UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
To
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS (as amended by Filer on June 5, 2000)
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 88-0391722
(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
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
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TABLE OF CONTENTS
Page
----
Item 1. Description of Business....................................... 1
Item 2. Management's Discussion and Analysis
or Plan of Operation...................................... 5
Item 3. Description of Property.......................................23
Item 4. Security Ownership of Certain Beneficial Owners
and Management............................................23
Item 5. Directors, Executive Officers, Promoters and
Control Persons...........................................26
Item 6. Executive Compensation........................................33
Item 7. Certain Relationships and Related Transactions................38
Item 8. Legal Proceedings.............................................38
Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters...............46
Item 10. Recent Sales of Unregistered Securities......................47
Item 11. Description of Securities....................................49
Item 12. Indemnification of Directors and Officers....................50
Item 13. Financial Statements.........................................51
Item 14. Changes in and Disagreements with Accountants................51
Item 15. Financial Statements and Exhibits............................51
Signatures ..............................................................54
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PLEASE NOTE: Since the initial filing of the Company's registration statement,
there have been several significant changes in the management of the Company;
two directors and/or executive officers resigned. A new president and member of
the board of directors has been appointed. Certain shares of stock and options
have been canceled. The reader is also referred to Item 4 SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; Item 5 DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS, AND CONTROL PERSONS; and Item 6 EXECUTIVE COMPENSATION.
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., Suite 124, Los Angeles, California 90036. The
Company was organized to engage in any lawful corporate business purpose.
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 was in the developmental stage until shortly after its merger with
OMNI; in approximately April 1999, new management began implementing the
business plan of the Company and the Company moved out of the development stage.
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.
Recently, the Company became aware that a third party was using the name
"Castnet Communications, Inc." It is the Company's contention that the described
use may infringe upon its trademark Castnet.com(TM). The Company has taken steps
to secure an agreement from Castnet Communications, Inc. to refrain from the use
of the name "Castnet", or to clearly identify that it is not associated with the
Castnet.com services provided by the Company; the Company does not expect
litigation regarding this matter, as the potentially infringing party does not
appear to compete with the business of the Company and does not appear to be a
significant concern.
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).
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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 pursued and gained a market share of 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 acquisition 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.
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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. See also Item
5, below, entitled "Directors, Executive Officers, Promoters, and Control
Persons" for further details of management business activities outside the
Company.
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.
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Proposals to regulate the Internet. The Company is aware that there have been
proposals for either regulation or taxation of the Internet or business
activities on the Internet. There is the risk of uncertainty regarding such
proposed future Internet regulation, which could adversely affect the Company's
business. Proposals to tax or otherwise charge out-of-state or foreign access
users may have a negative impact upon the Company's subscriber base and future
subscriptions, including the ability of the Company to compete or to maintain a
saleable service. Any risks associated with regulation or taxation of the
Internet would, in the Company's opinion, be passed along to the subscriber
through increased costs to offset such costs to the Company.
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.
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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.
LACK OF MANAGEMENT EXPERIENCE. While the present executive officers and
directors have experience in the film industry, and Mr. Schuster has represented
other Internet companies as their legal counsel, none of the officers has any
direct experience with the Internet business.
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.
WORKING CAPITAL CONSIDERATIONS AND NEED FOR ADDITIONAL CAPITAL. The Company has
a minimum of working capital. Management of the Company have attempted to make
their best estimates of the Company's capital needs for the foreseeable future.
But despite these estimates, funds available to the Company may not be adequate
for the Company to achieve all of its business objectives. Its ability to
continue its proposed operations and operate as a going concern is significantly
contingent upon its being successful at both financing its operations from
current sales and raising additional capital on terms favorable to the Company.
The Company may be unable to do either of the foregoing. There is no assurance
that funds will be available to the Company from any source, and if available,
that the costs or rate of interest for such funds, or the terms and conditions
of obtaining such funds will be prudent or acceptable for the Company. If not
available, it will be necessary for the Company to restrict its scope of
business operations accordingly.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS:
At the time of Company's initial filing, it was not subject to the reporting
requirements of section 13(a) or section 15(d) of the Exchange Act; for this
reason, any prior references to Section 27A of the Securities Act and Section
21B of the Exchange Act should be considered deleted.
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The Company is now fully-reporting. This statement includes projections of
future results and "forward-looking statements". 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 registration statement 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, then operating as OMNI, initially focused its efforts on hosting
web-sites as an Internet service provider (ISP) and providing related services
to third parties in 1994. The Castnet.com idea took shape sometime in early
1996, and by October, 1998, management determined it favorable to eliminate all
ISP activity and concentrate efforts on further development and marketing of its
Castnet.com(TM) web-site, which integrates motion picture, television and
theatrical talent casting and agent submission services for the entertainment
industry.
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The reason for eliminating all ISP activity was an increased cost in advancing
internet technology; specifically, there would be a substantial cost to upgrade
the Company's hardware and software in order to be competitive, and this was a
cost the Company was unwilling to incur. 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 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
Interim 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 Mr. Anthony
Cataldo and Mr. Jean Claude Van Damme and was successful in obtaining their
commitments to assist the Corporation with further development and expansion of
its Castnet.com(TM) services. Mr. Mohamed Hadid resigned from the Company during
fourth quarter 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. On July
1, 1999, the Company and Mr. Cataldo entered into an employment agreement
providing for Mr. Cataldo to be hired as president for the Company.
The Company and Mr. Cataldo agreed on December 7, 1999, to terminate that
agreement. Mr. Cataldo left the Company, and the Board of Directors accepted Mr.
Cataldo's resignation.
Since the filing of this registration statement by the Company, Mr. Cataldo was
replaced by Mr. Michael Jay Solomon as (co-)Chairman of the board of directors,
CEO, President, and Treasurer. The Company will request that Mr. Cataldo return
the shares to the Company previously issued to him.
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On July 12, 1999, the Company and Mr. Van Damme entered into a consulting
agreement for Mr. Van Damme's services as a consultant. The contract was
executed by an entity owned and controlled by Mr. Van Damme, known as JCVD
Productions, Inc., a California corporation. JCVD also agreed to provide Mr. Van
Damme's services as a director. Since the initial filing of this registration
statement, Mr. Jean Claude Van Damme has resigned as a director and discontinued
his association with the Company; he was requested to and returned to the
Company the shares issued (directly or indirectly ) to him, which specifically
included two share certificates, each in the amount of 500,000 shares. One
certificate issued to JCVD Productions, Inc. and one certificate issued to
Millennium Entertainment have been received by the Company's secretary and are
expected to be canceled with the Company's next stock order.
The Company 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. The Company 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, apparently lost during the first quarter of 1999; these efforts
included forensic investigation of past financial transactions, installation of
a bookkeeper and CPA to take the place of the earlier terminated Chief Financial
Officer and to recreate the Company's 1999 general ledger and accounts payable,
communications and accommodations with creditors, investigation of creditor
claims, satisfaction of certain shareholder claims (see also Item 8, Legal
Proceedings), and re-negotiation of debt instruments that were due but not
payable by the Company due to its financial condition. Management also
scrutinized and took action in the areas 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 three new services: CastnetBabies.com, CastnetRealPeople.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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note: Since the date of Company's initial filing, it completed its 10KSB filing
which contains updated Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as audited financial statements
extending through December 31, 1999.
The following discussion should be read in conjunction with our financial
statements and the accompanying notes that appear elsewhere in this filing. The
following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this filing, particularly in "Risk Factors".
RESULTS OF OPERATIONS-NINE MONTHS ENDED SEPTEMBER 30, 1999 vs. 1998
THE ENTERTAINMENT INTERNET, INC.
Net Sales
---------
Net sales consists of membership fees for Castnet.com services. 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. Revenue for
Internet access and web page development has been reallocated to Loss from
Discontinued Operations. For the nine months ended September 30, 1999, revenues
of five hundred seventy-two thousand two hundred seventy-five dollars ($572,275)
increased by twenty-seven thousand three hundred one dollars ($27,301), or 5%,
as compared to revenues of five hundred forty-four thousand nine hundred
seventy-four dollars ($544,974) for the nine months ended September 30, 1998.
This was primarily the result of renewal of prior year subscriptions and new
management policies begun in the second quarter of 1998. The price of membership
was gradually reduced in 1999. This stimulated subscriptions in an amount, which
more than compensated for the price reduction and therefore increased revenue.
Also, establishment of new markets in Chicago, Las Vegas and San Francisco
additionally increased revenue. With new management in 1999, the Company expects
new policies to increase revenue in the future.
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Gross Profit
------------
Gross profit is calculated as net sales less the cost of sales, 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 nine months ended September 30, 1999, gross profit of two
hundred fifty-five thousand one hundred fifty-five dollars ($255,155) increased
by forty-two thousand one hundred eighty-eight dollars ($42,188), or 20%, as
compared to gross profit of two hundred twelve thousand nine hundred sixty-seven
dollars ($212,967) for the nine months ended September 30, 1998. Gross margin
was approximately 45%, for the nine months ended September 30, 1999, as compared
to 39% for the nine months ended September 30, 1998. Management expects the
gross margin to remain stable in the future.
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
nine months ended September 30, 1999, SG&A of two million nine hundred
thirty-five thousand four hundred fifty-five dollars ($2,935,455), increased by
one million three hundred two thousand two hundred dollars ($1,302,200) or 80%,
as compared to SG&A of one million six hundred thirty-three thousand two hundred
fifty-five ($1,633,255) for the nine months ended September 30, 1998. SG&A
expenses of six hundred sixteen thousand six hundred eighty-one dollars
($616,681) is for compensation attributable to Directors and employees. These
compensation expenditures were a one-time expense and management does not expect
these compensation expenditures to occur in the future years. In addition, legal
fees for settlement of prior debts account for approximately four hundred
fifty-seven thousand dollars ($457,000). Additional settlements are expected as
a result of the legal work already expensed.
RESULTS OF OPERATIONS-YEARS ENDED DECEMBER 31, 1998 vs. 1997
ONLY MULTIMEDIA NETWORK, INC.
Net Sales
---------
Net sales consists of membership fees for Castnet.com services. 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 nine
months ended December 31, 1998, revenues of five hundred eighty-one thousand
five hundred fifty-five dollars ($581,555) increased by four hundred eighty-nine
thousand six hundred twenty-three dollars ($489,623), or 533%, as compared to
revenues of ninety-one thousand nine hundred thirty-two dollars ($91,932) for
the year ended December 31, 1997. A new marketing strategy, including seminars
for Casting Directors and Actors in addition to expansion of the data base,
brought in more paid subscriptions for membership. This had the desired effect,
causing more Casting Directors to use the service and more actors to purchase
memberships.
