UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-28173
(Commission file number)
THE ENTERTAINMENT INTERNET, INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 95-4730315
--------------------------------- --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5757 Wilshire Blvd., Suite 124, Los Angeles, CA 90036
-----------------------------------------------------------
(Address of principal executive offices)
(323) 904-4940
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of May 15, 2000 - 44,581,978 shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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THE ENTERTAINMENT INTERNET, INC.
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2000 2
Consolidated Statements of Operations for
the three months ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for
the three months ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ENTERTAINMENT INTERNET, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 59,520
Prepaid expenses 693,785
-----------
Total current assets 753,305
PROPERTY AND EQUIPMENT, net 390,416
OTHER ASSETS 11,229
-----------
TOTAL ASSETS $ 1,154,950
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,511,440
Deferred revenue 243,021
Notes payable 3,500
Debentures payable 437,000
Convertible notes payable - stockholders 761,000
Capital lease obligations, current portion 53,397
-----------
Total current liabilities 3,009,358
NOTES PAYABLE - STOCKHOLDERS 500,453
CAPITAL LEASE OBLIGATIONS, less current portion 38,680
-----------
TOTAL LIABILITIES 3,548,491
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, no par value, 1,000,000
shares authorized, 5,400 shares issued and
outstanding 2,032,300
Common Stock, $.001 par value, 75,000,000
shares authorized, 44,581,978 shares issued
and outstanding 44,582
Additional paid-in capital 6,677,486
Accumulated deficit (11,147,909)
-----------
Total stockholders' equity (2,393,541)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,154,950
===========
See the accompanying notes to the consolidated financial statements
2
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THE ENTERTAINMENT INTERNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
------------ ----------
REVENUE $ 119,272 $ 185,474
COST OF REVENUE 149,622 193,747
------------ ----------
GROSS LOSS ( 30,350) ( 8,273)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 465,970 277,647
------------ ----------
LOSS FROM OPERATIONS (496,320) (285,920)
OTHER INCOME (EXPENSES)
Gain on settlement of payable 418,065 -
Interest expense (283,580) (38,588)
------------- ----------
Total Other Income (Expense) 134,485 (38,588)
LOSS BEFORE INCOME TAXES (361,835) (324,508)
INCOME TAXES - -
------------ ----------
NET LOSS $ (361,835) $ (324,508)
============ ==========
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.04)
============ ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 44,581,978 8,842,279
============ ==========
See the accompanying notes to the consolidated financial statements
3
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THE ENTERTAINMENT INTERNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(361,835) $(324,508)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization expense 35,514 27,895
Gain on settlement of accounts payable (418,065) -
(Increase) decrease in:
Accounts receivable - (581)
Prepaid expenses 265,846 (2,569)
Other assets ( 1) -
Increase (decrease) in:
Accounts payable and accrued expenses 78,185 (49,796)
Deferred revenue (13,082) 29,693
Accrued interest - (37,110)
----------- -----------
Net cash used in operating activities (413,438) (356,976)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment ( 24,484) ( 49,871)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable - 995,068
Repayment of notes payable ( 500) (515,391)
Proceeds from convertible debentures 487,000 -
Payment on capital lease obligation ( 1,772) ( 14,745)
----------- -----------
Net cash provided by financing
activities 484,728 464,932
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 46,806 58,085
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 12,714 7,482
----------- -----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 59,520 $ 65,567
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the three months ended March 31, 2000 and 1999, the Company paid no
income taxes and no interest.
See the accompanying notes to the consolidated financial statements
4
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THE ENTERTAINMENT INTERNET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements have been prepared by
The Entertainment Internet, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments), which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The results of the
three months ended March 31, 2000 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2000.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. As of March 31, 2000 and 1999, the Company had
potentially dilutive securities of 5,321,380 and 4,409,335, respectively.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS:
This report includes projections of future results and "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Stockholders and investors are cautioned that all forward-looking statements
involve risks and uncertainty, including, without limitation, the ability to
frame and execute the Company's business plan, general market conditions, 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, market competition and pricing. Although the Company believes the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward looking statements in this Report will
prove to be accurate.
