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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999
Registration No. 333-86959
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1/A
AMENDMENT NUMBER 1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
eUNIVERSE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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NEVADA 5735 06-1556248
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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101 NORTH PLAINS INDUSTRIAL ROAD, WALLINGFORD, CONNECTICUT 06492
(203) 265-6412
(Address and telephone number, including area code, of registrant's principal
executive offices)
LELAND N. SILVAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
101 NORTH PLAINS INDUSTRIAL ROAD
WALLINGFORD, CONNECTICUT 06492
(203) 265-6412
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
CHRISTOPHER G. MARTIN, ESQ.
MARTIN, LOIS & GASPARRINI, LLC
1177 SUMMER STREET
STAMFORD, CONNECTICUT 06905
(203) 324-4200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The securities
being registered on this form are to be offered and sold from time to time after
the effective date of the Registration Statement by the selling shareholders.
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE REGISTRATION FEE(1)
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Common Stock,
$.001 par value 4,000,000 $6.00 $24,000,000 $6,672
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(1) Fee calculated pursuant to Rule 457(c) based on the average of the bid and
asked prices of the Common Stock as reported on the OTC Bulletin Board on
September 7, 1999.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to such section
8(a), may determine.
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PROSPECTUS
OCTOBER , 1999
4,000,000 SHARES
EUNIVERSE, INC.
COMMON STOCK
($.001 par value)
This Prospectus relates to the offer and sale by certain stockholders (the
"Selling Stockholders") of up to 4,000,000 shares (the "Shares") of the common
stock, $.001 par value (the "Common Stock"), of eUniverse, Inc. ("eUniverse"
or the "Company") issued or to be issued upon conversion of shares of
eUniverse's Series A 6% Convertible Preferred Stock held by such Selling
Stockholders. The Shares will be sold from time to time in transactions effected
on the OTC Electronic Bulletin Board ("OTC") or any other securities exchange or
market in which the shares are traded, in privately negotiated transactions, or
in a combination of such methods of sale. Such methods of sale may be conducted
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Our stock is currently
traded on the OTC under the trading symbol EUNI.
The Selling Stockholders may effect such transactions directly, or
indirectly through underwriters, broker-dealers or agents acting on their
behalf, and in connection with such sales, such broker-dealers or agents may
receive compensation in the form of commissions, concessions, allowances or
discounts from the Selling Stockholders and/or the purchasers of the Shares for
whom they may act as agent or to whom they sell Shares as principal or both
(which commissions, concessions, allowances or discounts might be in excess of
customary amounts thereof). To the extent required, the names of any agents,
broker-dealers or underwriters and applicable commissions, concessions,
allowances or discounts and any other required information with respect to any
particular offer of the Shares by the Selling Stockholders, will be set forth in
a supplement to this Prospectus (a "Prospectus Supplement"). Any statement
contained in this Prospectus will be deemed to be modified or superseded by any
inconsistent statement contained in any Prospectus Supplement delivered
herewith. Unless this Prospectus is accompanied by a Prospectus Supplement
stating otherwise, offers and sales may be made pursuant to this Prospectus only
in ordinary broker's transactions made on the OTC Electronic Bulletin Board in
transactions involving ordinary and customary brokerage commissions. See
"SELLING SHAREHOLDERS" and "PLAN OF DISTRIBUTION."
None of the proceeds from the sale of the Shares by the Selling Stockholders
will be received by eUniverse, Inc. eUniverse has agreed to bear all expenses of
registration of the Shares under federal or state securities laws.
The Selling Stockholders and any underwriters, dealers or agents which
participate in the distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit realized on the resale of the Shares purchased by them may be
deemed to constitute underwriting commissions, concessions, allowances or
discounts under the Securities Act. See "PLAN OF DISTRIBUTION."
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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SUMMARY ............................................................................................ 5
RISK FACTORS........................................................................................ 6
USE OF PROCEEDS..................................................................................... 11
DIVIDEND POLICY..................................................................................... 11
SELECTED FINANCIAL DATA............................................................................. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................................................... 12
BUSINESS............................................................................................ 18
General Development of Business.................................................................. 18
Description of Business.......................................................................... 19
Domain Names, Patents and Trademarks............................................................. 21
Operations and Technology........................................................................ 22
Year 2000 Readiness Disclosure................................................................... 23
Sales and Marketing.............................................................................. 24
Employees........................................................................................ 25
Facilities....................................................................................... 25
The Company's Strategy and Plans................................................................. 25
RECENT TRANSACTIONS................................................................................. 27
LEGAL PROCEEDINGS................................................................................... 27
MANAGEMENT.......................................................................................... 28
PRINCIPAL SHAREHOLDERS.............................................................................. 32
SELLING SHAREHOLDERS................................................................................ 33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................... 33
PLAN OF DISTRIBUTION................................................................................ 34
DESCRIPTION OF CAPITAL STOCK........................................................................ 34
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDE MATTERS.................................................................... 35
SHARES ELIGIBLE FOR FUTURE SALE..................................................................... 35
LEGAL MATTERS....................................................................................... 37
EXPERTS............................................................................................. 37
SOURCES OF ADDITIONAL INFORMATION................................................................... 37
INDEX TO FINANCIAL STATEMENTS....................................................................... 37
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You should rely only on the information contained in this Prospectus. We have
not authorized any other person to provide you with different information. This
Prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any state where the offer or sale is not permitted. The
information in this Prospectus is complete and accurate as of the date on the
front cover, but the information may have changed since that date.
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS, THE FINANCIAL
STATEMENTS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
"eUniverse," "WE," "US" OR "OUR" ARE TO eUNIVERSE, INC. AND ALL OF ITS
SUBSIDIARIES, UNLESS THE CONTEXT REQUIRES OTHERWISE.
eUniverse, Inc. ("eUniverse" or the "Company") operates a network of
entertainment-related Web sites focused on music, film and interactive
entertainment. eUniverse's Web properties include CD Universe, an online
retailer of music products and accessories; Video Universe, a pioneering online
retailer of video cassettes, DVDs and laser discs; and Games Universe, an online
retailer of single- and multiplayer games, with links to eUniverse subsidiaries
- -- Case's Ladder, which offers online ranking and tournament offerings for
people who play games on the Internet; Gamer's Alliance, which owns a network of
online gaming editorial Web sites; and The Big Network, which provides
multiplayer classic games (e.g., chess, checkers, backgammon, spades).
The Big Network, Inc. also provides a suite of multiplayer Java-based parlor
games and a unique library of proprietary community-building software
technologies, named LivePlace. LivePlace combines group browsing, chat, instant
messaging and a host of other advanced features to introduce social interaction
to the Web browsing and shopping experience. Additions to eUniverse's games will
include other classic board and card games (e.g., Battleship, Hearts) and other
online strategy, role-playing or action games. We do not offer and do not intend
to offer online gambling or other activities associated with gambling.
eUniverse's Web sites collectively attract an average of over 60 million monthly
page views. eUniverse's revenues have grown rapidly, reaching over $9.2 million
for the fiscal year ending March 31, 1999. eUniverse is a Nevada corporation
with principal executive offices at 101 North Plains Industrial Road,
Wallingford, Connecticut 06492, telephone number (203) 265-6412.
Historically, we primarily have generated revenue from merchandise sales. We
have implemented a program to generate advertising revenue through paid
third-party advertising on eUniverse's Web sites. We also intend to diversify
our retail offerings to include a greater selection of products, such as online
downloads of content, clothing, sports items and accessories.
Music Entertainment
The online store (www.cduniverse.com) of eUniverse's wholly owned
subsidiary, CD Universe, Inc. ("CD Universe"), currently offers Internet
customers a selection of over 240,000 individual CD titles as well as
proprietary content and features. Recently, a Japanese version of the CD
Universe Web site was established that markets and sells CDs and related
products in Japan.
Filmed Entertainment
eUniverse's Video Universe online store (www.videouniverse.com) offers
Internet users a selection of over 40,000 movie titles in videocassette, DVD and
laser disc formats.
Interactive Entertainment
eUniverse's Games Universe site (www.gamesuniverse.com) sells interactive
games and links users to eUniverse's online interactive gaming sites that
include Case's Ladder (www.casesladder.com), an online portal to a variety of
games that provides competitive rankings for online game players and allows game
players to compete against one another in a variety of tournaments and leagues,
Gamer's Alliance (www.gagames.net), one of the premier sites on the Web devoted
to interactive PC games, and The Big Network (www.bignetwork.com), a site
offering classic board and card games.
Expansion
eUniverse intends to continue to leverage its online retailing expertise
into other e-commerce areas by expanding its current product offerings through
acquisitions of content-oriented Web sites with significant traffic and
attractive demographics that cater to specific communities of interest in the
music, video and games businesses.
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Concurrently with its acquisition strategy, eUniverse is actively adding to
and improving upon the existing content and functionality of its Web sites.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THE FOLLOWING RISKS, AND YOU MIGHT
LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY. Given that the Company's business, as
currently operated, commenced in February 1999, we have a limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company has never made a profit in any fiscal quarter. Our prospects for
financial success must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new, unproven and rapidly
evolving markets, such as the Internet market. To address these risks, the
Company must, among other things, expand its customer base, respond effectively
to competitive developments, continue to attract, retain and motivate qualified
employees and continue to upgrade its technologies. There can be no assurance
that the Company will be successful in addressing such risks. If the Company is
not successful in further developing and expanding its music, video and
interactive entertainment business, including sales of advertising on its Web
sites and development of related business opportunities, its ability to achieve
profitability may not be realized.
MAINTENANCE OF STRATEGIC PARTNERSHIPS; SUFFICIENCY OF NETWORK INFRASTRUCTURE.
Although the Company's ability to generate additional revenue from Internet
commerce may depend on increased site traffic, purchases and advertising that
the Company expects to generate through strategic partnerships, there can be no
assurance that its existing relationships will be maintained through their
initial terms or that additional third-party partnerships will be available to
the Company on acceptable commercial terms or at all. The inability to enter
into new, and to maintain any one or more of its existing, strategic
partnerships could result in decreased traffic to our web sites and have a
material adverse effect on the Company's business, results of operations and
financial condition. Even if we can maintain our strategic partnerships, there
can be no assurance that our infrastructure of hardware and software will be
sufficient to handle the potential increased traffic and sales volume from such
partnerships.
NO ASSURANCES ON EXPANSION OF WEB PRESENCE. Although the Company's growth
strategy includes plans for expansion into international markets, there can be
no assurance that the Company will be able to successfully market, sell and
distribute its products in international markets due to a variety of legal,
contractual and practical considerations. In addition, there are risks inherent
in doing business on a global level, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, difficulties in
protecting intellectual property rights, longer payment cycles, problems in
collecting accounts receivable, political instability, fluctuations in currency
exchange rates and potentially adverse tax consequences which could adversely
impact the Company's prospects for successful international operations. If such
factors have a material adverse impact on the Company's ability to develop
international operations, its business, results of operations and financial
condition may likewise be adversely affected.
NO ASSURANCES ON ACQUISITION OF OTHER EXISTING WEB SITES. The Company's growth
and future profitability may depend in part upon its ability to identify
companies that are suitable acquisition candidates, to acquire those companies
upon appropriate terms and to effectively integrate and expand their operations
within its own infrastructure. There can be no assurance that the Company will
be able to identify additional candidates that it deems suitable for acquisition
or that the Company will be able to consummate desired acquisitions on favorable
terms. Acquisitions involve a number of special risks, including the diversion
of management's attention to the assimilation of the operations and personnel of
the acquired companies, adverse short-term effects on the Company's operating
results and the potential inability to integrate financial and management
reporting systems. A significant portion of the Company's capital resources
could be used for these acquisitions. Accordingly, the Company may require
additional debt or equity financing for future acquisitions, which may not be
available on terms favorable to the Company, if at all. Moreover, the Company
may not be able to successfully integrate an acquired business into the
Company's business or to operate an acquired business profitably. There can be
no assurance that the Company will be able to integrate and expand the
operations of acquired companies, without excessive costs, delays or other
adverse developments.
RAPIDLY CHANGING TECHNOLOGY. To remain competitive, the Company must continue to
enhance and improve the responsiveness, functionality and features of its
websites and develop new features to meet customer needs. The Internet is
characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions and
the emergence of new industry standards and practices that could render the
Company's existing Web network and sites, technology and systems obsolete. The
Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing products and services,
develop new products, services and technology that address the needs of its
customers, and
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respond to technological advances and emerging industry standards and practices
on a cost-effective and timely basis. If the Company is unable to use new
technologies effectively or adapt its Web sites, proprietary technology and
transaction-processing systems to customer requirements or emerging industry
standards, it would be materially adversely affected by the resulting decrease
in traffic and revenues.
TRADEMARKS AND PROPRIETARY RIGHTS; UNLICENSED ARRANGEMENTS. The Company regards
its trademarks, trade secrets and similar intellectual property as valuable to
its business, and relies on trademark and copyright law, trade secret protection
and confidentiality and/or license agreements with its employees, partners and
others to protect its proprietary rights. There can be no assurance that the
steps taken by the Company will be adequate to prevent misappropriation or
infringement of its proprietary property.
The Company does not have any of its trademarks or service marks registered with
the United States Patent and Trademark Office. While the Company is currently
applying for registration of a number of its trademarks, there are no assurances
that we will successfully prosecute our applications for these trademarks. See
"BUSINESS--Domain Names, Patents, and Trademarks."
WE DEPEND ON KEY MEMBERS OF OUR MANAGEMENT TEAM. We depend on the continued
service of our executive officers and key technical and marketing personnel,
including, in particular, Brad D. Greenspan, our Chairman, and Leland N.
Silvas, our President and Chief Executive Officer, Charles Beilman, our Chief
Operating Officer, William R. Wagner, our Chief Financial Officer, James
Haiduck, our Vice President of Sales, Stephen D. Sellers, our Vice President
of Business Affairs and Business Development and John V. Hanke, our Vice
President of Marketing and Site Integration. The Company has employment
agreements with Messrs. Silvas, Beilman, Wagner, Haiduck, Sellers and Hanke.
However, such employment agreements do not assure the services of such
employees. Despite employment agreements and non-competition arrangements with
these members of management, the Company's employees may voluntarily terminate
their employment with the Company at any time. The Company's success also
depends on its ability to attract and retain additional qualified employees.
Competition for qualified personnel is intense and there are a limited number
of persons with knowledge of and experience in commercial application of the
Internet and retail sales of music and entertainment related products. There
can be no assurance that the Company will be able to attract and retain highly
qualified personnel to fill critical managerial and operational positions.
The loss of one or more key employees could have a material adverse effect on
the Company.
FLUCTUATIONS IN FUTURE QUARTERLY AND LONG-TERM OPERATING RESULTS. The Company
expects to experience fluctuations in future quarterly and long-term operating
results that may be caused by a variety of factors, many of which are outside
the Company's control. Factors that may affect the Company's quarterly operating
results include, without limitation,
- - the Company's ability to retain existing customers, attract new customers
at a steady rate and maintain customer satisfaction,
- - the announcement or introduction of new or enhanced web sites, products and
strategic partnerships by the Company and its competitors,
- - the mix of products sold by the Company,
- - seasonality of the recorded music industry (namely, the fact that sales of
recorded music traditionally peak during the Christmas season),
- - seasonality of advertising sales,
- - Company promotions and sales programs,
- - price competition or higher recorded music prices in the industry,
- - the level of use of the Internet and increasing consumer acceptance of the
Internet for the purchase of consumer products such as those offered by the
Company,
- - the Company's ability to upgrade and develop its systems and infrastructure
in a timely and effective manner,
- - the amount and timing of operating costs and capital expenditures relating
to expansion of the Company's business, operations and infrastructure and
the implementation of marketing programs, key agreements and strategic
partnerships, and general economic conditions and economic conditions
specific to the Internet, on-line commerce, and the recorded music and
prerecorded videocassette industries.
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ORDER FULFILLMENT AND SOURCE OF SUPPLY. The Company currently accepts orders
only over the Internet. Product orders received by CD Universe are accepted,
verified, batched and electronically sent on a daily basis to Valley Media,
Inc., of Woodland Hills, California ("Valley Media"), the Company's primary
supplier. Shipments from Valley Media and other suppliers are received at the
Company's fulfillment center in Wallingford, Connecticut. Employees break down
bulk shipments into the individual orders to be sent to customers. This
arrangement allows the Company to offer customers a wide variety of CD and video
titles while maintaining virtually no inventory. It also reduces product returns
by allowing the Company to only order products for which it has received orders.
The Company typically fills over 80% of its orders by the next business day, and
approximately 90% of its orders within one week. The Company believes that the
speed of order fulfillment is an important factor to its customers, and
accordingly has a significant impact on its ability to increase revenues from
retail sales.
At the present time, Valley Media supplies approximately 90% of the music and
video products and accessories sold by CD Universe. There can be no assurance
that the Company will maintain that relationship or that it will be able to find
an alternative supplier which will provide products and services on terms
satisfactory to the Company should its relationship with Valley Media terminate.
Therefore, an unanticipated termination of the Company's relationship with
Valley Media, particularly during the fourth quarter of the calendar year in
which a high percentage of recorded music and video product sales is made, could
materially adversely affect the Company's results of operations for the quarter
in which such termination occurred even if the Company was able to establish a
relationship with an alternative supplier. To date, Valley Media has satisfied
the Company's requirements on a timely basis. However, to the extent that Valley
Media is unable to continue to satisfy the Company's increasing product
requirements, such constraints may result in decreased revenue and have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTENSE COMPETITION. The online commerce market is new, rapidly evolving and
intensely competitive, and the Company expects that competition will further
intensify in the future. Barriers to entry are minimal, and current and new
competitors can launch new sites at a relatively low cost. With respect to
recorded music sales, the Company currently competes with numerous Internet
retailers, including music retail chains, record labels, independent retailers
with Web sites on the Internet and online stores retailing music and video
titles such as CDnow and Amazon.com. In addition, the Company competes with
traditional music retailers, as well as megastores, mass merchandisers, consumer
electronics stores and music clubs.
The primary competitive factors in providing music, video and other
entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support and technical expertise. The Company's
prospects for achieving its business objectives will depend heavily upon its
ability to provide high quality, entertaining content, along with user-friendly
Web site features and value-added Internet services. Other factors that will
affect the Company's prospects for success include its ability to attract
experienced and qualified personnel, particularly in the areas of management,
sales and marketing, and Web site design. If the Company is unable to compete
successfully in its retailing businesses, there will be a material adverse
impact on its business, results of operations and financial condition due to
decreased revenue. In addition, the competition for advertising revenues, both
on Internet web sites and in more traditional media, is intense. If the Company
fails to attract and retain significant sources of revenue from paid
advertisements and sponsorships on its web sites, the Company's business,
results of operations and financial condition will be materially adversely
affected by such decreased revenue.
Many of the Company's current and potential competitors in the area of
online music, video and other entertainment retailing, such as CDNow.com and
Amazon.com, have longer operating histories, significantly greater financial,
technical and marketing resources, greater name recognition and larger existing
customer bases than the Company. These competitors may be able to respond more
quickly than the Company to new or emerging technologies and changes in the
economy or the marketplace affecting the products and services that the Company
offers. In addition, some of the Company's competitors can be expected to devote
greater resources, both human and financial, to the development, promotion and
sale of music, video and other entertainment products and services. Accordingly,
there can be no assurance that the Company will be able to compete successfully
and achieve its objectives with respect to growth in revenue and profit.
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
The Year 2000 issue (Y2K) is the result of computer programs written using
two digits rather than four to define the applicable year. Any of the Company's
computer and telecommunications programs that have date sensitive software may
recognize a date using "00" as the year 1900 instead of 2000. This could result
in system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities. The Company is in the process of determining
whether its systems are Y2K compliant.
eUniverse is currently conducting an analysis to determine the extent to
which others have Year 2000 issues. This review includes examining the systems
of vendors to the Company's subsidiaries. By way of example, CD Universe's major
suppliers' systems include the systems of credit card processors,
telecommunications providers, product distributors and companies with whom CD
Universe has marketing agreements. CD Universe's primary distributor for music
products, Valley Media, has indicated that it has begun its remediation efforts
and expects to be in compliance before the Year 2000. CD Universe is currently
unable to predict the extent to which the Year 2000 issue will affect Valley's
suppliers, to the extent to which Valley would be vulnerable to its suppliers'
failure to resolve any Year 2000
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issues on a timely basis. The failure of a major supplier subject to the Year
2000 issue to convert its systems on a timely basis or a conversion that is
incompatible with CD Universe's systems could have a material adverse effect on
CD Universe to the extent that its customers are unable to receive the purchased
products. In addition, most of the purchases from CD Universe's online store are
made with credit cards, and our operations may be materially adversely affected
to the extent customers are unable to use their credit cards due to Year 2000
issues that are not rectified by their credit card providers. See
"BUSINESS--YEAR 2000 READINESS DISCLOSURE."
eUniverse intends to actively work with and encourage its suppliers to
minimize the risks of business disruptions resulting from Year 2000 issues and
develop contingency plans where necessary. Such plans may include using
alternative suppliers and establishing contingent supply arrangements.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET. Our
market, users of the global computer network known as the Internet, is new and
rapidly evolving. Our business could suffer if Internet usage does not continue
to grow. Internet usage may be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Internet.
If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our network of
Web sites and would therefore harm our business.
WE COULD BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET. Due to the fact
that material may be downloaded from web sites and may be subsequently
distributed to others, there is a potential that claims will be made against the
Company pursuant to such legal theories as defamation, negligence, copyright or
trademark infringement or other theories based on the nature and content of such
material. Such claims have been brought, and sometimes successfully pressed,
against on-line services in the past. In addition, we could be exposed to
liability with respect to the material that may be accessible through our
products and web sites, including claims asserting that, by providing hypertext
links to web sites operated by third parties, we are liable for wrongful actions
by those third parties through such web sites. Although the Company carries
general liability insurance, such insurance may not cover potential claims of
this type, or the level of coverage may not be adequate to fully protect the
Company against all liability that may be imposed. Any costs or imposition of
liability or legal defense expenses that are not covered by insurance or in
excess of insurance coverage could reduce our working capital and have a
material adverse effect on the Company's business, results of operations and
financial condition. Also, the legal effectiveness of our terms and conditions
of use is uncertain. We currently are not aware of any claims that can be
expected to have a material adverse impact on our financial condition or our
ability to conduct our business.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND
RISKS TO DOING BUSINESS ON THE INTERNET. There are currently few laws or
regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing, taxation and the characteristics
and quality of products and services. For example, the Communications Decency
Act of 1996 prohibits obscene and other unlawful information and content from
being transmitted over the Internet. Several other nations have taken actions to
restrict the free flow of material deemed to be objectionable on the Internet.
On October 21, 1998, President Clinton signed the Internet Tax Freedom Act
placing a three year moratorium, beginning October 1, 1998 through October 21,
2001, on Internet access taxes, multiple taxes on electronic commerce, and
discriminatory taxes on electronic commerce. In addition, local telephone
carriers have argued before the Federal Communications Commission ("FCC") that
Internet service providers and online service providers should be required to
pay fees for access to local telephone networks in a manner similar to long
distance telephone carriers. Although the FCC has informally stated that it has
no intention of assessing per-minute charges on Internet traffic or changing the
way consumers obtain and pay for access to the Internet, if the efforts of the
local telephone carriers are successful, costs for Internet access and usage
could increase sharply. Moreover, it may take years to determine the extent to
which existing laws relating to issues such as property ownership, libel,
taxation and personal privacy are applicable to the Internet. Any new laws or
regulations relating to access to or use of the Internet could harm our
business.
REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAMES. We own the Internet
domain names "euniverse.com," "cduniverse.com", "videouniverse.com",
"gamesuniverse.com", "casesladder.com" and "gagames.com" as well as numerous
other domain names in the United States. National and international Internet
regulatory bodies generally regulate the registration of domain names. The
9
<PAGE>
regulation of domain names in the United States and in other countries is
subject to change. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. As a result, we might not acquire or maintain the
"euniverse.com," "cduniverse.com", "videouniverse.com", "gamesuniverse.com",
"casesladder.com", "gagames.com" or comparable domain names in all the countries
in which we conduct business, which could harm our business. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear and still evolving.
Therefore, we might be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our trademarks and other
proprietary rights. If this occurred, our business could suffer.
THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. Rapid
technological developments, evolving industry standards and user demands, and
frequent new product introductions and enhancements characterize the market for
Internet products and services. These market characteristics are exacerbated by
the emerging nature of the market and the fact that many companies are expected
to introduce new Internet products and services in the near future. Our future
success will depend on our ability to continually improve our content offerings
and services. In addition, the widespread adoption of developing multimedia-
enabling technologies could require fundamental and costly changes in our
technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could harm our business.
ONLINE SECURITY RISKS. The Company accepts credit cards, personal checks or
money orders as payment for customer orders. The CD Universe web site enables
customers to store their credit card information in a personal account, thereby
avoiding the need to re-enter this information when making future purchases.
Customers are offered several shipping options, including overnight delivery.
The Company confirms each order by e-mail communication to the customer promptly
after the order is placed, and subsequently confirms shipment of the order by
e-mail. In addition, the CD Universe web site includes a feature which enables
customers to check on the status of their order. Use of the Internet by
consumers is at an early stage of development, and market acceptance of the
Internet as a medium for commerce is still by no means certain. The Company's
future success will depend on its ability to significantly increase revenues,
which will require the development and widespread acceptance of the Internet as
a medium for commerce, particularly as a channel of retail distribution. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as reliable network
backbones, or complementary services, such as high-speed modems and security
procedures for financial transactions. The viability of the Internet may prove
uncertain due to delays in the development and adoption of new standards and
protocols to handle increased levels of Internet activity or due to increased
government regulation. If use of the Internet for the purposes envisioned by the
Company does not continue to grow, or if the necessary Internet infrastructure
is not further developed and maintained, the Company's business, results of
operations and financial condition could be materially adversely affected due to
decrease or loss of traffic.
Despite the Company's implementation of network security measures, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by individuals with a variety of objectives. Consumer
concern over Internet security has been, and could continue to be, an impediment
to the expansion of commercial activities that require consumers to transmit
their credit card information and other personal information over the Internet.
In addition, computer viruses, break-ins or other security problems could lead
to misappropriation of proprietary information and interruptions, delays or
cessation in service to the Company's customers. Until more comprehensive and
reliable security technologies are developed and implemented, the security and
privacy concerns of existing and potential customers may inhibit the growth of
the Internet as a merchandising medium.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE. Our Common Stock is currently traded on the
OTC Bulletin Board. We cannot predict the extent to which investor interest in
our Company will develop in the trading market or how liquid any trading market
might become. The stock market has experienced extreme price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Such litigation could result in substantial costs and a diversion of
our management's attention and resources.
OUR STOCK OWNERSHIP WILL BE CONCENTRATED IN A SMALL NUMBER OF PEOPLE. As of
September 8, 1999, the present directors, executive officers, greater than 5%
shareholders and their affiliates beneficially owned approximately 66% of our
outstanding Common Stock. As of September 8, 1999, Brad D. Greenspan
beneficially owned approximately 45% of our outstanding Common Stock. As a
result of his beneficial ownership, Mr. Greenspan, acting alone or with others,
will be able to control all matters requiring stockholder approval, including
the election of directors and approval of significant transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. See "PRINCIPAL SHAREHOLDERS."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD IMPACT OUR STOCK
PRICE. As of August 31, 1999, approximately 13,806,000 shares of our Common
Stock are restricted shares that may be sold only in the event that such shares
are registered, or exempted from registration, under the Securities Act.
Although a large number of our Common Stock is restricted, these shares may be
available for resale in the near future under Rule 144 or the filing of a
registration statement. See "SHARES ELIGIBLE FOR FUTURE SALE."
