<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-91825
DATED MARCH 31, 2000.
[LOGO]
ENTERTAINMENT BOULEVARD, INC.
9,814,077 SHARES OF COMMON STOCK
- Our common stock is traded on the over-the-counter bulletin board under
the symbol "EBLD."
- All of the shares of common stock offered in this prospectus are being
sold by the selling stockholders listed on pages 53 and 54 of this
prospectus.
- This prospectus covers the resale of 9,814,077 shares of common stock,
including common stock to be issued to the selling stockholders upon the
conversion of preferred stock and upon the exercise of warrants.
- There is no underwriter or coordinating broker acting in connection with
this offering.
- Entertainment Boulevard, Inc. will not receive any proceeds from the sale
of shares by the selling stockholders.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 7 IN DETERMINING WHETHER
TO PURCHASE SHARES OF OUR COMMON STOCK.
---------------------
THE DATE OF THIS PROSPECTUS IS MARCH 31, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.......................................... 4
RISK FACTORS................................................ 7
FORWARD-LOOKING STATEMENTS.................................. 9
ABOUT THIS PROSPECTUS....................................... 9
USE OF PROCEEDS............................................. 9
TRADING INFORMATION......................................... 10
DIVIDEND POLICY............................................. 10
SELECTED FINANCIAL DATA..................................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 12
RECENT DEVELOPMENTS......................................... 18
BUSINESS.................................................... 21
MANAGEMENT.................................................. 42
PRINCIPAL STOCKHOLDERS...................................... 46
CERTAIN TRANSACTIONS AND RELATIONSHIPS...................... 48
DESCRIPTION OF OUR SECURITIES............................... 49
SHARES ELIGIBLE FOR FUTURE SALE............................. 52
SELLING STOCKHOLDERS........................................ 53
PLAN OF DISTRIBUTION........................................ 56
LEGAL MATTERS............................................... 57
EXPERTS..................................................... 57
WHERE YOU CAN FIND MORE INFORMATION......................... 57
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
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PROSPECTUS SUMMARY
ENTERTAINMENT BOULEVARD, INC.
We develop and license entertainment-related video programming for broadcast
over the Internet, using advanced data transmission technologies. We have
launched the following four programming categories on our website at vidnet.com:
- MUSIC--Music video programming, including music videos from most genres,
music news and reviews.
- MOVIES--Movie trailers from upcoming films, new releases and films on
video, plus movie news and reviews.
- SPORTS--Sports programming from across the country and sports news.
- NETFOMERCIALS--Video programming offering a broad range of product
infomercials.
---------------------
We are located at 12910 Culver Boulevard, Suite I, Los Angeles, California
90066 and our telephone number is (310) 578-5404. Our Web site address is
vidnet.com.
The information contained on our Web site does not constitute part of this
prospectus.
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THE OFFERING
<TABLE>
<S> <C>
Common stock offered................................. 9,814,077 shares
Common stock outstanding after this offering......... 23,370,447 shares
Use of proceeds...................................... We will not receive any proceeds from
the shares sold by the selling
stockholders, but a portion of those
shares will be obtained by the
exercise of outstanding warrants. Any
money we receive upon the exercise of
warrants will be used for general and
administrative costs, computer and
related costs and marketing.
Over-the-counter bulletin board symbol............... EBLD (formerly SDMT)
</TABLE>
The number of shares of common stock outstanding after this offering
includes 6,376,000 shares of common stock issuable upon the exercise of certain
outstanding warrants. It does not, however, include up to 4,598,000 shares of
common stock that could be issued upon the exercise of certain other outstanding
warrants and options.
5
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SUMMARY FINANCIAL INFORMATION
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues............................................ $ 268,039 --
Costs and expenses.................................. 7,030,323 $ 1,431,398
------------ -----------
Operating loss...................................... (6,762,284) (1,431,398)
Interest expense.................................... (6,169,676) (3,755)
Income taxes........................................ $ -- --
------------ -----------
Net loss............................................ $(12,931,960) $(1,435,153)
============ ===========
Net loss per share.................................. $ (1.09) $ (.30)
============ ===========
Shares used in computing net loss per share......... 11,868,537 4,814,266
============ ===========
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets....................................... $ 660,228 $ 200,072
Working capital deficiency........................... (3,049,509) (432,609)
Total assets......................................... 3,352,060 267,178
Total liabilities.................................... 3,709,737 1,484,949
Stockholders' deficiency............................. (357,677) (1,217,771)
</TABLE>
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
INVESTING IN OUR COMMON STOCK.
OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DOUBT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
Our financial statements for the years ended December 31, 1999 and December
31, 1998 and for the periods from April 1, 1997, the date of inception, through
December 31, 1999 were audited by our independent certified public accountants.
Their report states that the financial statements were prepared assuming we will
continue as a going concern although we have incurred significant net losses and
have working capital deficiencies that raise substantial doubts about our
ability to do so.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE MAY BE UNABLE TO SUCCESSFULLY
MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
We incorporated in December 1997 and acquired International Net
Broadcasting, LLC in January 1999. International Net Broadcasting began
operating in April 1997 as All Media Distribution, LLC and its Web site first
became available in March 1998. Our management faces the challenge of developing
a business in a rapidly evolving market. We may not be able to maintain or
develop the strategic relationships necessary to achieve or maintain
profitability. In addition, our financial results cover periods prior to the
acquisition of our Internet business and may not be indicative of our future
operating results.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES.
We have not yet achieved profitability and expect that our operating losses
will continue for the foreseeable future. If our revenues grow more slowly than
we anticipate, or if our operating expenses exceed our expectations, our
financial performance will be adversely affected. We incurred net losses of
approximately $650,000 during the period from inception to December 31, 1997,
followed by net losses of approximately $1,435,000 during the year ended
December 31, 1998 and approximately $12,931,960 during the year ended
December 31, 1999. As of December 31, 1999, our accumulated deficit was
approximately $15,016,739. We need to generate significant revenues to achieve
and maintain profitability. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR ABILITY TO MEET OUR WORKING CAPITAL NEEDS WILL BE SIGNIFICANTLY LIMITED IF
WE CANNOT OBTAIN ADDITIONAL FINANCING.
To meet our anticipated working capital and capital expenditure requirements
for the foreseeable future we need substantial capital, which we may not be able
to
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obtain. We are in the process of negotiating a $1 million line of credit but we
do not have a line of credit at this time, however, we have raised approximately
$10 million in a private placement of our securities subject to the successful
completion of an exchange offer. See "Recent Developments--Sale of units and
unit exchange offer." That amount, plus cash reserves, proceeds of $2 million
from the most recent sale of Series A preferred stock and projected cash flow
from operations, should be sufficient to meet our requirements for the
foreseeable future. If, however, our capital requirements or cash flow vary
materially from our current projections, or if unforeseen circumstances occur,
we may require additional financing sooner than we anticipate.
Additional financing may not be available on terms favorable to us, or at
all. If adequate funds are not available, or are not available on acceptable
terms, our ability to meet our working capital needs will be significantly
limited, which would adversely affect our business.
BECAUSE OUR REVENUES DEPEND ON A LIMITED NUMBER OF ADVERTISERS WE MUST RETAIN
OUR CURRENT ADVERTISERS OR ATTRACT NEW ONES.
Our results of operations in any given period depend to a significant degree
upon revenues from a small number of advertisers. In addition, few advertisers
are contractually obligated to purchase any advertising in the future. Our
failure to sell a sufficient number of advertisements or to increase the number
of advertisers during a particular period could adversely affect our results of
operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN STEPHEN BROWN AND OTHER KEY
PERSONNEL.
We believe that the music industry background of Stephen Brown, our
president and chief executive officer, is critical to our success. Mr. Brown's
experience and his industry connections are key factors in forming the
cooperative ventures and strategic alliances that insure the availability of
variety and high quality content on vidnet.com. The loss of his services would
have a detrimental impact on our business. Our success also depends on our
ability to hire and retain other qualified employees. We may not be able to
locate and hire those employees because of intense competition in the Internet
industry for personnel with the requisite skills.
THE PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED WHEN OUR OUTSTANDING
DEBT IS CONVERTED TO EQUITY.
We have offered the holders of our outstanding short-term notes the
opportunity to participate in an exchange offer in which we would exchange their
notes for common stock and warrants to purchase common stock. Because the
exchange rate at the time of the offer is beneficial to the debt holders, we
will incur a charge to earnings of approximately $25,500,000 if all of the note
holders participate in the exchange. This could adversely affect the price of
our common stock.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend to identify
forward-looking statements in this prospectus by using words such as
"anticipates," "believes," "intends," "expects," "may," "should," "plan,"
"projected," "contemplates," or similar statements. These statements are based
on our beliefs and assumptions we made using information currently available to
us. Because these statements reflect our current views concerning future events,
these statements involve risks, uncertainties and assumptions. Actual future
results may differ significantly from the results discussed in the
forward-looking statements. You should not place undue reliance on those
forward-looking statements which apply only as of the date of this prospectus.
ABOUT THIS PROSPECTUS
In making an investment decision, you should only rely on the information
contained in this prospectus. We have not authorized anyone to provide you with
information that is different from that contained in this prospectus. The shares
of our common stock offered in this prospectus are to be offered and sold only
in jurisdictions where those offers and sales are permitted.
Except as otherwise provided, in this prospectus, "Entertainment Boulevard,"
"we," "us," and "our" refer to Entertainment Boulevard, Inc., a Nevada
corporation, and International Net Broadcasting, its sole subsidiary. We use
vidnet.com as the registered domain name of our Web site. We intend to apply for
registration of the marks "Vidnet," "Vidnet.com Music," "Vidnet.com Movies,"
"Vidnet.com Sports" and "Vidnet.com NetFomercials" as our service marks. All
other tradenames and trademarks appearing in this prospectus are the property of
their respective holders.
USE OF PROCEEDS
The only proceeds we receive from this offering will be from the exercise of
warrants held by some of the selling stockholders. However, some of those
warrants have an exercise option that allows the holder to exercise the warrants
without paying the exercise price in cash. Instead, the holder would receive
common stock with a dollar value that is equal to the the market price of the
common stock minus the exercise price of the warrants multiplied by the number
of warrants exercised. If all the selling stockholders exercise their warrants
by paying the exercise price in cash, we will receive a maximum of $8,200,000.
Any net proceeds received by Entertainment Boulevard will be used for general
corporate purposes, including working capital for our business. We intend to
allocate the net proceeds as follows:
<TABLE>
<CAPTION>
<S> <C>
approximately
General and administrative costs... $2.8 million
approximately
Computer and related costs......... $2.5 million
approximately
Marketing costs.................... $2.9 million
</TABLE>
We intend to invest any net proceeds in short-term, interest-bearing,
investment-grade securities before using those proceeds as indicated.
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TRADING INFORMATION
Our common stock is publicly traded on the over-the-counter bulletin board,
a regulated quotation service that captures and displays real-time quotes and/or
indications of interest in securities not listed on The Nasdaq Stock Market or
any U.S. exchange. Our common stock began trading under the symbol "EBLD" on
February 5, 1999. From November 20, 1998 until that time, it traded under the
symbol "SDMT." As of March 13, 2000, the closing bid price for our common stock
was $6.1875. The 52-week low bid price was $1.50 and the 52-week high bid price
was $8.00. Information as to trading volumes and bid and asked prices for our
common stock may be obtained directly from the over-the-counter bulletin board.