Should any of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this registration statement as anticipated, estimated or expected.
GENERAL
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The Company became fully-reporting by operation of law on January 15, 2000.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related footnotes for the year ended
December 31, 1999, included in its Annual Report on Form 10-KSB and amendments
thereto. The discussion of results, causes and trends should not be construed to
imply any conclusion that such results or trends will continue in the future.
OVERVIEW
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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, which is the only
holding of the Company. Through Only Multimedia Network, Incorporated, EINI
intends to establish itself as the leading service provider of resources for the
global entertainment industry. The Company operates a series of Internet-based
services using the Castnet.com(TM) service mark and trade name.
During 1999, the Company assessed its technological infrastructure and the
systems used to operate the Castnet.com databases and determined that such
infrastructure and systems should be upgraded and redesigned; this determination
was made as new databases were being developed to create revenue streams for the
Company.
6
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The Company's older databases used software which was not Year 2000 compliant or
scalable to meet the objectives of the Company's growth plans. The determination
was made during the second quarter of 1999 to program and design new service
databases using modern languages and software; the Company attempted to meet its
programming objectives in-house but was unable to do so. When the Company
engaged outside vendors, such efforts resulted in a split application of
technology, whereby the Castnet.com actors databases were not operating in
harmony with the databases developed during the fourth quarter of 1999 and first
quarter of 2000 for CastnetBabies.com, CastnetExtras.com, and
CastnetRealPeople.com. The Company decided that the solution rested with
redesign (of the system architecture), reprogramming and modernization of the
Castnet.com core database and associated web pages, and concentrated its first
quarter efforts on effecting such redesign, sourcing vendors for programming,
and negotiating for provision of services. The Company determined that it would
not be prudent or otherwise in its best interests to expand the membership of
its Castnet.com core database during this period and until the new architectures
and programs are operable and ready for introduction; the Company halted all
regional sales efforts. Such action ordinarily causes a downturn in revenue but
the Company believes it must operate in a credible, responsible manner and
refrain from expansion of its Castnet.com membership base where such expansion
could result in interruption of service or other problems which could negatively
impact upon its good reputation within the entertainment industries; this
conservative approach is expected to result in the retention of what the Company
believes is a favorable perception of and regard for the Company within the
entertainment industries.
To further develop the Company's good standing within the entertainment
industries, the Company approached director Thom Mount, President of the
Producers Guild of America (PGA), in July, 1999, and requested a formal
association with the PGA. Mr. Mount referred the Company to the PGA's Board of
Directors, which undertook a lengthy (8-9 mos.) review process which ultimately
resulted during the quarter in an official "blessing" of Castnet.com's services
by the PGA, which is now working in concert with the Company to develop services
tailored to the needs of producers. A PGA committee also works with the Company
to provide feedback regarding its current services and input relating to
development of new services and growth into new markets. While no revenue or
material impact has been realized from this activity, the Company believes its
association with the PGA will allow it to develop a base of producers who use
the Castnet.com services as part of their daily production activities.
During the quarter, the Company began market studies and design of new services
for the modeling industries. The Company believes its venture into the modeling
industries will be favored because of its lengthy history as a service provider.
Further, the Company believes membership sales efforts which are impacted by
guild or other regulations within the actor community will not be so restrained
within the modeling industries.
