<PAGE>
80,000 SHARES
WORLD HOUSE ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
World House Entertainment, Inc. (the "Company") is offering (the "Offering")
hereby 80,000 shares of its common stock (the "Common Stock"). Prior to the
Offering, there has been no public market for the Common Stock. For factors to
be considered in determining the initial public offering price, see "TERMS OF
THE OFFERING." The Offering is being made on a "direct participation" basis by
the Company.
Upon completion of the Offering, the present directors, executive officers
and principal shareholders of the Company will beneficially own approximately
90% of the outstanding Common Stock. See "RISK FACTORS--Control by Existing
Shareholders."
THESE ARE SPECULATIVE SECURITIES. THIS OFFERING INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 4 HEREOF.
---------------------
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.
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.......................................... $2.50 $0.00 $2.50
Total.............................................. $200,000.00 $0.00 $200,000.00
</TABLE>
(1) The Common Stock is being offered on a "direct participation" basis by the
Company. No sales commission will be paid for Common Stock sold by the
Company. The Company reserves the right to withdraw, cancel or reject an
offer in whole or in part. The Offering will terminate on or before June 30,
1999. In the Company's sole discretion, the Offering may be extended from
time to time, but in no event later than one (1) year from the date of this
Prospectus. There is no minimum offering amount and no escrow account.
Proceeds of this Offering are to be deposited directly into the operating
account of the Company. See "TERMS OF THE OFFERING--Plan of Distribution and
Offering Period."
(2) Before deducting estimated expenses of $33,559 payable by the Company.
------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 11, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
SB-2 under the Securities Act of 1933 with respect to the Offering. This
prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Company will be subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), but is
currently not a reporting company. The reports and other information filed by
the Company may be inspected and copied at prescribed rates at the public
reference facilities of the Commission in Washington, D.C. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, D.C., 20549, at the Commission's New York Regional Office located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and at its
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Descriptions contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement are
not necessarily complete and each such description is qualified by reference to
such contract or document. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission (including the Company).
The address of this Web site is http://www.sec.gov.
The Company intends to furnish to its shareholders, after the close of each
fiscal year, an annual report relating to the operations of the Company and
containing audited financial statements examined and reported upon by an
independent certified public accountants. In addition, the Company may furnish
to shareholders such other reports as may be authorized, from time to time, by
the Board of Directors. The Company's year end is December 31.
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 ANY OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE
INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE
INDICATED, ALL REFERENCES TO THE COMPANY INCLUDE SONGS FOR THE PLANET, INC.
("SONGS FOR THE PLANET"), WHICH IS A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY.
THE COMPANY
The Company was incorporated in the State of Nevada on December 5, 1996,
under the name "Sportsfair Television, Inc." The Company's name was subsequently
changed to "World House Entertainment, Inc." On December 31, 1997, the Company
acquired all of the issued and outstanding capital stock of Songs for the
Planet, as a result of which Songs for the Planet became its wholly-owned
subsidiary. Prior to this acquisition, the Company was not engaged in any
business activities.
The Company is a development stage entertainment company with a limited
operating history, Songs for the Planet having commenced operations in August,
1997. The Company primarily provides copyright administration services to music
publishers, including (a) the registration of copyrights with the United States
Copyright Office, (b) the preparation of assignments of copyrights, (c) the
negotiation, preparation and execution of mechanical licenses, synchronization
licenses and other rights agreements respecting musical compositions, and (d)
the collection of royalties pertaining to the use of such compositions. The
Company anticipates that it will also provide similar services to producers of
recorded music products, including the obtaining of mechanical licenses and
synchronization licenses for the use of musical compositions and the computation
and payment of royalties. Incidental to these services, the Company operates
studio facilities for the preparation of demonstration and master recordings.
With respect to copyright administration services provided music publishers,
the Company's revenues will be derived from commissions for its services based
upon a percentage of the gross income received by the Company on behalf of its
clients after deducting certain costs and fees. With respect to copyright
administration services provided recorded music producers, the Company will be
compensated at a negotiated hourly rate. Additional revenues are expected to be
obtained from the use of the Company's studio facilities by third parties.
The Company's principal executive offices are located at 2831 Dogwood Place,
Nashville, Tennessee 37204. Its telephone number is (615) 269-8682.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offering in the
Offering........................ 80,000 shares
Common Stock Outstanding after the
Offering........................ 780,000 shares
Use of Proceeds................... After deducting expenses associated with this Offering,
the net proceeds of the Offering will be approximately
$166,000. Of such proceeds, the Company estimates that
approximately $141,250 will be used to repay certain
loans made to the Company by some of its principal
shareholders (or affiliates thereof). See "USE OF
PROCEEDS" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
</TABLE>
3
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS IN THE FUTURE COULD DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IMMEDIATELY BELOW, IN THE SECTIONS CAPTIONED "MANAGEMENT'S PLAN OF
OPERATION" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF OPERATING HISTORY; GOING CONCERN QUALIFICATIONS
The Company is a newly formed venture without significant assets. The
Company's success will depend in part on its ability to deal with the problems,
expenses, and delays frequently associated with establishing a new business
venture. The Company has derived no significant revenue from operations to date.
As of September 30, 1998, the Company has an accumulated deficit of $183,755 and
has generated a loss from operations since inception in the amount of $168,863.
Future losses are likely before the Company's operations will become profitable.
There is no assurance that the Company's operations will prove profitable. The
financial statements accompanying this Prospectus have been presented on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has borrowed funds
in the aggregate principal amount of $141,250 from some of its principal
shareholders (or affiliates thereof), payable on demand of each of the lenders.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." If payment of these loans
is demanded prior to completion of the Offering or in the event the Offering is
terminated without having sold all of the shares of Common Stock offered hereby,
the Company's ability to continue as an ongoing concern could be greatly
affected. See "RISK FACTORS--Risks Associated with Selling Less than All of the
Offered Shares of Common Stock and with the Plan of Distribution."
RISKS ASSOCIATED WITH SELLING LESS THAN ALL OF THE OFFERED SHARES OF COMMON
STOCK AND WITH THE PLAN OF DISTRIBUTION
The Company is offering hereby 80,000 shares of Common Stock at $2.50 per
share on a "direct participation" basis. There are no assurances that all of the
shares of Common Stock offered hereby will be sold. A majority of the proceeds
of the Offering will be used to repay certain loans made to the Company by its
principal shareholders (or affiliates thereof), each of which is payable upon
demand of the lender. See "USE OF PROCEEDS" and "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." The Company currently has no means by which to repay
these loans prior to completion of this Offering. Because all of the shares of
Common Stock offered hereby may not be sold, there is the risk that a
substantial portion of these loans will remain outstanding following the
termination of the Offering. In such event, the Company may be compelled to seek
alternative sources of financing, including funding from commercial lenders or
other sources to refinance these loans. There are no assurances that such
alternative sources of financing will be available under commercially reasonable
terms. To the extent possible, the Company intends to repay the foregoing loans
on a pro rata basis if less than all of the shares of Common Stock offered
hereby are sold. If payment of these loans is demanded prior to completion of
the Offering or in the event the Offering is terminated without having sold all
of the shares of Common Stock offered hereby, the Company's ability to continue
as an ongoing concern could be greatly affected.
There is no minimum number of shares of Common Stock which may be sold
hereunder and there is no escrow account in which the proceeds of this Offering
will be deposited. All proceeds of this Offering will be deposited directly into
the Company's operating account and will be immediately commingled with other
funds of the Company. See "TERMS OF THE OFFERING." If less than all the shares
of Common Stock offered hereby are sold resulting in the Company's inability to
continue as an ongoing concern, an
4
<PAGE>
investor may sustain a loss of his or her entire investment. An investment in
the Company is therefore immediately at risk.
CERTAIN RISKS INHERENT IN THE RECORDED MUSIC INDUSTRY
By providing services relating to the recorded music business, the Company
will be subject to all the risks of establishing a new business including the
possibility of losses. The recorded music industry contains certain particular
risks. Each musical composition is an individual artistic work, and its
commercial success is primarily determined by consumer taste, which is
unpredictable and constantly changing. There can be no assurance as to the
financial success of any particular musical composition which is under the
administration of the Company. Moreover, owing to this uncertainty, there may be
significant fluctuations in quarterly results over which the Company has no
control.
RISKS ASSOCIATED WITH CLIENT DEVELOPMENT
Currently, the Company has entered into copyright administration services
agreements with only five clients (four of which are owned and controlled by
Benjamin Justin Peters, the Company's Chairman of the Board and Secretary). See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." There can be no assurance that
the Company will be able to attract clients, or, if the Company is able to
attract clients, that the Company will be able to derive significant revenue
from the musical catalog of its clients. Moreover, because of the highly
personal and creative nature of a particular composer's contractual obligations
to a client of the Company, there can be no assurances that an unwilling artist
will perform his or her contractual obligations with that client, which in turn
will materially effect the ability of the Company to derive revenues pertaining
to that artist's future musical compositions.
COMPETITION
The Company will be competing with numerous other businesses and individuals
which provide similar services. These other businesses, including, with respect
to copyright administration services to music publishers, the Harry Fox Agency,
have greater financial resources, and in many instances have longer operating
histories than the Company. Many recorded music companies, including major
companies such as Warner Brothers Records, have their own facilities for
obtaining licenses, paying royalties and related activities. See
"BUSINESS--Competition."
RISKS ATTENDANT WITH COPYRIGHT INFRINGEMENT
Infringement of the copyrights managed by the Company may occur in the form
of unauthorized reproduction and sale of recordings of musical compositions in
its clients' catalogs. Such infringements may be difficult to detect and, even
if detected, the Company may be unable to collect royalties due its clients
under applicable law. While the Company's primary business includes the
detection of infringements and the collection of copyright royalties, it is
impossible to estimate the potential loss in revenues that may occur as a result
of such infringements.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the abilities and continued service of
its management, Elizabeth Ann Peters and Benjamin Justin Peters. There are no
employment agreements with either Elizabeth Ann Peters or Benjamin Justin
Peters. The loss of the services of any of these individuals could have a
materially adverse effect on the Company. There can be no assurance that the
Company will be successful in attracting and retaining the personnel necessary
to develop the Company's services and to continue to grow and operate
profitably. The Company does not have in place "key man" life insurance policies
covering the lives of any of these individuals. See "MANAGEMENT."
5
<PAGE>
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of the Offering, the Company's directors, officers and
principal shareholders will, in the aggregate, beneficially own approximately
90% of the outstanding shares of Common Stock. As a result, these persons would
be able to elect a majority of the Board of Directors and to control the outcome
of virtually all other matters requiring shareholder approval. Such voting
concentration may have the effect of delaying or preventing a change in control
of the Company. See "DESCRIPTION OF CAPITAL STOCK", "MANAGEMENT" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained. The Company does not intend to list the Common
Stock on any national securities exchange nor to apply for quotation on either
the Nasdaq Stock Market or the Nasdaq Small Cap Stock Market. Trading, of any,
in the Common Stock may be conducted in the over-the-counter (the "OTC") market
in the so-called "pink sheets" or the "OTC Bulletin Board" service. As a result,
an investor would likely find it difficult to dispose of or to obtain accurate
quotations as to the value of the Common Stock offered hereby.
The Common Stock will be subject to Rule 15q-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements upon brokers-dealers which sell "penny stocks" to persons
other than established customers and institutional accredited investors. For
transactions under this rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the sale. The Securities and Exchange
Commission (the "Commission") defines a "penny stock" to be any non-Nasdaq Stock
Market equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. For any transaction by broker-dealers involving a
penny stock, unless exempt, the rules of the Commission require delivery, prior
to a transaction in penny stock, of a risk disclosure document relating to the
penny stock market, together with other requirements and restrictions. The
market liquidity of the Company's securities could be severely adversely
affected.
In addition, the National Association of Securities Dealers, Inc. (the
"NASD") has submitted to the Commission for approval a series of proposed
changes pertaining to the OTC Bulletin Board and the OTC market. Generally
stated, these changes would:
(i) allow only those companies that report their current financial
information to the Commission, banking, or insurance regulators to be quoted
on the OTC Bulletin Board;
(ii) require brokers, before they recommend a transaction involving an
OTC security, to review current financial statements on the company they are
recommending; and,
(iii) prior to the initial purchase of an OTC security, require that
every investor receive a standard disclosure statement (prepared by the
NASD) emphasizing the differences between OTC securities and other
market-listed securities.
