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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 2000
Registration No. 333-_____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------------
FALCON ENTERTAINMENT CORP.
(Name of Small Business Issuer in Its Charter)
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<CAPTION>
<S> <C>
Delaware 334110 22-281-1783
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
675 Third Avenue, 12th Floor
New York, New York 10017
(212) 557-5557
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Anthony Escamilla, Chief Operating Officer
675 Third Avenue, 12th Floor
New York, New York 10017
(212) 557-5557
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
Charles B. Pearlman, Esq.
Brian A. Pearlman, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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 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,
please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security Offering Price Registration Fee
-------------------- ------------ --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.00005 per share 3,544,999 $1.00 (1) $3,544,999 $ 935.88
Common Stock, par value
$.00005 per share issuable
upon the exercise of
outstanding warrants 340,000 $2.50 (2) $ 850,000 $ 224.40
Total Registration Fee $ 1,160.28
</TABLE>
(1) Estimated solely for purposes of calculating the registration
fee pursuant to Rule 457. Based upon the average of the
closing bid and asked prices for the common stock on
November 7, 2000.
(2) Includes 340,000 shares of common stock issuable upon exercise
of warrants exercisable at $2.50 until March 9, 2005.
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 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this filing is subject to completion or
amendment. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
state.
ii
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Subject to Completion November 9, 2000
PROSPECTUS
FALCON ENTERTAINMENT CORP.
3,884,999 SHARES OF COMMON STOCK
This prospectus covers 3,884,999 shares of common stock, of Falcon
Entertainment Corp. being offered by certain selling security holders. Of these
shares 340,000 will be issued upon the exercise of warrants. We will not receive
any proceeds from the sale of shares by selling security holders. We may receive
up to $850,000 if all of our warrants are exercised.
Our common stock is traded on the OTC Bulletin Board under the trading
symbol INDE (previously JNET). On October 30, 2000, the latest date on which a
trade in our common stock was reported, the closing price was $1.00. There is
currently only a limited trading market in our common stock and we do not know
whether an active trading market will develop.
--------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD
REVIEW RISK FACTORS BEGINNING ON PAGE 5 BEFORE INVESTING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------
The date of this prospectus is , 2000
<PAGE>
PROSPECTUS SUMMARY
This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. You are urged to read this
prospectus carefully and in its entirety, as well as the documents we have
referred you to in the section called "Where You Can Find More Information".
In this prospectus, "Falcon Entertainment Corp.", "Falcon", "we", "us",
"our", and the "Company" refer to Falcon Entertainment Corp. and its
subsidiaries. All information gives effect to a 1:40 reverse stock split
effected in March 1999.
OUR COMPANY
Falcon Entertainment Corp. and our wholly owned subsidiaries comprise a
diversified entertainment company. We broadcast music videos of amateur and
professional artists over cable and direct satellite television on our
television channel, IMNTV, and webcast those videos over the Internet through
our web site, www.IMNTV.com. We also operate a record label, InVision Records,
and intend to commence operations of a second record label, Ecity Records.
Through these labels, we intend to produce and mass market the music of artists
and bands, including certain of those who submit videos for broadcast over
IMNTV. We further intend to:
- Develop our web site into a web portal to promote our products and
services;
- Promote the musicians signed to our record labels;
- Provide music news and related informational services; and
- Provide links to related web sites.
To date, we have not generated revenues from the operation of our
current business model. For the fiscal years ended May 31, 2000 and 1999, we
incurred losses of $5,866,842 and $62,619, respectively. In March 2000, we
completed a private offering of our common stock, raising approximately
$7,395,000 after deductions for commissions, fees and offering expenses.
We were incorporated in March 1986 under the laws of the State of
Delaware under the name AVTR Systems, Inc. In April 1999, we changed our name to
Independent Music Group, Inc., and in December 1999 we changed our name to
Falcon Entertainment Corp. In April 1999, we acquired all of the issued and
outstanding capital stock of Independent Music Network, Inc., a Delaware
corporation, from James Fallacaro who serves as our president, chief executive
officer and chairman.
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Our executive offices are located at 675 Third Avenue, 12th Floor, New
York, New York 10017 and our telephone number there is (212) 557-5557. Falcon
Entertainment Corp.'s common stock trades on the OTC Bulletin Board under the
symbol INDE.
THE OFFERING
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<C> <C>
Common stock offered by
selling security holders....................................... 3,884,999 shares
Use of proceeds................................................ The proceeds from the sale of each selling
security holder's common stock will belong to
the selling security holder. We will not
receive any of the proceeds, except any amount
paid to us by selling security holders as the
exercise price of warrants. If all of our
warrants covered by this prospectus are
exercised we will receive approximately $850,000.
Common stock outstanding:
Prior to the offering .................................... 13,375,724
After the offering ...................................... 13,383,224
Warrants outstanding:
Prior to the offering..................................... 340,000
After the offering........................................ 340,000
</TABLE>
3
<PAGE>
SELECTED FINANCIAL DATA
The following summary of our financial information has been derived
from our audited consolidated financial statements. The historical results are
not necessarily indicative of the operating results to be expected in the
future. You should read this summary financial information together with the
more detailed financial statements and related notes beginning on page F-1 of
this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended Year Ended August 31, 2000
May 31, 2000 May 31, 1999 (Unaudited)
------------ ------------ ------------------
<S> <C> <C> <C>
Revenues $76,549 $10,046 $10,330
Operating Expenses $5,943,391 $72,665 $2,127,824
Net (Loss) $(5,866,842) $(62,619) $(2,117,494)
Net (Loss) Per Share $(.57) $(.01) $(.16)
Three Months Ended
August 31, 2000
May 31, 2000 May 31, 1999 (Unaudited)
------------ ------------ ------------------
Working Capital
(Deficit) $819,940 $(97,180) $(1,024,884)
Total Assets $3,515,735 $263,115 $1,269,034
Current Liabilities $1,556,777 $359,395 $1,106,528
Shareholders' Equity
(Deficit) $1,958,958 $(96,280) $162,506
</TABLE>
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RISK FACTORS
RISKS GENERALLY RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL IN THE NEAR FUTURE, WE MAY HAVE TO
CURTAIL OR CEASE OPERATIONS.
We have historically financed our operations primarily through the sale
of our securities. As of May 31, 2000, we had cash and cash equivalents of
$1,829,580 and an accumulated deficit of $5,968,847. We expect that we will need
to raise additional funds in the immediate future in order to meet our working
capital requirements. In this regard, our independent public accountants have
raised substantial doubt as to our ability to continue as a going concern. See
Note 2 to the consolidated financial statements included in this Annual Report.
We may not be able to obtain additional financing on terms favorable to us, if
at all. If adequate funds are not available to us, we may have to curtail or
cease operations, which would materially harm our business and financial
results. To the extent we raise additional funds through further issuances of
equity or convertible debt or equity securities, our existing stockholders could
suffer significant dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders of our common
stock. Furthermore, any debt financing secured by us in the future could involve
restrictive covenants relating to our capital raising activities and other
financial and operational matters, which may make it more difficult for us to
obtain additional capital and to pursue business opportunities.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT.
Although we incorporated in March 1986, we did not begin developing our
current business model until 1999. We only began broadcasting content over our
music channel, in a limited number of markets and during a limited number of
time periods, on June 1, 2000. In addition, as of August 31, 2000 we had signed
only three artists to our record labels, and we do not anticipate distributing
any of our artists' recordings until early 2001. Our extremely limited operating
history makes it difficult to evaluate our current business and prospects or to
accurately predict our future revenues or results of operations. Our business
model, and accordingly our revenue and income potential, is new and unproven. In
addition, we are subject to risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets.
WE HAVE A NEW AND UNPROVEN BUSINESS MODEL AND MAY NOT GENERATE SUFFICIENT
REVENUES FOR OUR BUSINESS TO SURVIVE OR BE SUCCESSFUL.
5
<PAGE>
Our business model is based on the commercial viability of a new
national cable television channel devoted to the broadcast of music videos of
amateur and professional artists, as well as of two new record labels. In order
for our business to be successful, we must not only develop services that
directly generate revenues, but also provide content and services that attract
consumers to our cable television channel and our web site. Our business model
assumes that a large audience will develop for our cable television channel,
that cable operators in many markets will air our programming, and that we will
be able to generate significant revenues through the sale of advertising time on
our channel. Our model further assumes that we will be able to generate
significant revenues through the sale of recordings by our musical artists, as
well as related merchandise. Each of these assumptions is unproven, and if any
of the assumptions is incorrect, we may be unable to generate sufficient
revenues to sustain our business or to obtain profitability.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $5,866,842 in the fiscal year ended May 31,
2000 and our accumulated deficit as of May 31, 2000 was $5,968,847. We have not
achieved profitably and expect to continue to incur losses for the foreseeable
future. We expect those losses to increase from current levels as we continue to
incur expenses to develop our products and services. We believe that our
business depends on our ability to significantly increase revenues and to limit
our operating expenses. If our revenues fail to grow at anticipated rates or our
operating expenses increase without a commensurate increase in our revenues, or
we fail to adjust operating expense levels appropriately, we may never be able
to achieve profitability.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO BE VOLATILE, AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our future revenues and operating results are likely to vary
significantly from quarter to quarter due to a number of factors, many of which
are outside of our control. Accordingly, quarter-to-quarter comparisons of our
results of operations may not be indicative of future performance. It is
possible that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the price
of our common stock will likely decline. Factors which may cause our revenues
and operating results to fluctuate include the following:
- our ability to attract and retain advertisers;
- the willingness of cable operators to broadcast our programming;
- market acceptance of our music channel and our music releases;
6
<PAGE>
- the timing and uncertainty of sales cycles;
- our ability to sign additional artists to our record labels;
- our ability to enter into satisfactory manufacturing and
distribution arrangements for our music recordings;
- new services offered by current or future competitors; and
- general economic conditions, as well as economic conditions specific
to the music industry.
WE FACE INTENSE COMPETITION FROM BUSINESSES THAT HAVE SIGNIFICANTLY MORE
RESOURCES THAN WE DO.
We face intense competition for a finite amount of consumer
discretionary spending from numerous other entertainment companies and other
businesses in the entertainment industry, including television networks such as
MTV and VH1, major recording companies such as Sony, Time Warner, Universal and
EMI, and a wide variety of music- and entertainment-related web sites. All of
these businesses have substantially greater resources, histories of attracting
and retaining talent, obtaining properties and hiring key employees.
There are a number of television channels already on the market that
offer music entertainment to their viewers. These channels are backed by large
organizations that have more resources than we do. We compete, directly and
indirectly, with these and other channels for viewers, consumers, content and
service providers, advertisers and sponsors. To be competitive, we must enhance
our services and content on a timely and cost-effective basis. There can be no
assurance that we will be successful in attracting viewers, advertisers,
sponsors or adapting our television channel to user requirements or emerging
industry standards. Similarly, the market for recorded music is dominated by the
major record companies, certain of which are a part of larger entertainment
conglomerates, and have recording divisions with significant financial resources
and promotional budgets and large artist and repertoire staffs to compete for a
limited number of promising recording artists, producers and writers. Although
we intend to use our television channel to promote the videos of our artists,
there is also intense competition within the recording industry for "air time"
by radio disc jockeys, which is essential to gain attention and create demand
for recordings. There can be no assurance that any of our labels' artists,
recordings or music videos will gain the exposure required to generate
significant market interest or that we will be able to compete successfully.
We will compete with various forms of entertainment which provide
similar value, including movies, video and audio cassettes, broadcast
television, cable programming, special
7
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pay-per-view events, sporting events and other forms of entertainment which
may be less expensive or provide other advantages to our targeted viewers. We
will also compete for advertising dollars with traditional media. While we
believe that IMNTV is currently the only network of our kind, there can be no
assurances that other companies are not developing or will not seek to
develop similar networks. If our network is successful, it is possible that
other companies may seek to enter or capitalize on such a market and compete
directly with us. Many of these companies may have substantially greater
financing, personnel, technical and other resources than we do and may have
well-established reputations for success in the development, promotion and
marketing of entertainment events. There can be no assurance that we will be
able to compete successfully with these other entities.
WE ARE SUBJECT TO ALL OF THE RISKS AND UNCERTAINTIES ASSOCIATED WITH THE
ENTERTAINMENT INDUSTRY, ALL OF WHICH MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS
AND RESULTS OF OPERATIONS.
Content acquisition costs, as well as promotion and marketing expenses
and third-party participation payable to producers and others, which reduce
potential revenues derived from programming events and musical recordings, have
increased significantly in recent years. Our future operating results will
depend upon numerous factors beyond our control, including the popularity, price
and timing of programming and special events being released and distributed,
national, regional, and local economic conditions, changes in demographics, the
availability of alternative forms of entertainment, critical reviews and public
tastes and preferences, which change rapidly and cannot be predicted. If we are
unable to successfully anticipate and respond to relatively rapid changes in
consumers' tastes and preferences, our business and operating results will be
adversely affected.
OUR ABILITY TO ACHIEVE OR MAINTAIN PROFITABILITY WILL BE CONSTRAINED IF WE DO
NOT EFFECTIVELY MANAGE OUR ANTICIPATED RAPID GROWTH.
We expect to significantly increase our employee base as we implement
our business model and develop our product and service offerings. We currently
have only 13 employees. As we expand our operations, we expect to significantly
increase the size of our employee base. Our management and operations are likely
to be strained by this anticipated growth. To compete effectively and to manage
future growth, we must improve our financial and management controls, reporting
systems and procedures on a timely basis. We must also expand, train and manage
our employee base. If we are not successful in managing our growth, our ability
to achieve or maintain profitability may be harmed.
8
<PAGE>
WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO DEVELOP AND EFFECTIVELY MANAGE OUR BUSINESS.
Our future performance will depend largely on the efforts and abilities
of our senior executives and other key personnel. Our success will depend on our
ability to attract and retain these key employees in the future. The market for
such persons is extremely competitive and we may not find qualified replacements
for personnel who leave us. In addition, we do not maintain key person life
insurance on any of our key personnel, and have no plans to do so. The loss of,
or the inability to attract, any one or more of our key personnel may harm our
ability to develop and effectively manage our business.
CURRENT OR FUTURE GOVERNMENT REGULATION MAY ADD TO OUR OPERATING COSTS.
We may face unanticipated operating costs because of the current
uncertainty surrounding potential government regulation of the Internet and
e-commerce. We believe that we are not currently subject to direct regulation of
our current and expected activities, other than regulations generally applicable
to businesses. However, the Internet has rapidly emerged as a commerce medium,
and governmental agencies have not yet been able to adapt all existing
regulations to the Internet environment. Laws and regulations may be introduced
and court decisions reached that affect the Internet or other online services,
covering issues such as user pricing, user privacy, freedom of expression,
access charges, content and quality of products and services, advertising,
intellectual property rights and information security. Complying with new
regulations would increase our operating costs. Furthermore, as a company with a
significant Internet presence, it is unclear in which jurisdictions we are
actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines or penalties
and could result in our inability to enforce contracts in that jurisdiction.
