its operations. Failure to comply with applicable laws and
regulations could subject the Company to civil remedies, including substantial
fines, penalties and injunctions, as well as possible criminal sanctions, which
could have a material adverse effect on the Company.
Industry Factors. The telephone entertainment services industry is an
evolving business with a relatively limited operating history and is
characterized by an increasing and substantial number of new market entrants who
have introduced or are developing an array of new telephone entertainment clubs,
products and services. As is typically the case in an evolving industry, the
ultimate level of demand and market acceptance for newly introduced services and
products are subject to a high degree of uncertainty. The telephone
entertainment services industry is also subject to rapidly changing consumer
preferences, resulting in short service and product life cycles and frequent
introduction of new services and products, many of which are unsuccessful. The
inability to maintain a sufficient level of demand for any particular service or
club may adversely affect the Company's ability to plan for future development
and marketing activities. The Company's current entertainment services and
membership clubs primarily involve "new age" themes, such as psychic
consultations, horoscopes and tarot card readings, which are highly susceptible
to relatively frequent and rapid changes in consumer tastes and preferences.
There can be no assurance that the Company will be able to anticipate and
respond to changing consumer tastes and preferences or that competitors will not
develop and commercialize services or
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products that render the Company's services and clubs less marketable.
Possible Consumer Opposition to "900" Number Services. Consumer
advocacy groups have in the past opposed certain types of telephone
entertainment services, such as adult related services, by pressing for
legislation in this area and by engaging in public demonstrations and media
campaigns. To the extent that the Company may offer "900" number services or
membership clubs in the future which are considered adult related "900"
services, its operations could be subject to significantly increased scrutiny by
consumer groups and regulatory authorities. There can be no assurance that such
groups will not target any of the Company's services or clubs, which could have
an adverse effect on the Company, including possibly requiring the Company to
discontinue such service or club. See "Risk Factors Government Regulation."
Consumer Chargebacks. The Company is dependent upon its "900" number
services and its VM Product fees for substantially all of its revenues and is
subject to the risk that "900" number charges and membership fees may not be
paid by consumers. Regulation in the United States provides that a consumer's
telephone service may not be discontinued for failure to pay for a "900" service
or membership fee. In the event of nonpayment by consumers or the provision of
refunds or credits by carriers, the Company is obligated to pay the service
bureau engaged for such service (to the extent amounts are advanced by the
service bureau), which is obligated to pay the carrier. The Company maintains a
reserve for consumer chargebacks which was $9,000,208 at August 31, 1996. Such
reserve is estimated based on the amount of historical chargebacks which
includes refunds, credits and uncollectible charges. There can be no assurance,
however, that the Company's reserves will be adequate to cover actual
chargebacks. The Company recognizes revenues net of consumer chargebacks for
"900" services and VM Product at the time consumers access service, enroll or
continue membership. Since reserves are established prior to the periods in
which chargebacks are ultimately determined, the Company's revenues may be
reduced in later periods in the event that the Company's reserves prove to be
insufficient. Additionally during the first quarter of fiscal 1996 (the three
month period ended February 29, 1996), the Company increased marketing
activities and experienced high enrollments of new VM Product customers which
caused the Company to experience a high level of acceptance difficulties with
its VM Product. Customers did not always relate the VM Product billing
description on their telephone bills to the entertainment service that they
purchased. This prompted an increase in customer service inquiries to both the
Company and ESBI. Accordingly, for the first nine months of fiscal 1996, the
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Company experienced a higher level of customer cancellations and chargebacks
relating to the VM Product. Management believes that its VM Products can be
successfully modified and repositioned with shifts in emphasis as part of the
marketing process. See "Forward Looking Information May Prove Inaccurate". The
Company and ESBI expanded their customer service operations during the three
months ended February 29, 1996 to better educate the consumer about the product.
Telemarketing efforts during the second fiscal quarter of 1996 (the three month
period ended May 31, 1996) were reduced as the marketing shift was being
accomplished. Although management anticipates that the marketing shift along
with the expansions in customer service will reduce customer cancellations and
chargebacks for the VM Product to acceptable levels, there can be no assurance
that these marketing efforts and changes will be successful. Any significant
increase in the level of consumer chargebacks would have a material adverse
effect on the Company's financial condition and results of operations.
Significant Outstanding Accounts Receivable. The Company's accounts
receivable at August 31, 1996 were $9,192,056, as compared to $10,097,629 at
November 30, 1995. Substantially all of the Company's accounts receivable at
August 31, 1996 were due from numerous telephone carriers through the Company's
service bureaus, West Interactive Corporation ("West") and ESBI. Service
bureaus, at their discretion, withhold a portion of settled accounts receivable
as a cash reserve as security for potential consumer chargebacks which may occur
subsequent to the settlement cycle (generally 60 to 120 days) for receivables.
At August 31, 1996, service bureaus held no cash reserves. Delays in collection
or uncollectability of accounts receivable by third-party carriers or service
bureaus, over which the Company has no control, could result in increased cash
reserves held by service bureaus, adversely affecting the Company's liquidity
and working capital position.
Dependence on Third-Party Service Bureaus. The Company is dependent on
its service bureaus, West and ESBI, to provide substantially all of the
Company's billing services and accounts receivable financing in connection with
the Company's "900" number services and membership clubs. The Company is also
dependent on service bureaus to provide other services, including call
processing, inbound telemarketing and production of prerecorded programs. While
the Company believes that there are a sufficient number of service bureaus able
to extend credit and provide services to the Company, a decline in the financial
condition or economic prospects of either West or ESBI, resulting in their
inability to advance funds to the Company or otherwise pay amounts owed, could,
under certain circumstances, have a material adverse effect on the Company.