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Gross Profit
------------
Gross profit is calculated as net sales less the cost of sales, which consists
of the cost of providing telephone access, maintaining the software and
hardware, depreciation of equipment, promotion and commissions. For the year
ended December 31, 1998, gross profit of two hundred six thousand four hundred
one dollars ($206,401) increased by two hundred twenty-three thousand two
hundred seventy-three dollars ($223,273), or 222%, as compared to gross loss of
sixteen thousand eight hundred seventy-two dollars ($16,872) for the year ended
December 31, 1997. The period from October of 1996 through the summer of 1997
was the development stage of Castnet.com, where free usage was provided to
Casting Directors to stimulate interest on the part of actors, therefore
incurring a negative gross profit. Gross margin increased by 53% as the
development phase came to an end and paid sales increased.
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 and other general corporate expenses. For the year ended
December 31, 1998, SG&A of one million eight hundred seven thousand six hundred
sixty-eight dollars ($1,807,668) increased by one hundred fifty-five thousand
five hundred twenty-two dollars ($155,522), or 9%, as compared to SG&A of one
million six hundred fifty-two thousand one hundred forty-six dollars
($1,652,146) for the year ended December 31, 1997. Retirement of obsolete fixed
assets of approximately fifty-three thousand dollars ($53,000) contributed to
the increase in expenses. In addition, marketing expense increased by
approximately sixty-five thousand dollars ($65,000).
LIQUIDITY AND CAPITAL RESOURCES
The Company presently does not have enough operating capital and projected
income to sustain its operations. In this regard, the fourth area of concern for
the next twelve months of operations, is to secure commitments for capital in
the minimum amount of $4 Million, which should be sufficient for the remaining
portion of twelve months of operations.
From 1996 through September, 1999, EINI has financed its operations primarily
through the sale of its securities and issuance of debt instruments consisting
of Notes, Debentures and Convertible Promissory Notes.
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The following describes these debt instruments and transactions prior to January
1, 1999:
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 AA 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 10). 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.
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
annum and $39,000 of Class B 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, 1998, and the remaining note holders for $144,000 did not
elect to extend the maturity date.
Notes Payable to Shareholders
-----------------------------
In 1997, certain shareholders 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
was $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.
Convertible 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 Item 10 - "Recent Sales of Unregistered
Securities")
See also Notes 4-7 of the Notes to Financial Statements of Only Multimedia
Network, Inc.
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In February 1999, the Company finalized two significant financing agreements
(ongoing debt transactions), as follows:
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 Corporation in February, 1999, originally treated the results
of the arrangement as a Regulation S offering and later canceled the same
(including all shares issued as a result) in favor of a promissory note
arrangement which allows the same lenders to continually fund the corporation
and ensure its growth in accordance with earlier Company plans; to effect this
arrangement, the Company issued convertible promissory notes to these lenders;
the instruments are not for a stated sum, but refer to the amounts loaned by
Lender, which can be shown through separate documentation, such as receipts for
wire transfers; 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 lowest trading rate of the
company's openly traded stock. The discount rate is applied to compensate for
the restricted nature of the stock, issued pursuant to Rule 144. 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. The Company refers to this arrangement as a line of credit in the
amount of $5 million for future expansion and growth; the line of credit is
restricted and may not be used for liquidation of prior-incurred debt or
resolution of creditor claims. As of the date of this amended statement, the
Company has used over $2 million dollars of the available credit referenced
herein. The foregoing lenders were referred to the Corporation by its
co-Chairman, Mohamed Hadid, who received no commission or fee for such activity.
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.
Operating Plan for Next 12 Months:
----------------------------------
During the next twelve months the Company's first area of business efforts and
emphasis will focus on the upgrading of its technology to tie together existing
Internet capabilities, the websites used by the Company and to integrate new
Technologies; as part of this process, the Company will also redefine
graphically the presentation of its data and the "look and feel" of its website
interfaces; the Company expects to complete a minor portion of this process
in-house, and to source an outside vendor to assist or undertake the majority of
this "reimaging" or "rebranding" process.
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The Company will complete initial specifications for redesign prior to the close
of the first quarter of Year 2000. The Company will source outside vendors to
assist it in redefining technical specifications for its systems; the Company
expects the extensive vendor evaluation and review process to commence during
the first quarter of Year 2000 and to be completed during the second quarter of
the same year. After selecting appropriate vendors, the Company will begin
design and programming of an upgraded technological infrastructure. The Company
expects initial redesign of the core sites used for actors, agents, and casting
directors to be substantially completed during the second quarter of Year 2000,
at which time a programming initiative will be undertaken. The programming
initiative will focus on incorporation of new graphic and other website designs
into an upgraded technological architecture, with first deliverables expected
during the third quarter of Year 2000. The Company expects further iterations of
its initial program deliverables during the fourth quarter of Year 2000.
After the initial rebranding and redesign of its core services, the Company will
focus on integrating its three newly-developed services: CastnetBabies.com,
CastnetRealPeople.com, and CastnetExtras.com with the core services it already
provides to the entertainment community.
CastnetBabies.com will emphasize casting opportunities to parents who want their
children to appear in commercials as child actors.
CastnetRealPeople.com will provide services and market to people who desire the
opportunity to serve in bit parts or as extras, such as in crowd scenes in film
or television. This area will not necessarily require any prior acting training
or experience for a person to qualify.
CastnetExtras.com will extend the internet with real-time communication concept
for the entertainment industry to actors with credits or aspiring actors who
want to make their services available as extras. This area will require at least
some acting training or experience.
In the second area of emphasis, the Company will also strive to develop
strategic relationships with trade and other organizations important to or
having influence in the entertainment industry, with those relationships
designed to drive subscribership and hopefully improve the Company's revenue
stream.
The third area of emphasis and concern will be the need for the Company to
restructure outstanding debt and eliminate as many litigation claims as possible
which presently cause a serious threat to its existence.
The fourth area of emphasis will be on development of an integrated and scalable
marketing campaign. Initial steps have been taken to source and form a
relationship with an agency capable of meeting the Company's needs while working
with its limited capital resources. The agency or firm undertaking development
of the marketing campaign is expected to address all of the Company's image and
branding concerns and liaison with its website developers to define and achieve
common objectives.
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Sources of Opportunities
The Company does not currently have any material commitments for the funding of
its 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 contemplates the need to enter into a lease agreement for an ATM
Internet system from Pacific Bell with costs approximately the same as presently
incurred for dial-up services provided by the same carrier. The intent of the
ATM agreement is to provide greater bandwidth for Internet services while
eliminating costly dial-up and measured-rate services currently used. The
Company believes this service will not constitute a material expenditure it is
not already experiencing.
Further, assuming the Company does experience its anticipated growth, and there
is no assurance it will, the Company will need to seek and rent additional
executive office and administrative/operations space. There are no commitments
for such additional rented space.
Foreign markets. The Company anticipates use of the Castnet.com services in
foreign countries over an extended period of time. It is currently analyzing the
methods and means by which it can expand into foreign markets, the sequence or
priority of which foreign markets to exploit to its benefit, and costs and
capital needs associated with such expansion plans. The Company has not
formalized any plan to begin operations in any foreign country.
Revenue sources. The Company derives revenue in two ways: Through its
Castnet.com(TM) web-sites, the company charges actors for access to the
electronic community created by it. The company also derives minimal revenue
from advertisements placed on the Castnet.com(TM) websites. The Company has not
fully implemented its plans to develop a revenue stream from advertisements
included on its websites. 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.
By using the term "profit center," the Company means, that in order to ensure
that any service or product provided by the Company would be, when isolated, a
profitable venture. By way of example, if the Company were to provide print
communications routing as referenced above, the "profit center" evaluation would
be employed and analyzed by management and any third party experts needed, which
would allow management to determine whether the proposed service would, if
standing alone as a business, serve as a profitable venture.
15
<PAGE>
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 access to the system created by it. The
Castnet.com(TM) portal 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), portal 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 communication services represent the future of casting and
believes the results of its actions are rapidly being recognized as useful to
the industry.
The Castnet.com(TM) portal 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. The Company intends to vigorously
promote these services in the entertainment industry. 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 directors or major shareholders, in
accomplishing the business purposes of the Company. Such efforts by these
persons may include: joining industry guilds or associations to promote the
visibility of the Company; scouting and recruiting possible directors,
management or key personnel as the Company expands; locating and introducing key
financing or banking sources or contacts for the Company. Such services would be
voluntary, unless the Board of Directors or management approves and agrees
otherwise on a case-by-case basis. The Company generally does not intend to
compensate directors or major shareholders for such activities on behalf of the
Company. Since the time of this initial filing, the Company developed an
association with the Producers Guild of America (PGA) and sought its approval of
the Castnet.com websites; this included a formal review by the PGA of the
Company's websites and plans for expansion within the entertainment industry,
along with formation of a plan to create website pages customized to provide PGA
16
<PAGE>
members with a vehicle for exchange of information and other services as might
be later defined in concert with the Company's representatives. Following an
extensive review, the PGA officially sanctioned the Castnet.com websites,
effectively added its "seal of approval" thereto; no financial commitments or
arrangements were made with the PGA at any time; this association did not and is
not expected to result in a material change to results of operations, although
the Company feels the association will aid in identifying it as a qualified,
reputable service provider recognized by the entertainment industry.
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 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 no 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 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.
17
<PAGE>
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 or 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.
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<PAGE>
The process of combining or associating with other business opportunities is
controlled by the board of directors, which will evaluate a potential
combination following presentation by directors or employees of the Company. The
process will follow a defined course, which is: identification of the entity
with which a combination may be sought; research of the entity's current market
position and financial health; review of additional available due diligence
information; discussion among board members; and, assuming a favorable review,
further action to open negotiations.
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.
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<PAGE>
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 would participate 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.
The Company has not, so far, realized any opportunities for business
combinations. This aspect of the Company's business operations is informal at
this stage of the Company's development, and has not been organized in any
systematic way or formally stated as a part of the Company's policy.
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.
20
<PAGE>
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.
Since the time of this initial filing, 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.
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. 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:
o The Entertainment Internet Incorporated's internally developed
proprietary software incorporated into CastNet.com services
o Third party software vendors
o 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 within a reasonable time, 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.
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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 or will be within a reasonable time. 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.
To date the Company has not experienced any problems resulting from Year 2000
computer issues; any such issues were resolved prior to January 1, 2000.
22
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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, and
three other persons key to the operations 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 "5757 Lease"), and a twelve (12) month
lease for $600.00 per month, expiring 12/31/99 (the "5820 Lease"). The Company
believes its rented space is adequate for the immediately foreseeable future. No
officer, director, or control person related to the Company is a lessor,
directly or indirectly, of the leased premises. A copy of the 5757 Lease
agreement is attached and filed as an exhibit hereto.
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PLEASE NOTE: Since the initial filing of this registration statement, there have
been several significant changes in the management of the Company; two executive
officers and/or directors have resigned and shares of stock and options have
been cancelled. Those resigning were: Mr. Tony Cataldo, president and director;
and Mr. Jean Claude Van Damme, director. Mr. Mohamed Hadid resigned from the
Company during the fourth quarter of 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.