9
<PAGE>
effects structural changes in the cable industry could have a material
adverse impact on our business and operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH COULD
RESULT IN THEIR UNAUTHORIZED USE BY OUR COMPETITORS AND HAVE AN ADVERSE IMPACT
ON OUR REVENUES.
Our success depends in part on our ability to protect our proprietary
rights. There can be no assurance that the measures taken by us to protect our
proprietary rights will be adequate to prevent misappropriation or independent
development by others of programming and media concepts based upon, or otherwise
similar to, those of our network. In addition, although we believe that our
programming and concepts have been independently developed and do not infringe
on the proprietary rights or trade secrets of others, there can be no assurance
that our methods and concepts do not and will not so infringe or that third
parties will not assert infringement claims, trade secret violations,
competitive torts or other proprietary rights violations against us in the
future. In the case of infringement, we could, under certain circumstances, be
required to modify our programming or obtain a license. There can be no
assurance that we would be able to do either in a timely manner or upon
acceptable terms and conditions, and such failure could have a material adverse
effect on our operations, cash flows and financial condition. There can also be
no assurance that we will have the resources to defend or prosecute proprietary
rights infringement action.
In addition, our record label business could be adversely affected by
the unauthorized reproduction of recordings for commercial sale and by home
taping. Unauthorized recordings of our products could result in the loss of
substantial revenues. We may in the future file lawsuits, either on our own
behalf or in conjunction with other music publishers, copyright owners and
publishing organizations seeking injunctive relief and/or monetary damages from
persons and companies who interfere with our property rights. Future actions
could be costly and time consuming and may divert management's attention from
our business affairs which could have a material adverse effect on our
operations. Similarly, new technologies, including digital audio tape and
recordable CD technology, may increase the opportunity for contraband
reproduction for distribution as well as the opportunity for consumers to make
high quality home copies of recordings. In the absence of adequate copyright or
other protections, new recording technologies could adversely affect the sale of
our music and consequently adversely affect our operating results.
We have filed U.S. trademark applications with respect to a number of
our names and marks, including "IMC," "Independent Music Channel," "IMNTV" and
"InVision." We cannot assure you that we will be able to secure registration of
any of these trademarks. In addition, we do not have any trademarks registered,
nor do we have any trademark applications pending, outside of the United States.
The laws of some foreign countries do not protect proprietary rights
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to the same extent as do the laws of the United States. Effective copyright
and trademark protection may not be available in other jurisdictions. If we
cannot adequately protect our proprietary rights, our competitors could
benefit from the unauthorized use of such rights, resulting in an adverse
impact on our revenues. Even if we are able to protect our proprietary
rights, we could incur significant costs to defend our rights.
RISKS RELATED TO OUR TELEVISION BUSINESS
IF WE FAIL TO INCREASE THE SIZE OF THE AUDIENCE FOR OUR MUSIC CHANNEL AND WEB
SITE, WE MAY NOT BE ABLE TO ATTRACT ADVERTISERS OR STRATEGIC ALLIANCES.
Increasing the size of our audience is critical to selling advertising
and to otherwise generating revenues. If we cannot increase the size of our
audience, then we may be unable to attract advertisers. In addition, we may be
at a relative disadvantage to other media companies with larger audiences that
may be able to leverage their audiences to access more advertisers and enter
into significant strategic alliances. To increase the size of our audience, we
must:
- offer compelling music content;
- conduct effective marketing campaigns to acquire new users and
consumers;
- develop and maintain existing distribution relationships with other
web sites;
- update and enhance the features of our web site; and
- offer targeted, relevant products and services.
A significant element of our strategy is to build a loyal community of
members on our web site and web portal because we believe community features
help retain actively engaged users. If we are not successful in developing such
a community, then it may be more difficult to increase the size of our audience.
We also depend on establishing and maintaining relationships with
high-traffic web sites to increase our audience. There is intense competition
for placements on these sites, and we may not be able to establish such
relationships on commercially reasonable terms or at all. Even if we enter into
agreements with these web sites, they themselves may not attract significant
numbers of users. Therefore, our web site may not obtain additional users from
these relationships.
OUR BUSINESS IS DEPENDENT UPON THE DISTRIBUTION OF OUR PROGRAMMING THROUGH CABLE
TELEVISION SYSTEMS.
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IMNTV must compete for a limited amount of broadcast space on cable
television systems with a large number of well-established programmers supplying
a variety of alternative programming. We expect that our ability to generate
revenues through sales of advertising time on IMNTV will be dependent in large
part on our ability to distribute our television programming to a large
audience. We do not know how many cable televisions systems have channels
available for, or any interest in, programming featuring independent music
interests or whether OlympuSAT will be able to secure available channels for our
programming on a profitable basis. Accordingly, we cannot assure you that we
will be able to secure channel space in a large number of markets or be able to
expand our operations as planned. If we are unable to broaden and maintain the
distribution of our channel and our programming, our ability to generate
revenues and our results of operations would be adversely affected.
IF WE ARE UNABLE TO ATTRACT ADVERTISERS AND SPONSORS TO OUR INDEPENDENT MUSIC
NETWORK, OUR BUSINESS WOULD BE HARMED.
We expect to rely heavily upon the sale of advertising time on IMNTV to
generate revenues. Such sales will likely be dependent upon our ability to
demonstrate that our programming is able to reach the demographics that
advertisers and sponsors seek to target. Our success in these efforts will be
affected by a number of factors including, among others, our ability to deliver
high quality, entertaining programming that is appealing to our targeted
viewers. There can be no assurance, however, that we will be successful in our
endeavors or that we will receive sufficient advertising revenues to obtain or
maintain profitability.
Our ability to generate advertising revenues also may be adversely
affected by economic downturns which, if prolonged, might have an adverse impact
on television advertising, in general, and on our results of operations, cash
flows and financial condition. Additionally, advertising revenues may be
adversely impacted by many other factors beyond our control, including the
amount of funds that advertisers dedicate to television advertising and
sponsorship in general and to our programming in particular, the number of
advertisers seeking audiences within the demographic groups to which our
programming is targeted, competition within national and regional markets from
other media, and regulatory restrictions on advertising and sponsorships such as
liquor or cigarette advertising. There can be no assurance that we will be able
to attract advertisers. The inability to attract advertisers or to maintain
these relationships once obtained would have an adverse affect on our results of
operations, cash flows and financial condition.
IF IMNTV DOES NOT ATTRACT LOYAL SUPPORT FROM OUR TARGETED VIEWING AUDIENCE, OUR
BUSINESS WILL BE ADVERSELY AFFECTED.
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Our business plan is predicated on IMNTV attracting active and loyal
support from the community of music fans that have an interest in independent
music. There can be no assurance that there will be significant support from our
anticipated viewership segment or that sufficient public acceptance of our
programming will enable IMNTV to operate profitably. Moreover, there can be no
assurance that a sufficient number of advertisers will support our programming
because it may be considered too far outside mainstream programming, or it may
not reach a large enough audience. If we do not engender such support from our
targeted audience or advertisers, our results of operations, cash flows and
financial condition would be adversely affected.
SEASONALITY IN REVENUES IN THE TELEVISION INDUSTRY MAY HAVE AN ADVERSE AFFECT ON
OUR RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL CONDITION.
Advertising revenues in the television industry fluctuate due to
seasonality. Television network revenues are typically lower in the third
quarter due to the number of reruns broadcast during the summer months. In the
future, our results of operations may fluctuate from quarter to quarter, which
could have a material adverse affect on our results of operations, cash flows
and financial condition.
WE MAY NOT BE ABLE TO ESTABLISH THE IMNTV BRAND.
We are new and little known in the entertainment sector and, although
we were incorporated in 1986, our efforts in the entertainment industry only
commenced in 1999. In order to generate traffic to our web site and web portal
and attract an audience to our entertainment channel, we will need to spend
significant resources on marketing and promoting our record label, music
programming and our web site. If we are unable to establish brand recognition in
the areas in which we operate, our business may be negatively affected.
DELIVERY OF OUR CONTENT VIA TELEVISION OR THE INTERNET MAY BE INTERRUPTED DUE TO
SYSTEMS FAILURES, NATURAL DISASTERS OR OTHER CAUSES.
We are subject to the risk that delivery of our services via cable
television or the Internet may be interrupted as a result of satellite failure,
communications and/or network equipment damage caused by natural disasters such
as earthquakes and fires, hardware failures, increased stress on communications
and/or network hardware, local power losses or other telecommunications failures
and/or capacity constraints on us or our vendors' or suppliers' hardware. Any
such interruptions may cause us to lose viewers and, accordingly, may adversely
affect our business and results of operations.
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WE ARE DEPENDENT ON OUR CONTRACT WITH OLYMPUSAT, INC. TO PROVIDE NATIONAL CABLE
BROADCASTING SERVICES, AND WE ARE CURRENTLY IN BREACH OF THIS CONTRACT.
Completion of our business plan of national television broadcasting is
dependent upon OlympuSAT, Inc.'s performance of OlympuSAT's obligations under
the broadcast agreement between us and OlympuSAT to place our programming on
additional cable systems. Similarly, completion of our business plan is also
dependent upon our ability to perform our obligations under the broadcast
agreement. Our obligations include payment of certain monthly transport fees,
monthly playback fees and monthly subscriber fees. We are currently in breach of
these obligations. Accordingly, OlympuSAT might discontinue performing services
under the broadcast agreement, which would materially adversely affect our
business. Although we are working to cure our breach, we cannot assure you that
we will be able to do so in a manner satisfactory to OlympuSAT.
WE ARE DEPENDENT ON OUR AGREEMENT WITH YAHOO! TO PROVIDE OUR NATIONAL TELEVISION
MUSIC VIDEO PROGRAMMING TO THE INTERNET, AND WE ARE CURRENTLY IN BREACH OF THIS
AGREEMENT.
Completion of our business plan of distribution of music video
programming on the Internet is dependent upon Yahoo!'s performance of its
obligations under the television station agreement with Yahoo! Inc.
Similarly, completion of our business plan is also dependent upon our ability
to perform our obligations under the television station agreement. We are
currently in breach of our payment obligations. Although we are working to
cure this breach, we cannot assure you that we will be able to, or that
Yahoo! will not cease providing services under the agreement.
RISKS RELATED TO OUR RECORDING BUSINESS
WE HAVE A LIMITED ARTIST ROSTER AND IT IS UNCERTAINTY THAT THESE ARTISTS WILL
EVER GAIN MARKET ACCEPTANCE, WHICH COULD SUBSTANTIALLY HARM OUR BUSINESS.
The success of our business model will depend, in large part, on our
ability to generate significant revenues in the future from the exploitation of
a limited number of new and unknown recording artists in limited musical genres.
At present we have only three artists signed to our label. Accordingly, our
continued success will be dependent upon our ability to sign and retain
promising artists who will appeal to popular taste over a significant period of
time. As is typically the case in the record industry, demand and market
acceptance for newly introduced and unknown artists and recordings is subject to
a high level of uncertainty. Achieving market
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acceptance for new artists and recordings will require us to spend
significant efforts and expenditures for advertising, marketing and
promotional activities, including obtaining access to television and radio
"air time" to create awareness of and demand for our recordings by consumers.
We currently have limited marketing capabilities, resources and personnel.
There can be no assurance that we will be able, for financial or other
reasons, to successfully promote and market our newly recorded music or that
any of our efforts will result in initial or continued market acceptance for
our products.
WE ARE SUBJECT TO BUSINESS RISKS ASSOCIATED WITH TALENT DEVELOPMENT.
Currently, we have entered into recording contracts with only three
artists. There can be no assurance that we will be able to attract other
artists, or, if we are able to attract such talent, that we will be able to
develop that talent successfully or in such a manner that significant sales of
artist product will result. There can be no assurance that any artist developed
by us will not request a release from his or her agreement with us. Because of
the highly personal and creative nature of a recording artist's contractual
obligations, it is not feasible to force an unwilling artist to perform the
terms of his or her contract. The failure to enter into recording contracts with
additional talented artists, or the loss of an artist with whom we have signed a
recording contract, could have a materially adverse effect on our results of
operations.
RECORD PRODUCTION AND PROMOTION ACTIVITIES ARE SPECULATIVE AND ARE SUBJECT TO
ALL OF THE RISKS GENERALLY ASSOCIATED WITH THE RECORDING INDUSTRY.
Many commercial recordings released in the United States do not earn
sufficient gross receipts to cover the costs of production, promotion, marketing
and distribution and to return initial investments. Production costs and
promotion, marketing and distribution expenses, as well as third-party
participation costs payable to producers, recording artists and others, which
reduce potential revenues derived from record sales, have increased
significantly in recent years. Our future operating results will depend on
numerous factors beyond our control, such as the popularity and timing of other
recordings being released, retail prices, national, regional and local economic
conditions, changes in consumer demographics and critical reviews and public
tastes and preferences, which change rapidly and cannot be accurately predicted.
Our ability to plan for record production and promotional activities will be
significantly affected by our ability to anticipate and respond to changes in
consumer tastes and preferences, primarily those consumers comprising our target
market. A decline in the popularity of pre-recorded music, in the recording
industry generally or in our particular market segments could materially
adversely affect our business prospects and financial results.
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Record production activities are also subject to unforeseen events,
unanticipated production cost overruns and technical and operating difficulties.
Significant up-front expenses associated with record production and promotion
could adversely affect our future operating results. Although we expect to seek
to reduce the financial risk of individual recordings by limiting our initial
production runs, actual production costs may exceed production budgets and the
occurrence of material cost overruns could have a material adverse effect on our
operating results.
WE HAVE NOT ENTERED INTO ANY AGREEMENTS WITH DISTRIBUTORS TO DISTRIBUTE MUSIC
RECORDED FOR OUR RECORD LABELS.
Our success will be largely dependent upon the marketing efforts of our
distributors. Any distributors we may engage will continue to distribute other
recordings, including recordings in which they may have a large financial
interest and, accordingly, more incentive to actively distribute. If we are
unable to enter into distribution agreements with recognized distributors on
terms satisfactory to us, or if such distribution agreements are cancelled after
inception, our business and results of operations will be adversely affected.
ADVANCES IN NEW TECHNOLOGIES MAY INCREASE THE LIKELIHOOD FOR CONTRABAND
REPRODUCTION, WHICH COULD HARM OUR BUSINESS.
New technologies, including digital audio tape and recordable CD
technology, may increase the opportunity for contraband reproduction for
distribution as well as the opportunity for consumers to make high quality home
copies of recordings. New recording technologies could adversely affect the sale
of CDs and tapes. We expect that our labels' recordings will initially be
produced primarily for CDs. A leveling off or a decline in sales of CDs as a
result of the introduction of new technologies could adversely affect our
business, operating results, cash flows and financial condition.
OUR MUSIC PRODUCTS WILL BE SUBJECT TO RETURN IF NOT SOLD TO CONSUMERS.