7
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The Company obtained resignations from Directors Tony Cataldo and Jean Claude
Van Damme. Mr. Cataldo intended to join the Company as part of an earlier
proposed merger with First Miracle Group, Inc. (FMG); when the merger was
canceled, Mr. Cataldo asked to concentrate efforts on FMG development and
resigned. Mr. Cataldo continues to be an avid supporter of the Castnet.com and
has asked the Company to provide database access for all of its upcoming
productions; the Company intends to take advantage of its beneficial
relationship with Mr. Cataldo but will not pay any salary or additional
compensation to him for such activity. The Company expected the active
participation of Mr. Van Damme in its activities but was unable to compel the
same; for this reason, legal counsel sought and successfully obtained Mr. Van
Damme's resignation and the return of all shares tendered to him and with
relation to his association with the Company. Mr. Michael Jay Solomon executed
an agreement to serve as Chairman of the Company and has been acting
additionally as its Chief Executive Officer, President, Chief Financial Officer,
and Treasurer.
Mr. Mohamed Hadid resigned from the Company during 1999, but returned to active
service on April 24, 2000. Mr. Hadid currently serves as a co-chairman of the
Company's Board of Directors.
The Company continued to concentrate efforts on elimination of legal claims and
recorded liabilities which stressed operations and threatened its continued
existence. The Company was successful in a majority of these efforts and
obtained a $418,065 gain through settlement of certain prior recorded accounts
payables.
There were no stock issuances during the quarter.
RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 2000 vs. 1999
- ----------------------------------------------------------------
THE ENTERTAINMENT INTERNET, INC.
- --------------------------------
Revenues
Revenues consist of membership fees for Castnet.com services and a small amount
of income from advertising where the Company has not yet implemented a plan to
significantly develop its advertising revenue stream. Castnet.com members pay a
fee in advance for an extended period of time, generally twelve months. The fees
are prorated and recorded as revenue over that period of time. For the three
months ended March 31, 2000, revenues of $119,272 represented a 36% decrease as
compared to revenues of $185,474 for the same period of 1999. This decrease was
expected after management determined that it would be in the Company's best
interests to concentrate its efforts on redesign of the Castnet.com database
architecture used to support the services offered by the Company and, while
doing so, to reduce sales efforts which could otherwise result in an overload of
the Castnet.com system and potential interruption of service complaints.
Regional sales, which were halted during the fourth quarter of 1999, previously
represented approximately 20% of revenues; as a result, there were no revenues
from regional sales to contrast or compare to same period revenues for the first
quarter of 1999. Management expects revenues to remain substantially the same
during the next reporting period, as it does not expect introduction of its new
systems until after the end of the second quarter of 2000.
8
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Cost of Revenue
The Cost of Revenue for the three month period ending March 31, 2000 was
$149,622, which represents a 23% decrease as compared to same period costs of
$193,747 for 1999; this decrease is attributable in part to the reduction of
sales efforts and corresponds generally to the reduction in revenues. Costs of
revenue did not decrease in precise alignment with the percentage decrease in
revenues because some costs were fixed and did not fluctuate with sales
activity. Management expects the costs of revenue to remain stable during the
next period, as it expects to continue its operation in similar fashion during
that time.
Gross Loss
Gross Loss is calculated as revenues less the cost of revenues, which consists
primarily of the cost of maintaining the Castnet.com Internet. These costs are
telephone access, software and hardware maintenance and depreciation of
equipment. For the three months ending March 31, 2000, gross loss of $30,350
represented an increase of 267% or $22,077 as compared to same period loss of
$8,273 for 1999. Management expects the gross loss to remain stable during the
next quarter, as it expects to continue its operation in similar fashion during
that time.
Selling, General and Administrative
Selling, General and Administrative ("SG&A") expenses consist of payroll and
related expenses for executive, finance and administrative personnel,
professional fees, commissions and other general corporate expenses. For the
three months ended March 31, 2000, SG&A of $465,970 increased by 68% or $188,323
from same period SG&A of $277,647 for 1999. Significant expenditures were made
for telecommunications, new computer equipment, and repairs, as well as use of
outside consultants for applications and programming maintenance services and
outside legal counsel for litigation of one claim. Management expects SG&A to
increase in the future as an executive staff is composed and a sales force is
recruited, but is unable to estimate the percentage of such increases as it has
no definitive plan or associated budget and is in the process of creating the
same.