The NASD is also considering the adoption of additional changes, such as seeking
the authority for the NASD to halt trading of securities on the OTC Bulletin
Board under certain circumstances. The Company can make no predictions as to the
likelihood of these proposed changes being approved by the Commission in their
current form nor as to the adoption of any additional changes by the NASD.
Even if such a public market were to develop, the vagaries of the stock
market are such that there may be significant price and volume fluctuations that
may or may not be related to the operating performance of the Company.
6
<PAGE>
DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the net book value of the currently outstanding Common
Stock. Therefore, purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock in the amount of $2.49 per share. Existing shareholders paid an average of
$.01 per share of Common Stock. See "DILUTION."
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and does not expect to pay dividends in the foreseeable future. See "DESCRIPTION
OF CAPITAL STOCK--Dividend Policy."
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock with rights senior to
those of the Common Stock without any further vote or action by the
shareholders, eliminate the right of shareholders to act by written consent and
impose various procedural and other requirements that could make it more
difficult for shareholders to affect certain corporate actions. These provisions
could also have the effect of delaying or preventing a change in control of the
Company. The issuance of Preferred Stock could decrease the amount of earnings
and assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock. See "DESCRIPTION OF
CAPITAL STOCK--Preferred Stock."
RISKS OF LIMITATION OF LIABILITY
The Company has included in its Articles of Incorporation provisions to
indemnify its directors and officers to the extent permitted by Nevada law. The
Company's Articles of Incorporation also include provisions to eliminate the
personal liability of its directors and officers to the Company and its
shareholders to the fullest extent permitted by Nevada law. See "DESCRIPTION OF
CAPITAL STOCK."
RISK OF SALES OF SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
Upon consummation of this Offering, the Company will have a total of 780,000
shares of Common Stock outstanding, of which 80,000 shares of Common Stock
offered hereby will be eligible for immediate sale in the public market without
restrictions, unless they are held by "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), and of which 700,000 shares will be "restricted" securities
within the meaning of Rule 144. No prediction can be made as to the effect, if
any, that future sales of Common Stock, or the availability of shares for future
sales, will have on the market price of the Common Stock from time to time or
the Company's ability to raise capital through an offering of its equity
securities. See "SHARES ELIGIBLE FOR FUTURE SALE."
7
<PAGE>
USE OF PROCEEDS
The following table sets forth the intended use of the proceeds of his
Offering, assuming the sale of all 80,000 shares of Common Stock offered hereby
at an initial offering price of $2.50 per share.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
DESCRIPTION AMOUNT OFFERING
- ------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Repayment of debt to certain related and other persons(1).......... $ 155,000 77.50%
Expenses of offering(2)............................................ 33,559 11.78%
Working capital and general corporate purposes(3).................. 11,441 10.72%
---------- ------
Total........................................................ $ 200,000 100.00%
---------- ------
---------- ------
</TABLE>
- ------------------------
(1) The lenders are Owen & Associates, Inc. Profit Sharing Plan ($43,750),
Peterson & Sons Holding Company ($37,500), Dassity, Inc. ($37,500), and Owen
Enterprises, L.L.C. ($17,500), and Owen & Associates IBG, LLC ($5,000) each
of whom is a principal shareholder of the Company (or is an affiliate of a
principal shareholder of the Company). The Company has also borrowed $13,750
from R-Odyssey Ventures, Inc., an unrelated party based in Mapleton, Utah.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Each loan is payable upon
demand of the lender and bears interest at a rate of 10% per annum. Each of
these loans will be repaid on a prorata basis upon receipt of the proceeds
of this Offering. No lender will be given any preference or priority in this
regard. The proceeds from these loans were used to loan the sum of $100,000
to Platinum Planet Music, Inc. The balance was used for salaries, tools and
equipment, taxes, and other business expenses.
(2) The expenses of the offering are estimated to be $33,559, which include
filing fees, transfer agent fees and expenses, legal fees and expenses,
accounting fees and expenses, printing and engraving expenses.
(3) Working capital and general corporate expenditures include salaries and
fringe benefits, office supplies, business-related travel and entertainment
expenses, telephone services, and postage.
DIVIDEND POLICY
The Company currently intends to retain earnings to finance the growth and
development of its business and for working capital and general corporate
purposes, and does not anticipate paying cash dividends on the Common Stock for
the foreseeable future. Any payment of dividends will be at the discretion of
the Board of Directors and will depend upon earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to payment of dividends and other factors. See "MANAGEMENT'S PLAN OF
OPERATION."
8
<PAGE>
DILUTION
The pro forma net tangible book value deficiency of the Company as of
September 30, 1998 was approximately $(155,755), or $(0.22) per share of Common
Stock. Pro forma net tangible book value per share is equal to the Company's
total tangible assets less its total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of 80,000
shares offered hereby at an assumed initial public offering price of $2.50 per
share and the application of the net proceeds therefrom, the pro forma net
tangible book value of the Company at September 30, 1998 would have been
$10,686, or $0.01 per share. This represents an immediate increase in such pro
forma net tangible book value of $0.25 per share to existing shareholders and an
immediate dilution of $2.49 per share to new investors purchasing shares at the
initial public offering price, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $ 2.50
Pro forma net tangible book value per share as of September 30,
1998............................................................ $(0.22)
Increase per share attributable to new investors.................. $ 0.23
Pro forma net tangible book value per share as of September 30,
1998, after this Offering....................................... $ 0.01
Dilution per share to new investors............................... $ 2.49
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998, the number of shares purchased from the Company, the total cash
consideration paid and the average cash price per share paid by the existing
shareholders and the new investors (before deducting the estimated offering
expenses to be paid by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................................... 700,000 89.7% $ 7,000 3.38% $ 0.01
New investors............................................... 80,000 10.3% $ 200,000 96.62% $ 2.50
--------- ----- ---------- --------- -----
--------- ----- ---------- --------- -----
Total................................................... 780,000 100.0% $ 207,000 100.00%
</TABLE>
9
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
SUMMARY OVERVIEW
The Company intends to take advantage of the current trend in the music
industry toward the establishment of independent music publishing and record
companies by providing such companies a full range of expert services. See
"BUSINESS--Business Strategy." The Company will advertise its services in trade
and industry related publications and will engage in the direct mail of a
brochure and other sales literature to prospective customers. The Company also
intends to develop a website on the Internet to provide details regarding its
services and to encourage customer inquiries.
Mrs. Peters, the Company's president, has written a book entitled "Music
Publishing (For Those Who Don't Have A Clue)" and published by The Zeal Group.
This book will be offered for sale on the Company's website to help promote the
Company's services. In addition, Mrs. Peters is developing a multi-media
presentation produced by The Zeal Group in conjunction with the book.
While the Company has less than one year of operating history and has
experienced losses to date, management believes that it will have numerous
opportunities in the future to establish contractual relations with significant
customers. Assuming all of the shares of Common Stock offered hereby are sold,
the Company's management therefore anticipates that there will be sufficient
revenues to meet its current expenses. Management is seeking to develop
prospects located beyond its immediate geographic market.
The Company does not presently anticipate any change in the number of
employees required to sustain its operations. The Company does not conduct any
research or development activities at this time. The Company has no plant and/or
equipment requirements and anticipates no such expenditures. There are,
moreover, no plans, arrangements, commitments or understandings for the Company
to acquire, or be acquired by, any other company or business at this time.
MARKETING PLAN
STATEMENT OF PURPOSE
The goal of Songs for the Planet is to take advantage of the current trend
in the music industry of the establishment of independent music publishing and
record companies. Songs for the Planet will be offering a unique and quality
service provided by experts in the field of copyright administration. The
services offered are copyright administration and consultation, royalty
accounting, music licensing, and music clearance.
GENERAL DESCRIPTION
The company is based in Nashville, Tennessee and is operated by its'
president, Elizabeth Ann Peters. Mrs. Peters has worked in the field of
publishing administration for over 10 years. From 1987 to 1995, Mrs. Peters was
employed by Copyright Management, Inc. (CMI) as Director of Client Services and
Business Affairs. Her experience includes copyright administration, licensing
and royalty accounting. CMI is a music publishing administration firm
representing the copyright administration and royalty collection of over 1,500
music publishers. Songs for the Planet also owns recording equipment used in
professional recording. The recording equipment consists of a 48-channel, fully
automated, Mackie digital mixer which is utilized to record on two TASCAM
8-track digital recorders. Songs for the Planet intends to provide use of the
studio equipment to music publishers, songwriters, producers, and other related
clientele for the production of demonstration and master recordings for various
recording projects.
THE MARKET
The market that Songs for the Planet will attract is the small independent
music publisher, producer, recording artist, and record company. Typically these
types of services are offered by administration
10
<PAGE>
companies or by attorneys and accountants who bill at significantly higher rates
and don't specialize in the services they offer. Songs for the Planet intends to
appeal to this market by combining a full-range of expert services with
affordable rates. The client base will primarily consist of music publishers,
recording artists, songwriters, and independent record companies.
THE LOCATION
The present location of Songs for the Planet is 2831 Dogwood Place,
Nashville, Tennessee 37204. The building is a small house in the city of Berry
Hill. Songs for the Planet shares the office space with another business owned
and operated by Justin Peters. The business owned by Mr. Peters is a music
publishing company, Tourmaline Music, Inc. Songs for the Planet sub-leases the
space from Tourmaline Music in exchange for limited access to the studio
recording equipment for the purpose of making demonstration recordings. Berry
Hill is a small city within the city of Nashville. It is predominately small
houses that have been converted into office space. The area consists almost
exclusively of commercial and music industry businesses. The most positive
aspect of the location is the accessibility to all parts of the city and "music
row".
MARKETING PLAN
GENERAL According to the Recording Industry Association of America, Inc.'s
statistics on record sales, the sound recording market is a multi billion dollar
industry with domestic sales reaching $12.2 billion dollars in 1997. Songs for
the Planet is a Nashville based company whose mission is to help support the
music business by offering intellectual property consultation, royalty
accounting, publishing administration and music clearance services to their
clients. With over 10 years of music publishing experience, Songs for the Planet
plans to offer its services in a more efficient and cost effective way than has
been typically offered in the past. Songs for the Planet will advertise its
services in trade and industry related publications. Advertisements will be
placed in magazines, newsletters and other related print media. The ads will
promote the consultation, publishing administration, music clearance business
and recording studio facility separately.
The company also plans to develop a website on the Internet. The site will
detail all the services provided and offer e-mail capabilities to people
inquiring about the company. Ms. Peters has also written a book entitled "Music
Publishing (For Those Who Don't Have A Clue)." The book is published by The Zeal
Group(1) and will be offered for sale on Songs for the Planet's website. In
conjunction with the book, Ms. Peters is developing a series of seminars on
music publishing. The seminars will be a multimedia presentation produced by The
Zeal Group which will provide exposure to Ms. Peters and the services provided
by Songs for the Planet.
Songs for the Planet offers a range of intellectual property and copyright
management services. The company works to offer the most efficient and timely
service to its clients while relying on its extensive copyright administration
experience. Music publishing rights and other related music rights are extremely
complicated and require a solid understanding of the business. Songs for the
Planet offers a diversity of services to help manage these rights without the
client paying large fees to a copyright attorney, CPA, and licensing
administration company who typically handle similar services and can often
compound the fees. Songs for the Planet offers a more comprehensive and cost
effective solution to the client by offering consulting services, publishing
administration and music clearance service on a more affordable basis.
- ------------------------
(1) The Zeal Group is a firm based in Nashville, Tennessee, which provides
consulting, financial and other services to businesses. The Zeal Group
utilizes the services of the Company with respect to certain of its clients
and the Company's management believes that this relationship will strengthen
over time. Apart from this relationship, there is no affiliation between the
Company and The Zeal Group. The Zeal Group has a contractual relationship
with Mrs. Peters' former employer, Copyright Management, Inc.
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<PAGE>
The specific services offered by Songs for the Planet are listed below and a
marketing strategy for each division is addressed in more detail.
CONSULTING SERVICES Intellectual property management is a complicated
business. Copyrights can often be bought, traded, and borrowed against. This
results in clients requiring the services of a professional with a solid
understanding of copyright related contracts, royalty accounting and publishing
rights. Artist managers and attorneys often will assist an artist, songwriter or
publisher in finding assistance in evaluating a copyright(s) worth, deciphering
royalty accounting statements and cleaning up contracts and copyright
assignments.