The following table sets forth the high and low bid prices for our common
stock as reported to us by the over-the-counter bulletin board. These prices
indicate the prices that a market maker is willing to pay. These quotations are
between dealers, do not include retail mark-ups, markdowns or other fees and
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED LOW BID HIGH BID
- ------------- -------- --------
<S> <C> <C>
December 31, 1998.......................... $1.00 $2.50
March 31, 1999............................. $1.50 $4.1562
June 30, 1999.............................. $1.68 $8.00
September 30, 1999......................... $1.875 $4.0625
December 31, 1999.......................... $1.6875 $4.1875
</TABLE>
As of March 13, 2000, there were 78 holders of record of our common stock.
DIVIDEND POLICY
To date, we have not paid cash dividends on our common stock and we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Our board of directors will determine, in its sole discretion, whether
to declare any dividends on our common stock in the future based on our
earnings, capital requirements, financial condition and other relevant factors.
10
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SELECTED FINANCIAL DATA
The selected historical financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the related notes
included with this prospectus. The statement of operations data for the years
ended December 31, 1999 and 1998, and the balance sheet data at December 31,
1999 and 1998, are derived from financial statements of Entertainment Boulevard
which have been audited by Singer Lewak Greenbaum and Goldstein LLP, independent
certified public accountants.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues.................................................... $ 268,039 --
Costs and expenses.......................................... 7,030,323 $ 1,431,398
------------ -----------
Operating loss.............................................. (6,762,284) (1,431,398)
Interest expense............................................ (6,169,676) (3,755)
Income taxes................................................ $ -- --
------------ -----------
Net loss.................................................... $(12,931,960) $(1,435,153)
============ ===========
Net loss per share.......................................... $ (1.09) $ (.30)
============ ===========
Shares used in computing net loss per share................. 11,868,537 4,814,266
============ ===========
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Current assets.............................................. $ 660,228 $ 200,072
Working capital deficiency.................................. (3,049,509) (432,609)
Total assets................................................ 3,352,060 267,178
Total liabilities........................................... 3,709,737 1,484,949
Stockholders' deficiency.................................... (357,677) (1,217,771)
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED AT THE END OF THIS
PROSPECTUS, BEGINNING ON PAGE F-1. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS MADE IN THIS
SECTION. WE URGE PROSPECTIVE INVESTORS TO EXERCISE CAUTION AND NOT TO PLACE
UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW. Entertainment Boulevard is a development stage company that
provides Internet entertainment and information services, including music
videos, movie trailers, sports programming and infomercials. We also provide
video encoding services for other companies. Our content is delivered on the
Internet at www.vidnet.com.
We anticipate that our business will incur significant operating losses for
the foreseeable future. At this time, we believe that our survival and success
depends primarily upon our ability to obtain advertising and sponsorship revenue
and to achieve sales through our Web site. To date, Entertainment Boulevard has
not generated any significant revenue and our ability to do so in the future is
substantially uncertain.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets like
Internet commerce. Such risks include, but are not limited to, an evolving and
unpredictable business environment and the management of growth. To address
those risks, we must, among other things:
- grow and maintain our audience;
- implement and successfully execute our business and marketing strategy;
- continue to develop and upgrade our technology;
- improve our Web site;
- respond to competitive developments; and
- attract, retain and motivate qualified personnel.
We may not be successful in addressing those risks and the failure to do so
could have a material adverse effect on our business, prospects, financial
condition and results of operations. Furthermore, our lack of an operating
history makes predictions of future operating results difficult to ascertain.
Currently, our Internet ads are priced on a cost-per-thousand ads displayed
basis. These are measured by the number of times viewers click on that specific
advertisement. As a result, we believe that our future Internet commerce and
advertising revenue depends largely on increasing the vidnet.com audience.
Revenues
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from Internet-generated transactions are recorded at the time the vendor ships
the product to the customer. Revenues from advertisements on vidnet.com are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Entertainment Boulevard obligations remain.
Future advertising revenues may include barter revenues, which represent an
exchange of advertising space on our Web site for reciprocal advertising space
on third parties' Web sites or for rights under Internet distribution
agreements. Revenues from barter transactions are recorded as advertising
revenues at the lower of estimated fair value of the advertisements received or
delivered and are recognized upon publication of the advertisements on our Web
site. Barter expenses are also recorded at the lower of estimated fair value of
the advertisements received or delivered and are recognized when Entertainment
Boulevard's advertisements run on the reciprocal media property, which is
typically in the same period in which the advertisements run on our Web site.
We may spend substantial funds for advertising without receiving revenues
during our sales cycles. Our dependence on advertising revenues subjects us to
additional risks because the cycles for those sales vary significantly. The time
between the date of initial contact with a potential advertiser and receipt of a
purchase order from the advertiser may range from as little as six weeks to up
to nine months. Advertising sales are also affected by factors over which we
have little or no control. If sales are delayed or do not occur, our operating
results for a particular period may be adversely affected.
We have recently started to derive revenues by encoding audio and video
media into a digital format that allows distribution of the encoded media over
the Internet. Revenues from encoding services are recognized upon delivery of
the encoded media, provided that we have no significant obligations remaining
and collection of the related receivable is deemed probable.
We have entered into various license arrangements and strategic alliances in
order to build our audience, provide content, generate additional online
traffic, and establish additional potential sources of revenue. We expect that
we will continue to enter into such arrangements. Those arrangements and
alliances may involve significant amounts of intangible assets, or non-cash
charges that may affect our operating results over the next several fiscal
periods. As of December 31, 1999 those transactions have not resulted in any
material affect on our operations. However, future operating results may be
adversely affected by amortization of any intangible assets acquired.
We have incurred significant net losses and negative cash flows from
operations since our inception. As of December 1999, we had an accumulated
deficit of approximately $15,016,739. We intend to continue to make significant
financial investments in marketing and promotion, content, technology and
infrastructure development. As a result, we believe that we will continue to
incur operating losses
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and negative cash flows from operations for the foreseeable future, and that
such losses and negative cash flows will increase for at least the next year. To
achieve profitability, we need to increase the size of our audience and our
revenues from advertising, e-commerce sales and encoding services.
RESULTS OF OPERATIONS--FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 1998
As described above, we are still in the early stages of development. As a
result, the following comparisons may not be meaningful.
REVENUE. Revenue increased to $268,039 for the year ended December 31,
1999, from $0 for the same period in 1998. Such increase is due to advertising
revenues.
COMPENSATION EXPENSE. Compensation expense increased approximately 313% to
$2,921,494 for the year ended December 31, 1999, from $708,145 for the same
period in 1998. This increase was due primarily to non-cash charges related to
stock-based compensation of $2,159,858 and an increase in our staff to
twenty-four employees at December 31, 1999 from seven employees at December 31,
1998, partially offset by the elimination of an officer's salary.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 254%
to approximately $71,200 for the year ended December 31, 1999, from
approximately $20,100 for the same period in 1998, primarily as a result of
increased capital expenditures.
CONSULTING EXPENSE. Consulting expense increased to approximately $631,900
for the year ended December 31, 1999, from $0 for the same period in 1998. This
non-cash expense relates to stock option grants for services rendered.
OTHER OPERATING EXPENSE. This category increased 340% to approximately
$3,095,734 for the year ended December 31, 1999, from approximately $703,000 for
the same period in 1998 due to costs to support the growth of the business,
including office supplies and minor equipment, insurance, training and trade
shows. In addition, we incurred expenses for advisors, legal fees and auditors
in connection with our preparation of the registration statement of which this
prospectus is a part.
INTEREST EXPENSE. Interest expense increased to approximately $54,400 for
the year ended December 31, 1999, from $3,755 for the same period in 1998. This
change was a result of increased short-term and long-term borrowings.
FINANCING COSTS. Financing costs increased to approximately $6,115,237 for
the year ended December 31, 1999, from $0 for the same period in 1998. This
non-cash expense relates primarily to the January 1999 conversion of long-term
debt owed by International Net Broadcasting into shares of our common stock at a
below market price and the issuance of debt with detachable stock purchase
warrants.
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RESULTS OF OPERATIONS--FISCAL YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM
APRIL 1, 1997 TO DECEMBER 31, 1997
COMPENSATION EXPENSE. Compensation expense increased 71% to $708,000 for
the year ended December 31, 1998, from $415,000 for the period from April 1,
1997, the date of our inception to December 31, 1997. This change was due to an
increase in the number of employees to nine at December 31, 1998 from five at
December 31, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 569%
to approximately $20,000 for the year ended December 31, 1998, from
approximately $3,000 for the period from April 1, 1997 to December 31, 1997, as
a result of increased capital expenditures and leasehold expansions.
OTHER OPERATING EXPENSE. This category increased 304% to $703,000 for the
year ended December 31, 1998, from $231,000 for the period from April 1, 1997 to
December 31, 1997. This change was due to costs related to the growth of our
business, including office supplies and minor equipment, insurance, training and
trade shows.
INTEREST EXPENSE. Interest expense increased to $4,000 for the year ended
December 31, 1998 from $0 for the the period from April 1, 1997 to December 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES. Since our inception, we have financed our
operations primarily through loans totaling $3,861,393 and private sales of our
equity securities totaling $3,621,025. We incurred offering costs of
approximately $456,800 in connection with these sales. As of December 31, 1999,
we had on hand approximately $429,408 in cash, cash equivalents and short-term
investments. We are currently negotiating a $1 million line of credit but we do
not have access to a line of credit at this time. In addition, since
December 31, 1999, we have raised $2,000,000 through the sale of additional
shares of Series A preferred stock and another approximately $10 million through
the sale of units consisting of short-term promissory notes and warrants to
purchase common stock. These units are involved in an exchange offer which, if
successful, will convert the promissory notes to common stock. For the year
ended December 31, 1999, we had revenues of approximately $268,000 derived
primarily from the sale of advertising. We anticipate that we will continue to
generate revenue from advertising in the future, as well as from our video
encoding service.
For the year ended December 31, 1999, operating activities used net cash of
approximately $3,565,000, primarily from a net loss from operations of
approximately $12,932,000 which was partially offset by non-cash stock-based
compensation and financing charges of approximately $8,907,000. In addition,
financing activities provided net cash of approximately $4,193,000, primarily
from the proceeds from the placement of short-term debt and the sale of equity
securities which totaled approximately $4,551,000. This was partially offset by
payments on the short-term debt
15
<PAGE>
and offering costs which totaled approximately $1,089,000. For the year ended
December 31, 1999, our investing activities used net cash of approximately
$399,000, primarily to purchase equipment.
For the period from inception to December 31, 1999, operating activities
used net cash of approximately $5,453,000, primarily from a net loss from
operations of approximately $15,017,000 which was partially offset by an
increase in accounts payable and accrued liabilities of approximately $956,000.
In addition, financing activities provided net cash of approximately $6,370,639,
primarily from the proceeds from the placement of debt and the sale of equity
securities. This was partially offset by offering costs of approximately
$456,784. For the period from inception to December 31, 1999, our investing
activities used net cash of approximately $488,653, primarily to purchase
equipment.
