UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities and Exchange Act of 1934
THE ENTERTAINMENT INTERNET, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-4730315
(State of organization) (I.R.S. Employer Identification No.)
5757 Wilshire Blvd., Suite 124, Los Angeles, CA 90036
(Address of principal executive offices)
Registrant's telephone number, including area code (323) 904-4940
Registrant's Attorney: W. Michael Howery, 4505 South Wasatch Blvd., Suite 215,
Salt Lake City, UT 84124, (801) 273-1958, FAX (801) 273-1955.
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
Preferred stock, $.001 par value per share
Options convertible to common stock
Warrants to purchase common stock
Promissory notes convertible to common stock
Common stock to be issued pursuant to an Employee Stock Option Plan
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
The Entertainment Internet, Inc. (The "Company") is a Nevada corporation formed
on January 20, 1992 as West Tech Services, Inc. The name was changed by the
Board of Directors on August 3, 1998. The Company's principal place of business
is located at 5757 Wilshire Blvd., Los Angeles, California 90036. The Company
was organized to engage in any lawful corporate business purpose. The Company
was in the developmental stage until approximately April 1999, at which time new
management began implementing the business plan of the Company.
The Company formed a wholly-owned subsidiary in California as a California
corporation, The Entertainment Internet, Inc. (TEI-CAL) to be the operating
Company. On March 23, 1999, TEI-CAL was merged with Only Multimedia Network,
Inc., a California corporation (OMNI), with OMNI being the surviving
corporation. The Company currently operates as the parent company for OMNI,
which has done business under the Castnet.com(TM) fictitious name since February
9, 1999. Use of the Castnet.com(TM) fictitious name by others has been alleged
to have resulted in trademark infringement, which is being investigated by the
Company.
When incorporated, the Company had authority to issue 25,000 shares of no-par
value stock. On April 3, 1998, the Articles of Incorporation of the Company were
amended to establish 60 million shares of stock, 50 million common and 10
million preferred. (See Amendment to Articles of Incorporation).
The Board of Directors has elected to begin implementing the Company's principal
business purpose, described below under "Item 2, Plan of Operation". As such,
the Company has become fully operational, expanding its basic Internet business
and seeking combinations with other businesses which will enhance the Company's
competitive ability and expand its operations into broader areas in both the
Internet and entertainment casting industries.
The Company is filing this registration statement on a voluntary basis, pursuant
to section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act"), in
order to ensure that public information is readily accessible to all
shareholders and potential investors, and to increase the Company's access to
financial markets. In the event the Company's obligation to file periodic
reports is suspended pursuant to the Exchange Act, the Company anticipates that
it will continue to voluntarily file such reports.
RISK FACTORS
The Company's business is subject to numerous risk factors, including the
following
SHORT OPERATING HISTORY. The Company has only a short operating history and has
actively attacked the Internet/casting market. The Company will, in all
likelihood, sustain higher operating expenses compared with corresponding
revenues, at least until current plans are implemented fully (See Plan of
Operation.) There is no assurance that the Company will successfully expand into
the business opportunity described herein.
SPECULATIVE NATURE OF COMPANY'S PROPOSED OPERATIONS. The success of the
Company's proposed plan of operation will depend to a great extent on the
operations, financial condition, and management of both the Company and any
subsidiaries. While management also intends to seek business combinations with
entities having established operating histories, it cannot assure that the
Company will successfully locate candidates meeting such criteria. In the event
the Company completes a business combination, the success of the Company's
operations may be dependent upon management of the successor firm or venture
partner firm together with numerous other factors beyond the Company's control.
POSSIBLE SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND
COMBINATIONS. The Company is, and will continue to be, a participant in the
business of providing Internet casting resources and peripheral services. In
addition, it will be seeking, by way of expansion of its business, joint
ventures with, and acquisitions of small private entities. A large number of
established and well-financed entities, including venture capital firms, are
active in mergers and acquisitions of companies which may also be desirable
target candidates for the Company. Many such entities have greater financial
resources and technical management capabilities than the Company. The Company
could be, consequently, at a competitive disadvantage in identifying possible
business opportunities and successfully expanding its operations.
CONFLICTS OF INTEREST - GENERAL. The Company's officers and directors
participate in other business ventures which may compete directly with the
Company. Additional conflicts of interest and non "arms-length" transactions may
also arise in the event the Company's officers or directors are involved in the
management of any firm with which the Company transacts business.
REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION. Companies subject to
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act") must
provide certain information about significant acquisitions, including certified
financial statements for the company acquired, covering one or two years,
depending on the relative size of the acquisition. The time and additional costs
that may be incurred by some target entities to prepare such statements may
significantly delay or even preclude the Company from completing an otherwise
desirable acquisition. Acquisition prospects that do not have or are unable to
obtain the required audited statements may not be appropriate for acquisition so
long as the reporting requirements of the 1934 Act are applicable.
LACK OF DIVERSIFICATION. In all likelihood, the Company's proposed operations,
even if successful, will result in a business combination with only one entity.
Consequently, the resulting activities will be limited to the entity's business.
The Company's inability to diversify its activities into a number of areas may
subject the Company to economic fluctuations within a particular business or
industry, thereby increasing the risks associated with the Company's operations.
REGULATION. Although the Company will be subject to regulation under the
Securities Exchange Act of 1934, management believes the Company will not be
subject to regulation under the Investment Company Act of 1940, insofar as the
Company will not be engaged in the business of investing or trading in
securities. In the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment company Act of 1940 and, consequently, any violation of such Act
would subject the Company to material adverse consequences.
POSSIBLE CHANGE IN CONTROL AND MANAGEMENT. A business combination involving the
issuance of the Company's common stock could result in shareholders of a public
or private company obtaining a controlling interest in the Company. Any such
business combination may require management of the Company to sell or transfer
all or a portion of the Company's common stock held by them, or resign as
members of the Board of Directors of the Company. The resulting change in
control of the Company could result in removal of one or more present officers
and directors of the Company and a corresponding reduction in or elimination of
their participation in the future affairs of the Company.
TAXATION. Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination or operations the Company may
undertake. Typically, a combination transaction may be structured to result in
tax-free treatment to both companies, pursuant to various federal and state tax
provisions. If one is undertaken, the Company intends to structure any business
combination so as to minimize the federal and state tax consequences to both the
Company and the target entity. Management cannot assure that a business
combination will meet the statutory requirements for a tax-free reorganization,
or that the parties will obtain the intended tax-free treatment upon a transfer
of stock or assets. A non-qualifying reorganization could result in the
imposition of both federal and state taxes, which may have an adverse effect on
both parties to the transaction.
REQUIREMENT OF AUDITED FINANCIAL STATEMENTS MAY DISQUALIFY BUSINESS
OPPORTUNITIES. Management believes that any potential target company must
provide audited financial statements for review, and for the protection of all
parties to the business combination. One or more attractive business
opportunities may forego a business combination with the Company, rather than
incur the expenses associated with preparing audited financial statements.
BLUE SKY CONSIDERATIONS. Because the securities registered in any combination
may not have been registered for resale under the blue sky laws of any state,
and the Company has no current plans to register or qualify its shares in any
state, holders of these shares and persons who desire to purchase them in any
trading market that might develop in the future, should be aware that there may
be significant state blue sky restrictions upon the ability of new investors to
purchase the securities. These restrictions could reduce the size of any
potential market. Accordingly, investors should consider any potential secondary
market for the Company's securities to be a limited one.
DEPENDENCE UPON KEY PERSONNEL. The business of the Company is greatly dependent
upon its present management and will for some time be dependent on the general
business acumen and experience of all its officers and directors and the
application of such skills to the business decisions required to be made on
behalf of the Company. Although current management has significant experience
and background in the development and management of the Company's services,
there is no guarantee that they will continue with the Company if any
combinations are undertaken.
EMERGING INDUSTRY. Although the Internet and the casting industries are
expanding rapidly, the Internet industry is still an emerging industry without
clear and certain areas of exploitation. Many Companies are entering this
business area, some with greater financial resources than the Company.
COMPETITION. In addition, the Company shall be competing in this new and
expanding industry with some more established and better financed companies. Due
to the competitive nature of the Company's business, it may be difficult for the
Company to meets its goals in the particular area of the Internet industry in
which it has chosen to compete.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
This statement includes projections of future results and "forward-looking
statements" as that term is defined in Section 27A of the Securities Act of 1933
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934 as amended (the "Exchange Act"). All statements that are included in
this Registration Statement, other than statements of historical fact, are
forward-looking statements. Although Management believes that the expectations
reflected in these forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations are disclosed in this Statement, including, without limitation, in
conjunction with those forward-looking statements contained in this Statement.
Although these statements reflect management's current view of the Company
concerning future events, they are subject to certain risks, uncertainties and
assumptions, including, among many others: a general economic downturn, a
downturn in the securities markets, a general lack of public interest in either
the Company's products or securities, federal or state laws or regulations
having adverse effects on small business enterprises, and other risks and
uncertainties.
Should any of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this report as anticipated, estimated or expected.
PLAN OF OPERATION - GENERAL
The Entertainment Internet, Incorporated ("EINI" or "The Company") is a Nevada
corporation which acts as the holding company and parent corporation for Only
Multimedia Network, Inc. ("OMNI"), a California corporation.
Through Only Multimedia Network, Incorporated, EINI intends to establish itself
as the leading service provider of resources for the global entertainment
industry. The Entertainment Internet, Inc. operates a series of Internet-based
services using the Castnet.com(TM) service mark and trade name.
For ease of further reference, The Entertainment Internet, Inc. and Only
Multimedia Network, Incorporated are interchangeably referred to herein as "the
Company" and/or "the Corporation."
Historical Overview
The Company initially focused its efforts on hosting web-sites as an Internet
service provider (ISP) and providing related services. Prior to 1999, management
determined it favorable to eliminate all ISP activity and focus efforts on
development of its Castnet.com(TM) web-site, which integrates motion picture,
television and theatrical talent casting and agent submission services for the
entertainment industry. When management eliminated all ISP activity, it also
abandoned the Company's then-most significant revenue stream, leaving it unable
to function without repeated infusions of capital. The Company, at present, has
significant debt from debt instruments, expenses, leases, and exorbitant
salaries paid, all of which were incurred under prior management.
In May, 1998, significant capital was obtained through the efforts of Mr. Paul
Kessler and Bristol Asset Management, LLC, which funded critical operations
through use of a convertible debt instrument; the Board of Directors and certain
key officers were permitted to fund the Corporation on the same (or pari passu)
basis as Bristol Asset Management. Mr. Kessler sought alliances with several
entertainment industry representatives and successfully elected Marion Dougherty
and Roland Joffe to the Company's Board of Directors. Mr. Kessler allowed the
Company's management to continue operations for some time after conversion of
the Bristol debt, but learned, after the first quarter of 1999, that key
employees did not meet objectives and were not operating the Company in a manner
which would allow it to prosper. Shortly thereafter, Mr. Kessler sought a
management team capable of analyzing the Corporation's difficulties, resolving
the morass of claims threatened or levied against it and restructuring
operations.
During June, 1999, Mr. Kessler engaged Mr. Mohamed Hadid as the Company's
Chairman of the Board of Directors. During the second and third quarters of
1999, Mr. Hadid and Mr. Kessler worked together on a plan to manage the
Company's immediate financial and business needs, including the infusion of
additional capital. Mr. Hadid sought strategic alliances with Jean Claude Van
Damme and Tony Cataldo and was successful in obtaining their commitments to
assist the Corporation with further development and expansion of its
Castnet.com(TM) services. Mr. Hadid and Mr. Kessler obtained a renewal of the
commitment of Thom Mount to serve on the Company's Board of Directors and as the
Company's liaison with the Producers Guild of America. Mr. Hadid also
internalized the Corporation's legal affairs, which were formerly administered
by a number of outside counsel at great expense to the company.
Third quarter efforts focused on restoration of financial integrity of the
corporation, management of the corporation's legal affairs, implementation of
financial and human resource controls, restructuring of Castnet.com(TM)
services, expansion of service areas, design, implementation, and rollout of new
services, formation of strategic alliances, review of year 2000 compliance
issues, design, evaluation, and programming of new relational databases, and
general programs calculated to increase sales revenue and market share. During
the period extending from July through October, 1999, several employees were
dismissed.
As the company entered the fourth quarter of 1999, efforts focused on
introduction of two new services, CastnetBabies.com and CastnetExtras.com, which
the Company believes will significantly increase its market share and allow for
growth of its current subscriber base. The company redesigned and reprogrammed
its Castnet.com(TM) "front page" and continued to develop a series of relational
databases with technological advances intended to increase efficiency and ease
of use of the services provided through Castnet.com.(TM) The company continues
to develop strategic alliances in domestic and foreign markets upon which it can
capitalize as it moves into the new millennium.
Liquidity and Capital Resources
EINI financed its operations primarily through the sale of its securities and
issuance of debt instruments. In this regard, the Company finalized two
significant financing agreements (ongoing debt transactions) in July, 1999, as
follows:
The Company entered into promissory note and finance agreements with Windsor
Capital Fund VI and Packard Capital, Ltd. which provide for receipt of funds by
The Entertainment Internet, Inc. in exchange for interest bearing obligations
(at 6%) interest, convertible to stock at a rate equivalent to a forty percent
(40%) discount from the lowest trading rate of the company's openly traded stock
(redeemable by the Company at any time during a one-year period upon payment of
principal and interest); the discount rate is applied to compensate for the
restricted nature of the stock, issued pursuant to Rule 144.
The Company also obtained a line of credit for future expansion and growth (see
press release); the line of credit is restricted and may not be used for
liquidation of prior-incurred debt or resolution of creditor claims.
A full discussion of capital raised or securities issued by the Company pursuant
to offerings deemed to be exempt from registration is set forth in Item 10,
below.
Sources of Opportunities
The Company does not currently have any material commitments for capital
expenditures other than a line of credit restricted for expansion and future
growth. The Company anticipates, however, that it will experience a substantial
increase in capital expenditures and lease commitments consistent with its
anticipated growth in operations and infrastructure, including various capital
expenditures associated with the expansion of operations into foreign markets.
The Entertainment Internet, Inc. anticipates that it will continue to experience
significant growth in its operating expenses for the foreseeable future and that
these expenses will be a material use of cash resources. The Company believes
that its existing cash will not be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for the coming months.
The Company derives revenue in two ways: Through its Castnet.com(TM) web-sites,
the company charges actors an annual fee for inclusion of photographs, resumes,
and other career-related material on its Internet-based service; the company
also derives revenue from advertisements placed on the Castnet.com(TM) web-site.
The company is currently evaluating plans to isolate several services offered,
such as print communications routing and computer technical support, and to
transform them into profit centers for the company.
The successful execution of the Company's initial interactive system,
Castnet.com(TM) brought the Company a strong cash flow system which charges an
all-inclusive annual fee for participation in EINI's proprietary database. The
Castnet.com(TM) product is currently being used by casting directors and talent
agents in Hollywood to submit actors and actresses for a wide variety of roles
in movies and television. The Castnet.com(TM) service is set up so that it may
be tailored for the actor/actress, through inclusion of a variety of elements
including, but not limited to, audio tracks and video segments. The Company
feels its real-time submission and review services represent the future of
casting and believes the results of its actions are rapidly being felt in the
industry.
The Castnet.com(TM) system allows aspiring actors, actors, agents and casting
directors to communicate with each other on a confidential basis on a moment's
notice. An enormously important part of the Castnet.com(TM) environment is the
efficient facilitation of unrecognized talent.
Further, the Company has established industry recognition by acting as the
Actor's Advocate. Two industry unions have praised the Company for its efforts
in expanding the visibility of the personnel portion of the industry. The
Castnet.com(TM) system has further refinements and offerings planned, including,
but not limited to, integrated Castnet.com(TM) sites and services for managers,
producers, production crew, location scouts, property owners, and voice talent.
By expanding services to all strata of the industry, the Company feels it will
impact the industry in ways which will greatly expand revenues. The Company
feels that the design, depth and sophistication of its products provides it with
the ability to expand into all areas of the entertainment industry.
In addition to this market penetration, the Company will seek a potential
business opportunity from all known sources, but will rely principally on
personal contacts of its officers and directors as well as indirect associations
between them and other business and professional people. It is not presently
anticipated that the Company will engage professional firms specializing in
business acquisitions or reorganizations. Management, while not especially
experienced in matters relating to the new business of the Company, will rely
upon their own efforts and, to a much lesser extent, the efforts of the
Company's shareholders, in accomplishing the business purposes of the Company.
The Company may use outside consultants or advisors, other than the Company's
legal counsel and accountants, to effectuate its business purposes described
herein. If the Company does retain such an outside consultants or advisors, any
cash fee earned by such parties will need to be paid by the prospective
merger/acquisition candidate, as the Company has not cash assets with which to
pay such obligation. Outside legal counsel was consulted regarding the proposed
merger with First Miracle, as well as the prior acquisition of OMNI.
As is customary in the industry, the Company may pay a finder's fee for locating
an acquisition prospect. If any such fee is paid, it will be approved by the
Company's Board of Directors and will be in accordance with the industry
standards. Such fees are customarily between 1% and 5% of the size of the
transaction, based upon a sliding scale of the amount involved. Such fees are
typically in the range of 5% on a $1,000,000 transaction ratably down to 1% in a
$4,000,000 or more transaction. Management has adopted a policy that such a
finder's fee or real estate brokerage fee could, in certain circumstances, be
paid to any employee, officer, director or 5% shareholder of the Company, if
such person plays a material role in bringing a transaction to the Company.
The Company will not have sufficient funds to undertake any significant
development, marketing, and manufacturing of any product which may be acquired.
Accordingly, if it acquires the rights to a product, rather than entering into a
merger or acquisition, it most likely would need to seek debt or equity
financing or obtain funding from third parties, in exchange for which the
Company would probably be required to give up a substantial portion of its
interest in any acquired product. There is no assurance that the Company will be
able either to obtain additional financing or to interest third parties in
providing funding for the further development, marketing and manufacturing of
any products acquired.
EVALUATION OF OPPORTUNITIES
The analysis of new business opportunities in the Company's industry will be
undertaken by or under the supervision of the officers and directors of the
Company (see "Management"). Management intends to concentrate on identifying
prospective business opportunities which may be brought to its attention through
present associations with management. In analyzing prospective business
opportunities, management will consider, among other factors, such matters as:
1. the available technical, financial and managerial resources
2. working capital and other financial requirements
3. history of operation, if any
4. prospects for the future
5. present and expected competition
6. the quality and experience of management services which may be
available and the depth of that management
7. the potential for further research, development or exploration
8. specific risk factors not now foreseeable but which then may be
anticipated to impact the proposed activities of the Company
9. the potential for growth of expansion
10. the potential for profit
11. the perceived public recognition or acceptance of products,
services or trades
12. name recognition
Company management will meet personally with management and key personnel of the
firm sponsoring the business opportunity as part of their investigation. To the
extent possible, the Company intends to utilize written reports and personal
investigation to evaluate the above factors. The Company will not acquire or
merge with any company for which audited financial statements cannot be
obtained.