Songs for the Planet offers a range of copyright consultation services
including research of public domain status of work(s), catalog valuations,
royalty income monitoring, cleanup of contracts and assignments, management of
copyright information, promotion of use of copyrights. These services are based
on our expertise in copyright management, and royalty accounting.
Consulting services such as catalog valuations and contract negotiations and
preparations are often handled by copyright attorneys and CPA's who can charge
extensive fees to a client requiring consultation services. Songs for the Planet
offers these types of services without rendering legal or accounting advice on a
more affordable basis.
The consultation services offered by the company will be primarily billed
monthly on a time and materials basis.
Songs for the Planet intends to market its consulting services by utilizing
its existing contacts within the music publishing industry to obtain clients.
The company also intends to prepare a brochure defining its services through a
mailing to independent music publishers, artists, producers, managers and
attorneys.
PUBLISHING ADMINISTRATION There are literally thousands of music publishing
companies around the world. There are a variety of music publishing companies
that range from record company affiliates to the small independent. A music
publisher is in the business of:
1. Owning and managing copyrights.
2. Discovering, developing and signing writers.
3. Signing and developing artist/writers (artist who write their own songs
and desire a recording artist career).
4. Signing and developing producer/writers (producers who write songs and
desire a career as a record producer).
5. Securing recordings, performances, and other uses of the copyrights they
own.
6. Collecting and disbursing royalties for all uses.
Typically a music publisher is in the marketplace for songs. Once a
songwriter has finished writing words on paper and/or signing and playing a song
into a tape recorder, the songwriter owns the copyright. However, these can be
transferred or assigned to a music publisher. It is a common practice within the
music industry for an author to transfer his rights to a publisher. The transfer
often occurs when a songwriter contracts with a music publisher by virtue of an
exclusive songwriter agreement or single song agreement. It is essential to the
value of a copyright to carefully and efficiently manage and administer the
paperwork involved in transferring these rights. This is often a burdensome
process for an independent music publisher who is focused more intently on the
creative aspects of the business. A publishing company name and individual songs
have to be "cleared" with the respective performing rights company before
affiliating. The process can take a few weeks, but it will ensure that there
will be no confusion in the distribution of royalties. The value of a copyright
and ultimately the value of a publishing company is dependent on the income
generated. A copyright's income is totally dependent on the licenses negotiated
12
<PAGE>
and issued and the royalties collected from its exploitation. This process can
often be time consuming and require a knowledge of contract negotiations and
royalty accounting. Often times a music publisher will contract with a licensing
agent such as The Harry Fox Agency in the United States to handle only this one
function.
A good administrator can help with the preparation and control of these
types of records. Songs for the Planet is designed to carry all of these
administrative and licensing functions for a music publisher. Careful and
accurate management of an intellectual property is crucial to its long term
value. Music publishing catalogs are far less valuable if licenses are not
issued and royalties are uncollected. Songs for the Planet offers a service to
help a music publisher better manage these copyrights and as a result increase
their value.
The publishing administration services offered by Songs for the Planet
include all forms of licensing, (including mechanical, synchronization, print
and multimedia), registration of copyrights with the performing rights
organizations, preparation of songwriter/publisher agreements, preparation of
assignments of copyrights and co-ownership agreements, registration of
copyrights and renewal of copyrights with the U.S. Copyright Office, and
world-wide royalty collection and royalty accounting services. These expert
services are provided by staff with over 10 years of publishing administration
experience.
The services offered by the publishing administration division of the
company will be primarily on a percentage of the royalties collected from
licensed usages of the clients copyright(s).
Songs for the Planet intends to market its publishing administration
services by utilizing its existing contacts within the music publishing industry
to obtain clients. The company also intends to prepare a brochure defining its
services through a mailing to independent music publishers.
MUSIC CLEARANCE SERVICES It is the obligation of a user of music to first
obtain permission from the copyright owner before utilizing a copyrighted work.
Use of a work without clearance from the copyright owner can result in a
violation of federal law, costly lawsuits, and large monetary settlements.
However, clearing these rights can also be costly and time consuming.
Songs for the Planet provides services to clients who are music users for
the purposes of negotiating and clearing rights with copyright owners. The
rights negotiated on behalf of its client(s) are for the use of music in
software, advertising for a company or corporation, feature television or film,
manufacture of compact discs, cassettes, etc.
Songs for the Planet offers a service to music users as TV, Film,
multimedia, software and advertising producers to efficiently clear these
rights. The expertise Songs for the Planet offers is a strong relationship with
the music industry to acquire these rights in a timely and cost effective way.
The services offered by this division of the company will primarily be a
flat rate per song cleared and additional billing depending on the services
provided on a time and materials basis.
Songs for the Planet intends to market its music clearance services by
utilizing its existing contacts within the music publishing industry to obtain
clients. The company also intends to prepare a brochure defining its services
through a mailing to corporations, production companies, record companies, and
other music users. The company also intends to solicit its services through
attending trade shows and informing companies on the need to clear songs
utilized with the owner of the copyright and explain how Songs for the Planet
can make these services affordable.
STUDIO FACILITY Independent producers and artists often need an affordable
place to record a music project. Songwriters and music publishers often solicit
their created works by making a demonstration recording and submitting it to
recording artists and music producers. Songwriters who want to affiliate with a
music publisher will often solicit a demonstrating recording (demo) of their
music along with lyric sheets to gain interest in their music.
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<PAGE>
The studio facility operated by Songs for the Planet offers recording
capabilities for producers, artists, and songwriters, etc. for the purpose of
recording music in digital format. The equipment consists of a 48-channel
digital console with complete automation, 2 digital high-8 Tascam recording
units, as well as another 128 Midi tracks for sequencing/studio recording
purposes. The studio contains equipment capable of producing master recordings
for a variety of purposes.
The relationships Songs for the Planet has with clients utilizing its other
services provides a potential client base to the studio facility. Music
publishers, artist and songwriters utilizing the construction and publishing
administration services will be able to utilize the studio facility at a
reduction of the cost offered to the general public, as well as music users
utilizing the services of the music clearance division of the company. This
should provide an incentive for these related clients to use the studio facility
provided by Songs for the Planet as opposed to its competition. The studio
facility will be provided to users on a flat project fee or flat hourly fee.
Songs for the Planet also intends to market its studio facility by utilizing
its existing contacts within the music publishing industry to obtain clients.
The company also intends to prepare a brochure defining its facility through a
mailing to independent music publishers, artists, producers, and managers.
CASH REQUIREMENTS AND ADDITIONAL FINANCING
The Company's management believes that, assuming all of the shares of Common
Stock offered hereby, the proceeds of the Offering will be sufficient to
eliminate all of the Company's current debt and to provide adequate working
capital for the next twelve (12) months of operations. There are no assurances,
however, that all of the shares of Common Stock offered hereby will be sold. If
less than all of the shares of Common Stock offered hereby are sold, the Company
may find it necessary to refinance its current indebtedness, if such refinancing
is available. See "RISK FACTORS--Risks Associated with Selling Less than All of
the Offered Shares of Common Stock and with the Plan of Distribution."
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<PAGE>
BUSINESS
GENERAL OVERVIEW
The Company was incorporated in the State of Nevada on December 5, 1996,
under the name "Sportsfair Television, Inc." The Company's plan at that time was
to create and promote sporting goods shows for home shopping networks
transmitted via satellite or cable television. These plans did come into
fruition. On December 31, 1997, the Company acquired from Elizabeth Ann Peters
all of the issued and outstanding common stock of Songs for the Planet in
exchange for 200,000 shares of Common Stock. Songs for the Planet was organized
in August of 1997 and had limited operations at the time of the foregoing
acquisition. These operations primarily consisted of providing copyright
administrative services to affiliates of Mr. Peters. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS." The Company conducted no business operations prior to
the acquisition of Songs for the Planet and, as of the date of this Prospectus,
the Company serves as a holding company of shares of common stock of Songs for
the Planet. Business operations of the Company are conducted through Songs for
the Planet. Prior to the acquisition of Songs for the Planet, the Company
conducted no operations whatsoever. At the time of its formation, the promoter
of the Company was Mr. David Owen, the father of Mrs. Peters. Prior to the
acquisition of Songs for the Planet by the Company, Mr. Owen divested his
interests in the Company. Elizabeth Ann Peters is the Company's sole employee.
COPYRIGHT ADMINISTRATION SERVICES
The primary business of the Company is to provide copyright administration
services to the music and entertainment industry. These copyright administration
services include (a) the registration of copyrights with the United States
Copyright Office, (b) the preparation of assignments of copyrights, (c) the
negotiation, preparation and execution of mechanical licenses, synchronization
licenses and other rights agreements respecting musical compositions, and (d)
the collection of royalties in connection with such licenses or rights
agreements. The Company anticipates that it will also provide similar services
to producers of recorded music products, including the obtaining of mechanical
licenses and synchronization licenses for the use of musical compositions and
the computation and payment of royalties. The following describes the legal and
market context in which these services are provided.
COPYRIGHTS
Original musical compositions, as well as derivative works such as
arrangements and editions, are primarily created by individuals or small groups.
Upon creation of an original or derivative work, the creator possesses a
copyright in the work. A copyright is a form of protection provided by the laws
of the United States to the authors of "original works of authorship" including
literary, dramatic, musical, artistic, and certain other intellectual works. A
copyright arises simply from creation of the work. The owner of a copyright has
the exclusive right to: (i) reproduce copies of the work; (ii) prepare
derivative works; (iii) distribute copies of the work; (iv) perform the work
publicly; (v) display the work publicly; and (vi) in the case of sound
recordings, to perform the copyrighted work publicly by means of a digital audio
transmission.
If the composition is the product of more than one author (for example, a
composer and a lyricist), the work is treated as a joint work. Each author has
an undivided ownership interest in the work taken as a whole which interest does
not terminate upon his or her death (i.e., there is no right of survivorship).
Each owner is therefore entitled to exploit the copyright, subject to a right of
accounting to the co-owners.
While registration with the United States Copyright Office is not required
for copyright protection, it is a prerequisite for filing a copyright
infringement action based on a work of United States origin and for the recovery
of statutory damages and attorneys' fee incident thereto. Registration also
serves as prima facie evidence of ownership and validity of the copyright.
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<PAGE>
For works created on or after January 1, 1978, a copyright exists from the
date of creation and, generally stated, a period of fifty years beyond the life
of the author. In the case of anonymous works, pseudonymous works or works made
for hire, the term of a copyright is seventy-five years from the date of first
publication or 100 years from the date of creation, whichever comes first.
For works created but neither in public domain, nor published or copyrighted
prior to January 1, 1978, the basic term of the copyright is the same as
indicated above. In all cases, however, the copyright will not expire before
December 31, 2002; and, if the work is published on or before December 31, 2002,
the copyright will not expire before December 31, 2027.
For works that were either published or copyrighted before January 1, 1978,
the copyright was secured on the date the work was published or on the date of
registration if the work was registered. In either case, the works are protected
for an initial term of twenty-eight years and, during the last year of the first
term, the copyright may be renewed for an additional forty-seven years.
The federal courts have original and exclusive jurisdiction over all civil
actions arising under the federal copyright statute. Such an action must be
brought within three years from the date the copyright owner has knowledge of a
violation (or is imputed to have such knowledge). In addition to injunctive
relief, a copyright owner may recover either (i) actual damages and any
additional profits of the infringer or (ii) statutory damages between $500 and
$20,000 for all infringements with respect to any one work. If the infringement
was willful, the court has the discretion to increase the award of statutory
damages to $100,000; but, if the defendant had no reason to know that it was
infringing a copyright, the court has the discretion to decrease the award of
statutory damages to $200. The court has the discretion to award attorneys' fees
and costs to the prevailing party in a copyright action.
THE PROCESS OF COPYRIGHT REGISTRATION
One of the Company's primary services will be in assisting clients in
registering their copyrights. The owner of the copryight registers a work by
filing an application with the Copyright Office. With this application, the
owner must also deposit a filing fee and the requisite number of copies of the
work. The copies of the work deposited are the "best edition" of the work. For
example, if a work is recorded and manufactured on a cassette tape or a compact
disc, then the deposit copy should be the compact disc.
The form used for musical compositions is Form PA. The filing fee is $20.00.