10
<PAGE>
HOLDERS OF COMMON STOCK WILL INCUR SUBSTANTIAL DILUTION. We currently have
outstanding 1,795,024 shares of Preferred Stock with a liquidation preference
of $3.60 per share, which increases at a rate of 6% per annum. Each share of
Preferred Stock may be converted to Common Stock at an initial rate of one
share of Common Stock for each $3.60 of liquidation preference. If the Common
Stock's market price at the time of conversion is less than $3.60 per share,
the conversion rate is determined by reference to such lower price. Because of
the variable conversion rate and the 6% accretion factor, the Preferred Stock
may be converted into more than, and potentially substantially more than,
1,795,024 shares of Common Stock. Accordingly, conversion of the Preferred
Stock will have a dilutive effect on holders of Common Stock. See "DESCRIPTION
OF SECURITIES -- PREFERRED STOCK".
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES AND ADDRESS, AMONG OTHER THINGS, THE COMPANY'S BUSINESS STRATEGY,
PROJECTED CAPITAL EXPENDITURES, LIQUIDITY, POSSIBLE BUSINESS RELATIONSHIPS, AND
POSSIBLE EFFECTS OF CHANGES IN GOVERNMENT REGULATION. THESE STATEMENTS MAY BE
FOUND UNDER "SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS" AS WELL AS
IN THE PROSPECTUS GENERALLY. THESE STATEMENTS RELATE TO OUR FUTURE PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS MAY BE IDENTIFIED BY
THE USE OF WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS," "PLANS," AND
SIMILAR EXPRESSIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE FACTORS DISCUSSED ABOVE AND SET FORTH IN THIS PROSPECTUS
GENERALLY.
USE OF PROCEEDS
The Company will not receive any portion of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders under this Prospectus.
DIVIDEND POLICY
We have not in the past paid any dividends on our equity securities and
anticipate that we will retain any future earnings for use in the expansion and
operation of our business. We do not anticipate paying any cash dividends in the
foreseeable future. Any determination to pay dividends in the future will be at
the discretion of our Board of Directors and will depend upon our financial
condition, results of operations, working capital requirements and other factors
the Board of Directors deems relevant.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements appearing elsewhere in this Prospectus.
The following selected financial data are derived from the audited financial
statements of CD Universe presented as of March 31, 1999 and 1998 and the
Company's unaudited financial information presented as of June 30, 1999. The
Company completed the acquisitions of Entertainment Universe, Inc., Case's
Ladder, Inc., CD Universe, Inc. Gamer's Alliance, Inc. and The Big Network, Inc.
subsequent to March 31, 1999. The effect of these mergers have been accounted
for using purchase method accounting during the period ended June 30, 1999. In
our opinion, these unaudited financial statements have been prepared on the same
basis as our audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our results of operations and financial position for these
periods. The historical results are not necessarily indicative of results to be
expected for any future period.
11
<PAGE>
eUNIVERSE, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Year Ended
------------------ ----------
June 30, June 30, March 31, March 31,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUE ........................................ $ 2,034,955 $ 2,118,186 $ 8,851,713 $ 5,685,211
COST OF GOODS SOLD ............................. 1,659,558 1,802,615 7,550,289 4,898,302
----------- ----------- ----------- -----------
GROSS PROFIT ................................... 375,397 315,571 1,301,424 786,909
OPERATING EXPENSES:
Marketing and sales .......................... 444,206 244,605 1,182,529 623,382
Product development .......................... 168,018 92,066 332,534 147,973
General and administrative ................... 630,149 49,851 189,930 110,965
Merger and acquisition related ............... 62,241 -- -- --
Amortization of goodwill and
other intangibles .......................... 307,641 292 1,170 1,170
Stock-based compensation ..................... 237,500 -- -- --
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES ....................... 1,849,755 386,814 1,706,163 883,490
----------- ----------- ----------- -----------
OPERATING LOSS ....................... 1,474,358 (71,243) (404,739) (96,581)
----------- ----------- ----------- -----------
NONOPERATING INCOME (EXPENSE)
Interest and dividend income ................. 7,049 108 -- --
Interest expense ............................. (85,801) -- (2,424) --
Other ........................................ -- -- -- (16,231)
Income taxes ................................. -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS)..................... $ (1,553,110) $ (71,135) $ (407,163) $ (112,812)
----------- ----------- ----------- -----------
Basic income (loss) per common share............ $(0.13) N/A N/A N/A
----------- ----------- ----------- -----------
Basic weighted average common shares
outstanding................................... 12,221,900 N/A N/A N/A
----------- ----------- ----------- -----------
</TABLE>
eUNIVERSE, INC.
Balance Sheet Data
<TABLE>
<CAPTION>
June 30, March 31, March 31,
1999 1999 1998
------------ ------------ ------------
Unaudited
<S> <C> <C> <C>
Cash and cash equivalents......... $ 4,194,109 $ 11,335 $ 267,214
Working capital (deficit)......... 3,550,515 (783,204) (309,864)
Total assets...................... 22,882,213 558,346 533,164
Total shareholders' equity........ 21,775,155 (518,976) (111,812)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the accompanying notes which appear elsewhere in this Prospectus.
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 Prospectus, particularly in "Risk Factors."
12
<PAGE>
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1999 VS. 1998
Net Sales
Net sales include the selling price of music, video, games and other products
sold by the Company, net of returns, as well as outbound shipping and handling
charges. Net sales also include membership revenues and advertising revenues.
For the quarter ended June 30, 1999, revenues declined slightly by 4% as a
result of increased competition in the online music retailing markets and a
shutdown in one of the company's larger partners whose customers had previously
contributed approximately 5% of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Net sales............ $2,035 $2,118 (4)%
</TABLE>
Gross Profit
Gross profit is calculated as net sales less the cost of sales, which
consists of the cost of merchandise sold to customers and inbound and outbound
shipping costs. For the quarter ended June 30, 1999, gross profit increased as a
percentage of net sales and in absolute dollars over the same periods in 1998,
reflecting a change in the mix of revenues. Gross margin percentages increased
over the prior period as the company took measures to increase pricing on
standard catalog items to be closer to competitors' prices and as a result of
lower shipping costs.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1999 1998 % CHANGE
----- ---- --------
(in Thousands)
<S> <C> <C> <C>
Gross Profit............ $ 375 $ 316 19%
Gross Margin............ 18.4% 14.9%
</TABLE>
The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. However, the Company over time will reflect the full period effect
of its acquisitions of Case's Ladder and Gamer's Alliance that benefit from
higher margins on their sales of advertising.
Sales and Marketing
Marketing and sales expenses consist primarily of fulfillment costs,
advertising, public relations and promotional expenditures, and all related
payroll and related expenses for personnel engaged in marketing, selling and
fulfillment activities. Fulfillment costs include the cost of operating and
staffing the distribution and customer service center.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
---------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Sales and Marketing..... $ 444 $ 245 81%
Percentage of sales..... 21.8% 11.5%
</TABLE>
Marketing and sales expenses increased during the quarter ended June 30,
1999 due to several factors including increases in the Company's advertising and
promotional expenditures, increases in payroll and related costs associated with
fulfilling customer demand, costs associated with Case's Ladder, and increases
in credit card merchant fees. The Company intends to increase its branding and
marketing campaigns. Increases in sales will drive increases in fulfillment
costs. As a result, the Company continues to expect marketing and sales expenses
to increase significantly in absolute dollars.
13
<PAGE>
Product Development
Product development expenses consist of payroll and related expenses for
developing and maintaining the Company's websites and supporting technology.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
---------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Product development expense... $ 168 $ 92 83%
Percentage of sales........... 8.2% 4.3%
</TABLE>
Product development costs increased as a result of increased payroll and
related expense from personnel additions required to begin the integration of
the Company's websites and redesign of the websites. The addition of Case's
Ladder expenses for June 1999 also contributed to the increase.
General and Administrative
General and administrative ("G&A") expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
-------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
General and administrative..... $ 630 $ 50
Percentage of sales............ 31.1% 2.4%
</TABLE>
Increases in G&A costs are largely attributable to increased payroll-
related and infrastructure costs associated with the Company's expansion
efforts, legal and other professional fees, and recruiting costs. The company
expects G&A costs to continue to increase commensurate with its expansion plans.
Merger, Acquisition and Investment Related Costs, Including Amortization of
Intangibles and Equity in Losses of Affiliates
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
---------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
Merger, acquisition and investment
related costs including amortization of
intangibles and equity in losses of
affiliates........................ $ 370 $ 0
</TABLE>
Merger, acquisition and investment related costs ("M&A Costs") consist of
amortization of goodwill and other purchased intangibles, equity in the losses
of affiliates, and certain merger, acquisition and investment related charges.
The Company expects M&A Costs to increase in the third quarter of 1999, because
the Company will record a full quarter of amortization expense and equity in
losses of affiliates relating to the acquisitions and investments made during
the second quarter. It is likely that the Company will continue to expand its
business through acquisitions and investments, which would cause M&A Costs to
increase.
14
<PAGE>
Stock-Based Compensation
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
----------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
Stock-based compensation $ 238 $ -
</TABLE>
Stock-based compensation is comprised of the portion of acquisition related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense under generally accepted accounting
principles.
Interest Income and Expense
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
Interest income......... $ 7 $ -
Interest expense........ (86) (-)
</TABLE>
Interest income on cash increased due to higher balances resulting from the
Company's financing activities, principally the April 1999 issuance of $6.5
million aggregate principal amount of 6% Convertible Preferred Stock ("Preferred
Stock"). Interest expense for the quarter ended June 30, 1999 includes accretion
of 6% per annum on the Preferred Stock.
Income Taxes
The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the Company's
net operating loss carryforwards, which begin to expire in 2014, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended. Due to uncertainties regarding realizability of the deferred tax
assets, the Company has provided a valuation allowance on the deferred tax asset
in an amount necessary to reduce the net deferred tax asset to zero.
Net Loss
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
-------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
Net (Loss).......... $(1,553) $(71)
</TABLE>
Net loss for the quarter increased by almost $1,500,000 to $(1,553,000) as a
result of increased expenses related to acquisitions and for increased salary
related expenses in establishing an organization for the Company.
15
<PAGE>
RESULTS OF OPERATIONS - YEAR ENDED MARCH 31, 1999 VS. 1998
Net Sales
Net sales include the selling price of music, video, games and other products
sold by the Company, net of returns, as well as outbound shipping and handling
charges. Net sales also include membership revenues and advertising revenues.
For the year ended March 31, 1999, revenues increased by 56% as a result of
increased purchases of music online and through the Company's increased
marketing with its marketing partners and favorable reviews by third parties.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Net sales............... $8,852 $5,685 56%
</TABLE>
At March 31, 1999 the Company's cumulative customer accounts reached 266
thousand, compared with 128 thousand at March 31, 1998.
Gross Profit
Gross profit is calculated as net sales less the cost of sales, which
consists of the cost of merchandise sold to customers and inbound and outbound
shipping costs. For the year ended March 31, 1999, gross profit increased as a
percentage of net sales and in absolute dollars over the same periods in 1998,
reflecting a change in the mix of revenues. Gross margin percentages increased
over the prior period as the company took measures to increase pricing on
standard catalog items to be closer to competitors' prices and as a result of
lower shipping costs.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Gross Profit............ $1,301 $ 787 65%
Gross Margin............ 14.7% 13.8%
</TABLE>
The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. However, the Company over time will reflect the full period effect
of its acquisitions of Case's Ladder and Gamer's Alliance that benefit from
higher margins on their sales of advertising.
Sales and Marketing
Marketing and sales expenses consist primarily of fulfillment costs,
advertising, public relations and promotional expenditures, and all related
payroll and related expenses for personnel engaged in marketing, selling and
fulfillment activities. Fulfillment costs include the cost of operating and
staffing the distribution and customer service center.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Sales and Marketing..... $1,183 $ 623 90%
Percentage of sales..... 13.3% 10.9%
</TABLE>
Marketing and sales expenses increased during the year ended March 31, 1999
due to several factors including increases in the Company's advertising and
promotional expenditures, increases in payroll and related costs associated with
fulfilling customer demand, costs associated with new product offerings, and
increases in credit card merchant fees resulting from higher sales. The Company
intends to increase its branding and marketing campaigns. Increases in sales
will drive increases in fulfillment costs. As a result, the Company continues to
expect marketing and sales expenses to increase significantly in absolute
dollars.
16
<PAGE>
Product Development
Product development expenses consist of payroll and related expenses for
developing and maintaining the Company's websites and supporting technology.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
Product development expense...... $ 333 $ 148 125%
Percentage of sales.............. 3.8% 2.6%
</TABLE>
General and Administrative
General and administrative ("G&A") expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------
1999 1998 % CHANGE
---- ---- --------
(in Thousands)
<S> <C> <C> <C>
General and administrative....... $ 190 $ 111 71%
Percentage of sales.............. 2.1% 2.0%
</TABLE>
Increases in G&A costs are largely attributable to increased payroll-
related and infrastructure costs associated with the Company's expansion
efforts, legal and other professional fees, and recruiting costs. The company
expects G&A costs to continue to increase commensurate with its expansion plans.
Income Taxes
The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the Company's
net operating loss carryforwards, which begin to expire in 2011, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended. Due to uncertainties regarding realizability of the deferred tax
assets, the Company has provided a valuation allowance on the deferred tax asset
in an amount necessary to reduce the net deferred tax asset to zero.
Net Loss
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------
1999 1998
---- ----
(in Thousands)
<S> <C> <C>
Net (Loss)....................... $(407) $(113)
</TABLE>
Net loss for the year increased by approximately $300,000 to $(407,000) as a
result of increased salary related expenses in marketing and increased marketing
and promotional activities that more than offset the increased margin from
higher sales.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 the Company's principal sources of liquidity consisted of
$4.0 million of cash compared to $11,000 of cash at March 31, 1999.
Net cash used in operating activities was $1.05 million and $109,000 for the
three-month periods ended June 30, 1999 and 1998, respectively. Net operating
cash flows were primarily attributable to quarterly net losses, decreases in
accounts payable and in increases in
17
<PAGE>
prepaid expenses and other, partially offset by non-cash charges for
depreciation and amortization and merger and acquisition related costs.
Net cash used in investing activities was $2.1 million and $17,400 for the
three-month periods ended June 30, 1999 and 1998, respectively, and consisted of
purchases of fixed assets, and cash paid for acquisitions and cash payments and
receipts to and from officers and employees. At June 30, 1999, amounts
outstanding from employees relate to agreements made in conjunction with the
acquisitions of Case's Ladder and Gamer's Alliance. Cash available for
investment purposes increased substantially in 1999 as a result of the issuance
of the Preferred Stock.
Net cash provided by financing activities of $7.3 million for the three-
month period ended June 30, 1999 resulted from proceeds relating to the issuance
of the Preferred Stock, net of financing costs, and proceeds from issuance of
capital stock.
As of June 30, 1999, the Company's principal commitments consisted of
obligations outstanding under its Preferred Stock which has an accretion rate of
6% per annum, obligations in connection with the acquisition of fixed assets and
leases, and commitments for advertising and promotional arrangements. Failure to
achieve favorable financing for asset acquisitions could negatively impact the
Company's cash flows. Geographic expansion and continued acquisitions and
investments will also require future capital expenditures.
The Company believes that current cash balances will be sufficient to meet
its anticipated cash needs for at least the next 6 months. However, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. If current cash that may be generated from operations are
insufficient to satisfy the Company's liquidity requirements, the Company may
seek to sell additional equity or to obtain a line of credit. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. In addition, the company will, from time
to time, consider the acquisition of or investment in complementary businesses,
products, services and technologies, which might impact the Company's liquidity
requirements or cause the Company to issue additional equity. There can be no
assurance that financing will be available in amounts or on terms acceptable to
the Company, if at all.
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Entertainment Universe, Inc. ("EUI") was founded in February 1999 by Brad D.
Greenspan for the purpose of developing and acquiring entertainment-related
Internet businesses. Motorcycle Centers of America, Inc. ("MCA"), was a Nevada
corporation with no significant operations or revenue since 1995, whose shares
were publicly traded on the OTC Bulletin Board. In March 1999, EUI and MCA
entered into a letter of intent to undertake a stock exchange (the
"Reorganization") pursuant to which the holders of EUI common stock would
exchange their EUI shares for shares of MCA common stock on a one-to-one basis.
On April 14, 1999, the Reorganization was completed. As a result of the
Reorganization, EUI shareholders owned 92% of MCA shares of common stock and
EUI became a wholly owned subsidiary of MCA.
Also on April 14, 1999 but immediately prior to the closing of the
Reorganization, EUI sold 1,795,024 shares of Series A Convertible Preferred
Stock in a private offering under Regulation D of the Securities Act of 1933
(the "Securities Act") (See "Item 10, Recent Sales of Unregistered Securities"),
raising $6,462,086, before offering costs were deducted. In connection with the
Reorganization, the holders of the EUI Series A Convertible Preferred Stock
exchanged their shares, on a one-to-one basis, for shares of MCA convertible
preferred stock which have equivalent rights and preferences.
EUI used $1,915,000 of the Preferred Stock offering proceeds (plus 2,425,000
shares of common stock) to acquire CD Universe, Inc. ("CD Universe"). CD
Universe is a Connecticut corporation engaged in the business of selling audio
CDs and videotapes over the Internet. Concurrently with the closing of the
Reorganization, EUI distributed its asset, the capital stock of CD Universe,
Inc., to its sole shareholder, MCA. MCA, the parent entity following the
Reorganization, changed its name to eUniverse, Inc.
As neither MCA nor EUI had any significant operations prior to the
acquisition of CD Universe, CD Universe is considered to be the predecessor
entity and its historical financial statements have been included in this
registration statement.
The following chart summarizes our current corporate organizational
structure:
----------------------------
eUniverse, Inc.
----------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Entertainment CD Universe, Inc. Case's Ladder, Inc. Gamer's Alliance, Inc. The Big Network, Inc.
Universe, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
18
<PAGE>
DESCRIPTION OF THE BUSINESS
The Company is building a network of entertainment-related sites with broad
consumer appeal. These sites provide the Company with a variety of merchandising
opportunities and can be cross-promoted to increase the overall audience for the
Company's properties. The Company is leveraging the Web traffic across its sites
to generate incremental e-commerce and advertising revenue. Additionally, the
Company plans to build an affiliate network of third-party entertainment and
retail Web sites which would license the LivePlace community-building software
that the Company is in the process of acquiring. The Company believes that its
plans to superimpose LivePlace on these affiliate sites will generate additional
traffic and e-commerce sales for the Company's network.
The Company's network of sites is primarily targeted to Generation X and
Generation Y consumers. Generation X consists of 45 million computer literate
consumers between the ages of 21 and 35 with $125 billion in purchasing power.
Generation Y consists of approximately 60 million consumers between the ages of
10 and 24 who are the first generation to grow up using the Internet as a
primary medium for information, entertainment, communication and shopping.
Generation Y is growing 19.5% faster than the overall U.S. population and
accounts for more than $250 billion of annual disposable income. Jupiter
Communications projects that e-commerce sales to Generation Y consumers will
grow from $600 million in 1998 to $3.8 billion in 2002.
The Company's current emphasis is on acquiring businesses in the field of
entertainment, primarily games (including board, card, computer, arcade and
console video games), music and movies, with the following key characteristics
such as: (1) strategic content, management or technology, (2) product offerings
compatible with the Generation X and Y demographics of the Company's sites and
(3) the ability to leverage the Company's strategic advantages such as order
fulfillment, hardware capacity and general overhead. The Company's strategy is
based on the acquisition and/or development of web-based businesses in several
sectors of the entertainment industry, and utilizing their synergies to generate
cross traffic and increased revenues. This strategy includes the integration of
a worldwide distribution of web-based entertainment programming. The Company is
presently exploring expansion into Internet-based entertainment in a form that
is similar to television and radio programming. Its long-term strategic plans
are intended to take advantage of a world-wide distribution network comprised of
the installed base of personal computers and televisions, making use of existing
and emerging technologies to deliver this targeted programming.
At the present time, the Company is engaged in the retail sale of music and
video products and accessories, including audio CDs, videotapes and DVDs via the
Internet; and the maintenance and operation of interactive games sites. We have
been in the music and video sales business since April 1997, and the interactive
games business since early 1998. The Company has never made a profit in any
fiscal quarter.
Music
The Company's CD Universe online store (www.cduniverse.com) currently offers
customers a selection of over 240,000 individual CD titles as well as
proprietary content and features. The CD Universe Web site currently has over
290,000 registered users, attracts almost 1,000,000 unique visitors and
processes over 20,000 orders each month. With acclaimed customer service, CD
Universe's online music store has gained recognition in publications such as The
New York Times, USA Today, Billboard and PC World, and has been named the best
online music store by several electronic commerce ranking services. A recent
consumer survey released by BizRate, an independent commerce ranking service,
rated CD Universe as the number one CD store on the Internet. Furthermore,
Briefing.com, a leading provider of live market commentary on the Internet,
voted CD Universe as the best music retailer on the Internet.
The CD Universe online store is designed to be informative, and to allow
customers to discover, learn about and purchase CDs, videos and other music and
video-related products. The store is designed to be intuitive and easy to use
and to enable customers to complete the ordering process with a minimum amount
of effort. Customers enter the CD Universe store through its Web site,
cduniverse.com, and in addition to ordering music and video products, can
conduct searches, browse among top sellers and other featured titles, read
reviews, listen to music samples, register for a personalized newsletter,
participate in promotions and check order status.
The CD Universe web site provides a search engine that enables customers to
navigate the store to find CDs or other products of interest. Customers can
search for CDs based on artist, album title, song title, record label or musical
genre. Upon clicking on an album title, the site visitor is provided with
information about the artist and the specific album, a list of tracks on the
album, sound samples and a list of reviews.
The Company believes that effective use of content encourages purchases by
customers who may be browsing the site without a specific title in mind. The CD
Universe web site provides sound samples, information about specific artists,
albums and types of music, ratings, articles on music topics and other
information. To help customers browse and discover CDs, the web site has eight
music spaces organized by genre. These include rock, jazz, R & B, classical,
country, Christian, world music and miscellaneous. The main page of each space
features links to more specific genre pages which have a list of new releases as
well as alphabetical listings of the artists and albums available within that
genre. In addition to these regular online store content features, CD Universe's
Web site offers several other features to encourage customers to learn about and
discover CDs that might be of interest to the customer. The web site's CD
University feature
19
<PAGE>
provides links to genre-specific areas where customers are provided with
information about specific musical offerings and biographies of featured
musicians in that genre. CD University currently offers links for classical,
jazz and blues and is in the process of adding more musical genres to this area.
In addition, the CD Universe web site has a feature called RockOnTV, provided by
RockOnTV.com, where customers can read a listing of music and musician-related
programs available on TV during that week.
Once a CD has been selected, customers are prompted to click on the price to
add products to their virtual shopping carts. Customers can add and remove
products from their shopping carts as they browse, prior to finalizing their
purchase. The shopping cart page displays each item that has been placed in the
cart, including title, price and availability. To execute orders, customers can
choose from a secure or standard purchasing mode depending on the capabilities
of the customer's Web browser. After choosing a purchasing mode, the customer is
prompted to enter his or her name and password or to create an account on CD
Universe's Web site that can be used to make repeat purchases.
The Company plans to enhance its position as a premier online music
destination by providing digital music distribution and proprietary content on
its CD Universe site. Using the Internet as a distribution medium in conjunction
with audio compression and delivery technologies, the Company plans to enable a
growing number of artists to distribute and to promote their music broadly and
to enable customers to conveniently access an expanding music catalog. In recent
years, with the proliferation of multimedia PCs, consumers have increasingly
used their computers to play music. The recent introduction of compression
formats such as MP3 has led to the widespread use of the Internet for the
transmission of music. The Company believes that its established customer base
of over two million registered members gives it a significant competitive
advantage over other companies entering the online distribution market. This
customer base allows the Company to attract artists who are interested in
broadly distributing and promoting their music. The Company currently creates
its own proprietary content for the CD Universe site, including the Big Bang
newsletter, a personalized newsletter for customers, and CD University, a
content-driven area that provides information about specific music genres.
Through a sales partnership with Custom Revolutions, a provider of custom
compilations over the Internet, the Company offers customers the ability to
create their own personalized CDs carrying the CD Universe brand from a
selection of over 175,000 songs.
Filmed Entertainment
The Company's Video Universe online store (www.videouniverse.com) offers
customers a selection of over 40,000 movie titles in videocassette, DVD and
laser disc formats. The Video Universe Web site has recently been expanded to
include DVD titles with the acquisition of the assets of Green Willow
International Corp. ("Green Willow") including MegaDVD.com (www.megadvd.com).
Green Willow, a pioneer in the online retailing of DVDs and accessories, was
founded in June 1997. MegaDVD.com has been featured in publications such as
Billboard magazine, the Hollywood Reporter and Stereo Review. MegaDVD.com has a
loyal customer base of 3,000 registered users. The acquisition of the assets of
Green Willow has provided the Company with additional management resources and
expertise necessary to effectively promote its online video store.
Paul Kagan Associates, Inc., a company specializing in media and
communications financial and business research, has estimated that annual retail
sales of videos and DVDs in the United States will increase from $9.1 billion in
1998 to $12.8 billion in 2002. Domestic retail sales of DVD titles are expected
to grow from $286 million in 1998 to $4.1 billion in 2003. The addition of
MegaDVD.com expands the Company's customer base for video products, strengthened
the Company's management and renewed emphasis on its online video offerings.
The online store operates in conjunction with the CD Universe store and
allows customers the ability to purchase products from either site using a
common shopping cart.
Interactive Entertainment
Through its Games Universe online store (www.gamesuniverse.com) the Company
sells interactive customers a selection of single- and multi-player games and
provides links to the Company's other Web sites, featuring the Web sites of the
Company's subsidiaries that provide other online games. The Company does not
offer and does not intend to offer online gambling or other activities
associated with gambling.
Case's Ladder
Case's Ladder is an online gaming portal which provides competitive rankings
for online gamers and allows gamers to compete against one another in a variety
of tournaments and leagues. Approximately 1.1 million users are registered with
Case's Ladder interactive entertainment communities on the Internet. Case's
Ladder primarily derives revenues from membership fees and advertising.
Approximately 75% of registered users on the Case's Ladder Web site are between
the ages of 18 and 50, with the majority of those visitors having an annual
income over $50,000. In addition, 46% of Case's Ladder's users have purchased
products or services over the Internet. The Company continues to use Case's
Ladder's audience to expand eUniverse's customer base and to diversify its
retail offerings into new business areas such as computer games.
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<PAGE>
Gamer's Alliance
Launched in 1996, Gamer's Alliance is a network of interactive entertainment
community sites on the Internet with over 1.2 million unique monthly visitors,
according to Double Click's July 1999 Report, and 20 impressions per month.
Gamer's Alliance has aggregated a collection of leading sites covering several
platforms, game genres and topics. The Gamer's Alliance Network spans over fifty
(50) sites, including GA-Source, GA-Sports, GA- Strategy, GA-RPG and
Dreamcast.net, owned and operated by the Company. GA-Source is an interactive
game site on the Web that incorporates daily gaming news, interviews, game
previews and product reviews. GA-Sports is a Web-community site focused on PC
sports games. Other Gamer's Alliance properties include:
- -Dreamcast.net, a site dedicated to the Sega Dreamcast console platform.
- -GA-Strategy, a site dedicated to PC strategy games.
- -GA-RPG, a hub site focused on daily RPG gaming news.
The acquisition of Gamer's Alliance provides the Company with a valuable source
of proprietary content that can be offered to Case's Ladder's 1.1 million
registered users.
The Gamer's Alliance content development team consists of gaming enthusiasts
from around the world. This content development approach is highly effective in
attracting a viewership of avid gamers. Furthermore, the Gamer's Alliance
network of sites seeks to encourage customer loyalty by allowing visitors to
become actively involved in content creation through forums and chat services.
The Big Network
The Big Network site provides a full suite of classic board and card games,
including spades, checkers, chess, backgammon, reversi and morph, allowing
thousands of simultaneous players to meet, chat and play parlor games in a
friendly setting. The site's gaming system is based on a sophisticated Java
client-server architecture designed to support very large numbers of users. The
Big Network currently hosts over 210,000 registered members and generates almost
three million advertising impressions per month.