Gain On Settlement Of Payables
The Company realized a gain of $418,065 during the quarter which principally
stemmed from the activities of legal counsel and staff in eliminating prior
recorded debt for accrued billings from Pacific Bell. The Company took an
aggressive position with Pacific Bell, asserting that it charged measured rates
for services which it contended were to be billed at flat rates. The Company
considers this a one-time gain, but is continuing efforts to reduce and settle
outstanding recorded debts. If the Company continues to be successful in these
efforts, it can expect to record additional gains on settlements of payables,
but is unable to project the amount of such gains, as they are wholly dependent
upon the activities of counsel, willingness of the parties to cooperate in
reaching settlements, and the Company's cash flow.
9
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Interest Expense
The Company recorded interest expense of $283,580 during the quarter which
stemmed from its financing activities and the conversion of funds taken through
a convertible note which provides for conversion of dollars received to stock
through share issuance at a 40% discounted rate (See Liquidity & Capital
Resources). At the time of conversion, all accrued interest is waived. The
Company expects similar interest expenditures in the future, as it is presently
financing its business activities through use of convertible debt instruments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business plans have required, and are expected to continue to
require, substantial capital to fund operations, capital expenditures, repayment
of debt, expansion of sales and marketing capabilities. During the quarter, the
Company continued to draw on a line of credit established during 1999; the line
of credit as previously disclosed is in the form of a finance arrangement which
allows the Company to convert any outstanding debt accrued to payment through
share issuance at a 40% discounted rate (40% from the actual trading rate in the
market for Company's common stock). The discounted rate is intended to
compensate for the restricted nature of the stock and for the interest which is
otherwise forgiven through conversion. One half of the discount (20%) is
allocated to compensate for the restricted nature of the stock and the remaining
half (20%) is allocated to compensate for interest which is otherwise forgiven
through conversion. The Company has been asked by the lender to re-allocate the
discount to reflect an allocation of 75% of the discount to the restricted
nature of the stock and 25% of the discount to the forgiven interest and is
evaluating the request in conjunction with applicable accounting practices; this
may result in a change in future statements. During the quarter, the Company
entered into negotiations for a private placement which would involve receipt of
funds convertible to shares at a 30% discounted rate; these negotiations have
not concluded.
The Company believes that its line of credit will be sufficient to meet its
working capital demands for the next month. If additional funds are raised
through the issuance of equity securities, the Company's existing shareholders
may experience significant dilution. Furthermore, additional financing may not
be available when needed or, if available, may not be on terms favorable to the
Company or its shareholders. If such sources of financing are insufficient or
unavailable, or if the Company experiences shortfalls in anticipated revenue or
increases in anticipated expenses, the Company may need to slow down or stop the
expansion of its business or cease operations altogether. Any of these events
could harm the Company's business, financial condition or results of operations.
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. During the period ending March 31,
2000, the critical date for year 2000 risks passed without incident; it does not
appear that the Company will be materially affected by year 2000 risks.
10
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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 was engaged in one action involving a creditor for services
allegedly rendered and unpaid for $14,312.61; the claim sought monetary relief
only in that amount. The Company investigated the history behind the alleged
obligation, and asserted that there was a failure of consideration, more
specifically, that the claimant did not provide services or perform in
accordance with the alleged contract. The Company took a contrary position to
that of claimant, asserting that payments were not and are not presently due. On
May 5, 2000, the Court ordered the Plaintiff's claim dismissed without
prejudice.