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<PAGE> 18
Demand Indebtedness and Security Interest. Pursuant to the Company's
agreements with its service bureaus, the Company is liable for all amounts
advanced to the Company by its service bureaus. At August 31, 1996, there were
no outstanding advances provided by service bureaus under accounts receivable
financing arrangements. Any advances under the Company's agreement with West are
due on demand. Substantially all of the Company's accounts receivable are
pledged to the service bureaus as collateral for any advances to the Company. In
the event that the Company recovers an advance and is unable to satisfy its
obligations to West or ESBI, either of such entities could elect to declare an
event of default and foreclose on the assets securing such indebtedness, which
could have a material adverse effect on the Company.
Expansion Risks. Although the Company intends to actively pursue a
strategy of growth, the Company has only limited experience in effectuating
rapid expansion and in managing operations targeting diverse entertainment
themes or membership clubs. The Company's proposed expansion will be dependent
on, among other things, the Company's ability to maintain sufficient demand for
existing services and clubs; identify and develop commercially viable new
services and clubs; produce and air successful infomercials and commercials;
identify and enter into suitable arrangements with recognizable celebrity hosts
for endorsements and promotion of featured services and clubs; hire and retain
skilled marketing, creative and other personnel; and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
quality and service controls). The Company may also seek to expand its
operations through the possible acquisition of additional companies which the
Company believes are compatible with its business. As of the date of this
Prospectus, the Company is not engaged in identifying candidates for
acquisition, and has no plans, agreements, commitments, arrangements or
understandings with respect to any acquisition. There can be no assurance that
the Company will be able to successfully expand its operations or ultimately
effect any acquisition, or successfully integrate into its operations any
business which it may acquire.
Limited Marketing Capabilities and Experience. The Company has limited
experience in engaging in direct response marketing activities, such as the use
of infomercials, and limited financial, personnel and other resources to
undertake extensive marketing activities. To date, the Company and its
subsidiaries have only produced five infomercials and approximately fifty
commercials. Additionally, the Company markets its telephone entertainment
services and clubs through the use of outbound telemarketing. The failure of the
Company to expand its
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<PAGE> 19
marketing capabilities could have a materially adverse effect on
the Company.
Risks Related to Direct Response Marketing. The use of direct response
marketing is speculative and its success is dependent upon numerous factors,
including the Company's ability to produce infomercials and commercials which
attract and retain viewer interest, the appeal of featured services to viewers
and whether sales to viewers of featured services generate revenues sufficient
to offset the cost of production and broadcast. A significant number of
infomercials do not generate a level of sales sufficient to offset the costs
associated with such infomercials. Two of the Company's infomercials did not
result in consumer acceptance and were discontinued after significant
expenditures by the Company. The production and broadcast of infomercials and
commercials also require up-front cash expenditures. A typical infomercial costs
the Company approximately $250,000 to $300,000 to produce. Media broadcast time,
the largest expense in marketing through infomercials and commercials, must be
paid for in advance and typically accounts for a substantial portion of the
total costs associated with the marketing of a service, depending upon the
broadcast markets and hours at which the infomercial or commercial airs. Media
costs have increased and any future increase in the costs associated with
broadcast time would require the Company to increase the costs of its services
or reduce operating margins, or result in reduced broadcast time which the
Company would otherwise purchase, any of which could have an adverse affect on
the Company's operating results. Increased demand for broadcast time could
result in increased costs, as well as the unavailability of preferred hours and
channels for broadcast and the unwillingness of broadcasters to air the
Company's advertising.
Dependence on Principal Service and Club. The Company currently derives
a substantial portion of its revenues from phone calls made to the Company's
live psychic consultation "900" numbers and monthly membership fees to its
numerous VM Product membership clubs, a decline in which would have a material
adverse effect on the Company. Calls made to the Company's live psychic
consultation numbers accounted for approximately 65% of the Company's net
revenues for the nine months ended August 31,
1996, with the Company's VM Product fees accounting for approximately 26% of the
Company's net revenues for such period. The Company's first membership club was
introduced in August 1994 and has since evolved into the current VM Product. The
average length of a membership is relatively short and the Company experiences a
significant attrition rate. The Company believes that the average commercial
life of a successful service, membership club or VM Product varies but is
generally limited, and a substantial portion of services, clubs and products
15
<PAGE> 20
introduced are not commercially successful. Accordingly, the Company's success
will depend on its ability to maintain the marketability of its VM Product
memberships, as well as other existing services and to develop new services and
membership products. There can be no assurance that the Company will be able to
maintain the marketability of existing services and clubs, develop commercially
successful services and clubs or, that if developed, any such services and clubs
will remain commercially successful for any significant period of time.
Intense Competition. The Company faces intense competition in the
marketing of its telephone entertainment services and membership clubs. The
Company competes with other "900" number entertainment providers primarily on
the basis of media placements on television and through direct mail
solicitations for similar types of services and club themes. The Company's
telephone entertainment services and membership clubs compete for consumer
recognition with services which have achieved significant, national, regional
and local consumer loyalty. Many of these entertainment services are marketed by
companies which are well-established, have reputations for success in the
development and marketing of services, have extensive experience in creating and
producing infomercials and commercials featuring high profile celebrities, and
may have significantly greater financial, marketing, distribution, personnel and
other resources than the Company. Certain of these competitors, including
Inphomation Inc. and Gold Coast Media, dominate the industry and have the
financial resources to enable them to withstand substantial price competition,
which is expected to increase. Because the telephone entertainment services
industry has no substantial barriers to entry, competition from smaller
competitors in the Company's target markets is also expected to continue to
increase significantly. The Company's services and clubs also compete with
numerous other services and products which provide similar entertainment value,
such as in-person psychic consultation and tarot card readings, newspapers,
magazines, books and audio and video cassettes featuring similar themes, on-line
computer programs and various other forms of entertainment which may be less
expensive or provide other advantages to consumers. There can be no assurance
that the Company will be able to continue to compete successfully, particularly
as it seeks to enter into new markets.