Opportunities in which the Company participates will present certain risks, many
of which cannot be identified adequately prior to selecting a specific
opportunity. The Company's shareholders must, therefore, depend on management to
identify and evaluate such risks. Promoters of some opportunities may have been
unable to develop a going concern or may present a business in its development
stage (in that it has not generated significant revenues from its principal
business activities prior to the Company's participation). Even after the
Company's participation, there is a risk that the combined enterprise may not
become a going concern or advance beyond the development stage. Other
opportunities may involve new and untested products, processes, or market
strategies which may not succeed. Such risks will be assumed by the Company and,
therefore, its shareholders.
The investigation of specific business opportunities and the negotiation,
drafting, and execution of relevant agreements, disclosure documents, and other
instruments will require substantial management time and attention as well as
substantial costs for accountants, attorneys, and others. If a decision is made
not to participate in a specific business opportunity the costs incurred in the
related investigation would not be recoverable. Furthermore, even if an
agreement is reached for the participation in a specific business opportunity,
the failure to consummate that transaction may result in the loss by the Company
of the related costs incurred.
ACQUISITION OF OPPORTUNITIES
In expanding the Company's strategic position, the Company may become a party to
a merger, consolidation, reorganization, joint venture, franchise, or licensing
agreement with another corporation or entity. It may also purchase stock or
assets of an existing business. Once a transaction is complete, it is possible
that the present management and shareholders of the Company will not be in
control of the Company. In addition, a majority or all of the Company's officers
and directors may, as part of the terms of the transaction, resign and be
replaced by new officers and directors without a vote of the Company's
shareholders.
It is anticipated that securities issued in any such reorganization would be
issued in reliance on exemptions from registration under applicable Federal and
state securities laws. In some circumstances, however, as a negotiated element
of this transaction, the Company may agree to register such securities either at
the time the transaction is consummated, under certain conditions, or at a
specified time thereafter. The issuance of substantial additional securities and
their potential sale into any trading market which may develop in the Company's
Common Stock may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so called "tax free" reorganization under
applicable Sections of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to obtain tax free treatment under the Code, it may be
necessary for the owners of the acquired business to own 80% or more of the
voting stock of the surviving entity. In such event, the shareholders of the
Company, including investors in this offering, would retain less than 20% of the
issued and outstanding shares of the surviving entity, which could result in
significant dilution in the equity of such shareholders.
As part of the Company's investigation, officers and directors of the Company
will meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis or verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
The manner in which the Company participates in an opportunity with a target
company will depend on the nature of the opportunity, the respective needs and
desires of the Company and other parties, the management of the opportunity, and
the relative negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target company
management will be expected to focus on the percentage of the Company which the
target company's shareholders would acquire in exchange for their shareholdings
in the target company. Depending upon, among other things, the target company's
assets and liabilities, the Company's shareholders will, in all likelihood, hold
a lesser percentage ownership interest in the Company following any merger or
acquisition. The percentage ownership may be subject to significant reduction in
the event the Company acquires a target company with substantial assets. Any
merger or acquisition effected by the Company can be expected to have a
significant dilutive effect on the percentage of shares held by the Company's
then shareholders.
Management has advanced, and will continue to advance, funds which shall be used
by the Company in identifying and pursuing agreements with target companies.
Management anticipates that these funds will be repaid from the proceeds of any
agreement with the target company, and that any such agreement may, in fact, be
contingent upon the repayment of those funds.
COMPETITION
The Company will be in direct competition with many entities in its efforts to
manage, market and expand its present CastNet.com system and in efforts to
locate suitable business opportunities in the industry. Included in this
competition will be other casting companies, Internet companies, as well as
business development companies, venture capital companies, venture capital
affiliates and investment bankers. Many of these entities will possess greater
financial resources and may be able to assume greater risks than those the
Company, with its limited capital, could consider.
YEAR 2000 COMPLIANCE
The year 2000 risk is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Computer programs
that have sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. As a result, computer systems and/or software used by
many companies and governmental agencies may need to be upgraded to comply with
year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
Based upon an internal assessment, The Entertainment Internet, Inc believes that
its software programs, both those developed internally and purchased from
material outside vendors, are year 2000 compliant or will be by December 31,
1999. The Entertainment Internet, Inc. began assessing its state of year 2000
readiness during or before July, 1999; this included reviewing the year 2000
compliance of the following:
* The Entertainment Internet Incorporated's internally developed
proprietary software incorporated into CastNet.com services
* Third party software vendors
* Third party hardware vendors
The Entertainment Internet. Inc. will continue to require its vendors of
material hardware and software to provide assurances of their year 2000
compliance.
To date, The Entertainment Internet, Inc. has incurred significant expenses in
identifying and evaluating year 2000 compliance issues. Most of the Company's
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in evaluation of the
year 2000 compliance matters. At this time, the Company does not possess the
information necessary to estimate the potential costs of future revisions to
software relating to the CastNet.com network and web-site should further
revisions be required. Neither does the Company possess the necessary
information to evaluate whether the replacement of third-party software,
hardware, or services (if any) are mandated because they are non-year 2000
compliant. Although EINI believes that its software programs, both those
developed internally and those purchased from outside vendors, are either
already year 2000 compliant or will be by December 31, 1999, failure to identify
non year 2000 compliant software could have a material and adverse effect on the
company's business, results of operations, and financial condition.
The Company is not currently aware of any significant year 2000 compliance
problems relating to the CastNet.com service or other software systems that
would have a material and adverse effect on business, results of operations, and
financial condition. However, there can be no assurance that the company will
not discover year 2000 compliance problems in its proprietary software or in
other third-party software that might require a substantial investment to
correct. The Company's potential inability to fix such hardware or software on a
timely basis could result in lost revenues, increased operating costs, and other
business interruptions, any of which could have a material and adverse effect on
the company's business, results of operations, and financial condition.
Failure to adequately address year 2000 compliance issues in the Company's
proprietary software or third-party software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend. In addition, there can be no
assurance that utility companies, Internet network companies, Internet access
companies, third-party service providers and others outside the Company's
control will be year 2000 compliant. The failure by these entities to be year
2000 compliant could result in a systemic failure beyond EINI's control
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent the Company from providing subscribers access
to the CastNet.com services. Such failure would have a material and adverse
effect on the company's business, results of operation, and financial condition.
Contingency Plan
Although the Company continues to evaluate its software for possible year 2000
compliance issues, the company believes that its software programs (both those
developed internally and purchased from material outside vendors), are already
year 2000 compliant or will be by December 31, 1999. Therefore, the Company does
not have a formal contingency plan for a major Year 2000 problem. The Company's
inability to locate or correct a significant year 2000 problem, if one exists,
could result in an interruption in or a failure of certain normal business
activities or operations. Additionally, Year 2000 problems may affect subsystems
of the Company's network and such failure could cause CastNet.com subscribers to
seek alternate providers for casting submissions service. This could require the
Company to incur significant unanticipated expenses to remedy and could divert
the Company management's time and attention, either of which could have a
material and adverse effect on business, results of operations and financial
condition.
REGULATION AND TAXATION
The Investment Company Act of 1940 defines an "investment company" as an issuer
which is or holds itself out as being engaged primarily in the business of
investing, reinvesting or trading securities. While the Company does not intend
to engage in such activities, the Company may obtain and hold a minority
interest in a number of other industry enterprises. The Company could be
expected to incur significant registration and compliance costs if required to
register under the Investment Company Act of 1940. Accordingly, management will
continue to review the Company's activities from time to time with a view toward
reducing the likelihood the Company could be classified as an "investment
company".
EMPLOYEES
The Company's employees at the present time are its officers and directors, who
will devote as much time as the Board of Directors determine is necessary to
carry out the affairs of the Company. (See "Management" under Item 5, below).
Daily operations are undertaken by employees previously hired by OMNI.
ITEM 3.
DESCRIPTION OF PROPERTY
The Company owns no real property at this time. The Company leases office space
at the address of 5757 Wilshire Boulevard, Suite 124, Los Angeles, CA 90036 and
5820 Wilshire Boulevard, Los Angeles, CA 90036. The Company believes it is
paying the customary rate for such space in that rental market. Terms of the
leases are: a twelve (12) month lease at $9,992.87 per month (including tenant
improvements), beginning March, 1999; The Company believes its rented space is
adequate for the immediately forseeable future. No officer, director, or control
person related to the Company is a lessor, directly or indirectly, of the leased
premises.
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth each person known to the Company, as of November
16, 1999, to be a beneficial owner of five percent (5%) or more of the Company's
common stock, by the Company's directors individually, and by all of the
Company's directors and executive officers as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
======================================================================================================
Shares Beneficially Percentage
Title of Class Name/Address of Owner Owned Ownership
================== =================================== =================== ====================
<S> <C> <C> <C>
Common Bristol Asset Management, LLC
1801 Century Park East, Suite 1131
Los Angeles, CA 90067 5,623,870 17.85%
- ------------------ ----------------------------------- ------------------- --------------------
Common CEDE & Co.
P.O. Box 222 Bowling Green Station
New York, NY 10274 8,925,112 28.33%
- ------------------ ----------------------------------- ------------------- --------------------
Common Packard Capital Limited
1350 Beverly Road #115-339
McLean, VA 22101 2,421,053 7.684%
- ------------------ ----------------------------------- ------------------- --------------------
Common Anthony Cataldo
63 Northeast Village Rd.
Concord, N.H. 03301 500,000 1.6%
- ------------------ ----------------------------------- ------------------- --------------------
Common Marion Dougherty
c/o Gary S. Kleinman Acctg. Corp.
10340 Santa Monica Blvd.
Los Angeles, CA 90025 100,000 .317%
- ------------------ ----------------------------------- ------------------- --------------------
Common Marilyn Foster Staubitz
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036 25,000 .079%
- ------------------ ----------------------------------- ------------------- --------------------
Common Mohamed Hadid
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036 1,000,000 3.17%
- ------------------ ----------------------------------- ------------------- --------------------
Common JCVD Productions, Inc.
1801 Avenue of the Stars #308
Los Angeles, CA 90067 500,000 1.6%
- ------------------ ----------------------------------- ------------------- --------------------
Common Roland Joffe
2854 Roscomare Road
Los Angeles, CA 90077 100,000 .317%
- ------------------ ----------------------------------- ------------------- --------------------
Common Paul Kessler
1801 Century Park East, Suite 1131
Los Angeles, CA 90024 4,100,000 13.013%
- ------------------ ----------------------------------- ------------------- --------------------
Common Thomas Mount
6363 Sunset Blvd., 4th Floor
Los Angeles, CA 90028 500,000 1.6%
- ------------------ ----------------------------------- ------------------- --------------------
Common Jeremy Schuster
5757 Wilshire Blvd., Suite 1800
Los Angeles, CA 90036 100,000 .317%
- ------------------ ----------------------------------- ------------------- --------------------
Common James Zelloe
7601 Lewinsville Road, #250
McLean, VA 22102 50,000 .158%
- ------------------ ----------------------------------- ------------------- --------------------
Common All officers and directors
(9 individuals) 2,875,000 9.125%
</TABLE>
ITEM 5.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The members of the Board of Directors of the Company serve until the next annual
meeting of the stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors, but may be removed by
a vote of the shareholders holding a majority of shares outstanding and entitled
to vote.
There are no agreements for any officer or director to resign at the request of
any other person, and none of the officers or directors named below are acting
on behalf of, or at the direction of, any other person.
<TABLE>
<CAPTION>
Information as to the directors and executive officers of the Company is as
follows:
=============================================================================================
Name/Address Age Position
================================= =========== ===================================
<S> <C> <C>
Mohamed Hadid
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036 51 Chairman/Director
- --------------------------------- ----------- -----------------------------------
Anthony Cataldo
63 Northeast Village Rd.
Concord, N.H. 03301 48 President/Director
- --------------------------------- ----------- -----------------------------------
Jeremy Schuster
5757 Wilshire Blvd. Suite 124
Los Angeles, CA 90036 36 Chief Operating Officer/Director
- --------------------------------- ----------- -----------------------------------
Roland Joffe
2854 Roscomare Road
Los Angeles, CA 90077 54 Director
- --------------------------------- ----------- -----------------------------------
Marion Dougherty
c/o Gary S. Kleinman Acctg. Corp.
10340 Santa Monica Blvd.
Los Angeles, CA 90025 76 Director
- --------------------------------- ----------- -----------------------------------
Jean Claude Van Damme
1801 Avenue of the Stars #308
Los Angeles, CA 90067 39 Director
- --------------------------------- ----------- -----------------------------------
James Zelloe
7601 Lewinsville Road, #250
McLean, VA 22102 40 Director
- --------------------------------- ----------- -----------------------------------
Thom Mount
6363 Sunset Blvd.
Los Angeles, CA 90028 51 Director
- --------------------------------- ----------- -----------------------------------
Marilyn Foster Staubitz
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036 34 Director
- --------------------------------- ----------- -----------------------------------
</TABLE>
Mohamed Hadid - Chairman.
The Company's Chairman, Mr. Mohamed Hadid, is also Chairman of Sector
Communications, Inc., and Vice-Chairman of First Miracle Group, Inc. In
addition, Mr. Hadid serves as Chairman of Hadid Development Company and was
formerly Managing Director of Emerald Capital Corporation.
Mr. Hadid holds a number of senior management positions with a portfolio of
companies, including being the Founding Co-Chairman of Global Communications
Group, and Co-Founder and Director of Voice Powered Technology. Mr. Hadid
formerly was the largest single owner of the Ritz Carlton Hotels, with
properties in Aspen, Colorado; Washington, D.C.; Houston, Texas; and New York.
Mr. Hadid has been responsible for the development of over seven million square
feet of commercial office buildings in the greater Washington, D.C. area, with
total value estimated to be in excess of U.S. $2.7 billion.
A former director of Adams National Bank and Advisory Board Director of National
Enterprise Bank, Mr. Hadid was responsible for structuring over U.S.
$200,000,000.00 in financing for smallcap and emerging public companies. Mr.
Hadid holds a Bachelor of Science degree from North Carolina State University,
and attended graduate school at Massachusetts Institute of Technology.
Anthony Cataldo - President/Director.
Mr. Anthony Cataldo is the President of The Entertainment Internet, Inc., and is
CEO of First Miracle Group, Inc., an independent and diversified film company
with a unique corporate structure based on strategic and exclusive alliances
with high quality content producers, including Long Road Films and Emmett/Furla
Films. As part of First Miracle Group's recently-announced exclusive development
deal with Jean Claude Van Damme's Long Road Films, all worldwide revenues
generated by films will be shared on a 50/50 basis between the two entities.
Jeremy Schuster - Chief Operating Officer/Director.
Mr. Jeremy Schuster is an attorney who pioneered the concept of the "mobile law
office," bringing computers onsite and onto the set for film productions in the
early 1990's. He has a strong background in business and the entertainment
industry, and has represented a wide variety of talent in film and television as
legal counsel.
Mr. Schuster's client list includes the multimedia personalities that recently
formed Dragon's Lair, LLC - Don Bluth, Rick Dyer, and David Foster. Mr. Schuster
has also served as production counsel for independent film companies and
currently maintains an active bi-coastal state and Federal court litigation
practice, while representing corporations including Virtual Image Productions,
Inc., TVNext.com, Inc., and Texas.com, LLC. Mr. Schuster also currently serves
on the Board of Directors of Virtual Image Productions, Inc.
Mr. Schuster graduated from Rochester Institute of Technology in 1986 with
Associate of Applied Science and Bachelor of Science degrees. He thereafter
received a Juris Doctor from Suffolk University School of Law. Mr. Schuster is a
member of the Orange County Peace Officers Association, the National Notary
Association, and the National Association of Flight Instructors.
Roland Joffe - Director.
Roland Joffe is a noted filmmaker whose Academy Award winning films include "The
Killing Fields" (1984), which won a total of three Academy Awards and seven
British awards, including "Best Picture," and "The Mission" (1986).
Mr. Joffe currently is the executive producer of a groundbreaking new MTV
series, "MTV's Undressed," while his most recent feature film directing credit
was the 1999 thriller "Goodbye Lover," starring Don Johnson, Ellen DeGeneres,
and Dermot Mulroney. Mr. Joffe entered television at the BBC as a trainee
director, working his way up to directing Britain's most successful TV soap
opera, "Coronation Street," as well as segments of the current affairs program
"On the Line," and the documentary feature "ANA." Mr. Joffe also helmed a
13-part TV series, "The Stars Look Down," which received great acclaim.
In 1987, Mr. Joffe formed the Los Angeles-based film production company,
Lightmotive. Lightmotive produced a number of feature films, as well as a broad
range of television, and introduced Harrods of London to the Home Shopping
Network.
Mr. Joffe graduated with a Bachelor of Arts in English and Drama from Manchester
University.
Marion Dougherty - Director.
Marion Dougherty, senior vice president of talent at Warner Brothers, is
considered to be the "grand dame" of casting. Her first generation of young
female assistants in the 1950's, Juliet Taylor and Wally Nicit, went on to
become the next rank of top movie casting directors as well as tutors who passed
on their techniques to their own assistants. In the process, Ms. Dougherty
virtually invented the modern casting process and made it a female-dominated
field.
Ms. Dougherty gave James Dean and Warren Beatty their first speaking parts
during this time, and has been instrumental in helping launch the careers of
other actors such as Robert Redford, Al Pacino, Robert Duvall, Dustin Hoffman,
and Martin Sheen. In 1964, Dougherty launched one of the country's first
independent casting offices.
Ms. Dougherty has cast over 50 motion pictures, including "Lethal Weapon 4,"
"Midnight Cowboy," "Taxi Driver," "Batman Returns," "Conspiracy Theory," and
"Bananas."
Jean Claude Van Damme - Director.
Mr. Van Damme is a popular film actor. He is the President of Van Damme
Enterprises, Inc., and owns an equity interest in JCVD Productions, Inc., Van
Damme Productions, Inc., Long Road Productions, Inc., and Long Road Films, Inc.
He has starred in such films as "Hard Target," "Universal Soldier,"
"Bloodsport," and "Kickboxer."
James T. Zelloe - Director.
Mr. James Zelloe is an attorney licensed in Virginia and Washington, D.C. He
received a Bachelor of Science in Business Administration and Economics in 1981,
as well as a joint Masters of Arts/Juris Doctor degree from Catholic University
Columbus School of Law. He has lectured and been a teaching assistant at
Catholic University's Economics Department from 1982-1984. Mr. Zelloe is a
member of the Virginia Bar Association, the Fairfax Bar Association, and the
D.C. Bar. He is also a member of the Association of Trial Lawyers of America, of
Phi Kappa Phi Honor Society, and of Omicceon Delta Epsilon, an Economics Honors
Society. Mr. Zelloe has been practicing law since graduating from law school in
1984.