The Big Network operates an entertainment and community site at
http://www.bignetwork.com. The site offers multiplayer classic games (e.g.,
chess, checkers, spades) as well as other forms of entertainment and information
to its members and users. The Big Network has also developed LivePlace, a Java
applet that provides users with an overview of activity around them on the site,
and allows them to follow public conversation and send private messages to other
users. LivePlace also uses proprietary technology to map users to their web
location and to control the browser window to allow for co-navigation of the
web. A map view allows users to see where other users are, across the eUniverse
site and its associated network. Users can move instantly to any other location
within the network.
The Company's Big Network site includes Play4Prizes, a game show channel
where players can win cash and prizes. No purchase is necessary to play the
games or to win the prizes. Play4Prizes' games are sponsored by advertisers and
used as a promotional vehicle for the advertisers' products and services.
Play4Prizes caters to a predominantly female audience. In addition, the Big
Network publishes the Daily Post, a collection of eight daily e-mail newsletters
providing news, facts and trivia on a variety of topics such as cinema, sports,
star gazing, cooking recipes, jokes and holidays. The Big Network reaches over
85,000 people daily through its Daily Post e-mail newsletters.
The Company plans to continue to leverage the audience of its newly acquired
interactive entertainment sites by pursuing e-commerce and merchandising
opportunities in the interactive entertainment arena. These opportunities
include online publishing of game titles, online retailing of interactive
entertainment products and the exclusive online distribution of titles developed
by smaller game developers.
Community-Building Technologies
With the acquisition of the Big Network, Inc., we acquired LiveSuite, a
modular suite of multi-user, Web-based community-building software with common
technology architecture. The core module of LiveSuite, LivePlace, takes the form
of a client- side pop-up Java applet that allows users to chat, send instant
messages, set up friends lists and co-browse a site. LiveSuite modules work
together using a shared technology core to provide virtual presence, instant
messaging, co-browsing, online sales assistance and game-playing through a
common user interface. LivePlace is designed to map onto existing Web sites
quickly and easily. Its components can be deployed individually or as an
integrated solution that combines entertainment, community and commerce through
a common user interface.
The Company plans to build an affiliate network of third-party entertainment
and retail Web sites that would license the Company's LivePlace
community-building software. The Company believes the implementation of
LivePlace on these affiliate sites will create a virtual presence for the
Company on these sites, allowing the Company to generate additional traffic and
e-commerce sales for the Company's network.
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The Company believes that its strategic assets include customer loyalty,
proprietary content and user-friendly technology, and that such assets will
enable it to grow Web site traffic, retain customers, expand revenue
opportunities and execute strategic acquisitions. The Company also plans to
develop strategic relationships with traditional media partners that will enable
it to build awareness of its sites and e-commerce services and increase traffic
to its sites.
DOMAIN NAMES, PATENTS AND TRADEMARKS
The Domain names of the Company's Web sites constitute important
intellectual property for the Company. Domain names registered to the Company
include the following:
euniverse.com gasource.net nhl2k.com
cduniverse.com ga-source.com sanitybycain.com
videouniverse.com ga-source.net ta-k.com
gamesuniverse.com ga-strategy.com voodoo3.net
gagames.com highheatbaseball.com wrestling-games.com
megadvd.com messiahpress.com experience3d.com
casesladder.com metalgear.net frontofficefootball.com
aoe2.net myth2.com frontofficefootball.net
cavenews.com ionrpg.com frontofficefootball.org
dknation.com ga-sports.com 3dracing.net
ga-rpg.com coursedepot.com rallychamp.com.
gasource.com grandprix2.com afflicted.net
Bignetwork.com highheatbaseball.com ctimes.net
Play4prizes.com maddencentral.com indy3d.net
Liveplace.com simracingnews.net prey.net
Livestore.com the-fastlane.com war3.com
Livesuite.com nflfever.com eqrealms.com
goldenbearsden.net Live-store.com acrealms.com
nfscheats.com Shop-Live.com mygamelobby.com
nfs4.com Shop-Live.net Big-network.com
wcw-meyhem.com Gamelets.com
gp500.net online-alchemy.com
At the present time, the Company does not own any patents. The Company has filed
service mark registrations for "eUniverse", "Games Universe", "CD Universe",
"Video Universe", "Play4Prizes" and "Gamer's Alliance" and intent-to-use
trademark applications for "LivePlace" and "LiveSuite" with the US Patent
and Trademark Office. The Company is in the process of filing service mark
applications for "MegaDVD" and "funone.com". The Company believes that it
presently has, or is capable of acquiring, ownership and/or control of the
intellectual property rights, which are necessary to conduct its operations
and to carry out its strategic plans.
OPERATIONS AND TECHNOLOGY
eUniverse maintains a technology center, with in-house technical staff, at
each of its main business units: CD Universe, Case's Ladder, Gamer's Alliance
and Big Network.
CD Universe
CD Universe has developed proprietary technologies and systems that provide
for reliable and scalable online retailing in a secure and easy-to-use format.
Using a combination of proprietary solutions and commercially available,
licensed technologies, the Company has deployed systems for online content
dissemination, online transaction processing, customer service, market analysis
and electronic data interchange.
CD Universe uses Microsoft SQL Server 7.0 as its database management
technology. Web pages are served by Microsoft's Internet Information Server and
use Microsoft's Active Server Page technology. The web pages themselves are
designed, programmed, tested, implemented, and maintained by on-staff designers
and programmers. The system is flexible enough to allow new product lines to be
integrated. Computer games were added in August 1999. A "server farm" of
redundant web servers was brought on-line in August 1999 to provide extremely
high site availability to our customers. The site is monitored twenty-four hours
a day and seven days a week by an outside company that provides alerts to
on-call technicians in the event that the site is not operating correctly. CD
Universe's on-site data center is connected via a point to point T1 line to its
ISP Internet Media Corporation. This service is provided under a two-year
contract.
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CD Universe uses Secure Socket Layers (SSL) for secure electronic
transactions over the Internet and uses proprietary Electronic Data Interchange
interfaces and private networks to ensure the security of customer order
information and credit card transactions shared with its vendors and credit card
processor.
Fulfillment
CD Universe has developed proprietary software to manage its onsite
fulfillment operation. This software allows CD Universe to order product from
multiple vendors, receive product into its warehouse, pick and pack individual
customer orders, and electronically manifest the product for shipping. This
system allows the Company to aggregate product from multiple vendors into a
single shipment to its customers. Partially filled shipments can be held for a
customer-selectable number of days to reduce the number of shipments needed to
fill a single order, thus saving the customer shipping charges.
Customer Service
CD Universe has developed proprietary software for use by its in-house
customer service department to access real time order information.
Case's Ladder
Case's Ladder utilizes multiple servers running the RedHat Linux operating
system, MySQL database backend, the Apache Web server, Perl programming
language, and various other open-source packages. Proprietary software developed
in-house allows staff to easily manage the over one hundred and fifty gaming
leagues we operate, handling over 1.2 million members and 3,500 online
tournaments each month. In addition, a proprietary technical support system
allows staff members to have real-time access to queries with full logging of
requests ensuring top of the line customer service. Servers are co-located with
Exodus Communications, Inc. under a yearly contract. Utilizing a 3Mb connection
with up to 10Mb burst capabilities; Case's Ladder is tied into a private
nationwide ATM backbone that feeds into every major Internet backbone in the
United States. High performance hosting, custom applications, and the proven
software packages listed above have given Case's Ladder the ability to have its
services available to the public with reliability above 99%.
Gamer's Alliance
Gamer's Alliance utilizes Linux operating system distribution Red Hat 6.0 to
power the majority of its PC web servers. NT Server 4.0 is used for web
applications requiring a Windows based operating system. A new backup system has
been implemented to protect mission critical data from hardware and software
failure, and other unpredictable circumstances. Bandwidth is rented from
Valuenet Inc. Gamer's Alliance has internally developed several web based
applications that increase the efficiency of administrating severs and updating
web sites. Among these programs is a database driven content system for Linux
and NT which allow web site content to be stored into databases, such as mySQL
and Microsoft Access, and then be dynamically recalled based upon specific user
preferences. This allows users to customize certain Gamer's Alliance web sites
to only display news, previews, reviews, interviews, etc that meet certain
criteria such as type of content or date added. These user preferences are then
stored as cookies for later viewing sessions.
Big Network
BigNetwork.com is built on several servers running the Sun Solaris operating
system and an Oracle database. The servers are co-located at Exodus in Santa
Clara, CA. Exodus provides unlimited bandwidth and redundant power and network
backbone connectivity as well as advanced fire suppression and other emergency
provisions. Connectivity cost is approximately $4,500 per month. Key hardware is
a Sun Enterprise Server 450, a Sparc 20, and several Intel Pentium II class
machines, also running Solaris.
The BigNetwork multiplayer gaming system and the BigNetwork LivePlace instant
messaging system are built on a highly scalable proprietary Java client-server
system. The system is capable of supporting thousands of simultaneous users
using relatively small amounts of server-side CPU and bandwidth per user.
Because the server is written in Java, it is portable and can run on any machine
capable of supporting a Java VM including Solaris on Sun or Intel hardware and
Windows NT.
YEAR 2000 READINESS DISCLOSURE
All mission critical third party software applications at all divisions and
subsidiaries have been independently tested (operating systems, web servers,
database systems, programming languages) and are currently Year 2000 compliant
or require free patches to correct. All internally developed software at all
divisions is believed to be Year 2000 compliant.
Year 2000 Risks
There can be no assurance Year 2000 issues will not cause a material adverse
effect on the operating results or financial condition of the Company. The
Company believes, however, that its most reasonably likely worst-case scenario
would relate to problems with the systems of third parties rather than with the
Company's internal systems, including disruption of product delivery from
wholesalers, inability to charge purchases to credit cards, temporary power
outages, delayed transportation of products by third parties, and lost or
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delayed customer purchases due to non-compliant personal computers. The Company
is limited in its efforts to address the Y2K issue as it relates to third
parties and is relying solely on the assurances of these third parties as to
their Year 2000 preparedness. See "RISK FACTORS -- RISKS ASSOCIATED WITH THE
YEAR 2000 ISSUE."
Contingency Plan
The Company intends to use existing non-Year 2000 specific contingency
plans to address any situations that it believes would arise if the Company or
third parties fail to be Year 2000 compliant. There is a risk that that existing
contingency plans would be inadequate to deal with serious and sustained Year
2000 adverse affects.
Year 2000 Costs
The Company has not expended or committed any significant amount of money
resources on Year 2000 compliance. The Company does not expect to expend any
significant amount of money or resources on Year 2000 compliance in the future.
SALES AND MARKETING
At the present time, the Company receives and processes over 20,000 orders
in a typical month, with an average order size of about $35 exclusive of
shipping charges.
To date, the Company has been able to increase site traffic and sales with
little outbound marketing efforts. The Company makes use of strategic
partnerships and proprietary content to attract and retain traffic on its Web
sites. The Company's CD Universe's "Partner Program" increases its market
presence by allowing "partner" Web sites ("eUniverse Partners") to offer CDs to
their audience for which CD Universe provides fulfillment. The eUniverse Partner
site provides a hyperlink to the CD Universe web site that leads the consumer to
more information about a specific artist or title. This hyperlink automatically
connects the customer to the CD Universe online store where the eUniverse
Partner's customer may place an order to purchase a CD. In this manner, the
eUniverse Partner can offer enhanced services and product recommendations, while
avoiding ordering and fulfillment costs. eUniverse Partners receive a commission
of 7% to 15% on sales of the Company's products that originate from the
eUniverse Partner's Web site.
The Company recently announced a strategic partnership with LinkShare
Corporation ("LinkShare") to dramatically expand the scope of its partner
program. As part of the partnership, LinkShare will introduce the Company's
online retailing sites to its vast network of over 65,000 partner sites.
LinkShare operates an expansive network on the Internet servicing clients such
as Dell Computers, Cyberian Outpost, Borders, 1-800-FLOWERS, Virtual Vineyards,
Omaha Steaks and others. The Company also plans to develop strategic
partnerships with other media partners that will enable it to build greater
awareness of its sites and expand traffic and e-commerce activity on its
network.
In August, 1999, eUniverse signed an agreement with Mpath Interactive,
Inc., providing for the sale and provision of advertisements by Mpath for all of
the Company sites. The Agreement calls for MPath to make guaranteed payments to
the Company. This figure will increase if the Company generates increased
traffic. The initial term of the advertising agreement is two years, although
the Company can cancel it at any time after nine months from its signing.
The Company has done limited marketing through June 30, 1999. During this
period CD Universe undertook a limited email campaign with Xoom.com and
TalkCity.com with a total expenditure of $50,000. This program was completed
and was not renewed. Case's Ladder spent $3,000 in June, 1999 on advertising
and has no current advertising programs in place. Similarly, Gamer's Alliance
has no advertising programs in place. The Big Network, in the months preceding
its acquisition, spent no cash on advertising but engaged in ad swaps with a
nominal value of approximately $20,000 per month based on the posted rate card
advertising rates.
The Company is planning a public relations and advertising push surrounding
the relaunch of its site in October/November 1999. The Company is in the process
of signing a contract with an Internet consumer public relations company and is
creating new branding and promotional materials to support a media campaign.
That campaign is likely to include a launch event, direct mail, direct email,
online sponsorships, print, and radio. The projected budget for this campaign
has not been finalized.
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The following table summarizes the total revenue contributed by the
Company's products in the last three fiscal years:
Revenue by Category
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
3/31/97 3/31/98 3/31/99
------- ------- -------
<S> <C> <C> <C>
Music $1,675,815 $5,685,211 $8,387,350
Videos - - 464,363
---------- ---------- ----------
Total $1,675,815 $5,685,211 $8,851,713
========== ========== ==========
</TABLE>
EMPLOYEES
In addition to the officers who are referred to by management below, the
company currently employs 51 full-time associates and up to 16 part-time
staffers. Of the company's 51 full-time associates, 21 are in marketing, 22 are
in programming and operations, and 8 are in administration. The part-time
staffers work in the packing and customer service areas.
FACILITIES
The Company currently leases a 19,500 sq. ft. office, warehouse and order
fulfillment center in Wallingford, Connecticut (the "Wallingford Facility") at a
monthly rent of $9,750. The Company's lease with respect to this facility
expires in March 2002 and the Company has the right and option to extend the
lease for an additional five year term. The Company believes that the
Wallingford Facility will be adequate to meet its office space and order
fulfillment needs for the foreseeable future. The Company leases approximately
500 sq. feet of office space, through its Gamer's Alliance, Inc. subsidiary, on
a month-to-month basis in Bridgeton, Missouri at a monthly rent of $475.
Additionally, the Company leases a 2,300 sq. ft. office space in San
Francisco, California for its technological research and development, business
development and sales and marketing divisions (the "San Francisco Facility").
The terms of the agreement provide for monthly payments of $5,350, 5,500 and
5,650 until June 30, 2000, 2001 and 2002, respectively. The Company believes
that the San Francisco Facility will be adequate to meet the Company's research
and development, business development and sales and marketing needs.
The following table summarizes our current properties:
<TABLE>
<CAPTION>
LOCATION SIZE (SQ. FT.) MONTHLY RENT
<S> <C> <C>
Wallingford, Connecticut 13,500 $9,750
Bridgeton, Missouri 500 $ 475
San Fransisco, California 2,300 $5,300
</TABLE>
THE COMPANY'S STRATEGY AND PLANS
The Company plans to implement the following strategies in its efforts to
become a leading provider of content, commerce and community services on the
Internet:
Expand Existing Online Retail Business into Other E-Commerce Activities.
The Company plans to use its technology and fulfillment expertise and expand
into other e-commerce activities, such as the Company's recent expansion into
games. In addition, the Company plans to use information obtained through
customer tracking technology and user customization of certain services on its
Web sites to provide its customers with targeted complementary e-commerce
offerings.
Acquire Complementary Entertainment-Related Web Sites.
The Company plans to acquire music, movie, and interactive entertainment-
related Web sites that are complementary to its existing network. These sites
will have several of the following key characteristics such as: (1) strategic
content, management or technology, (2) product offerings compatible with the
Generation X and Y demographics of the Company's sites and (3) the ability to
leverage the Company's strategic advantages such as order fulfillment, hardware
capacity and general overhead. The Company plans to acquire Web
25
<PAGE>
sites with significant traffic and add its retail capabilities and fulfillment
expertise to sell additional products to the acquired site's audience. The
Company believes that it can leverage its core technology expertise, existing
Web site traffic, management experience, fulfillment, systems and warehousing
capabilities to continue to grow through strategic acquisitions.
Provide Original, Compelling and Targeted Sites.
The Company's Web sites focus on commerce, community and interactivity and
address what the Company believes are among the most popular areas of interest
on the Internet including music, film and interactive entertainment. These
entertainment-related Web sites offer the Company an opportunity to deliver
premium advertising and e-commerce services to an attractive demographic of
Generation X and Generation Y consumers. The Company plans to enhance its online
stores by adding additional editorial content, increasing the time its customers
spend on its Web sites as well as the likelihood and frequency of subsequent
visits and purchases. Examples of the Company's editorial content include
reviews, biographies of entertainers, news, photos and other editorial
programming. The Company plans to license compelling third-party editorial
content in addition to its internally developed content in order to enhance the
overall user experience on the Company's Web sites.
Leverage Community-Building Technologies to Extend Reach to Other
Entertainment and Retail Sites.
The Company plans to license its LiveSuite community-building software to a
partner network of third-party entertainment and retail Web sites. LiveSuite's
Java-based user interface creates a virtual presence for the Company on user's
desktops when they are visiting a licensee's site. The Company plans to leverage
this network of LiveSuite licensor sites to drive traffic to its network of
music, filmed entertainment and interactive entertainment sites.
Diversify Revenue Streams Across Advertising, E-Commerce and Direct
Marketing.
The Company plans to leverage its user base to generate revenues from
multiple revenue streams. The Company believes that the traffic flow generated
on its Web sites provides an attractive platform for measurable, targeted,
cost-effective and interactive advertising on the Internet. The Company plans to
use both in-house and third party representatives to sell its advertising
inventory and promotional opportunities. The Company also plans to provide
differentiated solutions to advertisers, helping them exploit the capabilities
of the Internet as an advertising medium. In addition, the Company plans to
expand its e-commerce initiatives through the introduction and promotion of
interactive entertainment software, customized CDs, collectable products and
other entertainment-related merchandise on its retail sites. See
"BUSINESS--Sales and Marketing."
Increase Market Penetration Through Strategic Partnerships.
The Company intends to increase market penetration through strategic
partnerships that expand awareness of the Company's network of Web sites. The
Company plans to develop strategic relationships with traditional media partners
to build awareness of its sites and expand traffic and e-commerce activity on
its network. The combination of fulfillment expertise, visitor-tracking
technology, flexible software and customer preference information make the
Company an attractive partner for Web-based businesses.
Expand Web Presence.
The Company's Web sites have been able to successfully increase traffic, and
thereby increase sales. The Company plans to continue to pursue cost- effective
ways to increase traffic at its Web sites and has discussions underway with
strategic partners to dramatically increase traffic at its Web sites. The
Company plans to expand its international presence, and CD Universe has recently
introduced a localized version of the CD Universe site for the Japanese market,
marketed directly to Japanese consumers through a revenue sharing partnership
with US-style.com. In addition, the Company continues to develop proprietary
content to attract and retain traffic. The Company plans to offer new products,
services and incentives to attract and retain traffic and to increase the size
of profit margins on online purchases.
Provide Innovative and Easy-to-Use Web Sites.
The Company plans to make its customer experience informative, efficient and
intuitive by constantly improving its store format and features. For example,
the Company's CD Universe store incorporates "point and click" options,
supported by technical enhancements including easy-to-use search capabilities
(by artist, album, title, song title or record label), personalized music
suggestions, order tracking and confirmation. The CD Universe store also
promotes music learning and discovery by enabling visitors to create customized
versions of CDs and its Big Bang newsletter. Visitors are prompted to register
and choose from a checklist of options and musical preferences that allow the
registrant to select the genre or genres he or she is interested in as well as
the content he or she desires to receive (i.e., press releases, charts, reviews,
tour info and CD Universe news). These features are designed to make shopping at
the store entertaining and informative and encourage purchases and repeat
visits.
26
<PAGE>
RECENT TRANSACTIONS
ACQUISITION OF CASE'S LADDER, INC.
On May 31, 1999 the Company acquired all of the outstanding shares of the
Common Stock of Case's Ladder, Inc., in exchange for 700,000 shares of
restricted Common Stock pursuant to a Stock Purchase Agreement (the "Case's
Ladder Agreement"). The other parties to the agreement are Case's Ladder, Inc.
and its shareholders--Frank Westall (Chief Executive Officer and Chairman of
Case's Ladder) and Edward Hilts (Chief Operating Officer and Chief Financial
Officer of Case's Ladder). Frank Westall, Edward Hilts and Jeremy Rusnak
remained employed by Case's Ladder subsequent to the closing, and, in connection
with their employment, they will be granted options to purchase 600,000 shares
of the Company's Common Stock, in the aggregate, at a price of $10 per share.
The Case's Ladder web site serves primarily as an online game portal,
providing competitive rankings for online gamers in a number of online games and
allowing gamers to compete against one another in a variety of tournaments and
leagues. The Case's Ladder web site currently has over 1.1 million registered
users. Approximately 75% of registered users on the Case's Ladder web site are
between the ages of 18 and 50 with the majority of those visitors having an
annual income over $50,000. Case's Ladder currently derives revenue only from
membership fees and advertising. The Company believes that this acquisition of
new users with favorable demographics will allow it to expand the customer base
for its existing products, and to diversify its product offerings into areas
such as computer games.
ACQUISITION OF GAMER'S ALLIANCE, INC.
As of June 30, 1999, the Company acquired all of the outstanding shares of
Gamer's Alliance, Inc., a Missouri corporation based in Bridgeton, Missouri.
Gamer's Alliance has been online since January 1997, and operates a network of
gaming-related sites on the Internet. On a monthly basis, Gamer's Alliance
receives over 750,000 unique visitors and generates over 10 million banner
impressions. It maintains a network of more than 50 web sites, including
GA-games, GA-Source (a gaming news site which provides game previews, product
reviews and interviews), and GA-Sports (a network of news on computer sports
gaming).
The Company acquired the Gamer's Alliance stock with 78,125 shares of the
Company's Common Stock. The Company may make a contingent payment to the
sellers of additional shares of the Company's Common Stock over a period of five
calendar quarters from the closing, contingent upon Gamer's Alliance achieving
specified milestones with respect to revenue, the number of unique site
visitors, and other matters. Three (3) members of management of Gamer's Alliance
- -- Adam Goldenberg (President), Matthew Rowell, and Anthony Wyss -- remain
employed by Gamer's Alliance pursuant to employment agreements.
ACQUISITION OF THE BIG NETWORK, INC.
As of August 31, 1999, the Company acquired 80% of the outstanding capital
stock of The Big Network, Inc. ("BNI") and will acquire over a period of six
months from the closing the remaining outstanding shares in exchange for shares
of the Company (collectively, the "Big Network Agreement"). The Big Network
site provides a full suite of classic board and card games, including spades,
checkers, chess, backgammon, reversi and morph, allowing thousands of
simultaneous players to meet, chat and play parlor games in a friendly setting.
The site's gaming system is based on a sophisticated Java client-server
architecture designed to support very large numbers of users. Big Network
currently hosts over 210,000 registered members and generates almost three
million advertising impressions per month. Subsequent to the closing, Stephen
Sellers and John Hanke became Vice Presidents of the Company.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings that in the
opinion of management of the Company would have a material adverse effect on the
Company's results of operations or consolidated financial condition.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position with respect to
the executive officers and directors of eUniverse.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brad D. Greenspan(1) 26 Chairman of the Board of Directors
Leland N. Silvas(1) 44 President, Chief Executive Officer and Director
Charles Beilman 39 Chief Operating Officer, Chief Technical Officer
and Director
William R. Wagner 51 Vice President, Chief Financial
Officer and Secretary
James Haiduck 36 Vice President, Sales
John V. Hanke 32 Vice President, Marketing
Stephen D. Sellers 39 Vice President, Business Affairs
Gordon Landies 43 Director
</TABLE>
- ----------------------
(1) Member of the Compensation Committee.
Brad D. Greenspan, Chairman of the Board of Directors of the Company since
February, 1999, at the founding of Entertainment Universe, Inc. Prior thereto,
Mr. Greenspan founded and served as the President of Palisades Capital, Inc.,
a private Beverly Hills merchant bank. Mr. Greenspan received a BA degree
in political science/business from UCLA in 1996.
Leland N. Silvas, President and Chief Executive Officer of the Company since
April 1999. Mr. Silvas is a principal member of Label-add, LLC, a
Connecticut-based advertising and direct marketing company, and was employed
there until being recruited to eUniverse, Inc. in 1999. Mr. Silvas was President
and Chief Operating Officer of McPhersons global housewares division from
1994-1998. From 1992 to 1994, Mr. Silvas was a board member for Partners In
Computing, a New York City-based software solutions company. He currently sits
on the advisory board to the Adept Group, a computer consulting company based in
New York City, and is a board member of ADV MARKETING, a marketing and
consulting company, and 1-800-adagency, an ad agency.
Charles Beilman, Chief Operating Officer and Chief Technical Officer of the
Company since April 1999. Mr. Beilman founded CD Universe, Inc. in April 1997
and was its sole shareholder and Chief Executive Officer until the sale of CD
Universe, Inc. to the Company in April 1999. Since 1985, Mr. Beilman has served
as President and Director of Trak Systems, Inc., which supplies proprietary
inventory control computer systems to retail music stores throughout the United
States and Canada.
William R. Wagner, Vice President, Chief Financial Officer and Secretary of the
Company since April 1999. Prior to joining the Company, Mr. Wagner was Chief
Financial Officer of Heritage Marketing and Incentives, Inc., a Massachusetts-
based marketing incentives company. From 1995 to 1997, he was Chief Financial
Officer of ServiceSoft Corporation, a Massachusetts Internet software company,
and from 1990 to 1994, he was Chief Financial Officer of General Scanning, Inc.,
a pioneer in laser technology and systems.
James Haiduck, Vice President of Sales since August 1999. Prior to joining
eUniverse, Mr. Haiduck was Vice President of OEM Sales for The Learning Company,
a division of Mattel. His 13 years of sales experience in the
technology/software industry covered the OEM, retail, corporate, and direct
channels. Having established relationships with nearly every Tier One OEM
including HP, Compaq, IBM, Canon, and Gateway, Mr. Haiduck was responsible for
more than $200 million in licensing revenue over the last 10 years.
Stephen D. Sellers, Vice President Business Affairs and Business Development
since September 1999. Prior to joining eUniverse with the acquisition of the Big
Network, Mr. Sellers was CEO and co-founder of The Big Network. Previous to
that, he was co-founder and CEO of Archetype Interactive where he assembled a
diverse team of creative talent to create Meridian 59, the first graphical
internet multiplayer game. After the acquisition of Archetype by the 3DO
Company, he worked as head of Internet Business Development. He has advised
startup businesses in a variety of technology markets. He holds an MBA from the
University of California, Berkley and a BA from Stanford University.
John V. Hanke, Vice President of Marketing and Site Integration since September
1999. Prior to joining eUniverse with the acquisition of The Big Network, Mr.
Hanke was co-founder, President and COO of The Big Network. Mr. Hanke has
extensive experience in the design and development of internet projects. He was
the product manager and producer for Meridian 59 at Archetype Interactive and
served as Director of Internet Marketing at 3DO, after its acquisition of
Archetype, where he supervised internet product development and was responsible
for innovations in the pricing and marketing of 3DO's internet products. He
holds an MBA from the University of California, Berkley and a BA from the
University of Texas, Austin.
28
<PAGE>
Gordon Landies, Director since August 1999. Mr. Landies is currently General
Manager of the Home and Entertainment group of Mattel Interactive and has been
in consumer software for 16 years, spending 10 years at Software Toolworks,
Mindscape, and the Learning Company, which was acquired by Mattel. Most of Mr.
Landies' career has been in sales and business development where he helped drive
sales growth and build product categories such as National Geographic,
Printshop, and Chessmaster.
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our Board of Directors is comprised of four directors. Our bylaws provide
that we may have up to a maximum of nine directors. Directors are elected by the
shareholders at each annual meeting or at special meetings of shareholders and
serve until their successors are duly elected and qualified. All executive
officers are elected by, and serve at the discretion of, the Board of Directors.