At the time of product sales, we may establish a reserve for future
returns based primarily on historical return rates and recognize revenues net of
estimated product returns. We anticipate that the agreements we may enter into
with distributors will permit the distributors to withhold up to approximately
35% of revenues for product returns. Product returns which significantly exceed
our reserves would materially adversely affect our operating results.
WE WILL RELY ON THIRD-PARTY VENDORS FOR THE MANUFACTURE OF CDS AND TAPES. WE DO
NOT YET, AND MAY NEVER, MAINTAIN AGREEMENTS WITH ANY PRODUCT MANUFACTURERS AND
MAY NEED TO PURCHASE CDS AND
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TAPES PURSUANT TO PURCHASE ORDERS PLACED FROM TIME TO TIME IN THE ORDINARY
COURSE OF BUSINESS.
We will be dependent on the ability of third-party manufacturers and
other vendors to provide adequate supplies of CDs and tapes on a timely basis
and on favorable terms. Several of these manufacturers may require that we
purchase certain minimum quantities of CDs and tapes with each purchase order.
Although we believe that alternative manufacturing sources are currently
available, there can be no assurance that manufacturers will have sufficient
production capacity or incentive to satisfy our product and scheduling
requirements during any period of sustained demand or that we will not be
subject to price fluctuations or periodic delays. Failure or delay by our
manufacturers in supplying CDs and tapes to us on favorable terms could result
in material interruptions in our operations and adversely affect our ability to
deliver our products on a timely and competitive basis.
WE ANTICIPATE THAT A PORTION OF OUR SALES OF CDS AND TAPES WILL BE MADE IN
INTERNATIONAL MARKETS, WHICH WILL SUBJECT US TO SPECIAL RISKS.
We expect that a portion of our sales of CDs and tapes will be to
foreign countries. Accordingly, we will be subject to increased credit risks,
customs duties and other trade restrictions, fluctuations in foreign currency
exchange rates, shipping delays and international political and economic
developments. A decline in the economic prospects of emerging foreign markets
could adversely affect our ability to initiate, and once initiated, expand,
international sales. Foreign sales also involve potential difficulties in
enforcing foreign license arrangements in the event of non-performance by the
licensee.
RISKS RELATED TO OUR COMMON STOCK
OUR COMMON STOCK IS TRADED ON THE OVER THE COUNTER BULLETIN BOARD AND THERE IS
CURRENTLY ONLY A LIMITED MARKET FOR OUR SHARES.
Because of the limited trading market for shares of our common stock,
historic market prices may not be indicative of the prices at which our shares
can be bought or sold. The market price of our common stock may fall due to a
number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance;
- availability of additional shares of common stock for public sale;
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- changes in securities analysts' financial estimates; and
- the operating and stock price performance of our competitors and
other comparable companies.
THE HOLDINGS OF OUR CONTROLLING STOCKHOLDER MAY LIMIT YOUR ABILITY TO INFLUENCE
THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS SUBJECT TO A STOCKHOLDER
VOTE, INCLUDING A SALE OF OUR COMPANY ON TERMS THAT MAY BE ATTRACTIVE TO YOU.
James Fallacaro, our chief executive officer and president and chairman
of our board of directors, currently owns approximately 63% of our outstanding
common stock. Mr. Fallacaro's stock ownership and management positions enable
him to exert considerable influence over us, including the election of directors
and the approval of other actions submitted to our stockholders. In addition,
without the consent of Mr. Fallacaro, we may be prevented from entering into
transactions that could be viewed as beneficial to other stockholders, including
a sale of our company. This could prevent you from selling your stock to a
potential acquiror at prices that exceed the market price of our stock.
SHARES OF OUR COMMON STOCK ELIGIBLE FOR PUBLIC SALE COULD DEPRESS OUR STOCK
PRICE.
The market price of our common stock could decline as a result of sales
by our existing stockholders of shares of common stock in the market, or the
perception that these sales could occur. In addition to shares of our common
stock that may be eligible for sale under Rule 144 or other exemptions from
registration under U.S. securities laws, we are registering hereby a total of
3,884,999 shares of our common stock, including shares issuable upon the
exercise of outstanding warrants, for resale.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are subject to the safe
harbors. For this purpose, any statements contained in this prospectus except
for historical information may be deemed to be forward-looking statements. Also,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "estimate" or "continue" or the negative or other variations or
comparable terminology are intended to help you identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. Forward-looking statements include, but are not limited to, the
following statements:
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- Our expectations about the marketplace and consumer
acceptance;
- Our marketing and sales plans;
- Our expectations regarding the growth of our business and
that our business model will succeed;
- Our ability to introduce new services and products and
improve technology;
- The success of our technology.
These statements are not guarantees of future performance. Future
performance is subject to risks, uncertainties and assumptions that are
difficult to predict and may be beyond our control. Therefore, our actual
results could differ materially from anticipated results. These risks and
uncertainties include those noted in risk factors above.
We do not undertake any obligation to update or revise any
forward-looking statements contained in this prospectus for any reason, even if
new information becomes available or other events occur in the future.
IT IS NOT POSSIBLE TO FORESEE ALL RISKS WHICH MAY AFFECT US. MOREOVER,
WE CANNOT PREDICT WHETHER WE WILL SUCCESSFULLY EFFECTUATE OUR CURRENT BUSINESS
PLAN. YOU ARE ENCOURAGED TO CAREFULLY ANALYZE THE RISKS AND MERITS OF AN
INVESTMENT IN THE SHARES AND SHOULD TAKE INTO CONSIDERATION WHEN MAKING SUCH
ANALYSIS, AMONG OTHERS, THE RISK FACTORS DISCUSSED ABOVE.
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CAPITALIZATION
The following table sets forth our capitalization as of August 31,
2000 on a actual basis. Shares of common stock outstanding does not include
340,000 shares reserved for issuance related to stock options and stock
purchase warrants outstanding as of August 31, 2000. The table should be read
in conjunction with our consolidated financial statements and the notes to
the consolidated financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
August 31, 2000
(Unaudited)
---------------
<S> <C>
Notes and distribution payable - stockholder $ 445,844
---------------
Stockholders' equity:
Common Stock, $.00005 par value,
20,000,000 shares authorized,
13,375,724 shares issued and
outstanding actual $ 668
Additional paid-in capital $ 8,248,179
Accumulated deficit $ (8,086,341)
---------------
Total stockholders' equity $ 162,506
---------------
Total capitalization $ 608,350
===============
</TABLE>
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USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
security holders, except any amount paid by selling security holders to us in
payment of the exercise price of our warrants. This amount, which is up to
$850,000 will be used for working capital purposes. The proceeds from the sale
of each selling security holder's common stock will belong to the selling
security holder. The shares of common stock that may be sold in this offering
include some shares that may be purchased by selling security holders upon
exercise of warrants that they hold.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. under the symbol INDE (previously JNET).
There is currently a limited trading market for shares of our common stock, and
we do not know whether an active market will develop. The table below lists the
high and low bid prices for our common stock as reported by the OTC Bulletin
Board for the periods indicated. The prices, which were provided by the research
department of the OTC Bulletin Board, reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. The information gives effect to a 1:40 reverse stock split of our
issued and outstanding common stock effective March 19, 1999.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
September 1, 1998 - November 30, 1998 $12.00 $ .04
December 1, 1998 - February 28, 1999 $12.00 $ .04
March 1, 1999 - May 31, 1999 $16.00 $ 1.25
June 1, 1999 - August 31, 1999 $ 7.00 $ 1.50
September 1, 1999 - November 30, 1999 $ 7.25 $ 4.75
December 1, 1999 - February 29, 2000 $16.50 $ 6.25
March 1, 2000 - May 31, 2000 $14.62 $ 13.18
June 1, 2000 - August 31, 2000 $10.50 $ 5.75
</TABLE>
As of August 31, 2000, shares of our common stock were held by
approximately 208 holders of record.
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain any earnings for use in our business and
do not anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our board of directors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Overview
We are a diverse, development stage entertainment company with an
emphasis on the music and music video entertainment industries. Our video
programming is delivered on the Internet at www.imntv.com and, since June 1,
2000, on cable television in a limited number of markets in the U.S. We have not
generated revenues since entering the entertainment industry in 1999.
Independent Music Network, Inc., which we acquired in April 1999, has not
generated revenues from operations since its inception in 1997.
Plan of Operation
Our current plan of operation for the next twelve months includes the
continued development of our broadcast programming over national cable
television, the continued design and development of our corporate web site, and
the development of our record labels, InVision Records and Ecity Records.
We expect that our primary sources of revenue will be derived from
Independent Music Network and InVision Records. We anticipate that Independent
Music Network will generate revenues primarily from television advertising
sales, video broadcasts and merchandising opportunities. We anticipate that
revenue streams from InVision will be generated from the sales and licensing of
musical recordings, representation and ownership of music publishing, licensing
of published and non-published musical compositions and the licensing and
merchandising of products related to the artists and musicians we sign. We
solicit video tapes from amateur and professional musicians for broadcast over
our IMNTV television channel, with the expectation of producing and mass
marketing certain of this music under our record labels. To accomplish our goal,
we plan to conduct and coordinate all advertising, band recruiting and video
editing as well as facilitate the broadcast of the music videos, production and
mass marketing the music of bands we sign.
Our ability to continue as a going concern is dependent upon our
ability to generate sufficient revenues from operations or obtaining debt or
equity financing to meet our working capital requirements. We expect to commence
the sale of television advertising time on our network during the first quarter
of 2001, and we expect to distribute our first musical recording in early 2001.
Until we begin to produce substantive revenues, to sustain our short term
capital needs we intend to seek additional financing. Our independent public
accountants have raised substantial doubt as to our ability to continue as a
going concern if we are unable to obtain such funding in the near future. See
Note 2 to the consolidated financial statements included in this prospectus.
To meet our immediate working capital requirements, we recently borrowed
$700,000 from our Chief Executive Officer. This note is due on demand, and
is secured by all of our assets.
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We may experience significant fluctuations in future operating results
due to a variety of factors, including:
- commercial acceptance of, and our ability to sell advertising time
on, IMNTV;
- the level of traffic on our Internet sites;
- the amount and timing of capital expenditures and other costs
relating to the expansion of our operations;
- technical difficulties or system downtime;
- general economic conditions and economic conditions specific to the
Internet; and
- consumer acceptance of the artists and musicians signed by our record
labels.
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BUSINESS
Overview
Falcon Entertainment Corp. and our wholly owned subsidiaries comprise a
diversified entertainment company. We broadcast music videos of amateur and
professional artists over cable and direct satellite television on our
television channel, IMNTV, and webcast those videos over the Internet through
our web site, www.IMNTV.com. We also operate a record label, InVision Records,
and intend to commence operations of a second record label, Ecity Records.
Through these labels, we intend to produce and mass market the music of artists
and bands, including certain of those who submit videos for broadcast over
IMNTV.
We were incorporated in March 1986 under the laws of the State of
Delaware under the name AVTR Systems, Inc. In April 1999, we changed our name to
Independent Music Group, Inc., and in December 1999 we changed our name to
Falcon Entertainment Corp. In April 1999, we acquired all of the issued and
outstanding capital stock of Independent Music Network, Inc., a Delaware
corporation, from James Fallacaro who serves as our president, chief executive
officer and chairman.
Our executive offices are located at 675 Third Avenue, 12th Floor, New
York, New York 10017 and our telephone number there is (212) 557-5557. Falcon
Entertainment Corp.'s common stock trades on the OTC Bulletin Board under the
symbol INDE.
We operate through the following wholly owned subsidiaries:
Independent Music Network, Inc.
InVision Records, Inc.
Independent Music Channel, Inc. (d/b/a Ecity Records)
Jump2web.com Corp.
Industry Background
We believe that the broadcast television market for music videos and
music programming has grown significantly since the introduction of MTV in 1981.
Music enthusiasts are now able to view musical genres ranging from country to
rock to rap to salsa on cable television, with major channels generating
significant revenues from growing cable subscriptions and increasing advertiser
support. Our research indicates that the amateur music industry has experienced
a corresponding significant growth phase. According to the Gallup Organization
of Princeton, New Jersey ("Gallup"), in 1999 approximately 53% of all U.S.
households owned at least one musical instrument, 50% of all U.S. households had
one member who played an instrument and 40% of U.S. households had two or more
members who played an instrument. According to
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Gallup, in the U.S. alone, nearly $6.8 billion was spent on musical
instruments and accessories in 1999, representing an increase of
approximately 27% from 1994.
According to a 1999 study by the Recording Industry Association of
America ("RIAA"), the demographic profile of consumers of recorded music has
aged along with the population. Consumers age 29 and under accounted for 44.2%
of music purchases in 1999 as compared to 57.0% in 1990. Similarly, consumers
over the age of 45 comprised 24.7% of the market in 1999 compared with 11.1% in
1990. Based on RIAA data, there have been significant gains in popular music
listenership among the 35 and over category, tracking the aging of the baby
boomer generation. While spending by young Americans remains predictably strong,
the baby boomers (particularly those in the age 40-44 category) have shown the
most notable increase, jumping from a 7.8% market share in 1990 to 9.3% in 1999.
These shifting demographic patterns strengthen our belief that our concept will
appeal to a wide domestic audience.
We believe that no medium currently exists which gives amateur
musicians the opportunity to present themselves on national television. Channels
such as MTV and VH1 primarily program well-known artists who are listed on the
Billboard 100 or similar charts. We also believe that many major and independent
record labels and talent agencies are seeking a cost-effective method to
discover and showcase new talent on a non-preferential basis.
IMNTV
We began broadcasting music videos of independent artists over our
television channel, Independent Music Network, or IMNTV, on June 1, 2000.
Through an agreement with Yahoo! Inc., IMNTV's programming is simulcast over the
Internet. Independent Music Network's programming currently consists of a
variety of music video content packaged into 1/2-hour segments, each including
approximately seven music videos. We intend to:
- continually increase the length and quality of IMNTV's programming;
- expand the size and number of broadcast markets in which our
programming is available;
- begin selling advertising time during our broadcasts; and
- build a music and entertainment based web portal that supports our
television broadcasting activities.
Based on Gallup and RIAA statistics, we believe that a large number of
amateur musicians will attempt to air their music videos on IMNTV and that the
wide population of
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amateur musicians constitutes a ready-made audience for this programming. We
expect to derive revenues by selling advertising time during our broadcasts.
IMNTV currently airs music videos submitted by independent artists and
bands, as well as videos provided by major and independent record labels. After
videos are screened for acceptable broadcast content and are professionally
packaged and edited, they are broadcast on IMNTV and are simultaneously webcast
on IMNTV.com and Yahoo! Broadcast.