We have experienced a substantial increase in our compensation expenses,
capital expenditures and operating lease costs since our inception. This is
consistent with the growth in our operations and staffing and we anticipate that
this trend will continue for the foreseeable future. Additionally, we plan to
expand our sales and marketing programs and conduct more aggressive brand
promotions. Based on our anticipated operating expenses of approximately
$300,000 per month, we expect that our present cash balance, plus net proceeds
from the recent sale of additional shares of Series A preferred stock and units,
subject to the successful completion of the pending exchange offer involving
those units, and revenues from operations will be sufficient to meet our
anticipated needs for working capital and capital expenditures for the
foreseeable future. Our ability to grow will depend in part on our ability to
expand and improve our Web site content material.
We may need to raise additional funds to:
- Take advantage of unanticipated opportunities including--
- more rapid expansion;
- acquisition of complementary businesses; and
- development of new products.
- React to unforeseen difficulties including--
- loss of key personnel;
- rejection by users of our Web site; and
- other competitive pressures.
If we raise additional funds through the issuance of equity securities, the
percentage ownership of our then existing stockholders will be reduced.
Moreover, stockholders may experience additional and significant dilution and
such equity securities may have rights, preferences or privileges senior to
those of our common stock. Additional financing may not be available on terms
acceptable to Entertainment Boulevard, or at all. If we are unable to obtain
sufficient funds on a timely basis, we
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<PAGE>
may be unable to implement our business plans, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS. In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position No. 98-1, "Software
for Internal Use," which provides guidance on accounting for the cost of
computer software developed or obtained for internal use. Statement of Position
No. 98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. We do not anticipate that the adoption of Statement of
Position No. 98-1 will have a material impact on Entertainment Boulevard's
financial statements.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Startup Activities." Statement of Position No. 98-5, which is
effective for fiscal years beginning after December 15, 1998, provides guidance
on the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
As Entertainment Boulevard has expensed those costs historically, the adoption
of that standard will not have a significant impact on its financial statements.
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RECENT DEVELOPMENTS
SALE OF SERIES A PREFERRED STOCK. On September 3, 1999, we entered into an
agreement with H.A.A. Inc., Lowen Holdings and Beestons Investment Ltd., or the
purchasers, that provided for:
- the immediate sale of 2,000 shares of Series A preferred stock to those
entities for $2 million; and
- the sale of another 2,000 shares of Series A preferred stock to those
entities for an additional $2 million.
The second transaction closed on March 15, 2000. All 4,000 shares of
Series A preferred stock were converted into 2,723,647 shares of common stock at
that time.
Under the agreement, the purchasers were granted certain registration rights
with respect to the shares of common stock underlying their Series A preferred
stock. As a result, those purchasers are included as selling stockholders in
this prospectus. In addition, among other things, for two years the purchasers
have the right to approve the appointment of any new or replacement member to
our board of directors, and the right to have Robb Peck McCooey Clearing
Corporation appoint a board observer to attend meetings of our board of
directors.
Under the agreement, until 180 days after the date of this prospectus, with
certain exceptions, we can not offer, sell, grant any option to purchase, or
otherwise dispose of any of our equity or equity-equivalent securities at a
price that is less than the market price of the common stock at the time of
issuance of such security without the prior written consent of the purchasers.
We must also get the written consent of the purchasers before offering or
selling a convertible security if the conversion price is less than the market
price of our common stock at the time of issuance of such security. In addition,
with certain exceptions, for a period of not less than 90 trading days after the
date of this prospectus, we cannot, without the prior written consent of the
purchasers:
- register any of our securities for resale; or
- issue or sell any of our equity or equity-equivalent securities.
In connection with the sale of the Series A preferred stock, we entered into
a Placement Agency Agreement with Robb Peck for placement agent services as well
as investment-banking services. For acting as placement agent with respect to
the Series A preferred stock, Robb Peck and some of its key employees were
granted:
- warrants to purchase 250,000 shares of our common stock for $2.00 per
share any time from September 3, 2000 until September 2, 2004; and
- warrants to purchase additional 250,000 shares upon the same terms upon
completion of the sale of the additional shares of Series A preferred
stock.
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If Robb Peck provides us with investment banking services, it will be paid
additional fees as specified in the agreement. The shares underlying Robb Peck's
and its employees' warrants have the benefit of certain registration rights. As
a result, Robb Peck and its employees are included as selling stockholders in
this prospectus. In connection with the sale of the Series A preferred stock,
Stephen Brown, our chief executive officer, agreed to a 270 day lock-up as to
the sale of 1,425,000 shares obtainable by him through the exercise of warrants.
See "Shares Eligible for Future Sale" and "Certain Transactions and
Relationships."
SHORT-TERM LOANS TO ENTERTAINMENT BOULEVARD. On January 14, 2000,
H.A.A. Inc. and Forest Equities, Ltd. loaned us a total of $200,000 with an
interest rate of 10% per year. On March 15, 2000, the principal and interest
were converted into 203,388 shares of our common stock at the lenders' election.
In connection with the loan, the lenders received five-year warrants to purchase
a total of 50,000 shares of our common stock at $1.00 per share. The shares
obtained upon conversion of the loan, as well as the shares issuable upon
exercise of the warrants, are included in the shares being registered for
H.A.A. Inc. and Forest Equities, Ltd. as selling stockholders in this
prospectus.
SHORT-TERM LOAN BY ENTERTAINMENT BOULEVARD. In January 2000, we made
advances of approximately $486,000 to a digital production company. The note is
due and payable on demand.
SALE OF UNITS AND UNIT EXCHANGE OFFER. On December 28, 1999, we entered
into an agreement with an investment banking firm to act as placement agent for
units of our securities. From December 28, 1999 through February 3, 2000, the
placement agent sold 105.15 units. Each unit consists of a $100,000 note payable
in 90 days with an interest rate of 10% per year and a five-year warrant to
purchase 40,000 shares of common stock at $1.00 per share. The shares issuable
upon exercise of the warrants will have certain piggy-back registration rights.
Proceeds from the unit offering were used for working capital and general
corporate purposes. In accordance with generally accepted accounting principals,
we will recognize the fair market value of the warrants as financing costs over
the term of the notes. The aggregate value of the warrants issued in connection
with this debt would be approximately $15,500,000 which is expected to be
recorded in the first quarter of 2000.
On February 24, 2000, we offered these note holders the opportunity to
exchange their notes for shares of common stock. The aggregate amount of debt
outstanding related to this potential exchange was approximately $10,515,000 at
the time the offer was made. The exchange rate offered to the note holders is
50,000 shares of common stock and 20,000 stock purchase warrants with an
exercise price of $4.00 per share for every $100,000 of debt held. The exchange
rate at the time of the offer was beneficial to the note holders. If all of the
note holders were to participate in the exchange, we would incur a charge to
earnings of approximately $25,500,000, which represents the difference between
the trading price of the common stock and the exchange rate of
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the notes which we expect would be recorded in the first quarter of 2000. To the
extent a note holder does not participate in the exchange, we expect to repay
the notes out of the proceeds we received from the sale of the additional shares
of Series A preferred stock.
TERMINATION AGREEMENT. In connection with our agreements with the
investment banking firm that placed 105.15 units of our securities from December
1999 through February 2000, Robb Peck agreed to terminate certain of its rights
under the Placement Agency Agreement dated September 3, 1999 in return for
warrants to purchase an additional 500,000 shares of common stock, provided that
the investment banking firm is able to raise $5 million for Entertainment
Boulevard on or before March 15, 2000. The shares issuable upon exercise of
those warrants are included in the shares being registered for Robb Peck and its
key employees as selling stockholders in this prospectus.
The termination agreement also provided that if the investment banking firm
raised at least $5 million on or before March 15, 2000, Robb Peck would use its
best efforts to cause all outstanding shares of Series A preferred stock to be
converted into common stock. Entertainment Boulevard agreed that the conversion
rate under these circumstances would be one share of common stock for each $1.50
of stated value of Series A preferred stock. As of March 15, 2000, the required
amount had been met and the holders of the outstanding shares of Series A
preferred stock converted their shares into 2,723,647 shares common stock.
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BUSINESS
ENTERTAINMENT BOULEVARD
Entertainment Boulevard is a digital media company focused on creating the
premier destination for streaming Internet entertainment and information video.
Streaming is a technique for transferring data so that it can be heard or viewed
as it is received. Taking advantage of the unique benefits of digital media,
Entertainment Boulevard strives to offer appealing content for viewers while
providing a marketing platform for record labels, movie studios, sports
programmers, advertisers and merchants. Because our content is designed to
attract and retain an audience composed principally of consumers who are 12 to
40 years old, advertisers on Entertainment Boulevard can target a valuable and
elusive group of consumers.
We deliver content on-demand to our users in an interactive format so our
Web site users are not confined to receiving content in the programmed, linear
sequences broadcast by radio and television. Broadband access to the Internet is
achieving greater consumer acceptance and enables us to add our highest quality
audio and video content to vidnet.com. Broadband channels have a wider bandwidth
than conventional telephone lines, which gives them the ability to carry video,
voice and data simultaneously. We have also perfected the video encoding process
to allow for superior quality of Internet video content, enabling us to provide
encoding services to third parties as an added source of revenue. Unlike other
encoding services, Entertainment Boulevard is the only streaming media encoder
on the Internet to provide in-house content for its own established network.
Entertainment Boulevard was formed in December 1997 in the State of Nevada
to acquire and develop mining properties. Prior to February 2, 1999, we operated
under the name Sedmet Exploration Inc. and acquired certain mining rights in
Tooele County, Utah. Although we still hold those rights, we are no longer in
that line of business. Instead, our only operations are through our wholly owned
subsidiary, International Net Broadcasting, which we acquired in January 1999.
Our present operations, assets and employees are primarily those of
International Net Broadcasting. On January 31, 2000, we re-launched our Web site
at www.vidnet.com. A link from our previous address at
www.entertainmentblvd.com, which was launched in March 1998, automatically
directs traffic to our new Web site. Prior to March 1998 Entertainment Boulevard
and/or International Net Broadcasting operated several Web sites, including
www.vidnet.com, www.vidnetusa.com and www.screenclips.com.
INDUSTRY BACKGROUND
THE MUSIC INDUSTRY. According to the Recording Industry Association of
America, the dollar value of recorded music shipments in the U.S. reached $13.7
billion in 1998. In 1997, worldwide shipments were valued at $38.1 billion.
Music videos experienced a significant increase in demand, with unit shipments
valued at $508 million in 1998, a 56.8% increase from 1997. Unit shipments of
CDs increased from 763.1 million in 1997 to 847 million in 1998, or
approximately 11%, with a dollar
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value of $11.4 billion in 1998. The Recording Industry Association reported
sales of DVDs for the first time in 1998, with unit shipments totalling 485,000
valued at $12.2 million.
We believe that the growth in CD and DVD sales indicates a shift in the
music industry towards the primary form of music distribution occurring on a
digital platform. This allows music to be played and disseminated on a computer.