The Compensation Committee consists of Messrs. Greenspan and Silvas. The
Compensation Committee administers the Company's 1999 Stock Awards Plan
and reviews and recommends to the Board of Directors the compensation and
benefits of the employees of eUniverse.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the Compensation Committee, the Board of Directors as
a whole performed the functions delegated to the Compensation Committee. No
member of the Board of Directors or the Compensation Committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
AGREEMENT CONCERNING ELECTION OF DIRECTORS
In connection with the purchase by E. P. Opportunity Fund, LLC ("E. P.") of
preferred stock issued by EUI, an agreement dated April 6, 1999 was entered into
between E. P., EUI and Brad D. Greenspan (the "E. P. Letter Agreement") which,
in effect, gave E. P. the right to select one of the Directors of EUI during
such period as it owns shares of EUI preferred stock. On April 16, 1999, in
connection with the Reorganization, the E. P. Letter Agreement was assigned by
EUI to the Company, which assumed the obligations of EUI thereunder. As a
result, as long as it owns Preferred Stock, E. P. has the right to appoint a
member of the Board of Directors of the Company. E. P. has not exercised its
right as of the date hereof.
In connection with the acquisition of The Big Network, Inc., an agreement
dated July 30, 1999 was entered into between Brad D. Greenspan, Charles Beilman,
Stephen Sellers and John Hanke which, in effect, gives Messrs. Sellers and Hanke
the right to select one of the Directors of the Company during the period that
either Mr. Sellers or Mr. Hanke or both are employed by the Company. Messrs.
Sellers and Hanke have not exercised their right as of the date hereof.
DIRECTOR COMPENSATION
Directors of eUniverse who are also employees or officers of eUniverse do
not receive any compensation specifically related to their activities as
directors, other than reimbursement for expenses incurred in connection with
their attendance at Board of Directors meetings. Other Directors receive, upon
becoming a Director, options for 75,000 shares of Common Stock, which also vest
immediately, for each year of service as a Director. See "MANAGEMENT--1999 Stock
Awards Plan" on page 43. For each board meeting they attend, these other
directors will be reimbursed for their expenses incurred in connection with the
meeting.
EXECUTIVE COMPENSATION
At the end of its most recent fiscal year, the Company's President and Chief
Executive Officer and other officers had not yet been employed and compensation
had not yet been paid. On April 6, 1999, the Company entered into employment
agreements with Leland Silvas, Chief Executive Officer and President, and
William R. Wagner, Vice President, Chief Financial Officer and Secretary. The
contract with Mr. Silvas is for an initial term expiring April 30, 2000 and
automatically renews for additional one-year periods unless terminated on three
months notice. The Silvas contract stipulates an annual base salary of $200,000
to be reviewed annually with a bonus opportunity of up to 50% of base salary
upon achievement of goals as determined by the Compensation Committee of the
Board of Directors. Mr. Silvas is entitled to options to purchase 825,000 shares
of Common Stock at an exercise of $3.00 per share, which options become
exercisable from time to time as set forth in the contract.
The contract with Mr. Wagner is for an indefinite term, subject to
termination on three months notice, and stipulates an annual salary of $125,000
and options to purchase 100,000 shares of Common Stock at an exercise price of
$3.00 per share. On June 15, 1999 Mr. Wagner was granted options to purchase
50,000 shares of Common Stock at an exercise price of $9.50 under the Stock
Option Plan.
29
<PAGE>
The Company entered into an employment contract with Mr. Beilman, effective
April 14, 1999, for an initial period of three years, subject to termination on
ten days notice, and stipulates an annual compensation of $135,000. On June 15,
1999 Mr. Beilman was granted options to purchase 75,000 shares of Common Stock
at an exercise price of $9.50 under the Stock Option Plan.
Effective August 1, 1999, the Company entered into a contract with James
Haiduck, Vice President of Sales. The contract with Mr. Haiduck is for an
initial term of one year and stipulates an annual salary of $108,000 and options
to purchase 200,000 shares of Common Stock at an exercise price of $9.50 per
share.
In conjunction with the acquisition of Big Network, the Company entered into
employment agreements with Mr. Hanke and Mr. Sellers, Vice President of
Marketing and Vice President of Business Development. Both contracts are for an
initial term of 12 months, and stipulates annual salaries of $96,000 and
individual options to purchase 300,000 shares at an exercise price of $8.25.
The table below summarizes the compensation to be paid pursuant to
agreements for services to be rendered to eUniverse in all capacities for the
fiscal year ending March 31, 2000. These executives are referred to as the Named
Executive Officers elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Annual compensation Long Term compensation
----------------------------------------------
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
Name and Principal Fiscal Salary Bonus Other Annual Restricted Securities LTIP All Other
Position Year ($) ($) Compensation Stock Award Underlying Payouts Compen-
($) ($) Options ($) sation
# ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brad D. Greenspan , 2000 - 50,000 - - - -
Chairman of the
Board
Leland Silvas, 2000 200,000 /(1)/ 6,307/(2)/ - 191,333/(3)/ - -
President,
Chief
Executive
Officer and
Director
Charles Beilman, 2000 135,000 /(1)/ - - - - -
Vice President
Special Projects
and Director
1999 77,250 - 91,711 - - - -
William R. Wagner, 2000 125,000 /(1)/ - - 16,666/(3)/ - -
Chief Financial
Officer
James Haiduck, 2000 108,000 /(1)/ - - - - -
Vice President
Sales
Stephen D. Sellers, 2000 96,000 /(1)/ - - - - -
Vice President
Business
Development
John V. Hanke, 2000 96,000 /(1)/ - - - - -
Vice President
Marketing
</TABLE>
Note 1: Incentive compensation awards and payments shall be defined by the Board
of Directors.
Note 2: Mr. Silvas was issued 200,000 shares in conjunction with his employment
with eUniverse. These have been valued at $.315 per share, based upon the
initial capitalization of Entertainment Universe.
Note 3: Option shares are represented as those options that are excercisable
within 60 days.
30
<PAGE>
The following table summarizes the option grants to the Named Executive
Officers in the current fiscal year:
<TABLE>
<CAPTION>
Individual grants Potential realizable value
at assumed annual rates of
stock price appreciation
for option term
---------------------------------------------------------------------------------------
Name and Principal Number of Percent of Exercise Expiration 5% 10%
Position securities total base price Date
underlying options $/share
options granted to
employees
in fiscal
year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brad D. Greenspan, 400,000 14.0% $ 9.50 6/15/09 $ 2,720,000 $ 6,560,000
Chairman of the
Board of
Directors
Leland Silvas, 825,000 28.8% $ 3.00 4/22/09 $10,972,500 $18,892,500
President, Chief
Executive
Officer and
Director
Charles Beilman, 75,000 2.6% $ 9.50 6/15/09 $ 510,000 $ 1,230,000
Vice President
Special Projects,
Chief Technical
Officer and
Director
William R. Wagner, 150,000 5.2% $ 3.00 6/15/09 $ 1,670,000 $ 3,110,000
Vice President, to
Chief Financial $ 9.50
Officer and
Secretary
James Haiduck, 200,000 7.0% $ 9.50 8/01/09 $ 1,360,000 $ 3,280,000
Vice President
Sales
Stephen D. Sellers, 300,000 10.5% $ 8.25 9/01/09 $ 2,415,000 $ 5,295,000
Vice President,
Business Affairs
and Business
Development
John V. Hanke, 300,000 10.5% $ 8.25 9/01/09 $ 2,415,000 $ 5,295,000
Vice President
Marketing and
Site Integration
</TABLE>
1999 STOCK AWARDS PLAN
On June 14, 1999, the Board of Directors adopted the eUniverse 1999 Stock Awards
Plan (the "Plan") and will submit the Plan for approval by the shareholders at
the next meeting of shareholders. The purpose of the Plan is to provide stock-
based incentive compensation to the Company's employees, officers, directors and
consultants. Between June 15 and June 30, 1999, awards of 24,830 shares of
restricted stock and stock options to purchase 2,860,000 shares of Common Stock
were made to all employees employed as of May 31, 1999, all outside directors,
all officers and three consultants.
The Plan allows for the discretionary grant of restricted stock, non-qualified
stock options, incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, and other stock-based awards. Only employees,
directors, officers and consultants may receive discretionary awards under the
Plan.
The Plan is administered by the Compensation Committee of the Company's Board of
Directors. The Compensation Committee will make the determination with respect
to the discretionary awards under the Plan, including which eligible individuals
are to receive awards under the Plan and the specific terms, vesting conditions
(if any) and number of shares of stock to which each award relates.
31
<PAGE>
The Compensation Committee may grant awards with different terms and conditions.
The Compensation Committee can also accelerate the vesting of outstanding awards
and can reprice any option at any time. At the time options are granted, the
Compensation Committee will set the price at which options can be exercised to
purchase shares of Common Stock.
Option holders will not have any rights as shareholders until and to the extent
they have exercised their options. The exercise price for options may either be
paid in cash or check or, at the discretion of the Compensation Committee, by
tendering shares having a value equal to the exercise price. The number of
shares of Common Stock covered by awards will be adjusted in the event of any
stock split, merger, recapitalization or similar corporate event.
The Board of Directors may terminate or amend the Plan at any time, except that
the Board may not, without the approval of our shareholders, increase the
maximum number of shares for which options may be granted under the Plan or
expand the class of individuals eligible to participate in the Plan.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock by the following individuals or groups:
(a) each person who is known by eUniverse to own beneficially more than 5% of
our Common Stock, (b) each Director and Director nominee of eUniverse, (c) each
Named Executive Officer of eUniverse, and (d) all executive officers and
Directors of eUniverse as a group.
<TABLE>
<CAPTION>
Name of Beneficial Shares Percentage
Owner Beneficially Beneficially
Owned/(1)/ Owned/(2)/
<S> <C> <C>
Brad D. Greenspan 7,841,000 45.0%
Charles Beilman 2,425,000 13.9%
Joseph Abrams 1,581,594/(3)/ 9.1%
Leland N. Silvas 425,001/(4)/ 2.4%
William R. Wagner 16,666/(5)/ *
James Haiduck 9,000/(6)/ *
John V. Hanke 242,820 1.4%
Stephen D. Sellers 297,180 1.7%
Gordon E. Landies 127,939(7)/ *
Directors and 11,384,606 65.3%
Executive Officers
as a Group
</TABLE>
* less than one percent.
/(1)/ Unless otherwise noted, all of the shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them within 60 days, whether by the exercise of
options or warrants or the conversion of shares of Preferred Stock into shares
of Common Stock, are deemed outstanding in determining the number of shares
beneficially owned by such person or group. The address of each individual or
group listed in the table is 101 North Plains Industrial Road, Wallingford,
Connecticut 06492.
/(2)/ The "Percentage Beneficially Owned" is calculated by dividing the "Number
of Shares Beneficially Owned" by the total outstanding shares of Common Stock
including shares beneficially owned by the person with respect to whom the
percentage is calculated.
/(3)/ Includes shares beneficially owned by Mr. Abrams as Trustee under the
following trusts: (1) 881,594 shares held by the Joseph W. & Patricia G. Abrams
Living Trust Under Trust Agreement dated March 16, 1994, (2) 350,000 shares held
by Matthew R. Abrams Irrevocable Trust Under Trust Agreement dated December 19,
1991, and (3) 350,000 shares held by Sarah E. Abrams Irrevocable Trust Under
Trust Agreement dated December 19, 1991.
/(4)/ Includes 225,001 shares represented by options exercisable within 60 days.
/(5)/ Consists entirely of shares represented by options exercisable within 60
days.
/(6)/ Includes 6,000 convertible preferred shares.
32
<PAGE>
/(7)/ Includes 6,000 convertible preferred, and 102,201 shares of Common Stock
beneficially owned by Mr. Landies as co-trustee under the Barbara Landies Living
Trust 8/27/96.
SELLING SHAREHOLDERS
The Selling Stockholders listed below may, pursuant to this Prospectus,
from time to time offer and sell the number of shares of Common Stock into which
their respective Preferred Stock may be converted. As of October 1, 1999, the
number of shares of Common Stock into which such Preferred Stock is initially
convertible (the "Conversion Shares") is listed below.
<TABLE>
<CAPTION>
Selling Stockholder and position with Shares of Conversion % of
Company Preferred Stock Shares Total
<S> <C> <C> <C>
LBI Group, Inc. 555,556 588,889 30.9%
Side Cape Holdings, Ltd. 365,740 387,684 20.4%
EP Opportunity Fund, LLC 235,000 249,100 13.1%
Gregory F. Whitten and Ruth Ann Whitten 75,000 79,500 4.2%
Lawrence Equity Group, LLC 56,250 59,625 3.1%
Nottinghill Resources, Ltd. 50,000 53,000 2.8%
RPM Asset Management 50,000 53,000 2.8%
Bernice Brauser 37,500 39,750 2.1%
Stanford Miller 25,000 26,500 1.4%
EIK Investors, Inc. 25,000 26,500 1.4%
Robert Murphy 25,000 26,500 1.4%
Patrick E. Murphy 25,000 26,500 1.4%
Walter Bilofsky 24,000 25,440 1.3%
Mark Mitola 15,000 15,900 0.8%
EP Opportunity Fund International, Ltd. 15,000 15,900 0.8%
Baer Family Charitable Remainder Trust 12,500 13,250 0.7%
KB Electronics, Inc. 12,500 13,250 0.7%
John A. Friedmann 12,500 13,250 0.7%
Jeffrey Benton 12,500 13,250 0.7%
James N. Oliphant 12,500 13,250 0.7%
Robert Brooks 12,500 13,250 0.7%
Michael Nichols 12,500 13,250 0.7%
Joseph Creen, Jr. 12,500 13,250 0.7%
JRA Enterprises 12,500 13,250 0.7%
George Gitschel 12,200 12,932 0.7%
The Cooper Family Trust 11,250 11,925 0.6%
Wayne C. Johnson 7,500 7,950 0.4%
Paul S. Freyer 7,500 7,950 0.4%
Jeffrey S. Cooper and Patricia G. Cobb 6,250 6,625 0.3%
Joan Vogelsang 6,278 6,655 0.3%
Gordon Landies, Director 6,000 6,360 0.3%
Paul Jakab 6,000 6,360 0.3%
James Haiduck, Vice President Sales 6,000 6,360 0.3%
Ed Roffman 6,000 6,360 0.3%
Cory Bihr and Mary Bihr 6,000 6,360 0.3%
David R.Fulton 5,000 5,300 0.3%
Frank Michalik 5,000 5,300 0.3%
James A. Carruthers 5,000 5,300 0.3%
Eric Singer 5,000 5,300 0.3%
Edward L. Bernstein 2,500 2,650 0.1%
</TABLE>
Pursuant to the Registration Rights Agreement, we have agreed to reserve and
keep available for issuance not less than 3,900,000 shares of Common Stock
issuable upon conversion of all outstanding Preferred Stock. Each share of
Preferred Stock may be converted to Common Stock at an initial rate of one
share for each $3.60 of liquidation preference. If the Common Stock's market
price at the time of conversion is less than $3.60 per share, the conversion
rate is determined by reference to such lower price. Because of the variable
conversion rate and the 6% accretion factor, the Preferred Stock may be
converted into more than, and potentially substantially more than, 1,795,024
shares of Common Stock. Accordingly, we are registering 4,000,000 shares under
this registration statement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 14, 1999, the Company acquired all of the capital stock of CD
Universe, Inc. for a total consideration of $1,915,000 in cash plus 2,425,000
shares of Common Stock. The rights to acquire CD Universe, Inc. were originally
held by Palisades Capital, Inc. ("Palisades"), a private merchant bank owned and
operated by Brad D. Greenspan. On February 11, 1999 Palisades assigned its
rights to acquire CD Universe, Inc. to EUI for consideration of 8,061,000 shares
of common stock of EUI which were issued to Mr. Greenspan. See
33
<PAGE>
"PRINCIPAL SHAREHOLDERS." In connection with the Reorganization, those shares of
EUI common stock were exchanged for an equivalent number of shares of the
Company's common stock.
PLAN OF DISTRIBUTION
The Common Stock issued or to be issued upon conversion of the Selling
Stockholders' shares of Preferred Stock will be sold from time to time by the
Selling Stockholders, or by pledgees, donees, transferees or other successors in
interest. In transactions effected on the OTC or any other Securities exchange
or market in which the Shares are traded, in privately negotiated transactions,
or in a combination of such methods of sale. The shares may be sold by one or
more of the following: (a) a block trade in which the broker or dealer so
so engaged will will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by the broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) an exchange
distribution in accordance with the rules of such exchange, and (d) orders
brokerage transactions and transactions in which the broker solicits purchasers.
From time to time the Selling Stockholders may engage in short sales, short
sales versus the box, puts and calls and other transactions in securities of
the issuer or derivatives thereof, and may sell and deliver the shares in
connection therewith.
In affecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Stockholders in amounts to be
negotiated immediately prior to the sale. The Selling Stockholders and agents
who execute orders on their behalf may be deemed to be underwriters as that term
is defined in Section 2(11) of the Act and a portion of any proceeds of sales
and discounts, commissions or other compensation may be deemed to be
underwriting compensation for purposes of the Act.
In the event the Selling Stockholders engage an underwriter in connection
with the sale of the Shares, to the extent required, a Prospectus Supplement
will be distributed, which will set forth the number of Shares being offered and
the terms of the offering, including the names of the underwriters, any
discounts, commissions and other items constituting compensation to
underwriters, dealers or agents, the public offering price with any discounts,
commissions or concessions allowed or reallowed or paid by underwriters to
dealers.
DESCRIPTION OF CAPITAL STOCK
We have authorized capital stock consisting of 250,000,000 shares of Common
Stock, $0.001 par value per share, and 50,000,000 shares of preferred stock,
$0.10 par value per share (the "Preferred Stock"). The following description of
eUniverse's capital stock is not intended to be complete. For a complete
description of our capital stock, you should read our Articles of Incorporation,
Amended and Restated Bylaws, and the Registration Rights Agreement that are
included as exhibits to our Form 10 filed with the Securities and Exchange
Commission on June 14, 1999.
COMMON STOCK
As of August 31, 1999, there were 14,832,723 shares of Common Stock
outstanding, which were held of record by 147 shareholders.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the shareholders. Subject to preferences that may be applicable
to the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, and subject to the prior distribution rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its shareholders. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
On April 14, 1999, EUI sold 1,795,024 shares of its Series A 6% Convertible
Preferred Stock in a private offering pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D adopted under the Securities Act. The EUI
Preferred Stock was sold to a group of approximately 40 purchasers, including
Lehman Brothers, Eisenberg Partners and principals of Gerard Klauer Mattison &
Co., Inc., all of whom were accredited investors as defined in Rule 501 of
Regulation D. The aggregate offering price for the Preferred Stock was
$6,598,122. In connection with the Reorganization, the holders of the EUI
Preferred Stock exchanged their shares, on a one-to-one basis, for shares of the
Company's Preferred Stock having equivalent rights and preferences, as set forth
in the Designation of Preferred Stock of Motorcycle Centers of America, Inc.
dated April 7, 1999 (the "Designation of Preferred Stock").
Holders of the Company's Preferred Stock have the right to convert all or
any portion of such stock into shares of the Company's common stock at any time
after October 15, 1999 until all shares of Preferred Stock have been converted,
at a one-to-one ratio, unless the market price of the Common Stock is below
$3.60 during various periods prior to the date of conversion, as set forth in
the Designation of Preferred Stock, in which case the conversion ratio would be
greater than one-to-one.
34
<PAGE>
The Company's Preferred Stock does not pay dividends, and the holders of
such stock are not entitled to receive any dividends thereon. In the event of
the liquidation or dissolution of the Company, the holders of the Preferred
Stock will be entitled to receive, prior in preference to any distribution to
the holders of the Common Stock and any other class of stock which has been
designated as junior in rank to the Preferred Stock, an amount per share equal
to the original issue price of the Preferred Stock ($3.60) plus accretion
thereon at a rate of 6% per annum from the date of issuance. The holders of
Preferred Stock are entitled to cast a number of votes per share on each
matter submitted to the Company's holders of Common Stock that equals the number
of shares of Common Stock into which such Preferred Stock could have been
converted immediately prior to the record date for the vote. Votes of the
Preferred Stock holders shall be cast together with those cast by the holders
of common stock and not as a separate class except as otherwise provided in
the Designation of Preferred Stock on matters directly affecting the rights
of the holders of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Common Stock is Corporate Stock
Transfer, Inc. with its address at 370 17th Street, Suite 2350, Denver, Colorado
80202, and its telephone number at this location is (303) 595-3300.
LISTING
Our Common Stock is currently traded on the OTC Electronic Bulletin Board
under the trading symbol "EUNI". We have applied to list our Common Stock on
the Nasdaq under the trading symbol "EUNI".
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
SHAREHOLDERS AND DIVIDENDS
As of September 30, 1999, there were 14,832,723 shares of Common Stock
outstanding, which were held by 149 shareholders of record.
To date, the Company has paid no cash dividends and has no intention to pay
cash dividends on its Common Stock in the foreseeable future.
MARKET INFORMATION
Our Common Stock is traded on the OTC Electronic Bulletin Board under the
symbol EUNI. Prior to April 22, 1999, when the Company changed its name to
eUniverse, Inc., the common stock of the Company was traded under the symbol
MCAM. Between April 14, 1999 and April 22, 1999 the common stock of the Company
was traded under the symbol MCAMD.
The chart below sets forth the range of reported high and low bid
quotations for the Common Stock for each full quarterly period from Oct. 1, 1997
through June 30, 1999. The source of the quotations is Prophet Financial
Systems. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The closing price for the common stock of the Company on September 30, 1999 was
$5.875.
<TABLE>
<CAPTION>
RANGE OF HIGH AND LOW BID
QUARTERLY PERIOD ENDING QUOTATIONS
<S> <C>
June 30, 1999 (EUNI) $ 1.875 - 14.00
March 31, 1999 (MCAM) $ 5.00 - 18.00/1//3/
December 31, 1998 (MCAM) $ 0.62 - 25.00/1/
September 30, 1998 (MCAM) $ 2.00 - 5.00/1/
June 30, 1998 (NBCO) $ 50.00 - 95.00/1/
March 31, 1998 (NBCO) $ 65.00 - 90.00/1/
December 31, 1997 (NBCO) $1,300.00 - 1,600.00/2//3/
</TABLE>
/1/ Quotes reflect a 1 for 20 reverse split of the Company's common stock
effective March 31, 1999.
/2/ Quotes reflect a 1 for 20 reverse split of the Company's Common Stock
effective August 1, 1997.
/3/ The stock split occurred prior to the operation of the Company's
current business that commenced upon MCA's reorganization with ENI in April
1999.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 13,806,000 shares of the Common Stock (approximately 93% of
the shares outstanding) are restricted shares that may be sold only in the
event such shares are registered pursuant to the Securities Act or are sold
pursuant to an
35
<PAGE>
exemption thereunder, including Rule 144, which permits the resale of limited
amounts of restricted securities after a 12-month initial holding period.
Subject to the volume limitations of Rule 144, 509,000 shares will become
available on April 1, 2000, an additional 12,475,000 shares will become
available on April 14, 2000, an additional 700,000 shares will become available
on May 31, 2000 and an additional 78,125 will become available on June 30, 2000.
See "PRINCIPAL SHAREHOLDER."
There are 1,795,024 shares of Preferred Stock outstanding with a liquidation
preference of $3.60 per share, which increases at a rate of 6% per annum.
Each share of Preferred Stock may be converted to Common Stock at an initial
rate of one share of Common Stock for each $3.60 of liquidation preference.
If the Common Stock's market price at the time of conversion is less than
$3.60 per share, the conversion rate is determined by reference to such lower
price. The Company has granted the holders of Preferred Stock registration
rights so that they may sell their shares of Common Stock received upon
conversion of such Preferred Stock. The shares of Common Stock received upon
conversion also may be sold on the market pursuant to Rule 144 without
registration under the Securities Act commencing 12 months after the date of
issuance of the Preferred Stock and subject to the volume limitations and
other requirements of Rule 144. See "DESCRIPTION OF CAPITAL STOCK--Registration
Rights." This registration statement is filed pursuant to such registration
rights. During the effectiveness of this registration statement the Common
Stock issued upon conversion of the Preferred Stock may be sold in the public
market.
The Company reserved 5,000,000 shares of Common Stock for future issuance
under the 1999 Stock Awards Plan. The Company has granted options to employees
and one advisor to purchase an aggregate of up to 2,860,000 shares of Common
Stock at exercise prices ranging from $3.00 to $11.40 per share. Options
representing 391,667 of such shares are vested and exercisable. The remaining
options vest in equal amounts each calendar quarter over the next two (2) years.
Warrants to purchase an additional 731,865 shares of Common Stock at exercise
prices ranging from $2.75 to $10.00 per share have been issued to various
entities in exchange for financing and public relations services. Warrants
representing up to 400,000 of such shares are exercisable. Common Stock issued
upon exercise of outstanding vested options or issued under the Company's 1999
Stock Awards Plan will be available for resale on the public market, during the
effectiveness of a registration statement on a Form S-8 covering such shares
that the Company intends to file.
Up to 1,800,000 restricted shares of Common Stock may be issued in
connection with our acquisition of The Big Network, which may be sold only in
the event such shares are registered, or exempted from registration, under the
Securities Act.
RULE 144. In general, under Rule 144 as currently in effect a person who has
beneficially owned shares of our Common Stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
-1% of the number of shares of Common Stock then outstanding,
or
-the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K). Under Rule 144(k), a person who is not deemed to have been an
affiliate of eUniverse at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
REGISTRATION RIGHTS.
Under the Registration Rights Agreement of Entertainment Universe Inc. dated
April 1999 which was assigned to and assumed by the Company pursuant to the
Assignment and Assumption Agreement by and between Entertainment Universe, Inc.
and Motorcycle Centers of America, Inc., dated as of April 14, 1999 (the
"Registration Rights Agreement"), we have agreed to use our best efforts to have
a registration statement of which this Prospectus forms a part, and to
maintain the effectiveness of such registration statement until all securities
covered by such registration statement have been sold.
The Case's Ladder Agreement and the Big Network Agreement provide that the
selling shareholders have the right to participate in any registered offering of
the Common Stock and to sell their shares of Common Stock in the Company's
offering of its shares to the public to the extent that any of the Company's
directors and/or officers have such registration rights and sale privileges.
During the effectiveness of any such registration, any shares registered
would become freely tradable without restriction under the Securities Act.
36
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
eUniverse, Inc. by Martin, Lois & Gasparrini, LLC, Stamford, Connecticut.
EXPERTS
The financial statements and schedules of the Company appearing in this
Prospectus and registration statement have been audited by Merdinger, Fruchter,
Rosen and Corso, PC, Cordovano and Harvey, PC and Jonathon P. Reuben, CPA,
independent certified public accountants, as indicated in their reports, and are
included herein in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
SOURCES OF ADDITIONAL INFORMATION
eUniverse has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 with respect to the Common
Stock offered by this Prospectus. This Prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are parts of the
registration statement. For further information with respect to the Company and
its Common Stock, see the Registration Statement and the exhibits and schedules
thereto. Whenever we make reference in this Prospectus to any of our agreements
or other documents, the references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual agreement or other document.
You can read our Commission filings, including this registration statement,
through a Web browser over the Internet at the Commission's Web site at
URL:http://www.sec.gov. You may also read and copy any document we file with the
Commission at its public reference facilities in Washington, D.C., New York, NY,
and Chicago, IL at 450 Fifth Street, Washington, D.C. 20549, 7 World Trade
Center, Suite 1300, New York, NY 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, respectively. You may also
obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, Washington, D.C. 20549.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
eUniverse is subject to the information and periodic reporting requirements
of the Securities and Exchange Act and, accordingly, files periodic reports,
proxy statements and other information with the Commission. Such periodic
reports, proxy statements and other information will be available for inspection
and copying at the Commission's public reference room, and the Web site of the
Commission referenced to above.
37
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Subsequent to June 30, 1999, the latest balance sheet date presented in
this registration statement, the registrant acquired The Big Network, Inc.