Promotional Activities
On April 15, 2000, we launched an international print and broadcast
advertising campaign to promote IMNTV and to provide amateur musicians with
information on how to register and submit their music videos. The advertising
campaign included approximately 1,200 television spots and print advertisements
in over 75 publications. The international advertising campaign targeted men and
women primarily aged 16 to 36, and included a series of 15-, 30-, 45- and
60-second spots, plus print, outdoor and Internet advertisements. The television
commercials aired on VH1, MTV, E!, The Sci-Fi Channel, NBC, CBS and TBS and in
the United States, Mexico and Central and South America. The print
advertisements appeared in publications such as Billboard, CMJ Monthly, Guitar
Player, Electronic Musician and Spin. The television campaign aired from April
to June of 2000 and the print advertising campaign was distributed from April to
August of 2000.
Web Site
Our advertising campaign created substantial activity on Independent
Music Network's web site, located at www.IMNTV.com. Through the IMNTV.com web
site, artists are able to obtain information as to the IMNTV video submission
process. Each artist or band that submits an acceptable video is also listed on
the IMNTV.com web site, through which simultaneous and archived streaming audio
clips of our performances may be heard and other related information is
displayed.
IMNTV's programming content is broadcast on the Internet pursuant to
a television station agreement with Yahoo! Inc., which gives consumers access
to a range of independent music video programming on both IMNTV.com and on
Yahoo! Broadcast, streamed simultaneously with Independent Music Network's
television programming. IMNTV's programming can be viewed on Yahoo! at
http://www.broadcast.com/television/imntv.
Web Portal
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As public awareness of the IMNTV brand name grows, we intend to develop
IMNTV.com into a web portal that will initially focus on entertainment and
information and thereafter expand into a variety of other content and services.
We expect that, in addition to the features currently available on the
IMNTV.com web site, this web portal will be used for a number of functional and
promotional purposes, including:
- contest polling;
- CD sales and audio samples;
- music magazines;
- VJ biographies and stories;
- IMNTV's interactive jukebox;
- sales of IMNTV merchandise;
- music industry news;
- CD release information and reviews;
- independent band information and performance schedules; and
- chat rooms.
Television Broadcast
After music videos submitted to us are screened, the videos are edited
into packaged programming content. IMNTV's programming currently consists of
approximately 15 music videos per hour interspersed with Company-sponsored
advertising. We are initially focused our broadcast time to reach the amateur
band market, where the 10:00 p.m. to 6:00 a.m. time slot offers a combination of
what we believe to be prime demographic viewership and reduced cost.
On November 6, 2000 we terminated our network carriage agreement
with OlympuSAT, Inc., a subsidiary of Ocean Communications, Inc. We are not
presently producing music videos for television broadcast.
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Advisory Board
Independent Music Network has an advisory board which is comprised of
19 individuals with significant music industry experience. Each month, the
advisory board selects the top independent artists on IMNTV. In addition, the
advisory board members are available upon request to consult with our management
in their particular areas of expertise. Independent Music Network's Advisory
Board is comprised of the following individuals:
STEVE LUKATHER is a musician, songwriter and producer, and a founding
member of the group Toto, which over the past 23 years has sold over 30 million
records. Steve has been nominated for 14 Grammy Awards and has won 7, including
awards for Album of the Year, Record of the Year and Producer of the Year. Mr.
Lukather is a renowned guitarist, and has performed on nearly 1,000 recordings
for artists including Paul McCartney, Miles Davis, Bruce Springsteen, Eric
Clapton, Michael Jackson, George Harrison and Edgar Winter. Mr. Lukather has
also released three solo albums.
BILL CHAMPLIN is a two-time Grammy Award-winning songwriter, who has
appeared as a vocalist and musician on hundreds of recordings for a wide range
of artists throughout his career. Bill has co-written songs for many artists,
including "After The Love Is Gone" for Earth, Wind and Fire and "Turn Your Love
Around" for George Benson. He has been a member of the band
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Chicago for 19 years, and is currently producing and developing new artists and
working on a new solo release.
RUSSELL FERRANTE is a pianist, keyboardist and producer. Russell is a
founding member of the contemporary jazz group The Yellowjackets, which since
1980 has released 14 albums, been nominated for 10 Grammy Awards and received
two Grammy Awards. Mr. Ferrante has performed on recordings for artists
including George Michael, Take 6, Lee Ritenour and Brenda Russell. He is also an
adjunct professor at the University of Southern California, and has conducted
clinics at music schools and colleges worldwide.
RICKY LAWSON is a Grammy Award-winning writer, and an acknowledged
drummer and musician. Mr. Lawson is a founding member of the band The
Yellowjackets, and has performed on world tours with artists including Michael
Jackson, Whitney Houston, Phil Collins, Stevie Wonder and, most recently, Steely
Dan. He has appeared on hundreds of recordings for a wide range of artists, and
has written, performed and produced music for soundtracks including EdTV, Toy
Story 2, The Bodyguard and Star Trek 5: The Journey Home.
STEVE THOMPSON is a producer, mixer, arranger, and songwriter, and is
the recipient of two Grammy Awards. He has produced recordings for artists
including Madonna, Korn, Blues Traveler, Whitney Houston, Aretha Franklin,
Earth, Wind and Fire and many others. He has mixed albums including Guns and
Roses' "Appetite For Destruction", John Lennon's "Milk And Honey" and
Mettalica's "And Justice For All", and has mixed singles for bands and artists
including The Rolling Stones, Madonna, Paul Simon and Aretha Franklin.
RON SAINT-GERMAIN is a record producer and mixer. Mr. Saint-Germain has
produced records for artists including Creed, 311, Living Colour, Bad Brains and
Paquito D'Rivera. He has mixed albums for artists including Jimi Hendrix, U2,
Mick Jagger, Soundgarden, Diana Ross, Smokey Robinson, Red Hot Chili Peppers,
Lou Reed, Cat Stevens and many more. Over the past 29 years, Mr. Saint-Germain
has earned over 50 RIAA Gold and Platinum awards, representing 130 million unit
sales of records in the aggregate.
LARRY FITZGERALD and MARK HARTLEY are the founders and owners of The
Fitzgerald Hartley Company, an entertainment company specializing in personal
management, music publishing, marketing, music supervision, touring and
consulting. They currently manage artists and bands including Toto, Olivia
Newton-John, Clint Black, Vince Gill, Patty Loveless, David Benoit, Joe Ely and
Pam Tillis. They have supervised music for films including Tin Cup, Maverick and
Something to Talk About.
JULI DAVIDSON is a musician, songwriter and producer, and was employed
by MTV Networks from 1982 to 1995. During her tenure at MTV Networks, she held
various creative and marketing positions, and in 1989 became Vice President and
Creative Director for VH1. In 1990,
30
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she was promoted to Senior Vice President of Programming and Production. Ms.
Davidson received a Clio Award for excellence in advertising in 1987, and Ace
Awards in 1991 and 1992 for producing the VH1 Honors show. She is the
president and founder of The Juli Davidson Factor, Inc., a consulting firm to
the music and entertainment industries.
HARLAN LANSKY is president and founder of Matrix Music Works, an artist
development and management company located in Hollywood, California. He was
co-founder of Soulpower Productions in the United States, where he worked with
artists including Whitney Houston, Toni Braxton, Brandy, Monica, 2 Pac and many
others. Mr. Lansky is a staff writer/producer with EMI, and is also a musician
and recording artist.
BONNIE MILNER is the owner and operator of Long View Farm Studios, a
residential recording studio complex located in Massachusetts, which has hosted
artists including The Rolling Stones, Aerosmith, Creed, Limp Bizkit, The Mighty
Mighty Bosstones and many others. Bonnie is also a musician and producer, and is
director of the Cool Kids Choir and All New Voices, a volunteer public schools
music program.
WILL LEE is best known as the bassist for the past 15 years for The
David Letterman Show. He has lent his considerable talents to more than 1,000
pop, jazz and rock albums and has sung and played on numerous television and
radio commercials. Mr. Lee has produced many recordings, and has performed with
artists such as Mariah Carey, Steely Dan, Miami Sound Machine, the Bee Gees,
Billy Joel, Bette Midler, Liza Minelli, Diana Ross, Barbra Streisand, Frank
Sinatra, Mick Jagger, The Fixx, David Bowie, James Brown, Aretha Franklin, Ray
Charles, Al Green, D'Angelo, George Benson, Buddy Rich, Pat Matheny and many
others.
RANDY WALDMAN is a pianist, arranger, producer and recording artist. He
has performed with artists including Frank Sinatra, Paul Anka, Lou Rawls, George
Benson and Barbra Streisand. He has performed and/or arranged music on
recordings for artists including Barbra Streisand, Ray Charles, Aretha Franklin,
Kenny Rogers, Johnny Mathis, Henry Mancini and many others. His soundtrack
credits include Forest Gump, Hoffa, Back To The Future and The Bodyguard. Mr.
Waldman is the president and founder of Whirlybird Records.
FRANK QUINTERO is a musician, composer and producer who resides in
Caracas, Venezuela. Mr. Quintero is a graduate of Berklee College of Music, and
has released numerous records throughout his career. As a performer, he has
opened for artists including George Benson, Tina Turner, Joe Cocker, Miguel
Bose, Luis Enrique and many others. He has recorded and produced recordings with
musicians including Don Grusin, Vinnie Colaiuta, Abraham Laboriel, Alex Acuna
and Luis Conte. He recently co-produced a triple album that reunited 30 artists
from across Latin America.
31
<PAGE>
MICHAEL GREGORY is a guitarist, vocalist and songwriter who has
recorded 10 solo albums over the past 20 years. He is also a composer for
theatre and dance and has taught music and performance at several music schools
and conservatories. He has recorded and/or performed with artists including Mick
Jagger, Steve Winwood, Walter Becker, Carlos Santana, Nile Rodgers, Bernard
Edwards, Nona Hendryx and Vernon Reid.
BRUCE GAITSCH is a musician and producer who has written songs for over
100 recording artists, including two number one songs for Madonna and Richard
Marx. He has played on over 3,000 recording sessions for artists including
Madonna, Michael Jackson, Celine Dion, Roger Waters and Don Henley. Mr. Gaitsch
has produced music for many artists, and has released numerous solo albums
throughout his career.
FRANK CIMLER, JR. is a veteran entertainment attorney and personal
manager. Mr. Cimler is the owner of Big C Entertainment, a management and legal
services company to the entertainment industry. He earned a B.S. in Business and
Finance from the University of Maryland, received his Juris Doctor from the New
England School of Law and obtained an LLM from Boston University School of Law.
WILLIE CROES is a pianist, keyboardist, songwriter and producer who
lives in Caracas, Venezuela. A graduate of Berklee College of Music, Mr. Croes
has been the leader of numerous bands and rhythm sections, and has been
instrumental in influencing the musical styles of many Latin artists. He has
produced multiple records for artists including Menudo, Yordano, Elisa Rego,
Sergio Perez, Guaco, Franco de Vita, and others. He has also produced music for
advertising campaigns for companies including Coca Cola, General Motors, Del
Monte and Polar.
BENJAMIN BRANDWIJK is a commercial producer, creative director and
copywriter, and over the last 12 years has been employed by some of the largest
advertising agencies in Venezuela. He earned a B.S. in communications with a
minor in audiovisual and mass media studies from the Universidad Catolica Andres
Bello in Caracas, Venezuela. His clients have included Pepsi, DHL, Chrysler,
Swatch, Digital, NCR and many others.
Invision Records
We recently established our InVision Records record label to produce,
record and distribute the music of established and independent artists. To date,
InVision has signed three artists, including Ray Charles, to recording
contracts. We anticipate that InVision's first recording will be distributed
beginning in early 2001.
We believe that most record companies have created an unproductive
environment for their artists by concentrating too much on the short term
financial success of the record company
32
<PAGE>
and failing to provide the means necessary to assist the artists in
cultivating a long rewarding career that could be more rewarding for both the
artists and the record label. We expect that InVision's relationship with
Independent Music Network will provide marketing, promotion and overall
exposure benefit for InVision and our artists. We believe that this resource
is a unique component for InVision and that no other record label has a
proprietary television network to promote our artists.
The Independent Music Network web site is anticipated to provide
another valuable service to InVision in that it will also be used to sell the
music of InVision's artists. We expect that recordings by InVision's artists
will be sold in an IMNTV.com online store and on proprietary web pages dedicated
to InVision. InVision also has direct access to the talent pool generated by
Independent Music Network and our website IMNTV.com.
InVision's Artists
The following artists had signed recording contracts with InVision
Records as of August 31, 2000:
<TABLE>
<CAPTION>
Artist: Number of Releases:
------- -------------------
<S> <C>
Ray Charles Three releases
Saint Eve Two releases, plus two option periods for two additional
releases per period
Maxsin Two releases, plus two option periods for two additional
releases per period
</TABLE>
Distribution
InVision intends to distribute our artists' recordings through
conventional distribution channels to retailers in the U.S. and in international
markets, as well as worldwide over the Internet.
We expect to make InVision's artists' recordings available through
major music retailers in the U.S. and abroad, and through the IMNTV.com web
site. On the IMNTV.com site, it is anticipated that consumers will be able to
choose to purchase physical CDs or to purchase digitally downloadable files of
the artists' recordings using emerging download technologies. We expect that
InVision's recordings will also be available for purchase on other Internet
music sites.
33
<PAGE>
Ecity Records
We expect to commence operations of a second record label, Ecity
Records. Through this label, we intend to record, produce and distribute the
music of certain of the independent artists featured on Independent Music
Network who agree to sign with Ecity.
Employees
As of the date of this prospectus, Falcon Entertainment employed 7
people, including three in technology and four in support, administration,
finance, management and human resources. All employees are full-time. We believe
that our relations with our employees are good.
Description of Property
Our corporate headquarters facility consists of approximately 7,000
square feet of leased office space located at 675 Third Avenue, 12th Floor, New
York, New York 10017. The lease has a ten year term that expires in April 2010,
and provides for monthly rental payments of approximately $30,000.
Legal Proceedings
As of September 30, 2000, we were not a party to any material
litigation.
34
<PAGE>
MANAGEMENT
The directors and executive officers of our company, their ages and
their positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James Fallacaro 52 Chief Executive Officer, President and
Chairman of the Board
Anthony Escamilla 36 Executive Vice President, Chief Operating
Officer and Director
Christopher Mauritz 33 Chief Technology Officer
David Sifford 55 Senior Vice President and Director
Corinne Fallacaro 42 Secretary, Treasurer and Director
</TABLE>
JAMES FALLACARO has served as the Chief Executive Officer, President
and Chairman of the Board of Falcon since our formation in 1986. Since 1991, Mr.
Fallacaro has also served as President of CJS Holdings, Inc., a technology
licensing company he founded. From 1986 to 1987, Mr. Fallacaro served as
President, and from 1985 to 1986 as a Vice President, of Real Estate Financial
Investment Corp., which was in the business of acquiring, syndicating and
operating real property. From 1983 to 1985, Mr. Fallacaro was Vice President of
Diversified Resources Group, a firm engaged in the business of acquiring,
syndicating and managing real estate. From 1979 to 1983, Mr. Fallacaro was
President of Valkyerie Technology Group, a firm engaged in licensing of foreign
and domestic technology.