Thom Mount - Director.
In 1974, at age 26, Thom Mount became President of Universal Pictures. At that
time, Time Magazine and New York Magazine dubbed him a "baby mogul."
Mr. Mount holds a Bachelor of Arts degree from Bard College, and he graduated
with an Master of Fine Arts degree from the California Institute for the Arts in
1972. During his tenure at Universal, he launched such talents as Sean Penn,
Steve Martin, John Landis, Bill Murray, John Candy, Dan Akroyd, and Jonathan
Demme. He was responsible for such films as "Car Wash," "Coal Miner's Daughter,"
"The Jerk," "Animal House," "Smokey and the Bandit," "The Deer Hunter," and "The
Blues Brothers," among others.
Since leaving Universal, Mr. Mount founded the Mount Company. He has produced
fifteen films, including "Bull Durham," "Tequila Sunrise," "Frantic," "Can't Buy
Me Love," and Roman Polanski's "Death and the Maiden." Most recently, he
produced Sidney Lumet's "Night Falls on Manhattan." Mr. Mount currently serves
as the president of the Producers Guild of America.
Marilyn Foster Staubitz - Director.
Ms. Marilyn Staubitz received a Bachelor of Science and a Bachelor of Arts
degree from Western New England College in 1987. She has worked for Packard
Capital Ltd. for six years, and previously was employed by Citicorp in Boston,
Massachusetts and by Sekisui America in California.
There is no family relationship between any of the officers and directors of the
Company. The Company's Board of Directors has established a Compensation
Committee.
CONFLICTS OF INTEREST
The Company does not currently have a right of first refusal pertaining to
opportunities that come to management's attention insofar as such opportunities
may relate to the Company's proposed business operations.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. Except as set forth
above, the Company has not adopted any other conflict of interest policy with
respect to such transactions.
INVESTMENT COMPANY ACT OF 1940
Although the Company will be subject to regulation under the Securities Act of
1934 and the Securities Exchange Act of 1934, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940 and, consequently, any violation of such Act
would subject the Company to material adverse consequences.
ITEM 6.
EXECUTIVE COMPENSATION
Mohamed Hadid, Chairman, Board of Directors, receives a salary of $250,000.00
per year, pro-rated and deferred for 1999; unpaid salary is convertible to
stock; the Company is obligated to pay premiums for health and dental insurance.
Pursuant to his employment agreement with the Company, Mr. Hadid was issued
1,000,000 shares of the Company's restricted common stock on August 16, 1999 ;
Mr. Hadid also has the option under his employment contract to purchase another
1,000,000 of the Company's restricted common shares.
Anthony Cataldo received 500,000 shares for his services as president and
director; the Company is obligated to extend an option to purchase an equivalent
number of shares. The Company is currently negotiating an agreement to obtain
expanded services from Mr. Cataldo. Marion Dougherty received 100,000 shares for
her services as a director and the Company is obligated to extend an option for
her to purchase an equivalent number of shares.
Marilyn Foster received 25,000 shares for her services as a director and the
Company is obligated to extend an option for her to purchase an equivalent
number of shares.
Roland Joffe received 100,000 shares for his services as a director and the
Company is obligated to extend an option for him to purchase an equivalent
number of shares.
Jean Claude Van Damme received 500,000 shares (through JCVD Productions, Inc.)
for his services as a director and the Company is obligated to extend an option
for him to purchase an equivalent number of shares.
Jeremy Schuster received 75,000 shares for his services as a director; the
Company is obligated to extend an option for him to purchase an equivalent
number of shares. Mr. Schuster also provides services as general counsel in
accordance with a reduced-rate hourly fee agreement with the Company, with
unpaid billing convertible to stock. Prior to July 30, 1999, Mr. Schuster
received 25,000 shares for previous work and services provided to the Company
that were not paid; this agreement is to include an equivalent number of
options.
James Zelloe received 50,000 shares for his services as a director and the
Company is obligated to extend an option for him to purchase an equivalent
number of shares.
No retirement, pension, profit sharing, or other similar programs have been
adopted by the Company for the benefit of its employees.
The Company adopted an employee stock option plan with an effective date of
March 1, 1999 and an expiration date of February 28, 2009, which is administered
by the Stock Option Committee, which recorded the results of three meetings held
during 1999:
In the June meeting, the employment agreements of two key personnel were
approved; under these agreements, the key employees would each receive 1,000,000
share options, vesting in 1/3 increments during a three year period.
One of the key employees left the company's employ after the first year.
In the July meeting, five key personnel were granted a total of 180,000 share
options at $1.25 each. These options were principally intended to compensate
personnel for prior services rendered; the agreements provide for vesting over a
number of years, however, in what is often termed a "golden handcuff" for key
employees.
In the November meeting of the Company's Stock Option Committee, fifteen
personnel were granted a total of 102,500 share options, subject to final
approval by the Compensation Committee Chairman. 20,000 of these share options
were granted at $1.00 each, and the remaining 82,500 share options were granted
at $1.25 each. These options were also principally intended to compensate
personnel for prior services rendered, with the agreements providing for vesting
of the options over a number of years in a "golden handcuff" for key employees.
The Company expects to offer options to several additional employees in an
effort to retain their special skills, abilities, and services. In any event,
additional share options must be granted as a result of certain employment
agreements.
The Company's Stock Option Plan provides for reservation of 3,000,000 common
shares for use in the Stock Option Plan. Approximately 1,505,325 share options
may be converted from OMNI to EINI options or may be administered through EINI
pursuant to the pre-existing Only Multimedia Incorporated Stock Option Plan.
Counsel is currently reviewing OMNI records to determine whether options were
granted that were not reflected on the schedule of grants made available to
counsel in July, 1999; review of these records may result in significant changes
to the number of OMNI share options which may be converted. The company granted
282,500 share options through the July and November meetings of the Compensation
Committee. The Company anticipates the need for an increase in the number of
reserved shares to allow it sufficient shares to retain key employees as the
Company moves forward. See also Exhibit entitled "Stock Option Plan."
The foregoing transactions were not arms-length.
ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's policy is that the Company will seek an acquisition or merger on
fair market basis only. In any potential merger wherein company officers,
directors, or principal shareholders, affiliates, or associates have interest,
such interest shall be fully disclosed prior to merger.
ITEM 8.
LEGAL PROCEEDINGS
The following is a summary of material legal proceedings involving the Company,
which the Company believes were incurred in the normal course of business:
Christopher Sampson Foundation for the Catastrophically Injured v. Only
Multimedia Network, Inc. & The
Entertainment Internet
Burbank Superior Court
Filed: July 29, 1999 No. EC 027688
The Company is presently engaged in one action involving a creditor over a
$200,000.00 promissory note that was not paid when due; the company has stated
its willingness to continue the obligation, a note bearing 10% simple interest
on unpaid principal, for one year. As of November 4, 1999, the creditor agreed
to the one-year extension. The Company is currently reviewing extension and
settlement papers, and expects the action to be dismissed shortly.
Breakdown Services, Ltd., v. Only Multimedia Network, Inc./Castnet.com
Federal District Court for the Central District of California
Filed: May 6, 1998, No. CV 98-3500-GHK (BQRx)
The Company is presently engaged in one action involving a third-party claim for
copyright infringement and violation of an earlier settlement agreement that
included a stipulated injunction. The Company is vigorously defending the action
and earlier prevailed against claimant's request for an Order to Show Cause. The
Company believes the claimant is not entitled to relief, and asserts misuse of
copyright as a defense in the action. While the company doubts the merits of
claimant's action, the outcome of the action is uncertain and may materially and
adversely affect the financial condition and viability of the Company if such
outcome proves unfavorable to the Company.
Wendy Pachter v. Only Multimedia Network, Inc.
Los Angeles Superior Court, Central District
Filed July 21, 1999, No. BC 213855
The Company is presently engaged in one action involving a creditor for two
promissory notes (each for $100,000.00 or more) which were not paid when claimed
to be due; the Company is investigating the history behind the promissory notes
and presently believes there was as failure of consideration, more specifically,
that the consideration alleged was never received by the Company. Discovery is
continuing on this matter, along with other aspects of the claim. The Company
takes a contrary position to that of claimant, asserting that payments were not
and are not presently due. In an effort to resolve this claim, the Company made
a settlement offer contingent upon the successful close of the proposed merger
with First Miracle Group. At present, litigation is continuing. While the
Company doubts the merits of claimant's action, the outcome of the action is
uncertain and may materially and adversely affect the financial condition and
viability of the Company if such outcome proves unfavorable to the Company.
Bragman, Nyman & Cafarelli v. The Entertainment Internet, Inc.
Los Angeles Municipal Court, West Los Angeles District
Filed June 11, 1999, Case No. 99T01400
The Company is presently engaged in one action involving a creditor for services
allegedly rendered and unpaid. The Company is investigating the history behind
the alleged obligation, and presently believes there was a failure of
consideration, more specifically, that the claimant did not provide services or
perform in accordance with the alleged contract. Discovery is continuing on this
matter, along with other aspects of the claim. The Company takes a contrary
position to that of claimant, asserting that payments were not and are not
presently due. At present, litigation is continuing. While the Company doubts
the merits of claimant's action, the outcome of the action is uncertain and may
materially and adversely affect the financial condition and viability of the
Company if such outcome proves unfavorable to the Company.
Capital York, Inc. v. The Entertainment Internet, Inc., Scott MacCaughern, and
MacCaughern Trade Development
Superior Court of New Jersey, Monmouth County
Filed August 15, 1999, No. L406199
The Company is presently engaged in one action involving a creditor for services
allegedly rendered and unpaid in connection with management and advisory
services. The Company is investigating the history behind the alleged
obligation, and presently believes there was no contract between the parties.
Discovery is continuing on this matter, along with other aspects of the claim.
At present, the Company is informed the litigation is "on hold" pending a
settlement of the entire matter by one of the named Defendants. While the
Company doubts the merits of claimant's action, the outcome of the action is
uncertain and may materially and adversely affect the financial condition and
viability of the Company if such outcome proves unfavorable to the Company.
Additional Claims
The Company is presently evaluating its accounts payable and claims of myriad
alleged creditors. The company faces significant financial obligations which may
result in the insolvency of the corporation; for this reason, the Company is
investigating extension and payment agreements and settlements to reduce or
eliminate the strain caused by these claims and debts.
The Company is presently evaluating and attempting to resolve a claim from its
telecommunications services provider. Investigation of the claim revealed that
prior management of the company ordered services to be installed off-site which
were used personally by said management; the Company also learned the
telecommunications provider billed for charges it earlier represented would not
be incurred by the Company. The Company is negotiating an agreement for account
credits and a resolution with the services provider which will allow criminal
prosecution of prior management for any activities which are proved to be
unauthorized and/or unlawful.
The Company received notice of a creditor claim relating to a $95,000.00
promissory note which was not paid when due; the Company stated its willingness
to discuss settlement. The Company received notice that attorneys for the
creditor would be preparing a complaint for filing. The company earlier
successfully defended an action filed by the same creditor out-of-state (Bakkiam
S. Subbiah v. Only Multimedia Network, Inc., U.S. District Court for the Central
District of Illinois, Rock Island Division, Filed December 7, 1998); the action
was dismissed for lack of jurisdiction. While the Company doubts the merits of
claimant's action, the outcome of the action is uncertain and may materially and
adversely affect the financial condition and viability of the Company if such
outcome proves unfavorable to the Company.
Settlements
1. The Company settled a claim stemming from an account payable for consulting
services rendered. There was no dispute that services were rendered to the
company but the Company was unable to pay the fees required pursuant to
contract. The Company sought and obtained a settlement agreement beneficial to
it.
2. The Company settled a series of claims stemming from its guarantee of certain
leases obtained by third parties; the third parties earlier obtained a default
judgment against the Company relating to one lease. The claims made in July 1999
exceeded $100,000.00 and were disputed by the Company. Through a vigorous
defense effort, the Company obtained a favorable settlement wherein it agreed to
pay $6,000.00 and to lower the exercise price of options previously issued in
exchange for a release of all liens and claims and removal of the
earlier-obtained judgment.
3. The Company settled a claim stemming from an account payable for consulting
services rendered. There was no dispute that the services were rendered to the
Company but the Company was unable to pay the fees required pursuant to
contract. The Company sought and obtained a settlement agreement beneficial to
it; a minimal amount was paid in settlement.
4. The Company settled a claim made by an individual who held a promissory note
with a principal amount of $47,500. The promissory note matured on December 31,
1997 and was not paid by the Company. There was no dispute that the principal
amount was due but the Company was unable to pay as required. The Company sought
and obtained a settlement agreement beneficial to it.
ITEM 9.
MARKET FOR COMMON EQUITY AND MARKET PRICE
The Company's common stock is presently quoted on the NASDAQ over-the-counter
Bulletin Board market in the United States under the symbol EINIE.
The average price per share of the Company's Common Stock for the 15-day period
immediately preceding this filing was $0.23 bid, $0.31 ask. The high was $0.375
bid, $0.40625 ask, and the low was $0.1875 bid, $0.25 ask. The average daily
volume was 52,053 shares.
Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a "penny stock", for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which in highlight form, (i) sets
forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker/dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share. In
order to continue to be included on NASDAQ, company must maintain $1,000,000 in
net tangible assets and a $1,000,000 market value of its publicly-traded
securities. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share.
Therefore, for the foreseeable future, any of the Company's stock quoted or
traded must be considered "penny stock" under current rules, as discussed above.
HOLDERS OF EQUITY AND OTHER RIGHTS
As of the date of this submission, based on the Company's records and
reports from the Company's stock transfer agent, Alpha Tech Stock Transfer,
there were 152 shareholders holding a total of 31,505,170 shares of the
Company's common stock. There were 40 shareholders holding a total of 5,400
shares of the Company's preferred stock. There were 67 persons or entities in
the aggregate holding warrants or options to purchase shares of the Company's
common stock; and 4 persons or entities holding promissory notes convertible to
shares of the Company's common stock.
DIVIDENDS AND DIVIDEND POLICIES
The Registrant has not paid or allocated any dividends to date, and has no plans
to do so in the immediate future. Future dividends will be dependent on such
factors as economic conditions and the profitability of the Company. It is
anticipated that for the forseeable future, until the Company reaches its
economic goals, most, if not all of any earnings of the Company will need to be
retained as working capital.
ITEM 10.
RECENT SALES OF UNREGISTERED SECURITIES
Between approximately September of 1998 and September of 1999, the Company made
the following issuance, sales, or exchanges of securities in reliance upon
certain exemptions from registration under the Securities Act of 1933 (the
"Act"):
Regulation D, Rule 504: The Company obtained a portion of its capital and
operating funds during the period extending third quarter 1998 through the close
of the second quarter 1999 by means of a limited offer and sale of its common
stock without registration under SEC Regulation D, Rule 504 of the 1933 Act.
Less than a total of $1,000,000 was subscribed through the offering for which a
total of 3,597,645 common shares were issued to subscribers at prices ranging
from $0.175 to $0.55 per share.
Regulation D, Rule 506: Pursuant to an agreement and plan of exchange and merger
with OMNI, the Company issued securities during the period of approximately
April 1, 1999 through October 31, 1999 by means of a Regulation D, Rule 506
exchange to a total of 119 shareholders:
Common stock: a total of $1,549,149 representing shares of common stock was
issued.
Preferred stock: a total of $2,700,000 representing shares of preferred stock
was issued.
Convertible securities:
Options: a total of $3,682,100 in options to convert to common stock
Warrants: a total of $8,459,915 in warrants to purchase common stock
Promissory notes: a total of $149,220 in promissory notes convertible to common
stock
Section 4(2) of the 1933 Act: The Company obtained a portion of its capital and
operating funds by means of the following transactions pursuant to section 4(2)
of the Securities Act of 1933, upon which the Company has relied: In February
1999 the Company entered into a financing arrangement for the following entities
to provide capital to the Company: Windsor Capital Fund VI, a Bermuda
corporation, and Packard Capital Limited, a British Virgin Islands corporation.
The Company issued long-term convertible promissory notes to these lenders in
the amount of US$500,000 each, for a total consideration of US$1,000,000. The
instruments accrue interest at the rate of 6% per annum until paid, or at the
option of the payee of the note, it may be converted to common stock at a
discounted rate of 40% of the "bid" price. The Company has the right for a
period of one year from the time any such stock is issued, to redeem any such
stock so issued through payment of an amount equal to the principal amount of
the note plus any accrued interest up to the time of conversion.
ITEM 11.
DESCRIPTION OF SECURITIES
The Company's Amended Articles of Incorporation authorize the issuance of Sixty
Million (60,000,000) shares of Common Stock, $0.001 par value per share, of
which 31,499,770 shares are issued and outstanding. The common shares, when
issued, are fully paid, non-assessable, without pre-emptive rights and do not
carry cumulative voting rights. Holders of common shares are entitled to share
ratably in dividends, if any, as may be declared by the Company from time to
time, from funds legally available. In the event of a liquidation, dissolution,
or winding up of the Company, the holders of shares of common stock are entitled
to share on a pro-rata basis all assets remaining after payment in full of all
liabilities.
On February 24, 1999, the Board of Directors of the Company approved, by written
consent, an amendment to the Company's Articles of Incorporation which provided
for designation of and authorization to issue Series B Preferred Stock. The
consent provided and authorized the issuance of Ten Million (10,000,000) shares
of Preferred Stock at $.001 par value per share, of which 5,400 shares are
issued and outstanding. The Series B Preferred Stock contains dividend rights,
limitations on dividends on Common Stock, and liquidation preferences; it does
not include any specific voting rights.
Pursuant to action authorized by the Company's board of directors, the Company
has also issued various warrants or options to purchase common stock in the
future, or promissory notes convertible to common shares, as described in Items
9 and 10, above, and elsewhere herein. There is potential for issuance of
additional shares to Board Members, who were issued stock in the past, to adjust
for the change in valuation.
ITEM 12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company and its affiliates may not be liable to its shareholders for errors
in judgment or other acts or omissions not amounting to intentional misconduct,
fraud, or a knowing violation of the law, since provisions have been made in the
Articles of Incorporation and By-laws limiting such liability. The Articles of
Incorporation and By-laws also provide for indemnification of the officers and
directors of the Company in most cases for any liability suffered by them or
arising from their activities as officers and directors of the Company if they
were not engaged in intentional misconduct, fraud, or a knowing violation of the
law. Therefore, purchasers of these securities may have a more limited right of
action than they would have except for this limitation in the Articles of
Incorporation and By-laws.