Additionally, during the three month period ended June 30, 1999, the registrant
completed the reverse acquisition of Motorcycle Centers of America, Inc. by
Entertainment Universe, Inc., the acquisition of CD Universe, Inc. (the
"Predecessor"), the acquisition of Cases Ladder, Inc. and the acquisition of
Gamer's Alliance, Inc. The details of the acquisitions are presented in the
notes to the June 30, 1999 financial statements presented elsewhere in this
registration statement.
The pro forma balance sheet reflects the historical consolidated
balance sheet of the registrant and the balance sheet of The Big Network, Inc.
as of June 30, 1999. The Company acquired The Big Network as of August 31, 1999.
Pro forma adjustments have been made to give effect to the acquisition of The
Big Network, Inc. as if it had occurred on June 30, 1999.
The pro forma income statement for the three month period ended June
30, 1999 reflects the historical consolidated income statement of the registrant
and the income statement of The Big Network, Inc. Pro forma adjustments have
been made to give effect to the acquisitions as if they had occurred as of the
beginning of the period.
The pro forma income statement for the twelve month period ended March
31, 1999 reflects the historical income statements for CD Universe, Inc.(the
predecessor) for the year ended March 31, 1999 and the historical income
statements for Cases Ladder, Inc., Gamers Alliance, Inc. and The Big Network,
Inc. for the year ended December 31, 1998. There is no significant activity for
Entertainment Universe, Inc., as it came into existence in February, 1999. The
historical income statement of Motorcycle Centers of America, Inc. has not been
presented. Entertainment Universe, Inc. is considered to be the accounting
acquirer in a recapitalization. Motorcycle Centers of America, Inc. is treated
as the legal acquirer and as such, its historical operating results are not
presented with those of the registrant. Pro forma adjustments have been made to
give effect to the above transactions as if they had occurred at the beginning
of the twelve month period presented.
F-1
<PAGE>
eUNIVERSE
PROFORMA BALANCE SHEETS
JUNE 30, 1999
<TABLE>
<CAPTION>
THE BIG PRO FORMA ADJUSTMENTS
CONSOLIDATED NETWORK, INC. TO REFLECT ACQUISITION BALANCE
BALANCE BALANCE OF THE BIG NETWORK, INC SHEET
SHEET SHEET AS OF JUNE 30, 1999 JUNE 30,1999
JUNE 30, 1999 JUNE 30, 1999 DR CR PRO FORMA
--------------- ------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CASH $ 4,194,109 $ 118,800 $ 4,312,909
RECEIVABLES 193,096 6,900 199,996
INVENTORY 41,451 41,451
DUE FROM EMPLOYEES 153,200 153,200
OTHER CURRENT ASSETS 75,717 514 76,231
--------------- ------------- --------------
TOTAL CURRENT ASSETS 4,657,573 126,214 4,783,787
--------------- ------------- --------------
PROPERTY AND EQUIPMENT, NET 329,346 58,941 388,287
GOODWILL, NET OF AMORTIZATION 17,784,733 1 10,939,104 28,723,837
OTHER INTANGIBLES, NET OF AMORTIZATION 110,561 2,105 112,666
--------------- ------------- --------------
TOTAL OTHER ASSETS 18,224,640 61,046 29,224,790
--------------- ------------- --------------
TOTAL ASSETS $ 22,882,213 $ 187,260 $ 34,008,577
=============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 872,284 $ 49,330 $ 921,614
ACCRUED EXPENSES 234,774 27,353 262,127
NOTES PAYABLE - SHAREHOLDERS 13,500 13,500
CAPITAL LEASE PAYABLE 8,585 8,585
--------------- ------------- --------------
TOTAL CURRENT LIABILITIES 1,107,058 98,768 1,205,826
--------------- ------------- --------------
LONG TERM CAPITAL LEASE PAYABLE 2,596 2,596
--------------- ------------- --------------
TOTAL LIABILITIES 1,107,058 101,364 1,208,422
--------------- ------------- --------------
PREFERRED STOCK, $.10 par value; 40,000,000
shares authorized, 1,795,024 shares
issued and outstanding 179,502 360,502 1 360,502 179,502
COMMON STOCK, $.001 par value; 250,000,000
shares authorized, 16,637,723 shares
issued and outstanding (pro forma) 14,838 2,675 1 2,675 1 1,800 16,638
ADDITIONAL PAID IN CAPITAL 23,273,159 721,447 1 721,447 1 11,023,200 34,296,359
ACCUMULATED DEFICIT (1,692,344) (998,728) 1 998,728 (1,692,344)
--------------- ------------- --------------
TOTAL STOCKHOLDERS' EQUITY 21,775,155 85,896 32,800,155
--------------- ------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 22,882,213 $ 187,260 $ 34,008,577
=============== ============= ==============
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
eUNIVERSE
PROFORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
INCOME STATEMENT INCOME
CONSOLIDATED FOR PRO FORMA ADJUSTMENTS STATEMENT
INCOME STATEMENT THE BIG NETWORK TO REFLECT ACQUISITIONS FOR THE
FOR THE INC FOR THE QUARTER QUARTER ENDED
QUARTER ENDED QUARTER ENDED ENDED JUNE 30, 1999 JUNE 30, 1999
JUNE 30, 1999 JUNE 30, 1999 DR CR PRO FORMA
---------------- ---------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 2,034,955 $ 8,891 50,148 $ 2,237,458
143,464
COST OF SALES 1,659,558 2,725 3 20,143 1,682,426
---------------- ---------------- ------------
GROSS PROFIT 375,397 6,166 555,032
---------------- ---------------- ------------
MARKETING AND SALES 444,206 7,306 451,512
PRODUCT DEVELOPMENT 168,018 2,000 170,018
GENERAL AND ADMINISTRATIVE 630,149 243,400 2 54,410 1,074,041
3 146,082
MERGER AND ACQUISITION RELATED 62,241 62,241
AMORTIZATION OF GOODWILL AND OTHER 307,641 2 24,660 721,641
3 115,862
4 273,478
STOCK BASED COMPENSATION 237,500 237,500
---------------- ---------------- ------------
TOTAL 1,849,755 252,706 2,716,953
---------------- ---------------- ------------
LOSS FROM OPERATIONS (1,474,358) (246,540) (2,161,921)
INTEREST INCOME AND OTHER 7,049 1,113 8,162
INTEREST EXPENSE (85,801) (3,022) (88,823)
---------------- ---------------- ------------
LOSS BEFORE INCOME TAXES (1,553,110) (248,449) (2,242,582)
INCOME TAX EXPENSE (BENEFIT) -
---------------- ---------------- ------------
NET LOSS $ (1,553,110) $ (248,449) $(2,242,582)
================ ================ ============
Basic Loss Per Share
Historical $ (.18)
Proforma $ (.14)
Weighted Average Shares Outstanding
Historical 12,400,115
Proforma 16,501,535
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
eUNIVERSE
PROFORMA STATEMENTS OF OPERATIONS
FOR 12 MONTHS
CASE'S ENTERTAINMENT THE BIG NETWORK,
CD UNIVERSE LADDER UNIVERSE INC.
(YEAR END (YEAR END (PERIOD END (YEAR END COMBINED
3/31/1999) 12/31/1998) 3/31/1999) 12/31/1998)
---------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 8,851,713 $ 378,345 $ - $ 83,883 $ 9,313,941
COST OF SALES 8,264,306 33,660 - 56,375 8,354,341
---------------- ----------- -------------- ------------- ------------
GROSS PROFIT 587,407 344,685 - 27,508 959,600
---------------- ----------- -------------- ------------- ------------
GENERAL AND ADMINISTRATIVE 995,584 360,019 90 741,265 2,096,958
EXPENSES AMORTIZATION
---------------- --------- --------------- ------------- -----------
TOTAL 995,584 360,019 90 741,265 2,096,958
---------------- --------- --------------- ------------- -----------
LOSS FROM OPERATIONS (408,177) (15,334) (90) (713,757) (1,137,358)
OTHER INCOME (EXPENSE) 1,013 - - (22,308) (21,295)
---------------- ---------- -------------- ------------ -----------
LOSS BEFORE INCOME TAXES (407,164) (15,334) (90) (736,065) (1,158,653)
INCOME TAX EXPENSE (BENEFIT) - (1,372) - - (1,372)
---------------- ----------- ------------- ------------ -----------
NET LOSS $ (407,164) $ (13,962) $ (90) $ (736,065) $(1,157,281)
============ ============ ============== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INCOME
PRO FORMA ADJUSTMENTS STATEMENT
TO REFLECT ACQUISITIONS FOR THE YEARS
FOR THE TWELVE MONTHS ENDED WITHIN
ENDED WITHIN MARCH 31, 1999 MARCH 31, 1999
COMBINED DR CR PRO FORMA
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
REVENUE $ 9,313,941 $ 9,313,941
COST OF SALES 8,354,341 8,354,341
----------- ------------
GROSS PROFIT 959,600 959,600
----------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES 2,096,958 - - 2,096,958
AMORTIZATION 5 2,868,104 2,868,104
------------ ------------
TOTAL 2,096,958 4,965,062
----------- ------------
LOSS FROM OPERATIONS (1,137,358) (4,005,462)
OTHER INCOME (EXPENSE) (21,295) - - (21,295)
------------ ------------
LOSS BEFORE INCOME TAXES (1,158,653) (4,026,757)
INCOME TAX EXPENSE (BENEFIT) (1,372) (1,372)
------------ -------------
NET LOSS $(1,157,281) $ (4,025,385)
============ =============
Basic Loss per Share
Historical $ (57.64)
Proforma $ (0.26)
Weighted Average Share Outstanding
Historical 69,833
Proforma 15,481,563
</TABLE>
F-4
<PAGE>
Notes to pro forma financial statements
Balance Sheet, June 30, 1999
1) To reflect the acquisition of The Big Network, Inc. as if it occurred on June
30, 1999. This acquisition closed as of August 31, 1999. The acquisition,
accounted for as a purchase, was achieved through the issuance of 1,800,000
shares of the Company's common stock in exchange for all of the issued and
outstanding shares of common and preferred stock held by Big Network's
shareholders. Big Network is a wholly owned subsidiary. The total acquisition
price is $11,025,000, resulting in goodwill of $10,939,104, calculated as
follows:
<TABLE>
<S> <C>
Acquisition price $11,025,000
Net assets acquired 85,896
-----------
Goodwill $10,939,104
</TABLE>
Income Statement, Three months ended June 30, 1999
2) To record the activity of Gamers Alliance, Inc for the period from April 1
through June 30, 1999, the date of the acquisition.
3) To record the activity of Cases Ladder, Inc. for the period from April 1
through May 31, 1999, the date of acquisition.
4) To reflect amortization of goodwill for the three month period.
Income Statement, Twelve months ended March 31, 1999
5) To reflect amortization of goodwill as if the acquisitions had been
consummated at the beginning of the twelve month period.
F-5
<PAGE>
<TABLE>
<CAPTION>
eUNIVERSE, INC.
Balance Sheets
ASSETS
June 30, March 31,
1999 1999
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents....................................... $4,194,109 $ 11,335
Accounts receivable, net of allowances for
doubtful accounts of $19,175 and $0, respectively............ 193,096 92,938
Inventory...................................................... 41,451 22,647
Due from Officers.............................................. - 157,569
Due from employees............................................. 153,200 -
Prepaid expenses and other current assets...................... 75,717 9,629
----------- ----------
Total Current Assets.......................... 4,657,573 294,118
FURNITURE AND EQUIPMENT, less accumulated
depreciation of $109,818 and $83,052, respectively.............. 329,346 225,718
GOODWILL, net of amortization of $307,192 and
$2,000, respectively............................................. 17,784,733 38,000
OTHER INTANGIBLES, net of amortization of $2,789 and
$340, respectively............................................... 110,561 510
----------- ----------
TOTAL ASSETS......................................... $22,882,213 $ 558,346
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable................................................ $ 872,284 $ 828,718
Accrued liabilities............................................. 219,494 113,604
Due to affiliates............................................... 15,280 30,000
Due to officer.................................................. - 105,000
----------- ----------
Total Current Liabilities............................ 1,107,058 1,077,322
----------- ----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $ 10 par value; 40,000,000 shares authorized;
1,795,024 and -0- shares issued and outstanding,
respectively.................................................. 179,502 -
Common stock, $ 001 par value; 250,000,000 shares authorized;
14,837,723 and 2,148,098 shares issued and outstanding,
respectively.................................................. 14,838 1,000
Additional paid-in capital...................................... 23,273,159 -
Deferred offering costs......................................... - -
Retained deficit................................................ (1,692,344) (519,976)
----------- ----------
Total Shareholders' Equity........................... 21,775,155 (518,976)
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $ 22,882,213 $ 558,346
=========== ==========
See accompanying notes to the financial statements
</TABLE>
F-6
<PAGE>
eUNIVERSE, INC
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
June 30, June 30,
1999 1998
-------------- --------------
<S> <C> <C>
REVENUE...................................................... $ 2,034,955 $2,118,186
COST OF GOODS SOLD........................................... 1,659,558 1,802,615
-------------- --------------
GROSS PROFIT................................................. 375,397 315,571
OPERATING EXPENSES:
Marketing and sales......................................... 444,206 244,605
Product development......................................... 168,018 92,066
General and administrative.................................. 630,149 49,851
Merger and acquisition related.............................. 62,241 -
Amortization of goodwill and other intangibles.............. 307,641 292
Stock-based compensation.................................... 237,500 -
-------------- --------------
TOTAL OPERATING EXPENSES..................................... 1,849,755 386,814
-------------- --------------
OPERATING LOSS............................................... (1,474,358) (71,243)
============== ==============
NONOPERATING INCOME (EXPENSE)
Interest and dividend income................................ 7,049 108
Interest expense............................................ (85,801) -
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES............................ (1,553,110) (71,135)
INCOME TAXES................................................. - -
-------------- --------------
NET INCOME (LOSS)............................................ $(1,553,110) $ (71,135)
============== ==============
Basic income (loss) per common share......................... $ (0.13) N/A
============== ==============
Basic weighted average common shares outstanding............. 12,221,900 N/A
============== ==============
See accompanying notes to the financial statements
</TABLE>
F-7
<PAGE>
eUNIVERSE, INC.
Statements of Cash flows
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
June 30, June 30,
1999 1998
---------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(1,553,110) $ (71,135)
Transactions not requiring cash:
Depreciation 19,354 11,538
Amortization 307,641 292
Common stock issued for services 247,500 -
Changes in current assets (185,050) 7,590
Changes in current liabilities 164,736 (56,925)
---------------- -----------------
NET CASH (USED IN) OPERATING ACTIVITIES (998,929) (108,640)
INVESTING ACTIVITIES
Acquisitions (1,915,000) -
Cash through acquisitions 37,214 -
Purchases of fixed assets (68,118) (17,400)
Repayment of advances from officers (105,000) -
Receipt of advances to officers 157,769 -
Advances made to Employees (153,200) -
---------------- -----------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (2,046,335) (17,400)
---------------- -----------------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 5,875,204 -
Proceeds from issuance of common stock 1,402,835 -
Payment to repurchase common stock (20,000) -
Repayment of loan from affiliates (30,000)
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,228,039 -
---------------- -----------------
CHANGE IN CASH AND CASH EQUIVALENTS 4,182,775 (126,041)
Cash and cash equivalents, beginning of period 11,335 267,213
---------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,194,109 $ 141,172
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash investing and financing transactions:
Stock issued in connection with acquisitions:
CD Universe $ 7,329,480 $ -
Cases Ladder 7,350,000
Gamers Alliance 1,000,000
MegaDVD 52,500
</TABLE>
See accompanying notes to the financial statements
F-8
<PAGE>
EUNIVERSE, INC.
Statement of Shareholders' Equity (Deficit)
March 31, 1999 through June 30, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- ---------------------- PAID-IN OFFERING RETAINED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL COSTS DEFICIT TOTAL
------ --------- ------ --------- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1999 -- -- 2,148,098 2,148 171,796 (5,734) (139,234) 28,976
Repurchase common stock,
subsequently cancelled..... -- -- (1,844,940) (1,845) (18,155) -- -- (20,000)
Common stock subscribed less
offering costs of $5,734... -- -- 897,835 898 891,203 5,734 -- 897,835
Shares issued in acquisition
of Entertainment Universe,
Inc........................ 1,795,024 179,502 12,829,000 12,829 13,939,123 -- -- 14,131,454
Shares issued in acquisition
of MegaDVD................. -- 4,605 5 52,495 52,500
Shares issued in acquisition
of Cases Ladder, Inc....... -- 700,000 700 6,999,300 7,000,000
Shares issued in acquisition
of Gamers Alliance, Inc.... -- 78,125 78 999,922 1,000,000
Shares issued to employees
of CD Universe............. -- 25,000 25 237,475 237,500
Net income for three months
ended June 30, 1999........ -- -- -- -- -- -- (1,553,110) (1,553,110)
--------- -------- ---------- -------- ----------- -------- ----------- -----------
BALANCE, JUNE 30, 1999 1,795,024 $179,502 14,837,723 $ 14,838 $23,273,159 $ -- $(1,692,344) $21,775,155
========= ======== ========== ======== =========== ======== =========== ===========
</TABLE>
*Restated for 1 for 20 reverse splits (Note F)
F-9
<PAGE>
eUniverse, Inc.
Notes to Financial Statements
June 30, 1999
1) Organization and Line of Business
eUniverse, Inc. ("the Company") is a Nevada Corporation engaged in developing,
acquiring, and operating a network of web sites providing entertainment -
oriented products and services. At present the Company is engaged in sales of
audio CDs, videotapes, and digital videodisks ("DVDs") over the Internet, and
providing online computer gaming. The financial statements being presented
include the accounts of eUniverse, Inc. and its wholly owned subsidiaries. These
subsidiaries are Entertainment Universe, Inc. acquired on April 14, 1999, CD
Universe, Inc. acquired on April 14, 1999, Cases Ladder, Inc. acquired May 31,
1999, and Gamer's Alliance, Inc. acquired June 30, 1999. All significant inter
company transactions and balances have been eliminated.
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, liabilities, and contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of its products. The Company
maintains a partner program whereby partners provide links on their web-sites
that bring customers to the CD Universe web-site. Revenue generated from these
linked sites is recognized upon shipment of the CD's. The partner receives a
commission of 5% to 15% of sales of the Company's products that originate from
the site, recognized as an expense concurrent with the sale. Barter transactions
are recorded at the lower of the estimated fair value of advertisements received
or the estimated fair value of the advertisements given. Barter revenue and the
related advertising is recorded based on impressions delivered and received with
the difference recorded as an advance or prepaid.
Business Developments
The Company was founded in February 1999 and incorporated as Entertainment
Universe, Inc. ("EUI"). On April 14, 1999, EUI acquired Motorcycle Centers of
America, Inc. ("MCA"), a publicly traded company through a reverse acquisition.
In connection with that acquisition, EUI shareholders exchanged all of EUI's
common stock for 12,904,000 shares of MCA's $.001 par value restricted common
stock. EUI shareholders also exchanged all of its preferred shares for 1,832,812
shares of MCA's Series A 6% Convertible Preferred Stock. As a result, EUI (the
accounting acquirer) became a wholly owned subsidiary of MCA (the legal
acquirer). The former shareholders of EUI own approximately 91.6 percent of MCA.
Subsequent to this, MCA changed its name to eUniverse, Inc.
Comparative Periods
Since EUI, the accounting acquirer, has no operating history, financial
statements are presented using CD Universe's historical data, as EUI's
predecessor.
2) Business Combinations and Investments
During the quarter ended June 30th 1999, the Company completed three significant
acquisitions: CD Universe, Inc., Cases Ladder, Inc., and Gamers Alliance, Inc.
All three
F-10
<PAGE>
acquisitions were recorded using the purchase method of accounting
under the provisions of APB Opinion No. 16.
On April 14, 1999, the Company completed its acquisition of CD Universe, Inc., a
company engaged primarily in selling compact audio disks, video disks, and video
tapes to retail purchasers over the internet. According to the terms of this
acquisition, the Company acquired all of the capital stock of CD Universe, Inc.
for a total consideration of $1,915,000 in cash plus 2,425,000 shares of common
stock of the company valued at $3.00 per share (market price on acquisition
date). This acquisition was recorded as follows:
<TABLE>
<S> <C>
Cash $1,915,000
Stock 7,275,000
Excess liabilities over assets acquired 518,976
Acquisition related services 54,840
----------
Goodwill recorded $9,763,816
</TABLE>
On May 31, 1999, the Company completed its Acquisition of Cases Ladder, Inc., a
company primarily engaged in providing online computer gaming with competitive
rankings, tournaments and leagues among its more than 1.1 million registered
members. The purchase price of this acquisition was 700,000 shares of the
Company's common stock, valued at $10.00 per share (market price on acquisition
date), issued in exchange for all the issued and outstanding shares of Cases
Ladder, Inc. This acquisition was recorded as follows:
<TABLE>
<S> <C>
Stock $7,000,000
Excess assets over liabilities acquired ( 48,295)
Acquisition related services 350,000
-----------
Goodwill recorded $7,301,705
</TABLE>
On June 30, 1999, the Company completed its purchase of Gamers' Alliance, Inc.
Gamers' Alliance operates and maintains one of the largest networks of computer
gaming related sites on the Internet with more than 50 gaming related wed sites.
The purchase price of this acquisition was 78,125 shares of the Company `s
common stock, valued at $12.80 per share (market price on acquisition date),
issued in exchange for all the issued and outstanding shares of Gamers'
Alliance, Inc. Pursuant to the term of the agreement, the purchase price may
increase to 175,781 shares of common stock based on achievement of earnings
performance targets through June 30, 2000. This acquisition was recorded as
follows:
<TABLE>
<S> <C>
Stock $1,000,000
Excess assets over liabilities acquired ( 13,595)
-----------
Goodwill recorded $ 986,405
</TABLE>
Total goodwill recorded through the acquisitions is $18,051,926 and is being
amortized on a straight-line basis over ten years.
3) Other Non-Cash Financial Activities
In addition to the acquisitions described above (Note 2), the following non-cash
transactions were recorded in the quarter ended 6/30/99:
Acquisition of megaDVD website through issuance of 4,605 shares of common stock
priced at $11.40 per share.
F-11
<PAGE>
Issuance of 339,000 share of common stock valued at $.50 per share for various
consulting services.
Issuance of 25,000 shares of common stock valued at $9.50 per share to key
employees of CD Universe in compensation for their involvement in company
activities.
Issuance of warrants to purchase a total of 671,835 share of common stock of the
company as part compensation to its exclusive placement agent, Gerard Klauer
Mattison & Co., Inc. (GKM"). 400,000 of these warrants have the exercise price
of $2.75 per share and became exercisable on April 14, 1999 and expire on April
14, 2004. The remaining 271,835 have an exercise price of $2.81 per share will
become exercisable on April 14, 2000 and expire on April 14, 2004. These
warrants have been recorded in the financial statement valued at $1,214,567.
4) Due from Employees
Due from employees consists of three 6% interest-bearing notes in the amounts of
$85,000, $25,000, and $40,000 due from two former vice presidents of Cases
Ladder, Inc. and former principal of Green Willow (MegaDVD). All three
individuals are currently employees of eUniverse, Inc.
5) Fixed Assets
Fixed assets, at cost, consist of the
following
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
<S> <C> <C>
Furniture and fixture $ 34,097 $ 29,069
Computers and equipment 361,701 238,622
Purchased Software 3,366 1,079
Leasehold Improvements 40,000 40,000
-------------------------------------------
439,164 308,770
Less accumulated depreciation and
amortization 109,818 83,052
Fixed assets, Net $ 329,346 $ 225,718
===========================================
</TABLE>
6) Other Intangibles
Other Intangibles primarily consists of purchase price of web sites acquired:
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
<S> <C> <C>
Domain Name-eUniverse.Com $ 60,000 $ -
MegaDVD.com 52,500
Other 850 850
-----------------------------------------
113,350 850
Less accumulated amortization 2,789 340
Other Intangible, Net $ 110,561 $ 510
=========================================
</TABLE>
In addition to the above Web sites (eUniverse.com and MegaDVD.com) which were
purchased from third parties, the company owns and operates a number of Web
sites acquired through
F-12
<PAGE>
acquisition of it subsidiaries and accounts for them as part of its goodwill.
The above Web sites are being amortized on a straight-line basis over the period
of ten years.
7) Stock based compensation plan
Under the Company's 1999 Stock Award Plan, stock options may be granted to
officers, directors, employees and consultants. For the quarter ended June 30,
1999 the plan's activities were as follows:
Stock Options:
<TABLE>
<CAPTION>
Number of Shares Exercise Price
-------------------- -------------------------
<S> <C> <C>
Outstanding at 3-31-1999 - -
Granted 2,860,000 $3.00 - 11.00
Exercised -
Forfeited -
-------------------- -------------------------
Outstanding at 6-30-1999 2,860,000 $3.00 - 11.00
-------------------- -------------------------
Options exercisable at 6-30-1999 191,667 $3.00 - 11.00
-------------------- -------------------------
</TABLE>
<TABLE>
<CAPTION>
Warrants:
Number of Shares Exercise Price
-------------------- -------------------------
<S> <C> <C>
Outstanding at 3-31-1999 - -
Granted 671,865 $2.75 - 2.81
Exercised -
Forfeited -
-------------------- -------------------------
Outstanding at 6-30-1999 671,865 $2.75 - 2.81
-------------------- -------------------------
Options exercisable at 6-30-1999 400,000 $2.75
-------------------- -------------------------
</TABLE>
The Company uses intrinsic value method (APB Opinion 25) to account for its
stock options granted to officers, directors, and employees and non-employees.
Under this method, compensation expense is recorded over the vesting period
based on the difference between the exercise price and quoted market price on
the date the options are granted. Since the company has granted all its stock
options at an exercise price equal to or above the quoted market value on the
measurement date, no compensation expense related to issuance of stock option
has been recorded.
Had the Company chosen the fair value method of accounting for transactions
involving stock option issuance (SFAS No. 123), the Company would have recorded
an additional $263,911 in compensation cost for the quarter ended June 30, 1999
as presented by the pro forma statement below:
F-13
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1999
<S> <C>
Net loss as reported $(1,553,110)
-----------
Pro forma net loss $(1,817,021)
-----------
Net loss per common share $ (0.13)
-----------
Pro forma loss per share $ (0.15)
------------
</TABLE>
The weighted average of stock options issued during the quarter ended June 30,
1999 was $7.62. The Black-Scholes option-pricing model with a risk free interest
rate of 4.5% and an annualized volatility of 81% was used to estimate the fair
value of the stock options issued.
8) Preferred Stock
On April 14, 1999 EUI sold 1,795,024 shares of its Series A 6% Convertible
Preferred Stock in a private offering pursuant to Regulation D of the Securities
Act of 1933 for the aggregate price of $6,598,122. Holders of the company's have
the right to convert such stocks into shares of the Company's common stock at
any time after October 15, 1999 at a one-to-one ratio unless market price of the
company's common stock is below $3.60, in which case, the conversion ratio would
be adjusted accordingly.
9) Subsequent event
On August 6, 1999, the Company reached definitive agreement to purchase Big
Network, Inc. Big Network is an online entertainment hub with more than 200,000
members. It has created a proprietary, massively scalable interaction engine
that provides multi user games to thousands of simultaneous users. The purchase
price of Big Network is 1,800,000 shares of the Company's common stock in
exchange for all issued and outstanding shares of Big Network, Inc.
F-14
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditors' report....................................................................... F-2
Balance sheets, March 31, 1999 and December 31, 1998 and 1997...................................... F-3
Statements of operations, for the three months ended March 31, 1999, the years
ended December 31, 1998, 1997 and 1996 and the three
months ended March 31, 1998 (unaudited)........................................................ F-4
Statement of shareholders' equity (deficit), for the period from January 1, 1996
through March 31, 1999.......................................................................... F-5
Statements of cash flows, for the three months ended March 31, 1999, the years
ended December 31, 1998, 1997 and 1996 and the three
months ended March 31, 1998 (unaudited)......................................................... F-7
Summary of significant accounting policies.......................................................... F-9
Notes to financial statements...................................................................... F-11
</TABLE>
F-1
<PAGE>
Cordovano and Harvey, P.C. Certified Public Accountants
201 Steele Street
Suite 300
Denver, Colorado 80206
(303) 329-0220 Phone
(303) 316-7493 Fax
To the Board of Directors and Shareholders
Motorcycle Centers of America, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the balance sheets of Motorcycle Centers of America, Inc. as of
March 31, 1999 and December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the three months
ended March 31, 1999 and for the years ended December 31, 1998, 1997 and 1996.