ANTHONY ESCAMILLA has served as Executive Vice President, Chief
Operating Officer and a director of Falcon since March 1999. Prior to joining
Falcon, Mr. Escamilla served as a consultant to Falcon. From July 1999 to
January 2000, Mr. Escamilla was the Chief Executive and Financial Officer,
and a director, of Regent Group, Inc. From November 1997 through July 1999,
Mr. Escamilla was principally self employed as a financial consultant to
numerous businesses, including MotorSports USA, Inc. From January 1993
through October 1997, he worked for the Long-Term Credit Bank of Japan, Ltd.
in its Corporate Finance and Cross Border M&A Departments. From September
1986 through July 1990, Mr. Escamilla worked for Deloitte & Touche in its
Audit Department. He earned MBA and BS degrees from the University of Texas
at Austin and the University of Connecticut, respectively. Mr. Escamilla is a
Certified Public Accountant.
35
<PAGE>
CHRISTOPHER MAURITZ has been Chief Technology Officer of Falcon since
February 2000. Prior to joining Falcon, Mr. Mauritz served as a consultant to
Falcon. From June 1999 through February 2000, Mr. Mauritz served as the Chief
Operating and Chief Technology Officer of Oven Digital, Inc. From July 1998
through March 1999, Mr. Mauritz was the National Director for System
Administration and Network Engineering of Rare Medium Inc. From November 1997
through February 2000, he was a Network Engineer and Member of the Board of
Advisors for Net Exchange, Inc. From June 1997 through June 1998, Mr. Mauritz
was Network Engineer and Technical Sales Consultant at New York Net, Inc. From
May 1996 through June 1997, he was Director of Marketing and Director of
Internet Operations at IBS Interactive, Inc. From 1992 through 1997, Mr. Mauritz
was the Founder and Chief Executive Officer of Mordor International, an early
public access Internet provider in the New York metropolitan area. From November
1989 through May 1995, Mr. Mauritz held various positions in the Latin American
Finance Group of The Long-Term Credit Bank of Japan, Ltd. where he was
responsible for analyzing Latin American corporate finance transactions, debt
restructuring, and loan portfolio management. Mr. Mauritz received a B.A. in
Economics from Columbia University in 1989.
DAVID SIFFORD has served as a Senior Vice President and a director of
Falcon since September 1999. Prior to joining Falcon, Mr. Sifford served as a
consultant to Falcon. From 1995 to present, Mr. Sifford has operated Sifford
Consulting Group, a firm that provides strategic consulting and advisory
services within the cable and television industries and the entertainment sector
of investment banking. From 1987 to 1995, Mr. Sifford was Executive Vice
President of Tribune Entertainment Company, where he was responsible for program
development, domestic and international sales and marketing for syndicated
programs. From 1984 to 1987, Mr. Sifford was president of King World
Enterprises, where he was responsible for the negotiation of distribution
agreements, the development of a domestic and international sales force and
marketing for syndicated programs. From 1969 to 1984, Mr. Sifford held various
senior level positions with companies in the entertainment industry. Mr. Sifford
received a Bachelor of Arts in Finance and Business from St. Andrews
Presbyterian College in 1966. He is a member of The National Association of
Television Program Executives ("NATPE") and INTV. Mr. Sifford was a board member
of NATPE from 1976 to 1986.
CORINNE FALLACARO has served as Secretary, Treasurer and as a
director of Falcon since our inception in 1986. Ms. Fallacaro has also served
as Vice-President of CJS Holdings, Inc., a private technology licensing
company, since 1991. Ms. Fallacaro is the spouse of James Fallacaro, our
Chief Executive Officer, President and Chairman of the Board.
Director Compensation
Our directors do not receive compensation for attendance at board
meetings or board committee meetings. However, our directors are reimbursed for
all reasonable out-of-pocket expenses incurred in connection with their
attendance at board and board committee meetings.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid by us or any of our subsidiaries to our chief executive officer and the
only other executive officer who received compensation in excess of $100,000
during the fiscal years ended May 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary ($) Bonus Other
------------------ ---- ---------- ----- -----
<S> <C> <C> <C> <C>
James Fallacaro............. 2000 250,000 0 0
President, Chief Executive
Officer and Chairman 1999 0 0 0
of the Board 1998 0 0 0
Name and
Principal Position Year Salary ($) Bonus Other
------------------ ---- ---------- ----- -----
Mark Eddinger(2)............. 2000 105,000 0 $85,936(1)
President, Chief 1999 0 0 0
Operating Officer, 1998 0 0 0
InVision Records
</TABLE>
--------------
(1) Represents the fair market value of 20,833 shares of our common stock
issued to Mr. Eddinger in March 2000, based on the closing price of the
common stock on August 31, 2000, as reported on the OTC Bulletin Board.
(2) Mr. Eddinger is no longer employed by InVision.
37
<PAGE>
Employment Agreements
On February 15, 2000, we entered into a three-year employment agreement
with Mark Eddinger, which agreement was terminated effective as of August 28,
2000. Under this agreement, Mr. Eddinger was hired as the president and chief
operating officer of InVision Records, and we agreed to pay him an annual salary
of $120,000. The agreement provided for bonuses based upon our profitability and
Mr. Eddinger's progress made towards specific goals set for his office. The
agreement also provided for the grant to Mr. Eddinger of 150,000 shares of
common stock, vesting at a rate of 12,500 shares per month.
In addition, on February 15, 2000, we entered into a consulting
agreement with Star West LLC, of which Mr. Eddinger is the president, pursuant
to which Star West provided us with consulting services. The term of this
agreement, which was terminated on June 1, 2000, was to be continuous with Mr.
Eddinger's employment with InVision Records. The agreement provided that Star
West would be paid a consulting fee of $20,000 per month. In connection with the
termination of this agreement on June 1, 2000, Mr. Eddinger's annual salary
under his employment agreement was increased to $360,000.
Under a separation agreement effective August 28, 2000, we agreed to
pay Mr. Eddinger 81,250 shares of common stock which he had earned under his
employment agreement. We also agreed to pay Mr. Eddinger outstanding expenses
totaling approximately $2,000, which he had accrued.
38
<PAGE>
CERTAIN TRANSACTIONS
In March 1999, we issued James Fallacaro, our chief executive officer,
president and chairman of the board, 8,500,000 shares of common stock for an
aggregate purchase price of $20,000. In April 1999, we acquired all of the
issued and outstanding shares of common stock of Independent Music Network, Inc.
from Mr. Fallacaro in exchange for 100,000 shares of our common stock and
$50,000. In June 1999, we redeemed 50,000 of these shares in exchange for a note
payable in the amount of $125,000.
From February 15, 2000 through May 31, 2000, we paid Star West, LLC, a
company controlled by Mark Eddinger, the president and chief operating officer
of InVision, a consulting fee of $240,000 per year pursuant to a consulting
agreement dated February 15, 2000. This agreement was terminated effective as of
June 1, 2000. Mr. Eddinger is no longer employed by InVision.
39
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of shares of our common stock as of August 31, 2000 by:
(1) each person known by Falcon to be the beneficial owner of more than 5% of
the outstanding shares of our common stock;
(2) each director;
(3) the Chief Executive Officer; and (4) all executive officers and directors as
a group.
In the table below, an asterisk (*) indicates less than one percent
ownership. Unless otherwise indicated, the address of each beneficial owner in
the table set forth below is care of Falcon Entertainment Corp., 675 Third
Avenue, 12th Floor, New York, New York 10017.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- ----------
<S> <C> <C>
James Fallacaro 8,555,000 63.9%
Blue Marlin, Inc. 850,000 6.4%
Anthony Escamilla 116,666 *
Christopher Mauritz 8,333 *
David Sifford 10,000 *
121 Lyle Lane
Nashville, TN 37210
Corinne Fallacaro 76,658 *
Officers and Directors 8,766,657 65.5%
as a group (5 persons)
</TABLE>
40
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 20,000,000 shares of common
stock, $.00005 par value per share. Preferred stock is not authorized under our
Certificate of Incorporation. As of the date of this prospectus, there are
13,375,724 shares of common stock issued and outstanding, which are held by
approximately 208 holders of record.
COMMON STOCK
We are authorized to issue 20,000,000 shares of common stock, $.00005
par value per share, of which 13,375,724 shares are issued and outstanding as of
the date of this prospectus. Holders of common stock are entitled to one vote
for each share on all matters submitted to a shareholder vote. Holders of common
stock do not have cumulative voting rights. Therefore, holders of a majority of
the shares of common stock voting for the election of directors can elect all of
the directors. Holders of common stock are entitled to share in all dividends
that the board of directors, in its discretion, declares from legally available
funds. In the event of our liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are, and the
shares underlying all option and warrants will be, duly authorized, validly
issued, fully paid an non-assessable upon our issuance of these shares.
PLACEMENT AGENT'S WARRANTS
We have issued placement agent warrants to affiliates of Noble
International Investments, Inc. our financial consultant under a placement
agency agreement entered into as of December 28, 1999.
The warrants give the warrant holders the right to purchase an
aggregate of 340,000 shares of our common stock at an exercise price of $2.50.
The warrants are exercisable until March 9, 2005. None of the placement agent
warrants have been exercised.
41
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Florida
Atlantic Stock Transfer, 7130 Nob Hill Road, Tamarac, Florida, and its telephone
number is (954) 726-4954.
REPORTS TO SECURITY HOLDERS
We intend to furnish our stockholders with annual reports containing
audited financial statements. We may disseminate such other unaudited interim
reports to security holders as we deem appropriate.
42
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth (1) the name of each selling security
holder, (2) the number or shares of common stock beneficially owned by each
selling security holder as of the date of this prospectus, giving effect to the
exercise of the selling security holders' warrants into shares of common stock
and (3) the number of shares being offered by each selling security holder. The
shares of common stock being offered are being registered to permit public sales
and the selling security holders may offer all or part of the shares for resale
from time to time. All expenses of the registration of the common stock on
behalf of the selling security holder are being borne by Falcon. Falcon will
receive none of the proceeds of this offering, except any amount paid to us by
selling security holders as the exercise price of warrants. Although on the date
of this prospectus none of our warrants to purchase 340,000 shares of common
stock have been exercised, for purposes of the table below, we have given effect
to the exercise of the warrants. The holders of these warrants are reflected in
the footnotes to the table.
<TABLE>
<CAPTION>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
373823 Ontario, Ltd. 20,000 20,000 - -
Alfieri Eade Family Limited Partnership #1 30,000 30,000 - -
Allen, Richard S. & Luanne L. JTWROS 4,000 4,000 - -
Altavilla, Anthony D. 20,000 20,000 - -
Anderson, Logan 20,000 20,000 - -
Andreozzi, Anthony L. 10,000 10,000 - -
Anthony Vespucci Revocable Trust/DTD 100,000 100,000 - -
10/28/92/Anthony Vespucci TTEE
Atlas Pearlman, P.A.(1) 7,500 7,500 - -
Barbarosh, Milton H. & Ricki TEN ENT 10,000 10,000 - -
Barretti, Phil 80,000 80,000 - -
Berman, Edward & Fleisher, Beverly JTWROS 20,000 20,000 - -
Berman, Jacob 10,000 10,000 - -
Beroff, Art 20,000 20,000 - -
43
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Biblow-Eisenberg, Diane C. 10,000 10,000 - -
Bronson, Steven N. & Kimberly Ann JTTEN 100,000 100,000 - -
Bubrick, George J. 10,000 10,000 - -
Burchette, Jr., Robert L. 10,000 10,000 - -
Burnett, Robert J. (2) 7,500 5,000 2,500 *
Burstyn, Lance 10,000 10,000 - -
Butler, Ira 10,000 10,000 - -
Castles & Cottages LLC 40,000 40,000 - -
Catinella, A. R. 80,000 80,000 - -
Cerisano, Michael P. & Patricia JTWROS 10,000 10,000 - -
CG Capital Corp. 100,000 100,000 - -
Chang, Bob C.T. & Grace M. JTWROS 10,000 10,000 - -
Charitable Remainder Trust/Successor TTEE 10,000 10,000 - -
UA DTD 06/16/86
Chestman, Robert 10,000 10,000 - -
Coastal Educational Foundation 25,000 25,000 - -
Conbraco Industries, Inc. 10,000 10,000 - -
Conti, Jr., William 10,000 10,000 - -
Cooper, Martin A. 24,000 24,000 - -
Corsica Marketing Services 40,000 40,000 - -
Cotter, Dr., John B.. 10,000 10,000 - -
Craig, Jim E. 10,000 10,000 - -
Dackis, Nils 10,000 10,000 - -
D'Amato, John C. & Helen JTTEN 40,000 40,000 - -
DAS Family Holdings, L.P. 40,000 40,000 - -
44
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Dawkins Concrete Products, Inc. 38,000 38,000 - -
DLJSC 13-2741729 custodian F/B/O Agnes D. 10,000 10,000 - -
Chartier, IRA
DLJSC 13-2741729 custodian F/B/O Burt L. 5,000 5,000 - -
Rhodes, IRA
DLJSC 13-2741729 custodian F/B/O Carole 5,000 5,000 - -
Lynn Rhodes, IRA
DLJSC 13-2741729 custodian F/B/O Dale 10,000 10,000 - -
Moquist, IRA
DLJSC 13-2741729 custodian F/B/O Dennis J. 10,000 10,000 - -
Rosa, IRA
DLJSC 13-2741729 custodian F/B/O Nico P. 16,000 16,000 - -
Pronk, IRA
Dolin, Martin 10,000 10,000 - -
Edward J. Rosso TTEE/UAD 3/20/91/FBO 40,000 40,000 - -
Edwart J. Rosso Trust
Ernest E. Engel Revocable Trust/Ernest E. 5,000 5,000 - -
Engel TTEE
Escamilla, Anthony L. 116,666 116,666 - -
Europlan Trust Company LTD TTEE/of the 400,000 400,000 - -
Ormond Trust FBO Spouse and Children
Fairwinds Investment 10,000 10,000 - -
Fialkow, Fred H. 20,000 20,000 - -
Finfrock, Jr., Dale B. 10,000 10,000 - -
Firestone, William L. 10,000 10,000 - -
Fisher Ophthalmology Group Profit Sharing 5,000 5,000 - -
Trust c/o Dr. Jonathan Wise
Francis S. Landau Trust/Trustee: Theodore 20,000 20,000 - -
K. Landau/ F/B/O The Landau Family/Dated
10/28/93
45
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Frank, Bernard M.-IRA, CIBC World Markets 10,000 10,000 - -
Corp. Cust.