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 an 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 through house counsel's opposition to claimant's request
for an Order to Show Cause. The court ruled in EINI's favor that Breakdown
Services improperly applied for ex parte relief without satisfying the Local
Rule mandates for a prior meeting of counsel. Breakdown Services thereafter met
with house counsel and outside counsel (engaged for the continued litigation)
and re-filed its motion. The Company believes the claimant is not entitled to
relief, and asserted misuse of copyright as a defense in the action. Since the
date of the Company's initial filing, the Company was been ordered to show cause
as to why it should not be found in contempt of court; on May 8, 2000, the Court
ruled that Castnet.com violated an earlier agreed-upon injunction and fined it
$25,000 for each of 9 incidents argued to be violative of the Company's prior
agreement with Plaintiff and may award attorneys' fees and costs, which have
been demanded in the amount of $62,052.50. The Company presently intends to
appeal the ruling. 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.
11
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John K. Sloatman, III (Sloatman), Kathryn Thyne (Thyne), Wendy Pachter
- --------------------------------------------------------------------------------
(Pachter), and Kenneth Cronon (Cronon) v. Only Multimedia Network, Inc. (OMNI);
- --------------------------------------------------------------------------------
The Entertainment Internet, Inc. (TEI); Paul Kessler (P. Kessler); Jon Kessler
- --------------------------------------------------------------------------------
(J. Kessler); Sandy Kessler (S. Kessler) ; Thom Mount (Mount); Gene Davis
- --------------------------------------------------------------------------------
(Davis); Rod Pyle (Pyle); Richard Horgan (Horgan); Rick LaFond (LaFond);
- --------------------------------------------------------------------------------
Christian Johnston (Johnston); Phil Gustlin (Gustlin); Bristol Asset Management
- --------------------------------------------------------------------------------
IV, LLC (Bristol); Jeffer, Mangels, Butler, Marmaro, LLP (Jeffer, Mangels); John
- --------------------------------------------------------------------------------
Neuhauser (Neuhauser); Ambient Capital (Ambient); Jeremy Schuster (Schuster);
- --------------------------------------------------------------------------------
and DOES 1-50.
- --------------
Los Angeles Superior Court, Central District
Filed March 31, 2000; Case BC227511
The Company is presently reviewing a lawsuit filed by former directors and
affiliates, although it has not been properly served with the complaint
therefor. The complaint received by the company includes the following causes of
action:
1. Claim of breach of written employment contract by Sloatman against OMNI and
TEI; this claim alleges Sloatman entered into an eighteen (18) month
written employment contract with OMNI on May 24, 1996 and was terminated
without cause on June 5, 1998 (23+ months later); Sloatman claims damages
in an amount to be proven at trial, and alleges damages of lost wages,
fringe benefits, and reputational losses. The complaint received by the
Company did not include the written contract referenced, as required by
law. The Company takes a contrary position to that of claimant on this
cause of action, asserting that such cause is not adequately pled and is
meritless. The Company expects to appropriately and timely assert that the
alleged agreement expired prior to the termination of claimant.
2. Claim of breach of written employment contract by Thyne against OMNI and
TEI; this claim alleges Thyne entered into an eighteen (18) month written
employment contract with OMNI on May 24, 1996 and was terminated without
cause on June 5, 1998 (23+ months later); Thyne claims damages in an amount
to be proven at trial, and alleges she suffered damages of lost wages, lost
fringe benefits, and reputational losses. The Company takes a contrary
position to that of claimant on this cause of action, asserting that such
cause is not adequately pled is meritless. The Company expects to
appropriately and timely assert that the alleged agreement expired prior to
the termination of claimant.
12
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3. Claim of breach of oral contract by Sloatman and Thyne against OMNI, TEI
and P. Kessler: This claim alleges Sloatman and Thyne entered into an oral
agreement with Kessler whereunder they would have continued employment with
OMNI and "additional perks such as a $75,000 signing bonus to continue
running OMNI and an additional 200,000 in option shares each and a waiver
of the Bristol proxy status." Claimants seek damages in an amount to be
proven at trial, specific performance, a constructive trust regarding stock
options and return of their initial investment in OMNI. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is barred by the statute of frauds, is not adequately pled
and is meritless.