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 consolidated 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 Motorcycle Centers of America,
Inc. as of March 31, 1999 and December 31, 1998 and 1997, and the results of its
operations and its cash flows for the three months ended March 31, 1999 and for
the years ended December 31, 1998, 1997 and 1996, in conformity with generally
accepted accounting principles.
As discussed to Note J to the financial statements, on April 9, 1999, the
Company entered into an Agreement and Plan of Reorganization with Entertainment
Universe, Inc. (EUI). As a result of the reorganization, EUI became a wholly
owned subsidiary of the Company and the former shareholders of EUI own
approximately 91.6 percent of the Company.
Cordovano and Harvey, P.C.
June 3, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
MOTORCYCLE CENTERS OF AMERICA, INC.
Balance Sheets
For The Years Ended
March 31, December 31,
------------------------------
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................... $101,568 $ 887 $ 12,071
Marketable securities (Note C).................................... - 8,000 58,000
-------------- --------------- --------------
TOTAL CURRENT ASSETS 101,568 70,071
8,887
FURNITURE AND EQUIPMENT, less accumulated
depreciation of $2,792, $2,667 and $1,944,
respectively (Note D).................................... 708 833 1,556
-------------- --------------- --------------
$102,276 $ 9,720 $ 71,627
============== =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable........................................... $ - $ 1,497 $ 918
Accrued liabilities........................................ 7,000 7,000 -
Due to officer (Note B).................................... 66,300 46,437 -
-------------- --------------- --------------
TOTAL CURRENT LIABILITIES 73,300 54,934 918
-------------- --------------- --------------
COMMITMENT AND CONTINGENCY (Note G)............................. - - -
SHAREHOLDERS' EQUITY (DEFICIT) (Note F)
Preferred stock, $.10 par value; 40,000,000 shares authorized;
-0- and -0- shares issued and outstanding, respectively... - - -
Common stock, $.001 par value; 250,000,000 shares authorized;
2,148,098, 70,098 and 52,905 shares issued
and outstanding, respectively.......................... 2,148 70 53
Additional paid-in capital................................ 171,796 103,814 111,127
Deferred offering costs................................... (5,734) (5,734) -
Retained deficit.......................................... (139,234) (143,364) (40,471)
-------------- --------------- --------------
TOTAL SHAREHOLDERS EQUITY (DEFICIT) 28,976 (45,214) 70,709
-------------- --------------- --------------
$102,276 $ 9,720 $ 71,627
============== =============== ==============
</TABLE>
See accompanying summary of significant accounting policies and notes to the
financial statements.
F-3
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Years ended December 31, Ended
March 31, ----------------------------------------- March 31,
1999 1998 1997 1996 1998
------------- ------------- ------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES
Occupancy.................................... $ 1,398 $ 5,256 $ 7,542 $ 6,275 $ 1,314
Consulting, related parties (Note B)......... 70,060 - - - -
Consulting................................... 2,936 - 9,000 - -
Legal and accounting.......................... - 16,495 5,350 2,500 2,000
Stock transfer fees........................... 50 2,180 1,593 864 -
Brokerage charges............................. 3,721 - 1,213 2,397 15
Office........................................ 2,158 6,991 1,419 3,210 920
Depreciation.................................. 125 722 833 833 181
Earnest money paid in failed merger (Note H).. - 10,000 - - -
Other......................................... 25 3,959 89 1,525 833
------------- ------------- ------------ ------------- --------------
OPERATING LOSS (80,473) (45,603) (27,039) (17,604) (5,263)
------------- ------------- ------------- ------------- --------------
NONOPERATING INCOME (EXPENSE)
Interest and dividend income.................. 530 150 63 1,531 15
Interest expense.............................. - - (87) (904) -
Trading gains and (losses), net (Note C)...... 84,073 (57,440) 19,337 (7,988) (56,845)
------------- ------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 4,130 (102,893) (7,726) (24,965) (62,093)
INCOME TAXES (Note E)............................ - - - - -
------------- ------------- ------------- ------------- --------------
NET INCOME (LOSS) $ 4,130 $ (102,893) $ (7,726) $ (24,965) $ (62,093)
============= ============= ============= ============= ==============
Basic income (loss) per common share.............. $ 0.04 $ (1.47) $ (0.53) $ (3.73) $ (1.05)
============= ============= ============= ============= ==============
Basic weighted average common shares
outstanding.................................... 94,854 69,833 14,607 6,690 59,155
============= ============= ============= ============= ==============
</TABLE>
See accompanying summary of significant accounting policies and notes to the
financial statements.
F-4
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
January 1, 1996 through March 31, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock Additional Deferred
------------------------------------------------------- Paid-in Offering Retained
Shares Par Value Shares Par Value Shares Amount Capital Costs Deficit Total
------ -------- ------- --------- ------ ------ ----------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996.......... - $ - 5,405 * $ 5 15 * $(9,750) 106,412 $ (7,780) $ 88,887
Sale of treasury stock
(Note F)................ - - - - (8)* 4,875 (1,500) - 3,375
Purchase of treasury
stock (Note F)........... - - - - 8 * (3,375) - - (3,375)
Sale of treasury
stock (Note F)........... - - - - (13)* 7,125 (875) - 6,250
Net loss................... - - - - - - - (24,965) (24,965)
------ -------- -------- --------- ------ ------ ----------- -------- -------- -------
BALANCE, DECEMBER 31, 1996 - - 5,405 * 5 2 * (1,125) 104,037 - (32,745) 70,172
Treasury stock contributed
by officer (Notes B & F). - - - - 3 * (2,600) - - - (2,600)
Sale of treasury stock
(Note F)................. - - - - (5)* 3,725 (2,362) - - 1,363
Sale of common stock....... - - 47,500 * 48 - - 9,452 - - 9,500
Net loss................... - - - - - - - - (7,726) (7,726)
------ -------- -------- --------- ------ ------ ----------- -------- -------- -------
BALANCE, DECEMBER 31, 1997 - - 52,905 * 53 - - 111,127 - (40,471) 70,709
Sale of common stock....... - - 18,750 * 19 - - 3,731 - - 3,750
Repurchase common stock,
subsequently cancelled... - - (1,557)* (2) - - (11,044) - - (11,046)
Deferred offering costs.... - - - - - - - (5,734) - (5,734)
Net loss................... - - - - - - - - (102,893) (102,893)
------ -------- -------- --------- ------ ------ ----------- -------- -------- -------
BALANCE, DECEMBER 31, 1998 - - 70,098 * 70 - - 103,814 (5,734) (143,364) (45,214)
</TABLE>
* Restated for 1 for 20 reverse splits (Note F)
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-5
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
January 1, 1996 through March 31, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock Additional Deferred
------------------------------------------------------- Paid-in Offering Retained
Shares Par Value Shares Par Value Shares Amount Capital Costs Deficit Total
------ -------- ------- --------- ------ ------ ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for
services, at cost of
services................ - - 78,000 * 78 - - 29,982 - - 30,060
Common stock issued to
former officer for
services, at cost of
services (Note B)....... - - 2,000,000 * 2,000 - - 38,000 - - 40,000
Net income for the
three months ended
March 31, 1999.......... - - - - - - - - 4,130 4,130
------ -------- ---------- --------- ------ ------ ----------- -------- -------- ---------
BALANCE, MARCH 31, 1999 - $ - 2,148,098 $ 2,148 - $ - $171,796 $(5,734) $(139,234) $ 28,976
====== ======== ========== ========= ====== ====== =========== ======== ========== =========
</TABLE>
* Restated for 1 for 20 reverse splits (Note F)
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-6
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
Statements of Cash flows
<TABLE>
<CAPITON>
Three Three
Months Months
Ended Years ended December 31, Ended
March 31, --------------------------------------- March 31,
1999 1998 1997 1996 1998
------------ ------------- ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $ 4,131 $(102,893) $ (7,726) $(24,965) $(62,093)
Transactions not requiring cash:
Depreciation....................... 125 723 833 833 181
Common stock issued for services... 70,060 - - - -
Unrealized (gains) losses on
marketable securities, net....... (84,074) 57,440 (5,775) 5,625 56,845
Changes in current assets and current
liabilities:
Purchases of marketable securities.. - (8,000) (31,188) (32,438) -
Proceeds from sale of marketable
securities....................... 92,073 561 32,313 50,163 -
Accounts payable and accrued
expenses........................... (1,497) 7,578 (4,910) 1,971 (918)
------------ ------------- ------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 80,818 (44,591) (16,453) 1,189 (5,985)
------------ ------------- ------------ ------------ -------------
INVESTING ACTIVITIES
Repayment of advances to former
officer (Note B)..................... (5,137) (68,563) (23,150) (14,300) (9,000)
Advances from former officer (Note B)... 25,000 115,000 48,080 6,975 -
------------ ------------- ------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES
19,863 46,437 24,930 (7,325) (9,000)
------------ ------------- ------------ ------------ -------------
FINANCING ACTIVITIES
Purchases of treasury stock............ - (11,046) (2,600) (3,375) -
Proceeds from sale of treasury stock... - - 1,363 9,625 -
Payments for deferred offering costs... - (5,734) - - -
Proceeds from issuance of common stock. - 3,750 9,500 - 3,750
Principal payments on notes payable.... - - (5,000) - -
------------ ------------- ------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
- (13,030) 3,263 6,250 3,750
------------ ------------- ------------ ------------ -------------
CHANGE IN CASH AND CASH EQUIVALENTS... 100,681 (11,184) 11,740 114 (11,235)
Cash and cash equivalents, beginning of
period................................... 887 12,071 331 217 12,071
------------ ------------- ------------ ------------ -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD....................... $101,568 $ 887 $ 12,071 $ 331 $ 836
============ ============= ============ ============ =============
See accompanying summary of significant accounting policies
and notes to the financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
MOTORCYCLE CENTERS OF AMERICA, INC.
Statements of Cash flows
Three Three
Months Months
Ended Years ended December 31, Ended
March 31, --------------------------------------- March 31,
1999 1998 1997 1996 1998
------------ ------------- ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................... $ - $ - $ 874 $ 454 $ -
============ ============= ============ ============ =============
Income taxes............................... $ - $ - $ - $ - $ -
============ ============= ============ ============ =============
Noncash investing and financing transactions:
Receipt of investments as payment for
advances (Note B)........................ $ - $ - $ 46,600 $ - $ -
============ ============= ============ ============ =============
Treasury stock subsequently $ - $ 11,046 $ - $ - $ -
cancelled...................... ============ ============= ============ ============ =============
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-8
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
March 31, 1999
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
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.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Marketable securities
Marketable securities consist of various equity securities and are stated at
current market value. All equity securities are considered "trading" securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Accordingly,
unrealized gains and losses on equity securities are reflected in the
accompanying statements of operations.
Furniture and equipment
Furniture and equipment are recorded at cost and are depreciated using the
straight-line method over the useful lives of the assets, beginning at the time
the assets are placed into operation. Furniture and equipment are depreciated
over estimated useful lives of five years and three years, respectively.
Upon retirement or disposition of the furniture and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations. Repairs and maintenance are charged to expense
as incurred and expenditures for additions and improvements are capitalized.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
F-9
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
March 31, 1999
Treasury stock
The Company accounts for purchases and reissuances of treasury stock using the
cost method. Under the cost method, each acquisition of treasury stock is
accounted for at cost. Upon the sale or disposition, the treasury stock account
is reduced for an amount equal to the number of shares sold, multiplied by the
cost per share. The difference is treated as paid-in capital.
Fair value of financial instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts payable, and
other accrued liabilities approximate fair value due to the short-term maturity
of the instruments.
Earnings per common share
Effective December 31, 1997, SFAS 128 "Earnings per Share" requires a dual
presentation of earnings per share-basic and diluted. Basic earnings per common
share has been computed based on the weighted average number of common shares
outstanding. Diluted earnings per share reflects the increase in weighted
average common shares outstanding that would result from the assumed exercise of
outstanding stock options. Basic and diluted earnings per share were the same
for all prior periods presented due to the Company's simple capital structure.
Earnings per share calculations are reported on a post-split basis for all
periods presented.
New accounting pronouncements
The Company has adopted the following new accounting pronouncements for the year
ended December 31, 1998. There was no effect on the financial statements
presented from the adoption of the new pronouncements. SFAS No. 130, "Reporting
Comprehensive Income," requires the reporting and display of total comprehensive
income and its components in a full set of general-purpose financial statements.
The Company did not have comprehensive income for the periods presented;
therefore, comprehensive income and net income are equal. SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," is based
on the "management" approach for reporting segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosure about the Company's
products, the geographic areas in which it earns revenue and holds long-lived
assets, and its major customers. SFAS 131 is not applicable, as the Company had
no revenue-producing operations for the periods presented. SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits,"
which requires additional disclosures about pension and other post-retirement
benefit plans, but does not change the measurement or recognition of those
plans.
F-10
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note A: Nature of operations
Effective December 19, 1994, Motorcycle Centers of America, Inc. (MCAI)
(formerly NABCO, Inc.) merged with Humanus Corporation (Humanus), which was
incorporated under the laws of Colorado on February 23, 1988. Subsequent to the
merger, Humanus changed its name to NABCO, Inc.
NABCO was originally incorporated for the purpose of manufacturing bagels and
selling them to its subfranchisor and franchisees. In August 1995, NABCO sold
its bagel manufacturing operations, and on August 28, 1995, it officially
terminated operations and became an inactive shell company.
On January 26, 1998, the Company entered into an Agreement and Plan of
Reorganization with Sandale Holdings, Limited, to acquire a motorcycle
manufacturing company in China. The Plan of Reorganization was terminated on
August 14, 1998 (see Note I). In connection with the Plan of Reorganization, the
Company redomiciled in Nevada.
On April 15, 1998, NABCO entered into a merger with MCAI whereby all of the
outstanding shares of common stock in NABCO, amounting to 1,458,807 shares, were
issued to MCAI in exchange for 1,458,807 shares of the $.001 par value common
stock of MCAI. MCAI was the sole surviving corporation. The shares of NABCO were
cancelled following the merger. As a result of the merger, the Company
previously known as NABCO, Inc. became Motorcycle Centers of America, Inc.
On October 4, 1998, the Company entered into an Agreement and Plan of
Reorganization with DDA America, LLC to acquire all of the issued and
outstanding stock of DDA America, LLC. The Plan of Reorganization was terminated
on March 1, 1999 (see Note I).
On April 9, 1999, the Company entered into an Agreement and Plan of
Reorganization with Entertainment Universe, Inc. to acquire all of the issued
and outstanding stock of Entertainment Universe, Inc. (see Note J).
Note B: Related party transactions
Three months ended March 31, 1999
During the three months ended March 31, 1999, an officer advanced the Company
$25,000 for working capital. The Company repaid the officer $5,137 during 1999.
The remaining balance of $66,300 is included in the accompanying financial
statements as due to former officer.
During the three months ended March 31, 1999, the Company issued 2,000,000
shares of its $.001 par value common stock to an officer in exchange for
services (see Notes F and J).
During the three months ended March 31, 1999, the Company issued 78,000 shares
of its $.001 par value common stock to various shareholders in exchange for
services. The transaction was valued at the cost of the services rendered of
$30,060.
F-11
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note B: Related party transactions, continued
1998
During the year ended December 31, 1998, an officer advanced the Company
$115,000 for working capital. The Company repaid the officer $68,563 during
1998. The remaining balance of $46,437 is included in the accompanying financial
statements as due to former officer.
1997
At January 1, 1997, an officer owed the Company $71,530 in advances. During
1997, the Company advanced the officer an additional $23,150, and the officer
repaid the total $94,680. The advances were repaid in cash totaling $48,080 and
marketable securities totaling $46,600. The Company recognized $12,938 in
realized gains and $15,000 in unrealized gains from marketable securities
received from the officer in 1997.
1996
At January 1, 1996, an officer owed the Company $60,205 for cash advances.
During 1996, the Company advanced the officer an additional $14,300, of which
the officer repaid $2,975. The balance at December 31, 1996 totaled $71,530.
Note C: Marketable securities
Marketable securities consisted of the following at March 31, 1999 and December
31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
MARCH 31, 1999 1998 1997
------------------- ------------------- -------------------
ESTIMATED ESTIMATED ESTIMATED
MARKET MARKET MARKET
COST VALUE COST VALUE COST VALUE
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Equity securities................... $51,000 $-- $59,000 $8,000 $52,225 $7,000
======= ======= ======= ====== ======= ======
</TABLE>
F-12
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note C: Marketable securities (concluded)
Following is a summary of investment earnings recognized in income during the
three months ended March 31, 1999 and the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Trading securities:
Realized gains.................................. $84,073 $ -- $13,562 $ 5,200
Realized losses................................. -- (6,440) -- (7,563)
------- ------- ------- -------
Realized gains (losses), net 84,073 (6,440) 13,562 (2,363)
------- ------- ------- -------
Unrealized gains................................ -- -- 15,000 --
Unrealized losses............................... -- (51,000) (9,225) (5,625)
------- ------- ------- -------
Unrealized gains (losses), net -- (51,000) 5,775 (5,625)
------- ------- ------- -------
GAIN (LOSS) ON TRADING SECURITIES, NET $84,073 $(57,440) $19,337 $(7,988)
======= ======= ======= ========
</TABLE>
Note D: Furniture and equipment
Furniture and equipment consisted of the following at March 31, 1999 and
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Office furniture............................................ $ 2,500 $ 2,500 $ 2,500
Computer equipment.......................................... 1,000 1,000 1,000
------- ------- -------
3,500 3,500 3,500
Less: accumulated depreciation.............................. (2,792) (2,667) (1,944)
------- ------- -------
$ 708 $ 833 $ 1,556
======= ======= ========
</TABLE>
F-13
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note E: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows for the three months ended March 31, 1999 and the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. statutory federal rate................................. 15.00% 20.57% 15.00% 15.00%
State income tax rate, net of federal benefit............... 4.25% 4.15% 4.25% 4.25%
Unrealized gains and losses on marketable securities, net... (0.00%) (2.75%) (8.21%) 5.65%
Net operating loss for which no tax benefit is currently
avaliable.................................................. (19.25%) (21.97%) (11.04%) (24.90%)
------ ------ ------ ------
--% --% --% --%
====== ====== ====== =======
</TABLE>
The current tax benefit (expense) for the three months ended
March 31, 1999 and the years ended December 31, 1998, 1997 and 1996 totaled
$(795), $22,608, $853 and $1,924, respectively, which have been offset by the
valuation allowance. The valuation allowance offsets the net deferred tax asset
for which there is no assurance of recovery. The change in the valuation
allowance for the three months ended March 31, 1999 and the years ended December
31, 1998, 1997 and 1996 totaled $(795), $22,608, $853 and $1,924, respectively.
The net operating loss carryforward expires through the year 2019.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
Note F: Shareholders' equity
Preferred stock
The Company is authorized to issue 40,000,000 preferred shares with a
$.10 par value. The Board of Directors has authority to determine the relative
rights and preferences of the preferred shares.
Common stock
The Company is authorized to issue 250,000,000 common shares with a $.001 par
value. Shareholders do not have preemptive rights to purchase additional shares
and cumulative voting of common shares is not permitted.
F-14
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note F: Shareholders' equity (continued)
On March 29, 1999, Motorcycle Centers of America, Inc. issued 1,500,000 shares
of its common stock in exchange for consulting and administrative services
provided to the Company during the three months ended March 31, 1999. The
transaction was recorded at the value of the services, $30,000 ($.02 per share).
Effective March 31, 1999, the Company approved a 20 for one reverse split of its
common stock. Therefore, the 1,500,000 common shares were converted to 75,000
common shares following the reverse split.
On March 31, 1999, the Company issued 3,000 post-split shares of its common
stock in exchange for administrative services provided to the Company during the
three months ended March 31, 1999. The transaction was recorded at the value of
the services, $60 ($.02 per share).
On March 31, 1999, the Company also issued 2,000,000 post-split shares of its
common stock to an officer in exchange for consulting services provided to the
Company during the three months ended March 31, 1999. The transaction was
recorded at the value of the services, $40,000 ($.02 per share).
Treasury stock
As of January 1, 1996, the Company held 6,000 shares of treasury stock at a cost
of $9,750. During 1996, the Company purchased an additional 3,000 shares at a
cost of $3,375 and sold 8,000 shares for proceeds of $9,625. As a result, the
Company recorded a $2,375 charge against additional paid-in capital for the
excess of cost over proceeds from the sale.
As of January 1, 1997, the Company held 1,000 shares of treasury stock at a cost
of $1,125. During the year ended December 31, 1997, an officer repaid an advance
to the Company with 1,300 shares of NABCO stock with a value of $2,600; and the
Company sold 2,300 shares of treasury stock for proceeds of $1,363. As a result,
the Company recorded a $2,362 charge against additional paid-in capital for the
excess of cost over proceeds from the sale. As of December 31, 1997, the Company
held no shares of treasury stock.
Reverse common stock splits
Effective March 31, 1999, the Board of Directors approved a 20 for one reverse
split of the Company's common stock for all shares outstanding as of March 31,
1999. Every 20 shares held by a shareholder prior to the split was replaced by
one share as of April 28, 1999.
On August 1, 1997, the Board of Directors approved a 20 for one reverse split of
the Company's common stock for all shares outstanding as of August 1, 1997.
Every 20 shares held by a shareholder prior to the split was replaced by one
share as of August 11, 1997.
The accompanying financial statements have been restated to give effect to these
reverse splits for all periods presented.
F-15
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note F: Shareholders' equity (concluded)
Deferred offering costs
The Company incurred legal fees and stock transfer fees of $4,500 and $1,234,
respectively, during the year ended December 31, 1998, which were related to
common shares sold under Rule 504 of Regulation D in April 1999. The total
$5,734 is included in the accompanying financial statements as deferred offering
costs.
Note G: Commitment and contingency
Commitment
The Company entered into an operating lease for office space during 1997, which
commenced December 1, 1997 and terminated on November 30, 1998. The Company
renewed the lease through December 31, 1999. Monthly rent payments during 1998
were $438 and the future minimum lease payments total $5,593 due in 1999.
Contingency
As part of the sale of the Company's bagel manufacturing operations in 1995, the
Company sold a building with a mortgage payable totaling $91,349. Although the
building was sold, the Company remains contingently liable until the note is
satisfied.
Note H: Terminated plans of reorganization
Sandale Holdings, Limited (Sandale)
On January 26, 1998, NABCO (subsequently Motorcycle Centers of America, Inc.)
entered into an Agreement and Plan of Reorganization with Sandale, a Bahamian
corporation. As part of the reorganization, Sandale agreed to exchange all
10,000,000 of its Ordinary A shares and common shares; for 5,000,000 (pre-split)
shares of NABCO's $.001 par value restricted common stock. As a result of the
reorganization, Sandale would have become a wholly owned subsidiary of NABCO and
the former shareholders of Sandale would have owned approximately 77 percent of
NABCO. The Agreement and Plan of Reorganization was terminated on August 14,
1998.
DDA America, LLC (DDA)
On October 4, 1998, the Company entered into an Agreement and Plan of
Reorganization with DDA, a Delaware corporation. As part of the reorganization,
DDA agreed to exchange all of its common shares for 2,700,000 shares of the
Company's $.001 par value restricted common stock. As a result of the
reorganization, DDA would have become a wholly owned subsidiary of the Company
and the former shareholders of DDA would have owned approximately 67.5 percent
of the Company. The Agreement and Plan of Reorganization was terminated on March
1, 1999. Earnest money lost in the failed agreement of $10,000 was charged to
expense in during the year ended December 31, 1998.
F-16
<PAGE>
MOTORCYCLE CENTERS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note I: Year 2000 compliance
The Year 2000 issue (Y2K) is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer and telecommunications programs that have date sensitive software may
recognize a date using "00" as the year 1900 instead of 2000. This could result
in system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities. The Company has determined that its
equipment is Y2K compliant.
The Company cannot determine the extent to which the Company is vulnerable to
third parties' failure to remediate their own Y2K problems. As a result, there
can be no guarantee that the systems of other companies on which the Company's
business relies will be timely converted, or that failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
have a material adverse affect on the Company. In view of the foregoing, there
can be no assurance that the Y2K issue will not have a material adverse effect
on the Company's business.
Note J: Subsequent events
Agreement and Plan of Reorganization
On April 9, 1999, the Company entered into an Agreement and Plan of
Reorganization with the shareholders of Entertainment Universe, Inc. (EUI), a
California corporation. EUI agreed to exchange all of its common shares for
12,904,000 shares of the Company's $.001 par value restricted common stock, and
all of its preferred shares for 1,795,024 shares of its Series A six percent
convertible preferred stock. As part of the reorganization, the Company agreed
to a 20 for 1 reverse split of its restricted common stock prior to the exchange
(see Note F). This acquisition will be accounted for as a recapitalization of
EUI, with the Company the legal surviving entity. Since the Company had, prior
to the recapitalization, no operations, the recapitalization has been accounted
for as the sale of 12,904,000 shares of the Company's restricted common stock
and 1,832,810 shares of its Series A six percent convertible preferred stock for
the net assets of EUI. As a result of the reorganization, EUI became a wholly
owned subsidiary of the Company and the former shareholders of EUI own
approximately 91.6 percent of the Company.
Subscription Agreement Securities Offering
The Company conducted an offering of its $.001 par value common stock from April
1, 1999 through April 6, 1999 pursuant to Rule 504 of Regulation D under the
Securities Act of 1933, as amended. A maximum of 900,000 shares was offered
pursuant to a Regulation D Subscription Agreement at a price of $1.00 per share.
Following the offering termination on April 6, 1999, the Company had received
subscriptions for 885,835 shares for a gross amount of $885,835.
Purchase of treasury stock
On April 20, 1999, the Company purchased 1,845,000 shares of its outstanding
common stock from its former officer for $20,000. The shares were cancelled
following the purchase.
F-17
<PAGE>
CD UNIVERSE, INC.
FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
CD UNIVERSE, INC.
FINANCIAL STATEMENTS
MARCH 31, 1999
INDEX
<TABLE>
<S> <C>
Independent Auditor's Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Stockholder's Deficit 4
Statement of Cash Flows 5
Notes to Financial Statement 6 - 11
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CD UNIVERSE, INC.
We have audited the accompanying balance sheet of CD UNIVERSE, INC. as of March
31, 1999 and the related statements of operations, stockholder's deficit, and
cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 CD UNIVERSE, INC. as of March
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
May 14, 1999
<PAGE>
CD UNIVERSE, INC.
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 11,335
Accounts Receivable, net of allowance for
doubtful accounts of $0 92,938
Inventory 22,647
Due from Officer 157,569
Prepaid Expenses and Other Current Assets 9,629
----------
Total Current Assets 294,118
Property and Equipment, net of accumulated
depreciation of $83,052 225,718
Organization Costs, net of accumulated
amortization of $340 510
Goodwill, net of accumulated amortization of $2,000 38,000
-----------
TOTAL ASSETS $ 558,346
===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 942,322
Notes Payable - Officer 105,000
Due to Affiliates (Note 5) 30,000
-----------
Total Current Liabilities 1,077,322
-----------
Commitments and Contingencies (Note 7) -
STOCKHOLDER'S DEFICIT
Common Stock - no par value; authorized 1,000
shares; 1,000 issued and outstanding 1,000
Accumulated Deficit (519,976)
-----------
Total Stockholder's Deficit (518,976)
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 558,346
===========
The accompanying notes are an integral part of the financial statements.