Fullen, Harold W. & Linda L. JTWROS 20,000 20,000 - -
Goldfarb, Bruce 20,000 20,000 - -
Gordon, G. David 20,000 20,000 - -
Grayer, Arthur 10,000 10,000 - -
Gutman, Robert 20,000 20,000 - -
Haberman, Dr. James E. 20,000 20,000 - -
Hadeed, Joseph and Rosemary JTWROS 15,000 15,000 - -
Hamilton, James F. 10,000 10,000 - -
Hand, David 10,000 10,000 - -
Hasse, Norval J. & Nancy M. JTWROS 10,000 10,000 - -
Haynes, James A. & Betty JTWROS 5,000 5,000 - -
Helfan, Barry & Robin JTWROS 20,000 20,000 - -
Hempenius, Bea 6,000 6,000 - -
Henning, Han 20,000 20,000 - -
Hirsch, Harvey & Joyce JTWROS 10,000 10,000 - -
Holland, Dennis J. & Regina JTWROS 40,000 40,000 - -
Holt, Joel C. 10,000 10,000 - -
Horne, Wayne R. (3) 168,750 168,750
Hughes, Kurtis D. 30,000 30,000 - -
Ignizio, Rosario M. & Jeanine JTWROS 10,000 10,000 - -
IRA F/B/O Manuel Castelo/DLJSC as 30,000 30,000 - -
Custodian/Rollover Account
IRA F/B/O Martin Fimiani/DLJSC as Custodian 20,000 20,000 - -
46
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
IRA F/B/O Robert M. O'Brien/DLJSC as 10,000 10,000 - -
Custodian
IRA F/B/O Richard Stein/DLJSC as Custodian 5,000 5,000 - -
IRA F/B/O Dennis L. Williams/DLJSC as 10,000 10,000 - -
Custodian
Jack Alan Levine Family Limited 10,000 10,000 - -
Partnership #1
Jacobson, John 5,000 5,000 - -
Jansson, Anders 10,000 10,000 - -
John Wilcox MD PA Money Purchase Pen Plan 10,000 10,000 - -
Kathleen RP Wilcox & John Wilcox CO/TTEES,
UAD 7/01/79
Josef, Jeffrey M. & Minna JTWROS 20,000 20,000 - -
Judinel Investment, Ltd. 20,000 20,000 - -
Kelly, James T. 40,000 40,000 - -
King Eagle Investments, Ltd. 10,000 10,000 - -
Kobran, Mitchell 20,000 20,000 - -
Lambert, Pierre and Francoise JTWROS 10,000 10,000 - -
Lawrence I. Brant Revocable Trust U/A/D 10,000 10,000 - -
10/7/98
Lee, James Hsui-Chu & Bella JTWROS 10,000 10,000 - -
Lee, Jiin Jen & Sage S. JTWROS 10,000 10,000 - -
Levinson, Carl & Fran JTTEN 30,000 30,000 - -
Levy, Frances June 10,000 10,000 - -
Levy, John 10,000 10,000 - -
Lewis, Anthony M. & Renzini, Robert F. JT 10,000 10,000 - -
ENT
Light, Bruce & Larry JTWROS 40,000 40,000 - -
47
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Mauritz, Christoper 8,333 8,333 - -
McDermott, Stephen P. & Marianne JTTEN 20,000 20,000 - -
McDougal, Edward F. & Sheila L. JTWROS 20,000 20,000 - -
Miller, Donald A. 5,000 5,000 - -
Mittman, Roy D. 10,000 10,000 - -
Molema, Marie-Pascale 28,000 28,000 - -
Moll, Cayman H.C. 40,000 40,000 - -
Moquist, Clifford J. 12,000 12,000 - -
Morency, Kenneth R. 20,000 20,000 - -
Nass, Cory B. & Nevine M. JTWROS 10,000 10,000 - -
Newmark, Eric 5,000 5,000 - -
Newmark, Paul & Joan JTWROS 5,000 5,000 - -
Noens, Jean-Paul 20,000 20,000 - -
Peterman, Dave 12,000 12,000 - -
Posner, Michael & Linda JTWROS 10,000 10,000 - -
Presser, Lawrence & Anne JTWROS 10,000 10,000 - -
Pronk, Caroline A.M. 8,000 8,000 - -
Pronk, Dirk 20,000 20,000 - -
Pronk, Nico 20,000 20,000 - -
Pronk, Nico P. (4) 238,750 238,750 - -
Pruitt, Michael D. 95,000 95,000 - -
Pruitt, M. Suzzanne 20,000 20,000 - -
Quorum Group, Inc. 4,000 4,000 - -
Raymond, Jr., Joseph J. 40,000 40,000 - -
Ricard, Roger & Doris R. JTWROS 10,000 10,000 - -
48
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Robert S. Botwinik Trust 20,000 20,000 - -
Romeo, Pasquale A. & Dorothy R. JTTEN 10,000 10,000 - -
Samuel L. D'Amato TTEE/UAD 8/23/96 Samuel 40,000 40,000 - -
L. D'Amato/Living Trust
Schechtman, Larry & Amy JTTEN 5,000 5,000 - -
Schnitz, Arnold C. 20,000 20,000 - -
Schwartz, Kenneth & Margery JTWROS 10,000 10,000 - -
Seifert, Richard F. & Karen L. JTWROS 30,000 30,000 - -
Shulman, Bernard & Barbara JTWROS 10,000 10,000 - -
Sifford, David 10,000 10,000 - -
Silverman, Harris & Micheline TEN ENT 10,000 10,000 - -
Silverman, Howard & Phyllis JTWROS 40,000 40,000 - -
South Beach Investments, Inc. 20,000 20,000 - -
Spadavecchia, John 10,000 10,000 - -
Stephen White TTEE for Stephen White MD PA 5,000 5,000 - -
Profit Sharing Plan & Trust DTD 8/1/74
T.J. Madden & A. Madden, TTEES/UAD 10,000 10,000 - -
06-12-98/FBO T.J. Madden and A. Madden
Trust
TDF Management c/o Dr. Harrison Doug 20,000 20,000 - -
Fortney
The Trust Agreement of Richard J. Seifert, 10,000 10,000 - -
Dated July 1, 1998/Rita M. Seifert,
Co-Trustees
The Trust Agreement of Rita M. Seifert, 10,000 10,000 - -
Dated July 1, 1998/Richard J. Seifert,
Co-Trustees
Theodoor Gilissen Bankiers, N.V. 200,000 200,000 - -
49
<PAGE>
Shares Owned Shares Available Percent of
Prior to this Pursuant to Shares Owned Class
Selling Security Holder Offering this Prospectus After Offering After Offering
----------------------- -------- --------------- -------------- --------------
Thompson, III, O.L. 20,000 20,000 - -
Thompson Industrial Services 30,000 30,000 - -
Upson, Wayne R. 10,000 10,000 - -
Van Hengel, Peter & Dolly JTWROS 10,000 10,000 - -
Veight, Joseph W. III 8,000 8,000 - -
Wachter, Marc 10,000 10,000 - -
Wallace, Elliot R. 10,000 10,000 - -
White, Glen 5,000 5,000 - -
Wolin, Dr., Lawrence D. 10,000 10,000 - -
Yarbrough, Merrill A. & Debra Z. JTWROS 10,000 10,000 - -
Zhuang, Dr. Fei and Ying Sun JTWROS 10,000 10,000
--------- --------- ------ ------
TOTAL 3,887,499 3,884,999 2,500 -
========= ========= ====== ======
</TABLE>
* Represents less than 1% ownership.
(1) To be issued upon effectiveness of registration statement.
(2) Includes warrants to purchase 2,500 shares of common stock for $2.50 per
share.
(3) Includes warrants to purchase 168,750 shares of common stock for $2.50 per
share.
(4) Includes warrants to purchase 168,750 shares of common stock for $2.50 per
share.
50
<PAGE>
PLAN OF DISTRIBUTION
We are presently aware of no arrangements or understandings, formal or
informal, pertaining to the distribution of the shares of common stock described
in this prospectus. We may file a supplemental prospectus, under Rule 424(b)
under the Securities Act, if it is required to do so. The shares covered by this
prospectus may be distributed from time to time by the selling security holders
in one or more transactions that may take place on the over-the-counter market.
These include ordinary broker's transactions, privately-negotiated transactions
or through sales to one or more broker-dealers for resale of these shares as
principals, at market prices existing at the time of sale, at prices related to
existing market prices, through Rule 144 transactions or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the selling securityholders in connection with sales of securities.
The selling security holders may sell the securities in one or more of
the following methods:
(1) a block trade in which a broker or dealer will
attempt to sell the shares as agent but may position
and resell a portion of the block as principals to
facilitate the transaction;
(b) purchasers by a broker or dealer as principal and
resale by the broker or dealer for its account under
this prospectus;
(c) ordinary brokerage transactions and transactions
which the broker solicits purchases; and
(d) face-to-face transactions between sellers and
purchasers without a broker-dealer.
In making sales, brokers or dealers used by the selling security
holders may arrange for other brokers or dealers to participate. The selling
security holders and others through whom such securities are sold may be
"underwriters" within the meaning of the Securities Act for the securities
offered, and any profits realized or commission received may be considered
underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling security holder, to the extent required, a prospectus is to
be delivered. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling security holder, and any
discounts,
51
<PAGE>
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
We have told the selling security holders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have provided each of the selling
security holders with a copy of these rules. We have also told the selling
security holders of the need for delivery of copies of this prospectus in
connection with any sale of securities that are registered by this prospectus.
We have agreed to bear expenses in connection with the registration and
sale of the common stock offered by the selling security holders other than
selling commissions, legal fees and expenses of the selling security holder and
transfer, income or other taxes. The selling security holders will pay all
underwriting and broker-dealer discounts, commissions and non-accountable
expenses of any underwriter or broker-dealer in connection with the sale of the
common stock. Furthermore, the selling security holders will pay the fees and
expenses of any legal counsel selected by the selling security holders to
represent them in connection with the sales of the common stock. Our obligation
includes paying the filing fees and costs of filing. Filings will be made with
the SEC, markets on which our common stock trades, and state securities or "blue
sky" commissioners.
We have also agreed to indemnify the selling security holders and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such Holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended, from liabilities arising under the
Securities Act, except liabilities relating to information provided by the
Selling Security Holder specifically for inclusion in this prospectus.
We estimate our out-of-pocket costs will be $45,000 initially,
including payment of related legal fees of selling security holders.
Sales of securities by us and the selling security holders or even the
potential of these sales may have a negative effect on the market price of the
shares of common stock offered hereby.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
At the date of this prospectus, we will have 13,375,724 shares of
common stock issued and outstanding of which 3,884,999 shares are freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an affiliate of ours. This includes 340,000
shares that will be issued upon exercise of warrants granted to Noble Financial
International, Inc. These shares, which have been assigned to certain principals
and affiliates of Noble Financial International, Inc., may be resold by their
holders as long as they are covered by a current registration statement.
All of the remaining 9,498,225 shares of common stock currently
outstanding are restricted securities. Of these restricted shares, 948,691
shares will be immediately eligible for sale. The remaining restricted shares
will become eligible for sale at various times provided that they have been held
for at least one year.
Of the 13,375,724 shares currently outstanding, 8,858,324 shares are
owned by our affiliates, as that term is defined under the Securities Act.
Absent registration under the Securities Act, such as the shares being offered
by selling shareholders in this prospectus, the sale of these shares is subject
to Rule 144. Under Rule 144, if certain conditions are satisfied, a person
(including any of our affiliates) who has beneficially owned restricted shares
of common stock for at least one year is entitled to sell within any three-month
period a number of shares up to the greater of 1% of the total number of
outstanding shares of common stock, or if the common stock is quoted on Nasdaq,
the average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of ours for at least three months
immediately preceding the sale, and who has beneficially owned the shares of
common stock for at least two years, is entitled to sell the shares under Rule
144 without regard to any of the volume limitations described above.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
the shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could negatively damage
affect market prices for the common stock and could damage our ability to raise
capital through the sale of our equity securities.
53
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for us by Atlas Pearlman, P.A., 350 East Las Olas Boulevard, Suite
1700, Fort Lauderdale, FL 33301, Florida. Atlas Pearlman owns 7,500 shares of
our common stock and affiliates of the firm own 17,500 shares of our common
stock.
EXPERTS
Our consolidated financial statements for the year ended May 31, 2000
appearing in this prospectus have been audited by Kaufman, Rossin & Co.,
independent auditors, as set forth in their report included elsewhere herein and
are in reliance upon such report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement, and these statements are qualified in
their entirety by reference to the contract or document. The registration
statement, including all exhibits, may be inspected without charge at the SEC's
Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials may also be obtained from the
SEC's Public Reference at 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549, upon the payment of prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, registration statements and other filings made with the SEC through
its Electronic Data Gathering, Analysis and Retrieval Systems are publicly
available through the SEC's site on the World Wide Web located at
http//www.sec.gov. The registration statement, including all exhibits and
schedules and amendments, has been filed with the SEC through the Electronic
Data Gathering, Analysis and Retrieval systems.
At your written or telephonic request, we will provide you, without
charge, a copy of any of the information that is incorporated by reference
(excluding exhibits to the information that is
54
<PAGE>
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct your request to us at Falcon
Entertainment Corp., 675 Third Avenue, 12th Floor, New York, New York 10017,
Attention: Chief Executive Officer, telephone
(212) 557-5557.
55
<PAGE>
================================================================================
FALCON ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
================================================================================
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S Page
================================================================================
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 12
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Board of Directors and Stockholders
Falcon Entertainment Corporation
New York, New York
We have audited the accompanying consolidated balance sheet of Falcon
Entertainment Corporation and Subsidiaries (a development stage company) as of
May 31, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended May 31, 2000 and for the period from inception (November 6, 1997) to May
31, 2000. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Falcon Entertainment
Corporation and Subsidiaries as of May 31, 2000, and the results of its
operations and its cash flows for each of the two years in the period then
ended, and for the period from inception (November 6, 1997) to May 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has sustained operating losses and negative
cash flows from operations since inception. In the absence of achieving
profitable operations and positive cash flows from operations or obtaining debt
or equity financing, the Company may have difficulty meeting current
obligations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
KAUFMAN, ROSSIN & CO.