The material required to register a claim of copyright is set forth in the
following table:
<TABLE>
<S> <C>
Type of Work Material Required
- --------------------------------------- ---------------------------------------
Unpublished work 1 copy (or phonorecord)(1)
Published work 2 copies (or 1 phonorecord) of the best
edition
Work first published outside the United 1 copy (or phonorecord) of the first
States foreign edition
Contribution to a collective work 1 copy (or phonorecord) of the best
edition of the collective work
</TABLE>
- ------------------------
(1) The Copyright Act defines phonorecords as follows:
"Phonorecords" are material objects in which sounds, other than those
accompanying a motion picture or other audiovisual work, are fixed by any
method now known or later developed, and from which the sounds can be
perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device. The term "phonorecords" includes the
material object in which the sounds are first fixed.
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<PAGE>
Multiple applications may be needed depending on the circumstances. The
following describes the range of forms used by the Copyright Office.
<TABLE>
<S> <C>
Form Purpose
- ------------------------------------- -------------------------------------
CA For supplementary registration to
correct or amplify information given
in the copyright record of an earlier
registration
SE For registration of each individual
issue of a serial.
PA For published and unpublished works
of the performing arts (musical and
dramatic works, pantomimes and
dramatic works, motion pictures and
other audiovisual works). Used to
copyright songs.
RE For claims to renewal of copyright in
works copyrighted under the law in
effect through December 31, 1997.
SR For published and unpublished sound
recordings.
TX For published and unpublished
nondramatic literary works.
VA For published and unpublished works
of the visual arts (pictorial,
graphic and sculptural works).
</TABLE>
LICENSES AND ASSIGNMENTS
Copyright ownership allows the owner to reproduce and distribute copies of
the work or to permit someone else to perform these functions (which is
generally called a "license") on either an exclusive or non-exclusive basis.
Under the federal copyright statute, transfers of copyright ownership (which are
generally called "assignments") must be in a written instrument signed by the
transferor which explicitly identifies those rights being transferred. A
non-exclusive license is not generally considered an assignment of ownership. An
assignment is recordable with the Copyright Office so as to give others
constructive notice of the assignment. Each of the exclusive rights granted to a
copyright owner are distinct and may be assigned separately. For example, the
owner of a copyright may assign the right to reproduce a copyrighted work, but
retain the right to authorize and prepare derivative works.
Although licenses are generally negotiated transactions, the copyright
statute provides for mandatory licenses under certain situations. For example,
the statute permits proprietors of establishments to perform nondramatic musical
works in public by means of a coin operated phonorecord player (i.e., a jukebox)
as long as there are no direct or indirect charges for admission.
The copyright statute also permits others to record a musical work and to
distribute phonorecords to the public for private use. Compact discs which
encode both the audio rendition of a song and also contemporaneous display of
the song's lyrics (known as "compact discs plus graphics" or "CD+G's") are not
phonorecords under the statute. Moreover, except when embodied in a phonorecord,
the lyrics to a song may enjoy independent copyright protection as a literary
work which may not be reproduced without the owner's consent. On the other hand,
a compulsory license includes the privilege of making a musical
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<PAGE>
arrangement of the work as long as the arrangement does not change the basic
melody or fundamental character of the work. But, such an arrangement is not
subject to copyright protection without the express consent of the copyright
owner of the original work.
There are four types of licenses or rights agreements which frequently
pertain to musical compositions. A mechanical license is an authorization from
the owner of the copyright (or the owner's agent) to manufacture and distribute
an audio recording of the composition. This includes music embodied in piano
rolls, phonograph recordings, cassette tapes, compact discs, digital audio tape
and computer chips. Works accompanying a motion picture or other audio visual
work are not included. A synchronization license is an authorization from the
owner of the copyright (or the owner's agent) to use an audio recording of the
composition in conjunction with visual images such as motion pictures,
television, videotapes and computer programs. Synchronization licenses are
typically used in connection with theatrical motion pictures, video cassettes,
commercial and noncommercial television, corporate media presentations, CD+G's
and commercial advertising. A performance right is an authorization from the
owner of the copyright (or the owner's agent) to perform a musical composition
publicly, including the broadcast of a work over radio or television or the
playing of a recording at a place of business. A music publishing license
involves the right to create printed sheet music for a composition.
For every phonorecord made and distributed on or after January 1, 1996, the
royalty rate payable with respect to each composition is the greater of 6.95
cents or 1.3 cents per minute of playing time or fraction thereof. The Copyright
Office adjusted this rate, effective January 1, 1998, as follows:
<TABLE>
<CAPTION>
DATE PHONORECORD MADE
AND DISTRIBUTED RATE
- -------------------------------------------- --------------------------------------
<S> <C>
On or after January 1, 1998................. greater of 7.1 cents or 1.35 cents per
minute of playing time or fraction
thereof
On or after January 1, 2000................. greater of 7.55 cents or 1.45 cents
per minute of playing time or fraction
thereof
On or after January 1, 2002................. greater of 8.0 cents or 1.55 cents per
minute of playing time or fraction
thereof
On or after January 1, 2004................. greater of 8.5 cents or 1.65 cents per
minute of playing time or fraction
thereof
On or after January 1, 2006................. greater of 9.1 cents or 1.75 cents per
minute of playing time or fraction
thereof
</TABLE>
These rates are subject to change.
A copyright owner (or the owner's agent) may grant a mechanical license for
less than the statutory rate. For synchronization licenses and music publishing
licenses, the royalty rate is negotiated on a case by case basis between the
copyright owner (or owner's agent) and the prospective user.
Performance rights are generally licensed through performing rights
associations, such as the American Society of Composers, Authors and Publishers
("ASCAP"), Broadcast Music, Inc. ("BMI"), and the Society of European Stage
Authors and Composers ("SESAC"), on either a blanket fee or per program fee
basis.
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MUSIC INDUSTRY MARKET
The music industry is the business of (i) discovering and signing musical
artists, (ii) licensing the recording and performance of their music, and (iii)
engaging in printing, manufacturing, packaging, distributing and marketing
activities in connection therewith. According to the most recent survey of the
National Music Publishers Association (the "NMPA"), world soundcarrier sales in
1995 were $39.68 billion and royalty payments totaled $6.2 billion. The United
States represents approximately 21% of the world market. The following table
shows the allocation of these royalty payments according to source.
<TABLE>
<CAPTION>
SOURCE OF INCOME PERCENTAGE
- ------------------------------------------------------------------------ -----------
<S> <C>
Performance Based Income................................................ 44.00%
Reproduction Based Income............................................... 43.00%
Distribution Based Income............................................... 10.00%
Interest Investment Income.............................................. 3.00%
Miscellaneous Income.................................................... 0.31%
</TABLE>
[Source: NMPA 6th Annual International Survey]
Typically, music publishing agreements with songwriters grant the music
publishing company exclusive rights with respect to all compositions created by
the songwriter, in whole or in part, during the term of the agreement usually in
exchange for the payment of an advance to the songwriter and, after the
recoupment of the advance, the payment of royalties on sales of soundcarriers
using such compositions. In some cases, the publishing company may be required
to seek the songwriter's approval before licensing the composition for certain
uses.
Music publishing companies frequently acquire a catalog of compositions
previously created by a songwriter or group of songwriters as a music publishing
asset. It is not uncommon for music publishing companies to be owned or
controlled by individual songwriters. Music publishing companies derive revenues
primarily from (a) license fees paid for the use of such musical compositions on
radio, on television, in motion pictures and in other public performances, (b)
royalties paid for the use of such musical compositions on compact discs, audio
cassettes, music videos and in television commercials, and (c) sales of
published sheet music and song books. There are literally thousands of music
publishing companies in business throughout the world. Competition amongst music
publishing companies is intense in acquiring musical compositions and in having
them recorded and performed.
The recorded music industry produces, manufactures, distributes and markets
recorded music products on a retail or wholesale basis. The recorded music
industry is dominated by six major companies: Warner Bros. Records, Inc.;
PolyGram Records, Inc.; Sony Corporation of America; BMG Music; MCA
Inc./Universal City Studios, Inc.; and Thorn EMI Music. These six companies are
vertically integrated, such that they (or their affiliates) are able to perform
all aspects of the business. The remainder of the recorded music industry is
represented by numerous small independent companies.
Copyright owners generally receive royalties based upon a percentage of
gross sales and of performance-related income. On the other hand, it is the
general practice in the recorded music industry to sell recorded music products
on a returnable basis. As a consequence, music publishing revenues tend to be
collected later than soundcarrier sales.
Revenues of the music industry are adversely affected by the unauthorized
reproduction of recordings for commercial sale, commonly referred to as
"piracy," and by home taping for personal use. The industry may also be
adversely affected by the ability of consumers to download quality sound
recordings via the Internet.
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<PAGE>
EXPERT SERVICES
The Company intends to provide the following expert services.
PUBLISHING ADMINISTRATION
The publishing administration services offered by Songs for the Planet
include all forms of licensing, (including mechanical, synchronization, print
and multimedia), registration of copyrights with the performing rights
organizations, preparation of songwriter/publisher agreements, preparation of
assignments of copyright and co-ownership agreements, registration of copyrights
and renewal of copyrights with the U.S. Copyright Office, and world-wide royalty
collection and royalty accounting services.
MUSIC CLEARANCE SERVICES
Songs for the Planet provides services to clients who are music users for
the purposes of negotiating and clearing rights with copyright owners. The
rights negotiated on behalf of its client(s) are for the use of music in
software, advertising for a company or corporation, feature television or film,
manufacture of CD's, cassettes, etc. Songs for the Planet relies on the
negotiating expertise of its staff to provide favorable licensing terms and
rates for the client(s). These services also include royalty monitoring,
long-term royalty accounting, and preparation of income tax reports under Form
1099.
STUDIO FACILITY
The studio facility operated by Songs for the Planet offers recording
capabilities for producers, artists, and songwriters, etc. for the purpose of
recording music in digital format. The equipment consists of a 48-channel
digital console with complete automation, 2 digital high-8 Tascam recording
units, as well as another 128 Midi tracks for sequencing/studio recording
purposes. The studio contains equipment capable of producing master recordings
for a variety of purposes.
DIFFERENTIATION FROM COMPETITION
Songs for the Planet offers a range of intellectual property and copyright
management services. The company seeks to offer the most efficient and timely
service to our clients while relying on our extensive copyright administration
experience. Music publishing rights and other related music rights are extremely
complicated and require a solid understanding of the business. Songs for the
Planet offers a diversity of services to help manage these rights without the
client paying large fees to a copyright attorney, CPA, and licensing
administration company who typically handle similar services and can often
compound the fees. Songs for the Planet offers a more comprehensive and cost
effective solution to the client by offering consulting services, publishing
administration and music clearance service on a more affordable basis.
CONSULTING SERVICES
Consulting services such a catalog valuations and contract negotiations and
preparations are often handled by copyright attorneys and CPA's who can charge
extensive fees to a client requiring consultation services. Songs for the Planet
offers these types of services without rendering legal or accounting advice on a
more affordable basis. This coupled with a working knowledge of the music
business makes Songs for the Planet a more attractive solution.
PUBLISHING ADMINISTRATION
Careful and accurate management of an intellectual property is crucial to
its long term value. Music publishing catalogs are far less valuable if licenses
are not issued and royalties are uncollected. Songs for the Planet offers a
service to help a music publisher better manage these copyrights and as a result
increase their value. The Harry Fox Agency is the largest mechanical rights
organization in the U.S., representing over 17,000 music publishers. However
their services are limited to licensing in the United States only. Songs for the
Planet offers a wide range of services including licensing, administration and
royalty accounting for one fee. Typically these services needed by a music
publisher are handled by separate
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<PAGE>
companies who can compound fees and restrict the accurate flow of information.
Copyright share information is critical to the flow of accurate licensing and
royalty accounting. Also, this flow of information from one company to another
can often cause inefficient licensing and delayed royalty payments. Songs for
the Planet can give its publishing clients a more timely, accurate and
cost-effective service.
MUSIC CLEARANCE SERVICES
It has been the nature of copyright laws created by a government to grant
exclusive rights to a copyright owner, but only for a limited time. After that
time expires the work becomes available to the public (hence the term "in the
public domain"). This means that once a copyright term expires, anyone can use
the work without permission or payment to anyone. Prior to the expiration of the
term, use of the work without permission is considered a violation of federal
law and subject to remedies outlined in the U.S. Copyright Law. It is therefore
the obligation of the user of music to first obtain permission from the
copyright owner before utilizing a copyrighted work. Clearing these rights can
be costly and time consuming. Songs for the Planet offers a service to music
users such as TV, Film, multimedia, software and advertising producers to
efficiently clear these rights. The expertise Songs for the Planet offers is a
strong relationship with the music industry to acquire these rights in a timely
and cost effective way. The music clearance service also requires an extensive
knowledge of the rights involved, accurate copyright research, expert
negotiation and contract administration. With over 10 years of synchronization
and other related contract negotiation experience, Songs for the Planet offers a
more professional and cost effective solution to a music users needs.