Potential Liability and Insurance. The Company may be subject to
substantial liability as a result of claims made by consumers arising out of
services provided by the Company's independent contractors and employees. The
Company is aware that claims have been made against other companies engaged in
providing telephone entertainment services on the basis of advice or
prognostications disseminated through such services. The
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<PAGE> 21
Company currently maintains a general liability insurance policy that is subject
to a per occurrence limit of $1,000,000 with a $2,000,000 aggregate limit and an
umbrella policy covering an additional $5,000,000 of liability. In addition, the
Company has errors and omissions insurance with limits of $5,000,000. There can
be no assurance that such insurance will be sufficient to cover potential claims
or that an adequate level of coverage will be available in the future at a
reasonable cost. The Company seeks to limit any such potential liability by
providing disclaimers in connection with its services and regards its "900"
services and membership clubs as "entertainment." There can be no assurance,
however, that the Company will not face claims resulting in substantial
liability for which the Company is partially or completely uninsured. A
partially or completely uninsured claim against the Company, if successful and
of sufficient magnitude, would have a material adverse effect on the Company.
Foreign Trade Risks. For the nine months ended August 31, 1996,
telephone entertainment services provided in Canadian markets accounted for less
than 1% of the Company's net revenues. To the extent that the Company is able to
successfully expand its operations in Canada and into other foreign markets, the
Company will become subject to increased credit risks, fluctuations in foreign
currencies and international political, regulatory and economic developments,
all of which could have an adverse effect on the Company's operating margins and
results of operations. In addition, although the Company believes that its
operations are substantially in compliance with all material Canadian
regulations governing its operations, there can be no assurance this is actually
the case or that governmental authorities will not, in the event of
noncompliance, order the Company to cease operations and/or impose sanctions and
other penalties on the Company which, under certain circumstances, could have a
material adverse effect on the Company.
Potential Conflicts of Interest. The Company has entered into
transactions with Jami Marketing Services, Inc. ("Jami Marketing"), a list
brokerage and list management consulting firm, Jami Data Services, Inc. ("Jami
Data"), a database management consulting firm, and Jami Direct, Inc. ("Jami
Direct"), a direct mail graphic and creative design firm (collectively, the
"Jami Companies"). The Jami Companies are principally owned and controlled by
Jeffrey L. Schwartz, Chief Executive Officer, director and a principal
stockholder of the Company, and Michael G. Miller, a director and principal
stockholder of the Company. Pursuant to a list management agreement dated June
1, 1993 between the Company and Jami Marketing, Jami Marketing serves as
exclusive manager in connection with the management of the Company's mailing
list for
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<PAGE> 22
rental to third parties for which Jami Marketing receives a management fee. Jami
Marketing also provides occasional list brokerage services to the Company,
pursuant to an oral agreement, whereby Jami Marketing obtains mailing lists from
third parties for use by the Company in connection with its telemarketing
activities for which the Company pays Jami Marketing a brokerage fee. In
addition, although the Company currently creates and designs substantially all
of its print ads, direct mailings, newsletters and other communications with
club members, the Company has engaged Jami Direct to provide such services. The
Company also engages Jami Data to assist with the Company's data base
requirements. Lastly, the Company obtains a substantial number of psychics for
its live psychic and other services from PRN, and Central Talk Management
("CTM"), an affiliate of PRN, has created and produced a significant portion of
the Company's television commercials and purchased a portion of the Company's
media time. In January 1996, pursuant to an agreement between the Company, PRN
and CTM, all of CTM's creative, media and production personnel (approximately 35
persons) directed their full time employment efforts to New Lauderdale. As a
result, all production services previously provided to the Company by CTM are
currently rendered by New Lauderdale. PRN is principally owned and controlled by
Steven Feder, Thomas Lindsey and Peter Stolz, holders of an aggregate of
3,387,000 shares of Common Stock, representing an aggregate of approximately
18.4% of the outstanding Common Stock of the Company. Mr. Feder is also a
director of the Company. 3,200,000 of such 3,387,000 shares are included in this
Prospectus. The Company believes that all of the foregoing transactions were
advantageous to the Company and were on terms no less favorable to the Company
than could have been obtained from unaffiliated third parties. The Company
anticipates that any similar future transactions will be approved by a majority
of the independent and disinterested members of the Board of Directors, outside
the presence of any interested director and, to the extent deemed necessary or
appropriate by the Board of Directors, the Company will obtain fairness opinions
or stockholder approval in connection with any such transaction. See "Forward
Looking Information May Prove Inaccurate."
Dependence on Key Personnel. The success of the Company is largely
dependent on the personal efforts of Jeffrey L. Schwartz, its Chairman and Chief
Executive Officer, Jay Greenwald, its President and Chief Operating Officer,
Claudia Newman Hirsch, its Executive Vice President, and Andrew Stollman, its
Senior Vice President and Secretary. Although the Company has entered into
employment agreements with all of such individuals that do not expire until
November 1998, the loss of the services of such individuals could have a
material adverse effect on the Company's business and prospects. The Company's
employment agreement with Mr. Schwartz requires him to devote not less than 85%
of his
18
<PAGE> 23
business time to the affairs of the Company. Mr. Schwartz is an officer,
director and principal stockholder of the Jami Companies, which could give rise
to conflicts of interests in connection with the allocation of his business
time. The success of the Company may also be dependent upon its ability to hire
and retain additional qualified marketing, creative, financial and other
personnel. Competition for qualified personnel in the telephone entertainment
services industry is intense and there can be no assurance that the Company will
be able to hire or retain additional qualified personnel.
Control by Management. The Company's officers and directors
beneficially own approximately 71% of the Company's outstanding Common Stock.
Accordingly, such persons, acting together, are in a position to control the
Company, elect all of the Company's directors, increase the authorized capital,
dissolve, merge, or sell the assets of the Company and generally direct the
affairs of the Company. See "Selling Security Holders."
Authorization of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 shares of preferred
stock with designations, rights and preferences determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its authorized preferred stock, there can be no assurance that the
Company will not do so in the future.