Further, we believe that the greatest challenge facing the industry is to
effectively market new material to the increasing number of computer users. The
proportion of purchases made by 15 to 24 year-olds, once considered the
stronghold of the industry, decreased from 32.2% in 1996 to 28% in 1998. We
believe this evidence points to the music industry's need for new music media
brands, distributors and mediums that focus on consumers in the 12 to 40
year-old age bracket.
THE ROLE OF ENTERTAINMENT MEDIA. Increasingly, traditional music media have
de-emphasized the introduction of new music in favor of programming strategies
designed to reach the largest possible audience. Because active music consumers
are inclined to change the channel when they hear a song that they dislike,
traditional media programmers must limit the amount and range of music or videos
they broadcast to keep consumers tuned in and attract advertisers. Music
television brands such as MTV have adopted half-hour programming strategies to
avoid the symptomatic channel-changing associated with programmed music videos.
Similarly, radio formats have become more segmented in an effort to target
particular segments of listeners for advertisers. As a result, fewer new music
videos and songs receive airplay, making it more difficult for record labels to
market, and for consumers to discover, new music.
Compounding the challenge for traditional media, a number of marketers
believe young consumers respond to advertisements differently from their older
counterparts and prefer to encounter those advertisements through a more
interactive and diverse medium such as the Internet. We believe that sports
broadcasting companies and movie studios can take advantage of the opportunity
to reach a large and diverse audience by using the Internet to promote their
products.
GROWTH OF DIGITAL MEDIA. Significant growth in consumer use of personal
computers and other interactive devices has created new opportunities for
digital media like the Internet. According to International Data Corporation,
U.S. home PC penetration grew from 44.5% in 1998 to 48% in 1999 and is projected
to reach 60% by 2003. Almost all new PCs include modems for Internet access and
a high speed CD-ROM or DVD-ROM drive. In addition, International Data
Corporation projects that worldwide Internet usage will grow from approximately
196 million users in 1999 to over 500 million users in 2003. As a new mass
medium, the Internet is already attracting significant advertising spending.
Forrester Research estimates that worldwide Internet advertising revenues will
be approximately $15 billion by 2002.
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The Internet has emerged as a significant mass medium by providing features
and functions that are unavailable in traditional media. For example, consumers
can quickly access personalized information and advertisers can target specific
demographic groups based on customer tastes and buying patterns. Digital media
such as the Internet are quickly becoming the media of choice for individuals in
the 12 to 40 year-old age group. According to Jupiter Communications, the number
of teens who regularly access the Internet will double to more than 16 million
by 2002.
Despite the popularity of the Internet, most consumers cannot experience
high quality audio and video over their relatively low bandwidth Internet
connections. As bandwidth increases, consumers are likely to demand CD-quality
audio and full-motion video, particularly in the entertainment context where
they are accustomed to such audio and video quality from traditional media. New
platforms, such as cable and DSL modem and satellite data broadcast, were
created to provide high speed access to digital media. DSL, or Digital
Subscriber Lines, use sophisticated methods to transmit data over regular
telephone lines at much higher speeds than are normally possible. Using
satellites to transmit data avoids the congestion associated with low bandwidth,
thereby speeding delivery. High speed Internet access provider excite@Home
reported that it had approximately 840,000 cable modem subscribers at
September 30, 1999. Road Runner reported that the subscriber base for its cable-
delivered online service was over 420,000 at the end of the same period.
If new distribution technologies do not become widely used, we may be unable
to effectively distribute our audio and video content in its most compelling
format. Consumers must access our content over a high-bandwidth connection to
fully appreciate the quality of our audio and full-motion video content.
Bandwidth refers to the capacity of a network to carry data. High bandwidth
refers to a network that is able to transmit intensive data streams like the
audio and video offered on vidnet.com. The failure of those technologies to gain
widespread acceptance will negatively impact our business.
THE OPPORTUNITY FOR A MEDIA BRAND IN DIGITAL MEDIA. We believe that the 12
to 40 year-old consumers are a valuable demographic segment for advertisers.
Research conducted by Mediamark Research Inc. demonstrates that this audience
generally:
- invests substantial amounts of time and money in music and music-related
merchandise;
- adopts technological advancements early; and
- watches less television than they used to.
Despite their common affinity for music and movies, these consumers have
diverse tastes and interests and advertisers typically find it difficult to
target them as a group in a cost effective manner. As traditional media brands
have tried to address the changing viewing and listening habits of this audience
for the benefit of
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advertisers, such traditional methods have become less effective outlets for
marketing new music and movies. These limitations have encouraged:
- active music consumers to find new ways to discover music;
- the music and movie industries to pursue alternative methods to promote
new releases; and
- advertisers to use new media vehicles to promote and sell their products.
The rapid growth in home PC penetration, Internet usage and highspeed
Internet services presents the opportunity to exploit the advantages of digital
media to better promote new music and movies to the valuable demographic group
seeking to discover them. We believe a significant opportunity exists to create
a brand in digital media that serves as a single destination for the:
- consumer to discover new music and movies;
- entertainment industry to promote new releases; and
- advertising community to target a highly attractive demographic.
THE ENTERTAINMENT BOULEVARD MEDIA PROPERTIES
Our media properties are accessed through our Web site. Those properties
are:
ENTERTAINMENT BOULEVARD MUSIC. Entertainment Boulevard Music is an
interactive music video channel on the Web. Since its launch in March 1998,
traffic to the site has risen dramatically and the viewer base has expanded to
include viewers from over 115 countries. There are approximately 2,000 videos
available on Entertainment Boulevard Music and more are added each week.
Entertainment Boulevard Music's video selection features a wide variety of
musical formats, including:
<TABLE>
<S> <C> <C>
Rock/Metal Urban Christian
Pop Country Jazz/Swing
Dance Reggae Latin
</TABLE>
Videos are presented with video technology that requires only a few seconds of
download time via the free RealNetworks RealPlayer G2 or Microsoft Windows Media
Player. The RealPlayer G2 and Microsoft Windows Media Player allow videos to be
viewed at speeds up to 300kbps. After watching the videos, viewers can
immediately purchase related products from CheckOut.com.
In addition to music videos, viewers can read news and reviews through
Entertainment Boulevard's recent alliance with GO Network's WALL OF SOUND.
Viewers can also watch their favorite artists in the recently launched
"Backstage" segment, which features interviews and behind-the-scenes looks at
how videos are made.
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ENTERTAINMENT BOULEVARD MOVIES. Entertainment Boulevard Movies provides
movie trailers from the motion picture studios to be broadcast over our Web
site. Trailers are separated into three categories:
- "Coming Soon"
- "Now Playing"
- "On Video"
Users can also search for films by title, actor, director, screenwriter,
producer, studio, MPAA rating, or genre. Viewers can also view the Top 20
trailers, as determined by the number of times each trailer is played. Each
trailer is accompanied by still photos from the film as well as screen credits,
including cast, and a brief outline of the film's plot. Entertainment Boulevard
Movies currently features 375 movie trailers and offers new ones each week. Our
recent alliance with GO Network's MR. SHOWBIZ also adds reviews, movie news and
box office statistics to Entertainment Boulevard Movies. After watching the
movie trailers, our viewers can purchase videos and DVDs through Entertainment
Boulevard's arrangement with CheckOut.com.
ENTERTAINMENT BOULEVARD NETFOMERCIALS. Entertainment Boulevard recently
launched a unique and cost-effective way for infomercial companies to expose
their products to viewers. The "netfomercials" are separated into such
categories as beauty, auto and home and can be viewed via the RealPlayer G2 and
Microsoft Windows Media Player. Each netfomercial page includes a detailed
description of the individual product as well as ordering information and
product and shipping costs. The companies selling the products provide us with
the finished infomercials and handle their own product sales. Entertainment
Boulevard earns a percentage from the sale of the products.
ENTERTAINMENT BOULEVARD SPORTS. Entertainment Boulevard intends to erase
the traditional geographic boundaries of sports in order to introduce worldwide
computer users to various sports broadcasts. All of the sports shows broadcast
on our Web site are available on demand so that users may enjoy the shows of
their choice at their convenience. Entertainment Boulevard Sports is the on-line
home of the following programs:
- MCCARVER ONE ON ONE. "McCarver One on One" entertains listeners with
audio broadcasts of Tim McCarver's interviews with such sports stars as
Katarina Witt, Tony Gwynn, Marcus Allen, Yogi Berra, Serena Williams and
many others.
- TALKING BASEBALL. "Talking Baseball" is a weekly Internet radio show
focusing on fantasy and rotisserie baseball. Listeners of the show and
visitors to the Web site range from casual baseball fans to hard core
baseball enthusiasts. The show begins with the picks of the week, followed
by fantasy and rotisserie news covering key player movement and injuries
for the week. Additional content
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includes interviews and baseball statistics and trends with fantasy and
rotisserie implications.
- BEARS-PACKERS SHOWDOWN. This weekly football show provides locker room
audio from the NFL. Each show features interviews, discussion and parodies
highlighting the rivalries in pro sports and football games of national
interest in the NFL. The Bears-Packers Showdown has broadcast locker room
interviews with pro football players such as John Elway, Randy Moss,
Terrell Davis and Deion Sanders, among others.
- SPORTSNETWORK. This site provides Internet users with complete news and
scores from around the world of sports.
- LISTEN TO THE EAGLE. Soon to launch, "Listen to the Eagle" is an outdoor
recreation show to be broadcast in weekly audio and video formats.
THE ROLE OF ENTERTAINMENT BOULEVARD
We believe that Entertainment Boulevard offers access to a greater selection
of music, movie trailers and sports programming than is typically available
through traditional media. We also believe Entertainment Boulevard allows record
labels, movie studios and sports programmers to promote their content to a
broader market than can be reached through traditional media. Since its
introduction in March 1998, visits to our Web site have grown by approximately
20% per quarter. Currently we average about 150,000 visitors per day.
Key elements of Entertainment Boulevard's programming include:
COMPELLING CONTENT. Entertainment Boulevard broadcasts exclusive and
original content, including sports radio shows and audio and video interviews.
Entertainment Boulevard also offers on-demand music videos and movie trailers,
news, and album and movie reviews. We work closely with many independent and
major record labels and movie studios. We believe that our relationships with
the entertainment industry, as well as our expertise in digital media
production, provide us a strategic advantage in offering appealing broadband
content to our users.
PROMOTIONAL OUTLET FOR RECORD LABELS AND MOVIE STUDIOS. Record labels and
movie studios can work with Entertainment Boulevard to promote their new
releases to the large group of music buyers and movie fans who make up the
Entertainment Boulevard user community. Record companies can use Entertainment
Boulevard to introduce users to a variety of new artists and to inform them of
new releases from established artists. Movie studios can use Entertainment
Boulevard as an additional outlet to broadcast their trailers and inform the
movie-going public of new releases in theaters or on video and DVD.
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EFFECTIVE ENVIRONMENT FOR ADVERTISING AND COMMERCE. Entertainment Boulevard
provides advertisers with access to a highly desirable group of consumers in an
entertainment environment. Advertisers who have difficulty reaching this
audience can turn to Entertainment Boulevard for targeted advertising and direct
marketing to this group. Entertainment Boulevard's access to a large audience of
music consumers also provides us with a strategic advantage in selling digitally
downloaded music. In addition, the content on vidnet.com acts as a promotional
incentive to purchase CDs, DVDs and videos.