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Also, Mr. Michael Jay Solomon has been appointed as Co-Chairman, CEO, President,
Treasurer and a member of the board of directors. The reader is also directed to
other sections: Part I Item 5, and Item 6, below.
The following table sets forth each person known to the Company, as of May 1,
2000, 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.
Shares
Title of Beneficially Percentage
Class Name/Address of Owner Owned Ownership(1)
----- --------------------- ------------- ------------
Common CEDE & Co. 9,300,380 19.29%
P.O. Box 222 Bowling Green
Station
New York, NY 10274
Common Packard Capital Limited 8,671,053 17.98%
1350 Beverly Road #115-339
McLean, VA 22101
Common Windsor Capital Fund VI 6,597,222 13.68%
129 Front Street
PH Suite
Hamilton HM 12 Bermuda
Common Bristol Asset Management, LLC 5,623,870 11.67%
1801 Century Park East
Suite 1131
Los Angeles, CA 90067
Common Paul Kessler 4,686,261 9.72%
1801 Century Park East
Suite 1131
Los Angeles, CA 90067
Common Mohamed Hadid 2,000,000 (2) 4.0%
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036
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Shares
Title of Beneficially Percentage
Class Name/Address of Owner Owned Ownership(1)
----- --------------------- ------------- ------------
Common Marion Dougherty 200,000 (3) *
c/o Gary S. Kleinman Acctg. Corp.
10340 Santa Monica Blvd.
Los Angeles, CA 90025
Common Marilyn Foster Staubitz 50,000 (4) *
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036
Common Michael Jay Solomon 0 *
130 S. El Camino Drive
Beverly Hills, CA 90218
Common Roland Joffe 200,000 (5) *
2854 Roscomare Road
Los Angeles, CA 90077
Common Thomas Mount 500,000 *
6363 Sunset Blvd., 4th Floor
Los Angeles, CA 90028
Common Jeremy Schuster 793,129 (6)(7) 1.6%
5757 Wilshire Blvd., Suite 1800
Los Angeles, CA 90036
Common James Zelloe 100,000 (8) *
7601 Lewinsville Road, #250
McLean, VA 22102
Common All officers and directors as a 1,493,129 (9) 3.10%
group (8 individuals)
---------------------
* less than one percent.
(1) Percentage Ownership is based on 48,212,567 shares issued and outstanding
as of March 1, 2000. Percentage Ownership for officers and directors is
based on 49,562,567 shares which includes shares which may be acquired upon
exercise of options held by the officers and directors within 60 days of
the filing of this registration statement.
(2) Includes 1,000,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
(3) Includes 100,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
(4) Includes 25,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
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(5) Includes 100,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
(6) Excludes 2,401,255 common restricted shares the Company issued to Chief
Operating Officer and director, Jeremy G. Schuster. The Company has
requested that Mr. Schuster forego a favorable provision for conversion of
the Company's unpaid charges for legal services to stock; Mr. Schuster
agreed to refrain from use of the conversion feature of his fee agreement
and offered the Company a discounted settlement for fees, which is
currently pending. Mr. Schuster presently has 718,126 shares in his
possession, which were issued as noted in Item 10, Executive Compensation;
the balance of 2,401,255 shares are being held by the Company pending
satisfaction of a discounted settlement for fees for legal services
rendered. If the Company pays Mr. Schuster as agreed and as scheduled, the
2,401,255 shares will be canceled.
(7) Includes 75,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
(8) Includes 50,000 shares which may be acquired upon exercise of options
within 60 days of the filing of this registration statement.
(9) Includes an aggregate 1,350,000 shares which may be acquired upon exercise
of options within 60 days of the filing of this registration statement.
ITEM 5.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
PLEASE NOTE: Since the initial filing of the Company's registration statement,
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 the fourth quarter of 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.
26
<PAGE>
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.
The directors and executive officers of the Company as of the date of this
registration statement are:
Name/Address Age Position
------------ --- ----------
Mohamed Hadid 51 Co-Chairman/Director
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036
Michael Jay Solomon 62 Co-Chairman/Director, CEO,
130 S. El Camino Drive President, Treasurer
Beverly Hills, CA 90218
Jeremy Schuster 36 Chief Operating Officer/
5757 Wilshire Blvd. Suite 124 Director
Los Angeles, CA 90036
Roland Joffe 54 Director
2854 Roscomare Road
Los Angeles, CA 90077
Marion Dougherty 76 Director
c/o Gary S. Kleinman Acctg. Corp.
10340 Santa Monica Blvd.
Los Angeles, CA 90025
James Zelloe 40 Director
7601 Lewinsville Road, #250
McLean, VA 22102
Thom Mount 51 Director
6363 Sunset Blvd.
Los Angeles, CA 90028
Marilyn Foster Staubitz 34 Director
5757 Wilshire Blvd., Suite 124
Los Angeles, CA 90036
27
<PAGE>
MOHAMED HADID - Co-Chairman.
Mr. Hadid was appointed Director and Chairman in July, 1999. Mr. Hadid resigned
this position in December, 1999, but returned to active service as co-chairman
on April 24, 2000.
Mr. 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 small cap 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.
MICHAEL JAY SOLOMON - Co-Chairman, CEO, President, Treasurer & Director
Michael Jay Solomon was elected Chairman, CEO and, President on December 27,
1999, effective January 1, 2000. His term as director is one year or until the
next election of directors. Mr. Solomon has over forty years experience in the
motion picture/television production and distribution/marketing business. He
began his career in 1956 with United Artists and eventually became one of the
most knowledgeable film and television marketers in the world. He founded
Telepictures Corporation in 1978, which merged with Lorimar in 1985; this
company produced such television hit programs as Dallas, Falcon Crest, Knot's
Landing, and many more. When Lorimar Telepictures was acquired by Warner Bros.
In 1989, Mr. Solomon became President of Warner Bros. International Television.
Mr. Solomon founded Telepictures Corporation in 1978 where he was Chairman and
CEO, which merged with Lorimar in 1985 of which he became President of
Lorimar-Telepictures.
Mr. Solomon is an owner of Channel 11 in Peru, and Iguana Productions, which
produces 520 hours of telenovelas (soaps). He is chairman of MAXX International,
Inc., a multimedia entertainment company that is publicly traded. Mr. Solomon is
a native of New York. He was educated at Boston's Emerson College, and New York
University's Evening School of Commerce (Stern School of Business); he was
awarded an honorary Doctor of Law degree from Emerson College.
28
<PAGE>
Mr. Solomon is required to devote an estimated 51% of his time to the Company.
His current term as a member of the board of directors will expire at the next
annual shareholders meeting anticipated to be held on August 5, 2000, or as soon
thereafter as practical. It is Mr. Solomon's belief that his positions with
other companies does not offer a conflict of interest, in that those companies
do not compete with the Company's business.
JEREMY SCHUSTER - Chief Operating Officer/Director
Jeremy Schuster was elected Director on August 5, 1999 and executed an
employment agreement providing for his services as Chief Operating Officer,
effective November 25, 1999 through December 31, 2003. His term as director is
for one year or until the next election of directors by shareholders following
the expiration of the one year term. Mr. 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.
For the past five years he has been employed as an attorney at law under the
firm name of Schuster & Associates. He was elected as a director on August 5,
1999; his current term expires at the annual shareholders meeting anticipated to
be held on August 5, 2000, or as soon thereafter as practical.
Mr. Schuster was recently appointed a director of Sector Communications, Inc.
("Sector"), a holding company that holds telecommunications concerns; Sector is
publicly traded (OTCBB symbol: SECT). Sector does not compete with the Company's
business. Mr. Schuster is also counsel and provides legal services to a number
of "dot com" companies (specifically including TVNext.com, a New Jersey and
Delaware company, which is currently developing interactive television and
broadcast programs, and Texas.com, which serves as a central resource or portal
for vendors servicing Texas visitors, conventions, etc.), none of which compete
with the Company.
29
<PAGE>
ROLAND JOFFE - Director
Roland Joffe was elected as a director as of the effective date of the OMNI
merger, which was March 22, 1999; his current term expires on March 22, 2000 or
at the next meeting of shareholders at which directors are elected. Mr. 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. For the past five years he has been employed as chairman and chief
executive officer of Lightmotive, Inc. Mr. Joffe does not have any involvement
with any company competing with the Company, and therefore believes there are no
conflicts of interest.
MARION DOUGHERTY - Director
Marion Dougherty was elected Director as of the effective date of the OMNI
merger, which was March 22, 1999; her current term expires on March 22, 2000 or
at the next meeting of shareholders at which directors are elected. Ms.
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."
For the past five years she has been employed as a senior vice president at
Warner Brothers.. Ms. Dougherty has no involvement with any company competing
with the Company, and therefore believes she has no conflicts of interest.
30
<PAGE>
JAMES T. ZELLOE - Director
Mr. James Zelloe was elected as a director on August 5, 1999; his current term
expires at the annual shareholders meeting anticipated to be held on or about
August 5, 2000, or as soon thereafter as practical. Mr. Zelloe is an attorney
licensed in Virginia and Washington, D.C. He received a Bachelor of Science in
Business Administration and Economics in 1981 and was enrolled in a joint
Masters of Arts/Juris Doctor degree program at Catholic University thereafter.
Mr. Zelloe received his Juris Doctor degree from Catholic University Columbus
School of Law in 1984. 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 Omicron Delta Epsilon, an Economics Honors Society. Mr.
Zelloe has been practicing law since graduating from law school in 1984.
For the past five years he has been employed as an attorney at law by the firm
of Kunnirickal & Zelloe.
Mr. Zelloe has been appointed a director of Sector Communications,
Inc.("Sector"), a holding company that holds telecommunications concerns, and
which is publicly traded (OTC BB symbol: SECT). Sector does not compete with the
Company; he believes he has no conflicts of interest.
THOM MOUNT - Director
Thom Mount was elected as a director on August 1, 1998; his current term expires
on August 1, 1999 or at the next meeting of shareholders at which directors are
elected. In 1974, at age 26, Mr. 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 a 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.
For the past five years he has been employed as president of The Mount Company.
Mr. Mount is not involved with any company competing with the Company; he
believes he has no conflicts of interest.
31
<PAGE>
MARILYN FOSTER STAUBITZ - Director.
Ms. Marilyn Staubitz was elected as a director on August 5, 1999; her current
term expires at the annual shareholders meeting anticipated to be held on August
5, 2000, or as soon thereafter as practical. 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 the past six years
in the capacity of an executive assistant; previous to that she was employed by
Citicorp in Boston, Massachusetts and by Sekisui America in California. She does
not participate in any other business ventures in which other officers or
directors participate, other than acting as a shareholder of Sector
Communications, Inc., which does not compete with the Company's business; she
believes she has no conflicts of interest.