No Dividends. Since the completion of the Company's initial public
offering in December 1995 (the "IPO"), the Company has not paid any cash
dividends. The Company intends to retain earnings, if any, to finance the
operation and expansion of its business and, therefore, does not expect to pay
cash dividends in the foreseeable future.
Shares Eligible for Future Sale. Upon the effectiveness of the
Registration Statement, of which this Prospectus is a part, the 3,533,000 shares
of Common Stock included in this Prospectus will be freely tradeable without
further registration under the Securities Act of 1933, as amended (the
"Securities Act"). No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or even the availability of such shares for sale
will have on the market prices prevailing from time to
19
<PAGE> 24
time. The possibility that substantial amounts of Common Stock may be sold in
the public market may adversely affect prevailing market price for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Shares Eligible for Future Sale."
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<PAGE> 25
USE OF PROCEEDS
Other than the proceeds received by the Company from the exercise of
the Warrants, the Company will not receive any proceeds from the sale of shares
covered by this Prospectus. The holders of the 3,533,000 shares covered by this
Prospectus intend to sell the shares offered hereby from time to time for their
own respective accounts in the open market at the prices prevailing therein or
in individually negotiated transactions at such prices as may be agreed upon.
Each such holder will bear all expenses with respect to the offering of shares
by him or her except the costs associated with preparing and printing this
Prospectus.
320,000 shares included in this Prospectus represents shares underlying
the Warrants, granted to Whale Securities Co., L.P. ("Whale") as partial
compensation for Whale's acting as underwriter of the Company's December 1995
initial public offering. The Company may receive proceeds from the exercise of
the Warrants. In the event all of the Warrants are exercised, the Company will
receive proceeds of $2,640,000. Any net proceeds to the Company resulting from
the exercise of any or all of such securities may be used for general working
capital purposes, acquisitions, research and development and/or marketing. The
Company has not specifically allocated the proceeds among these uses, and actual
expenditures will depend on a number of factors, including the growth rate of
the Company's business. The use of any proceeds from the exercise of the
Warrants, of which there is no assurance, and the timing of such use, will also
depend on the availability of cash from other sources, such as operations. In
the event the Company's plans or assumptions change or prove to be inaccurate or
its projected cash flow proves to be insufficient to fund operations, the
Company may find it necessary or advisable to reallocate any net proceeds.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short term
certificates of deposit, money market funds or other short term, interest
bearing investments. The Company does not have any current intentions with
respect to material acquisitions of any businesses or products.
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<PAGE> 26
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock and as adjusted to reflect
the sale of the 3,533,000 shares included in this Prospectus for each of the
selling security holders. Inclusive of the foregoing, as of December 12, 1996
there were 36 record shareholders of the Company. The 3,533,000 shares
included in this Prospectus are comprised of (a) 3,200,000 shares issued to the
shareholders of PRN in connection with the Acquisition (the "PRN Shares"); (b)
320,000 shares underlying the Warrants granted to Whale as partial consideration
for Whale's acting as underwriter in the IPO (the "Whale Shares"); and (c)
13,000 shares of the 25,000 shares issued to Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass, LLP, counsel to the Company, as partial consideration for services
rendered in connection with the IPO (the "Feder Kaszovitz Shares").
<TABLE>
<CAPTION> Amount and
Nature of Amount of
Beneficial Shares to be Beneficial
Ownership Registered Ownership
Name and Address (1) Prior to for Selling After Completion
of Beneficial Owner Offering(2) Securityholders of Offering
- -------------------- -------------- --------------- -------------------
<S> <C> <C> <C>
Steven L. Feder 1,533,000(3) 1,424,000 109,000(3)
2455 East Sunrise Blvd.
Ft. Lauderdale, FL 33304
Thomas H. Lindsey 1,533,000(3) 1,424,000 109,000(3)
2455 East Sunrise Blvd.
Ft. Lauderdale, FL 33304
Peter Stolz 430,000 352,000 0
2455 East Sunrise Blvd.
Ft. Lauderdale, FL 33304
Whale Securities
Co., L.P. 279,226 279,226 0
650 Fifth Avenue (4)(5)
New York, NY 10019
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C> <C>
William G. Walters 37,941(4) 37,941 0
650 Fifth Avenue
New York, NY 10019
Feder, Kaszovitz,
Isaacson, Weber,
Skala & Bass LLP 13,000 13,000 0
750 Lexington Avenue (6)(7)
New York, NY 10022
James D. Whitten 1,422(4) 1,422 0
650 Fifth Avenue
New York, NY 10019
Cynthia Buckwalter 1,411(4) 1,411 0
650 Fifth Avenue
New York, NY 10019
</TABLE>
- ------------
* Less than 1% of the Company's outstanding shares.
(1) Unless otherwise listed, the addresses of all of the persons
in the foregoing table are at the Company's offices, One
Blue Hill Plaza, Pearl River, NY 10965.
(2) The number of Shares of Common Stock beneficially owned by
each person or entity is determined under rules promulgated
by the Securities and Exchange Commission (the
"Commission"). Under such rules, beneficial ownership
includes any shares as to which the person or entity has
sole or shared voting power or investment power. The
percentage of the Company's outstanding shares is calculated
by including among the shares owned by such person any
shares which such person or entity has the right to acquire
within 60 days after the date of this Prospectus. Unless
otherwise indicated, each person or entity referred to above
has sole voting and investment power with respect to the
shares listed. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of
beneficial ownership of such shares.
(3) Includes 109,000 shares held by Messrs. Feder and Lindsey,
as joint tenants with rights of survivorship.
(4) Represents a portion of the 320,000 Whale Shares.
(5) Held in the name of Whale for the account of investors in
Whale and employees and former employees of Whale. Does not
include any shares of the Company held in Whale's
trading or customer accounts.