STUDIO FACILITY
Independent producers and artists often need an affordable place to record a
music project. Songwriters and music publishers often solicit their created
works by making a demonstration recording and submitting it to recording artists
and music producers. Songs for the Planet offers a facility with a state-of-
the-art recording console and digital format that provides a more cost-effective
way to make quality recordings. The relationships Songs for the Planet has with
clients utilizing its other services provides a potential client base to the
studio facility.
BUSINESS STRATEGY
The Company's business strategy is to provide a full range of administration
services to music publishers, the recorded music industry and the entertainment
industry generally. These services will include administering (1) mechanical
licenses, (2) synchronization licenses for media other than phonorecords
(including licenses relating to motion pictures, television and video
productions, and multimedia), and (3) literary licenses with respect to song
lyrics (when used, for example, in print advertising). The Company's management
believes that this strategy sets the Company apart from its competition in that
the competition tends to specialize in certain aspects of the business. The
Company, however, does not intend to provide services relating to performance
rights. The Company's marketing plan is more fully described in "Management's
Plan of Operation."
The Company's revenue for providing copyright administration services is a
percentage of royalties actually collected on behalf of its music publishing
clients, less all costs of collection and fees paid by the Company to collection
agents and subpublishers. Typically, such services are expected to be transacted
pursuant to written agreements having a term of three years. The amount of the
Company's fee is negotiated with each client; however, it is estimated that the
average fee will be five percent (5%) for licensing services and ten percent
(10%) for full administration services. The Company's revenues will be dependent
upon the demand for its clients' musical compositions. For recorded music
clients, the Company will bill at hourly rates between $40.00 to $60.00 per
hour.
21
<PAGE>
The Company's business operations to date have been limited. As of the date
of this Prospectus, the Company has five clients: Truthworks Music of Brentwood,
Tennessee, Tourmaline Music, Inc. ("Tourmaline"), LITA Music ("LITA"), Justin
Peters Music ("JPM"), and Platinum Planet Music, Inc. ("Platinum Planet"), each
of Nashville, Tennessee. LITA, JPM, Platinum Planet and Tourmaline are each
owned and controlled by Benjamin Justin Peters. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
Apart from regulations pertaining to copyrights, the Company's management
does not believe that governmental regulation will have a significant effect
upon the Company's operations.
RECORDING SERVICES
As a service incidental to its primary business, the Company provides
recording services to musical artists. These recording services are primarily
furnished for preparing demonstration records ("demos") on behalf of artists for
use in soliciting recording companies to sign the artist. In addition, these
services may also include producing master recordings suitable for the purpose
of manufacturing quality phonograph records and for the purpose of assisting in
the development of the artist's career. The Company receives a negotiated fee
for these services. The Company is generally responsible for paying musicians
and acquiring additional equipment used in connection with a recording project.
COMPETITION
Copyright administration and recording services of the type provided music
publishing companies are provided by numerous other companies throughout the
world. The market for licensing services to music publishing companies is
dominated by the Harry Fox Agency, a division of the NMPA, which represents more
than 17,000 music publishers. Moreover, the six major recorded music companies
have their own staffs which furnish for internal use copyright administration
services provided or contemplated by the Company to recording companies.
As indicated above, copyright administration services relating to
performance rights are provided primarily through ASCAP, BMI and/or SESAC. The
Company does not intend to provide such services.
LEGAL PROCEEDINGS
There are no legal proceedings, pending or threatened, to which the Company
is a party.
PROPERTIES
The following is a list of the ten most significant copyrights which the
Company administers:
<TABLE>
<CAPTION>
NAME OF SONG MUSIC PUBLISHER RECORDING ARTIST
- ---------------------------------------------- ------------------------------------ ---------------------------
<S> <C> <C>
Saved By Love Justin Peters Music Amy Grant
Big Fat Nothing Platinum Planet/Truthworks Music Believable Picnic
Making War in the Heavenlies Tourmaline Music Ron Kenoly
Joy in Your Presence Tourmaline Music Various Artists
All Nations Tourmaline Music Various Artists
Making a New Start Lita Music Kingdom Heirs
Chisel Meets the Stone Justin Peters Music 4 Him
Nothing Can Separate Us Justin Peters Music Al Denson
Lost in the Shadow of the Cross Lita Music Steven Curtis Chapman
One Moment in His Presence Lita Music Andrew Towe and Others
</TABLE>
The Company does not own any real property. The Company's corporate offices
and studio facilities are located in a building owned by Mr. Peters' father. The
Company pays no cash consideration for the use of this building. While the
Company currently has insurance which covers only the contents of the building,
the Company intends to purchase (or reimburse the landlord), on or before
December 31, 1998, insurance which will cover the building as a whole. The
Company believes that the building is suitable for its intended purposes.
22
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of the
date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------ --- ----------------------------------------
<S> <C> <C>
Elizabeth Ann Peters.............................................. 34 President and Director
Benjamin Justin Peters............................................ 35 Chairman of the Board and Secretary
</TABLE>
ELIZABETH ANN PETERS co-founded Songs for the Planet in August of 1997. Mrs.
Peters received a bachelors degree in mass communications from Belmont
University of Nashville, Tennessee, in 1986. From 1987 until 1995, Mrs. Peters
was employed in various capacities by Copyright Management, Inc. of Nashville,
Tennessee, a firm which provides copyright administration services to music
publishers similar to those provided by the Company. From 1995 to 1997, Mrs.
Peters administered publishing companies owned or controlled by Mr. Peters. Mrs.
Peters has served as President and Director of the Company since December 31,
1997. Mrs. Peters and Mr. Peters are wife and husband.
BENJAMIN JUSTIN PETERS co-founded Songs for the Planet in August of 1997.
Mr. Peters received a bachelors degree in music business from Belmont University
of Nashville, Tennessee, in 1986. Since 1981, Mr. Peters has been a professional
songwriter and has been involved in numerous music publishing ventures. In 1988,
Mr. Peters was named American Songwriter of the Year (Gospel Music Category) by
American Songwriter Magazine. Mr. Peters has served as Chairman of the Board and
Secretary of the Company since December 31, 1997. Mr. Peters and Mrs. Peters are
husband and wife. Mr. Peters owns and controls Tourmaline, LITA, JPM and
Platinum Planet.
The directors of the Company are elected each year at the annual meeting of
shareholders for a term of one year. Each director serves until the expiration
of his or her term and thereafter until his or her successor is duly elected and
qualified. Executive officers of the Company are appointed by the Board of
Directors on an annual basis.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation of the Company's chief executive officer and the four other most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers") since the Company's inception. There were no stock
appreciation rights outstanding during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
AWARDS
--------------- PAYOUTS
ANNUAL COMPENSATION SECURITIES ---------------
-------------------------------------------------------- UNDERLYING LONG-TERM
FISCAL SALARY BONUS OTHER ANNUAL OPTIONS INCENTIVE
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION (#) PAYOUTS ($)
- -------------------------------- ----------- --------- ----------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Elizabeth Ann Peters............ 1997 10,000 * * * *
President
Benjamin Justin Peters.......... 1997 * * * * *
Secretary
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)
- -------------------------------- -------------------
<S> <C>
Elizabeth Ann Peters............ *
President
Benjamin Justin Peters.......... *
Secretary
</TABLE>
- ------------------------
* Not applicable.
EMPLOYMENT AGREEMENTS
There are no employment agreements between the Company and any of its
management. Mrs. Peters currently receives a salary of $30,000 per year.
23
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On December 9, 1996, the Company received subscriptions for 500,000 shares
of its Common Stock to Owen & Associates, Inc. Profit Sharing Plan, Peterson &
Sons Holding Company, Melissa K. Meyer, Brenda M. Hall and David N. Nemelka at
$0.01 per share, payable in cash. The 120,000 shares held by Mr. Nemelka were
subsequently transferred to Ms. Hall without consideration. The 120,000 shares
held by Owen & Associates, Inc. Profit Sharing Plan were sold to Peterson & Sons
Holding Company at $0.01 per share. The following table sets forth information
concerning the beneficial ownership of the Common Stock as of the date of the
Prospectus, for (a) each person known to the Company to be a beneficial owner of
the Common Shares; (b) each director; (c) each executive officer designated in
the section captioned "MANAGEMENT--Executive Compensation;" and (d) all
directors and executive officers as a group. Except as otherwise noted, each
person named below had sole voting and investment power with respect to such
securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING
---------------------- ----------------------
NAME AND ADDRESS(2) SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Elizabeth Ann Peters............................................... 200,000 28.6% 200,000 25.6%
Benjamin Justin Peters............................................. 0 0.0% 0 0.0%
Melissa K. Meyer(3)................................................ 20,000 2.9% 20,000 2.6%
519 S. Madison
Raymore, Missouri 64803
Brenda M. Hall..................................................... 240,000 34.3% 240,000 30.8%
907 Artistic Circle
Springville, Utah 84663
Peterson & Sons Holding Co.(4)..................................... 240,000 34.3% 240,000 30.8%
4001 W. 104th Terrace
Overland Park, Kansas 66207
All directors and executive officers as a group (2 persons)........ 200,000 28.6% 200,000 25.6%
</TABLE>
- ------------------------
(1) Under the rules of the Commission, shares are deemed to be "beneficially
owned" by a person if such person directly or indirectly has or shares (i)
the power to vote or dispose of such shares whether or not such person has
any pecuniary interest in such shares, or (ii) the right to acquire the
power to vote or dispose of such shares within 60 days, including any right
to acquire through the exercise of any option, warrant or right.
(2) The address of each executive officer and director of the Company is c/o
World House Entertainment, Inc., 2831 Dogwood Place, Nashville, TN 37204.
(3) Melissa K. Meyer is the sister of Elizabeth Ann Peters.
(4) The shareholders of Peterson & Sons Holding Co. are Mark and Steve Peterson.
24
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In a series of transactions, the Company borrowed in the aggregate $155,000
at an interest rate of 10% per annum, most of which was lent by the Company's
principal shareholders (or affiliates thereof) (the "Related Party Loans"). Each
of the Related Party loans is payable on demand. The following table sets forth
basic information relating to the Related Party Loans.
<TABLE>
<CAPTION>
LENDER DATE AMOUNT
- ------------------------------------------------------------------------------------------ --------- ----------
<S> <C> <C>
Owen & Associates, Inc. Profit Sharing Plan(1)............................................ 10/2/97 $ 12,500
Peterson & Sons Holding Company........................................................... 10/7/97 $ 37,500
Dassity, Inc.(2).......................................................................... 10/9/97 $ 37,500
Owen & Associates Inc. Profit Sharing Plan................................................ 10/14/97 $ 25,000
Owen Enterprises, L.L.C.(3)............................................................... 11/11/97 $ 10,000
Owen & Associates, Inc. Profit Sharing Plan............................................... 1/16/98 $ 5,000
Owen & Associates, Inc. Profit Sharing Plan............................................... 2/3/98 $ 1,250
R-Odyssey Ventures, Inc.(4)............................................................... 2/9/98 $ 13,750
Owen Enterprises, LLC..................................................................... 2/24/98 $ 7,500
Owen & Associates IBG, LLC(5)............................................................. 3/9/98 $ 5,000
----------
----------
Total................................................................................... $ 155,000
</TABLE>
- ------------------------
(1) Owen & Associates, Inc. is controlled by David Owen, the father of Elizabeth
Ann Peters. Mr. and Mrs. Peters have no financial interest in Owen &
Associates, Inc. and neither of them hold any position with Owen &
Associates, Inc.
(2) Dassity, Inc. is controlled by Brenda M. Hall.
(3) Owen Enterprises, L.L.C. is controlled by David Owen, the father of
Elizabeth Ann Peters.
(4) R-Odyssey Ventures, Inc. is not affiliated with any of the Company's
principal shareholders.
(5) Owen & Associates IBG, LLC is controlled by David Owen, the father of
Elizabeth Ann Peters.