The Company knows of 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.
Mr. Schuster renders legal services to Mr. Hadid, a member of the board
of directors of the Company, as well as to the Company, from time to time. Mr.
Schuster also renders services to Mark Dilullo, a consultant to the Company,
from time to time.
Any other matters relating to potential conflicts of interest respecting the
officers or directors, are set forth above, in Item 5.
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.
32
<PAGE>
ITEM 6.
EXECUTIVE COMPENSATION
The following table sets forth compensation to certain key executives of the
Company (operating as OMNI prior to the merger), for the fiscal years ending
December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------- ------------------------------------------------
(a) (b) (c) (d) (e) (f) g) (h) (i)
Other Restricted
Annual Stock Options LTIP All Other
Position Year Salary ($) Bonuses($) Compensation Awards SARs Payouts($) Compensation
-------- ---- ---------- ---------- ------------ ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey Kibel, 1997 19,615
CEO 1998 3,000
John Sloatman, 1997 78,000 220,000 sh
COO, Chairman 1998 8,584
Gene Davis, CFO 1997 78,125 20,000(1)
1998 48,000
1999 61,979
Kathryn Thyne, 1997 78,000
President 1998 39,450
Paul Kessler (2) 1998 0 (3)
President 1999 0 (4) $359,000
Thom Mount,(5) 1998 50,000 $359,000
COO, Co-Chairman
Phil Gustlin, (6)
CEO 1999 $79,550
Tony Cataldo, (7) 1999 $359,000
CEO/President
Mohamed Hadid 1999 0 (8)
</TABLE>
33
<PAGE>
------------------
(1) Mr. Davis claims 40,000 additional options at $1.00 per share should have
been issued; the Company is currently researching this matter with Mr.
Davis and prior management but does not expect any material impact.
(2) Mr. Kessler assumed the presidency in 1998.
(3) Mr. Kessler received 200,000 options valued at $50,000 in lieu of salary
for 1998; these options expired under the ESOP plan because they were not
exercised within three months of cessation of employment.
(4) The salary amount for 1999 was set at $100,000, which was taken in options;
these options expired under the ESOP plan because they were not exercised
within three months of cessation of employment. Mr. Kessler received
500,000 shares with a value of $359,000, as a signing bonus.
(5) Mr. Mount took the title of Chief Operating Officer and later transitioned
to co-chairman of the Board of Directors. Mr. Mount received 500,000 shares
of common stock valued at $359,000 as a signing bonus.
(6) Mr. Cataldo served as CEO/President from July 1999 to December 1999. His
sole compensation was 500,000 shares of common stock valued at $359,000.
(7) Mr. Gustlin received 150,000 shares of common stock, valued at $79,650.
(8) Mr. Hadid served as Chairman from July 1999 to December 1999. His sole
compensation was 1,000,000 shares of common stock valued at $718,000 and
1,000,000 options exercisable at $1.00 per share which were all returned to
the company upon his resignation in December 1999.
(9) No stock options have been exercised in fiscal 1999 by any officer listed
in this table.
Employment Contracts and Change in Control Agreements.
-----------------------------------------------------
MOHAMED HADID. The Company entered into an employment agreement ("Chairman's
Agreement") with Mr. Hadid providing for his services as Chairman of the Board
of Directors effective July 6, 1999 through July 6, 2002. Pursuant to the
Chairman's Agreement, Mr. Hadid is to receive an annual salary that escalates
from $150,000 in 1999 to $250,000 in 2001. Mr. Hadid is to receive 1,000,000
shares plus 1,000,000 options to purchase shares; the 1,000,000 shares have been
issued; the options have not been issued. The agreement provides for conversion
of any whole or portion of the Corporation's debt from the Chairman's Agreement
to be converted to stock or options. The Chairman's Agreement provides for
favored nations status. The CEO Agreement may be terminated by Mr. Hadid by
written notice to the Company, effective 10 days from the date of deposit in the
U.S. mail; the Company may also terminate the agreement with or without cause,
subject to specific contractual provisions.
34
<PAGE>
MICHAEL SOLOMON. The Company entered into an employment agreement ("CEO
Agreement") with Mr. Solomon providing for his services as Chairman of the Board
of Directors and Chief Executive Officer effective January 1, 2000 through
December 31, 2002. Pursuant to the CEO Agreement, Mr. Solomon is to receive an
annual salary of $250,000. As consideration for execution of the CEO Agreement,
Mr. Solomon is to receive 850,000 shares plus 850,000 warrants or options to
purchase shares, which have not, as of the date of this filing, been issued. The
CEO Agreement also includes performance-based incentives which grant up to
1,400,000 shares in "one-time" bonuses (tied to achievement of specified stock
prices), and up to 300,000 shares as part of a recurrent bonus plan. The CEO
agreement provides for reimbursement of 50% of the salary paid to Mr. Solomon's
assistant, benefits for his assistant, and reimbursement of expenses, including
medical and dental insurance. Mr. Solomon may be granted additional bonuses or
shares at the discretion of the Board of Directors. The agreement provides for
conversion of any whole or portion of the Corporation's debt from the CEO
Agreement to be converted to stock or options. The CEO Agreement includes a
favored nations clause that applies to compensation and benefits. The CEO
Agreement may be terminated by Mr. Solomon by written notice to the Company,
effective 10 days from the date of deposit in the U.S. mail; the Company may
also terminate the agreement with or without cause, subject to specific
contractual provisions.
JEREMY SCHUSTER. The Company entered into an employment agreement ("COO
Agreement") with Mr. Schuster providing for his services as Chief Operating
Officer effective November 25, 1999 through December 31, 2003. Pursuant to the
COO Agreement, Mr. Schuster is to receive an annual salary of 200,000. As
consideration for execution of the COO Agreement, Mr. Schuster is to receive
warrants or options to purchase 100,000 shares on a favored nations basis, which
have not, as of the date of this filing, been issued. The COO Agreement provides
for a salaried assistant, a vehicle allowance (or for the Corporation to provide
a vehicle), and reimbursement of expenses, including medical and dental
insurance. The COO Agreement contains a change in control clause which allows a
majority of the Board of Directors or Mr. Schuster to sever the agreement
following a change in control or the composition of the Board of Directors;
exercise of such provision requires the Corporation to pay an amount equivalent
to the compensation and benefits that would otherwise be due Mr. Schuster under
this Agreement for the period extending from the date of election through the
expiration of one year thereafter. The agreement provides for conversion of any
whole or portion of the Corporation's debt from the COO Agreement to be
converted to stock in the same manner provided to other directors or promissory
note holders. The COO Agreement includes a favored nations clause that applies
to compensation and benefits, as well as other aspects of the Agreement. The
Agreement includes provisions for mandatory use of alternative dispute
resolution procedures. The COO Agreement is separate from any attorney-client
agreement; no attorney services are required to be provided under the COO
Agreement.
35
<PAGE>
COMPENSATION TO DIRECTORS
Each Director of the Company is compensated for services pursuant to the terms
of a Directorship Agreement between the Director and the Company. Compensation
consists of common stock grants and options to purchase common stock. In
accordance with said agreements, the following grants of common stock and stock
options to purchase common stock were made to directors of the Company during
fiscal 1999. No stock options have been exercised by any directors in fiscal
1999.
Common Stock Stock Options Granted
------------- --------------------------------------
No of Shares
No. of Date of Underlying Exercise Expiration
Director Shares Grant Options Price Date
--------- -------- --------- ------------ -------- ----------
Mohamed Hadid (1) 1,000,000 8/16/99 1,000,000* $1.00 8/16/09
Marion Dougherty 100,000 7/31/99 100,000* $1.00 7/31/09
Marilyn Foster 25,000 7/31/99 25,000* $1.00 7/31/09
Roland Joffe 100,000 7/31/99 100,000* $1.00 7/31/09
Jean Claude Van 500,000 7/31/99 500,000* $1.00 7/31/09
Damme(2)
Jeremy Schuster(3) 75,000 7/31/99 75,000* $1.00 7/31/09
James Zelloe 50,000 7/31/99 50,000* $1.00 7/31/09
----------------------
* The paperwork for the option agreements has not been completed as of the date
of this registration statement.
(1) As of December 31, 1999, following his resignation as interim Chairman
during December, 1999, the stock and options granted by the Company were
returned to the Company by Mr. Hadid.
(2) Shares are held in the name of JCVD Productions, Inc. On March 21,
1999,_Mr. Van Damme resigned as a director. The Company has received the
shares for cancellation.
(3) Mr. Schuster has also received compensation for legal services provided to
the Company during 1999 (see Item 12 "Certain Relationships and Related
Transactions").
36
<PAGE>
EMPLOYEE STOCK OPTION PLAN
The Company adopted an employee stock option plan (the "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 1999 meeting, the employment agreements of key personnel Thom Mount
and Paul Kessler were approved; under these agreements, these key employees
would each receive 1,000,000 share options, vesting in 1/3 increments during a
three year period. Mr. Kessler left the Company's employ after the first year
and failed to exercise his options within three months after cessation of
employment, as required by the Stock Option Plan. As a result, his options were
canceled.
In the July 1999 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 1999 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.
The foregoing transactions were not arms-length.
No retirement, pension, profit sharing, or other similar programs have been
adopted by the Company for the benefit of its employees.
37
<PAGE>
ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeremy Schuster, an officer and director of the Company since August, 1999,
provided services as an outside counselor to the Corporation during 1999
pursuant to a reduced-rate fee agreement which provided for services to be
billed at two hundred fifty dollars per hour, with provision for conversion of
any unpaid balance to stock on the same terms provided to convertible promissory
note holders. Services included litigation in Federal and state court, response
to administrative proceedings, and general counsel to the Corporation. The
Corporation earlier paid outside counsel rates in excess of four hundred dollars
per hour and deemed the discounted, "no cash" arrangement beneficial. Mr.
Schuster also was granted stock options as compensation for legal services.
On November 7, 1999, Mr. Schuster elected to convert the unpaid balance for his
fees to stock. The Corporation, desiring to reserve the majority of the shares
which would otherwise be issued to Mr. Schuster for the unpaid balance,
negotiated with Mr. Schuster for a further reduction in the hourly billing rate
and forgiveness of a significant portion of its balance; Mr. Schuster agreed to
accommodate the Corporation and entered into a settlement agreement which
provided that the Corporation would issue the conversion shares and hold them in
trust, pending payment of the accrued fees over a four month period. The
settlement affected billings to occur through December 31, 1999. Mr. Schuster is
presently completing certain litigation assignments and requested the
Corporation to assign any new litigation to outside counsel or third parties.
Company Policy
--------------
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 recently settled this matter: the creditor agreed to a one-year
extension from January 2000, to January 2001 with interest only at 10%, and
principal and accrued interest due 12 months after January 2000. The claim
stemmed from a $200,000.00 promissory note that was not paid when due.