23
<PAGE> 28
(6) Represents a portion of the 25,000 shares issued to Feder,
Kaszovitz, Isaacson, Weber, Skala & Bass LLP, counsel for
the Company, as partial consideration for services rendered
to the Company in connection with the IPO and which were
registered by the Company in its Registration Statement on
Form S-1 for such IPO, declared effective by the Commission
on December 5, 1996 (the "IPO Registration Statement").
12,000 of such 25,000 shares were already sold by the
holders thereof. The Company deregistered the remaining
13,000 shares in a Post-Effective Amendment to the IPO
Registration Statement, declared effective by the Commission
on October 7, 1996, intending to re-register such 13,000
shares pursuant to this Prospectus.
(7) Does not include 30,000 shares of Common Stock issuable upon exercise
of an option held by Mr. Murray Skala, a partner in such firm and a
director of the Company.
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<PAGE> 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company obtains a substantial number of psychics for its live
psychic and other services from PRN, and Central Talk Management ("CTM"), an
affiliate of PRN, has created and produced a significant portion of the
Company's television commercials and purchases a portion of the Company's media
time. PRN is principally owned and controlled by Steven Feder, Thomas Lindsey
and Peter Stolz, holders of 3,387,000 shares of Common Stock, representing an
aggregate of approximately 18.4% of the outstanding Common Stock of the Company.
(3,200,000 of such 3,387,000 shares are included in this Prospectus). Mr. Feder
is also a director of the Company. The Company believes that all of the
foregoing transactions were advantageous to the Company and were on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties. The Company anticipates that any similar future transactions will
be approved by a majority of the independent and disinterested members of the
Board of Directors, outside the presence of any interested director and, to the
extent deemed necessary or appropriate by the Board of Directors, the Company
will obtain fairness opinions or stockholder approval in connection with any
such transaction. See "Forward Looking Information May Prove Inaccurate" and
"Risk Factors - Potential Conflicts of Interest".
Mark Gutterman, a director of the Company, is a partner in the firm of
Feldman, Gutterman, Meinberg & Co. ("FGM"), one of the Company's accountants.
Burton Feldman, a partner in FGM, is the father-in-law of Jeffrey L. Schwartz,
the Chairman and Chief Executive Officer of the Company. For the year ended
November 30, 1995, the Company incurred charges of approximately $168,000 for
services rendered by FGM. FGM continues to provide services to the Company
during its current fiscal year. Its fees are based primarily on hourly rates.
The Company believes that its relationship with FGM is on terms no less or more
favorable to the Company than could have been obtained from unaffiliated third
parties.
Murray L. Skala, a director of the Company, is a partner in the law
firm of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, the Company's
attorneys ("Feder Kaszovitz"). The Company paid such firm approximately $140,000
during the year ended November 30, 1995. In December 1995, the Company also
issued to Feder Kaszovitz 25,000 shares of the Company's Common Stock in
consideration for legal services rendered in connection with the Company's
initial public offering of its shares of Common Stock. (13,000 of such 25,000
shares are included in this Prospectus.) Feder Kaszovitz continues to provide
services to the Company during its current fiscal year. Its fees are based
primarily on hourly rates. The Company believes that its relationship with
25
<PAGE> 30
such firm is on terms no less or more favorable to the Company than could have
been obtained from unaffiliated third parties.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
During the fiscal year ended November 30, 1995, the Company did not
have a class of equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act"), and as such was not
subject to the filing requirements of Forms 3,4 or 5 as promulgated under
Section 16(a) of the Exchange Act.
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of Management,
as well as assumptions made by and information currently available to the
Company. When used in this document, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including those described in this
Prospectus. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the effectiveness of the Registration Statement, of which this
Prospectus is a part, the 3,533,000 shares of Common Stock included in this
Prospectus will be freely tradeable without further registration under the
Securities Act of 1933, as amended (the "Securities Act"). No prediction can be
made as to the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. The possibility that substantial amounts of Common Stock may
be sold in the public market may adversely affect prevailing market price for
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
26
<PAGE> 31
PLAN OF DISTRIBUTION
All of the shares of Common Stock offered pursuant to this Prospectus
are being offered by the holders thereof (collectively, the "holders"), and,
therefore, the Company will not receive any proceeds resulting from the sale of
any of such shares, except for any proceeds from the exercise, if any, of the
Warrants.
The shares of Common Stock included herein may be sold from time to
time to purchasers directly by the holder thereof. Alternatively, the holders of
any such shares may from time to time offer the shares of Common Stock through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the holders and any
underwriters, dealers or agents who participate in the distribution of such
shares may be deemed to be "underwriters" under the Securities Act, and any
discounts, commissions or concessions received by any such persons might be
deemed to be underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the shares of Common Stock registered
hereunder is made, if required, a Prospectus Supplement will be distributed that
will set forth the number of shares being offered and the terms of the Offering,
including the name or names of any underwriters, dealers, or agents, the
purchase price paid by any underwriter for securities purchased from, any
discounts, commissions and other items constituting compensation and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public. The shares of Common Stock may be
sold from time to time in one or more transactions at a fixed offering price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the holders or by agreement
between the holders or by agreement between the holders and underwriters or
dealers.
From to time, one or more of the selling stockholders named herein may
pledge, hypothecate or grant a security interest in some or all of the shares
owned by them, and the pledgees, secured parties or persons to whom such
securities have been hypothecated shall, upon foreclosure in the event of a
default, be deemed to be selling stockholders for purposes hereof.
LEGAL MATTERS
The legality of the Common Stock included in this Prospectus has been
passed upon for the Company by Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP, New York, New York. Murray L. Skala, a director of the Company and a
partner of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, beneficially
owns options to purchase 30,000 shares of Common Stock and such firm was issued
25,000 shares of Common Stock for legal services rendered to the Company in
connection with the Company's initial public offering of securities in December
1995. 13,000 of such 25,000 shares issued to the firm are included in this
Prospectus.