-2-
</TABLE>
<PAGE>
CD UNIVERSE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
REVENUE $8,851,713
COST OF GOODS SOLD 7,550,289
----------
GROSS PROFIT 1,301,424
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,709,601
----------
LOSS FROM OPERATIONS (408,177)
OTHER INCOME 1,013
----------
NET LOSS $ (407,164)
==========
NET LOSS PER COMMON SHARE
Basic $ (407.16)
==========
Diluted $ (407.16)
==========
The accompanying notes are an integral part of the financial statements.
-3-
</TABLE>
<PAGE>
CD UNIVERSE, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Stockholder's
--------------------------
Shares Amount Deficit Deficit
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1998 1,000 $ $1,000 $ (112,812) $ (111,812)
Net Loss for the Year Ended
March 31, 1999 - - (407,164) (407,164)
------------ ----------- ----------- ------------
Balance at March 31, 1999 1,000 $ 1,000 $ (519,976) $ (518,976)
============ =========== =========== ============
The accompanying notes are an integral part of the financial statements.
-4-
</TABLE>
<PAGE>
CD UNIVERSE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(407,164)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities
Depreciation and Amortization 47,322
Changes in Certain Assets and Liabilities:
(Increase) in Accounts Receivable (92,938)
Decrease in Inventory 1,230
Decrease in Prepaid Expenses and Other Current Assets 33,402
Increase in Accounts Payable and Accrued Expenses 407,741
----------
Total Cash Used in Operating Activities (10,407)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Property and Equipment (113,508)
----------
Total Cash Used in Investing Activities (113,508)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes Payable - Officer 150,000
Repayment of Notes Payable - Officer (45,000)
Loans from Affiliates 30,000
Repayment of Loans from Affiliates (110,395)
Loan to Officer (156,569)
----------
Total Cash Used In Financing Activities (131,964)
----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (255,879)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 267,214
----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 11,335
==========
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 286
==========
Income Taxes $ -
==========
The accompanying notes are an integral part of the financial statements.
- 5 -
</TABLE>
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Organization and Line of Business
CD Universe, Inc. was incorporated under the laws of the State of
Connecticut on April 7, 1997. The Company was sold to new management
in April 1999.
The Company sells and distributes compact discs (CD's) and video
recordings to retail purchasers over the internet.
b) 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 disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
c) 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.
d) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents
e) Accounts Receivable
Accounts receivable consist primarily of credit card charges by
customers.
f) Inventory
Inventory consists of compact discs, videos and packaging materials.
Inventory is valued at the lower of cost or market using the
first-in, first-out method.
g) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives
of the assets. Maintenance and repairs are charged to expense as
incurred.
Estimated useful lives are as follows:
Leasehold Improvements 3 years
Computer Equipment 5 years
Telephone Equipment 5 years
Furniture, Fixtures and Other 10 years
- 6 -
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h) Goodwill
Goodwill resulting from the acquisition of assets accounted for as a
purchase is being amortized over 40 years using the straight-line
method.
i) Organization Costs
Organization costs are being amortized over 5 years using the
straight-line method.
j) Income Taxes
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or
settled as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
k) Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates fair
value due to the relatively short maturity of these instruments.
l) Long-Lived Assets
Long-lived assets and certain identifiable intangibles to he held
and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. When required, impairment losses on assets to be held
and used are recognized based on the fair value of the assets and
long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
m) Stock-Based Compensation
The Company has adopted the intrinsic value method of accounting
for stock-based compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" and related interpretations.
n) Revenue Recognition
The Company recognizes revenue upon shipment of its products. The
Company maintains a partner program whereby partners provide links
on their web-sites that bring customers to the CD Universe
web-site. Revenue generated from these linked sites is recognized
upon shipment of the CD's. The partner receives a commission of 5%
to 15% of sales of the Company's products that originate from the
site, recognized as an expense concurrent with the sale.
- 7 -
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
o) Earnings Per Share
During 1997, the Company adopted SFAS No. 128, "Earnings Per Share",
which requires presentation of basic earnings per share ("Basic
EPS") and diluted earnings per share ("Diluted EPS").
The computation of basic EPS is computed by dividing income
available to common stockholders by the weighted average number of
outstanding common shares during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during
the period. The computation of diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect.
The shares used in the computation for the year ended March 31, 1999
was as follows:
<TABLE>
<S> <C>
Basic 1,000
=====
Diluted 1,000
=====
</TABLE>
p) Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued. This statement establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. As of March 31, 1999, the Company has no items that
represent other comprehensive income and, therefore, has not
included a schedule of comprehensive income in the financial
statements.
q) Impact of Year 2000 Issue
During the year ended March 31, 1999, the Company conducted an
assessment of issues related to the Year 2000 and determined that it
was necessary to modify or replace portions of its software in order
to ensure that its computer systems will properly utilize dates
beyond December 31, 1999. The Company expects to complete any Year
2000 systems modifications and conversions by the middle of 1999.
Currently, the Company does not expect that costs associated with
becoming Year 2000 compliant to be material. At this time, the
Company cannot determine the impact the Year 2000 will have on its
key customers or suppliers. If the Company's customers or suppliers
do not convert their systems to become Year 2000 compliant, the
Company may be adversely impacted. The Company is addressing these
risks in order to reduce the impact on the Company.
r) Recent Accounting Pronouncements
During 1998, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information", which changes
the way public companies report information about segments. SFAS No.
131, which is based on the selected segment information quarterly
and entity-wide disclosures about products and services, major
customers and the material countries in which the entity holds
assets and reports revenue. This statement is effective for the
Company's fiscal year. The Company is in the process of evaluating
the disclosure requirements under this standard.
- 8 -
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
r) Recent Accounting Pronouncements (continued)
Additionally, during 1998, the America Institute of Certified
Accountants' Executive Committee issued Statement of Position Number
98-1 (SOP 98-1), "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. Management believes
that the Company is substantially in compliance with this
pronouncement and that its implementation will not have a material
effect on the Company's financial position, results of operations or
cash flows.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows at March 31, 1999:
<TABLE>
<S> <C>
Leasehold Improvements $ 40,000
Computer Equipment 215,543
Telephone Equipment 24,158
Furniture, Fixtures and Other 29,069
------
308,770
Less: Accumulated Depreciation 83,052
---------
Property and Equipment, net $225,718
=========
</TABLE>
Depreciation expense for the year ended March 31, 1999 was $46,152.
NOTE 3 - INCOME TAXES
The components of the provision for income taxes for the year ended
March 31, 1999 are as follows:
<TABLE>
<S> <C>
Current Tax Expense
U.S. Federal $ -
State and Local -
---------
Total Current -
---------
Deferred Tax Expense
U.S. Federal -
State and Local -
--------
-
Total Deferred -
---------
Total Tax Provision from Continuing Operations $ -
==========
</TABLE>
-9-
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 3 - INCOME TAXES (continued)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<S> <C>
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 34.0%
State Income Tax, Net of Federal Benefit -
-------
Effective Income Tax Rate 0.0%
=======
</TABLE>
At March 31, 1999, the Company had net carryforward losses of
approximately $520,000 that can be utilized to offset future taxable
income through 2014. Utilization of these net carryforward losses is
subject to the limitations of Internal Revenue Code Section 382. 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. A valuation allowance equal
to the tax benefit for deferred taxes has been established due to
the uncertainty of realizing the benefit of the tax carryforward.
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 (liabilities) are as follows:
<TABLE>
<S> <C>
Loss Carryforwards $ 176,800
Less: Valuation Allowance (176,800)
-----------
Net Deferred Tax Assets (Liabilities) $ -
===========
</TABLE>
NOTE 4 - NOTE PAYABLE - OFFICER
The Company is indebted to an officer at March 31, 1999 for
$105,000. The terms indicate interest is payable at 8% with loan
principal and interest payable upon demand.
Subsequent to March 31, 1999, the Note was paid down to $85,000.
This amount will be settled through a purchase price adjustment upon
the acquisition of the Company by Entertainment Universe, Inc.
NOTE 5 - RELATED PARTY TRANSACTIONS
In prior years, certain of the Company's fixed asset acquisitions
and certain expenses were paid for through advances by an entity
controlled by the Company's president. These advances, totaling
$110,395, were repaid during the year ended March 31, 1999.
During the current fiscal year, the Company received advances from
an entity controlled by the Company's chairman. These advances
totaled $30,000 and remain outstanding at March 31, 1999. Terms of
repayment and interest are being negotiated.
-10-
<PAGE>
CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 6 - MAJOR VENDOR
The Company purchased approximately 90% of its merchandise from one
vendor. At March 31, 1999, the balance due to that vendor was
approximately $600,000 which was paid in April 1999. The Company does
not believe that the loss of this vendor would have a material adverse
effect on the Company.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases office space under non-cancelable operating lease
agreements that expire within the next three years. Future minimum
lease payments under these non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
March 31,
<S> <C> <C>
2000 $ 117,000
2001 117,000
2002 107,250
---------
Total $ 341,250
=========
</TABLE>
Rent expense under the office lease for the year ending March 31, 1999
was $82,000.
On October 1, 1998, the Company entered into an agreement with Charles
Beilman. The agreement stipulates that Charles Beilman will serve as
Chief Operating Officer and Chief Technical Officer for an annual
compensation of $135,000 and the reimbursement of certain
expenditures, as defined in the related agreement. This agreement
becomes effective when the Company is acquired and its shares are
publicly traded. Mr. Beilman's employment will continue for at least
three years from the date the Company goes public.
NOTE 8 - SUBSEQUENT EVENTS
The Company was acquired by Entertainment Universe, Inc. in April 1999
as a wholly owned subsidiary.
-11-
<PAGE>
CASES LADDER, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS
Page
----
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2 - 3
Statements of Operations 4
Statement of Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7 - 12
</TABLE>
<PAGE>
[Letterhead of Jonathon P. Reuben]
Independent Auditors' Report
Board of Directors
Cases Ladder, Inc.
Newbury Park, California
We have audited the accompanying balance sheet of Cases Ladder, Inc. (A
California corporation), December 31, 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows, for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cases Ladder, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1998, in conformity with generally accepted accounting
principles.
s/s Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
April 9, 1999
<PAGE>
CASES LADDER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ -- $ 15,045
Accounts Receivable (Net of Allowance for Bad Debts of
$19,175 and $5,675) 65,262 94,724
Deferred Tax Asset 2,172 --
Deposits -- 685
------- --------
Total Current Assets 67,434 110,454
Computer Equipment and Software (Note 2) 21,752 35,150
------- --------
Total Assets $89,186 $145,604
======= =========
</TABLE>
See accompanying notes
2
<PAGE>
CASES LADDER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts Payable $19,365 $ 16,185
Accrued Payroll and Payroll Taxes -- 57,472
Accrued Interest --
Income Tax Payable 800 1,600
Customer Deposits 16,667 --
Notes Payable-Affiliate 9,028 8,433
Notes Payable-Shareholders 55,000 61,916
------- --------
Total Current Liabilities 100,860 145,606
Stockholders' (Deficit)
Common Stock, No Par Value, authorized 40,000,000
shares, issued and outstanding 9,437,500 shares at
December 31, 1998, and March 31, 1999 2,750 2,750
Retained Earnings (Deficit) (14,424) (2,752)
------- --------
Total Stockholders' (Deficit) (11,674) (2)
------- --------
Total Liabilities and Stockholders' (Deficit) $89,186 $145,604
======= =========
</TABLE>
See accompanying notes
3
<PAGE>
CASES LADDER, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Revenue $ 378,345 $ 309,737
General and Administrative Expenses (394,141) (295,093)
----------- -----------
Net Income (Loss) Before Provision for Corporate Income
Tax (15,796) 14,644
Benefit (Provision) for Corporate Income Tax 1,372 (2,972)
----------- -----------
Net Income (Loss) (14,424) 11,672
=========== ============
Loss Par Share (0.0015) 0.0012
=========== ============
Weighted Average Shares Outstanding 9,404,630 9,437,500
=========== ============
</TABLE>
See accompanying notes
4
<PAGE>
CASES LADDER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
SHARES AMOUNTS (DEFICIT) TOTAL
------ ------- --------- -----
<S> <C> <C> <C> <C>
Balances at January 1, 1998 -- $ -- $ -- $ --
Original Issuance of Common Stock 9,375,000 2,000 -- 2,000
Sale of Common Stock 93,750 750 -- 750
Net Loss -- -- (14,424) (14,424)
--------- ------ ------- -------
Balances at December 31, 1998 9,468,750 2,750 (14,424) (11,674)
Net Income for the Three Months Ended March 31, 1999
(Unaudited) -- -- 11,672 11,672
--------- ------ ------- -------
Balances at March 31, 1999 (Unaudited) 9,468,750 $ 2,750 $(2,752) $ (2)
========= ======= ======= =======
See accompanying notes
5
</TABLE>
<PAGE>
CASES LADDER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
---- --------------
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $(14,424) $ 11,672
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operations:
Depreciation 280 1,618
Allowance for Bad Debts 5,675 13,500
Income Tax Provision (2,172) 2,172
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Accounts Receivable (70,936) (42,962)
Prepaid Items and Deposits - (685)
Increase (Decrease) in Liabilities:
Accounting payable and Accrued Expenses 19,826 55,648
Customer Deposits 16,667 (16,667)
Income Tax Payable 800 800
-------- --------
Net Cash Provided (Used) by Operating Activities (44,284) 25,096
-------- --------
Cash Flows from Investing Activities:
Equipment Acquisitions (22,032) (15,016)
-------- --------
Net Cash Used by Investing Activities (22,032) (15,016)
-------- --------
Cash Flows from Financing Activities:
Issuance of Common Stock 2,750 --
Advances from Shareholders 55,000 5,560
Payments to Affiliates (71,766) (595)
Advances from Affiliates 80,332 --
-------- --------
Net Cash Provided by Financing Activities 66,316 4,965
-------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents -- 15,045
Cash and Cash Equivalents -- Beginning of Year -- --
-------- --------
Cash and Cash Equivalents -- End of Year $ -- $ 15,045
======== ========
</TABLE>
<PAGE>
Note 1 - Nature of Business
Cases Ladder, Inc. (the "Company") was incorporated under California
State law on August 19, 1998. The Company conducts business in the
Internet software and services industry. Prior to incorporating, the
Company operated as a partnership.
Prior to incorporating, the Company deposited its receipts and
disbursed its funds through a checking accounting under the name
Strategic Alliance Partners, Inc. d.b.a. Cases Ladder. Strategic
Alliance is an affiliate of the Company but operates a distinct and
separate business from that of the Company. Strategic Alliance filed
a fictitious business name statement (the "Statement") with the
County of Los Angeles on March 2, 1998, indicating that Strategic
would be doing business as Cases Ladder. Management does not know
the individual who signed and filed the fictitious business name
statement. This individual was not authorized to perform such an act
on behalf of the Company. Management maintains that this bank account
was opened by the bank in the wrong name.
Note 2 - Summary of Significant Accounting Policies
a) Cash
The Company maintains all of its cash deposits at one bank. The
Company's balance with this bank is insured up to $100,000 as provided
by the FDIC.
b) Computer Equipment and Software
The cost of Computer Equipment and Software is depreciated over the
estimated useful lives of the related assets. Depreciation is computed
on the straight-line method for both financial and tax reporting
purposes. The useful life of the computer equipment and related
software is five years.
c) Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
d) Revenue Recognition
Revenue from the licensing of the Company's software products is
recognized when the respective royalties are earned. Revenue from
product sales and services are recognized at the time the product is
shipped or the services are preformed. Customer advance payments are
deferred and are recognized as revenue when the underlying income is
earned.
e) Earnings Per Share
Effective December 31, 1997, SFAS 128 "Earnings Per Share" requires a
dual presentation of earnings per share-basic and dilutive. Basic
earnings per common share has been computed based upon the weighted
average number of common shares outstanding. Diluted earnings per
share reflects the increase in weighted average common shares
outstanding that would result from the assumed exercise of outstanding
stock options. The computation of diluted earnings per share shall
not assume conversion, exercise, or contingent issuance of securities
that would have an anti-dilutive effect on earnings per share.
The Company reflects only basic loss per share for both periods
presented as the assumed exercise of the outstanding options would
be anti-dilutive.
f) Statement of Comprehensive Income
The Company has adopted SFAS 130 "Comprehensive Income - Financial
Statement Presentation". However, as there is no difference between
net loss as reported on the statement of operations and comprehensive
loss, the Statement of Comprehensive Loss has not been provided.
Note 3 - Computer Equipment and Software
<PAGE>
The following is a summary of computer equipment and software as of
December 31, 1998:
<TABLE>
<S> <C>
Computer Equipment $ 21,237
Computer Softer 795
-------
22,032
Less Accumulated Depreciation (280)
-------
$ 21,752
========
</TABLE>
Depreciation expense charged to operations for year ended December
31, 1998, was $280.
Note 4 - Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes pursuant to the provisions of Statement of
Financial Accounting Standards No. 109 ("FASB 109").
FASB 109 uses the asset and liability method to account for income
taxes which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary
differences between tax basis and financial reporting basis of assets
and liabilities.
<PAGE>
The Components of the (benefit) provision for income taxes for 1998
is as follows:
<TABLE>
<S> <C>
Federal $(2,172)
State 800
-------
(Benefit) Provision for
income taxes $(1,372)
========
</TABLE>
Amounts of deferred tax assets and liabilities for the year ended
December 31, 1998, are as follows:
<TABLE>
<S> <C>
Deferred Tax Liability $ --
Deferred Tax Asset $ 2,172
</TABLE>
Deferred tax assets have not been reduced by any valuation allowances.
The deferred tax asset results primarily from the 1998 net operating loss of
$15,334 which is available to be carried forward to offset future federal and
state taxable income. The loss expires in 2018.
The component of the deferred tax asset consists of the following:
<TABLE>
<S> <C>
Net operating loss $ 2,172
</TABLE>
Note 5 - Notes Payable
Notes payable as of December 31,1998 consist of the following:
<TABLE>
<S> <C>
Affiliate $ 9,028
Officers 55,000
--------
$ 64,028
=========
</TABLE>
Notes payable to affiliates and officers bear interest at 12% and 10%
per annum, respectively. All notes payable are unsecured, and are due
upon demand. Interest charged to operations totaled $4,828.
<PAGE>
Note 6 - Stock Option Plan
The Company has a performance-based stock option plan. Under the
plan, the Company may grant options for up to 1.5 million shares of
common stock for which no vesting contingencies exist, other than
being an employee The exercise price of each option is set at the
discretion of the Board of Directors at the time of each issuance.
Management believes that the exercise price of each option is equal
to or greater then the market value of the respective shares granted.
The Company applies APB Opinion 25 in accounting for its
performance-based stock option plan. Accordingly, no compensation
expense has been recognized for the plan in 1998. Had compensation
costs been determined on the basis of fair value pursuant to FASB
Statement No. 123, net loss and loss per share would have increased
as follows:
<TABLE>
<S> <C>
Net Loss
As reported $ (13,962)
===============
Proforma $ (15,090)
===============
Basic Loss Per Share
As reported $ (0.0015)
===============
Proforma $ (0.0016)
===============
</TABLE>
For proforma purposes, the Company valued the options using the
Black-Sholes option pricing model using the following assumptions:
risk-free interest rate of 5.5%, dividend yield of 0%, volatility
factor of the expected market price of the Company's common stock
of 5% and the expected life of the options of 12 months.
<PAGE>
Following is a summary of the status of the plan during the year
ended December 31,1998:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
<S> <C> <C>
Outstanding at 1-1-98 - $ -
Granted 160,000 0.125
Exercised - -
Forfeited - -
---------- ----------
Outstanding at 12-31-98 160,000 $ 0.125
========= ==========
Options exercisable at 12-31-98 160,000 $ 0.125
========= ==========
</TABLE>
The weighted average fair value at date of grant was $.0705 per
share.
Note 7 - Supplemental Cash Flow Information
For the purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered
to be cash equivalents.
During the year ended December 31, 1998, the Company paid interest
totaling $4,828.
The Company did not pay any income taxes during 1998.
Note 8 - Sales to Major Customers
Sales to three major customers amounted to 38.9%, 16.1% and 14.5% of
total sales for the year ended December 31, 1998
<PAGE>
Note 9 - Concentrations of Credit Risk
The Company extends credit to its customers, all of which are
companies in the Internet software and services industry.
Note 10 - Subsequent Events
On April 1, 1999, the Board of Directors authorized a 5 for 4 stock
split of common stock to stockholders of record on March 14, 1999.
The accompanying financial statements have been restated to give
effect to the indicated stock split for the periods presented.
In April 1999, the Company received $55,000 in exchange for the
issuance of 220,000 shares of its common stock.
In June 1999, the Company issued 645,996 to a consultant who assisted
in the sale of all of the outstanding stock of the Company to
eUniverse, Inc. Prior to the transaction with eUniverse, the Company
issued 501,645 shares of its Common Stock through the exercise of all
of the outstanding options. In determining the number of shares
issued, the Company used a formula that took into account the
exercise price of the respective option and the price per share
offered by eUniverse. The Shareholders of the Company exchanged
10,616,311 shares of the Company's stock for 700,000 restricted
shares of eUniverse' common stock.
Note 11 - Unaudited Information
In the opinion of the Company's management, the accompanying
unaudited financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the
financial position of the Company as of March 31, 1999 and the
results of operations and cash flows for the three-month period
then ended. The operating results of the Company on a quarterly
basis may not be indicative of operating results for the full year.
<PAGE>
THE BIG NETWORK, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
THE BIG NETWORK, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
INDEX
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
BALANCE SHEET 2
STATEMENT OF OPERATIONS 3
STATEMENT OF STOCKHOLDERS' DEFICIENCY 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6 - 13
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
The Big Network, Inc.
We have audited the accompanying balance sheet of The Big Network, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
deficiency and cash flows for the initial period January 30, 1998 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 audit.
We conducted our audit 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 audit provides 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 Big Network, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
initial period then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming The Big
Network, Inc. will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had a net loss for the initial period January
30, 1998 to December 31, 1998, had no significant source of revenue and had a
stockholders' deficiency as of December 31, 1998. This raises substantial doubt
about its ability to continue as a going concern. Management's plans in regards
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
July 23, 1999, except as for
Note 8(d) as to which the
date is September 15, 1999
<PAGE>
THE BIG NETWORK, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 3,554
Accounts Receivable 21,451
Other Current Assets 144
----------
25,149
Equipment, net 80,649
Other Assets 2,266
----------
TOTAL ASSETS $ 108,064
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 73,555
Advances from Stockholders 16,500
Capital Lease Obligation - Current Portion 14,785
----------
104,840
CAPITAL LEASE OBLIGATION, LESS CURRENT PORTION 3,771
COMMITMENTS AND CONTINGENCIES -
----------
Total Liabilities 108,611
STOCKHOLDERS' DEFICIENCY
Preferred Stock - Series A, par value $.001,
5,000,000 shares authorized and 529,449
shares issued and outstanding 530
Common Stock, par value $.001, 15,000,000
shares authorized and 2,675,385 shares issued
and outstanding 2,676
Additional Paid-in Capital 732,312
Accumulated Deficit ( 736,065)
----------
Total Stockholders' Deficiency ( 547)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 108,064
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
THE BIG NETWORK, INC.
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUE $ 83,883
COST OF REVENUE 56,375
----------
27,508
----------
DEVELOPMENT COST 609,416
GENERAL AND ADMINISTRATIVE EXPENSES 131,849
----------
TOTAL EXPENSES 741,265
----------
LOSS FROM OPERATIONS ( 713,757)
----------
OTHER INCOME (EXPENSE)
Investment Income 4,136
Interest Expense ( 2,279)
Write-Off of Purchase Price Over Estimated Fair Value of
Net Assets Acquired ( 24,165)
----------
Total Other Income (Expenses) ( 22,308)
----------
NET LOSS $( 736,065)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
THE BIG NETWORK, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ ---------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1998 - $ - - $ - $ - $ - $ -
Issuance of Preferred Stock -
Series A for:
Cash 401,184 401 - - 340,892 - 341,293
Conversion of Note Payable 120,482 121 - - 99,879 - 100,000
Compensation for Services Rendered 7,783 8 - - 6,452 - 6,460
Issuance of Common Stock for:
Cash - - 127,500 128 15,122 - 15,250
Compensation for Services Rendered - - 55,385 55 5,484 - 5,539
Acquisition of Assets - - 2,492,500 2,493 264,483 - 266,976
Net Loss - - - - - (736,065) ( 736,065)
------- ------- --------- -------- --------- --------- -----------
Balance at December 31, 1998 529,449 $ 530 2,675,385 $ 2,676 $ 732,312 $(736,065) $( 547)
======= ======= ========= ======== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
THE BIG NETWORK, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $( 736,065)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 25,905
Write-Off of Purchase Price Over the Estimated
Fair Value of Net Assets Acquired 24,165
Issuance of Equity Securities for Services Rendered 11,999
Write-Off of Organizational Costs 103,431
Loss on Sale of Securities 4,752
Change in Assets and Liabilities
(Increase) Decrease:
Accounts Receivable ( 8,673)
Other Current Assets ( 144)
Other Assets ( 2,266)
Increase (Decrease):
Accounts Payable and Accrued Expenses 53,732
----------
Net Cash Used in Operating Activities ( 523,164)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment ( 2,632)
Sale of Securities 78,262
Acquisition of Dream Zero, net of cash acquired 238
----------
Net Cash Provided by Investing Activities 75,868
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments for Capital Lease Obligations ( 22,193)
Advances from Stockholders 16,500
Proceeds from Issuances of Note 100,000
Issuance of Common Stock 15,250
Issuance of Preferred Stock - Series A 341,293
----------
Net Cash Provided by Financing Activities 450,850
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,554
CASH AND CASH EQUIVALENTS - JANUARY 30, 1998 -
----------
CASH AND CASH EQUIVALENTS - DECEMBER 31, 1998 $ 3,554
==========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
For the eleven months ended December 31, 1998, the Company paid no income taxes
and paid interest of $2,279.
NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Notes 3, 4 & 7
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Big Network, Inc. ("The Company") (http://www.bignetwork.com)
offers a network of technology and community-driven Web site focused
on people interaction through games and communications. The Company
was incorporated on December 4, 1997. However, the Company was
capitalized and began operations on January 30, 1998.
Basis of Presentation
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company had a net
loss for the eleven months ended December 31, 1998 and a stockholders'
deficiency at December 31, 1998. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are as follows:
The Company is in negotiation to be acquired by a publicly held
company.
The Company is working to raise additional capital and debt
financing to fund operations, increase revenues, and reduce
operating costs.
Use of Estimates
The preparation of financial statements in conformity with general
accepted accounting principals 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 reported period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
For certain of the Company's financial instruments cash and cash
equivalents, receivables, accounts payable and accrued expense and
advances from stockholders the carrying amounts approximate fair value
due to their short maturities. The amounts shown for capital lease
obligations also approximate fair value because interest rates and
terms offered to the Company for similar debt are substantially the
same.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
- 6 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded the FDIC
insured levels at various times during the year. Also, the Company
performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral on accounts
receivable. The Company maintains allowances for credit losses when
required.
Equipment
Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 7 years.
Revenue Recognition
The Company derives its revenue from the sale of advertisements on
short-term contracts. Advertising revenues are recognized ratably over
the period in which the advertisements are displayed. Barter
transactions are recorded at the lower of the estimated fair value of
advertisements received or the estimated fair value of the
advertisements given. Barter revenue and the related advertising is
recorded based on impressions delivered and received with the
difference recorded as an advance or prepaid. Barter revenue was
immaterial for the years ending December 31, 1998.
Advertising and Marketing Expense
The Company expenses costs associated with advertising and marketing
as they are incurred.
Income Taxes
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
("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 for temporary differences
between the reported amount of assets and liabilities and their tax
basis.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes
standards for the reporting and displaying of comprehensive income and
its components in the financial statements. As of December 31, 1998,
the Company has no items that represent other comprehensive income
and, therefore, has not included a schedule of comprehensive income in
the financial statements.