The officers and directors of the Company are accountable to the Company as
fiduciaries, which means such officers and directors are required to exercise
good faith and integrity in handling the Company's affairs. A shareholder may be
able to institute legal action on behalf of himself and all others similarly
stated shareholders to recover damages where the Company has failed or refused
to observe the law.
Shareholders may, subject to applicable rules of civil procedure, be able to
bring a class action or derivative suit to enforce their rights, including
rights under certain federal and state securities laws and regulations.
Shareholders who have suffered losses in connection with the purchase or sale of
their interest in the Company in connection with such sale or purchase,
including the misapplication by any such officer or director of the proceeds
from the sale of these securities, may be able to recover such losses from the
Company.
Such indemnification of officers and directors as described above may be
contrary to policies of the Securities and Exchange Commission.
ITEM 13.
FINANCIAL STATEMENTS
The financial statements and supplemental data required by this Item 13 follow
the index of financial statements appearing at Item 15 of this Form 10-SB.
ITEM 14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Registrant has not changed accountants since its formation, and Management
has had no disagreements with the findings of its accountants.
ITEM 15.
FINANCIAL STATEMENTS AND EXHIBITS
Report of Merdinger, Fruchter, Rosen & Corso, P.C., Certified Public
Accountants, dated June 1, 1999.
Balance Sheet as of December 31, 1998 and December 31, 1997.
Statement of Operations for the years ended December 31, 1998 and
December 31, 1997.
Statement of Stockholder's Equity.
Statement of Cash Flows for the years ended December 31, 1998 and
December 31, 1997.
Notes to Financial Statements.
Articles of Incorporation
Amendment to Articles of Incorporation
Bylaws
Stock Option Plan
Press Release(s)
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
INDEX
INDEPENDENT AUDITOR'S REPORT.............................................1
BALANCE SHEETS............................................................2
STATEMENT OF OPERATIONS...................................................3
STATEMENTS OF STOCKHOLDERS' EQUITY........................................4
STATEMENTS OF CASH FLOWS..................................................5
NOTES TO FINANCIAL STATEMENTS..........................................6-11
<PAGE>
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
888 Seventh Avenue
NEW YORK, NEW YORK 10106
----------
TEL: (212) 757-8400
FAX: (212) 757-6124
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
Las Vegas, Nevada
We have audited the accompanying Balance Sheets of The Entertainment Internet,
Inc. (formerly West Tech Services, Inc.) (A Development Stage Company), as of
December 31 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended and for the period
April 20, 1992 (inception) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Entertainment Internet,
Inc., as of December 31, 1998 and 1997 and for the years then ended and for the
period April 20, 1992 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has no
established source of revenue. This raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Merdinger, Fruchter, Rosen & Corso, P.C.,
Certified Public Accountants
Merdinger, Fruchter, Rosen & Corso, P.C.,
Certified Public Accountants
Los Angeles, California
June 1, 1999
<PAGE>
<TABLE>
<CAPTION>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,598 $ --
Stock Subscription Receivable 14,134 --
Due from Affiliate 340,199 --
Prepaid Expense 30,000 --
-------- --------
TOTAL ASSETS $386,931 $ --
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 34,441 $ --
Advances from Stockholder 65,289 --
-------- --------
Total Current Liabilities 99,730 --
-------- --------
COMM1TMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Common Stock, par value $.001, 50,000,000
shares authorized 12,912,405 and 6,000,000 shares
issued and outstanding 12,912 5,250
Additional Paid-in Capital 743,125 --
Deficit Accumulated During the Development Stage (468.836) (5,250)
-------- --------
Total Stockholders' Equity 287,201 --
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $386,931 $ --
======== ========
The Accompanying Notes are an Integral Part of These Financial Statements.
-2-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
April 20,
For the Year Ended 1992
December 31, (Inception) to
-------------------------- December 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
INCOME $ -- $ -- $ --
EXPENSES
General, Selling and Administrative 463,586 -- 468,596
Amortization -- 16 240
----------- ----------- -----------
Total Expenses 463,586 16 468,836
Net Loss $ (463,586) (16) $ (468,836)
=========== =========== ===========
Basic and Diluted
Loss Per Common Shares $ (0.06) $ 0.00 $ (0.06)
=========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 7,599,676 6,000,000 7,599,676
=========== =========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements
-3-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Additional During
------------------------ Paid-in Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, April 20, 1992 -- $ -- $ -- $ -- $ --
Issuance of Common Stock for
Cash on April 27, 1992 at
$.001 Per Share 6,000,000 6,000 (750) -- 5,250
Net Loss -- -- -- (5,042) (5,042)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1992 6,000,000 6,000 (750) (5,042) 208
Net Loss -- -- -- (48) (48)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 6,000,000 6,000 (750) (5,090) 160
Net Loss -- -- -- (48) (48)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 6,000,000 6,000 (750) (5,138) 112
Net Loss -- -- -- (48) (48)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 6,000,000 6,000 (750) (5,186) 64
Net Loss -- -- -- (48) (48)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 6,000,000 6,000 (750) (5,234) 16
Net Loss -- -- -- (16) (16)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 6,000,000 6,000 (750) (5,250) --
Issuance of Common Stock for Cash:
September 09, 1998 at $0.036 Per Share 3,450,000 3,450 121,550 -- 125,000
September 11, 1998 at $0.175 Per Share 1,142,858 1,142 198,858 -- 200,000
September 18, 1998 at $0.146 Per Share 119,500 120 17,380 -- 17,500
November 24, 1998 at $0.150 Per Share 333,333 333 49,667 -- 50,000
December 03, 1998 at $0.550 Per Share 30,000 30 16,470 -- 16,500
December 03, 1998 at $0.500 Per Share 10,000 10 4,990 -- 5,000
December 04, 1998 at $0.550 Per Share 20,000 20 10,980 -- 11,000
December 04, 1998 at $0.500 Per Share 26,000 26 12,974 -- 13,000
December 04, 1998 at $0.250 Per Share 285,714 286 71,143 -- 71,429
December 07, 1998 at $0.550 Per Share 10,000 10 5,490 -- 5,500
December 10, 1998 at $0.500 Per Share 45,000 45 24,705 -- 24,750
December 10, 1998 at $0.S00 Per Share 20,000 20 9,980 -- 10,000
December 10, 1998 at $0.250 Per Share 400,000 400 99,600 -- 100,000
December 10, 1998 at $O.553 Per Share 5,000 5 2,760 -- 2,765
December 14, 1998 at $0.553 Per Share 5,000 5 2,760 -- 2,765
December 29, 1998 at $0.500 Per Share 10,000 10 4,990 -- 5,000
Issuance of Common Stock for
Services Rendered 1,000,000 1,000 89,000 -- 90,000
Common Stock Warrants and Options
Issued for Services Rendered -- -- 425,415 -- 425,415
Offering Costs -- -- (424,837) -- (424,837)
Net Loss -- -- -- (463,586) (463,586)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 12,912,405 $ 12,912 $ 743,125 $ (468,836) $ 287,201
========== ========== ========== ========== ==========
The Accompanying Notes are an Integral Part of These Financial Statements.
-4-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
April 20,
For The Year Ended 1992
December 31, (inception) to
---------------------- December 31,
1998 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES or
Net Loss $(463,586) (16) $(468,836)
Adjustment to Reconcile Net Loss to Net
Cash Used in Operating Activities
Amortization -- 16 240
Issuance of Equity Instruments for Services Rendered 140,000 -- 140,000
Changes in Assets and Liabilities
Increase in Prepaid Expense (30,000) -- (30,000)
Increase in Organization Costs -- -- (240)
Increase in Accounts Payable and
Accrued Expenses 20,666 -- 20,666
--------- --------- ---------
Net Cash Used in Operating Activities (332,920) -- (338,170)
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Affiliate (340,199) -- (340,199)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIIVITIES
Advances from Stockholder 90,289 -- 90,289
Repayments to Stockholder (25,000) -- (25,000)
Issuance of Common Stock for Cash 646,075 -- 651,325
Offering Costs (35,647) -- (35,647)
--------- --------- ---------
Net Cash Provided by Financing Activities 675,717 -- 680,967
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,598 -- 2,598
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD -- -- --
--------- --------- ---------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 2,598 $ -- $ 2,598
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
For the years ended December 31, 1998 and 1997, the Company paid no income taxes or interest.
NON-CASH INVESTING AND FINANCING ACTIVITY:
For the year ended December 31, 1998, the Company issued stock warrants and options valued at
$375,415 for services rendered as costs related to the Regulation D 504 private placement.
The Accompanying Notes are an Integral Part of These Financial Statements.
-5-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Entertainment Internet, Inc. (formerly West Tech Services, Inc.) (the
"Company") was organized April 20, 1992 under the laws of the State of
Nevada. The Company currently has no operations and is in the process of
acquiring an operating subsidiary. In accordance with Statement of
Financial Accounting Standards ("SFAS") No.7, the Company is considered a
development stage company (see Note 7- Subsequent Events).
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company had no business
operations for the year ended December 31, 1998. This factor raises
substantial doubt about the Company's ability to continue as a going
concern.
Management's plans in regards to this matter are as follows:
* In February 1999, the Company acquired an operating subsidiary, which
also had a going concern paragraph in its auditors' report.
* The Company has raised approximately $2,000,000, in the aggregate
through Regulation D 504 and 506 Private Placements (See Notes 5 and
7).
* The Private placement proceeds were used to satisfy debt of the
subsidiary and fund the subsidiary's operations.
* The Company is working to raise additional capital and debt financing
to fund operations, increase revenues, and reduce operating costs of
its newly acquired subsidiary.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
For certain of the Company's financial instruments including cash, stock
subscriptions receivable, advances to affiliate, accounts payable and
accrued expenses and advances from stockholder, the carrying amounts
approximate fair value due to their short maturities.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company defines cash
equivalents as all highly liquid debt instruments purchased with a maturity
of three months or less plus all certificates of deposit.
-6-
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured levels
at various times during the year.
Offering Costs
Offering costs consist primarily of professional fees. These costs are
charged against the proceeds of the sale of common stock in the periods in
which they occur.
Income Taxes
Income taxes are provided for based on the liability method of accounting
pursuant to SFAS No. 109, "Accounting for Income Taxes". The liability
method requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
reported amount of assets and liabilities and their tax basis.
Net Loss Per Share
In accordance with SFAS No.128, "Earnings Per Share", the basic loss per
common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per common
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. At December 31, 1998, the weighted average shares outstanding
would have been increased by 357,619 shares of the Company's common stock
if the issued and exercisable stock warrants and options would have been
dilutive.
Comprehensive Income
SFAS No.130, "Reporting Comprehensive Income," establishes standards for
the reporting and display of comprehensive income and its components in the
financial statements. As of December 31, 1998 and 1997, the Company has no
items that represent other comprehensive income and, therefore, has not
included a schedule of comprehensive income in the financial statements.
Impact of Year 2000 Issue
During the year ended December 31, 1998, the Company conducted an
assessment of issues related to the Year 2000 and determined that no issues
existed which would cause its computer Systems not to properly utilize
dates beyond December 31, 1999.
-7-
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - STOCK SUBSCRIPTIONS RECEIVABLE
As of December 31, 1998, the Company was owed approximately $14,134 for the
Company's Common Stock issued in conjunction with the Regulation D 504
Private Placement (See Note 5). This subscription receivable was collected
subsequent to December31, 1998.
NOTE 3 - ADVANCES FROM STOCKHOLDER
As of December 31, 1998, the Chief Executive Officer (and "Majority
Stockholder") of the Company had advanced net funds of $65,289 that were
used for operating costs of the Company. These advances are short-term,
unsecured and non-interest bearing.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Office Space
For the year ended December 31, 1998, the Company was provided free office
space by shareholders of the Company. Also, starting January 1999, the
Company leased office space on a month-to-month basis.
Employment Agreements
The Company has entered into employment agreements for the period of August
1, 1998 through September 30, 2002 with both its Majority Stockholder and
President. Both individuals are entitled to a salary of $50,000 for the
five months ended December 31, 1998, $100,000 for the year ended December
31, 1999 and $150,000 for each year thereafter. At the election of the
employee, in lieu of receipt of semi-annual salary payments in cash,
employee may elect to receive compensation payable in options to purchase
shares of the Company's common stock. The number of options shall be equal
to the semi-annual salary divided by the lowest trade price ("Share price")
for shares of the Company's common stock during the semi-annual period. The
exercise price shall equal the Share Price and the options shall be
exercisable for five years from the date of grant. The agreements may be
terminated by either party with ten days written notice. If terminated by
the Company without cause, as defined in the agreements, the employee shall
be entitled to compensation for six months following the date of
termination.
NOTE 5 - STOCKHOLDERS' EQUITY
Classes of Shares
In April 1998, the Company restated its Articles of Incorporation to enable
the Company to issue up to 60,000,000 shares, consisting of 10,000,000
shares of Preferred Stock, which have a par value of $0.001 per share and
50,000,000 shares of Common Stock, which have a par value of $0.001.
-8-
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
N0TE 5 - STOCKHOLDERS' EQUITY (continued)
Preferred Stock
Preferred stock, any series; shall have the powers, preferences, rights,
qualifications, limitations, and restrictions as fixed by the Company's
Board of Directors in its sole discretion. As of December 31, 1998 and
1997, the Company's Board of Directors had not authorized or issued any
Preferred Stock.
Common Stock
In April 1992, the Company issued 15,000 shares of its no par value common
stock for $5,250.
In April 1998, the Company forward split its common stock 400:1, thus
increasing the number of outstanding shares of the Company's common stock
from 15,000 to 6,000,000. All references in the accompanying financial
statements to the number of common shares and per-share amounts have been
restated to reflect the stock split.
In August 1998, the Majority Stockholder purchased 2,440,000, in the
aggregate, shares of the Company's common stock from three stockholders. In
conjunction with this purchase, the same individual purchased 3,450,000
shares of. Common Stock from the Company for $125,000.
In September 1998, the Company initiated a Regulation D 504 Private
Placement to raise $1,000,000. For the three months ended December 31,
1998, the Company issued 2,462,405 shares of its common stock for net
proceeds of $485,767. Of the net proceeds, the Company advanced $340,199 to
its affiliate, or newly acquired wholly owned subsidiary.
In conjunction with the Company's execution of the employment agreements
with both the Majority Stockholder and President, the Company issued
1,000,000 shares of its common stock. The Company valued the shares at
$90,000, which was the fair market value as of the issuance date.
Stock Options and Warrants
In conjunction with the 1998 Private Placement, the Company issued, as a
finder's fee, warrants to purchase 124,286 and 33,333 shares of the
Company's Common Stock. The warrants expire in September and November of
2001, respectively, and are exercisable at $0.175 and $0.15 per share,
respectively. The Company valued the warrants at $375,415, which was the
fair market value as of the issuance date, and recorded the fair value as
offering costs, which offsets the proceeds from the Private Placement.
-9-
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - STOCKHOLDERS' EQUITY (continued)
Also, in conjunction with the Company's employment agreement with the
Majority shareholder, the Company issued an option to purchase 200,000
shares of the Company's common stock at $.25 per share as determined by
the employment agreement. The option expires in December 2003. The
option was granted as payment of $50,000 due pursuant to the emp1oyment
agreement.
<TABLE>
<CAPTION>
Warrants and Stock Options consisted of the fol1owing:
Warrants and Weighted Average
Stock Options Exercise
Outstanding Price
------- ----------
<S> <C> <C>
December 31, 1997 -- $ --
Issued 357,619 $ 0.68
Exercised -- $ --
Cancelled -- $ --
------- ----------
Outstanding and Exercisable at December 31, 1998 357,619 $ 0.68
======= =========-
</TABLE>
The weighted average remaining contractual lives of the warrants and
options are 3.9 years at December 31, 1998.
INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate 34.0%
Effect of Valuation Allowance ( 34.0)%
----------
Effective Income Tax Rate 0.0%
==========
At December 31, 1998 and 1997, the Company had net carryforward losses of
approximately $419,000 and $5,000, respectively. Because of the current
uncertainty of realizing the benefits of the tax carry-forward, valuation
allowances equal to the tax benefits for deferred taxes have been
established. The full realization of the tax benefit associated with the
carryfoward depends predominantly upon the Company's ability to generate
taxable income during the carryforward period.
-10-
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - INCOME TAXES (continued)
<TABLE>
<CAPTION>
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets
Loss Carryforwards $ 142,000 $ 1,700
Less: Valuation Allowance
Net Deferred Tax Assets (142,000) (1,700)
---------- ----------
$ -- --
========== ==========
</TABLE>
Net operating loss carrforwards expire starting in 2012.
NOTE 7 - SUBSEQUENT EVENTS
Acquisition
In August 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger") with Only Multimedia Network, Inc., a California
corporation ("OMNI"). Upon completion of the Merger, the company issued
8,852,279 shares of the Company's Common Stock, 5,400 shares of the
company's Preferred Stock and warrants and options and convertible
notes convertible into 5,854,721 shares of the Company's Common Stock
which were exchanged on a one-for-one basis for OMNI's Common Stock,
Preferred Stock and warrants and options and convertible notes. This
acquisition will be accounted for as a purchase.
Regulation D 504 Private Placement
For the four months ended April 1999, the Company issued an additional
1,227,240 shares of the Company's common stock for $464,791. In
conjunction with the issuance, the Company paid $30,000 and issued an
option to purchase 54,545 shares of the Company's Common Stock for a
period of three years at $0.55 per share.
Regulation D 506 Private Placement
For the four months ended April 30, 1999, the Company initiated a
Regulation D 506 (under Regulation S) private placement and raised
$1,000,000 by issuing 1,388,888 shares of the Company's Common Stock
and Warrants to purchase 1,388,888 shares of the Company's common stock
at $.90 per share for three years from the date of issuance.
-11-
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
TABLE OF CONTENTS
INDENPENDENT AUDITORS' REPORT..................................................1
FINANCIAL STATEMENTS:
Balance Sheets............................................................2
Statements of Operations..................................................3
Statements of Shareholders' Deficiency....................................4
Statements of Cash Flows................................................5-6
Notes to Financial Statements..........................................7-17
<PAGE>
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
888 Seventh Avenue
NEW YORK, NEW YORK 10106
----------
TEL: (212) 757-8400
FAX: (212) 757-6124
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
ONLY MULTIMEDIA. NETWORK, INC.:
We have audited the accompanying balance sheets of Only Multimedia Network, Inc.
as of December 31, 1998 and 1997, and the related statements of operations,
shareholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Only Multimedia Network, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $2,241,508 and its current liabilities exceed
its current assets by $3,377,272. Further, certain of its debts were in defaults
as of December 31, 1998. These factors, among others, as discussed in Note 1 to
the financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
New York, New York
May 11, 1999
<PAGE>
<TABLE>
<CAPTION>
ONLY MULTIMEDIA NETWORK, INC.