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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.
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, one for $175,000, and one for $100,000.00 which were not paid
when claimed to be due. Relief sought by the plaintiff includes principal,
interest, and costs and attorney fees, to be determined by the court. 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; claimant failed to respond to this offer. The Company
subsequently and in March, 2000, offered to commence monthly payments of
principal and interest to the claimant without any admission of liability; that
offer was rejected. At present, litigation is continuing. The Company has asked
opposing counsel to schedule a settlement conference with the Court; these
conferences are available on any Friday. At the time of this filing, opposing
counsel had not yet responded to the Company's request. 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. The Company has
recorded a liability of $275,453.
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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.
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, Case 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 claims are for 140,000 shares of the Company's common stock (or in
the alternative, the fair market value of the same) together with interest,
attorneys' fees and costs of suit. 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. On October 6, 1999, the Company received written
confirmation that plaintiff and defendant MacCaughern were in the process of
resolving their differences and that plaintiff would take no further action
against EINI during this process; the litigation is "on hold" pending a
settlement of the entire matter by one of the named Defendants. The written
confirmation also contained a stipulation extending the time for EINI to answer
the complaint, and a stipulation that there would be no forthcoming action on
the grounds of any failure to file an answer during the time of negotiations.
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.
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
v
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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 that 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 that 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.
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.
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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.
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.
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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. 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.
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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.
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.
Additional Claims
The company faces significant recorded 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 recorded debts.
At the time of the Company's original filing, it was 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 negotiated 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. Since the time of the initial filing,
the telecommunications provider agreed to credit the Company's account for
certain charges and accept payments over a six month period for an agreed upon
outstanding balance; this claim never resulted in litigation.
The Company received claim letter from stock promoter (Chris Scoggin) for
1,000,000 shares of its common stock relating to an alleged contract. The
Company is investigating the claim, but prior management asserts that the
promoter did not perform requested services and is not entitled to the shares
claimed. While the Company doubts the merits of the claim, the outcome is
uncertain and may materially and adversely affect the financial condition and
viability of the Company if such outcome proves unfavorable to the Company. As
of the date of this filing, no lawsuit has been filed regarding this claim.
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Settlements
1. The Company settled a claim by CSF, 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 through an extension agreement for payment.
2. The Company settled a claim by Bakkiam Subbiah stemming from a $95,000
promissory note which was note paid when due. The settlement allows the
company a favorable discount in exchange for an accelerated payment
schedule.
The Company has recorded a liability of $142,500.
3. In third quarter 1999, 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.
4. 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.
5. 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.
6. The Company settled a number of claims from former officers who claimed
their share certificates had not been issued; specifically, the Company
never ordered shares for the parties who funded the Company on the pari
passu basis (discussed in Item 2). The Company's counsel investigated and
researched the history behind the transactions and directed its stock
transfer agent to prepare the appropriate share certificates.
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ITEM 9.
MARKET FOR COMMON EQUITY AND MARKET PRICE
The Company's common stock is presently quoted on the NASDAQ over-the-counter
Electronic Quotation System ("pink sheets") market in the United States under
the symbol EINI.
The average price per share of the Company's Common Stock for the 15-day period
immediately preceding the Company's initial 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.
The high and low interdealer prices for the calendar quarters since trading
began on March 22, 1999 (without retail markup, markdown or commission) are as
follows:
Quarter Ended High Low
------------- ------ -------
June 30, 1999 $ 4.06 $ 0.937
September 30, 1999 $ 1.437 $ 0.375
December 31, 1999 $ 0.531 $ 0.062
March 31, 2000 $ 1.85 $ 0.08
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.
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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 amended submission, based on the Company's records and
reports from the Company's stock transfer agent, Alpha Tech Stock Transfer,
there were 168 shareholders holding a total of 48,212,567 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 foreseeable 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 January of 1997 and December 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. Shares were purchased by accredited investors.
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REGULATION D, RULE 506: Pursuant to an agreement and plan of exchange and merger
with OMNI, the Company issued securities during the period approximately April
1, 1999 through October 31, 1999 by means of a Regulation D, Rule 506 exchange
to a total of 119 shareholders. Pursuant to the terms of the merger, each holder
of OMNI's common stock or preferred stock, warrants or options, received from
the acquirer an identical instrument in TEI, in terms of all rights,
preferences, and privileges, as follows:
COMMON STOCK: a total of 8,852,279 shares of common stock with a value of
$1,549,149 in exchange for OMNI shares of common stock were issued.
PREFERRED STOCK: a total of 5,400 shares of preferred stock with a value of
$2,700,000 in exchange for OMNI shares of preferred stock was issued.
CONVERTIBLE SECURITIES:
Options and warrants and convertible notes convertible into 5,841,721 shares of
the Company's common stock, as follows:
Options: a total of $3,682,100 in options to convert to that number of
shares of the Company's common stock in accordance with their original
terms.
Warrants: a total of $8,459,915 in warrants to purchase that number of
shares of the Company's common stock in accordance with their original
terms.
Promissory notes: a total of $149,220 in promissory notes convertible to
the Company's common stock in exchange for OMNI promissory notes.
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:
Conversion of debt instrument to Preferred Stock:
In 1996, OMNI 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 of an aggregate $1,710,000 of the notes agreed to convert the
principal and interest into the Company's Preferred Stock Series B.
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In 1997, OMNI completed a debenture private placement for aggregate proceeds of
$390,000 for $351,000 of notes bearing interest at 10% per annum and $39,000 of
Class AAA stock warrants.
In August, 1998, a major shareholder purchased 3,450,000 shares of Common Stock
from the Company for $125,000.
In conjunction with the Regulation D, Rule 504 private placement described
above, 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.
In August, 1999, an aggregate 350,000 shares of common stock were issued to
officers and directors of the Company for Board of Directors Fees with a value
of $218,990.
In August and September 1999, an aggregate 281,500 shares were issued for
services with a value of $123,732.
In August, 1999, 3,750 shares were issued in a settlement, with a value of
$2,154.
In September 1999 an aggregate 1,000,000 shares were issued to two former
officers of the Company for prior services.
In September 1999, an aggregate 8,099,813 shares were issued in the conversion
of promissory notes at the rate of $.09 per share, pursuant to pari passu terms
of the notes.
ITEM 11.
DESCRIPTION OF SECURITIES
The Company's Amended Articles of Incorporation authorize the issuance of Fifty
Million (50,000,000) shares of Common Stock, $0.001 par value per share, of
which 31,499,770 shares were issued and outstanding as of the original filing
date of this Form 10-SB. As of the date of the filing of this amended Form
10-SB, the Company's shareholder records, supplied by the Company's stock
transfer agent, Alpha Tech Stock Transfer, show a total of 48,212,567 common
shares 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.
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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.
At a meeting of the board of directors, held on December 27, 1999, the board of
directors approved an increase in the authorized common shares of stock from
50,000,000 to 75,000,000. This was done pursuant to authority granted the board
of directors in the Company's Bylaws, which states, "The Board shall have
authority to authorize changes in the Corporation's capital structure." The
Company has reported this event on an 8-K Current Report and will also send
notice of this action to shareholders and provide appropriate press releases to
broker-dealers making a market or quoting the Company's common shares. The
Company also intends to seek shareholder ratification of the foregoing action at
the next shareholder meeting.
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.
50
<PAGE>
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
(a) Financial Statements
The financial statements are included on pages F-1 to F-44 immediately
following this item and are incorporated herein by reference.
51
<PAGE>
(b) Exhibits
2.1 Plan and Agreement of Merger or Reorganization (filed as exhibit 2.1
to Registrant's Annual Report on Form 10-KSB for year ended December
31, 1999, as amended)
3.1.1 Articles of Incorporation*
3.1.2 Amendment(s) to Articles of Incorporation*
3.2 Bylaws *
4.1 Stock Option Plan *
10.2 Employment Agreement of Michael Solomon (filed as exhibit 10.1 to
Registrant's Annual Report on Form 10-KSB for year ended December 31,
1999, as amended)
10.3 Employment Agreement of Jeremy Schuster (filed herewith)
10.4 Employment Agreement of Mohamed Hadid (filed herewith)
10.5 Addendum to Employment Agreement of Mohamed Hadid (filed herewith)
10.6 Lease Agreement (filed herewith)
27.1 Financial Data Schedule(amended) (filed herewith)
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE ENTERTAINMENT INTERNET, INC.
INDEPENDENT AUDITOR'S REPORT............................................F-1
Balance Sheets as of December 31, 1997 and 1998.........................F-2
Statement of Operations for the Years Ended December 31, 1998
and 1997 and April 20, 1992 (Inception) to December 31, 1998...........F-3
Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997 and April 20, 1992 (Inception) to
December 31, 1998......................................................F-4
Statements of Cash Flows for the Year Ended December 31, 1998
and 1997 and April 20, 1992 (Inception) to December 31, 1998...........F-5
Notes to Financial Statements...........................................F-6
ONLY MULTIMEDIA NETWORK, INC.
INDENPENDENT AUDITORS' REPORT..........................................F-12
Balance Sheets as of December 31, 1998 and 1997........................F-13
Statements of Operations for the Years Ended December 31,
1998 and 1997.........................................................F-14
Statements of Shareholders' Deficiency for the Years Ended
December 31, 1998 and 1997............................................F-15
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997.........................................................F-16
.
Notes to Financial Statements..........................................F-17
THE ENTERTAINMENT INTERNET, INC. (Unaudited)
Balance Sheet as of September 30, 1999 and 1998........................F-37
Statement of Operations for the Nine Months Ended September 30,
1999 and 1998.........................................................F-38
Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998...........................................F-39
Notes to Financial Statements..........................................F-40
53
<PAGE>
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
from 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 the results of its operations and its
cash flows for the years then ended and for the period from 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 described 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.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
June 1, 1999
F-1
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
1998 1997
-------- --------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,598 $ --
Stock Subscription Receivable 14,134 --
Due from Affiliate 345,380 --
Prepaid Expense 30,000 --
-------- --------
TOTAL ASSETS $392,112 $ --
======== ========
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 6,000
Additional Paid-in Capital 743,125 ( 750)
Deficit Accumulated During the Development Stage (463.655) (5,250)
-------- --------
Total Stockholders' Equity 292,382 --
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $392,112 $ --
======== ========
The Accompanying Notes are an Integral Part of these Financial Statements.