27
<PAGE> 32
Certain matters relating to government regulation have been passed upon by
Klein, Zelman, Briton, Rothermel & Dichter, L.L.P., New York, New York, and Hall
Dickler Kent Friedman & Wood LLP, New York, New York.
EXPERTS
The Consolidated balance sheets of the Company as of November 30, 1995
and 1994 and the Consolidated Statements of Income, Stockholders' Equity and
Cash Flows for each of the three years in the period ended November 30, 1995,
incorporated by reference in this Prospectus from the Company's Annual Report on
Form 10-K for the period ended November 30, 1995, have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The Statement of Financial Positions of New Lauderdale L.C. as of
November 30, 1995 and the Statements of Operations, Members' Equity and Cash
Flows for the period December 30, 1994 (inception date) to November 30, 1995
incorporated by reference in this Prospectus from the Company's Annual Report on
Form 10-K for the period ended November 30, 1995, have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company,
pursuant to the Exchange Act and the Securities Act, are incorporated by
reference in this Registration Statement:
(a) The Company's Annual Report, as amended, on Form 10-K for the year
ended November 30, 1995.
(b) The Company's Quarterly Reports, as amended, on Form 10-Q for the
quarters ending February 29, May 31 and August 31, 1996, as well as a Current
Report on Form 8-K, filed with the Commission on May 21, 1996.
(c) The description of the Common Stock set forth in the Company's
Registration Statement on Form 8-A filed October 23, 1995 and any amendment or
report filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicate that all shares of Common Stock offered
hereby have been sold or which deregisters all then remaining unsold, shall be
deemed to be incorporated by reference in this Registration Statement and to be
a part hereof from the date of filing of such documents. Any statement containe
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Registration Statement.
28
<PAGE> 33
MATERIAL CHANGES
The following unaudited pro forma consolidated balance sheet has been prepared
by combining the unaudited consolidated balance sheets of Quintel Entertainment,
Inc. and Subsidiaries (the "Company") and of New Lauderdale, L.C. ("N.L.") as of
August 31, 1996. The Acquisition is accounted for using the purchase method of
accounting as if the Acquisition had occurred on August 31, 1996. Under this
method, based upon the estimated purchase price for N.L., the identifiable
assets and liabilities of N.L. have been adjusted to their estimated fair
values.
The following unaudited pro forma consolidated statements of operations have
been prepared by combining the consolidated statements of operations of (i) the
Company and N.L. for the year ended November 30, 1995, and (ii) the Company and
N.L. for the nine month period ended August 31, 1996. The Acquisition is
accounted for using the purchase method of accounting as if the Acquisition
had occurred on December 30, 1994. No cost savings and synergies which the
Company expects to realize as a result of the Acquisition have been recognized
in the pro forma consolidated statements of operations.
These statements have been prepared from the historical consolidated financial
statements of the Company and N.L. and should be read in conjunction with such
statements, exhibits, and the related notes contained in the Company's Annual
Report on Form 10-K for the 1995 fiscal year and Quarterly Report on Form 10-Q
for the nine month period ended August 31, 1996 incorporated by reference
herein. See "Incorporation of Certain Documents by Reference."
The pro forma consolidated financial statements do not purport to represent what
the Company's consolidated financial position or results of operations would
have actually been had the Acquisition been completed on such date, nor is it
necessarily indicative of future financial position or operating results of the
Company.
F-1
<PAGE> 34
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED PRO FORMA BALANCE SHEET
as of August 31, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENTS PRO FORMA
------------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 19,734,802 $ 1,431,816 $ (1,182,183)(A) $ 19,984,435
Accounts receivable, trade 9,192,056 9,903,160 19,095,216
Deferred tax asset 5,232,412 116,264 5,348,676
Due from related parties 297,008 3,333,254 (3,534,262)(A) 96,000
Prepaid expenses and other current assets 4,039,885 1,508,670 5,548,555
-------------- ------------- ------------ --------------
Total current assets 38,496,163 16,293,164 (4,716,445) 50,072,882
Property and equipment, at cost, net of
accumulated depreciation 333,356 333,356
Investment in joint ventures, at equity 1,203,067 (1,182,182)(C) 20,885
Other assets 36,862 22,800,000 (B) 22,836,862
-------------- ------------- ------------ --------------
$ 40,069,448 $ 16,293,164 $ 16,901,373 $ 73,263,985
============== ============= ============ ==============
Current liabilities:
Accounts payable $ 2,958,693 $ 283,491 $ 3,242,184
Accrued expenses 911,845 775,116 1,686,961
Reserve for customer chargebacks 9,000,208 12,870,194 21,870,402
Due to related parties 3,534,557 $ (3,534,264)(A) 293
Income taxes payable 2,862,717 2,862,717
-------------- ------------- ------------ --------------
Total liabilities 19,268,020 13,928,801 (3,534,264) 29,662,557
-------------- ------------- ------------ --------------
Members' equity, as annexed 2,364,363 (2,364,363)(A)(C)
Preferred stock; none issued and outstanding
Common stock; issued and outstanding
15,247,000 shares 15,247 3,200 (B) 18,447
Additional paid-in capital 14,650,085 22,796,800 (B) 37,446,885
Retained earnings 6,136,096 6,136,096
-------------- ------------- ------------ --------------
Total shareholders' equity 20,801,428 2,364,363 20,435,637 43,601,428
-------------- ------------- ------------ --------------
$ 40,069,448 $ 16,293,164 $ 16,901,373 $ 73,263,985
============== ============= ============ ==============
</TABLE>
F-2
<PAGE> 35
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED PRO FORMA INCOME STATEMENT
for the nine months ended August 31, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENTS PRO FORMA
------------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C>
Net revenue $ 47,277,435 $ 59,957,137 $ 107,234,572
Cost of sales 36,560,904 49,123,974 85,684,878
------------- ------------- --------------
Gross profit 10,716,531 10,833,163 21,549,694
Selling, general and administrative expenses 5,059,199 2,129,683 $ (61,248)(D)(E) 7,127,634
------------- ------------- ------------ --------------
Income from operations 5,657,332 8,703,480 61,248 14,422,060
Interest expense (438,112) (293,283) (731,395)
Amortization expense (1,050,411)(F) (1,050,411)
Other income, net 501,941 (38,455) (100,000)(D) 363,486
Equity in earnings of joint venture 4,271,013 (4,268,878)(G) 2,135
------------- ------------- ------------ --------------
Income before provision for income taxes 9,992,174 8,371,742 (5,358,041) 13,005,875
Provision (benefit) for income taxes 1,983,245 (166,013) 2,734,824 (H) 4,552,056
------------- ------------- ------------ --------------
Net income $ 8,008,929 $ 8,537,755 $(8,092,865) $ 8,453,819
============= ============= ============ ==============
Net income per share $.52 $.45
==== ====
Weighted average common shares outstanding 15,408,744 3,200,000 (I) 18,608,744
========== ========= ==========
</TABLE>
F-3
<PAGE> 36
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA INCOME STATEMENT
for the year ended November 30, 1995
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL QUINTEL
QUINTEL NEW PRO FORMA ENTERTAINMENT, INC.