OUR OBJECTIVE AND STRATEGY
Our objective is to establish Entertainment Boulevard as the premier
destination for streaming video entertainment and information. Key elements of
our strategy are:
DEVELOP AND COMPILE APPEALING CONTENT. We have developed strong working
relationships with many major and independent record labels and movie studios,
as well as several sports broadcasting companies and infomercial distribution
companies. Our content acquisition team is in regular contact with record labels
and movie studios to keep the vidnet.com site up to date with the latest music
videos and movie trailers. Our strategy is to engage core groups of editors,
artists, video producers and other content creators on a full time basis.
However, we have no long-term contracts with any record labels or motion picture
studios and those labels or studios may not continue to make their content
available to us on reasonable terms, or at all. We are also committed to adding
new features and services.
INCREASE OUR AUDIENCE. We believe that increasing the size and loyalty of
our audience is critical to our success. In addition to providing compelling
content, we believe that we can continue to build our audience through
distribution agreements with high-traffic Web sites and through a variety of
marketing techniques, including trade advertising and contests. Use of our
pop-up video players on other Web sites has been a valuable source of increased
traffic. Pop-up players are windows developed to provide streaming video on
another Web site.
BUILD BRAND AWARENESS. Increasing awareness of the Entertainment Boulevard
brand is essential to our ability to increase our audience and attract
advertisers. We intend to build brand awareness through online advertising and
strategic alliances with high traffic Web sites and through the traditional
mediums of print, radio, television and billboard advertising. We believe that
increased awareness of the Entertainment Boulevard brand will enable us to
increase our attractiveness to advertisers who target the Entertainment
Boulevard audience.
INCREASE ADVERTISING REVENUE BY CAPITALIZING ON ATTRACTIVE AUDIENCE
DEMOGRAPHICS. Entertainment Boulevard seeks to increase its advertising revenues
by offering advertisers access to targeted consumer groups. Our strategy is to
focus on large consumer and direct marketers who target music, movies, or sports
fans in relevant environments. We believe that Entertainment Boulevard offers an
engaging interactive
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environment where leading brand marketers can target their messages to an
audience that is making its early brand decisions.
TAKE ADVANTAGE OF NEW DISTRIBUTION TECHNOLOGIES. The increased commercial
availability of new technologies enabling broadband access to the Internet will
allow Entertainment Boulevard to increase distribution of the high quality
transmission already available on vidnet.com. We believe that our extensive
experience in developing high quality, media content will provide a competitive
advantage over other content providers as technologies permitting high-speed
access to the Internet become more widely available.
GENERATE E-COMMERCE REVENUES. We aggressively pursue strategic and
marketing relationships with retailers focused on Web distribution to enable us
to exploit
e-commerce opportunities. Entertainment Boulevard is well positioned to sell
music through digital downloads through its alliance with Liquid Audio. We also
offer our users the ability to easily and economically purchase CDs, DVDs,
videos and games through our relationship with CheckOut.com. Our netfomercial
programming provides infomercial producers an Internet outlet for their
products. Entertainment Boulevard shares in the profits from these on-line
sales. Another future e-commerce opportunity includes the sale of athletic
equipment through Entertainment Boulevard Sports.
INCREASE ENCODING SERVICES. Entertainment Boulevard intends to expand its
new encoding services department to increase revenues and further augment its
brand awareness as a premiere encoding company. We are building awareness
through trade shows and a press announcement.
PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. We believe that our strategic
relationships with various media and Internet-related companies such as the GO
Network, Bolt.com, CheckOut.com and Scour.Net will help attract users and
facilitate advertising sales, although some of our agreements with strategic
partners may prohibit us from entering into similar arrangements with
competitors of those partners. This may limit our ability to enter into
favorable arrangements with complementary businesses and could limit our growth.
Our failure to maintain or renew our existing strategic alliances or to
establish new ones could also have a negative impact on our business. We may
also seek to increase our Web site traffic, market share and revenues through
strategic acquisitions if the opportunity arises.
REVENUE SOURCES
ADVERTISING AND SPONSORSHIPS. Entertainment Boulevard derives a portion of
its advertising revenues from banner advertisements that are prominently
displayed at the top of pages throughout vidnet.com. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own Web site,
thus providing the advertiser the opportunity to directly interact with an
interested customer. Advertisers may purchase either run-of-site banners or
banners specifically targeted to a subset of Entertainment Boulevard. For
example, advertisers can target baseball fans by placing banner ads in
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the "Talking Baseball" section of the sports programming or they can target
country music fans by placing banner ads on the country music page of
Entertainment Boulevard Music.
Advertisers may also purchase banners that will be viewed by users of other
sites by advertising on the Entertainment Boulevard pop-up video players. For
instance, advertisers targeting teenagers could place ads on the Bolt.com music
video player. Entertainment Boulevard plans to charge premium advertising rates
for any level of targeted advertising.
In addition to traditional banner ads, Entertainment Boulevard also sells
streaming video ads. These fifteen to thirty second advertisements stream prior
to videos that play on Entertainment Boulevard Music. Arizona Jeans is currently
taking advantage of this new advertising opportunity.
Advertising orders are short term and subject to cancellation without
penalty until shortly before the advertisement actually runs. Entertainment
Boulevard outsources its advertising to multiple sources, including The Virtual
Music Vault. The Virtual Music Vault targets exclusively music-oriented Web
sites, so advertisers know their products will be relevant for Entertainment
Boulevard Music users. These advertisers include Firstlook.com and BMG Music
Service. However, we are dependent upon a limited number of advertisers in any
quarterly period. The loss of a key relationship with an advertising source or
the cancellation or deferral of even a limited number of orders could adversely
affect our quarterly financial performance. Our revenues for the foreseeable
future will depend substantially on sales of advertising and sponsorships.
If we do not generate sufficient advertising and/or sponsorship revenues,
our business may not grow or survive. Internet advertising rates are based on
the size of the audience at the Web site where the advertising is displayed. If
our audience at vidnet.com is smaller than that at other Web sites, our
advertising rates could be reduced. To increase our audience we need to
establish and maintain distribution relationships with high traffic Web sites.
There is intense competition for placements on those sites and we may not be
able to enter into such relationships on commercially reasonable terms or at
all. Even if we do enter into distribution relationships with those Web sites,
our audience may not increase as of result of the relationship if those Web
sites do not continue to attract significant numbers of users. Because Internet
advertising is relatively new, it is difficult to predict the extent of further
growth, if any, in Web advertising expenditures.
If the Internet advertising market fails to develop, our business will be
adversely affected. Our future success depends on an increase in the use of the
Internet and other forms of digital media for advertising. If advertisers
believe the Internet is undesirable or less effective than traditional
advertising for promoting their products and services, our growth will be
limited. In addition, the widespread use of available
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software that limits or prevents advertising from being delivered to an Internet
user's computer could adversely affect our ability to sell Internet advertising.
Software programs that track Internet usage and other tracking methodologies
are rapidly evolving and may not keep pace with the information needs of our
advertisers. It is important to our advertisers and sponsors that we accurately
measure the demographics of our user base and the delivery of advertisements on
our Web site. Companies may not advertise on vidnet.com or may pay less for
advertising if they don't believe our measurements are reliable. We currently
depend on third parties to provide certain of those measurement services. If
they are unable to provide those services in the future, we would need to
perform them ourselves or obtain them from another provider, if available. This
could cause us to incur additional costs or cause interruptions in our business
during the time we are replacing those services.
OPPORTUNITIES IN E-COMMERCE. Entertainment Boulevard currently facilitates
the sale of pre-recorded music to consumers through its relationship with
CheckOut.com and through digital downloads. We also make on-line product sales
available through the Entertainment Boulevard Netfomercial site.
CheckOut.com is the exclusive commerce provider for music, videos and games
for the Entertainment Boulevard Web site. We expect our two-year alignment with
CheckOut.com to generate significant revenues as time progresses because we will
split all net proceeds from products sold to Entertainment Boulevard users
equally with CheckOut.com. In addition, CheckOut.com will make a one-time
payment to Entertainment Boulevard for all new referral customers making
purchases on CheckOut.com.
Entertainment Boulevard has integrated CheckOut.com commerce links
throughout vidnet.com and on the pop-up video players that it licenses to third
parties. CheckOut.com is responsible for all aspects of order processing and
product delivery. CheckOut.com offers special promotions to Entertainment
Boulevard users.
Liquid Audio is a leading provider of software and services for the Internet
delivery of music. Through a recent agreement, Entertainment Boulevard became an
affiliate in the Liquid-TM- Music Network. This affiliation provides our users
with access to Liquid Audio's entire catalog of secure digital music downloads.
Liquid Audio distributes one of the Internet's largest catalogs of secure
downloadable music, with music from approximately 600 record labels. A secure
digital download encrypts a music file so that it is impossible for others to
"steal" a copy of the music file during the download.
Entertainment Boulevard Netfomercials broadcasts infomercials on demand in
such categories as beauty, auto and home. Each infomercial company handles its
own product sales and Entertainment Boulevard earns a percentage of the sales.
Entertainment Boulevard intends to continue to pursue opportunities to sell
other lifestyle products relevant to its audience.
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Based on these e-commerce arrangements, we may be liable to consumers of the
products and services because of the links we provide, even though we do not
provide the products or services. While our agreements may provide that we will
be indemnified against any liabilities, the indemnification, if available, may
not be adequate. In addition, our insurance may not adequately protect us
against these claims. Even if the claims do not result in liability, we could
incur significant costs in investigating and defending against them.
VIDEO ENCODING AND OTHER SERVICES. As an additional source of income, we
provide digital encoding services to various third parties, including the Health
Channel/ Discovery Channel and DVD Express. Typically, the client provides us
with a finished master videotape. We convert that content into a digital medium
which is then compressed and encoded for viewing at designated delivery speeds
on the RealPlayer G2 and/or Microsoft Windows Media Player format. When the
process is completed, we deliver to the client a disk which contains
Internet-ready content in the required speeds and formats. For these services,
we currently charge $15 per minute of delivered content for each designated
format and delivery speed.
We have also entered into an agreement with Youthline USA, Inc. to build,
serve and produce a Website for that company. For those services, Youthline has
paid $100,000 of a $200,000 contract. In addition, gross revenues are split
equally.
STRATEGIC BUSINESS ALLIANCES
Entertainment Boulevard pursues strategic relationships to increase
audience, build brand recognition and enhance content and distribution
opportunities. We currently have strategic relationships in two principal areas:
distribution and technology. Our future success depends to a significant extent
upon the execution and success of these relationships.
DISTRIBUTION AGREEMENTS. In October 1998, International Net Broadcasting,
our subsidiary, entered into a license agreement with Marathon Sports Group,
Inc. for the exclusive use of the sports audio interview show, "McCarver One on
One." The initial term expired in October 1999 and Entertainment Boulevard
exercised its option to renew the agreement for another year. Marathon Sports
Group receives 70% of the advertising revenues and Entertainment Boulevard
receives 30%.