F-2
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
April 20, 1992
For The Year Ended (inception) to
December 31, December 31,
1998 1997 1998
------------ ---------- --------------
INCOME $ - $ - $ -
GENERAL AND ADMINISTRATIVE
EXPENSES 458,405 16 458,645
----------- ----------- ------------
LOSS BEFORE TAXES ( 458,405) ( 16) ( 458,645)
PROVISION FOR INCOME TAXES - - -
----------- ----------- -------------
NET LOSS $( 458,405) $ ( 16) $ ( 458,645)
=========== =========== ==============
Net Loss Per Common Shares -
Basic and Diluted $( 0.06) $ 0.00 $ ( 0.06)
=========== =========== ==============
Weighted Average Number of
Common Shares Outstanding -
Basic and Diluted 7,599,676 6,000,000 7,599,676
=========== =========== =============
The Accompanying Notes are an Integral Part of These Financial Statements.
F-3
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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 -- -- -- (458,405) (458,405)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 12,912,405 $ 12,912 $ 743,125 $ (463,655) $ 292,382
========== ========== ========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-4
<PAGE>
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
--------- ------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(458,405) (16) $(463,655)
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 (327,739) -- (332,989)
--------- ------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Affiliate (345,380) -- (345,380)
--------- ------- ---------
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.
F-5
<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
Description of Business
-----------------------
The Entertainment Internet, Inc. (formerly West Tech Services, Inc.)
(the "Company") was organized on 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 8 -
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:
o In March 1999, the Company acquired an operating subsidiary,
which also had a going concern paragraph in its auditors' report.
o The Company has raised approximately $2,000,000 in the aggregate
through Regulation D 504 and 506 private placements (See Note 8).
o The private placement proceeds were used to satisfy debt of the
subsidiary and fund the subsidiary's operations.
o 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.
F-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)
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.
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.
F-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 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
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 8 - Subsequent Events).
This subscription receivable was collected subsequent to December 31,
1998.
F-8
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - ADVANCES TO AFFILATE
As of December 31, 1998, the Company has advanced $345,380 to a
company, which is majority owned by the majority stockholder of the
Company. Also, the Company acquired the affiliate in March 1999 (see
Note 8 - Subsequent Events). The advances were to fund operations and
will be eliminated in 1999 when the companies are consolidated.
NOTE 4 - 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 5 - COMMITMENTS AND CONTINGENCIES
Office Space
------------
For the year ended December 31, 1998, the Company was provided free
office space by shareholders of the Company. The cost of the office
space was immaterial and has not been recorded in these financial
statements. 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.
F-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 6 - 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.
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 Company issued 3,450,000 shares of its common
stock 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, on August 1, 1998, with both the Majority Stockholder and
President, the Company issued 1,000,000 shares of its common stock as
a signing bonus to be issued upon the execution of the agreements. The
Company valued the shares at $90,000, which was the fair market value
of the shares as of the signing of the employment agreements.
F-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 - STOCKHOLDERS' EQUITY (continued)
Stock Options and Warrants
--------------------------
In conjunction with the 1998 Private Placement, the Company issued as
a finder's fee 124,286 and 33,333 common stock purchase warrants that
are exercisable at a price of $0.175 and $0.15 per share,
respectively, and expire in September and November of 2001,
respectively. In accordance with SFAS No. 123, " Accounting for
Stock-Based Compensation", the Company has estimated the fair value to
be $375,415 for these warrants at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for both: dividend yields of 0%; expected volatility of
237%; risk-free interest rate of 5.5%; and expected life of 3 years.
The Company recorded the fair market value of these warrants as
offering costs, which offsets the proceeds from the Private Placement.
In conjunction with the Company's employment agreement with the
Majority Stockholder, the Company issued a stock option to purchase
200,000 shares of the Company's common stock at a price of $0.25 per
share, which expires in December 2003. In accordance with SFAS No.
123, " Accounting for Stock-Based Compensation", the Company has
estimated the fair market value to be $50,000 for this option at the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yields of 0%;
expected volatility of 237%; risk-free interest rate of 5.5%; and
expected life of 5 years.
Warrants and Stock Options consist of the following:
Weighted
Stock Average
Options Exercise
Outstanding Price
----------- ----------
Balance, December 31, 1997 - $ -
Issued 200,000 $ 0.25
-----------
Outstanding and Exercisable at
December 31, 1998 200,000 $ 0.25
===========
F-11
<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 - STOCKHOLDERS' EQUITY (continued)
Weighted
Average
Warrants Exercise
Outstanding Price
----------- ----------
Balance, December 31, 1997 - $ -
Issued 157,619 $ 0.17
-----------
Outstanding and exercisable at
December 31, 1998 157,619 $ 0.17
===========
The weighted average remaining contractual lives of the stock options
and warrants are 5.0 and 2.71 years, respectively, at December 31,
1998.
NOTE 7 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows for the years ended:
December 31,
1998 1997
------------- ------------
Federal Income Tax Rate 34.0% 34.0%
Effect of Valuation Allowance ( 34.0)% ( 34.0)%
------------ -------------
Effective Income Tax Rate 0.0% 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 carryforward,
valuation allowances equal to the tax benefits for deferred taxes have
been established. The full realization of the tax benefit associated
with the carryforward depends predominantly upon the Company's ability
to generate taxable income during the carryforward period.
F-12
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - INCOME TAXES (continued)
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
------------ ------------
Deferred Tax Assets
Loss Carryforwards $ 142,000 $ 1,700
Less: Valuation Allowance ( 142,000) ( 1,700)
----------- ------------
Net Deferred Tax Assets $ - $ -
============ ============
Net operating loss carryforwards expire starting in 2012.
NOTE 8 - SUBSEQUENT EVENTS
Formation of Subsidiary
-----------------------
In March 1999, the Company formed The Entertainment Internet, Inc,
("TEI-CAL") a California corporation, to be the operating company of
the Company's operations of its acquisition of Only Multimedia
Network, Inc. ("OMNI"), as described below.
Acquisition
-----------
In August 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger") with OMNI. The merger was structured so that
TEI-CAL would be the acquirer of OMNI. Upon completion of the Merger
in March 1999, the Company issued to TEI-CAL 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, which are convertible
into 5,854,721 shares of the Company's Common Stock. TEI-CAL
simultaneously exchanged on a one-for-one basis the securities for
OMNI's Common Stock, Preferred Stock, warrants, options and
convertible notes. Also, a certain individual is the majority
shareholder of both the Parent and the Company.
F-13
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - SUBSEQUENT EVENTS (Continued)
The Company and its subsidiary had no operations prior to the merger;
therefore, OMNI is the dominant operating company and the merger was
in substance a reverse acquisition. Accordingly, the transaction has
been treated for accounting purposes as a recapitalization of OMNI
and, therefore, the historical and continuing financial statement
presentation will be a continuation of the legal subsidiary, TEI-CAL,
and not the Company, the legal parent. In accounting for this
transaction:
(i) OMNI is deemed to be the purchaser and parent company for
accounting purposes. Accordingly, its net assets will be included
in the consolidated balance sheet at their historical book
values;
(ii) Control of the net assets and business of the Company was
acquired effective March 31, 1999. This transaction has been
accounted for as a purchase of the assets and liabilities of the
Company by OMNI; however, since the Company had no operations or
substantial assets as of the acquisition, the transaction will
not create excess of cost over fair value of net assets acquired.
A summary of the historical book values of OMNI are as follows:
Assets 1998 1997
-------------- -------------
Cash $ 7,482 $ 175,563
Other Current Assets 14,421 28,266
Furniture and Equipment 336,591 450,491
Other Assets 14,241 91,040
Liabilities and Stockholders'
Deficiency
Accounts Payable and Accrued
Expenses 1,278,105 656,775
Other Current Liabilities 885,662 225,069
Debentures Payable 578,564 536,509
Notes Payable 546,362 504,948
Notes Payable Shareholders 525,453 525,453
Capital Lease Obligations 147,038 187,805
Shareholders' Deficiency (3,588,449) (1,891,199)
-------------- ------------
Acquisition Price $ - $ -
============== =============
F-14
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
(FORMERLY WEST TECH SERVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - SUBSEQUENT EVENTS (Continued)
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 incurred additional
offering cost consisting of $30,000 cash and the issuance of an option
to purchase 54,545 shares of the Company's common stock for a period
of three years at $0.55 per share. The option was valued at its fair
market value of $73,000 using the Black-Scholes option valuation
model.
Convertible Note Payable
------------------------
In February 1999, the Company entered into financing agreements with
two companies. The financing agreements provide for the lenders to
provide funds, as deemed necessary, by the lenders. The Company is to
pay interest at a rate of 6% per annum, with principal due on demand.
The notes also call for any amount of the outstanding principal to be
converted into restricted shares of the Company's common stock at the
option of either the lenders or the Company. If the conversion feature
is evoked, the number of shares are to be calculated as follows: i)
conversion rate shall be calculated by taking 60% of the most
favorable closing price of shares of the Company's common stock during
the period extending from the first day of the calendar year prior to
the date of issuance of the shares; ii) dividing the principal amount,
being converted, by the conversion rate; and iii) any accrued and
unpaid interest will be waived by the lender. Also, the Company has
the right, within one year from the date of issuance of any shares
issued, to redeem the shares for the amount of principal, original
interest and interest which would have been due in the event the
conversion had not taken place. As of June 1999, the Company had
borrowed approximately $1,000,000.
F-15
<PAGE>
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 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 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 has a working capital deficit.
Further, certain of its debts were in default 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.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
May 11, 1999
F-16
<PAGE>
<TABLE>
<CAPTION>
ONLY MULTIMEDIA NETWORK, INC.
BALANCE SHEET
December 31 March 31
------------------------- --------------------------
1998 1997 1999 1998
----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,482 $ 175,563 $ 65,567 $ 12,818
Accounts Receivable, net of allowance for
doubtful accounts of $8,700 and $17,967 14,421 26,320 15,002 28,134
Prepaid Expenses -- 1,946 2,569 67,225
----------- ----------- ----------- ------------
Total Current Assets 21,903 203,829 83,138 108,177
FURNITURE AND EQUIPMENT, net 336,591 450,491 358,567 423,480
OTHER ASSETS 14,247 91,040 14,247 6,807
----------- ----------- ----------- ------------
TOTAL ASSETS $ 372,741 $ 745,360 $ 455,952 $ 538,464
=========== =========== =========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 1,278,111 $ 656,775 $ 1,228,315 $ 721,606
Deferred Revenue 387,782 225,069 417,475 329,553
Advances from Affiliate 345,380 -- 1,340,448
Notes Payable, Current Portion 546,362 461,416 30,971 846,121
Debenture Payable and Accrued Interest 578,564 331,770 541,454 48,406
Notes Payable - Shareholders, current portion 200,000 -- - -
Obligations Under Capital Lease 62,976 52,005 65,744 53,500
----------- ----------- ----------- ------------
Total Current Liabilities 3,399,175 1,727,035 3,623,407 1,999,186
LONG-TERM LIABILITIES
Notes Payable, Less Current Portion -- 43,532 - 438,937
Debentures Payable, Less Current Portion -- 204,739 - 94,029
Notes Payable - Shareholders,
Less Current Portion 325,453 525,453 525,453 325,453
Convertible Notes Payable 152,500 -- 152,500 -
Obligations Under Capital Lease, Less
Current Portion 84,062 135,800 66,549 121,814
----------- ----------- ----------- ------------
Total Liabilities 3,961,190 2,636,559 4,368,909 2,979,419
----------- ----------- ----------- ------------
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 2,032,300 2,032,300
Common Stock, no par value, 60,000,000 shares
authorized; 8,842,279, 2,400,521, 8,842,279
(unaudited) and 2,400,521 (unaudited) shares
issued and outstanding 1,533,123 988,865 1,533,123 988,865
Accumulated Deficit (7,153,872) (4,912,364) (7,478,380) (5,462,120)
----------- ----------- ----------- ------------
Total Shareholders' Deficiency (3,588,449) (1,891,199) (3,912,957) (2,440,955)
----------- ----------- ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCIES $ 372,741 $ 745,360 $ 455,952 $ 538,464
=========== =========== ============ ===========
</TABLE>
See Accompanying Notes to the Financial Statements.