BALANCE SHEET
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 7,482 $ 175,563
Accounts Receivable, net of allowance for
doubtful accounts of $8,700 and $17,967 14,421 26,320
Prepaid Expenses -- 1,946
----------- -----------
Total Current Assets 21,903 203,829
FURNITURE AND EQUIPMENT, net 336,591 450,491
OTHER ASSETS 14,247 91,040
----------- -----------
TOTAL ASSETS $ 372,741 $ 745,360
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 1,278,111 $ 656,775
Deferred Revenue 387,782 225,069
Advances from Affiliate 345,380 --
Notes Payable, Current Portion 546,362 461,416
Debenture Payable and Accrued Interest 578,564 331,770
Notes Payable - Shareholders, current portion 200,000 --
Obligations Under Capital Lease 62,976 52,005
----------- -----------
Total Current Liabilities 3,399,175 1,727,035
LONG-TERM LIABILITIES
Notes Payable, Less Current Portion -- 43,532
Debentures Payable, Less Current Portion -- 204,739
Notes Payable - Shareholders, Less Current Portion 325,453 525,453
Convertible Notes Payable 152,500 --
Obligations Under Capital Lease, Less Current Portion 84,062 135,800
----------- -----------
Total Liabilities 3,961,190 2,636,559
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9) -- --
SHAREHOLDERS' DEFICIENCY
Preferred Stock, no par value, 1,000,000 shares
authorized; 5,400 shares issued and outstanding 2,032,300 2,032,300
Common Stock, no par value, 60,000,000 shares
authorized; 8,842,279 and 2,400,521 shares
issued and outstanding 1,533,123 988,865
Accumulated Deficit (7,153,872) (4,912,364)
----------- -----------
Total Shareholders' Deficiency (3,588,449) (1,891,199)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCIES $ 372,741 $ 745,360
=========== ===========
See Accompanying Notes to the Financial Statements.
-2-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
ONLY MULTIMEDIA, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
1998 1997
----------- -----------
SALES $ 750,079 $ 494,773
COST OF SALES 549,687 369,457
----------- -----------
GROSS PROFIT 200,392 125,316
SELLING GENERAL AND ADMINISTRATIVE
EXPENSES 2,016,241 2,577,075
----------- -----------
LOSS FROM OPERATIONS (1,815,849) (2,451,759)
----------- -----------
OTHER INCOME AND (EXPENSES)
Interest and Dividend Income 3,741 6,025
Legal Settlement (56,466) (73,001)
Interest Expense (174,916) (279,829)
Dividend on Preferred Stock (198,018) --
----------- -----------
Total Other Income and (Expenses) (425,659) (346,805)
----------- -----------
Net Loss Before Taxes (2,241,508) (2,798,564)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(2,241,508) $(2,798,564)
=========== ===========
See Accompanying Notes to the Financial Statements.
-3-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
<TABLE>
<CAPTION>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
Preferred Stock Common Stock Total
---------------------- ----------------------- Accumulated Shareholders'
Shares Amount Shares Amount Deficit Deficiency
-------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 1,905,688 $ 118,359 $(2,113,800) $(1 ,995,441)
Issuance of Common Stock for:
Cash -- -- 444,833 826,212 -- 826,212
Services -- -- 50,000 50,000 -- 50,000
Warrants Issued with:
Issuance of Common Stock -- -- -- 17,794 -- 17,794
Debentures -- -- -- 56,500 -- 56,500
Legal Settlement -- -- -- 10,000 -- 10,000
Issuance of Preferred Stock for:
Conversion of Debt 5,400 1,710,000 -- -- -- 1,710,000
Conversion of Class AAA Warrants -- 90,000 -- (90,000) -- --
Conversion of Interest -- 232,300 -- -- -- 232,300
Net Loss -- -- -- -- (2,798,564) (2,798,564)
-------- ----------- --------- ----------- ----------- -----------
Balance at December 31, 1997 5,400 2,032,300 2,400,521 988,865 (4,912,364) (1,891,199)
Issuance of Common Stock for:
Conversion of Convertible Note Payable -- -- 6,441,758 592,500 -- 592,500
Cost Related to Convertible Note Payable -- -- -- (53,642) -- (53,642)
Warrants Issued for Compensation -- -- -- 5,400 -- 5,400
Net Loss -- -- -- -- (2,241,508) (2,241,508)
-------- ----------- --------- ----------- ----------- -----------
Balance at December 31, 1998 5,400 $ 2,032,300 8,842,279 $ 1,533,123 $(7,153,872) $(3,588,449)
======== =========== ========= =========== =========== ===========
See Accompanying Notes to the Financial Statements.
-4-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(2,241,508) $(2,798,564)
Adjustments to reconcile Net Loss to Net
Cash Used in Operating Activities:
Provision for Doubtful Accounts -- 11,000
Depreciation and Amortization 131,395 93,514
Note Payable Issued for Legal Settlement -- 48,000
Stock Warrants Issued for Services 5,400 27,500
Loss on Disposal of Assets 60,322 --
changes in Assets and Liabilities:
(Increase) Decrease
Accounts Receivable 11,899 5,655
Prepaid Expenses 1,946 29,154
Other Assets 76,793 327,130
Increase (Decrease)
Accounts Payable and Accrued Expenses 648,198 340,885
Deferred Revenue 162,713 168,44O
----------- -----------
Net Cash Used in Operating Activities (1,142,842) (1,747,286)
---------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of Futniture and Equipment (64,962) (169,384)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from Affiliate 345,380 --
Proceeds from Issuance of Notes Payable 100,000 400,000
Payments for Notes Payable (58,586) (18,052)
Proceeds from Issuance of Debentures Payable -- 351,000
Payments for Debentures Payable (9,000) --
Offering Cost for Convertible Note (29,449) --
Payments Under Capital Lease Obligations (53,622) (44,557)
Net Proceeds from Issuance of Stock -- 883,005
Proceeds from Issuance of Convertible Notes Payable 745,000 --
----------- -----------
Net Cash Provided by Financing Activities 1,039,723 1,571,396
----------- -----------
NET DECREASE IN CASH (168,081) (345,274)
CASH AT BEGINNING OF YEAR 175,563 520,837
---------- -----------
CASH AT END OF YEAR $ 7,482 $ 175,563
=========== ===========
See Accompanying Notes to the Financial Statements.
-5-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
</TABLE>
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the years ended December 31, 1998 and 1997, the Company paid in cash
approximately $43,000 and $45,000 for interest, and paid no income taxes.
NON-CASH INVESTING AND FINANCING TRANSACTION
For the years ended December 31, 1998 and 1997, the Company acquired
equipment of $12,855 and $73,445 under capital lease obligations.
For the year ended December 31, 1997, the Company issued 50,000 shares of
its common stock for loan fees valued at $50,000 and a legal settlement
valued at $10,000, respectively.
See Accompanying Notes to the Financial Statements.
-6-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Only Multimedia Network, Inc. ("OMNI" or the Company) is a provider of a
range of Internet-related services to the entertainment community.
Currently, OMNI is operating CastNet, a state of-the-art application which
enables casting directors and talent agents to exchange high-speed
information within a closed "Intranet" and secured "Internet" system,
providing instant electronic access to text, audio and video profiles of
actors throughout the world.
Basis of Presentation
As reflected in the accompanying financial statements, the Company has a
net operating loss of $2,241,508 for the year ended December 31, 1998, and
a working capital deficiency of $3,377,272, debentures payable of $331,770
in default, notes payable of $746,362 which are due as of December 31, 1998
or come due in the next twelve months and shareholders deficiency of
$3,588,449 as of December 31, 1998. These matters raise substantial doubt
about the Company's ability to continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which
in turn is dependent upon the Company's ability to continue to raise
capital and generate positive cash flows from operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and classifications
of liabilities that might be necessary should the Company be unable to
continue its existence.
Management plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in
existence:
- The Company has been acquired by a publicly held company (see Note 11).
- In 1999, the Parent Company (See Note 11) completed Regulation D 504
and 506 private placements and in the aggregate raised $2,000,000. The
Parent Company had raised approximately $550,000, which was used to
fund operations, in 1998 and the remaining $1,450,000 in 1999. Of the
$1,450,000, the Company paid-off $500,000 of notes payable and the
remaining funds will be used for marketing, product development, fixed
asset acquisitions and working capital needs of the Company.
- The Company is continuing to cut its operating overhead in order to
reduce the amount of cash needed to fund operations.
-7-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash Equivalents
Cash equivalents generally include all highly liquid investments with
original maturities of three months or less.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation and
amortization is computed using the straight-line method over the useful
lives of the assets as follows:
Computer Equipment 5 years
Computer Software 5 years
Office Furniture and Equipment 5 - 7 years
Leasehold Improvements 3 years
Revenue Recognition
Revenue for internet access and data services is recognized on a
subscription basis, with revenue representing the period of time for
which internet service is provided. Web site design revenue is
recognized under the percentage of completion method.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
Deferred income taxes result primarily from temporary differences
between financial and tax reporting. Deferred tax assets and
liabilities are determined based on the difference between the
financial statement bases and tax bases of assets and liabilities using
enacted tax rates. A valuation allowance is recorded to reduce a
deferred tax asset to that portion that is expected to more likely than
not be realized.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and trade receivables.
The Company places its cash with high quality financial institutions
and at times may exceed the FDIC $100,000 insurance limit. The Company
sells products in the United States and extends credit based on an
evaluation of the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables is principally
dependent on each customer's financial condition. The Company monitors
its exposure for credit losses and maintains allowances for anticipated
losses.
-8-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLIClES (continued)
Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from the estimates made.
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following as 9f December 31,:
1998 1997
-------- --------
Computer Equipment $481,558 $548,834
Computer Software 33,148 39,880
Office Furniture and Equipment 16,360 21,482
Leasehold Improvements 2,300 2,300
-------- --------
533,366 612,496
Less: Accumulated Depreciation 196,775 162,005
-------- --------
Total $336,591 $450,491
======== ========
Depreciation expense was $131,395 and $93,514 for the years ended
December 31, 1998 and 1997.
NOTE 3 - NOTES PAYABLE
Note payable for legal settlement.
The note bears interest at 8.0% per
year and requires monthly principal
and interest payments of $3,370 with
all accrued interest and principal
due June 1999. $ 23,124 $ 60,346
Note payable for legal settlement.
The note bears interest at 8.0% per
year and requires monthly principal
and interest payments of $2,000 with
all accrued interest and principal
due January 2000. 23,238 44,602
-9-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - NOTES PAYABLE (continued)
Note payable. The note bears interest
at 10% per annum with all accrued
interest and principal due on
December 31, 1998. Also, if the
Company closes one or more related or
unrelated financing transactions or
closes one or more related or
unrelated transactions pursuant to
which it sells substantially all of
its assets, or is merged or acquired,
all accrued interest and principal
shall become due. Also, the note is
secured by substantially all assets
of the Company. Subsequent to
December 31, 1998, this amount was
paid in full. (See Note 1). 500,000 400,000
--------- ---------
546,362 504,948
Less: Current Portion 546,362 461,416
--------- ---------
Long-Term Portion $ -- $ 43,532
========= =========
NOTE 4 - DEBENTURES PAYABLE
In 1996, the Company completed a debenture private placement for
aggregate proceeds of $1,950,000 for $1,852,500 of notes bearing
interest at 10% per annum and $97,500 of Class AAA stock warrants. The
principal balance and all unpaid interest were due December 31, 1997.
In 1997, the Company and note holders agreed to convert the principal
and interest into the Company's Preferred Stock Series B (see Note 7).
As of December 31, 1997, the note holders for $1,710,000 of the notes
effectively agreed to convert, and the remaining note holders for
$142,500 did not elect to convert, so as of December 31, 1998 and 1997,
the unpaid principal and interest of $177,364 and $163,428,
respectively, is due and payable.
In 1997, the Company completed a debenture private placement for
aggregate proceeds of $390,000 for $351,000 of notes bearing interest
at 10% per &mum and $39,000 of Class AAA stock warrants. The principal
balance and all unpaid interest were due on December 31, 1997. As of
December 31, 1997, the note holders for $207,000 of the notes agreed to
extend the maturity date to December 31, 1999, and the remaining note
holders for $144,000 did not elect to extend the maturity date, so as
of December 31, 1998 and 1997, the unpaid principal and interest of
$401,200 and $168,342 respectively, is due and payable.
-10-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - DEBENTURES PAYABLE (continued)
Debentures payable and related accrued interest consisted of the
following as of December 31,:
1998 1997
--------- ---------
Principal $ 484,500 $ 493,500
Interest 94,064 43,009
--------- ---------
578,564 536,509
Less: Current Portion 578,564 331,770
--------- ---------
Long-Term Portion - $ 204,739
========= =========
NOTE 5 - NOTES PAYABLE - SHAREHOLDERS
As of December 31, 1998 and 1997, certain shareholders have advanced
$525,453, to the Company. The notes, excluding $200,000 which is due
May 1999, are due May 8, 2006 and bear interest at rates ranging from
6% to 10%. Accrued interest on these notes were $30,234 and $61,300 as
of December 31, 1998 and 1997, respectively. In the event that the
Company completes a firm commitment initial public offering for gross
proceeds of at least $7,500,000 or the sale of the Company, then the
Company shall be required to make equal monthly payments of interest
and principal in an amount equal to the monthly payment necessary to
fully amortize the outstanding balance of unpaid principal and
interest, as of the date of the event, over the remaining term of the
note.
NOTE 6 - CONVERT1BLE NOTES PAYABLE
In May 1998, the Company issued convertible promissory notes in the
aggregate amount of $745,000 to certain shareholders, officers,
directors and unrelated parties. At the request of the holder the
principal and unpaid interest can be converted, at a rate of $.09 per
share, into the Company's common stock. Also, these notes have an
interest rate of 7.333%' and interest accrues up to the date of
conversion. The principal and all accrued and unpaid interest is due in
May 2003. As of December 31, 1998, $592,500 has been converted (See
Note 9 - Conversion of Convertible Note Payable).
NOTE 7 - CAPITAL LEASES
The Company leases equipment under capital leases expiring through
2002. Monthly payments, including interest with rates ranging from
12.7% to 22.1%, are $6,994.
The following is a summary of property held under the capital leases as
of December 31,:
1998 1997
--------- ---------
Computer Equipment $ 250,749 $ 237,894
Computer Software 7,381 7,381
Office Furniture and Equipment 27,122 27,122
--------- ---------
285,252 272,397
Less: Accumulated Depreciation 149,673 94,958
--------- ---------
Total $ 135,579 $ 177,439
========= =========
- 11 -
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - CAPITAL LEASES (continued)
Minimum future lease payments under the capital leases as of December
31, 1998 each of the remaining years in the aggregate are:
Year Ending December 31:
1999 $ 83,933
2000 62,742
2001 27,898
2002 6,941
--------
Total Minimum Lease Payments 181,514
Less: Amount Representing Interest 34,476
--------
Present Value of Minimum Lease Payments 147,038
Less: Current Portion 62,976
--------
Long-Term Portion $ 84,062
========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases
The Company has a noncancelable lease for its office suite in Los
Angeles. The following represents future lease payments due for the
office suite:
Year Ending December 31,:
1999 $ 69,000
2000 69,000
2001 71,000
2002 78,000
2003 78,000
Thereafter 435,000
--------
Total $800,000
========
Rent expense for the years ended December 31, 1998 and 1997 was $48,336
and $46,131, respectively.
Litigation
The Company is involved with certain legal proceedings and claims which
arise in the normal course of business. Management does not believe
that the outcome of these matters will have a material adverse effect
on the Company's financial position or results of operations.
-12-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK, WARRANTS AND OPTIONS
Preferred Stock
The Company is authorized to issue 1,000,000 shares of its preferred
stock in one or more series.
In 1998, the Company agreed with certain note holders to issue 5,400
shares of Preferred Stock Series B for the conversion of $1,710,000 of
principal, $90,000 of Class AAA warrants and $232,300 of interest. Each
share has the following rights: i)liquidation preference of $500 per
share, ij)receive an annual dividend of $3.67, payable in additional
shares of Preferred Stock Series B, ijj) convertible, at the holders
opinion, into 100 shares of the Company's common stock, iv) will
convert into 100 shares of the Company's common stock upon the
Company's common stock trading for at least $5.50 per share for any
five of ten consecutive trading days and v) is redeemable at $500 per
share at the option of the Company.
Sale of Common Stock
In 1997, the Company completed a common stock private placement for an
aggregate proceeds of $1,112,082, net of offering costs of $268,076,
for 444,833 units. Each unit consisted of one share of its common stock
for $1,094,288 and one Class AAA common stock warrant for $17,794 (see
stock warrants below).
In 1997, in connection with a debt facility, the Company issued 50,000
shares of its common stock. The stock was valued at $50,000, the value
of the services provided. The amount was capitalized as loan fees and
is being amortized over the life of the loan.
Conversion of Convertible Note Payable
In May 1998, the Company issued a convertible promissory note for
$592,500, which was converted into 6,441,758 shares of the Company's
common stock as of December 31, 1998. The note had a rate of interest
at 7.333% up to the date of conversion. The Company has accrued and
unpaid interest of approximately $9,200, which was not converted, and
is included in accounts payable and accrued expenses at December 31,
1998.
Stock Warrants
In 1996, the Company issued 143,750 warrants to certain investors and
an additional 43,125 Class A common stock warrants to a placement
agent. These warrants entitle the holders to purchase shares of common
stock at an exercise price of $.05 per share. The warrants expire on
May 15,2000.
-13-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK, WARRANTS AND OPTIONS (continued)
In 1996, the Company issued 1,950,000 warrants to the investors in the
private placement and an additional 570,000 Class AA common stock
warrants to the underwriter in connection with the debt placement.
These warrants become exercisable at the earlier of December 31, 1997
or upon the completion of an IP0. The exercise price will be 110% of
the IP0 price, or $2.00 per share if the Company has not completed an
IP0 by December 31, 1997. The exercise price shall be $3.00 if the
Company becomes a 12(b) or 12(g) reporting Company. The exercise price
for the underwriter warrants is 105% of the IP0 price. In the event the
private placement notes are not paid by December 31, 1997, the Company
will grant the investors 3,900,000 warrants and the underwriter
1,140,000 warrants. The exercise price of the warrants shall be $.01
per share and such warrants expire on May 24, 2000. In 1997, 1,775,000
of these warrants were cancelled with the debt.
In 1997, the Company issued 405,000 warrants to purchase its common
stock at an exercise price of $.01 per share. The Company valued the
warrants at $17,500, the market value at the date of issuance. The
warrants expire in May 2000.
In 1997, the Company issued 195,000 Class B common stock warrants for
proceeds of $39,000 in connection with the debenture private placement.