Miami, Florida
August 23, 2000
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MAY 31, 2000
================================================================================
<TABLE>
<CAPTION>
ASSETS
================================================================================
<S> <C>
CURRENT ASSETS
Cash and equivalents $ 1,829,580
Certificates of deposit 150,928
Prepaid expenses (Note 3) 396,209
--------------------------------------------------------------------------------
Total current assets 2,376,717
PREPAID ARTIST FEES (NOTE 4) 255,084
CERTIFICATE OF DEPOSIT (NOTE 9) 348,499
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$6,717 (Note 7) 444,535
OTHER ASSETS 90,900
--------------------------------------------------------------------------------
TOTAL ASSETS $ 3,515,735
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
CURRENT LIABILITIES
Note payable - stockholder (Note 8) $ 393,834
Accounts payable and accrued expenses 1,112,943
Distribution payable - stockholder 50,000
--------------------------------------------------------------------------------
Total current liabilities 1,556,777
STOCKHOLDERS' EQUITY (NOTE 10) 1,958,958
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,515,735
================================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Period From
Inception
(November 6,
Year ended Year ended 1997) through
May 31, 2000 May 31, 1999 May 31, 2000
====================================================================================================================================
<S> <C> <C> <C>
REVENUES:
Dividend income $ 71,672 $ 10,046 $ 93,915
Interest income 4,877 - 4,877
------------------------------------------------------------------------------------------------------------------------------------
Total revenues 76,549 10,046 98,792
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advertising 3,567,956 - 3,567,956
Broadcasting fees 226,000 - 226,000
Compensation 749,580 - 749,580
Consulting 399,067 5,000 404,067
General and administrative 197,373 28,591 250,698
Interest 16,347 30,574 73,770
Production costs 306,874 - 306,874
Professional fees 130,194 8,500 138,694
Matrix agreement costs (Note 6) 350,000 - 350,000
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 5,943,391 72,665 6,067,639
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ 5,866,842 $ 62,619 $ 5,968,847
====================================================================================================================================
NET LOSS PER SHARE $ ( .57) $ ( .01) $ (.60)
====================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,265,911 9,636,475 9,881,666
====================================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 6, 1997) TO MAY 31, 2000
================================================================================
<TABLE>
<CAPTION>
Deficit
Common Stock, $.00005 par value; Accumulated
20,000,000 shares authorized Additional During the
---------------------------------- Paid-In Development
Transaction Date Shares Par Value Capital Stage Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Sale of stock for cash
($.01 per share) 11/6/1997 100,000 $ 5 $ 995 $ - $ 1,000
Net loss from inception
(November 6, 1997) to
May 31, 1998 - - - - (39,386) (39,386)
------------------------------------------------------------------------------------------------------------------------------------
Balance - May 31, 1998 - 100,000 5 995 (39,386) (38,386)
Acquisition of assets of
Falcon Entertainment Corporation
($.006 per share) 4/26/1999 9,536,475 477 54,248 - 54,725
Special distribution to shareholder 4/26/1999 - - (50,000) - (50,000)
Net loss for the year ended
May 31, 1999 - - - - (62,619) (62,619)
------------------------------------------------------------------------------------------------------------------------------------
Balance - May 31, 1999 - 9,636,475 482 5,243 (102,005) (96,280)
Redemption of shares (Note 10) 6/1/1999 (50,000) (3) (124,997) - (125,000)
Issuance of common stock for
compensation 6/28/1999 50,000 3 124,997 - 125,000
Issuance of common stock for
consulting services 8/23/1999 5,000 - 12,500 - 12,500
Issuance of common stock for
compensation 8/23/1999 50,000 3 124,997 - 125,000
Issuance of common stock for
consulting services 12/3/1999 10,000 1 25,000 - 25,000
Issuance of common stock for
compensation 3/21/2000 45,832 2 114,578 - 114,580
Issuance of common stock under
Private Placement 3/31/2000 3,400,000 170 8,499,830 - 8,500,000
Private placement offering costs 3/31/2000 - - (1,105,000) - (1,105,000)
Issuance of common stock for rent 4/5/2000 5,000 - 12,500 - 12,500
Issuance of common stock for
consulting services 5/15/2000 90,000 4 224,995 - 225,000
Issuance of common stock for
consulting services 5/19/2000 5,000 - 12,500 - 12,500
Net loss for the year ended
May 31, 2000 - - - - (5,866,842) (5,866,842)
------------------------------------------------------------------------------------------------------------------------------------
Total 13,247,307 $ 662 $7,927,143 $(5,968,847) $ 1,958,958
====================================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Period From
Inception
(November 6,
Year ended Year ended 1997) through
May 31, 2000 May 31, 1999 May 31, 2000
=====================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,866,842) $ (62,619) $(5,968,847)
---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 6,717 - 6,717
Common stock issued for compensation 614,580 - 614,580
Common stock issued for consulting services 275,000 - 275,000
Common stock issued for rent 12,500 - 12,500
Changes in operating assets and liabilities:
Prepaid expenses (396,209) - (396,209)
Prepaid artist fees (255,084) - (255,084)
Security deposit (90,000) - (95,600)
Other assets - 4,700 4,700
Accrued expenses 1,107,443 36,074 1,170,366
Accrued interest (57,423) - (57,423)
------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,217,524 40,774 1,279,547
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (4,649,318) (21,845) (4,689,300)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash balances of company acquired - 54,725 54,725
Purchase of certificates of deposit (499,427) - (499,427)
Purchases of property and equipment (451,252) - (451,252)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (950,679) 54,725 (895,954)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from (repayment to) stockholder, net (227,638) (243,528) 18,834
Net proceeds from the issuance of common stock 7,395,000 - 7,396,000
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 7,167,362 (243,528) 7,414,834
------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,567,365 (210,648) 1,829,580
CASH AND EQUIVALENTS - BEGINNING 262,215 472,863 -
------------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 1,829,580 $ 262,215 $ 1,829,580
====================================================================================================================================
Supplemental Disclosures:
------------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 73,770 $ - $ 73,770
====================================================================================================================================
Income taxes paid $ - $ - $ -
====================================================================================================================================
Non-Cash Investing and Financing Activities:
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On June 1, 1999, 50,000 shares of common stock valued at $125,000 were
converted to a note payable.
See accompanying notes.
5
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of
Falcon Entertainment Corporation (Falcon) and its
subsidiaries, Independent Music Network, Inc. (IMN),
Independent Music Channel, Inc. (IMC) d/b/a Ecity Records,
InVision Records, Inc., and Jump2web.com Corporation
(collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in
consolidation.
ORGANIZATION AND BUSINESS ACTIVITY
The Company is a diversified entertainment company that
broadcasts music videos of amateur and professional artists
over cable and direct satellite television on its television
channel, IMNTV, and that webcasts those videos over the
Internet through its web site, www.IMNTV.com. It also operates
two record labels, InVision Records and Ecity Records through
which it intends to produce and mass market the music of
artists and bands, including certain of those who submit
videos for broadcast over IMNTV. The Company further intends
to develop its web site into a web portal to promote its
products and services, promote the musicians signed to its
record labels, provide music news and related informational
services and provide links to related web sites.
The Company was incorporated in March 1986 under the laws of
the State of Delaware under the name AVTR Systems, Inc. In
April 1999, the Company changed its name to Independent Music
Group, Inc. and in December 1999 it changed its name to Falcon
Entertainment Corporation. In April 1999, the Company acquired
all of the issued and outstanding capital stock of Independent
Music Network, Inc., a Delaware corporation, from the
Company's President, Chief Executive Officer and Chairman.
The Company is considered to be in the development stage, and
the accompanying financial statements represent those of a
development stage company.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and all highly liquid
investments readily convertible to cash. The Company, from
time to time, maintains cash balances in excess of federally
insured limits.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred.
Costs of communicating advertising are incurred when the
service has been received. Advertising expense amounted to
$3,567,956 for the year ended May 31, 2000.
6
<PAGE>
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
================================================================================
INCOME TAXES
The Company accounts for income taxes according to Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which requires a liability approach to
calculating deferred income taxes.
USE OF ESTIMATES
The accounting and reporting policies of the Company are in
conformity with generally accepted accounting principles. The
presentation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the balance sheet date
and the reported amounts of revenues and expenses for the
periods presented. Actual results could differ from those
estimates.
The Company has recorded a deferred tax asset of approximately
$2,520,000 at May 31, 2000 which is completely offset by a
valuation allowance. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the
future. The amount of deferred tax asset considered realizable
could change in the near term if estimates of future taxable
income are increased.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments"
requires that the Company disclose estimated fair values for
its financial instruments. The carrying value of the cash and
equivalents and certificates of deposit approximates fair
value. The carrying value of notes payable - stockholder
approximates fair value as the interest rate is not
significantly different from market rates available to the
Company.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for
major betterments and additions are charged to the asset
accounts, while replacements, maintenance and repairs which do
not extend the lives of the respective assets are charged to
expense in the period incurred.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is
computed using straight-line methods over the estimated useful
lives of the assets. Amortization of leasehold improvements is
computed on a straight-line basis of the shorter of the
estimated useful lives of the assets or the remaining term of
the related lease. The range of useful lives is as follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment 5 years
Computer and office equipment 5 years
Computer software 3 years
Leasehold improvements 10 years
</TABLE>
7
<PAGE>
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
================================================================================
NET LOSS PER SHARE
Net loss per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share,"
based on the weighted average number of common shares
outstanding, restated to give effect to the recapitalization.
Outstanding stock warrants were not considered in the
calculation of weighted average number of common shares
outstanding, as their effect would have been anti-dilutive.
ADVANCES TO ARTISTS AND PRODUCERS
In accordance with Statement of Financial Accounting Standards
No. 50, "Financial Reporting in the Record and Music
Industry", advances to artists and producers are capitalized
as an asset when the current popularity and past performance
of the artist or producer provides a sound basis for
estimating the probable future recoverability of such advances
from future royalties to be earned by the artist or producer.
Advances are charged to expense as subsequent royalties are
earned by the artist. Any portion of advances that appear not
to be recoverable, are charged to expense during the period
that the advances are deemed to be non-recoverable.
The cost of a record master borne by the record company shall
be reported as an asset if the past performance and current
popularity of the artist provides a sound basis for estimating
that the cost will be recovered from future sales. Otherwise,
that cost shall be charged to expense. The amount recognized
as an asset shall be amortized over the estimated life of the
recorded performance using a method that reasonably relates
the amount to the net revenue expected to be realized.
RECLASSIFICATION
Certain amounts included in the 1999 financial statements have
been reclassified to conform with the 2000 statement
presentation.
================================================================================
NOTE 2. GOING CONCERN
================================================================================
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a
going concern. The Company has incurred significant operating
losses and negative cash flows from operations since
inception.
The Company's ability to continue as a going concern is
dependent upon achieving profitable operations and positive
cash flows from operations or obtaining debt or equity
financing. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Management is attempting to raise additional capital of up to
$5 million through a private placement on a best efforts
basis, which will assist the Company in funding operations and
provide the opportunity for the Company to continue as a going
8
<PAGE>
concern. Management believes it will be successful in raising
capital sufficient to continue operations.
================================================================================
NOTE 3. PREPAID EXPENSES
================================================================================
At May 31, 2000, prepaid expenses consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Prepaid expenses $ 20,987
Prepaid advertising 324,010
Prepaid consulting 10,000
Prepaid rent 41,212
--------------------------------------------------------------
Total prepaid expenses $ 396,209
==============================================================
</TABLE>
================================================================================
NOTE 4. PREPAID ARTIST FEES
================================================================================
The Company entered into a contract with an established artist
in which they paid the artist an initial fee of $250,000, plus
legal fees of $10,000. These fees are being amortized on a
straight-line basis over the estimated life of the contract of
approximately two years.
================================================================================
NOTE 5. INCOME TAX BENEFIT
================================================================================
The income tax benefit consisted of the following:
<TABLE>
<CAPTION>
Years ended
-------------------------------------------
MAY 31, 2000 May 31, 1999
=========================================================================================================================
<S> <C> <C>
Federal $ 1,994,726 $ 21,290
State 212,966 2,273
Increase in valuation allowance ( 2,207,692) ( 23,563)
-------------------------------------------------------------------------------------------------------
$ - $ -
=======================================================================================================
</TABLE>
Deferred income taxes of approximately $2,520,000 are
comprised of net operating loss carryforwards and are
completely offset by a valuation allowance.
The difference between the tax benefits and the amounts
computed by applying the federal statutory tax rates to the
losses before income taxes are due to increases in the
valuation allowance and state tax benefits.
The Company has net operating loss carryforwards totaling
approximately $6,700,000, expiring in various years through
2019.
9
<PAGE>
================================================================================
NOTE 6. MATRIX AGREEMENT COSTS
================================================================================
On May 8, 2000, the Company entered into an income and talent
acquisition agreement (Matrix Agreement) with Matrix Music
Works (Matrix), a music production company, which currently
has a number of artists in development and is a company owned
by a shareholder and member of the Company's advisory board.
Pursuant to the Matrix Agreement, the Company paid $250,000
for the right to receive (1) 25% of the net income, as
defined, of Matrix for an indefinite period, (2) 25% of
royalty income derived from Matrix's production contracts for
existing artists on the "artist roster" for the term of the
respective agreements between Matrix and the artist and (3)
25% of royalty income from any new artists signed by Matrix
for the next five years. As recoverability of this investment
is dependent upon the popularity of certain Matrix artists and
there is no sound basis for estimating future royalties to be
earned by these artists this amount has been expensed in the
accompanying consolidated statement of operations.
In addition, the Company entered into a right of first refusal
agreement with Matrix whereby, for $100,000, the Company
received the right of first refusal to review projects and
acquire an interest in these projects at fair market value.
The agreement has a stated term of five years and has been
expensed in the accompanying consolidated statement of
operations.
================================================================================
NOTE 7. PROPERTY AND EQUIPMENT
================================================================================
At May 31, 2000, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $ 7,165
Leasehold improvements 6,185
Computer and office equipment 181,180
Computer software 256,722
--------------------------------------------------------------
451,252
Less: accumulated depreciation and amortization ( 6,717)
--------------------------------------------------------------
$ 444,535
==============================================================
</TABLE>
Depreciation expense amounted to $6,717 for the year ended May
31, 2000.
================================================================================
NOTE 8. NOTE PAYABLE - STOCKHOLDER
================================================================================
At May 31, 2000, note payable - stockholder consisted of
amounts due to the majority stockholder and officer of the
Company. The note bears interest at 10%, is unsecured and due
on demand. Interest expense on the note amounted to $16,347
for the year ended May 31, 2000, $30,574 for the year ended
May 31, 1999, and $73,770 for the period from inception
(November 6, 1997) to May 31, 2000.
10
<PAGE>
================================================================================
NOTE 9. COMMITMENTS
================================================================================
OPERATING LEASES
The Company is obligated under a non-cancelable operating
lease for its office facility located in New York, New York,
which expires July 2010.
Future minimum lease payments under all non-cancelable leases
comprised principally of the office lease, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001 $ 364,534
2002 335,821
2003 364,534
2004 377,167
2005 378,316
Thereafter 1,964,452
--------------------------------------------------------------
$ 3,784,824
================================================================================
</TABLE>
Rent expense incurred under all operating leases amounted to
$12,597 for the year ended May 31, 2000.
IRREVOCABLE STANDBY LETTER OF CREDIT
The Company has a $344,550 irrevocable standby letter of
credit with a bank in favor of the lessor of its New York
office facility. This letter of credit is collateralized by a
certificate of deposit, terminates in March 2001, and is
automatically extended for one year, unless written notice of
termination is received thirty days prior to renewal date.
PRODUCTION COSTS
During the year ended May 31, 2000, the Company entered into
recording agreements with various artists whereby, among other
things, the Company is obligated to advance funds to produce
master recordings. As of May 31, 2000, the future minimum
commitments related to the production of these recordings was
$200,000 and if certain sales levels are achieved by the
artist then the Company would have additional minimum
commitments of $492,500.
================================================================================
NOTE 10. STOCKHOLDERS' EQUITY
================================================================================
PRIVATE PLACEMENTS
During March 2000, pursuant to a Private Placement Memorandum,
the Company issued 3,400,000 shares of common stock for $2.50
per share. Costs associated with this offering amounted to
approximately $1,105,000.