F-17
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Three Months Ended
December 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $ 581,555 $ 91,932 $ 185,474 $ 95,835
COST OF SALES 375,154 108,804 77,317 72,123
------------ ------------ ----------- ------------
GROSS PROFIT (LOSS) 206,401 ( 16,872) 108,157 23,712
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,807,668 1,652,146 394,083 562,420
------------ ------------ ----------- ------------
LOSS FROM OPERATIONS (1,601,267) (1,669,018) ( 285,926) ( 538,708)
------------ ------------ ----------- ------------
OTHER INCOME AND (EXPENSES)
Interest and Dividend Income 3,741 6,025 6 270
Interest Expense ( 174,916) ( 279,829) ( 38,588) ( 36,089)
------------ ------------ ----------- ------------
Total Other Income and (Expenses) ( 171,175) ( 273,804) ( 38,582) ( 35,819)
------------ ------------ ----------- ------------
LOSS BEFORE TAXES (1,772,442) (1,942,822) ( 324,508) ( 574,527)
PROVISION FOR INCOME TAXES - - - -
------------ ------------ ----------- ------------
LOSS FROM CONTINUED OPERATIONS (1,772,442) (1,942,822) ( 324,508) ( 574,527)
CUMULATIVE PREFERRED DIVIDENDS ( 198,018) - - -
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS
(Net of Applicable Income Tax Effect
of $0, Due to Valuation Allowance
for Uncertainty of Realization) ( 271,048) ( 855,742) - 24,769
------------ ------------ ----------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS' $(2,241,508) $(2,798,564) $ ( 324,508) $( 549,758)
============ ============ ============ ============
</TABLE>
See Accompanying Notes to the Financial Statements.
F-18
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
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)
Net Loss (Unaudited) - - - - ( 324,508) ( 324,508)
-------- ----------- --------- ----------- ----------- -----------
Balance at March 31, 1999 (Unaudited) 5,400 $ 2,032,300 8,842,279 $ 1,533,123 $(7,478,380) $(3,912,957)
======== =========== ========= =========== =========== ===========
</TABLE>
See Accompanying Notes to the Financial Statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended For the Three Months
December 31 Ended March 31,
1998 1997 1999 1998
----------- ------------ ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(2,241,508) $(2,798,564) $ (324,508) $ (549,758)
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 27,895 31,052
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 ( 581) ( 1,814)
Prepaid Expenses 1,946 29,154 ( 2,569) ( 65,279)
Other Assets 76,793 327,130 - 84,233
Increase (Decrease)
Accounts Payable and Accrued Expenses 648,198 340,885 ( 49,796) 113,238
Deferred Revenue 162,713 168,44O 29,693 104,484
Accrued Interest - - ( 37,110) 11,843
----------- ----------- ---------- ----------
Net Cash Used in Operating Activities (1,142,842) (1,747,286) (356,976) (272,001)
---------- ----------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of Futniture and Equipment (64,962) (169,384) ( 49,871) ( 4,041)
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from Affiliate 345,380 -- - -
Proceeds from Issuance of Notes Payable 100,000 400,000 995,068 140,000
Payments for Notes Payable (58,586) (18,052) (515,391) ( 14,212)
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) ( 14,745 ( 12.491)
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 1,571,396 464,932 113,297
----------- ----------- ---------- ----------
NET INCREASE (DECREASE) (168,081) (345,274) 58,085 (162,745)
CASH AT BEGINNING OF PERIOD 175,563 520,837 7,482 175,563
---------- ----------- ---------- ----------
CASH AT END OF PERIOD $ 7,482 $ 175,563 $ 65,567 $ 12,818
=========== =========== ========== ==========
</TABLE>
See Accompanying Notes to the Financial Statements.
F-20
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
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, respectively, 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, respectively, under capital lease
obligations.
During the year ended December 31, 1998, the Company issued a convertible
promissory note for $592,500, which was converted at $0.09 per share (as
stipulated in the promissory note)into an aggregate of 6,441,758 shares of
the Company's common stock.
In 1997, 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.
For the year ended December 31, 1997, the Company issued a $48,000 note
payable bearing interest at 8% per annum with monthly principal and interest
payments of $3,370. The note was issued as a settlement for a legal dispute
for which the Company incurred settlement expense of $48,000.
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 the Company issued
50,000 class C common stock warrants valued at $10,000 in connection with a
legal settlement (See Note 10 - Stock, Warrants and Options "Stock
Warrants").
See Accompanying Notes to the Financial Statements.
F-21
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Only Multimedia Network, Inc. (the "Company") is a provider of a range
of Internet-related services to the entertainment community. In 1997,
the Company began the operations of 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. Prior to the start
of CastNet, the Company's main focus was being an Internet Service
Provider (See Note 12 - Discontinued Operations).
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 deficit of $3,377,272 as of December 31,
1998. Also, as of December 31, 1998 its debentures payable of $331,770
were in default (the default refers to the fact that the notes became
due and the Company has not repaid the outstanding balance). In
addition, the Company has, notes payable of $746,362 which are due as
of December 31, 1998 or become due in the next twelve months, and a
shareholders' deficiency of $3,588,449. 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 the amounts and classifications of
liabilities that might be necessary should the Company be unable to
continue its existence.
F-22
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 13).
- In 1999, the Parent Company (See Note 13) completed a Regulation
D 504 and 506 private placements and in the aggregate raised
$2,000,000. The Parent Company had raised approximately $550,000
in 1998, which was used to fund operations, 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.
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 (life of lease) 3 years
Revenue Recognition
The Company recognizes revenue from the subscriber base of CastNet.
The subscribers pay an annual fee at the beginning of the contract
period to be a part of the CastNet database. The subscription is
recognized as revenue on a pro rata basis over the 12-month annual
period.
F-23
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research and Development
Research and development costs are expensed as incurred. For the years
ended December 31, 1998 and 1997, the Company had research and
development costs of approximately $298,000 and 205,000, respectively,
which have been included in selling, general and administrative
expenses.
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 accounts
receivables. The Company places its cash with credit worthy 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.
F-24
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 of 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, respectively.
NOTE 3 - ADVANCES FROM AFFILIATE
As of December 31, 1998, the Company has received $340,199 from its
prospective parent company, which is majority owned by the majority
stockholder of the Company. Also, the Company was acquired by the
affiliate in March 1999 (see Note 13 - Subsequent Events). The
advances were to fund operations and will be eliminated in 1999 when
the companies are consolidated.
F-25
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - NOTES PAYABLE
1998 1997
---------- ---------
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
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 5 - 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 AA 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
10). 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.
F-26
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - DEBENTURES PAYABLE (Continued)
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 annum and $39,000 of Class B 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, 1998, and the remaining
note holders for $144,000 did not elect to extend the maturity date.
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 6 - NOTES PAYABLE - SHAREHOLDERS
In 1997, certain shareholders 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 was $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 7 - CONVERTIBLE 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 10 - Stock, Warrants and Options "Conversion of Convertible Note
Payable").
F-27
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - 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
========= =========
Minimum future lease payments under the capital leases as of December
31, 1998 for 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
===========
F-28
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - 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.
NOTE 10 - 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 1997, the Company agreed with certain note holders to issue 5,400
shares of Preferred Stock Series B for the conversion of $1,710,000
and $232,300 of principal and interest, respectively, and cancellation
of 1,775,000 Class AAA warrants. Each share has the following rights:
i) liquidation preference of $500 per share, ii) receive an annual
dividend of $36.70, payable in additional shares of Preferred Stock
Series B, iii) convertible, at the holders option, into 100 shares of
the Company's common stock, iv) automatic conversion into 100 shares
of the Company's common stock upon the Company's common stock trading
at or above $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.
F-29
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK, WARRANTS AND OPTIONS (continued)
Sale of Common Stock
In 1997, the Company completed a common stock private placement for
aggregate proceeds of $1,112,082, net of offering costs of $268,076,
for 444,833 units. Each unit consisted of one share of the Company's
common stock and two class AAA common stock warrants (see stock
warrants below). Of the aggregate proceeds, the Company assigned
$1,094,288 to the 444,833 shares of common stock issued and $17,794 to
the 444,833 class AAA common stock warrants issued.
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 $0.05 per share. The warrants expire on
May 15, 2000.
F-30
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK, WARRANTS AND OPTIONS (continued)
In connection with the issuance of debentures in 1996, the Company
issued 1,950,000 Class AA common stock warrants, which were valued at
$97,500, the agreed upon allocation of the per unit price of the 1996
debenture 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 IPO and expire on
December 31, 2002. The exercise price will be 110% of the IPO price,
or $2.00 per share if the Company has not completed an IPO 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 IPO 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 $0.01
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, since certain of the 1996 debenture holders elected not to
convert their debt to preferred stock, the Company was required to
issue warrants as a penalty, as described in the above paragraph. The
Company issued 405,000 warrants to purchase its common stock at an
exercise price of $0.01 per share, which expire in May 2000. The
Company valued the warrants at $17,500, which was management's
estimated value of the associated penalty at the date of issuance of
the warrants.
In 1997, the Company issued 889,666 Class AAA common stock warrants,
which were valued at $17,794, to the investors and an additional
200,175 Class AAA common stock warrants, valued at $4,007, to the
underwriters in connection with the common stock private placement.
The warrants became exercisable on December 31, 1997 at an exercise
price of $6.00 per share and expire on December 31, 2000.
In 1997, the Company issued 195,000 Class B common stock purchase
warrants, which were valued at $39,000, the agreed upon allocation of
the per unit price of the 1997 debenture private placement, to the
investors in the 1997 debenture private placement. The warrants become
exercisable at the earlier of December 31, 1997 or upon the completion
of an IPO and expire on December 31, 2002. The exercise price will be
110% of the IPO price, or $2.60 per share if the Company has not
completed an IPO by December 31, 1997. The exercise price shall be
$3.00 if the Company becomes a 12(b) or 12(g) reporting company.