4. Inducing breach of contract by Sloatman and Thyne against P. Kessler,
Neuhauser, Gustlin: This claim alleges defendants induced a breach of
Sloatman's and Thyne's alleged written and oral contracts and forced
claimants out of the Company. Claimants seek damages in an amount to be
proven at trial, specific performance, a constructive trust regarding stock
options and return of their initial investment in OMNI. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is barred by the statute of frauds, is not adequately pled
and is meritless.
5. Breach of covenant of good faith and fair dealing by Sloatman and Thyne
against OMNI, TEI and P. Kessler: This claim alleges OMNI, TEI and Kessler
breached a covenant of good faith and fair dealing by failing to advise
Sloatman and Thyne of their alleged intent to force such persons out of the
company. This cause seeks economic losses in an amount to be proven at
trial. The Company takes a contrary position to that of claimant on this
cause of action, asserting that such cause is barred by the statute of
frauds, is not adequately pled and is meritless.
6. Violation of California Labor Code by Sloatman, Thyne and Pachter against
OMNI and TEI: This claim alleges OMNI and TEI failed to pay wages allegedly
earned. This cause seeks recovery of wages, penalty in the amount of 30
days of wages, attorney's fees and costs. The Company takes a contrary
position to that of claimant on this cause of action, asserting that such
cause is barred by the statute of frauds, is not adequately pled and is
meritless.
7. Fraudulent or unfair business practices by Sloatman and Thyne against P.
Kessler, Neuhauser, Gustlin, Mount and Pyle: This claim alleges defendants
knew of a relationship between claimants and their customers and falsely
told them claimants engaged in fraud and criminal activity and accused
claimants of stealing computer equipment and mismanaging the corporation.
This cause seeks damages in an amount to be proven at trial, attorney's
fees and costs. The Company takes a contrary position to that of claimant
on this cause of action, asserting that such cause is not adequately pled
and is meritless.
13
<PAGE>
8. Interference With Prospective Economic Advantage by Sloatman and Thyne
against P. Kessler, Neuhauser, Gustlin, Mount and Pyle: This claim alleges
defendants told claimant's customers that claimants engaged in fraud and
criminal activity and accused claimants of stealing computer equipment and
mismanaging the corporation. This cause seeks damages in an amount to be
proven at trial and punitive damages. The Company takes a contrary position
to that of claimant on this cause of action, asserting that such cause is
not adequately pled and is meritless.
9. Unjust enrichment by Sloatman and Thyne against P. Kessler, Neuhauser,
Gustlin, Mount and Pyle: This claim alleges defendants acted to deceive
claimants as to their rights to participate in OMNI's and TEI's stock
option plan. This seeks "the relief set forth below" but does not reference
any particular paragraph or relief sought. The Company takes a contrary
position to that of claimant on this cause of action, asserting that such
cause is not adequately pled and is meritless.
10. Fraud by Sloatman, Thyne, Pachter & Cronon against P. Kessler, Mount,
Gustlin, Davis, Pyle and Neuhauser: This claim alleges defendants
misrepresented material facts. This cause seeks damages in an amount to be
proven at trial and punitive and exemplary damages. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is not adequately pled and is meritless.
11. Civil conspiracy to defraud by Sloatman, Thyne, Pachter & Cronon against P.
Kessler, Neuhauser, Davis, Gustlin, Mount, Pyle, Bristol, Ambient,
Schuster, S. Keller, and J. Kessler: This claim alleges a conspiracy to
defraud. This cause seeks damages in an amount to be proven at trial and
punitive and exemplary damages.
12. Negligent Misrepresentation by Sloatman, Thyne, Pachter & Cronon against P.
Kessler, Mount, Gustlin, Davis, Pyle and Neuhauser: This claim alleges
negligent misrepresentations and seeks damages in an amount to be proven at
trial and punitive and exemplary damages. The Company takes a contrary
position to that of claimant on this cause of action, asserting that such
cause is not adequately pled and is meritless.