11
<PAGE>
================================================================================
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
================================================================================
STOCK WARRANTS
In connection with the private placement discussed above, the
underwriter received warrants to purchase 340,000 of the
Company's common stock at $2.50 per share. As of May 31, 2000,
none of these warrants were exercised.
COMMON STOCK
On June 1, 1999, the Company redeemed 50,000 shares of common
stock from the majority shareholder in exchange for a note
payable in the amount of $125,000.
During the year ended May 31, 2000, the Company issued common
stock for non-cash consideration which was valued at the fair
market value of the common stock issued.
12
<PAGE>
--------------------------------------------------------------------------------
FALCON ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2000
--------------------------------------------------------------------------------
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
--------------------------------------------------------------------------------
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 2000
ASSETS (UNAUDITED) May 31, 2000
==============================================================================================================================
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ - $ 1,829,580
Certificates of deposit 51,156 150,928
Prepaid expenses 30,488 396,209
------------------------------------------------------------------------------------------------------------------------------
Total current assets 81,644 2,376,717
PREPAID ARTIST FEES 225,084 255,084
CERTIFICATE OF DEPOSIT 374,307 348,499
PROPERTY AND EQUIPMENT 488,099 444,535
OTHER ASSETS 99,900 90,900
------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,269,034 $ 3,515,735
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
==============================================================================================================================
CURRENT LIABILITIES
Bank overdraft $ 3,826 $ -
Note payable - stockholder 395,844 393,834
Accounts payable and accrued expenses 656,858 1,112,943
Distribution payable - stockholder 50,000 50,000
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,106,528 1,556,777
------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $.00005 per share; 20,000,000 shares authorized;
13,375,724 issued and outstanding 668 662
Additional paid-in capital 8,248,179 7,927,143
Deficit accumulated during the development stage ( 8,086,341) ( 5,968,847)
------------------------------------------------------------------------------------------------------------------------------
Total deficiency in assets 162,506 1,958,958
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,269,034 $ 3,515,735
==============================================================================================================================
</TABLE>
See accompanying notes - unaudited.
2
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period From Inception
Three Months Ended August 31, (November 6, 1997)
-------------------------------------------------- through
2000 1999 August 31, 2000
===============================================================================================================================
<S> <C> <C> <C>
REVENUES
Dividend Income $ 2,633 $ 1,861 $ 96,548
Interest Income 7,697 - 12,574
-------------------------------------------------------------------------------------------------------------------------------
Total revenues 10,330 1,861 109,122
-------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advertising 249,491 - 3,817,447
Broadcasting fees 417,149 - 643,149
Compensation 637,027 - 1,386,607
Consulting 78,498 17,345 482,565
General and administrative 379,196 8,733 629,894
Interest 14,635 5,349 88,405
Production costs 204,161 - 511,035
Professional fees 102,667 9,470 241,361
Matrix agreement costs 45,000 - 395,000
-------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,127,824 40,897 8,195,463
-------------------------------------------------------------------------------------------------------------------------------
NET LOSS ($ 2,117,494) ($ 39,036) ($ 8,086,341)
===============================================================================================================================
NET LOSS PER SHARE ($ 0.16) $ - ($ 0.79)
===============================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,374,313 9,641,310 10,193,810
===============================================================================================================================
</TABLE>
3
<PAGE>
FALCON ENTERTAINMENT CORPORATION & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period From
Inception
(November 6,
Three Months Ended August 31, 1997) through
2000 1999 August 31, 2000
==================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 2,117,494) ($ 39,036) ($ 8,086,341)
---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 32,625 - 39,342
Common stock issued for compensation 276,042 - 890,622
Common stock issued for consulting services - - 275,000
Common stock issued for talent acquisition agreement 45,000 - 45,000
Common stock issued for rent - - 12,500
Changes in operating assets and liabilities:
Prepaid expenses 365,721 - ( 30,488)
Prepaid artist fees 30,000 - ( 225,084)
Other assets ( 9,000) ( 1,980) ( 99,900)
Accounts payable and accrued expenses ( 456,085) 22,649 656,858
---------------------------------------------------------------------------------------------------------------------------------
Total adjustments 284,303 20,669 1,563,850
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ( 1,833,191) ( 18,367) ( 6,522,491)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash balances of company acquired - - 54,725
Purchase of certificate of deposit ( 19,984) - ( 519,411)
Maturity of certificate of deposit 93,948 - 93,948
Purchases of property and equipment ( 76,189) - ( 527,441)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 2,225) - ( 898,179)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank overdraft 3,826 - 3,826
Loans from (repayment to) stockholder, net 2,010 ( 69,935) 20,844
Net proceeds from issuance of common stock - - 7,396,000
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,836 ( 69,935) 7,420,670
---------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND EQUIVALENTS ( 1,829,580) ( 88,302) -
CASH AND EQUIVALENTS - BEGINNING 1,829,580 262,215 -
---------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ - $ 173,913 $ -
==================================================================================================================================
</TABLE>
See accompanying notes - unaudited.
4
<PAGE>
FALCON ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a
normal recurring nature. Operating results for the three
months ended August 31, 2000 are not necessarily indicative of
the results that may be expected for the year ending May 31,
2001.
The audited financial statements at May 31, 2000 which are
included in the Company's Annual Report on Form 10-KSB should
be read in conjunction with these condensed financial
statements.
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
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 revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
NET LOSS PER SHARE
Net loss per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share,"
based on the weighted average number of common shares
outstanding, restated to give effect to the recapitalization.
Outstanding stock warrants were not considered in the
calculation of weighted average number of common shares
outstanding, as their effect would have been anti-dilutive.
--------------------------------------------------------------------------------
NOTE 3. GOING CONCERN
--------------------------------------------------------------------------------
The Company has incurred significant operating losses and
negative cash flows from operations since inception. The
Company's ability to continue as a going concern is dependent
upon achieving profitable operations and positive cash flows
from operations or obtaining debt or equity financing. These
conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome
of these uncertainties.
5
<PAGE>
--------------------------------------------------------------------------------
NOTE 3. GOING CONCERN (CONTINUED)
--------------------------------------------------------------------------------
Management is attempting to raise additional capital of up to
$5 million through a private placement on a best efforts
basis, which will assist the Company in funding operations and
provide the opportunity for the Company to continue as a going
concern. Management believes it will be successful in raising
capital sufficient to continue operations.
--------------------------------------------------------------------------------
NOTE 4. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
In October 2000, the majority shareholder loaned the Company
$700,000. The loan bears interest at 10% per annum, is secured
by all assets of the Company, and is due on demand.
6
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FALCON OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..........................
The Offering................................
Selected Financial Data.....................
Risk Factors................................
Capitalization..............................
Use of Proceeds.............................
Price Range of Common Stock
and Dividend Policy......................
Management's Discussion and
Analysis or Plan of Operation...........
Business....................................
Management..................................
Executive Compensation......................
Certain Transactions........................
Principal Shareholders......................
Description of Securities...................
Selling Securityholders.....................
Plan of Distribution .......................
Shares Eligible for Future Sale.............
Legal Matters...............................
Experts.....................................
Where you can Find
Additional Information...................
</TABLE>
3,884,999 SHARES
FALCON ENTERTAINMENT CORP.
PROSPECTUS
________________, 2000
56
<PAGE>
UNTIL _________, 2000 (___ DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
57
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware Business Corporation Act permits the
indemnification of directors, employees, officers and agents of Delaware
corporations. Our Certificate of Incorporation and Bylaws provide that we shall
indemnify our directors and officers to the fullest extent permitted by the
Corporation Act.
The provisions of the Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for (i) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (ii)
deriving an improper personal benefit from a transaction, (iii) voting for or
assenting to an unlawful distribution and (iv) willful misconduct or conscious
disregard for the best interests of Falcon in a proceeding by or in the right of
a shareholder. The statute does not affect a director's responsibilities under
any other law, such as the Federal securities laws.
The effect of the foregoing is to require us to indemnify our
officers and directors for any claim arising against such persons in their
official capacities if such person acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers or control
persons pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by Falcon in connection with the
distribution of the securities being registered are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration and Filing Fee*................................................ $ 13,500
Legal Fees and Expenses*........................................................ $ 20,000
Accounting Fees and Expenses*................................................... $ 15,000
Financial Printing*............................................................. $ 3,000
Transfer Agent Fees*............................................................ $ 1,500
Blue Sky Fees and Expenses*..................................................... $ 500
Miscellaneous*.................................................................. $ 4,655
--------
TOTAL................................................................. $ 58,155
</TABLE>
* Estimated
None of the foregoing expenses are being paid by the selling security holders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following shares were sold by us
without registration under the Securities Act of 1933, as amended (the
"Securities Act").
In March 1999, Falcon issued an aggregate of 900,000 shares of common
stock to two accredited investors and received aggregate proceeds of $55,000.
The issuance was conducted pursuant to the exemption from registration provided
by Rule 504 of Regulation D promulgated under the Securities Act.
In March 1999, Falcon issued a total of 8,500,000 shares of common
stock to an officer and director of Falcon for a purchase price of $20,000
pursuant to the exemption from the registration requirements of the Act
pursuant to Section 4(2) of the Securities Act.
In April 1999, Falcon issued 100,000 shares of our common stock to an
officer and director of Falcon as part of the acquisition by Falcon of
Independent Music Network, Inc. The issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Securities Act.
In June 1999, Falcon issued an aggregate of 50,000 shares of common
stock to an employee of Falcon in consideration for services performed for
Falcon. The issuance was intended to be exempt from registration pursuant to
Section 4(2) of the Securities Act.
In August 1999, Falcon issued an aggregate of 50,000 shares of common
stock to an employee of Falcon, and 5,000 shares to a consultant of Falcon, in
consideration for services performed for Falcon. The issuances were intended to
be exempt from registration pursuant to Section 4(2) of the Securities Act.
In December 1999, Falcon issued an aggregate of 10,000 shares of common
stock to certain directors of Falcon in exchange for consulting services. The
issuances were intended to be exempt from registration pursuant to Section 4(2)
of the Securities Act.
II-2
<PAGE>
In March 2000, Falcon issued an aggregate of 3,400,000 shares of common
stock to 147 accredited investors in consideration for an aggregate of
$8,500,000 in cash. After deducting commissions, fees and operating expenses,
Falcon received net proceeds of approximately $7,395,000. Noble International
Investments, Inc. ("Noble") acted as the placement agent. In connection with
this private placement, Falcon granted Noble a warrant to purchase a maximum of
340,000 shares of common stock at an exercise price of $2.50 per share. The
issuances were intended to be exempt from registration pursuant to Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act.
In March 2000, Falcon issued an aggregate of 45,832 shares of common
stock to certain employees in consideration for services performed for Falcon.
The issuance was intended to be exempt from registration pursuant to Section
4(2) of the Securities Act.
In April 2000, Falcon issued an aggregate of 5,000 shares of common
stock to the landlord of its executive offices stock in consideration for a
one-time reduction in rental payments. The issuance was intended to be exempt
from registration pursuant to Section 4(2) of the Securities Act.
In May 2000, Falcon issued an aggregate of 90,000 shares of common
stock to 18 advisory board members, in consideration for their consulting
services. These issuances were intended to be exempt from registration pursuant
to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
under the Securities Act.
In May 2000, Falcon issued an aggregate of 5,000 shares of common stock
to a consultant of Falcon in consideration for services performed for Falcon.
The issuance was intended to be exempt from registration pursuant to Section
4(2) of the Securities Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No. Description of Documents
----------- -------------------------
<S> <C>
3.1 Certificate of Incorporation as filed with the State of Delaware
Secretary of State on March 10, 1986.*
3.2 Certificate of Amendment to the Certificate of Incorporation as filed
with the State of Delaware Secretary of State and dated June 17,
1986.*
3.3 Certificate of Amendment to the Certificate of Incorporation as filed
with the State of Delaware Secretary of State on March 19, 1999.*
3.4 Certificate of Amendment to the Certificate of Incorporation as filed
with the State of Delaware Secretary of State on April 9, 1999.*
3.5 Certificate of Amendment to the Certificate of Incorporation as filed
with the State of Delaware Secretary of State on December 9, 1999.**
II-3
<PAGE>
3.6 Bylaws.*
5.1 Opinion of Atlas Pearlman, P.A. (to be included by amendment).
10.1 Stock Purchase Agreement between Independent Music Group, Inc. and
James Fallacaro dated March 26, 1999.*
10.2 Network Carriage Agreement by and between Independent Music Group, Inc.
and OlympuSAT, Inc. dated December 6, 1999.**
10.4 Consulting Agreement between Falcon and Star West LLC dated February
15, 2000.****
10.5 Television Station Agreement between Yahoo!, Inc. and Falcon dated
March 20, 2000.***/****
10.6 Income and Talent Acquisition Agreement by and between InVision
Records, Inc. and Harlan Productions, Inc., d/b/a Matrix Music Works,
dated May 8, 2000****
10.7 Right of First Refusal Agreement by and between InVision Records, Inc.
and Harlan Productions, Inc., d/b/a Matrix Music Works, dated May 8,
2000..****
10.8 Agreement of Lease between Royal Realty Corp. and Falcon dated April
14, 2000.****
21 Subsidiaries of the Registrant. ****
23 Consent of Independent Auditor.
24 Power of Attorney (filed as part of signature page).
27 Financial Data Schedule.
</TABLE>
--------------------------------------------------------------------------------
* Incorporated by reference to our Registration Statement on Form
10-SB filed with the SEC on June 21, 1999.
** Incorporated by reference to our quarterly report on Form 10-QSB
for the period ended November 30, 1999, filed with the SEC on
January 14, 1999.
*** Portions of this Exhibit have been omitted based upon a request for
confidential treatment. The omitted material has been filed
separately with the Securities and Exchange Commission.
**** Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal period ended May 31, 2000, filed with the SEC
on September 30, 2000.
-------------------------
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to
participating broker-dealers, at the closing, certificates in such denominations
and registered in such names as required by the participating broker-dealers, to
permit prompt delivery to each purchaser.
The undersigned Registrant also undertakes:
II-4
<PAGE>
(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;
(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 Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant 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) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") 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 (the "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 preceding) 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 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.
II-5
<PAGE>
The undersigned Registrant also undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on November 9, 2000.
FALCON ENTERTAINMENT CORP.
By: /s/ JAMES FALLACARO
------------------------------------
James Fallacaro
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES FALLACARO Chief Executive Officer, November 9, 2000
-------------------------------------- President and Chairman
James Fallacaro
/s/ ANTHONY ESCAMILLA Director, Executive Vice November 9, 2000
-------------------------------------- President and Chief
Anthony Escamilla Operating Officer
/s/ CORINNE FALLACARO Director, Secretary November 9, 2000
-------------------------------------- and Treasurer
Corinne Fallacaro
Director and Senior November 9, 2000
-------------------------------------- Vice President
David Sifford
</TABLE>