ENTERTAINMENT, INC. LAUDERDALE, L.C. ADJUSTMENTS PRO FORMA
------------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C>
Net revenue $ 50,501,266 $ 28,248,093 $ 78,749,359
Cost of sales 36,732,610 20,193,763 56,926,373
------------- ------------- --------------
Gross profit 13,768,656 8,054,330 21,822,986
Selling, general and administrative expenses 3,467,008 1,879,530 $ (728,125)(D)(E) 4,618,413
------------- ------------- ------------ --------------
Income from operations 10,301,648 6,174,800 728,125 17,204,573
Interest expense (334,318) (136,521) (470,839)
Amortization expense (2,900,548)(F) (2,900,548)
Management fee income 450,000 (450,000)(D)
Other income, net 35,250 15,274 50,524
Equity in earnings of joint venture 2,860,304 (2,860,304)(G)
------------- ------------- ------------ --------------
Income before provision for income taxes 13,312,884 6,053,553 (5,482,727) 13,883,710
Provision for income taxes 220,335 332,945 553,280
------------- ------------- ------------ --------------
Net income $ 13,092,549 $ 5,720,608 $(5,482,727) $ 13,330,430
============= ============= ============ ==============
Pro forma data:
Income before pro forma adjustments 13,312,884 6,053,553 (5,482,727) 13,883,710
Pro forma income tax provision 5,633,116 198,042 5,831,158
------------- ------------- ------------ --------------
Pro forma net income $ 7,679,768 $ 6,053,553 $(5,680,769) $ 8,052,552
============= ============= ============ ==============
Net income per share $.64 $.54
==== ====
Weighted average common shares outstanding 12,000,000 2,933,337 (I) 14,933,337
========== ========= ==========
</TABLE>
F-4
<PAGE> 37
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(A) To reflect on the pro forma balance sheet those assets to be
distributed in accordance with the asset purchase agreement and
liabilities to be assumed or eliminated prior to the effective date of
the Acquisition.
(B) To reflect the issuance of common stock of Quintel and the excess of
purchase price paid over historical basis of N.L.'s net assets based on
an assumed purchase price of $22,800,000. The assumed purchase price
was computed based on the fair market value of 3.2 million shares of
Quintel's common stock expected to be issued at a market price of
$7.125 which is determined using the closing market price at January
17, 1996.
(C) Adjustment to N.L.'s capital structure to conform with that of the
Company and the elimination of N.L.'s members' equity and the Company's
investment in N.L.
(D) Reflects the elimination of the management fee arrangement established
between N.L. and its joint venture partners.
(E) Reflects the expense relating to a consulting arrangement with one of
the PRN shareholders.
(F) Represents amortization of the excess purchase price of $22,800,000
over the net book value of interest acquired, which is currently
estimated to be amortized over a fifteen-year period on a straight-line
basis.
(G) Reflects the elimination of the Company's equity in earnings of N.L.
(H) The adjustment of the tax provision represents the statutory federal
rate applied to the estimated adjustments to pre-tax income assuming
the Company and N.L. had always been C corporations.
(I) Net income per share for the year ended November 30, 1995 is calculated
based on the assumption that 14,933,337 shares were outstanding
reflecting the increase in shares explained in Note B above. Net income
per share for the nine months ended August 31, 1996 is calculated based
on the assumption that 18,608,744 shares were outstanding during the
entire period which includes the effect of the shares issued in
Quintel's initial public offering effective December 5, 1995.
F-5
<PAGE> 38
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered by this Prospectus, or an offer to
sell or a solicitation of an offer to buy any security, by any person in any
jurisdiction in which such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.
QUINTEL ENTERTAINMENT, INC.