In February 1999, Entertainment Boulevard entered into an agreement with
Dimension Music, Inc. whereby Entertainment Boulevard is the exclusive online
music video provider to the Dimension Music Web site. Links on the Dimension
Music site take the user to a co-branded music video pop-up player with player
pages and streaming content hosted by Entertainment Boulevard. Both parties will
sell and serve ad banners on the player and any co-branded pages and will split
the advertising revenue equally. Dimension Music is a site dedicated to
promoting music through the MP3 standard, a file format enabling near CD-quality
music download in minutes. The initial term of the agreement expired in February
2000 and will continue for additional one-year terms unless either party cancels
the agreement thirty days prior to the end of the term then in effect.
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In February 1999, Entertainment Boulevard also entered into an agreement
with Scour, Inc., for Entertainment Boulevard to provide music videos and movie
trailers to Scour.Net, a broadband entertainment portal and search engine. Links
on the Scour.Net site take the user to a co-branded music video or movie trailer
pop-up player with player pages and streaming content hosted by Entertainment
Boulevard. Scour.Net will serve ad banners on the player and any co-branded
pages and will split the advertising revenue equally with Entertainment
Boulevard. Scour.Net will also reimburse Entertainment Boulevard for all
bandwidth costs in relation to the player. The term of this agreement continues
on a month-to-month basis until March 2000.
In March 1999, Entertainment Boulevard entered into a license agreement with
SRN Broadcasting & Marketing for the exclusive use of the Bears-Packers Showdown
program. Advertising revenues are split equally between the parties. The initial
term of the agreement expires in March 2000 with an option to renew for one
year.
Also in March 1999, Entertainment Boulevard entered into an agreement with
Earthlink to build an entertainment-driven Internet service provider to attract
the demographics relevant to Entertainment Boulevard's users. Entertainment
Boulevard receives a percentage of the setup fees upon the first sale of all
eligible services, plus a percentage of the monthly residuals once the initial
qualifying quotas are met. The initial term of the agreement is for one year and
is renewable for additional one-year terms thereafter unless either party
cancels within 30 days of the end of the term then in effect.
In addition, in March 1999, Entertainment Boulevard entered into an
agreement with Hearme.com for the syndication of an audio chat feature that
allows users to interact with each other in real time by using a microphone,
sound card and speakers. Either party may terminate the agreement by giving the
other party 30 days' notice.
In March 1999, Entertainment Boulevard also entered into an agreement with
LA Group to license infomercials for broadcast at its Netfomercial site.
LA Group offers products from Ronco and Entertainment Boulevard receives a
percentage of the purchase price for each product sold.
In June 1999, Entertainment Boulevard entered into distribution agreements
with Synge.com and Sonique. Links on the Synge.com and Sonique sites take the
user to a co-branded music video pop-up player with player pages and streaming
content hosted by Entertainment Boulevard. Each party will sell and serve ad
banners on the player and any co-branded pages and will split the advertising
revenue equally. The initial term of each agreement expires in June 2000 and
will continue for additional one-year terms unless a party cancels the agreement
30 days prior to the end of the term then in effect.
In July 1999, Entertainment Boulevard entered into a distribution agreement
with CheckOut.com. Links on the CheckOut.com site take the user to a co-branded
music video or movie trailer pop-up player with player pages and streaming
content hosted by Entertainment Boulevard. CheckOut.com is Entertainment
Boulevard's exclusive
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e-commerce provider for music, videos and games and Entertainment Boulevard is
CheckOut.com's exclusive provider for music videos and movie trailers through
its pop-up players. In addition to product sales, CheckOut.com has over 350,000
artist pages featuring a complete listing of current CDs, biographies, news
features, product reviews, chats and links to other sites pertaining to the
artists. CheckOut.com pays Entertainment Boulevard a commission on sales that
originate from vidnet.com, as well as a referral fee for each new customer who
originated from our Web site. The initial term of the agreement expires in July
2001 and will continue for additional one-year terms unless either party cancels
the agreement 30 days prior to the end of the term then in effect.
Also in July 1999, Entertainment Boulevard entered into a distribution
agreement with Bolt Media, Inc., which operates Bolt.com, a pop-culture site.
Links on the Bolt.com site take the user to a co-branded music video pop-up
player with player pages and streaming content hosted by Entertainment
Boulevard. Bolt.com will serve ad banners on the player and any co-branded
pages and will split the advertising revenue equally with Entertainment
Boulevard. The initial term of the agreement expired in January 2000 and will
continue for three additional six-month terms unless either party cancels the
agreement 30 days prior to the end of term then in effect.
In August 1999, Entertainment Boulevard entered into a distribution
agreement with College Broadcast, Inc., for Entertainment Boulevard to provide
movie trailers to the community of members at College Club. College Club is a
free service that gives college students across the country free universal
messaging, instant messaging, Web-based e-mail, voicemail, paging, chats and
access to over 25,000 student groups. Links on the College Club site take the
user to a co-branded movie trailer pop-up player with player pages and streaming
content hosted by Entertainment Boulevard. College Club will serve ad banners on
the player and any co-branded pages and will split the advertising revenue with
Entertainment Boulevard equally. The term of the agreement expires in August
2000 and will continue for additional one-year terms unless either party cancels
the agreement 30 days prior to the end of the term then in effect.
In August 1999, Entertainment Boulevard also entered into an exclusive
distribution agreement with Infoseek Corporation, home of the GO Network.
According to Media Metrix, Inc., a media measurement service, the GO Network is
one of the top five digital media and Web properties. Links on the WALL OF
SOUND, MR. SHOWBIZ and GO Broadcast sites take the user to a co-branded music
video or movie trailer pop-up player with player pages and streaming content
hosted by Entertainment Boulevard. The term of the agreement expires in August
2000, unless Infoseek cancels the agreement upon thirty days notice at any time.
In December 1999, Entertainment Boulevard entered into an agreement with
IFILM Corp., under which IFILM will display a portion of the content at its Web
site at vidnet.com. Under the agreement, Entertainment Boulevard and IFILM will
split equally any advertising revenue derived from IFILM's presence at
vidnet.com. The agreement has an initial term of one year. IFILM maintains a Web
site at
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www.ifilm.com which features, among other things, a community for the viewing
and discussion of films.
In January 2000, Entertainment Boulevard entered into an agreement with
Virgin Holdings, Inc. to stream selected catalog and new music videos of artists
on all EMI labels including Capitol Records, Capitol Nashville, Virgin Records,
EMI Latin, Christian Music Group, Angel Records and Blue Note Records. The
agreement provides for an annual licensing fee of $100,000 plus a share of the
gross receipts derived from Entertainment Boulevard's Web sites. Entertainment
Boulevard will also provide Virgin with 30,000 free banner impressions each
month to promote EMI artists. Entertainment Boulevard also issued to Virgin
678,685 shares of common stock of Entertainment Boulevard as additional
consideration. The term of the agreement is for one year and may be renewed by
Virgin for additional one-year periods by providing written notice to
Entertainment Boulevard 30 days prior to the end of the term then in effect.
In February 2000, Entertainment Boulevard entered into an agreement with
Sony Music Entertainment, Inc. to stream new music videos of Sony recording
artists. The agreement provides for licensing fees equal to a portion of the
gross revenues received by Entertainment Boulevard in connection with the
licensed material. Entertainment Boulevard will also provide Sony with 30,000
banner impressions per month to promote Sony artists. Entertainment Boulevard
also issued to Sony 678,875 shares of common stock of Entertainment Boulevard as
additional consideration. The term of the agreement is for one year.
TECHNOLOGY AGREEMENTS. Entertainment Boulevard houses its Web page servers
in a data facility at Level 3 Communications, Inc., and all of Entertainment
Boulevard's Web pages are hosted by Level 3. Entertainment Boulevard has also
entered into a content management and delivery contract with InterVU Inc. The
InterVU network uses nine Internet backbones to deliver media in the optimal
manner.
In April 1999, Entertainment Boulevard entered into an agreement with ICTV,
Inc. to make broadband versions of Entertainment Boulevard's music and
infomercial sites available as channels on ICTV, a cable set-top box company. At
speeds of up to 10Mbps, ICTV's broadband Internet access is up to 100 times
faster than ordinary dial-up services like WebTV.
In July 1999, Entertainment Boulevard entered into an agreement with Digital
Bitcasting Corp. to become the exclusive broadcaster of MP3 music videos and
movie trailers over the Internet. This will offer a substantial increase in
audio and video quality. The exclusive portion of this agreement is for six
months.
In August 1999, Entertainment Boulevard entered into an agreement with iBEAM
Broadcasting Corporation to transmit Entertainment Boulevard's content through
iBEAM's satellite-based network. This new content delivery model provides
subscribers to iBEAM-powered Internet service providers with guaranteed access
to high-demand streaming content, without related network congestion or
overload. This
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technology allows Entertainment Boulevard to offer a higher quality of streaming
video and reduce the cost.
In September 1999, Entertainment Boulevard entered into an agreement with
ServiceCo, LLC, a joint venture among affiliates of Time Warner Inc., MediaOne
Group, Inc., Microsoft, Compaq Corp. and Advance/Newhouse, which operates "Road
Runner," a high speed online service delivered to PCs over the cable television
infrastructure. Under that agreement, Entertainment Boulevard's content will be
included in co-branded, online broadband programming provided by Road Runner to
its subscribers. Road Runner is currently available to about 12.5 million homes
in several areas and will eventually be able to reach more than 30 million cable
homes nationwide.
In October 1999, Entertainment Boulevard entered into an agreement with
Microsoft Corp. under which Entertainment Boulevard has become a participant in
Microsoft's Network Credits Program. Under that program, participants are
allowed to use network credits to obtain third parties' services to deliver
content to customers of Network Credits Program participants through the use of
Windows media technologies.
Also in October 1999, Entertainment Boulevard entered into an agreement with
AltaVista Company by which the content at vidnet.com is made available to users
of AltaVista's Web search services. As part of the agreement, Entertainment
Boulevard produces a co-branded viewing page which appears as a part of an
AltaVista search results page and pays AltaVista a specified percentage of the
monthly net e-commerce revenue generated by Entertainment Boulevard. The
agreement has an initial term of one year.
In February 2000, Entertainment Boulevard entered into a content provider
agreement with Channelseek, Inc., a global Internet distribution company that
offers a comprehensive guide to Web-delivered broadcast media. Under that
agreement, which is terminable by either party on 90 days notice, Entertainment
Boulevard has its programming content listed in Channelseek's Program Guide and
has the benefit of certain other promotional services provided by Channelseek.
In return, Entertainment Boulevard pays a fee of $12,000 per month, subject to
certain discounts when applicable.
In March 2000, Entertainment Boulevard entered into an agreement to become a
participant on the RealNetworks RealChannels. Under that agreement, RealNetworks
will install Entertainment Boulevard's Channel as a "soft default" channel. As a
result, every user, upon download of the standard RealNetworks player from the
RealNetworks Web site, will receive the Entertainment Boulevard channel as a
default channel on their RealChannels if they select "entertainment" as a
category of interest. As a participant, Entertainment Boulevard pays fees
totaling $200,000 plus certain access charges which cannot exceed $100,000.