- 7 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Impact of the 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 - EQUIPMENT
As of December 31, 1998, equipment consisted of the following:
<TABLE>
<S> <C>
Computer Equipment $ 54,900
Computer Software 50,836
Office Equipment 818
-----------
106,554
Less: Accumulated Depreciation 25,905
-----------
Equipment, net $ 80,649
===========
</TABLE>
Equipment purchased under capital lease obligations consisted of the
following as of December 31, 1998:
<TABLE>
<S> <C>
Computer Equipment $ 40,749
Less: accumulated depreciation 6,180
-----------
$ 34,569
===========
</TABLE>
Depreciation expense for the eleven months ended December 31, 1998 was
$25,905.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Leases
In 1998, the Company was provided office space at no charge. In July
1999, the Company entered into a non-cancelable lease for office
space. Also, the Company has capital lease obligations for computer
equipment, which expire starting in 1999. The future minimum payments
under the non-cancelable lease and capital lease obligations are as
follows:
- 8 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - COMMITMENTS AND CONTINGENCIES (continued)
<TABLE>
<CAPTION>
Capital Operating
Year Ended December 31, Leases Leases
----------- -----------
<S> <C> <C>
1999 $ 16,271 $ 29,425
2000 3,805 65,100
2001 - 66,900
2002 - 33,900
----------- -----------
Net Minimum Lease Payments 20,076 $ 195,325
Less: Amounts Representing Interest 1,520 ===========
-----------
Present Value of Net Minimum Lease Payments 18,556
Less: Current Portion 14,785
-----------
Long-Term $ 3,771
===========
</TABLE>
The Company had no rent expense for the eleven months ended December
31, 1998.
Revenue Sharing Agreements
The Company has entered into several agreements to share revenues with
individuals independent of the Company. These individuals have
provided the Company with computer games, which the Company has
operating on its web-site. The individuals have granted the Company
usage of the computer games for up to 25% royalty of advertising
revenue generated from the usage of the game on the Company's
web-site. For the eleven months ended December 31, 1998, the Company
had no liabilities due under the agreement.
NOTE 4 - STOCKHOLDERS' EQUITY
Classes of Shares
The Company's Articles of Incorporation enable the Company to issue up
to 20,000,000 shares, consisting of 5,000,000 shares of Preferred
Stock, which have a par value of $0.001 per share and 15,000,000
shares of Common Stock, which have a par value of $0.001 per share.
Preferred Stock
Preferred stock, of 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.
In 1998, the Company's Board of Directors established 1,300,000 shares
of Preferred Stock-Series A and issued 529,449 shares for $447,753.
- 9 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 - STOCKHOLDERS' EQUITY (continued)
The Series A shares have the following significant rights, preferences
and restrictions:
Entitled to receive dividends prior and in preference to any
declaration or payment of any dividend on the Common Stock, at
a rate of $.06 per share per annum, payable quarterly when, as,
and if declared by the Board of Directors. Such dividends shall
not be cumulative.
Each share of Series A shall be convertible, at the option of the
holder, at any time after issuance, into such number of fully paid
common stock as is determined by dividing $0.83 by the conversion
price of $0.83, (which is adjustable under certain criteria).
Each share of Series A has an automatic conversion upon the
Company's sale of its common stock in a firm commitment for a
public offering pursuant to a registration statement under the
Securities Act of 1933 and the public offering price not less than
$4.00 per share, which would result in aggregate cash proceeds to
the Company of $15,000,000, or the date specified by written
consent, or agreement, of the holders of a majority of the then
outstanding shares of the Series A.
Common Stock
In 1998, the Company had the following significant issuances of Common
Stock:
In January 1998, the Company issued 673,900, 553,000 and 618,100
shares of its common stock to the three principal stockholders.
The consideration for the shares was 30,000, 6,000 and 2,500
shares, respectively, of a publicly traded company with an
aggregate market value of $83,014 on the date of contribution,
software with a cost basis of $15,781 and a business plan with a
cost basis of $103,431. The aggregate fair market value of the
contributed assets was $202,226.
The Company issued 127,500 shares of its common stock for proceeds
of $15,250.
On January 30, 1998, the Company acquired all the assets and
assumed certain liabilities of Dream Zero, LLC (''Dream Zero'')
and Play4Prizes (an individual doing business as, ''DBA'') for
435,000 and 212,500 shares, respectively, of the Company's
common stock with an aggregate fair market value of $64,750. The
acquisition agreements grants the Company the right to
repurchase all of the shares of its common stock issued in
conjunction with these acquisitions. (See Note 7).
- 10 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31,
1998
NOTE 5 - SALES
During the eleven months ended December 31, 1998, the Company had four
major customers which accounted for approximately 28%, 18%, 12% and
11% of total sales, respectively. At December 31, 1998, the amounts
due from two of these customers was approximately $13,600 and $5,000.
NOTE 6 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<S> <C>
Federal Income Tax Rate 34.0%
Effect of Valuation Allowance ( 34.0)%
-------
Effective Income Tax Rate 0.0%
=======
</TABLE>
At December 31, 1998, the Company had net carryforward losses of
approximately $730,000. 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.
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:
<TABLE>
<S> <C>
Deferred Tax Assets
Loss Carryforwards $ 297,000
Valuation Allowance ( 297,000)
---------
Net Deferred Tax Assets $ -
=========
</TABLE>
Net operating loss carryforwards expire in 2013.
NOTE 7 - ACQUISITIONS
Asset Acquisition In January 1998, the Company issued 673,900, 553,000
and 618,100 shares of its common stock to the three principal
stockholders. The consideration for the shares was 30,000, 6,000 and
2,500 shares, respectively, of a publicly traded company with an
aggregate market value of $83,014 on the date of contribution,
software with a cost basis of $15,781 and a business plan with a cost
basis of $103,431. The aggregate fair market value of the contributed
assets was $202,226.
- 11 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - ACQUISITIONS (continued)
Dream Zero
On January 30, 1998, the Company acquired all of the assets and
assumed certain liabilities of Dream Zero, LLC, which began its
operations in 1997, in exchange for 435,000 shares of the Company's
Common Stock valued at $43,500. The acquisition was accounted for by
the purchase method of accounting; accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based on
the estimated fair values at the date of acquisition. The excess of
the purchase price over estimated fair value of net assets acquired of
$24,165 has been expensed, because the Company determined that it had
no future value at the date of acquisition.
Play4Prizes
On January 30, 1998, the Company acquired all of the assets and
assumed certain liabilities of Play4Prizes, a DBA, which began
operations in 1997, in exchange for 212,500 shares of the Company's
Common Stock valued at $21,250. The acquisition was accounted for by
the purchase method of accounting; accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based on
the estimated fair values at the date of acquisition.
The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
<TABLE>
<CAPTION>
Assets Dream Zero Play4Prizes
------ ---------- -----------
<S> <C> <C> <C>
Cash $ - $ 238 $ -
Accounts Receivable - - 12,778
Equipment - 7,786 6,000
Software 15,781 16,300 17,306
Other Assets 103,431 24,165 -
Securities 83,014 - -
Liabilities - ( 4,989) ( 14,834)
---------- --------- ---------
Purchase Price $ 202,226 $ 43,500 $ 21,250
========== ========= =========
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
a) Issuance of Series A Preferred Stock
During the first quarter of 1999, the Company issued
453,633 shares of its Preferred Stock-Series A for $376,515, and
issued warrants to purchase up to 216,867 shares of the Company's
Preferred Stock-Series A at $0.83 per share.
b) Stock Options
The Company has issued, for services rendered under contracts,
stock options to purchase 280,000 shares of the Company's common
stock at $0.10 per share.
- 12 -
<PAGE>
THE BIG NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 8 - SUBSEQUENT EVENTS (continued)
c) Repurchase of Common Stock
In 1999, the Company repurchased 108,750 shares of its
common stock at a value of $10,875, which were issued for
the acquisition of the assets from Dream Zero. The
consideration of $10,875 was satisfied by the Company's
return of its rights to certain computer programs acquired
in the acquisition.
d) Sale of Company
On September 15, 1999, the stockholders of the Company
consummated an agreement exchanging all of the issued and
outstanding shares of the Company's common stock for
1,800,000 shares of a publicly held corporation's
common stock.
- 13 -
<PAGE>
PROSPECTUS
OCTOBER , 1999
4,000,000 SHARES
EUNIVERSE, INC.
COMMON STOCK
($.001 par value)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses to be incurred by the Company in
connection with the registration of the securities being registered pursuant to
this Registration Statement.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Securities and Exchange Commission registration fee $6,672.00
Printing fees
Legal fees and expenses
Accounting fees and expenses
Miscellaneous
Total
</TABLE>
Except for the SEC registration fee, all expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY.
Sections 78.751 et seq. of the Nevada Revised Statutes allow a company to
indemnify its officers, directors, employees, and agents from any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, except under certain circumstances.
Indemnification may only occur if a determination has been made that the
officer, director, employee, or agent acted in good faith and in a manner which
such person believed to be in the best interests of the company. A determination
may be made by the shareholders, by a majority of the directors who were not
parties to the action, suit, or proceeding confirmed by opinion of independent
legal counsel; or by opinion of independent legal counsel in the event a quorum
of directors who were not a party to such action, suit, or proceeding does not
exist.
ARTICLES OF INCORPORATION
Article Twelfth of the Articles of Incorporation of the Company provide as
follows with respect to indemnification of Directors and Officers:
"TWELFTH. INDEMNIFICATION: The corporation shall indemnify and hold harmless
the Officers and Directors of the Corporation from any and all liabilities or
claims to the fullest extent now, or hereafter from time to time, permitted
pursuant to the general corporation Law of the state of Nevada."
BYLAWS
Article XII of the Bylaws of the Company provide as follows with respect to
indemnification of Officers and Directors:
"Section 1. Exculpation. No Director or Officer of the Corporation shall be
liable for the acts, defaults, or omissions of any other Director or Officer, or
for any loss sustained by the Corporation, unless the same has resulted from his
own willful misconduct, willful neglect, or gross negligence.
"Section 2. Indemnification. Each Director and Officer of the Corporation and
each person who shall serve at the Corporation's request as a director or
officer of another corporation in which the Corporation owns shares of capital
stock or of which it is a creditor shall be indemnified by the Corporation to
the fullest extent permitted from time to time by the Nevada Revised Statutes
against all reasonable costs, expenses and liabilities (including reasonable
attorneys' fees) actually and necessarily incurred by or imposed upon him in
connection with, or resulting from any claim, action, suit, proceeding,
investigation, or inquiry of whatever nature in which he may be involved as a
party or otherwise by reason of his being or having been a Director or Officer
of the Corporation or such director or officer of such other corporation,
whether or not he continues to be a Director or Officer of the Corporation or a
director or officer of such other corporation, at the time of the incurring or
imposition of such costs, expenses or liabilities, except in relation to matters
as to which he shall be finally adjudged in such action, suit, proceeding,
II-1
<PAGE>
investigation, or inquiry to be liable for willful misconduct, willful neglect,
or gross negligence toward or on behalf of the Corporation in the performance of
his duties as such Director or Officer of the Corporation or as such director or
officer of such other corporation. As to whether or not a Director or Officer
was liable by reason of willful misconduct, willful neglect, or gross negligence
toward or on behalf of the Corporation in the performance of his duties as such
Director or Officer of the Corporation or as such director or officer of such
other corporation, in the absence of such final adjudication of the existence of
such liability, the Board of Directors and each Director and Officer may
conclusively rely upon an opinion of independent legal counsel selected by or in
the manner designated by the Board of Directors. The foregoing right to
indemnification shall be in addition to and not in limitation of all other
rights which such person may be entitled as a matter of law, and shall inure to
his legal representatives' benefit.
"Section 3. Liability Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation or who is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, association, or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not he is indemnified against such
liability by this article XII."
Provided the terms and conditions of the applicable provisions under Nevada
law, the Company's Articles of Incorporation and Bylaws are met, officers,
directors, employees, and agents of the Company may be indemnified against any
cost, loss, or expense arising out of any liability under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and is, therefore,
unenforceable.
We intend to enter into indemnity agreements with each of our directors and
executive officers to give them additional contractual assurances regarding the
scope of the indemnification described above and to provide additional
procedural protections. In addition, we have obtained directors' and officers'
insurance providing indemnification for our directors, officers and certain
employees for certain liabilities. We believe that these indemnification
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The limitation of liability and indemnification provisions in our Amended and
Restated Certificate of Incorporation and Bylaws may discourage shareholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might otherwise benefit
our shareholders and us. Furthermore, a stockholder's investment may be
adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these indemnification
provisions.
At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED STOCK
Since its incorporation in February 1999, eUniverse has issued and sold
unregistered securities in the amounts, at the times, and for the aggregate
amounts of consideration listed as follows:
1. On February 24, 1999, as part of its compensation for acting as exclusive
placement agent for the sale of the EUI Preferred Stock, Gerard Klauer Mattison
& Co., Inc. ("GKM") received warrants to purchase 400,000 shares of Common Stock
at an exercise price of $2.75 per share, which became exercisable on April 14,
1999 and expire April 14, 2004. GKM also received warrants to purchase an
additional 271,835 shares of common stock of the Company at an exercise price of
$2.81 per share, which become exercisable on April 14, 2000 and expire April 14,
2004.
2. On March 3, 1999, the Company issued 250,000 shares of Common Stock for
consideration of $1.00 per share to GKM and certain of its affiliates in a
private offering pursuant to Rule 506 of Regulation D.
3. On April 14, 1999, the Company issued 1,581,594 shares of its common stock to
Joseph Abrams in connection with the Merger Agreement.
4. On April 14, 1999, the Company issued 8,061,000 shares of its common stock to
Brad D. Greenspan in connection with the Merger Agreement.
5. On March 3, 1999, eUniverse issued to Leland N. Silvas 200,000 shares of
Common Stock in consideration of his acceptance of employment by the Company as
President and Chief Executive Officer. See "PRICIPAL SHAREHOLDERS."
6. On April 1, 1999, EUI issued 354,000 shares to approximately 10 persons in
consideration of public relations, legal and related services provided to the
Company in connection with various activities, including the Preferred Stock
Offering and Merger with MCA.
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<PAGE>
7. On April 14, 1999, EUI acquired from Charles Beilman, the sole shareholder of
CD Universe, Inc., one hundred percent of the capital stock of CD Universe, Inc.
for a total consideration of $1,915,000 in cash plus 2,425,000 shares of Common
Stock. Charles Beilman is the Chief Operating Officer, Chief Technical Officer
and a Director of the Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
8. On April 14, 1999, EUI sold 1,795,024 shares of its Series A 6% Convertible
Preferred Stock in a private offering pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D adopted under the Securities Act. The EUI
Preferred Stock was sold to a group of approximately 40 purchasers, including
Lehman Brothers, Eisenberg Partners and principals of Gerard Klauer Mattison &
Co., Inc., all of whom were accredited investors as defined in Rule 501 of
Regulation D. The aggregate offering price for the Preferred Stock was
$6,598,122. In connection with the Reorganization, the holders of the EUI
Preferred Stock exchanged their shares, on a one-to-one basis, for shares of the
Company's Preferred Stock having equivalent rights and preferences, as set forth
in the Designation of Preferred Stock.
9. On April 14, 1999, EUI merged with and into MCA pursuant to an Agreement and
Plan of Reorganization dated April 9, 1999 (the "Merger Agreement"). As
contemplated in the Merger Agreement, all of the outstanding shares of EUI were
acquired by MCA, and the shareholders of EUI were issued shares of MCA equal to
approximately 92% of the shares of MCA outstanding after the transaction. In
connection with the merger into MCA, each share of EUI Preferred Stock was
exchanged for a share of preferred stock of MCA having identical rights and
preferences, and MCA changed its name to eUniverse, Inc.
Prior to April 14, 1999, MCA issued and sold unregistered securities in the
amounts, at the times, and for the aggregate amounts of consideration listed as
follows:
1. In October and November, 1997, the Company sold 47,500 shares of its common
stock for $9,500 under Rule 504 of Regulation D under the Securities Act.
2. On April 2, 1998 the Company sold 18,750 shares of its common stock for
$3,750 under Rule 504.
3. On March 15, 1999, the Company issued 78,000 shares of its common stock to
various shareholders in exchange for services rendered in anticipation of the
reorganization. The transaction was valued at the cost of the services rendered
of $30,060.
4. On March 31, 1999, the Company issued 2,000,000 shares of its common stock to
an officer in exchange for services. The transaction was valued at the cost of
the services rendered of $40,000.
5. On April 6, 1999, MCA sold 897,835 shares of MCA common stock pursuant to
Rule 504 at a price of $1.00 per share to purchasers of the EUI Preferred Stock.
These shares were exchanged for shares of freely tradable common stock of the
Company as the result of the merger with MCA and name change to eUniverse, Inc.
described above.
Subsequent to the Reorganization, the Company issued and sold unregistered
securities in the amounts, at the times, and for the aggregate amounts of
consideration listed as follows:
1. As of June 1, 1999, the Company, in exchange for of all of the outstanding
shares of the Common Stock of Case's Ladder, issued 700,000 shares of restricted
Common Stock of the Company.
2. On June 15, 1999, the Company issued 24,830 shares of restricted common stock
to employees of CD Universe under the 1999 Stock Awards Plan. The awards vest on
April 14, 2000, subject to the continued employment of such employees.
3. As of June 30, 1999, eUniverse issued 78,125 shares of Common Stock valued
at an aggregate price of $1,000,000 in exchange for all the outstanding
capital stock of Gamer's Alliance, Inc.
4. As of August 31, 1999, the Company issued 1,800,000 shares of Common Stock
valued at an aggregate price of $11,025,000 in exchange for all of the
outstanding capital stock of The Big Network, Inc.
Proceeds from the above sales were used for general corporate purposes. Shares
were also issued as considerations in the acquisition of other businesses
and assets. Such businesses and assets are being and in the Company's current
business agreements.
The Company believes that the Rule 504 offers and sales described above were
exempt from registration pursuant to Rule 504 of Regulation D under the
Securities Act because those offers and sales met all the conditions of Rule 504
as then in effect, including the dollar limitation, and the Company was not at
the time of such transactions within any of the categories of issuers prohibited
from using Rule 504.
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<PAGE>
Except for the sales pursuant to Rule 504 described above, the foregoing sales
of Common Stock and Preferred Stock were made in reliance upon the exemptions
from registration set forth in Section 4(2) of the Securities Act of 1933
and/or Rule 506 of Regulation D promulgated thereunder for transactions not
involving a public offering. No underwriters were engaged in connection with
the foregoing sales of securities. These sales were made without general
solicitation or advertising. Each purchaser was an "accredited investor" or a
sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to the Registrant that the
shares were being acquired for investment.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title/Description
- ------ -------------------------
<S> <C>
3.01 Articles of Incorporation of the Company./(1)/
3.02 Amended Articles of Incorporation of the Company regarding change of
name./(1)/
3.03 Certificate of Amendment of Articles of Incorporation regarding
issuance of Preferred Stock./(1)/
3.04 Bylaws of the Company./(1)/
3.05 Amendment to Bylaws./(3)/
3.06 Designation of Preferred Stock of Motorcycle Centers of America, Inc.
dated April 7, 1999, as filed with the Secretary of the State of
Nevada, which defines the rights and preferences of the Preferred
Stock of the Company./(1)/
5* Opinion of Martin, Lois & Gasparrini, LLC.
10.01 Stock Purchase Agreement by and between Palisades Capital, Inc. and
Charles Beilman, dated as of October 1, 1998 (the "Stock Purchase
Agreement")./(1)/
10.02 Amendment to Stock Purchase Agreement, dated December 29, 1998./(1)/
10.03 Amendment No. 2 to Stock Purchase Agreement, dated February 11, 1999.
/(1)/
10.04 Amendment No. 3 to Stock Purchase Agreement, dated as of March ___,
1999./(1)/
10.05 Amendment Number 4 to Stock Purchase Agreement, dated as of June 9,
1999./(1)/
10.06 Agreement and Plan of Reorganization by and among Motorcycle Centers
of America, Inc., Entertainment Universe, Inc. and the principal
officers of Entertainment Universe, Inc., dated April 9, 1999./(1)/
10.07 Entertainment Universe, Inc. Regulation D Subscription Agreement,
dated as of April ___, 1999./(1)/
10.08 Entertainment Universe, Inc. Registration Rights Agreement, dated as
of April 1999./(1)/
10.09 Assignment and Assumption Agreement by and between Entertainment
Universe, Inc. and Motorcycle Centers of America, Inc., dated as of
April 14, 1999./(1)/
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.10 Stock Purchase Agreement by and among Motorcycle Centers of America,
Inc. and the shareholders of Case's Ladder, Inc., dated as of April 21,
1999./(1)/
10.11 Contract of Employment by and between Entertainment Universe, Inc.
and William R. Wagner, dated March 25, 1999./(1)/
10.12 Employment Agreement by and between eUniverse, Inc. and Leland N.
Silvas, dated as of April 14, 1999./(1)/
10.13 Letter agreement between Entertainment Universe, Inc. and E.P.
Opportunity Fund, L.L.C. regarding appointment of a director of Entertainment
Universe, Inc., dated April 6, 1999./(1)/
10.14 Modification and Restatement of Lease by and between Vincenzo Verna
Trustee d/b/a Harvest Associates and CD Universe, Inc. for the
Company's office space in Wallingford, Connecticut, dated as of
February 1, 1999./(1)/
10.15 Agreement and Plan of Reorganization by and among eUNIVERSE, INC.,
a Nevada corporation, GAMER'S ALLIANCE, INC., a Missouri
corporation, and Larry N. Pevnick and Robin T. Pevnick, Ten Ent.,
residents of St. Louis County, Missouri, Stan Goldenberg and
Andrea R. Goldenberg, Ten Ent., residents of St. Louis County,
Missouri dated as of the 1st of July, 1999./(2)/
10.16 Agreement and Plan of Reorganization by and Among eUniverse, Inc., The
Big Network, Inc., and Stephen D. Sellers, John V. Hanke and Michael
Sellers dated July 30, 1999 (effective as of August 31, 1999). /(2)/
10.17 Letter Agreement by and among Brad D. Greenspan, Charles Beilman,
Stephen D. Sellers and John V. Hanke regarding appointment of a
director of eUniverse, Inc., dated as of August 31, 1999. /(2)/
10.18 Employment Agreement by and between eUniverse, Inc. and John Haiduck,
dated as of June 17, 1999. /(2)/
10.19 Employment Agreement by and between eUniverse, Inc. and Stephen D.
Sellers, dated as of August 31, 1999. /(2)/
10.20 Employment Agreement by and between eUniverse, Inc. and John V. Hanke,
dated as of August 31, 1999./(2)/
10.21 eUniverse, Inc. Registration Rights Agreement dated July 30, 1999. /(2)/
10.22 Office Sublease, dated July 9, 1999, by and between GOLDEN GATE
UNIVERSITY, a California non-profit public benefit corporation,
and THE BIG NETWORK, INC., a Delaware corporation. /(2)/
10.23 Engagement Letter by and among Gerard Klauer Mattison & Co., Inc.,
Entertainment Universe, Inc. and Brad Greenspan, dated February 24,
1999. /(2)/
10.24 Indemnification Agreement by Entertainment Universe, Inc. and Brad
Greenspan in favor of Gerard Klauer Mattison & Co., Inc. /(2)/
10.25 eUniverse, Inc. 1999 Stock Awards Plan. /(2)/
21.01 Subsidiaries of eUniverse, Inc./(3)/
23.01* Consent of Martin, Lois & Gasparrini, LLC (Included in Exhibit 5)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
23.02 Consent of Jonathan P. Reuben, CPA
23.03 Consent of Cordovono & Harvey, PC
23.04 Consent of Merdinger, Fruchter, Rosen & Corso, PC
23.05 Consent of Merdinger, Fruchter, Rosen & Corso, PC
24.01 Power of Attorney (see signature page of this Registration Statement)
27.01 Financial Data Schedule
</TABLE>
/(1)/Incorporated by reference to the Company's Form 10 filed on June 14, 1999
(Registration File No. 0-26355).
/(2)/Incorporated by reference to the Company's Form SB-2 filed on September
13, 1999 (Registration File No. 333-86959).
/(3)/Incorporated by reference to Amendment Number 1 to the Company's Form 10
filed on September 30, 1999 (Registration File No. 0-26355).
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424 (b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a)(1) (i) and (a)(1) (ii) do not apply if the
Registration Statement is on From S-3, Form S-8 or Form F-3, and the information
required to be, included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Company pursuant to Section 13 or Section 15 (d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration Statement.
(2) For purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities raising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the, foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
II-6
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Wallingford, State of
Connecticut, on October 15, 1999.
eUniverse, Inc.
By: /s/ Leland N. Silvas
_______________________________________
Leland N. Silvas
President and Chief Executive Officer
The undersigned officers and directors of the registrant hereby severally
constitute and appoint Leland N. Silvas, William R. Wagner, Charles Beilman, and
Brad D. Greenspan, and each of them, our true and lawful attorney with full
power to sign for us and in our names in the capacities indicated below, any and
all pre-effective and post-effective amendments to the Registration Statement on
Form S-1 filed herewith and any additional registration statements filed
pursuant to Rule 462(b) to register additional shares, and generally to do all
such things in our names and behalf in our capacities as officers and directors
to enable the registrant to comply with the provisions of the Securities Act of
1933, hereby ratifying and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/ Leland Silvas
_______________________________________
Leland Silvas
President, Chief Executive Officer and Director
(principal executive officer)
Date:__________________________________
/s/ William R. Wagner
_______________________________________
William R. Wagner
Chief Financial Officer
(principal financial officer and principal accounting officer)
Date:__________________________________
/s/ Brad D. Greenspan
_______________________________________
Brad D. Greenspan
Chairman of the Board of Directors
Date:__________________________________
/s/ Charles Beilman
_______________________________________
Charles Beilman
Chief Operating Officer and Director
Date:__________________________________
/s/ Gordon Landies
______________________________________
Gordon Landies
Director
Date:__________________________________
II-7
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
eUNIVERSE, INC.
101 North Plains Industrial Road
Wallingford, Connecticut 06492
We consent to the use in this Registration Statement of eUniverse, Inc. on
Form S-1/A, Amendment No. 1 of our report dated April 9, 1999, and to the
reference to us under the headings "Experts."
Jonathon P. Reuben, C.P.A.
An Accountancy Corporation
Torrance, CA 90505
October 8, 1999
<PAGE>
EXHIBIT 23.03
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of eUniverse, Inc. on Form
S-1 of our report dated June 3, 1999, appearing in the Prospectus, which is part
of this Registration Statement, and of our report dated June 3, 1999 relating to
the financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Cordovano and Harvey, P.C.
Denver, Colorado
October 13, 1999
<PAGE>
EXHIBIT 23.04
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use in this Registration Statement of eUniverse, Inc.
on Form S-1 of our report dated May 14, 1999 relating to the financial
statements of CD Universe, Inc., and to the reference to our Firm under the
caption "Experts" in such Registration Statement.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
October 8, 1999
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use in this Registration Statement of eUniverse, Inc.
on Form S-1 of our report dated July 23, 1999, except as for Note 8(d) as to
which the date is September 15, 1999, relating to the financial statements of
The Big Network, Inc., and to the reference to our Firm under the caption
"Experts" in such Registration Statement.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
October 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 4,194,109 11,335
<SECURITIES> 0 0
<RECEIVABLES> 212,271 92,938
<ALLOWANCES> 19,175 0
<INVENTORY> 41,451 22,647
<CURRENT-ASSETS> 4,657,573 294,118
<PP&E> 439,164 308,770
<DEPRECIATION> 109,818 83,052
<TOTAL-ASSETS> 22,882,213 558,346
<CURRENT-LIABILITIES> 1,107,058 1,077,322
<BONDS> 0 0
<COMMON> 14,838 1,000
0 0
179,502 0
<OTHER-SE> 21,580,815 (519,976)
<TOTAL-LIABILITY-AND-EQUITY> 22,882,213 558,346
<SALES> 2,034,955 5,851,713
<TOTAL-REVENUES> 2,034,955 5,851,713
<CGS> 1,659,558 7,550,289
<TOTAL-COSTS> 1,659,558 7,550,289
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 85,801 0
<INCOME-PRETAX> (1,553,110) (408,177)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,553,110) (408,177)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,553,110) (408,177)
<EPS-BASIC> (0.13) (0.03)
<EPS-DILUTED> (0.13) (0.03)
</TABLE>