In a series of transactions, Songs for the Planet loaned the aggregate amount of
$100,000 to Platinum Planet Music, Inc., a Tennessee corporation wholly-owned by
Benjamin Justin Peters, at an interest rate of 10% per annum. Such loans are due
on December 31, 1999. Accrued interest is payable on June 30, 1998, and at the
end of each six month period thereafter. Platinum Planet Music used the proceeds
of these loans to acquire a 50% undivided interest in certain music compositions
owned by Dez Dickerson d/b/a Truthworks Music. In connection with this
acquisitions, Truthworks and Platinum Planet entered into a copublishing and
coadministration agreement under which each agreed to utilize the administration
services of Songs for the Planet for a period of 3 years.
Songs for the Planet has entered into administration agreements with
Tourmaline, LITA, JPM and Platinum Planet. Each of these agreements has an
initial term of three years. The Company will receive compensation for its
services in an amount equal to 10% of the annual gross income derived as a
result of the Company's efforts.
The Company's corporate offices and studio facilities are located in a
building owned by Mr. Peters' father. The Company pays no cash consideration for
the use of this building.
On December 31, 1997, the Company entered into an exchange agreement with
Elizabeth Ann Peters. Under this agreement, Mrs. Peters received 200,000 shares
of Common Stock in exchange for all of the shares of common stock of Songs for
the Planet then issued and outstanding. As a result of this transaction, Songs
for the Planet became the wholly-owned subsidiary of the Company. There was no
cash consideration paid by either party in connection with this transaction.
25
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share.
COMMON STOCK
As of the date of this Prospectus, there were 700,000 shares of Common Stock
outstanding held by five (5) shareholders.
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the shareholders. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"DIVIDEND POLICY." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding Preferred Stock. All of the outstanding
shares of Common Stock are fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without any further vote or action
by the shareholders, to provide for the issuance of up to 5,000,000 shares of
Preferred Stock from time to time in one or more series with such designations,
rights, preferences and limitations as the Board of Directors may determine,
including the consideration received therefor. The Board also has the authority
to determine the number of shares comprising each series, dividend rates,
redemption provisions, liquidation preferences, sinking fund provisions,
conversion rights and voting rights without approval by the holders of Common
Stock. Although it is not possible to state the effect that any issuance of
Preferred Stock might have on the rights of holders of Common Stock, the
issuance of Preferred Stock may have one or more of the following effects (i) to
restrict Common Stock dividends if Preferred Stock dividends have not been paid,
(ii) to dilute the voting power and equity interest of holders of Common Stock
to the extent that any Preferred Stock series has voting rights or is
convertible into Common Stock or (iii) to prevent current holders of Common
Stock from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied. In
addition, the issuance of Preferred Stock may, under certain circumstances, have
the effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Certificate of Incorporation or any reorganization, consolidation, merger or
other similar transaction involving the Company. As a result, the issuance of
such Preferred Stock may discourage bids for the Company's Common Stock at a
premium over the market price therefor, and could have a materially adverse
effect on the market value of the Common Stock. There are no shares of Preferred
Stock presently outstanding and the Board of Directors does not presently intend
to issue any shares of Preferred Stock.
NO PREEMPTIVE RIGHTS
No holder of any capital stock of the Company has any preemptive right to
subscribe for or purchase securities of any class or kind of the Company, nor
any redemption or conversion rights.
26
<PAGE>
NO CUMULATIVE VOTING
No holder of any capital stock of the Company has the right cumulate his or
her votes in an election of directors or for any other matter or matters to be
voted upon by the shareholders of the Company.
CERTAIN PROVISIONS OF THE NEVADA GENERAL CORPORATION LAW
The Company is subject to the Nevada General Corporation Law (the "NGCL").
Under certain circumstances, the following described provisions of the NGCL may
delay or make more difficult acquisitions or changes of control of the Company.
Neither the Company's Amended and Restated Articles of Incorporation nor its
Amended and Restated Bylaws exclude the Company from these provisions. Such
provisions may make it more difficult to accomplish transactions that
shareholders believe are in their best interests. Such provisions may also have
the effect of preventing changes in the Company's management.
CONTROL SHARE ACQUISITIONS.
Under Sections 78.378 to 78.3793 of NGCL, an "acquiring person," who
acquires a "controlling interest" in an "issuing corporation," may not exercise
voting rights on any "control shares" unless such voting rights are conferred by
a majority vote of the disinterested shareholders of the issuing corporation at
a special meeting of the such shareholders held upon the request and at the
expense of the acquiring person. If the control shares are accorded full voting
rights and the acquiring person acquires control shares with a majority or more
of all the voting power, any shareholder, other than the acquiring person, who
does not vote for authorizing voting rights for the control shares, is entitled
to demand payment for the fair value of their shares, and the corporation must
comply with the demand. For the above provisions, "acquiring person" means
(subject to certain exceptions) any person who, individually or in association
with others, acquires or offers to acquire, directly or indirectly, a
controlling interest in an issuing corporation. "Controlling interest" means the
ownership of outstanding voting shares of an issuing corporation sufficient to
enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, and/or (iii) a
majority or more of the voting power of the issuing corporation in the election
of directors. Voting rights must be conferred by a majority of the disinterested
shareholders as each threshold is reached and/or exceeded. "Control Shares"
means those outstanding voting shares of an issuing corporation which an
acquiring person acquires or offers to acquire in an acquisition or within 90
days immediately preceding the date when the acquiring person becomes an
acquiring person. "Issuing corporation" means a corporation that is organized in
Nevada, has 200 or more shareholders (at least 100 of whom are shareholders of
record and residents of Nevada) and does business in Nevada directly or through
an affiliated corporation. The above does not apply if the articles of
incorporation or by-laws of the corporation in effect on the 10th day following
the acquisition of a controlling interest by an acquiring person provide that
said provisions do not apply. The Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws do not exclude the Company from
the restrictions imposed by these provisions.
CERTAIN BUSINESS COMBINATIONS.
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
shareholder" for three years following the interested shareholder's date of
acquiring the shares that cause such shareholder to become an interested
shareholder, unless the combination or the purchase of shares by the interested
shareholder on the interested shareholder's date of acquiring the shares that
cause such shareholder to become an interested shareholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested shareholder may effect a
combination after the three-year period only if such shareholder receives
approval from a majority of the disinterested shares or
27
<PAGE>
the offer meets certain fair price criteria. For the above provisions, "resident
domestic corporation" means a Nevada corporation that has 200 or more
shareholders. "Interested shareholder" means any person, other than the resident
domestic corporation or its subsidiaries, who is (i) the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the outstanding
voting shares of the resident domestic corporation or (ii) an affiliate or
associate of the resident domestic corporation and, at any time within three
years immediately before the date in question, was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the resident domestic corporation. The above does not
apply to corporations that so elect in a charter amendment approved by a
majority of the disinterested shares. Such a charter amendment, however, would
not become effective for 18 months after its passage and would apply only to
stock acquisitions occurring after its effective date. The Company's Amended and
Restated Articles of Incorporation do not exclude the Company from the
restrictions imposed by such provisions.
DIRECTORS' DUTIES.
Section 78.138 of the NGCL allows directors and officers, in exercising
their respective powers to further the interests of the corporation, to consider
the interests of the corporation's employees, suppliers, creditors and
customers. They can also consider the economy of the state and the nation; the
interests of the community and of society and the long-term and short-term
interests of the corporation and its shareholders, including the possibility
that these interests may be best served by the continued independence of the
corporation. Directors may resist a change or potential change in control if the
directors, by a majority vote of a quorum, determine that the change or
potential change is opposed to or not in the best interest of the corporation.
In so determining, the board of directors may consider the interests described
above or have reasonable grounds to believe that, within a reasonable time, the
debt created as a result of the change in control would cause (i) the assets of
the corporation or any successor to be less than its liabilities, (ii) the
corporation or any successor to become insolvent or (iii) the commencement of
any voluntary or involuntary proceeding under the federal bankruptcy laws
concerning the corporation.
CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws could make more difficult the
acquisition of the Company by means of a tender offer, a proxy contest or
otherwise as well as the removal of incumbent officers and directors. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to first negotiate with the Company. The Company
believes that the benefits of an unfriendly or unsolicited proposal to acquire
or restructure the Company outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The Amended and Restated Articles of Incorporation establish an advance
notice procedure for shareholder proposals to be brought before a meeting of
shareholders of the Company and for nominations by shareholders of candidates
for election as directors at an annual meeting or a special meeting at which
directors are to be elected. Subject to any other applicable requirements,
including, without limitation, Regulation 14A under the Exchange Act, only such
business may be conducted at a meeting of shareholders as has been brought
before the meeting by, or at the direction of, the Company's Board of Directors,
or by a shareholder who has given the Secretary of the Company timely notice, in
proper form, of the shareholder's intention to bring such business before the
meeting. The presiding officer at such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Company's Board of Directors, or who are nominated by a shareholder who has
given
28
<PAGE>
timely written notice, in proper form, to the Secretary prior to a meeting at
which directors are to be elected will be eligible for election as directors of
the Company.
To be timely, notice of nominations before an annual meeting must be
received by the Secretary of the Company not later than 90 days prior to the
date of such annual meeting. Notice of other business before an annual meeting
must be received by the Secretary of the Company not less than 20 days nor more
than 50 days prior to the meeting. Similarly, notice of nominations or other
business to be brought before a special meeting must be delivered to the
Secretary at the principal executive office of the Company no later than the
close of business on the 10th day following the day on which notice of the date
of a special meeting of shareholders was given.
The notice of any nomination for election as a director must set forth (i)
the name and address of the shareholder who intends to make the nomination and
of the person or persons to be nominated; (ii) a representation that the
shareholder is a holder of record stock of the Company entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (iv) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission, had the nominee been nominated, or intended to be nominated,
by the Board of Directors; and (v) the consent of each nominee to serve as a
director of the Company if so elected.
The notice with respect to other business to be brought before the annual
meeting must set forth (i) a brief description of the business proposed to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; (ii) the name and address, as they appear on the
Company's books, of the shareholder proposing such business; (iii) the number of
shares of the Company which are beneficially owned by the shareholder; and (iv)
any material interest of the shareholder in such business.
AMENDMENTS TO BYLAWS
The Amended and Restated Articles of Incorporation provide that the power to
adopt, alter, amend, or repeal the bylaws of the Company is vested exclusively
with the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Amended and Restated Articles of Incorporation contain a provision
permitted under the NGCL relating to the liability of directors. This provision
eliminates a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as a breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
This provision does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. This provision will not
alter a director's liability under federal securities laws.
The Amended and Restated Articles of Incorporation and the Amended and
Restated Bylaws also contain provisions indemnifying the directors and officers
of the Company to the fullest extent permitted by the NGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
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
29
<PAGE>
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
Prior to the effective date of this offering, the Company intends to engage
Interwest Transfer Company, Inc. of Salt Lake City, Utah, as the transfer agent
and registrar of the Common Stock.
TERMS OF THE OFFERING
PLAN OF DISTRIBUTION
The Company hereby offers up to 80,000 shares of Common Stock at the
purchase price of $2.50 per share. The Common Stock is being offered on a
"direct participation" basis by the Company (employees, officers and directors).
The employees, officers and directors who shall sell the offering on behalf of
the Company are Elizabeth Peters and Justin Peters. These individuals will be
relying on the safe harbor in Rule 3a4-1 under the Securities Exchange Act of
1934 to sell the Company's securities. The principal shareholders will supply
names of prospective investors to the Company's management, none of which shall
have been offered shares of Common Stock prior to the date of this Prospectus.
The Company does not intend to offer the shares of Common Stock by means of
general advertising or solicitation. No sales commission, finder's fee or other
compensation (other than salaries payable to the Company's management) will be
paid for Common Stock sold by the Company. The Company reserves the right to
withdraw, cancel or reject an offer in whole or in part. The Common Stock
offered hereby will not be sold to insiders, control persons, or affiliates of
the Company. There are no plans, proposals, arrangements or understandings with
any potential sales agent with respect to participating in the distribution of
the Company's securities. When, in the future, assuming such participation
develops, the registration statement will be amended to identify such persons.
DETERMINATION OF OFFERING PRICE.
The offering price and other terms of the Common Stock were arbitrarily
determined by the Company after considering the total offering amount needed and
the possible dilution to existing and new shareholders.
OFFERING PROCEDURE.
This Offering will terminate on or before June 30, 1999. In the Company's
sole discretion, the offering of Common Stock may be extended from time to time,
but in no event later than one (1) year from the date of this Prospectus.
SUBSCRIPTION PROCEDURE.