The warrants become exercisable at the earlier of December 31, 1997 or
upon the completion of an IP0. The exercise price will be 110% of the
IP0 price, or $2.60 per share if the Company has not completed an IP0
by December 31, 1997. The exercise price shall be $3.00 if the Company
becomes a 12(g) or 12(g) reporting company.
In 1997, the Company issued 889,666 Class AAA common stock warrants to
the investors and an additional 200,175 Class AAA common stock warrants
to the underwriters in connection with the common stock private
placement. Warrants became exercisable on December 31, 1997 with an
exercise price of $6.00 per share.
In 1997, the Company issued 50,000 Class C common stock warrants in
connection with a legal settlement with a fair value of $10,000 which
is included in additional paid in capital and charged to legal
settlement expense. Each warrant entitles the holder to purchase one
share of the Company's common stock for $2.46 per share. The warrants
expire in October 2002.
-14-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK, WARRANTS AND OPTIONS (continued)
Stock Options
The stockholders of the Company approved the Stock Option Plan (the
"Plan"). The Plan covers two types of options, incentive stock options
and nonqualified stock options. The aggregate number of shares which
may be issued pursuant to the Plan may not exceed 1.6 million shares.
The exercise price for the options shall be determined by the Plan
administrator at the date of grant, but shall not be less than the fair
market value at the date of grant. If the stock is not publicly traded,
then the exercise prices shall be determined in good faith by the Plan
administrator. Unless otherwise determined by the Plan administrator,
the options vest at a rate of 25% each year until fully vested.
<TABLE>
<CAPTION>
The following summarizes the Company's stock option transactions under
the stock option plan:
Weighted
Average
Stock Options Exercise
Outstanding Price
--------- ---------
<S> <C> <C>
Options Outstanding, December 31, 1996 1,110,000 $ 2.34
Granted 315,000 $ 2.33
---------
Options Outstanding, December 31, 1997 1,425,000 $ 2.34
Granted -- $ 1.89
Expired (45,000) $ 1.89
---------
Options Outstanding, December 31, 1998 1,380,000 $ 2.28
=========
Options Exercisable, December 31, 1997 854,800 $ 2.34
=========
Options Exercisable, December 31, 1998 1,346,250 $ 2.33
=========
</TABLE>
The weighted average remaining contract lives of stock options
outstanding are 3.04 years.
The Company has adopted only the disclosure provisions of SFAS No.123,
"Accounting for Stock-Based Compensation". It applies Accounting
Principles Bulletin ("APB") Opinion No.25, "Accounting for Stock Issued
to Employees", and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options issued
to outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net income would be reduced to the proforma
amounts indicated below.
1998 1997
----------- -----------
Net Loss:
As Reported $(2,043,490) $(2,781,064)
=========== ==========
Profoma $(2.043.490) $(2,897,114)
=========== ==========
-15
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK, WARRANTS AND OPTIONS (continued)
At December 31, 1997, the per unit weighted-average fair value of unit
options granted was $2.46 on the date of grant using the minimum value
method (net present value of exercise price) with the following
weighted-average assumptions: expected dividend yield of 0%, risk-free
interest rate of 5.65% and an expected life of 2 years.
NOTE 10 - INCOME TAXES
<TABLE>
<CAPTION>
The reconciliation of income taxes computed at the federal statutory
tax rate to income tax expense at the effective income tax rate is as
follows at December 31,:
1998 1997
------- -------
<S> <C> <C>
Federal Statutory Income Tax (Benefit) Rate
Increase (Decrease) Resulting From: (34.0)% (34.0)%
Non-Deductible Expenses
Net Change in Valuation Allowance .2% .7%
Effective Income Tax (Benefit) Rate 33.8% 33.3%
------- -------
--% --%
======= =======
</TABLE>
<TABLE>
<CAPTION>
The components of the net deferred tax asset and (liability) are as
follows at December 31,:
1998 1997
----------- -----------
<S> <C> <C>
Net Operating Loss Carryforwards $ 2,299,000 $ 1,536,000
Deferred Revenue 65,000 68,000
Depreciation (14,000) (39,000)
Other (5,000) 13,000
Valuation Allowance (2,345,000) (1,578,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Based on projections of future taxable
income over the periods which the deferred tax assets are deductible,
as of December 31, 1998, management believes it is likely that the
Company will not realize the benefits of these deductible differences,
and therefore a full valuation allowance is required.
The Company has available at December 31, 1998, approximately
$6,763,000 of unused operating loss carryforwards that may be applied
against future taxable income and that expire in various years starting
from 2010. However, the merger, as described further in Note 11, may
place limitations as to the ability to use these operating loss
carryforwards.
-16-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - SUBSEQUENT EVENTS
In February 1999, the Company finalized an agreement to be acquired by
a wholly owned subsidiary (the "Acquirer") of a publicly held company
(the "Parent"). Each holder of the Company's warrants or options,
common stock or preferred stock will receive from the Acquirer an
identical instrument in the Parent, in terms of all rights,
preferences, and privileges. The Acquirer shall cease as of the closing
and the Company shall continue as the surviving entity. Also, a certain
individual is the majority shareholder of both the Parent and the
Company.
-17-
Merdinger, Fruchter, Rosen & Corso, P.C.
Certified Public Accountants
<PAGE>
<TABLE>
<CAPTION>
The Entertainment Internet, Inc.
Balance Sheet
as of September 30, 1998 and 1999
ASSETS
September 30, September 30,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ -- $ 18,724
Accounts Receivables 7,113 29,119
Prepaid Expenses 590,754 --
----------- -----------
Total Current Assets 597,867 47,843
----------- -----------
FURNITURE AND EQUIPMENT, net 366,201 413,884
OTHER ASSETS 14,247 38,503
----------- -----------
TOTAL ASSETS $ 978,315 $ 500,230
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bookover Draft $ 8,914 $ --
Obligations Under Capital Leases 70,946 57,231
Notes Payable - Shareholders 1,470,130 --
Notes Payable, Current Portion 189,736 555,239
Debenture Payable and Accrued Interest 437,000 277,500
Accounts Payable and Accrued Expenses 1,281,238 1,009,267
Deferred Revenue 372,783 440,290
----------- -----------
Total current liabilities 3,830,747 2,339,527
LONG-TERM LIABILITIES
Obligations Under Capital Leases, Less Current Portion 40,605 91,964
Notes Payable, Less Current Portion -- 993,147
Debentures Payable, Less Current Portion -- 6,210
Notes Payable - Shareholders, Less Current Portion 325,453 477,953
Accrued Interest 66,718 94,848
----------- -----------
Total liabilities 4,263,523 4,003,649
----------- -----------
SHAREHOLDERS' DEFICIENCY
Preferred Stock, no par value, 1,000,000 shares
authorized; 5,400 shares issued and outstanding 2,032,300 2,032,300
Common Stock, $.001 par value, 50,000,000 shares
authorized; 27,585,229 and 10,712,358 shares issued
and outstanding, respectively 27,585 10,712
Additional Paid-In Capital 4,536,247 978,152
Accumulated Deficit (9,881,340) (6,524,583)
----------- -----------
Total Shareholders' Deficiency (3,285,208) (3,503,418)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 978,315 $ 500,230
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Entertainment Internet, Inc.
Statement of Operations
for the 9 months ended September 30, 1998 and 1999
September 30, September 30,
1999 1998
----------- -----------
<S> <C> <C>
SALES $ 572,275 $ 544,974
COST OF SALES 317,120 332,007
----------- -----------
GROSS PROFIT 255,155 212,967
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,935,455 1,633,255
----------- -----------
LOSS FROM OPERATIONS (2,680,300) (1,420,288)
OTHER INCOME AND (EXPENSES)
Interest and Dividend Income -- 3,700
Loan fees written off -- (66,925)
Interest Expense (47,168) (128,707)
----------- -----------
Total Other Income and (Expenses) (47,168) (191,932)
----------- -----------
NET LOSS $(2,727,468) $(1,612,220)
=========== ===========
EPS Primary $ (0.13) $ (0.28)
=========== ===========
EPS Diluted $ (0.13) $ (0.25)
=========== ===========
Weighted Average
Shares Outstanding:
Primary 20,230,593 6,437,781
=========== ===========
Diluted 20,230,593 6,437,781
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Entertainment Internet, Inc.
STATEMENT OF CASH FLOWS
for the 9 months ended September 30, 1998 and 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(2,727,468) $(1,612,220)
Adjustments to reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation 81,022 36,607
Issuance of Common Stock for Services Rendered 1,215,277
Changes in Assets and Liabilities:
(Increase) Decrease
Accounts receivable 10,881 (2,799)
Prepaid expenses -- 1,946
Other Assets -- 52,537
Increase (Decrease)
Accounts Payable and Accrued Expenses 413,691 259,979
Deferred Revenue (14,999) 215,221
Accrued Interest 26,666 181,007
----------- -----------
Net Cash Used in Operating Activities (994,930) (867,722)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of Furniture and Equipment (110,633)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Book over Draft 8,914 --
Payments Under Capital Lease Obligations (35,488) (38,609)
Decrease in advances from Affiliate (345,380)
Proceeds from Issuance of Notes -- 56,501
Proceeds from Loans by Shareholder 1,361,870 745,000
Payments for Notes Payable (356,626) (52,009)
Proceeds from Issuance of Common Stock 464,791 --
----------- -----------
Net Cash Provided by Financing Activities 1,098,081 710,883
----------- -----------
NET DECREASE IN CASH (7,482) (156,839)
CASH AT BEGINNING OF PERIOD 7,482 175,563
----------- -----------
CASH AT END OF PERIOD $ -- $ 18,724
=========== ===========
</TABLE>
<PAGE>
EXHIBITS
3.1 Articles of Incorporation
3.2 By-Laws
4.1 Stock Option Plan
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
By: /s/ Mohamed Hadid
Mohamed Hadid, Chairman, Director
ARTICLES OF INCORPORATION
OF
WEST TECH SERVICES, INC.
FIRST. The name of the corporation is:
WEST TECH SERVICES, INC.
SECOND. Its registered office in the State of Nevada
is located at 2533 North Carson Street, Carson City, Nevada 89706 that this
corporation may maintain an office, or offices, in such other place within or
without the State of Nevada as may be from time to time designated by the Board
or Directors, or by the by1aws of said corporation, and that this Corporation
may conduct all Corporation business of every kind and nature, including the
holding of all meetings of Directors and Stockholders, outside the State of
Nevada as well as within the State of Nevada
THIRD. The objects for which this Corporation is
formed are: To engage in any lawful activity, including, but not limited to the
following:
(A) Shall have such rights, privileges and powers as may be
conferred upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and
powers, when not inconsistent with the purposes and objects for which this
corporation is organized.
(C) Shall have power to have succession by its corporate name
for the period limited in its certificate or articles of incorporation, and when
no period is limited. perpetually, or until dissolved and its affairs wound up
accordance to law.
(D) Shall have power to sue and be sued in any court of law or
equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and
personal estate and to mortgage or lease any such real and personal estate with
its franchises. The power to hold real and personal estate shall include the
power to take the same by devise or bequest in the State of Nevada, or in any
other state, territory or country.
(G) Shall have power to appoint such officers and agents as
the affairs of the corporation shall require, and to allow them suitable
compensation.
(H) Shall have power to make bylaws not inconsistent with the
Constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holding of
meetings of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be
wound up or dissolved.
(J) Shall have power to adopt and use a common seal or stamp,
and alter the same at pleasure. The use of a seal or stamp by the corporation on
any corporate documents is not necessary. The corporation may use a seal or
stamp, if it desires, but such use or non-use shall not in any way affect the
legality of the document.
(K) Shall have power to borrow money and contract debts when
necessary for the transaction of its business, or for the exercise of its
corporate rights, privileges or franchises, or for any other lawful purpose of
its incorporation; to issue bonds, promissory notes, bills of exchange,
debentures, and other obligations and evidences of indebtedness, payable at a
specified time or times, or payable upon the happening of a specified event or
events, whether secured by mortgage, age, pledge or otherwise, or unsecured, for
money borrowed. or in payment for property purchased, or acquired, or for any
other lawful object.
(L) Shall have power to guarantee, purchase. hold, sell,
assign, transfer, mortgage, pledge or otherwise dispose of the shares of the
capital stock of, or any bonds, securities or evidences of the indebtedness
created by, any other corporation or corporations of the State of Nevada. or any
other state or government, and, while owners of such stock, bonds, securities or
evidences of indebtedness, to exercise all the rights, powers and privileges of
ownership, including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer
shares of its own capital stock, and use therefor its capital. capital surplus,
surplus, or other property or fund.
(N) Shall have power to conduct business, have one or more
offices. and hold, purchase. mortgage and convey real and personal property in
the State of Nevada, and in any of the. several states, territories, possessions
and dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all and everything necessary and
proper for the accomplishment of the objects enumerated in its certificate or
articles of incorporation, or any amendment thereof, or necessary or incidental
to the protection and benefit of the corporation, and, in general, to carry on
any lawful business necessary or incidental to the attainment of the objects of
the corporation, whether or not such business is similar in nature to the
objects set forth in the certificate or articles of incorporation of the
corporation, or any amendment thereof.
(P) Shall have power to make donations for the public welfare
or for charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general joint
ventures, in connection with any lawful activities.
FOURTH. That the total number of voting common stock
authorized that may be issued by the Corporation is TWENTY-FIVE THOUSAND
(25,000) shares of stock without nominal or par value and no other class of
stock shall be authorized. Said shares without nominal or par value may be
issued by the corporation from time to time for such considerations as may be
fixed from time to time by the Board of Directors.
FIFTH. The governing board of this corporation shall
be known as directors, and the number of directors may from time to time be
increased or decreased in such manner as shall be provided by the Bylaws of.
this Corporation, providing that the number of directors shall not be reduced to
less than one (1). The name and post office address of the first Board of
Directors shall be one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
Lewis E. Laughlin 2533 North Carson Street
Carson City, NV 89705
SIXTH. The capital stock, after the amount of the
subscription price, or par value, has been paid in, shall not be subject to
assessment to pay the debts of the corporation.
SEVENTH. The name and post office address of the
Incorporator signing the Articles of Incorporation is as follows:
Lewis E. Laughlin
2533 North Carson Street
Carson City, NV 89706
EIGHTH. The resident agent for this corporation shall be:
LAUGHLIN ASSOCIATES, INC.
The address of said agent, and the principal or statutory address of this
corporation in the state of Nevada, shall be:
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual
existence.
TENTH. In furtherance and not in limitation of the
powers conferred the Board of Directors is expressly authorized: Subject to the
By-Laws, if any, adopted by the Stockholders, to make, alter or amend the
By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and
above its capital stock paid in; to authorize and cause to be executed,
mortgages and liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to
designate one (1) or more committees, each committee to consist of one or more
of the Directors of the Corporation, which, to the extent provided in the
resolution, or in the By Laws of the Corporation, shall have and may exercise
the powers of the Board of Directors in the management of the business and
affairs of the Corporation. Such committee or committees, shall have such name,
or names, as may be stated in the By Laws of the Corporation, or as may be
determined from time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the
Stockholders holding stock entitling them to exercise at least a majority of the
voting power given at a Stockholders meeting called for that purpose, or when
authorized by the written consent of the holders of at least a majority of the
voting stock issued and outstanding, the Board of Directors shall have power and
authority at any meeting to sell, lease or exchange all of the property and
assets of the Corporation, including its good will and its corporate franchises,
upon such terms and conditions as its Board of Directors deems expedient and for
the best interests of the Corporation.
ELEVENTH No shareholder shall be entitled as a matter
of right to subscribe for or receive additional shares of any class of stock of
the Corporation, whether now or hereafter authorized, or any bonds, debentures
or securities convertible into stock, but such additional shares of stock or
other securities convertible into stock may be issued or disposed of by the
Board of Directors to such persons and on such terms as in its discretion it
shall deem advisable.
TWELFTH. No director or officer of the Corporation
shall be personally liable to the Corporation or any of its stockholders for
damages for breach of fiduciary duty as a director or officer involving any act
or omission of any such director or officer; provided, however, that the
foregoing provision shall not eliminate or limit the liability of a director or
officer (i) for acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law, or (ii) the payment of dividends in violation of
Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of
this Article by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director or officer of the Corporation for acts or omissions prior to such
repeal or modification.
THIRTEENTH. This Corporation reserves the right to
amend, alter, change or repeal any provision contained in the Articles of
Incorporation, in the manner now or hereafter prescribed by statute, or by the
Articles of Incorporation, and all rights conferred upon Stockholders herein are
granted subject to this reservation.
I, THE UNDERSIGNED, being the Incorporator hereinbefore named
for the purpose of forming a Corporation pursuant to the General Corporation Law
of the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 20th day April, 1992.
/s/ Lewis E. Laughlin
STATE OF NEVADA )
SS:
CARSON CITY )
On this 20th day of April, 1992, in Carson City. Nevada, before me, the
undersigned, a Notary Public in and for Carson City, State of Nevada, personally
appeared:
Lewis E. Laughlin
known to me to be the person whose name is subscribed to the foregoing document
and acknowledged to me that he executed the same.
/s/ Becky L. Butler
-------------------------------
Notary Public
I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously
named Corporation.
4-20-92 /s/ Irma D. Butler
Date Service Coordinator
<PAGE>
RESIGNATION
I Lewis E. Laughlin, an original incorporator and member of the first Board of
Directors of WEST TECH SERVICES, INC., a Neavada Corporation, hereby tender my
resignation as a member of the Board of Directors and as Officers of the above
named Corporation, such resignation to be effective this 20th day of April,
1992.
/s/ Lewis E. Laughlin
Director
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
West Tech Services, Inc.
(the Corporation)
We the undersigned, Tracey I. Sinclair (President/Director) and Douglas Ansell
(Secretary/Director) of the Corporation do hereby certify:
That the board of Directors of the Corporation at a meeting duly convened and
held on Monday, April 28,1997, adopted a resolution to amend the original
articles as follows:
Forth: Capital Stock
1. Classes and Number of Shares. The total number of
shares of all classes of stock, which the corporation
shall have authority to issue is Sixty-Million
(60,000,000), consisting of Fifty-Million (50,000,000)
shares of Common Stock, par value of $0.001 per share (The
Common Stock") and Ten-Million (10,000,000) shares of
Preferred Stock, which have a par value of $0.001 per
share (the 'Preferred Stock").