3,533,000 SHARES
OF COMMON STOCK
PROSPECTUS
, 1996
<PAGE> 39
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is expected that the following expenses will be incurred in
connection with the issuance and distribution of the Common Stock being
registered:
<TABLE>
<S> <C>
SEC Registration fee $ 9,319.32(1)
*Printing 25,000.00
*Accountants' fees and expenses 7,500.00
*Attorneys' fees and expenses 50,000.00
*Miscellaneous 3,180.68
---------
*TOTAL $95,000.00
=========
</TABLE>
- ------
* Estimated
(1) $8,519.32 of such registration fee has already been paid
with the filing of the Company's Registration Statement on
Form S-1 (File #333-13937), as filed with the Commission on
October 11, 1996. $39.22 of such $8,519.32 was paid by
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP,
counsel to the Company and the holder of 13,000 shares of
the 3,533,000 shares included in this Registration Statement
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company shall be limited to the fullest extent
permitted by the provisions of Section 102(b)(7) of the General Corporation Law
of the State of Delaware (the "DGCL"). Section 102(b)(7) of the DGCL generally
provides that no director shall be liable personally to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the Certificate of Incorporation does not eliminate the liability
of a director for (i) any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) acts or
omissions in respect of certain unlawful dividend payments or stock redemptions
or repurchases; or (iv) any transaction from which such director derives
improper personal benefit. The effect of this provision is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to
II - 1
<PAGE> 40
recover monetary damages against a director for breach of her or his fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. The limitations summarized above, however, do not affect the
ability of the Company or its stockholders to seek nonmonetary remedies, such as
an injunction or rescission, against a director for breach of her or his
fiduciary duty. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In addition, the Certificate of Incorporation provides that the Company
shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify all
persons whom it may indemnify pursuant to Section 145 of the DGCL. Section 145
of the DGCL permits a company to indemnify an officer or director who was or is
a party or is threatened to be made a party to any proceeding because of his or
her position, if the officer or director acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The Company maintains a directors' and officers' liability insurance
policy covering certain liabilities that may be incurred by directors and
officers in connection with the performance of their duties. The entire premium
for such insurance is paid by the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER
-------
2.1+ Definitive Form of Acquisition Agreement by and between
the Company, Calling Card Co., Inc., and Psychic
Readers Network, Inc.(1)
2.2 Definitive Information Statement filed by the Company
with the Commission on August 1, 1996 in connection
with the approval of the Acquisition and incorporated
herein by reference.
II - 2
<PAGE> 41
4.1 Form of certificate evidencing shares of Common
Stock(2)
5.1 Opinion, with consent, of Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP, Counsel for the Registrant(3)
23.1* Consents of Coopers & Lybrand L.L.P.
23.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala &
Bass LLP (included in Exhibit 5.1)(3)
- --------------
* Filed herewith.
+ Confidential treatment requested as to portions of this
Exhibit.
(1) Filed as an Exhibit to the Preliminary Information Statement filed with
the Commission on June 26, 1996, and incorporated herein by reference.
(2) Filed as an Exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 dated November 14, 1995,
and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement
on Form S-1, dated October 11, 1996 (File No. 333-13937),
and incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) That for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of
II - 3
<PAGE> 42
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereto) that, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the Registrant's Certificate of Incorporation,
indemnification agreement, insurance or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pearl River, New York, on the 15th day of December,
1996.
QUINTEL ENTERTAINMENT, INC.
By: /s/Jeffrey L. Schwartz
------------------------------
Jeffrey L. Schwartz
Chairman and CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------- ----- ----
<S> <C> <C>
/s/ Jeffrey L. Schwartz Chairman, Chief Executive Officer
- ----------------------- and Director (Principal Executive
Jeffrey L. Schwartz Officer) December 15, 1996
/s/ Jay Greenwald President, Chief Operating Officer
- ----------------- and Director December 15, 1996
Jay Greenwald
/s/ Raymond J. Richter Chief Financial Officer and
- ---------------------- Treasurer (Principal Financial
Raymond J. Richter and Accounting Officer) December 15, 1996
/s/ Claudia Newman Hirsch Executive Vice President and
- ------------------------- Director December 15, 1996
Claudia Newman Hirsch
/s/ Andrew Stollman Senior Vice President, Secretary
- ---------------------- and Director December 15, 1996
Andrew Stollman
/s/ Michael G. Miller Director December 15, 1996
- ----------------------
Michael G. Miller
/s/ Murray L. Skala Director December 15, 1996
- ---------------------
Murray L. Skala
/s/ Mark Gutterman Director December 15, 1996
- ----------------------
Mark Gutterman
</TABLE>
II - 5
<PAGE> 44
<TABLE>
<S> <C> <C>
/s/ Edwin Levy Director December 15, 1996
- ----------------------
Edwin Levy
/s/ Vincent Tese Director December 15, 1996
- ----------------------
Vincent Tese
/s/ Steven L. Feder Director December 15, 1996
- ----------------------
Steven L. Feder
</TABLE>
II - 6
<PAGE> 45
EXHIBIT INDEX
EXHIBIT
NUMBER
2.1+ Definitive Form of Acquisition Agreement by and between
the Company, Calling Card Co., Inc., and Psychic
Readers Network, Inc.(1)
2.2 Definitive Information Statement filed by the Company
with the Commission on August 1, 1996 in connection
with the approval of the Acquisition and incorporated
herein by reference.
4.1 Form of certificate evidencing shares of Common
Stock(2)
5.1 Opinion, with consent, of Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP, Counsel for the Registrant(3)
23.1* Consents of Coopers & Lybrand L.L.P.
23.2 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala &
Bass LLP (included in Exhibit 5.1)(3)
- --------------
* Filed herewith.
+ Confidential treatment requested as to portions of this
Exhibit.
(1) Filed as an Exhibit to the Preliminary Information Statement filed with
the Commission on June 26, 1996, and incorporated herein by reference.
(2) Filed as an Exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 dated November 14, 1995,
and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement
on Form S-1, dated October 11, 1996 (File No. 333-13937),
and incorporated herein by reference.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Quintel Entertainment, Inc. and Subsidiaries on Form S-3 of our
report dated February 19, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Quintel Entertainment, Inc. and
Subsidiaries as of November 30, 1995 and 1994, and for the years ended November
30, 1995, 1994 and 1993, which report is included in the Company's Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
December 13, 1996
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Quintel Entertainment, Inc. and Subsidiaries on Form S-3 of our
report dated February 19, 1996, on our audit of the financial statements New
Lauderdale L.C. as of November 30, 1995, and for the period December 30, 1994
(inception date) to November 30, 1995, which report is included in the Annual
Report on Form 10-K of Quintel Entertainment, Inc. and Subsidiaries.
/s/ Coopers & Lybrand L.L.P.
New York, New York
December 13, 1996