F-31
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK, WARRANTS AND OPTIONS (continued)
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.
The following summarizes the stock warrants issued for the years ended
December 31, 1998 and 1997:
Weighted
Average
Exercise
Warrants Price
--------- ---------
Options Outstanding, December 31, 1996 2,706,875 $ 1.87
Granted 1,739,841 $ 4.12
Cancelled (1,775,000) $ 2.00
----------
Options Outstanding and Exercisable,
December 31, 1998 and 1997 2,671,716 $ 3.25
==========
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.
The following table summarizes the outstanding and exercisable
warrants grouped by range of exercise prices as of December 31, 1998:
Weighted Weighted
Average Average
Exercise Remaining
Range of Exercise Prices Price Life
------------------------ -------- ---------
$0.01 to $0.05 $0.02 2.71
$2.00 to $2.60 $2.14 3.98
$6.00 $6.00 2.00
F-32
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK, WARRANTS AND OPTIONS (continued)
Stock Options
The shareholders' of the Company approved the Stock Option Plan (the
"Plan"). The Plan covers two types of options, incentive stock options
and non-qualified stock options. The aggregate number of shares that
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.
The following summarizes the Company's stock option transactions under
the stock option plan:
Weighted
Average
Stock Options Exercise
Outstanding Price
--------- ---------
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 -- $ --
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
=========
The weighted average remaining contract lives of stock options
outstanding are 3.04 years.
F-33
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK, WARRANTS AND OPTIONS (continued)
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 plan and does not recognize compensation expense for its
stock-based compensation plan other than for 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 the plan consistent with the methodology prescribed by
SFAS 123, the Company's net loss would be increased by $0 and $116,050
for the years ended December 31, 1998 and 1997, respectively, to the
pro forma amounts indicated below.
1998 1997
-------------- ------------
Net Loss:
As Reported $(2,241,508) $(2,798,564)
=========== ===========
Pro forma $(2,241,508) $(2,914,614)
=========== ===========
NOTE 11 - INCOME TAXES
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
------- -------
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%
------- -------
--% --%
F-34
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - INCOME TAXES (continued)
The components of the net deferred tax asset and (liability) are as
follows at December 31,:
1998 1997
----------- -----------
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)
----------- -----------
$ -- $ --
=========== ===========
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 net change
in the valuation allowance for the years ended December 31, 1998 and
1997 increased by approximately $767,000 and $792,000, respectively.
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
13, may place limitations as to the ability to use these operating
loss carryforwards.
F-35
<PAGE>
ONLY MULTIMEDIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - DISCONTINUED OPERATIONS
In July 1998, the Company's management decided to discontinue the ISP
operations and focus the Company's resources on the operations of
CastNet. The plan to discontinue the ISP operations was to inform the
customers that as of September 1, 1998, they would not be provided
service as of October 1, 1998, and the infrastructure was dismantled
and converted to other uses, such as the CastNet operations. As of
December 31, 1998, the shut down of the ISP operations was complete
and no additional costs were required. The 1998 and 1997 financial
statements have been presented for the discontinued operations.
Following is summary financial information for the Company's
discontinued ISP operations for the year ended December 31,:
1998 1997
---------- -----------
Net Sales $ 168,524 $ 402,841
=========== ===========
Loss from discontinued operations:
Before taxes $( 271,048) $( 855,742)
Provision for income taxes - -
------------ -----------
Net $( 271,048) $( 855,742)
=========== ===========
NOTE 13 - SUBSEQUENT EVENTS
In March 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.
F-36
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND 1998
ASSETS
September 30, September 30,
1999 1998
----------- ------------
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
=========== ===========
F-37
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
STATEMENT OF OPERATIONS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
September 30, September 30,
1999 1998
----------- -----------
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
=========== ===========
F-38
<PAGE>
THE ENTERTAINMENT INTERNET, INC.
STATEMENT OF CASH FLOWS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
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
=========== ===========
F-39
<PAGE>
The Entertainment Internet, Inc.
Notes to Financial Statements
September 31, 1999 and 1998
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
The Entertainment Internet, Inc. (the "Company") was organized on April 20, 1992
under the laws of the State of Nevada. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 7, the Company was considered to be a
development stage company. Effective on March 31, 1999, with the Company's
acquisition of Only Multimedia Network, Inc. the Company ceased to be a
development stage company, since at the date of acquisition the Company had
revenues and operations. The operations of the Company are those of its wholly
owned subsidiary, which operates 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.
Subsidiary
----------
In March 1999, the Company formed The Entertainment Internet, Inc., a California
corporation ("TEI-CAL"). TEI-CAL was formed to acquire and be the parent for the
Company's acquisition of Only Multimedia Network, Inc. ("OMNI"). See
"Acquisition" for further details.
NOTE 2 - ACQUISITION
In August 1998, the Company entered into an Agreement and Plan of Merger (the
"Merger") with Only Multimedia Network, Inc. ("OMNI"). The merger was structured
so that TEI-CAL would be the acquirer of OMNI. Upon completion of the Merger in
March 1999, the Company issued to TEI-CAL 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 (described below). TEI-CAL simultaneously exchanged on a
one-for-one basis the securities for OMNI's Common Stock, Preferred Stock and
warrants and options and convertible notes. Also, a certain individual is the
majority shareholder of both the Parent and the Company.
As a result of this transaction the former shareholders of OMNI acquired or
exercised control over a majority of the shares of the Company. Accordingly, the
transaction has been treated for accounting purposes as a recapitalization of
OMNI and, therefore, the historical and continuing financial statement
presentation will be continuation of the legal subsidiary, TEI-CAL, not the
Company, the legal parent. In accounting for this transaction:
F-40
<PAGE>
(i) OMNI is deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets will be included in the
consolidated balance sheet at their historical book values;
(ii) Control of the net assets and business of the Company was acquired
effective March 31, 1999. This transaction has been accounted for as a
purchase of the assets and liabilities of the Company by OMNI;
however, since the Company had no operations or substantial assets as
of the acquisition, the transaction will not create excess of cost
over fair value of net assets acquired. A summary of the historical
book values of OMNI are as follows
1998 1997
-------------- -------------
Cash $ 7,482 $ 175,563
Other Current Assets 14,421 28,266
Furniture and Equipment 336,591 450,491
Other Assets 14,241 91,040
Accounts Payable and Accrued Expenses 1,278,111 656,775
Other Current Liabilities
Debentures Payable 578,564 536,509
Notes Payable 546,362 504,948
Notes Payable Shareholders 525,453 525,453
Capital Lease Obligations 147,038 187,805
Shareholders Deficiency (3,588,449) (1,891,199)
-------------- -------------
Acquisition Price $ - $ -
============== =============
NOTE 3 - REVENUE RECOGNITION
The Company recognizes revenue from the subscriber base of Castnet. The
subscribers pay an up front annual fee at the beginning of the contract period
to be a part of the Castnet database. The fee is recognized as revenue pro rata
over the 12-month annual period. Also, the Company intends to charge for
advertising space on its Castnet website. The advertising revenue will be
recognized for the cash compensation to be earned
F-41
<PAGE>
NOTE 4 - FINANCING AGREEMENT/CONVERTIBLE NOTE PAYABLE
In 1999, the Company entered into financing agreements with two separate but
mutual companies through common ownership. The financing agreements provide for
the lenders to provide funds, as deemed necessary, by the lenders. The Company
is to pay interest at a rate of 6% per annum, with principal due on demand. The
notes also call for any amount of the outstanding principal to be converted into
restricted shares of the Company's common stock at the option of either the
lenders or the Company. If the conversion feature is evoked, the number of
shares are to be calculated as follows: i) conversion rate shall be calculated
by taking 60% of the most favorable closing price of shares of the Company's
common stock during the period extending from the first day of the calendar year
prior to the date of issuance of the shares; ii) dividing the principal amount,
being converted, by the conversion rate; and iii) any accrued and unpaid
interest will be waived by the lender. Also, the Company has the right, within
one year from the date of issuance of any shares issued, to redeem the shares
for the amount of principal, original interest and interest which would have
been due in the event the conversion had not taken place. As of September 30,
1999, the Company has an outstanding balance of $1,000,000 and none of the
principal has been converted.
Since the shareholder receives a 40% discount from the fair market value, the
first 20% will be attributed to the lack of tradability of the shares due to
restriction on sale and the second 20% will be attributed to the interest that
will accrue over the one year period from date of conversion to the expiration
date of the buyback.
NOTE 5 - 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
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.
F-42
<PAGE>
NOTE 6 - STOCK, WARRANTS AND OPTIONS
Common Stock
------------
For the nine months ended September 30, 1999, the Company has issued an
aggregate 350,000 shares of its common stock to its board of directors, with a
value of $251,300, pursuant to agreements executed with the Company..
These share issuances were accounted for in accordance with FASB No. 123. They
have been recorded at the fair market value.
Stock Warrants
--------------
The fair value for the warrants was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: weighted average risk-free interest rates of 5.5; dividend yields
of 0%; weighted-average volatility factors of the expected market price of the
Company's common stock of 256%; and a weighted average expected life of the
option of 3 to 5 years. For the nine months ended September 30, 1999, the
Company issued the following stock warrants:
o Issued a warrant as commission for finder's fees related to the sale
of common stock. The warrant is for the purchase of 54,545 shares of
the Company's common stock at $0.55 per share for two years. The
warrant had a fair value at date of grant of $74,000.
o Issued a warrant for services rendered. The warrant is for the
purchase of 25,000 shares of the Company's common stock at $1.00 per
share for a period of ten years. The warrant had a fair value at date
of grant of $18,000.
o Issued a warrant for service rendered. The warrant is for the purchase
of 200,000 shares of the Company's common stock at $1.00 per share for
a period of ten years. The warrant had a fair value at date of grant
of $69,000.
F-43
<PAGE>
Stock Options
-------------
Effective March 1, 1999, the Company adopted an employee stock option plan (the
"Plan"), which expires February 28, 2009. 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. The Plan has
reserved a maximum shares to be issued under the option plan not to exceed
3,000,000. As of September 30, 1999, the Company has issued or committed to
issue, to employees, officers and directors of the Company, stock options to
purchase 350,000 shares of the Company's common stock. The options are
exercisable for five years at an exercise price of $1.00 per share.
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. 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 No. 123.
F-44
<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.
THE ENTERTAINMENT INTERNET, INC.
/s/ Michael Solomon
By: -----------------------
Amendment No. 2 Michael Solomon
June 5, 2000 Chief Executive Officer
54
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit
Number Description
------- -----------
10.6 Employment Agreement of Jeremy Schuster
10.7 Employment Agreement of Mohamed Hadid
10.8 Addendum to Employment Agreement of Mohamed Hadid
10.6 Lease Agreement
27.1 Financial Data Schedule (amended)
55