2. Powers and Rights of Common Stock
(a) Preemptive Right. No shareholders of the Corporation
holding common stock shall have any preemptive or other
right to subscribe for any additional un-issued or
treasury shares of stock or for other securities of any
class, or for rights, warrants or options to purchase
stock, or for scrip, or for securities of any kind
convertible into stock or carrying stock purchase warrants
or privileges unless so authorized by the Corporation;
(b) Voting Rights and Powers. With respect to all matters
upon which stockholders are entitled to vote or to which
stockholders are entitled to give consent, the holders of
the outstanding shares of the Common Stock shall be
entitled to cast thereon one (1) vote in person or by
proxy for each share of the Common Stock standing in
his/her name
(c) Dividends and Distributions
(i) Cash Dividends. Subject to the rights of holders of
Preferred Stock, holders of Common Stock shall be entitled
to receive such cash dividends as may be declared thereon
by the Board of Directors from time to time out of assets
of funds of the Corporation legally available therefor;
(ii) Other Dividends and Distributions. The Board of
Directors may issue shares of the Common Stock in the form
of a distribution or distributions pursuant to a stock
dividend or split-up of the shares of the Common Stock;
(iii) Other Rights. Except as otherwise required by the
Nevada Revised Statutes and as may otherwise be provided
in these Articles of Incorporation, each share of the
Common Stock shall have identical powers, preferences and
rights, including rights in liquidation;
3. Preferred Stock. The powers, preferences, rights,
qualifications, limitations and restrictions pertaining to
the Preferred Stock, or any series thereof, shall be such
as may be fixed, from time to time, by the Board of
Directors in its sole discretion, authority to do so being
hereby expressly vested in such board.
4. Issuance of the Common Stock and the Preferred Stock.
The Board of Directors of the Corporation may from time to
time authorize by resolution the issuance of any or all
shares of the Common Stock and the Preferred Stock herein
authorized in accordance with the terms and conditions set
forth in these Articles of Incorporation for such
purposes, in such amounts, to such persons, corporations,
or entities, for such consideration and in the case of the
Preferred Stock, in one or more series, all as the Board
of Directors in its discretion may determine and without
any vote or other action by the stockholders, except as
otherwise required by law. The Board of Directors, from
time to time, also may authorize, by resolution, options,
warrants and other rights convertible into Common or
Preferred stock (collectively "securities.") The
securities must be issued for such consideration,
including cash, property, or services, as the Board or
Directors may deem appropriate, subject to the requirement
that the value of such consideration be no less than the
par value if the shares issued. Any shares issued for
which the consideration so fixed has been paid or
delivered shall be fully paid stock and the holder of such
shares shall not be liable for any further call or
assessment or any other payment thereon, provided that the
actual value of such consideration is not less that the
par value of the shares so issued. The Board of Directors
may issue shares of the Common Stock in the form of a
distribution or distributions pursuant to a stock divided
or split-up of the shares of the Common Stock only to the
then holders of the outstanding shares of the Common
Stock.
5. Cumulative Voting. Except as otherwise required by
applicable law, there shall be no cumulative voting on any
matter brought to a vote of stockholders of the
Corporation.
The number of shares of the Corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation are 15,000, that the said change(s)
and amendment has been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
Dated Monday, April 28,1997
West Tech Services, Inc. Attest:
/s/ Douglas Ansell /s/ Tracey I. Sinclair
Douglas Ansell, Secretary Tracey I. Sinclair
President
State Of Nevada )
SS: [NOTARY PUBLIC SEAL HERE]
County Of Clark )
The undersigned Notary Public certified, deposes and states that Tracey I.
Sinclair and Douglas Ansell, personally appeared before me and executed the
foregoing on behalf of the Corporation as its President and Secretary
respectively, 30th day of March, 1998.
/s/ Bridget E. Richards
Notary Public in and for
said County and State
BY-LAWS
of
West Tech Services, Inc.
(the "Corporation)
Article I
Office
The Board of Directors shall designate and the Corporation shall maintain a
principal office. The location of the principal office may be changed by the
Board of Directors. The Corporation also may have offices in such other places
as the Board may from time to time designate. The location of the initial
principal office of the Corporation shall be designated by resolution.
Article II
Shareholders Meetings
1. Annual Meetings
The annual meeting of the shareholders of the Corporation shall be held at such
place within or without the State of Nevada as shall be set forth in compliance
with these Bylaws. The meeting shall be held on the Last Monday of April of each
year. If such day is a legal holiday, the meeting shall be on the next business
day. This meeting shall be for the election of Directors and for the transaction
of such other business as may properly come before it.
2. Special Meetings
Special meetings of shareholders, other than those regulated by statute, may be
called by the President upon written request of the holders of 5O% or more of
the outstanding shares entitled to vote at such special meeting. Written notice
of such meeting stating the place, the date and hour of the meeting, the purpose
or purposes for which it is called, and the name of the person by whom or at
whose direction the meeting is called shall be given.
3. Notice of Shareholders Meeting
The Secretary shall give written notice stating the place, day, and hour of the
meeting, and in the case of a special meeting, the purpose or purposes for which
the meeting is called, which shall be delivered not less than ten or more than
fifty days before the date of the meeting, either personally or by mail to each
shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at their
address as it appears on the books of the Corporation, with postage thereon
prepaid. Attendance at the meeting shall constitute a waiver of notice thereof.
4. Place of Meeting
The Board of Directors may designate any place, either within or without the
State of Nevada, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Nevada, as the place for the holding of such
meeting. If no designation is made, or if a special meeting is otherwise called,
the place of meeting shall be the principal office of the Corporation.
5. Record Date
The Board of Directors may fix a date not less than ten nor more than fifty days
prior to any meeting as the record date for the purpose of determining
shareholders entitled to notice of and to vote at such meetings of the
shareholders. The transfer books may be closed by the Board of Directors for a
stated period not to exceed fifty days for the purpose of determining
shareholders entitled to receive payment of and dividend, or in order to make a
determination of shareholders for any other purpose.
6. Quorum
A majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If less than a majority of the outstanding shares are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At a meeting resumed after any such
adjournment at which a quorum shall be present or represented, any business may
be transacted, which might have been transacted at the meeting as originally
noticed.
7. Voting
A holder of outstanding shares, entitled to vote at a meeting, may vote at such
meeting in person or by proxy. Except as may otherwise be provided in the
currently filed Articles of Incorporation, every shareholder shall be entitled
to one vote for each share standing their name on the record of shareholders.
Except as herein or in the currently filed Articles of Incorporation otherwise
provided, all corporate action shall be determined by a majority of the votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
8. Proxies
At all meeting of shareholders, a shareholder may vote in person or by proxy
executed in writing by the shareholder or by their duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
six months from the date of its execution.
9. Informal Action by Shareholders
Any action required to be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by a majority of the shareholders entitled to vote with respect
to the subject matter thereof.
Article III
Board of Directors
1. General Powers
The business and affairs of the Corporation shall be managed by its Board of
Directors. The Board it Directors may adopt such rules and regulations for the
conduct of their meetings and the management of the Corporation as they
appropriate under the circumstances. The Board shall have authority to authorize
changes in the Corporation's capital structure.
2. Number, Tenure and Qualification
The number of Directors of the Corporation shall be a number between one and
five, as the Directors may by resolution determine from time to time. Each of
the Directors shall hold office until the next annual meeting of shareholders
and until their successor shall have been elected and qualified.
3. Regular Meetings
A regular meeting of the Board of Directors shall be held without other notice
than by this Bylaw, immediately after and, at the same place as the annual
meeting of shareholders. The Board of Directors may provide, by resolution, the
time and place for the holding of additional regular meetings without other
notice than this resolution.
4. Special Meetings
Special meetings of the Board of Directors may be called by order of the
Chairman of the Board or the President. The Secretary shall give notice of the
time, place and purpose or purposes of each special meeting by mailing the same
at least two days before the
meeting or by telephone, telegraphing or telecopying the same at least one day
before the meeting to each Director. Meeting of the Board of Directors may be
held by telephone conference call.
5. Quorum
A majority of the members of the Board of Directors shall constitute a quorum
for the transaction of business, but less than a quorum may adjourn any meeting
from time to time until a quorum shall be present, whereupon, the meeting may be
held, as adjourned, without further notice. At any meeting at which every
Director shall be present, even though without any formal notice any business
may be transacted
6. Manner of Acting
At all meetings of the Board of Directors, each Director shall have one vote.
The act of a majority of Directors present at a meeting shall be the act of the
full Board of Directors, provided that a quorum is present.
7. Vacancies
A vacancy in the Board of Directors shall be deemed to exist in the case of
death, resignation, or removal of any Director, or if the authorized number of
Directors is increased, or if the shareholders fail, at any meeting of the
shareholders, at which any Director is to be elected, to elect the full
authorized number of Directors to be elected at that meeting.
8. Removals
Directors may be removed, at any time, by a vote of the shareholders holding a
majority of the shares outstanding and entitled to vote. Such vacancy shall be
filled by the Directors entitled to vote. Such vacancy shall be filled by the
Directors then in office, though less than a quorum, to hold office until the
next annual meeting or until their successor is duly elected and qualified,
except that any directorship to be filled by election by the shareholders at the
meeting at which the Director is removed. No reduction of the authorized number
of Directors shall have the effect of prior to the expiration of their term of
removing any Director office.
9. Resignation
A director may resign at any time by delivering written notification thereof to
the President or Secretary of the Corporation. A resignation shall become
effective upon its acceptance by the Board of Directors; provided, however, that
if the Board of Directors has not acted thereon within ten days from the date of
its delivery, the resignation shall be deemed accepted.
l0. Presumption of Assent
A Director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action(s) taken unless their dissent shall be placed in the
minutes of the meeting or unless he or she shall file their written dissent to
such action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
11. Compensation
By resolution of the Board of Directors, the Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors or a
stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
12. Emergency Power
When, due to a national disaster or death, a majority of the Directors are
incapacitated or otherwise unable to attend the meetings and function as
Directors, the remaining members of the Board of Directors shall have all the
powers necessary to function as a complete Board, and for the purpose of doing
business and filling vacancies shall constitute a quorum, until such time as all
Directors can attend or vacancies can be filled pursuant to these Bylaws.
13. Chairman
The Board of Directors may elect from its own number a Chairman of the Board,
who shall preside at all meetings of the Board of Directors and shall perform
such other duties as may be prescribed from time to time by the Board of
Directors. The Chairman may by appointment fill any vacancies on the Board of
Directors.
Article IV
Officers
1. Number
The officers of the Corporation shall be a President, one or more Vice
Presidents, a Secretary, and a Treasurer, each of whom shall be elected by a
majority of the Board of Directors. Such other Officers and assistant Officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. In its discretion, the Board of Directors may leave unfilled for any
such period as it may determine any office except those of President and
Secretary. Any two or more offices may be held by the same person. Officers may
or may not be Directors or shareholders of the Corporation.
2. Election and Term of Office
The Officers of the Corporation to be elected by the Board of Directors shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election of
Officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Each Officer shall hold office until their successor
shall have been duly elected and shall have qualified or until their death or
until they shall resign or shall have been removed in the manner hereinafter
provided.
3. Resignations
Any Officer may resign at any time by delivering a written resignation either to
the President or to the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
4. Removal
Any Officer or agent may be removed by the Board of Directors whenever in its
judgment the best interests Corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an Officer or agent shall not of itself
create contract rights. Any such removal shall require a majority vote of the
Board of Directors, exclusive of the Officer in question if he or she is also a
Director.
5. Vacancies
A vacancy in any office because, of death, resignation, removal,
disqualification or otherwise, or is a new office shall be created, may be
filled by the Board of Directors for the un-expired portion of the term.
6. President
The president shall be the chief executive and administrative Officer of the
Corporation. He or she shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, at meetings of the Board of Directors.
He or she shall exercise such duties as customarily pertain to the office of
President and shall have general and active supervision over the property,
business, and affairs of the Corporation and over its several Officers, agents,
or employees other than those appointed by the Board of Directors. He or she may
sign, execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations, and shall perform such other duties as
may be prescribed from time to time by the Board of Directors or by the Bylaws.
7. Vice President
The Vice President shall have such powers and perform such duties as may be
assigned to him by the Board of Directors or the President. In the absence or
disability of the President, the Vice President designated by the B9ard or the
President shall perform the duties and exercise the powers of the President. A
Vice President may sign and execute contracts any other obligations pertaining
to the regular course of their duties.
8. Secretary
The Secretary shall keep the minutes of all meetings of the stockholders and of
the Board of Directors and, to the extent ordered by the Board of Directors or
the President, the minutes of meeting of all committees. He or she shall cause
notice to be given of meetings of stockholders, of the Board of Directors, and
of any committee appointed by the Board. He or she shall have custody of the
corporate seal and general charge of the records, documents and papers of the
Corporation not pertaining to the performance of the duties vested in other
Officers, which shall at all reasonable times be open to the examination of any
Directors. He or she may sign or execute contracts with the President or a Vice
President thereunto authorized in the name of the Corporation and affix the seal
of the Corporation thereto. He or she shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by the Bylaws.
9. Treasurer
The Treasurer shall have general custody of the collection and disbursement of
funds of the Corporation He or she shall endorse on behalf of the Corporation
for collection check, notes and other obligations, and shall deposit the same to
the credit of the Corporation in such bank or banks or depositories as the Board
of Directors may designate. He or she may sign, with the President or such other
persons as may be designated for the purpose of the Board of Directors, all
bills of exchange or promissory notes of the Corporation. He or she shall enter
or cause to be entered regularly in the books of the Corporation full and
accurate account of all monies received and paid by him on account of the
Corporation; shall at all reasonable times exhibit his (or her) books and
accounts to any Director of the Corporation upon application at the office of
the Corporation during business hours; and, whenever required by the Board of
Directors or the President, shall render a statement of his (or her) accounts.
The Treasurer shall perform such other duties as may be prescribed from time to
time by the Board of Directors or by the Bylaws.
l0. Other Officers
Other Officers shall perform such duties and shall have such powers as may be
assigned to them by the Board of Directors.
11. Salaries
Salaries or other compensation of the Officers of the Corporation shall be fixed
from time to time by the Board of Directors, except that the Board of Directors
may delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate Officers or agents. No Officer shall be
prevented from receiving any such salary or compensation by reason of the fact
the he or she is also a Director of the Corporation
12.Surety Bonds
In case the Board of Directors shall so require, any Officer or agent of the
Corporation shall execute to the Corporation a bond in such sums and with such
surety or sureties as the Board of Directors may direct, conditioned upon the
faithful performance of his (or her) duties to the Corporation, including
responsibility for negligence and for the accounting for all property, monies or
securities of the Corporation, which may come into his (or her) hands.
Article V
Contracts, Loans, Checks and Deposits
1. Contracts
The Board of Directors may authorize any Officer or Officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation and such authority may be general or confined
to specific instances.
2. Loans
No loan or advance shall be contracted on behalf of the Corporation, no
negotiable paper or other evidence of its obligation under any loan or advance
shall be issued in its name, and no property of the Corporation shall be
mortgaged, pledged, hypothecated or transferred as security for the payment of
any loan, advance, indebtedness or liability of the Corporation unless and
except as authorized by the Board of Directors. Any such authorization may be
general or confined to specific instances.
3. Deposits
All funds of the Corporation not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select, or as may be selected by an
Officer or agent of the Corporation authorized to do so by the Board of
Directors.
4. Checks and Drafts
All notes, drafts, acceptances, checks, endorsements and evidence of
indebtedness of the Corporation shall be signed by such Officer or Officers or
such agent or agents of the Corporation and in such manner as the Board of
Directors from timer to time may determine. Endorsements for deposits to the
credit of the Corporation in any of its duly authorized depositories. shall be
made in such manner as the Board of Directors may from time to time determine.
5. Bonds and Debentures
Every bond or debenture issued by the Corporation shall be in the form of an
appropriate legal writing, which shall be signed by the President or Vice
President and by the Treasurer or by the Secretary, and sealed with the seal of
the Corporation. The seal may be facsimile, engraved or printed. Where such bond
or debenture is authenticated with the manual signature of an authorized Officer
of the Corporation or other trustee designated by the indenture of trust or
other agreement under which such security is issued, the signature of any of the
Corporation's Officers named thereon may be facsimile. In case any Officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall cease to be an Officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or debenture may
nevertheless by adopted by the Corporation and issued and delivered as though
the person who signed it or whose facsimile signature has been used thereon had
not ceased to be such Officer.
Article VI
Capital Stock
1. Certificate of Share
The shares of the Corporation shall be represented by certificates prepared by
the Board of Directors and signed by the President. The signatures of such
Officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or one of its employees. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
2. Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock transfer
books of the Corporation by the holder of record thereof or by his (or her)
legal representative, who shall furnish proper evidence of authority to
transfer, or by his (or her) attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, and on surrender
for cancellation of the certificate for such shares. The person in whose name
shares stand on the books of the Corporation shall be deemed by the Corporation
to be the owner thereof for all purposes.
3. Transfer Agent and Registrar
The Board of Directors of the Corporation shall have the power to appoint one or
more transfer agents and registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates
shall be countersigned and registered by one or more of such transfer agents and
registrars.
4. Lost or Destroyed Certificates
The Corporation may issue a new certificate to replace any certificate
theretofore issued by it alleged to have been lost or destroyed. The Board of
Directors may require the owner of such a certificate or his (or her) legal
representative to give the Corporation a bond in such sum and with such sureties
as the Board of Directors may direct to indemnify the Corporation as transfer
agents and registrars, if any, against claims that may be made on account of the
issuance of such new certificates. A new certificate may be issued without
requiring any bond.
5. Registered Shareholders
The Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder thereof, in fact, and shall not be bound to
recognize any equitable or other claim to or on behalf of this Corporation to
any and all of the rights and powers incident to the ownership of such stock at
any such meeting, and shall have power and authority to execute and deliver
proxies and consents on behalf of this Corporation in connection with the
exercise by this Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like powers
upon any other person or persons.
Article VII
Indemnification
No Officer or Director shall be personally liable for any obligations of the
Corporation or for any duties or obligations arising out of any acts or conduct
of said Officer or Director performed for or on behalf of the Corporation. The
Corporation shall and does hereby indemnify and hold harmless each person and
their heirs and administrators who shall serve at any time hereafter as a
Director or Officer of the Corporation from and against any and all claims,
judgments and liabilities to which such persons shall become subject by reason
of their having heretofore or hereafter been a Director or Officer of the
Corporation, or by reason of any action alleged to have heretofore or hereafter
taken or omitted to have been taken by him as such Director or Officer, and
shall reimburse each such person for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability, including power
to defend such persons from all suits or claims as provided for under the
provisions of the Nevada Revised Statutes; provided, however, that no such
persons shall be indemnified against, or be reimbursed for, any expense incurred
in connection with any claim or liability arising out of his (or her) own
negligence or willful misconduct. The rights accruing to any person under the
foregoing provisions of this section shall not exclude any other right to which
he or she may lawfully be entitled, nor shall anything herein contained restrict
the right of the Corporation to indemnify or reimburse such person in any proper
case, even though not specifically herein provided for. The Corporation, its
Directors, Officers, employees and agents shall be fully protected in taking any
action or making any payment, or in refusing so to do in reliance upon the
advice of counsel.