13. Damages by Sloatman, Thyne, Pachter, and Cronon against P. Kessler,
Gustlin, Mount, Pyle and Schuster: This claim alleges defendants
disseminated false press releases and affected the market of TEI's stock.
This cause seeks damages equal to the value of claimant's original
investment and the value of such investments on the date claimant's alleged
demand for surrender of the same, plus interest. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is not adequately pled and is meritless.
14
<PAGE>
14. Misrepresentation by Pachter and Cronon against P. Kessler, Neuhauser,
Gustlin, Mount, Pyle and Schuster: This claim alleges defendants
misrepresented or omitted material facts relating to a proposed merger and
seeks damages in an amount to be determined at trial. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is not adequately pled and is meritless.
15. Defamation by Sloatman and Thyne against P. Kessler, Gustlin, Davis,
Neuhauser, Horgan, LaFond, Johnston and Pyle: This claim alleges defendants
defamed claimants and seeks damages in an amount to be determined at trial.
The Company takes a contrary position to that of claimant on this cause of
action, asserting that such cause is not adequately pled and is meritless.
16. Conspiracy to commit defamation by Sloatman and Thyne against P. Kessler,
Gustlin, Davis, Neuhauser, Horgan, LaFond, Johnston, and Pyle: This claim
alleges defendants conspired with the intent to injure plaintiffs and seeks
damages in an amount to be proven at trial. The Company takes a contrary
position to that of claimant on this cause of action, asserting that such
cause is not adequately pled and is meritless.
17. Accounting by Sloatman, Thyne, Pachter, and Cronon against OMNI, TEI, P.
Kessler, Neuhauser, Gustlin, Mount, Davis, Pyle and Schuster: This claim
seeks an accounting for what is ambiguously alleged as "claimants'
property, funds, accounts and records." The claim seeks an accounting of
defendants purchases and sales of OMNI and TEI stock. The Company takes a
contrary position to that of claimant on this cause of action, asserting
that such cause is not adequately pled and is meritless.
18. Declaratory relief by Sloatman and Thyne against OMNI and TEI: This claim
alleges breach of contracts for employment and stock options and seeks a
judicial declaration that Sloatman and Thyne may exercise their alleged
stock options. The Company takes a contrary position to that of claimant on
this cause of action, asserting that such cause is not adequately pled and
is meritless.
19. Professional Malpractice by Sloatman, Thyne and Pachter against Jeffer,
Mangels: This claim alleges the law firm representing the Company agreed to
represent claimants in their individual capacity as employees of OMNI and
TEI and created an irreconcilable conflict of interest; the claim seeks
damages in an amount to be proven at trial. The Company is not involved
with this cause of action.
20. Breach of fiduciary duty by Sloatman, Thyne Pachter against Jeffer Mangels:
This claim alleges the law firm representing the Company breached a duty to
act in good faith, to provide competent legal and investment advice, to
avoid personal gains, to avoid attempting to obtain secret profits, to
refrain from using undue influence and to properly counsel claimants, as
well as alleging general breach of fiduciary duty. The claim seeks damages
in an amount to be proven at trial together with special, punitive and
exemplary damages. The Company is not involved with this cause of action.
15
<PAGE>
The Company believes each and every cause of claimant's action is meritless and
intends to vigorously defend the same through outside counsel. While the Company
doubts the merits of claimants' 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. Costs associated
with defense of the action may also may materially and adversely affect the
financial condition and viability of the Company if the Company is unable to
recover the same.
Other legal proceedings are as previously disclosed, with no significant or
material developments to report.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
An 8-K Report was filed in April 2000, to report that on December 27, 1999,
the Board of Directors approved an increase in the authorized common stock of
the corporation from 50 million shares common to 75 million shares common.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ENTERTAINMENT INTERNET, INC.
/s/ Michael Solomon
By: -----------------------
Michael Solomon
Chief Executive Officer &
Chief Financial Officer
Date: May 19, 2000
17
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