Each investor must complete a subscription agreement in the form supplied by
the Company. The full amount of each subscription will be required to be paid
with a check payable to the Company in the amount of the subscription. Such
payments are to be remitted directly to the Company by the purchaser before
12:00 noon, on the following business day, together with a list showing the
names and addresses of the person subscribing for the offered Common Stock or
copies of subscribers confirmations.
NO ESCROW ACCOUNT.
There is no minimum offering amount and no escrow account. As a result, any
and all offering proceeds will be deposited directly into the operating account
of the Company.
30
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 780,000
shares of Common Stock. Of such outstanding shares, the shares sold in
connection with the Offering will be freely tradeable in the United States
without restriction under the Securities Act, except that shares purchased by an
"affiliate" of the Company, within the meaning of the rules and regulations
adopted under the Securities Act, may be subject to resale restrictions. The
remaining outstanding shares are "restricted securities," as that term is
defined under such rules and regulations, and may not be sold unless they are
registered under the Securities Act or they are sold in accordance with Rule 144
under the Securities Act or some other exemption from such registration
requirement. As those restrictions under the Securities Act lapse, such shares
may be sold to the public pursuant to Rule 144.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, subject to certain conditions with respect to the manner of sale,
the availability of current public information concerning the Company and other
matters, each of the existing shareholders who has beneficially owned shares of
Common Stock for at least one year will be entitled to sell within any three
month period that number of such shares which does not exceed the greater of the
total number of then outstanding shares of Common Stock or the average weekly
trading volume of shares of Common Stock during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Commission. Moreover, each of the existing shareholders who is not deemed to be
an affiliate of the Company at the time of the proposed sale and who has
beneficially owned his or her shares of Common Stock for at least two years will
be entitled to sell such shares under Rule 144 without regard to such volume
limitations.
Prior to the Offering, there has been no public market for the Common Stock.
No assurance can be given that such a market will develop or, if it develops,
will be sustained after the Offering or that the purchasers of the shares of
Common Stock will be able to resell such shares of Common Stock at a price
higher than the initial public offering or otherwise. If such a market develops,
no prediction can be made as to the effect, if any, that future sales of shares
of Common Stock, or the availability of shares of Common Stock for future sale,
to the public will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of presently outstanding or
subsequently issued stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital in the future through an offering of its
additional shares of Common Stock that may be offered for sale or sold to the
public in the future.
INTEREST OF NAMED EXPERTS AND COUNSEL
The law firm of Erickson & Sederstrom, P.C. has passed upon the legality of
the shares of Common Stock offered hereby. A former attorney/shareholder of this
firm is a fifty percent (50%) shareholder of Peterson & Sons Holding Company,
one of the Company's principal shareholders.
31
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1998 (unaudited), December 31, 1997 and 1996, for the
nine months ended September 30, 1998 and 1997 (unaudited), the year ended
December 31, 1997 the period from December 5, 1996 (inception) through December
31, 1996, and the period from December 5, 1996 (inception) through September 30,
1998 (unaudited).
<TABLE>
<S> <C>
Independent auditor's report......................................................... F-2
Consolidated balance sheets.......................................................... F-3
Consolidated statements of operations................................................ F-4
Consolidated statement of shareholder's equity....................................... F-5
Consolidated statements of cash flows................................................ F-6
Notes to consolidated financial statements........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
World House Entertainment, Inc.
We have audited the consolidated balance sheets of World House
Entertainment, Inc. and subsidiary (a development stage company) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1997 and for
the period from December 5, 1996 (inception) through December 31, 1997 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
World House Entertainment, Inc., and subsidiary were affiliated for the
period from inception to the effective date of the Agreement To Acquire Shares
(December 31, 1997). The Agreement To Acquire Shares is described in Note F. The
historical financial statements of World House Entertainment, Inc., and
subsidiary have been combined for the periods from inception to the effective
date of the Agreement To Acquire Shares.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial position
of World House Entertainment, Inc., and subsidiary as of December 31, 1997 and
1996 and the results of their operations and their cash flows for the year ended
December 31, 1997 and for the period from December 5, 1996 (inception) through
December 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note A to
the consolidated financial statements, the Company has incurred net losses since
inception, has a limited amount of cash at September 30,1998 and has not yet
commenced operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also discussed in Note A. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
February 25, 1998
F-2
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
SEPTEMBER 30, ----------- ---------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash........................................................................ $ 1,109 $ 7,709 $ 3,585
Note receivable, related party, net of allowance of $100,000 (unaudited),
$100,000, and $-0- (Note B)............................................. -- -- --
Property and equipment, net of accumulated depreciation of $6,923
(unaudited), $790, and $-0- (Note D).................................... 18,986 23,798 --
Other assets
Deferred offering costs................................................... 4,336 -- --
Organization costs, net................................................... 220 330 --
Deposits.................................................................. 450 384 --
------------- ----------- ---------
$ 25,101 $ 32,221 $ 3,585
------------- ----------- ---------
------------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Accounts and notes payable
Accounts, trade......................................................... $ 11,077 $ 19,725 $ --
Notes, related parties (Notes B&D)...................................... 141,250 128,750 --
Other notes payable (Note C)............................................ 13,750 -- --
Other current liabilities
Accrued interest payable................................................ 14,102 3,086 --
Accrued payroll taxes................................................... 677 -- --
------------- ----------- ---------
TOTAL LIABILITIES 180,856 151,561 --
------------- ----------- ---------
COMMITMENTS (NOTE G)........................................................ -- -- --
SHAREHOLDERS' EQUITY (DEFICIT) (NOTE F)
Preferred stock, $.001 par value; 5,000,000 shares authorizes, -0-
(unaudited), -0- and -0- issued and outstanding......................... -- --
----
Common stock, $.001 par value; 50,000,000 shares authorizes, 700,000
(unaudited), 700,000 and 360,000 issued and outstanding................. 700 700 360
Additional paid-in capital................................................ 27,300 13,800 3,240
Deficit accumulated during development stage.............................. (183,755) (133,840) (15)
------------- ----------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (155,755) (119,340) 3,585
------------- ----------- ---------
$ 25,101 $ 32,221 $ 3,585
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 5,
1996
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
NINE MONTHS ENDED ------------ --------------- DECEMBER 5,
SEPTEMBER 30, 1996
------------------------ (INCEPTION)
1998 1997 THROUGH
----------- ----------- SEPTEMBER 30,
1998
(UNAUDITED) (UNAUDITED) ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Agent fees.......................... $ 14,460 $ 838 $ 1,553 $ -- $ 16,013
Agent fees, related party
(Note B).......................... 15,934 40 -- -- 15,934
----------- ----------- ------------ --------------- ---------------
30,394 878 1,553 -- 31,947
----------- ----------- ------------ --------------- ---------------
----------- ----------- ------------ --------------- ---------------
OPERATING EXPENSES
Product development................. -- -- 18,384 -- 18,384
Reserve for uncollectible note
receivable (Note B)............... 7,501 -- 100,000 -- 107,501
Fair value of contributed office
space (Note B).................... 4,500 -- 2,500 -- 7,000
Fair value of contributed services
(Note B).......................... 9,000 2,500 5,000 -- 14,000
General and administrative.......... 47,795 1,797 6,115 15 53,925
----------- ----------- ------------ --------------- ---------------
68,796 4,297 131,999 15 200,810
----------- ----------- ------------ --------------- ---------------
LOSS FROM OPERATIONS (38,402) (3,459) (130,446) (15) (168,863)
INTEREST EXPENSE, NET................. (11,513) -- (3,379) -- (14,892)
----------- ----------- ------------ --------------- ---------------
LOSS BEFORE INCOME TAXES (49,915) (3,459) (133,825) (15) (183,755)
INCOME TAX BENEFIT (EXPENSE) (NOTE E)
Current............................. 7,318 695 5,286 3 15,725
Deferred............................ (7,318) (695) (5,286) (3) (15,725)
----------- ----------- ------------ --------------- ---------------
NET LOSS $ (49,915) $ (3,459) $ (133,825) $ (15) $ (183,755)
----------- ----------- ------------ --------------- ---------------
----------- ----------- ------------ --------------- ---------------
INCOME LOSS PER COMMON SHARE (Note A)
Basic weighted average common shares
outstanding....................... 700,000 700,000 700,000 700,000 700,000
----------- ----------- ------------ --------------- ---------------
----------- ----------- ------------ --------------- ---------------
Basic loss per share................ $ (0.07) -- $ (0.19) -- $ (0.26)
----------- ----------- ------------ --------------- ---------------
----------- ----------- ------------ --------------- ---------------
</TABLE>
- ------------------------
* Less than $.01
See accompanying notes to financial statements.
F-4
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
DECEMBER 5, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEVELOPMENT
------------------------ ---------------------- PAID-IN STAGE
SHARES AMOUNT SHARES AMOUNT CAPITAL (NOTE A)
----------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 5, 1996 (Inception)...... -- $ -- -- $ -- $ -- $ --
Sale of common stock, December 13, 1996... -- -- 360,000 360 3,240 --
Net loss.................................. -- -- -- -- -- (15)
----------- ----------- --------- ----------- ----------- ------------
BALANCE DECEMBER 31, 1996 -- -- 360,000 360 3,240 (15)
Sale of common stock, October 21, 1997.... -- -- 120,000 120 1,080 --
Sale of common stock, November 5, 1997.... -- -- 20,000 20 180 --
Issuance of common stock for all of the
issued and outstanding voting stock of
Songs For The Planet, Inc., December 31,
1997
(Note F)................................ -- -- 200,000 200 1,800 --
Services contributed by shareholder,
reflected at fair value (Note B)........ -- -- -- -- 5,000 --
Office space contributed by shareholder,
reflected at fair value (Note B)........ -- -- -- -- 2,500 --
Net loss.................................. -- -- -- -- -- (133,825)
----------- ----------- --------- ----------- ----------- ------------
BALANCE DECEMBER 31, 1997 -- -- 700,000 700 13,800 (133,840)
----------- ----------- --------- ----------- ----------- ------------
----------- ----------- --------- ----------- ----------- ------------
Services contributed by shareholder,
reflected at fair value (Note B)
(unaudited)............................. -- -- -- -- 9,000 --
Office space contributed by shareholder,
reflected at fair value (Note B)
(unaudited)............................. -- -- -- -- 4,500 --
Net loss (unaudited)...................... -- -- -- -- -- (49,915)
----------- ----------- --------- ----------- ----------- ------------
BALANCE SEPTEMBER 30, 1998 (unaudited) -- $ -- 700,000 $ 700 $ 27,300 $ (183,755)
----------- ----------- --------- ----------- ----------- ------------
----------- ----------- --------- ----------- ----------- ------------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance December 5, 1996 (Inception)...... $ --
Sale of common stock, December 13, 1996... 3,600
Net loss.................................. (15)
-------------
BALANCE DECEMBER 31, 1996 3,585
Sale of common stock, October 21, 1997.... 1,200
Sale of common stock, November 5, 1997.... 200
Issuance of common stock for all of the
issued and outstanding voting stock of
Songs For The Planet, Inc., December 31,
1997
(Note F)................................ 2,000
Services contributed by shareholder,
reflected at fair value (Note B)........ 5,000
Office space contributed by shareholder,
reflected at fair value (Note B)........ 2,500
Net loss.................................. (133,825)
-------------
BALANCE DECEMBER 31, 1997 (119,340)
-------------
-------------
Services contributed by shareholder,
reflected at fair value (Note B)
(unaudited)............................. 9,000
Office space contributed by shareholder,
reflected at fair value (Note B)
(unaudited)............................. 4,500
Net loss (unaudited)...................... (49,915)
-------------
BALANCE SEPTEMBER 30, 1998 (unaudited) $ (155,755)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 5,
1996 (INCEPTION)
NINE MONTHS ENDED YEAR ENDED THROUGH
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
-------------------------- 1997 1996
1997 -------------- -----------------
------------- DECEMBER 5,
1996
(UNAUDITED) (INCEPTION)
1998 THROUGH
----------- SEPTEMBER 30,
1998
(UNAUDITED) ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................... $ (49,915) $ (3,404) $ (133,825) $ (15) $(183,755)
Expenses not requiring cash:
Depreciation and amortization.... 6,177 -- 856 -- 7,033
Allowance for uncollectible note
receivable (Note B)............ -- -- 100,000 -- 100,000
Services and office space
contributed (Note B)........... 13,500 -- 7,500 -- 21,000
----------- ------ -------------- ------ ---------------
(30,238) (3,404) (25,469) (15) (55,722)
Changes in current assets and
current liabilities:
Indebtedness of related party.... -- -- -- -- --
Accounts payable and accrued
expenses....................... 3,045 520 22,811 -- 25,856
----------- ------ -------------- ------ ---------------
NET CASH (USED IN)
OPERATING ACTIVITIES (27,193) (2,884) (2,658) (15) (29,866)
----------- ------ -------------- ------ ---------------
INVESTING ACTIVITIES
Purchase of furniture and
equipment........................ (1,321) (249) (24,588) -- (25,909)
Cash paid for security deposit..... -- (450) (450) -- (450)
Cash paid for organizational
matters.......................... -- (330) (330) -- (330)
Investment in related party
promissory note (Note B)......... -- -- (100,000) -- (100,000)
----------- ------ -------------- ------ ---------------
NET CASH (USED IN)
INVESTING ACTIVITIES (1,321) (1,029) (125,368) -- (126,689)
----------- ------ -------------- ------ ---------------
FINANCING ACTIVITIES
Sale of common stock............... -- 3,200 3,400 3,600 7,000
Offering costs incurred............ (4,336) -- -- -- (4,336)
Proceeds from the issuance of
demand promissory notes (Notes
B&D)............................. 26,250 -- 128,750 -- 155,000
----------- ------ -------------- ------ ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 21,914 3,200 132,150 3,600 157,664
----------- ------ -------------- ------ ---------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ (6,600) (713) 4,124 3,585 1,109
Cash and cash equivalents,
beginning of period.............. 7,709 3,585 3,585 -- --
----------- ------ -------------- ------ ---------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 1,109 $ 2,872 $ 7,709 $ 3,585 $ 1,109
----------- ------ -------------- ------ ---------------
----------- ------ -------------- ------ ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ -- $ -- $ -- $ -- $ --
Cash paid for income taxes......... $ -- $ -- $ -- $ -- $ --
NONCASH INVESTING ACTIVITIES:
On December 31, 1997, WHE issued 200,000 shares of its common stock in exchange for all of the outstanding common
stock of SFPI. See Note F.