Article VIII
Notice
Whenever any notice is required to be given to any shareholder or Director of
the Corporation under the provisions of the Articles of Incorporation, or under
the provisions of the Nevada Statutes, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute a waiver of notice of such meetings,
except where attendance is for the express purpose of objecting to the holding
of that meeting.
Article IX
Amendments
These Bylaws may be altered, amended, repealed, or new Bylaws adopted by a
majority of the entire Board of Directors at any regular or special meeting. Any
Bylaw adopted by the Board may be repealed or changed by the action of the
shareholders.
Article X
Fiscal Year
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the Board of Directors.
Article XI
Dividends
The Board of Directors may at any regular or special meeting, as they deem
advisable, declare dividends payable out of the surplus of the Corporation.
Article XII
Corporate Seal
The seal of the Corporation shall be in the form of a circle and shall bear the
name of the Corporation and the year of incorporation per sample affixed hereto.
Dated Monday, April 27, 1992
/s/ Douglas Ansell
Douglas Ansell
Secretary
West Tech Services, Inc.
THE ENTERTAINMENT INTERNET, INC.
STOCK OPTION PLAN
"THE ENTERTAINMENT INTERNET, INC
1. Purpose. The purpose of this The Entertainment Internet, Inc. Stock Option
Plan ("Plan") is to further the growth and development of The Entertainment
Internet, Inc. ("Company") by providing, through ownership of stock of the
Company, an incentive to directors, officers, outside consultants and other key
employees or employees of subsidiaries, who are in a position to contribute
materially to the prosperity of the Company, to increase such persons' interests
in the Company's welfare, to encourage them to continue their services to the
Company or its subsidiaries, and to attract individuals of outstanding ability
to render services to and enter the employment of the Company or its
subsidiaries.
2. Incentive and Non-Qualified Stock Options. Two types of Stock Options
(referred to herein as "Options" without distinction between such two types) may
be granted under the Plan: Options intended to qualify as Incentive Stock
Options under Section 422 of the Code and Non~Qualified Stock Options not
specifically authorized or qualified for favorable income tax treatment by the
Code.
3. Definitions. The following definitions are applicable to the Plan:
3.1 Board. The Board of Directors of the Company.
3.2 Code. The Internal Revenue Code of 1986, as amended from time to time.
3.3 Common Stock. The shares of Common Stock of the Company.
3.4 Company. The Entertainment Internet, Inc.
3.5 Consultant. An individual or entity that renders professional services to
the Company as an independent contractor and is not an employee or under the
direct supervision and control of the Company.
3.6 Disabled or Disability. For the purposes of Section 7.4, a disability of
the type defined in Section 22(e)(3) of the Code. The determination of whether
an individual is Disabled or has a Disability is determined under procedures
established by the Plan Administrator for purposes the Plan.
3.7 Fair Market Value. For purposes of the Plan the "fair market value "
per share of Common Stock of the Company at any date shall be (a) if the Common
Stock is 1isted on an established stock exchange or the NASDAQ National Market,
the closing price per share on the last trading day immediately preceding such
date on the principal exchange on which it is traded, or (b) if the Common Stock
is not then listed on an exchange but is quoted on the NASDAQ Small Cap Market,
the NASDAQ OTC Bulletin Board or the National Quotation Bureau pink sheets, the
average of the closing bid and asked prices per share for the Common Stock as
quoted by NASDAQ or the National Quotation Bureau, as die case may be, on last
trading day immediately preceding such date, or (c) if the Common Stock is not
then listed on an exchange or quoted by NASDAQ or the National Quotation Bureau,
an amount determined in' good faith by the Plan Administrator.
3.8 Incentive Stock Option. Any Stock Option intended to be and designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
3.9 Non-Qualified Stock Option. Any Stock Option that is not an Incentive
Stock Option.
3.10 Optionee. The recipient of a Stock Option.
3.11 Plan. The Entertainment Internet Incorporated Stock Option Plan, as
amended from time .
3.12 Plan Administrator. The Board or the Committee designated pursuant to
Section 4 to administer, construe and interpret the terms of the Plan.
3.13 Stock Option or Option. Any option to purchase shares of Common Stock
granted pursuant to Section 7.
4. Administration. The Plan Administrator shall be the Compensation Committee
of the Board of Directors of the Company during such periods of time as all
members of the Compensation Committee are "outside directors" as defined in
Treas. Regs. ss. 1.1 62- 27(e)(3) ("outside directors"). Anything to the
contrary notwithstanding, the requirement that all members of the Board be
outside directors shall not apply for any period of time prior to the date the
Company's Common Stock becomes registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended. Subject to the provisions of the
Plan, the Plan Administrator shall have authority to construe and interpret the
Plan, to promulgate, amend, and rescind rules and regulations relating to its
administration, from time to time to select from among the eligible employees,
directors and non-employee consultants (as determined pursuant to Section 5) of
the Company and its subsidiaries those employees, directors and consultants to
whom Stock Options will be granted, to determine the timing and manner of the
grant of the Options, to determine the exercise price the number of shares
covered by and all of the terms of the Stock Options, to determine the duration
and purpose of leaves of absence which may be granted to Stock Option holders
without constituting termination of their employment for, purposes of the Plan,
and to make all of the determinations necessary or advisable tor administration
of the Plan. The interpretation and construction by the Plan Administrator of
any provision of the Plan, or of any agreement issued and executed under the
Plan, shall be final and binding upon all parties. No member of the Compensation
Committee shall be liable for any action or determination undertaken or made in
good faith with respect to the Plan or any agreement executed pursuant to the
Plan. The Committee shall act pursuant to a majority vote, or the written
consent of a majority of its members, and minutes shall be kept of all of its
meetings and copies thereof shall be provided to the Board.
5. Eligibility. Any employee (including any officer who is an employee) of
the Company or any of its subsidiaries shall be eligible to receive an Option
under the Plan; provided, however, that no person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its parent or subsidiary corporations shall be eligible to
receive all Incentive Stock Option under the Plan unless at die time such
Incentive Stock Option is granted the Option price (determined in the manner
provided in Section 7.2) is at least 110% of the Fair Market Value of the shares
subject to the Option and such Option by its terms is not exercisable after the
expiration of five years from the date such Option is granted. An employee may
receive more than one Option under the Plan. Non-Employee Directors shall be
eligible to receive Non-Qualified Stock Options. In addition, Non-Qualified
Stock Options may be granted to Consultants who are selected by the Plan
Administrator.
6. Shares Subject to Options. The stock available for grant of Options under
the Plan shall be shares of the Company's authorized but unissued, or
reacquired, Common Stock. The aggregate number of shares which may be issued
pursuant to exercise of Options granted under the Plan as amended, shall not
exceed three million (3,000,000) shares of Common Stock (subject to adjustment
as provided in Section 7.13). In the event that any outstanding Option under the
Plan for any reason expires or is terminated, the shares of Common Stock
allocable to die unexercised portion of the Option shall again be available for
Options under the Plan as if no Option had been granted with respect to such
shares.
7. Terms and Conditions of Options. Options granted under the Plan shall be
evidenced by agreements (which need not be identical) in such form and
containing such provisions which are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may incorporate
all or any of the terms hereof by reference and shall comply with and be subject
to the following terms and conditions:
7.1 Number of Shares Subject to Option. Each Option agreement shall
specify the number of shares subject to the Option. However, no Optionee shall
be granted Options in excess of five hundred thousand (500,000) shares in any
calendar year.
7.2 Option Price. The purchase price for the shares subject to any
Option shall be determined by the Plan Administrator at the time of grant, but
shall not be less than par value per share. Anything to the contrary
notwithstanding, the purchase price for the shares subject to any incentive
Stock Option shall not be less than 100% of the Fair Market Value of the shares
of Common Stock of the Company on the date the Stock Option is granted. In the
case of an Incentive Stock Option granted to an employee who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its parent or subsidiary corporations, the Option
price shall not be less than 110% of the fair market value pet share of the
Common Stock of the Company on the date tile Option is granted. For purposes of
determining the stock ownership of an employee, the attribution rules of Code
Section 424(d) shall apply.
7.3 Notice and Payment. Any exercisable portion of a Stock Option
may be exercised only by:
(a) delivery of a written notice to the Company, prior to the time when
such Stock Option becomes unexercisable under Section 7~4, stating the number of
shares being purchased and complying with all applicable rules established by
the Plan Administrator;
(b) payment in full of the exercise price of such Option by, as
applicable, delivery of (i) cash or cheek for an amount equal to the aggregate
Stock Option exercise price for the number of shares being purchased, (ii) in
the discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, a copy of instructions to a broker directing such
broker to sell the Common Stock for which such Option is exercised, and to remit
to the Company the aggregate exercise price of such Stock Option (a "cash-less
exercise"), or (iii) in the discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, shares of the Company's Common
Stock owned by the Optionee, duly endorsed for transfer to the Company, with a
fair Market Value on the date of delivery equal to the aggregate purchase price
of the shares with respect to which such Stock Option or portion is thereby
exercised (a "stock-for~stock exercise");
(c)payment of the amount of tax required to be withheld (if any) by the
Company or any parent or subsidiary corporation as a result of the exercise of a
Stock Option At the discretion of the Plan Administrator, upon such terms as the
Plan Administrator shall approve, the Optionee may pay all or a portion of the
tax withholding by (i) cash or check payable to the Company, (ii) cash-less
exercise, (iii) stock-for-stock exercise, or (iv) a combination of one or more
of the foregoing payment methods; and
(d)delivery of a written notice to the Company requesting that the Company
direct the transfer agent to issue to the Optionee (or to his designee) a
certificate for the number of shares of Common Stock for which the Option was
exercised or, in the case of a cash-less exercise, for any shares that were not
sold in the cash-less exercise
Notwithstanding the foregoing, the Company, in its sole discretion, may extend
and maintain, or arrange for the extension and maintenance of, credit to any
Optionee to finance the purchase of shares pursuant to the exercise of any Stock
Option, on such terms as may be approved by the Plan Administrator, subject to
applicable regulations of the Federal Reserve Board and any other laws or
regulations in effect at the time such credit is extended.
7.4 Term of Option. No Option shall be exercisable after the expiration of
the earliest of (a) five years after the date the Option is granted, (b) three
months after the date the Optionee's employment (including Service as a director
or consultant) with the Company and its subsidiaries terminates if such
termination is for any reason other than Disability or death, (c) one year after
the date the Optionee's employment (including service as a director or
consultant) with the Company and its subsidiaries terminates if such termination
is a result of death or disability; provided, however, that the Option agreement
for any Option may provide for either shorter or longer periods in each of the
foregoing instances. In the case of an Incentive Stock Option granted to an
employee who owns stock possessing more than 10% of the total combined Voting
power of all classes of stock of the Company or any of its parent or subsidiary
Corporations, the term set forth in (a), above, shall not be more than five
years after the date the Option is granted.
7.5 Exercise of Option. No Option shall be exercisable during the lifetime
of an Optionee by any person other than the Optionee. Subject to the foregoing,
the Plan Administrator shall have the power to set the time or times within
which each Option shall be exercisable and to accelerate the time or times of
exercise. Unless otherwise provided by the Plan Administrator, each Option
granted under the Plan shall become exercisable on a cumulative basis as to
one-third (1/3) of the total number of shares covered thereby at any time after
one year from the date the Option is granted and an additional one-third (1/3)
of such total number of shares at any time after the end of each consecutive
one-year period thereafter until the Option has between exercisable as to all of
such total number of shares. To the extent that an Optionee has the right to
exercise an Option and purchase shares pursuant thereto, the Option may be
exercised from time to time by written notice to the Company, stating the number
of shares being purchased and accompanied by payment in full of the exercise
price for such shares.
7.6 No Transfer of Option. No Option shall be transferable by an Optionee
otherwise than by will or the laws of descent and distribution.
7.7 Limit on Incentive Stock Options. The aggregate fair market value
(determined at the time the Option is granted) of the stock with respect to
which Incentive Stock Options granted after 1986 are exercisable for the first
time by an Optionee during any calendar year (under all Incentive Stock Option
plans of the Company and its subsidiaries) shall not exceed $100,000. To the
extent that the aggregate Fair Market Value (determined at the time of the Stock
Option is granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for tile first time by an Optionee during any calendar
year (under all Incentive Stock Option Plans of the Company and any parent or
subsidiary corporations) exceeds $100,000, such Stock Options shall be treated
as NonQualified Stock Options. The determination of which Stock Options shall be
treated as Non-Qualified Stock Options shall be made by taking Stock Options
into account in the order in which they were granted.
7.8 Restriction on Issuance of Shares. The issuance of Options and shares
shall be subject to compliance with all of the applicable requirements of law
with respect to the issuance and sale of securities, including, without
limitation, any required qualification under the California Corporate Securities
Law of 1968 as amended, or other state securities laws. If an Optionee acquires
shares of Common Stock pursuant to the exercise of an Option, the Plan
Administrator, in its sole discretion, may require as a condition of issuance of
shares covered by the Option that the shares of Common Stock shall be subject to
restrictions on transfer. The Company may place a legend on the certificates
evidencing the shares, reflecting the fact that they are subject to restrictions
on transfer pursuant to the terms of this Section. In addition, the Optionee may
be required to execute a buy-sell agreement in favor of the Company or its
designee with respect to all or any of the shares so acquired. In such event,
the terms of such agreement shall apply to such shares.
7.9 Investment Representation. Any Optionee may be required, as a
condition of issuance of shares covered by his or her Option to represent that
the shares to be acquired pursuant to exercise of the Option will be acquired
for investment and without a view to distribution thereof, and in such case, the
Company may place a legend on the certificate evidencing the shares reflecting
the fact that they were acquired for investment and cannot be sold or
transferred unless registered under the Securities Act of 1933, as amended, or
unless counsel for the Company is satisfied that the circumstances of the
proposed transfer do not require such registration
7.10
Rights as a Shareholder or Employee. An Optionee or transferee of an
Option shall have no right as a shareholder of the Company with respect to any
shares covered by any Option until the date of the issuance of a share
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether cash, securities, or other property) or distributions
or other rights for which the record date is prior to the date such share
certificate is issued, except as provided in Section 7.13. Nothing in the Plan
or in any Option agreement shall confer upon any employee any right to continue
in the employ of the Company or any of its subsidiaries or interfere in any way
with any right of the Company or any subsidiary to terminate the Optionee's
employment at any time
7.11 No Fractional Shares. In no event shall the Company be required to
issue fractional shares upon the exercise of an Option.
7.12 Exercisability in the Event of Death. In the event of the death of
the Optionee, any Option or unexercised portion thereof granted to the Optionee,
to the extent exercisable by him or her on the date of death, may be exercised
by the Optionee's personal representatives, heirs, or legatees subject to the.
provisions of Section 7.4 hereof.
7.13 Recapitalization or Reorganization of Company. Except as otherwise
provided herein, appropriate and proportionate adjustments shall be made in the
number and class of shares subject to the Plan and to the Option rights granted
under the Plan, and the exercise price of such Option rights, in the event that
the number of shares of Common Stock of the Company are increased or decreased
as a result of a stock dividend (but only on Common Stock), stock split, reverse
stock split, recapitalization. reorganization, merger, consolidation,
separation, or like change in the corporate or capital structure of the Company.
In the event there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or other
securities into which such common stock shall have been changed, or for which it
shall have been exchanged, whether by reason of a complete liquidation of the
Company or a merger, reorganization, or consolidation of the Company with any
other corporation in which the Company is not the surviving corporation or the
Company becomes a wholly-owned subsidiary of another corporation, then if the
Plan Administrator shall, in its sole discretion, determine that such change
equitably requires an adjustment to shares of Common Stock currently subject to
Options under the Plan, or to prices or terms of outstanding Options, such
adjustment shall be made in accordance with such determination.
To the extent that the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Plan Administrator, the
determination of which in that respect shall be final, binding, and conclusive.
No right to purchase fractional shares shall result from any adjustment of
Options pursuant to this Section III case of any such adjustment, the shares
subject to the option shall be rounded down to the nearest whole share. Notice
of any adjustment shall be given by the Company to each Optionee whose Options
shall have been so adjusted and such adjustment (whether or not notice is given)
shall be effective and binding for all purposes of the Plan.
In the event of a complete liquidation of the Company or a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, any unexercised Options
theretofore granted under the Plan shall be deemed canceled unless the surviving
corporation in any such merger, reorganization, or consolidation elects to
assume the Options under the Plan or to issue substitute Options in place
thereof; provided, however, that, notwithstanding the foregoing, if such Options
would be canceled in accordance with the foregoing, the Optionee shall have the
right, exercisable during a ten-clay period ending on the fifth day prior to
such liquidation, merger, or consolidation, to exercise such Option in whole or
in part without regard to any installment exercise provisions in the Option
agreement.
7.14 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Options granted under the
Plan and accept the surrender of outstanding Options (to the extent not
theretofore exercised.) The Plan Administrator shall not, however, without the
approval of the Board, modify any outstanding Incentive Stock Option in any
manner which would cause the Option not to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code. Notwithstanding the foregoing, no
modification of an Option shall, without the consent of the Optionee. alter or
impair any rights of the Optionee under the Option.
7.15 Other Provisions. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be determined
by the Plan Administrator.
7.16 Termination of Amendment of the Plan. The Board may at any time
terminate or amend the Plan; provided that, without approval of the holders of a
majority of the shares of Common Stock of the Company represented and voting at
a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum) or by the
written consent of a majority of the outstanding shares of Common Stock, there
shall be, except by operation of the provisions of Section 7. 13, no increase in
the total number of shares covered by the Plan, no change in the class of
persons eligible to receive Options granted under the Plan, and no extension of
the term of the Plan beyond ten (10) years after the earlier of the date the
Plan is adopted or the date the Plan is approved by the Company's shareholders;
and provided further that, without the consent of the Optionee, no amendment may
adversely affect any then outstanding Option or any unexercised portion thereof.
7.17 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Plan Administrator, the members of the Plan
Administrator administering the Plan shall be indemnified by the Company against
reasonable expense including attorney's fees, actually and necessarily incurred
in connection with the defense of. any action, suit, or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any action. suit, or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit, or proceeding that such member is liable
for negligence or misconduct in the performance of his duties, provided that
within 60 days after institution of any such action, suit, or proceeding, the
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
7.18 Effective Date and Term of Plan. This Plan shall become effective
(the "Effective Date") on March 1, 1999. Unless sooner terminated by the Board
in its sole discretion, the Plan will expire on February 28, 2009.
IN WITNESS WHEREOF, the Company by its duly
authorized officer, has caused this Plan to be executed at Los Angeles, this 1st
day of March, 1999.
THE ENTERTAINMENT INTERNET, INC.
By /s/ Thom Mount, President
Thom Mount, President
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