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MARKETING AND BRAND AWARENESS
Entertainment Boulevard employs a variety of methods to increase its
audience and build brand recognition and loyalty. We believe that the most
effective means of consumer marketing is a program that allows a potential user
the opportunity to sample the product. We developed our pop-up player to allow
other sites' users to select and view an assortment of Entertainment Boulevard's
extensive catalogue of content while browsing the other sites. This gives
Entertainment Boulevard exposure on other sites and helps to draw viewers to
Entertainment Boulevard for access to our entire library. We license our pop-up
players to sites whose demographics are similar to ours and we intend to pursue
efforts to license the players to larger sites, such as the GO Network's WALL OF
SOUND, MR. SHOWBIZ and GO Broadcast, as well as the multimedia search engine
Scour.Net.
In addition to direct marketing, certain of our marketing staff focuses on
other forms of brand awareness, including traditional media advertising such as
print, radio and outdoor. Entertainment Boulevard also has an experienced public
relations team focused on generating press coverage in both trade and consumer
media.
Entertainment Boulevard continues to be actively involved in trade shows
that focus on entertainment, streaming media and Internet technology. These
shows allow Entertainment Boulevard to showcase its Web site and content to
potential advertisers, potential alliances and the media.
Our future success depends on our ability to build brand awareness. We
believe that brand recognition for vidnet.com is essential to maintaining high
traffic and loyalty at our Web site. According to Neilsen/NetRatings, even
though people spend about two hours at a time on the Internet, they only visit
six sites during that time. Most people tend to visit a few sites that they are
familiar with, and visit them repeatedly. To be successful, we must build
awareness of our name. If our marketing efforts fail to promote our brand
successfully, our business could be adversely affected.
OPERATIONS AND INFRASTRUCTURE
Entertainment Boulevard's operating infrastructure has been designed and
implemented to support the reliable and swift delivery of millions of Web
page views a day. In addition to performance and service availability, a key
attribute of our infrastructure is the ability of our computer systems to adapt
to increased demands without degrading the quality of service.
Web pages are generated and delivered, in response to end-users requests, by
any one of three front-end Web applications and database servers. Entertainment
Boulevard's servers run on the Debian/GNU Linux operating system and Apache Web
server software.
Entertainment Boulevard maintains all of its vidnet.com production servers
at the Los Angeles data center of Level 3. Entertainment Boulevard's operations
are
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dependent upon Level 3's ability to protect its systems against damage from
fire, storms, power loss, telecommunications failure, break-ins and other
events. Level 3 provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours a day, seven
days a week. Level 3 also provides the means of connectivity for Entertainment
Boulevard's servers to end-users via the Internet. The Level 3 facility is
connected to two independent power sources, has multiple independent
uninterruptible power supplies, or UPS, which are battery-powered, as well as
multiple independent diesel generators designed to provide power to the UPS
systems within seconds of a power outage.
All of Entertainment Boulevard's Web production data are copied to backup
tapes each night. Entertainment Boulevard keeps all of its production servers
behind firewalls for security purposes and does not allow outside access at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed.
A Computer Security Response Team composed of members of Level 3 and
Entertainment Boulevard provides security alerts, and, where appropriate,
recommended action is taken to address security risks and vulnerabilities.
For our business to succeed, our Web site must be able to accommodate a high
volume of traffic and deliver frequently updated information. In the past, our
Web site has experienced slower response times or decreased traffic for a
variety of reasons. In addition, our users depend on Internet service providers,
online service providers and other Web site operators for access to our Web
site. Many of those providers and operators have experienced significant outages
in the past and could continue to experience outages, delays and other
difficulties due to system failures unrelated to our systems. Moreover, the
Internet network infrastructure may not be able to support continued growth. Any
of those problems could limit access to our Web site and adversely affect our
business, operating results and financial condition.
COMPETITION
Competition among media companies seeking to attract the active
entertainment consumer is intense. Traditional media companies, such as
television broadcasters, magazine publishers and radio stations, are constantly
refining their content and strategies to increase their audiences and
advertising revenues. Further, the number of Web sites competing for the
attention and spending of consumers and advertisers has increased, and we expect
it to continue to increase, particularly because there are so few barriers to
entry on the Web. We compete for consumers and advertisers with the following
types of companies:
- publishers and distributors of traditional media, such as television,
radio and print, including MTV, Country Music Television, Rolling Stone
and Spin, and their Internet affiliates;
- Internet services and Web sites, including those targeted at music
consumers, such as SonicNet and UBL;
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- Web retrieval and other Web portal companies, such as Lycos, Inc. and
Yahoo! Inc.; and
- online music retailers, such as CDNow, Inc. and Amazon.com, Inc.
Increased competition could result in advertising price reductions, reduced
margins or loss of market share, any of which could adversely affect our
business. Because we compete for advertisers with traditional advertising media,
our business could also be adversely affected if advertisers do not view the
Internet and other digital media as an effective medium for advertising.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of those potential
competitors are likely to enjoy substantial competitive advantages, including
the following:
- larger audiences;
- larger technical, production and editorial staffs;
- greater name recognition;
- better access to content;
- more established Internet presence;
- larger advertiser bases; and
- substantially greater financial, marketing, technical and other resources.
We expect competition in our business to remain at high levels. If we do not
compete effectively, or if we experience any pricing pressures, reduced margins
or loss of market share resulting from increased competition, our business will
be adversely affected.
REGULATORY UNCERTAINTIES AND GOVERNMENTAL REGULATION
Currently, there are few laws and regulations directly applicable to
Internet communications, commerce and advertising. Legislation addressing such
issues as user privacy, pricing and the characteristics and quality of products
and services may be adopted in the future. For example, recently proposed
federal legislation sought to prohibit transmission of certain types of
information and content over the Internet. In addition, several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to long distance telephone carriers and to impose access
fees on those companies. Any imposition of access fees could increase the cost
of transmitting data over the Internet.
Although our transmissions originate in California, the governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union recently
enacted its own privacy regulations that may result in limits on the collection
and use of certain user information. The laws governing the Internet, however,
remain largely unsettled, even
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in areas where there has been some legislative action. It may take years to
determine whether and how existing laws, such as those governing intellectual
property, privacy, libel and taxation, apply to the Internet and Internet
advertising.
In addition, the growth and development of the market for Internet commerce
may prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Furthermore, the Federal Trade Commission has
recently investigated the disclosure of personal identifying information
obtained from individuals by Internet companies. In the event the Federal Trade
Commission or other governmental authorities adopt or modify laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be adversely affected.
Entertainment Boulevard does not collect sales or other taxes on goods sold
through referrals from vidnet.com. However, one or more states may impose sales
tax collection obligations on companies like Entertainment Boulevard that engage
in or facilitate Internet-based commerce. A number of proposals have been made
at the state and local level that would impose additional taxes on the sale of
goods and services through the Internet. Such proposals, if adopted, could
substantially impair the growth of e-commerce and could adversely affect our
opportunity to derive financial benefit from e-commerce. Legislation limiting
the ability of states to impose taxes on Internet-based transactions has been
proposed in the U.S. Congress. This legislation may become law or the tax
moratorium in the final version of the legislation may be ongoing. Failure to
enact or renew this legislation, once enacted, could allow various states to
impose taxes on Internet-based commerce, which could adversely affect our
business.
INTELLECTUAL PROPERTY
The music videos, movie trailers, sports programming and infomercials
featured on vidnet.com are copyrighted works of third parties, including record
labels, movie studios, artists and songwriters. Each piece of music or music
video may have multiple copyright owners, some with rights in the sound
recording for the particular performance and others with rights in the musical
composition for the lyrics and music. Entertainment Boulevard has various
licensing arrangements with those parties, ranging from formal contracts to
informal agreements based on the promotional nature of the content. In some
cases, Entertainment Boulevard pays a fee to the licensor for use of the
content, and in other cases the use is free. Entertainment Boulevard also uses
other content, including images, that are copyrighted works of others.
The content we offer could be severely limited if record labels, music
publishers, artists or movie studios begin to charge significant fees for their
content or discontinue their relationships with us. Much of our musical content,
including audio and video performances, is provided to us by record labels at
minimal or no charge.
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Also, motion picture companies do not charge us for our use of their movie
trailers. We rely on our positive working relationships with copyright owners to
obtain licenses on favorable terms. Any changes in the nature or terms of these
arrangements, including any requirement for Entertainment Boulevard to pay
significant fees for the use of the content, could have a negative impact on the
availability of content or our business.
Copyrighted material that Entertainment Boulevard develops internally, as
well as trademarks relating to the Entertainment Boulevard brand and other
proprietary rights are important to our success and our competitive position. We
generally enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and generally control access to and
distribution of our proprietary information. The steps we have taken to prevent
misappropriation of our proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect our proprietary rights
as fully as in the United States, may not be sufficient. If third parties use or
otherwise misappropriate our copyrighted materials, trademarks or other
proprietary rights without our consent or approval, our competitive position
could be harmed, or we could become involved in litigation to enforce our
rights.
It is also possible that we could become subject to infringement actions
based upon the content licensed from third parties. Any such claims or disputes
could subject us to costly litigation and the diversion of our financial
resources and technical and management personnel. Further, if our efforts to
enforce our intellectual property rights are unsuccessful or if claims by third
parties against Entertainment Boulevard are successful, we may be required to
change our trademarks, alter the content and/or pay financial damages, all of
which could adversely affect our business.
Third parties could sue us for the content that is accessible from our Web
site, either directly or through links to other Web sites. Such claims might
include, among others, that by directly or indirectly hosting the Web sites of
third parties, we are liable for copyright or trademark infringement or other
wrongful actions occurring at such Web sites. It is also possible that if any
third-party content information provided on vidnet.com contains errors, third
parties could make claims against us for losses incurred in reliance on such
information.
PRIVACY POLICY
Our privacy policy provides that we will not willfully disclose any
individually identifiable information about any user to a third party without
the user's consent unless required by law. This policy is easily accessible on
vidnet.com. Despite this policy, however, if third persons are able to penetrate
our network security or otherwise misappropriate our users' personal data, we
could be subject to liability. Those liabilities could include claims for
impersonation or other similar fraud claims. They could also include claims for
other misuses of personal information, such as for unauthorized marketing
purposes. In addition, the Federal Trade Commission and
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certain state and local authorities have been investigating certain Internet
companies regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if those authorities choose to investigate our privacy practices.
PERSONNEL
As of December 31, 1999, we had twenty-four full-time employees, of which
twelve were engaged in technical activities, six in general administration and
executive activities and six in business development. From time to time, we also
engage independent contractors to support our research and development,
marketing, sales and administrative activities. We are not a party to any
collective bargaining agreement and consider our relationships with our
personnel to be good.
FACILITIES
We lease our approximately 12,000 square foot headquarters in Los Angeles,
California, for a monthly base rent of $26,700 plus annual 3.5% escalations and
our share of building operating expenses. The lease expires on December 31, 2004
and has one five-year renewal option. We believe that this space will be
sufficient for our needs for the foreseeable future.
LEGAL PROCEEDINGS
In October 1999, we received a summons and complaint naming us as defendants
in a suit by Arthur Brown, one of our directors, and Rizman Alikahn in the
Superior Court of the State of California, Los Angeles County. The complaint
alleged breach of contract for failure to repay a short-term loan made by
Messrs. Brown and Alikhan to us and sought damages in the amount of
approximately $556,000, plus interest and attorney fees.