The Company has recorded a valuation allowance of $9,673 at September 30, 1998 (unaudited) and $2,174 at December
31, 1997 for accrued interest on a note receivable. See Note B.
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: World House Entertainment, Inc. and subsidiary (the
"Company") is a development stage company engaged in promoting and administering
copyright royalties in the recorded music industry. Upon completion of
development activities, the Company plans to establish a consulting practice
specializing in intellectual property rights and licensing agreements and to
provide administrative services to prospective clients who hold musical
copyrights. Since inception, the Company has been primarily engaged in service
development.
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue for the
foreseeable future. In addition, at September 30,1998 the Company has a limited
supply of cash available with which to commence operations. The Company plans to
continue to finance its development with a combination of common stock sales and
debt financings and beginning in 1998, through consulting fees and commission
income. The Company's ability to continue as a going concern is dependent on
successful completion of additional financings and ultimately, upon achieving
profitable operations.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of World House Entertainment, Inc. (WHEI) and its wholly owned
subsidiary, Songs for the Planet, Inc. (SFPI). A principle shareholder in WHEI
is also a blood relative of the sole shareholder of SFPI, prior to the merger.
Because the two companies were affiliated, by virtue of common control since
inception, their financial statements have been consolidated for all periods
presented. All intercompany transactions have been eliminated.
USE OF ESTIMATES: The preparation of the financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH EQUIVALENTS: For the purpose of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT AND DEPRECIATION: Property and equipment are stated
at cost and depreciated using the straight-line method over their useful lives.
ORGANIZATION COSTS AND AMORTIZATION: Organization costs are recorded at
cost. Amortization is calculated by the straight-line method over a period of
sixty months.
INCOME TAXES: Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the recorded book basis
and tax basis of assets and liabilities for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future taxable
income and tax credits that are available to offset future federal income taxes.
EARNINGS (LOSS) PER SHARE: In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share". SFAS 128
F-7
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
specifies the computation, presentation, and disclosure requirements of earnings
per share and supersedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share". SFAS 128 requires a dual presentation of basic and diluted earnings
per share. Basic earnings per share, which excludes the impact of common stock
equivalents, replaces primary earnings per share. Diluted earnings per share,
which utilizes the average market price per share as opposed to the greater of
the average market price per share or ending market price per share when
applying the treasury stock method in determining common stock equivalents,
replaces fully-diluted earnings per share. SFAS 128 is effective for the Company
in 1997; however, the Company has a simple capital structure for the periods
presented and, therefore, there is no affect on the earnings per share presented
due to the Company's adoption of SFAS No. 128.
The loss per share has been computed on the basis of the weighted average
number of shares outstanding during the period, according to the rules of the
Securities and Exchange Commission. Such rules require that any shares sold at a
nominal value prior to a public offering, should be considered outstanding for
all periods presented.
NOTE B: RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1998, certain shareholders of the
Company provided temporary financing to the Company in the amount of $32,500
(unaudited) (See Note D). The temporary financing is expected to be repaid with
the proceeds of an initial public offering, planned for in 1998. In addition, a
note payable to shareholder totaling $6,250 (unaudited) was extinguished.
During the period from October 2 through October 15, 1997, certain
shareholders of the Company provided temporary financing to the Company in the
amount of $128,750 (See Note D). The temporary financing is expected to be
repaid with the proceeds of an initial public offering, planned for in 1998.
During the period from October 2 through October 15, 1997, the Company
loaned a total of $100,000 to an affiliate pursuant to the terms of an unsecured
promissory note. The business purpose of this transaction was to provide the
affiliate with cash sufficient to purchase an assignment of right, title and
interest in certain published musical copyrights. Management established an
allowance for uncollectible note receivable of $100,000 to reflect the note at
its estimated net realizable value in the accompanying financial statements. In
addition, interest income accrued on the note has been offset by a valuation
allowance.
Compensation expense has been reflected for the fair value of services
provided, without remuneration, by certain shareholders of the Company. A
corresponding credit to additional paid-in capital has also been made. The
accompanying statements of operation reflect a credit of $9,000 (unaudited) for
the nine months ended September 30, 1998 and $5,000 for the year ended December
31, 1997.
The Company has used office space provided by certain shareholders, on a
rent-free basis. The accompanying statements of operation reflect the fair value
of the office space; $4,500 (unaudited) for the nine months ended September 30,
1998 and $2,500 for the year ended December 31, 1997.
F-8
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE C: PROPERTY AND EQUIPMENT
Property and equipment, as of September 30, 1998, December 31, 1997 and
December 31, 1996, respectively consisted of the following:
<TABLE>
<CAPTION>
1997 1996
1998 --------- -----
-----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture.......................................................................... $ 771 $ 771 $ --
Office equipment................................................................... 5,975 5,401 --
Studio equipment................................................................... 18,807 18,416 --
----------- --------- ---
25,553 24,588 --
Less: accumulated depreciation..................................................... (4,197) (790) --
----------- --------- ---
$ 21,356 $ 23,798 $ --
----------- --------- ---
----------- --------- ---
</TABLE>
Depreciation expense for the nine months ended September 30, 1998, the year
ended December 31, 1997 and for the period from December 6, 1996 through
December 31, 1996 was $6,133, $790 and $-0-, respectively.
NOTE D: NOTES PAYABLE
Note payable consisted of bridge financing to be extinguished upon closing
of the Company's common stock offering.
The Company is indebted to an entity for $13,750 (unaudited) as of September
30, 1998. The note is due on demand, at 10 percent interest. Notes payable
outstanding to this entity was $-0- and $-0- at December 31, 1997 and 1996.
Notes payable to related parties, all due on demand, at 10 percent interest
to related parties consisted of the following at September 30, 1998, December
31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1997 1996
1998 ---------- -----
-----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to affiliate......................................................... $ 37,500 $ 37,500 $ --
Note payable to affiliate......................................................... 25,000 25,000 --
Note payable to affiliate......................................................... 7,500 -- --
Note payable to affiliate......................................................... 5,000 -- --
Note payable to affiliate......................................................... 6,250 -- --
Note payable to affiliate......................................................... 12,500 12,500 --
Note payable to affiliate......................................................... 37,500 37,500 --
Note payable to affiliate......................................................... 10,000 10,000 --
Note payable to affiliate......................................................... -- 6,250 --
----------- ---------- ---
$ 141,250 $ 128,750 $ --
----------- ---------- ---
----------- ---------- ---
</TABLE>
F-9
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE E: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the
effective tax rate follows for the nine months ended September 30, 1998, the
year ended December 31, 1997 and for the period from December 6, 1996 through
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
1998 ------------ ------------
--------------
(UNAUDITED)
<S> <C> <C> <C>
U.S. federal statutory graduated rate................ 15.00 % 15.00 % 15.00 %
State income tax rate, net of federal benefit........ 5.10 % 5.10 % 5.10 %
Allowance for receivables............................ -- % (15.02)% -- %
Other................................................ (4.18)% (1.13)% -- %
Net operating loss for which no tax benefit is
currently available................................ (15.92)% (3.95)% (20.10)%
------ ------ ------
-- % -- % -- %
------ ------ ------
------ ------ ------
</TABLE>
At September 30, 1998, the benefit for income taxes from operations
consisted of the following components: current tax benefit of $7,319 resulting
from a net loss before income taxes, and deferred tax expense of $7,319
resulting from the valuation allowance recorded against the deferred tax asset
resulting from net operating losses. The change in the valuation allowance from
December 31, 1996 through December 31, 1997 was $5,283 and from December 31,
1997 through September 30, 1998 was $2,033. The net operating loss carryforwards
for 1997 will expire in 2012.
The valuation allowance will be evaluated at the end of each year,
considering positive and negative evidence about whether the asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax asset is no longer
impaired and the allowance is no longer required.
NOTE F: SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue five million shares of $.001 par value
preferred stock which may be issued in series, with such designations,
preferences, stated values, rights, qualifications or limitations as determined
by the Board of Directors.
AGREEMENT TO ACQUIRE SHARES
Effective December 31, 1997, WHEI entered into an agreement with the sole
shareholder of SFPI to acquire all of the issued and outstanding common stock of
SFPI in exchange for 200,000 shares of WHEI's $.001 par value common stock. The
purchase price was valued at the fair value of WHEI's common stock, $2,000. For
financial accounting purposes, the transaction was accounted for as a transfer
of assets between companies under common control and has been recorded at
historical cost in the separate financial statements of each entity. The excess
of $69,058 of the purchase price over historical cost was recorded as a
reduction of equity in the unconsolidated separate financial statements of WHEI.
F-10
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE G: COMMITMENTS
The Company has entered into a vehicle lease, which is classified as an
operating lease. The lease expires in August 2000, at which time the Company may
elect to purchase the vehicle at fair market value as determined by the lessor.
Rent expense for the nine months ended September 30, 1998 and the year ended
December 31, 1997 was $3,932 (unaudited) and $1,748, respectively. Future
minimum lease payments are $5,243, $5,243 and 3,495 for 1998, 1999, and 2000,
respectively.
NOTE H: UNAUDITED INTERIM FINANCIAL DATA
The interim financial data presented herein has been prepared by the Company
in accordance with the accounting policies included in the accompanying
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) which are necessary to provide a fair
presentation of operating results for the interim periods presented have been
made.
Interim financial data presented herein is unaudited.
NOTE I: YEAR 2000 COMPLIANCE
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to send invoices,
engage in normal business activities, or to operate equipment such as telephone
systems, facsimile machines, and network operations equipment. The Company plans
to work with its equipment suppliers to confirm that this equipment is Year 2000
compliant. The Company believes this review will be completed during 1999 and
that the cost of this review will not be material. Until this review has been
completed, the Company has no estimate of the cost to correct any deficiency in
Year 2000 compliance for this equipment.
F-11
<PAGE>
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NO 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
USE OF PROCEEDS........................................................... 8
DIVIDEND POLICY........................................................... 8
DILUTION.................................................................. 9
MANAGEMENT'S PLAN OF OPERATION............................................ 10
BUSINESS.................................................................. 15
MANAGEMENT................................................................ 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 25
DESCRIPTION OF CAPITAL STOCK.............................................. 26
TERMS OF THE OFFERING..................................................... 30
SHARES ELIGIBLE FOR FUTURE SALE........................................... 31
INTEREST OF NAMED EXPERT AND COUNSEL...................................... 31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
80,000 SHARES
WORLD HOUSE ENTERTAINMENT, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
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