On October 13, 1999, we entered into a settlement agreement with
Messrs. Brown and Alikhan under which we:
- made payments in the amount of $300,000 against the outstanding loan and
$10,000 in attorneys' fees and costs;
- agreed to pay the remaining principal amount of approximately $256,000,
plus interest, out of 50% of any future income, with final payment to
occur no later than January 31, 2000; and
- agreed that Stephen Brown, our president and chief executive officer,
would not be a signatory on any of our bank accounts until the remaining
principal and interest is repaid in full.
Stephen Brown agreed to personally guarantee repayment of the remaining
principal and interest. As of the date of this prospectus, the outstanding
balance was paid in full and no judgment was entered with the court.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth certain
information regarding our executive officers and directors. Presently we have
two directors, both of whom serve until the next annual meeting of stockholders
or until their successors are elected and qualified. Officers serve at the
discretion of the board of directors. There are no family relationships among
our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------------------- -----------------------
<S> <C> <C>
Stephen Brown 43 Director, president,
chief executive officer
and treasurer
Paul C. Mattoon 33 Chief financial officer
Arthur P. Brown 49 Director
Debra L. Gilson 30 Secretary
</TABLE>
STEPHEN BROWN has served as president, chief executive officer, treasurer
and a director of Entertainment Boulevard since May 1999. Prior to that,
Mr. Brown founded International Net Broadcasting in 1997. Mr. Brown co-founded a
Los Angeles-based independent record company, Big City Entertainment, Inc., and
served as an executive officer of that company for eight years prior to founding
International Net Broadcasting. Mr. Brown graduated with honors from Easingwold
Technical Institute in 1971 with a degree in commercial design.
PAUL MATTOON has served as chief financial officer of Entertainment
Boulevard since February 28, 2000. Prior to joining Entertainment Boulevard, Mr.
Mattoon was director of acquisitions for R&B Realty Group from February 1998 to
February 2000. Prior to that he was an investment and acquisitions manager for
R&B Realty Group from October 1994 to January 1998. Mr. Mattoon sourced,
underwrote and negotiated acquisitions for R&B Realty Group related
partnerships. Mr Mattoon graduated from Pepperdine University in 1988 with a
Bachelor of Science degree in Accounting.
ARTHUR BROWN has been a director of Entertainment Boulevard since May 6,
1999. Prior to that, since 1998, Mr. Brown assisted Entertainment Boulevard in
raising its initial capital. From 1994 to 1998, Mr. Brown assisted Dynamic
Ventures, an oil and gas exploration company, in raising capital by advising
management of that company as to potential financing sources.
DEBRA GILSON has served as secretary of Entertainment Boulevard since
October 1999 and was with International Net Broadcasting since inception in
April 1997. Prior to joining International Net Broadcasting, Ms. Gilson was an
executive assistant at Sony Music from March 1994 until March 1997. Ms. Gilson
has a seven year background in the music industry in the areas of contractual
negotiations, marketing and business development. Ms. Gilson has a Bachelor of
Arts degree in Film Studies from the University of California at Santa Barbara.
EXECUTIVE COMPENSATION. The following table sets forth summary information
with respect to the compensation paid to Stephen Brown, our current president,
chief executive officer and treasurer, for services rendered in all capacities
to us through December 31, 1999. Other than Stephen Brown, none of our executive
officers had compensation in excess of $100,000 during fiscal 1999.
42
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
FISCAL ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen Brown,
Chief executive officer....... 1999 $320,000 $ -0- $-0- 50,000
</TABLE>
The following table provides information through December 31, 1999
concerning stock options granted to Mr. Brown during the year indicated.
OPTION GRANTS
<TABLE>
<CAPTION>
% OF
TOTAL OPTIONS
NUMBER OF GRANTED TO
FISCAL SECURITIES UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION
YEAR OPTIONS GRANTED FISCAL YEAR PER SHARE DATE
-------- --------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen Brown ....... 1999 50,000 11.2% $1.00 March 26, 2004
</TABLE>
No options have ever been exercised by Mr. Brown. As to Mr. Brown, the
following table sets forth the number and value of vested and unvested options
held as of December 31, 1999.
OPTION VALUE AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31 OPTIONS AT DECEMBER 31
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen Brown......................... 50,000 -0- $151,560 N/A
</TABLE>
DIRECTOR COMPENSATION. At this time, we do not contemplate paying fees to
our directors for their services as directors, although they are eligible for
options under our stock option plan. It is, however, our policy to reimburse
directors for reasonable travel and lodging expenses incurred in attending
meetings of the board of directors.
STOCK OPTION PLAN. Entertainment Boulevard has adopted the 1999 Stock Option
Plan, covering 1,000,000 shares of Entertainment Boulevard common stock that may
be granted to officers, directors, employees, consultants and other individuals
providing significant contributions to Entertainment Boulevard. The purpose of
the option plan is to provide participants with an incentive to become
stockholders in Entertainment Boulevard and share in its success.
The option plan is currently administered by our board of directors. Options
granted under the option plan are priced at no less than 85% of the fair market
value of Entertainment Boulevard's common stock on the date of grant.
43
<PAGE>
As of December 31, 1999, there were 828,000 options outstanding under the
option plan at a weighted average price of $1.57 per share.
EMPLOYMENT ARRANGEMENTS. On November 1, 1999, we entered into a two-year
employment agreement with Mr. Brown. Mr. Brown receives the following annual
compensation:
- $240,000 for the first year, with a minimum annual increase of 15% for the
second year;
- a discretionary bonus as determined by our board of directors, based on
his performance or Entertainment Boulevard's profitability;
- $1,500 per month as a car allowance and payment of automobile operating
expenses;
- option grant to purchase a minimum of 50,000 shares of common stock under
our option plan, at the end of each twelve-month period of employment.
During the two-year term, the employment agreement is terminable only upon Mr.
Brown's death or disability or by either party for cause.
LIMITATION ON LIABILITY AND INDEMNIFICATION ARRANGEMENTS. As permitted under
Nevada law and our Articles of Incorporation, our directors and officers are not
personally liable to Entertainment Boulevard or its stockholders for damages for
breach of fiduciary duty as a director or officer, except for:
- acts or omissions that involve intentional misconduct, fraud or a knowing
violation of law or
- the payment of improper distributions.
The limitation of liability provision does not eliminate a stockholder's right
to seek non-monetary, equitable remedies such as injunction or rescission to
redress an action taken by directors or officers. However, as a practical
matter, equitable remedies may not be available in all situations and there may
be instances in which no effective remedy is available.
Our articles of incorporation and bylaws provide for the indemnification of
our directors, officers, employees and agents to the full extent permitted by
Nevada law. Nevada law allows individuals to be indemnified against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement that
are actually and reasonably incurred in connection with specified actions, suits
or proceedings. This applies to civil, criminal, administrative or investigative
actions, other than derivative actions by or in the right of Entertainment
Boulevard, so long as the individual acted in good faith and in a manner they
reasonably believed to be in the best interests of Entertainment Boulevard.
In a criminal action or proceeding the individual must have had no
reasonable cause to believe their conduct was unlawful. A similar standard of
care is applicable in
44
<PAGE>
the case of a derivative action, except that indemnification only extends to
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense or settlement of such an action. Nevada law further
provides that the indemnification and advancement of expenses provided by or
granted under Nevada law is not to be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled.
We have entered into, or intend to enter into, indemnification agreements
with our directors and executive officers providing indemnity consistent with
the foregoing. The indemnification agreements will constitute binding agreements
between us and each of the other parties thereto, thus preventing us from
modifying our indemnification policy in a way that is adverse to any person who
is a party to an indemnification agreement. We have also obtained officer and
director liability insurance with respect to liabilities arising out of certain
matters, including matters arising under the Securities Act.
In connection with the sale of Series A preferred stock, we entered into
indemnification arrangements with the purchasers of that stock and Robb Peck.
Such indemnification covers various matters, including liabilities arising out
of or relating to statements made in, or omitted from, the registration
statement of which this prospectus is a part.
We have been advised that insofar as any of the foregoing provisions or
agreements may be invoked to disclaim liability for damages under the Securities
Act, it is the opinion of the SEC that such provision or agreement is against
public policy as expressed in the Securities Act and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of Entertainment Boulevard where
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of March 15, 2000. The table sets
forth such information as to:
- each person or entity known by us to be the beneficial owner of more than
5% of our common stock;
- each of our directors;
- Stephen Brown, our current chief executive officer, as named in the
Summary Compensation Table; and
- all of our directors and executive officers as a group.
"Beneficial ownership" includes shares of common stock:
- that a stockholder has the power to vote or transfer;
- issuable upon the exercise of outstanding warrants or stock options that
are exercisable within 60 days of the date of this prospectus;
"Percentage of Class" is based on 16,994,447 outstanding shares of common
stock assumes exercise of warrants and options, of the holder only. The persons
listed below have sole voting and investment power with respect to all shares
owned by them, except to the extent such power may be shared with a spouse or as
otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TITLE OF CLASS BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ---- -------------- ------------------ -------------------
<S> <C> <C> <C>
Stephen Brown............................. Common 1,925,000 10.4%
c/o Entertainment Boulevard, Inc.,
12910 Culver Boulevard, Suite I,
Los Angeles, California 90066
Arthur P. Brown........................... Common 187,500(1) (2)
c/o Entertainment Boulevard, Inc.,
12910 Culver Boulevard, Suite I,
Los Angeles, California 90066
Wilfred L. Von der Ahe, Jr................ Common 1,245,000 7.3%
2964 Triangle Road,
Mariposa, California 95338
H.A.A. Inc.(2)............................ Common 1,279,242 7.5%
1601 42nd St., Brooklyn, NY 11204
Beestons Investment Ltd.(4)............... Common 1,636,094 9.6%
P. O. Box 65, Duke Street, Gretton
House, Grand Turks, Caicos
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TITLE OF CLASS BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ---- -------------- ------------------ -------------------
<S> <C> <C> <C>
All executive officers and directors as a
group (Stephen Brown, Paul Mattoon,
Arthur Brown and Debra Gilson)........... Common 2,112,500 11.3%
</TABLE>
- ------------------------
(1) The shares are obtainable upon exercise of warrants held by 531287 BC Ltd.
of which Mr. Brown is principal.
(2) Less than 1%.
(3) The principal of this entity is Aaron Langsam.
(4) The principal of this entity is C.B. Williams.
47
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Entertainment Boulevard was founded as Sedmet Exploration Inc. in December
1997 by Dr. Colin Leech-Porter, a Canadian resident who was its sole officer and
director from formation until January 1999. On March 8, 1998, Dr. Porter
purchased 365,000 shares of Entertainment Boulevard's common stock for $3,650.
In conjunction with Entertainment Boulevard's formation, Dr. Porter advanced
$8,500 to Entertainment Boulevard, which has since been repaid. Dr. Porter no
longer provides services to Entertainment Boulevard in any capacity.
In December 1998, we issued 2,925,000 units of our securities in a private
offering, with each unit consisting of one share of common stock, a warrant to
purchase a share of common stock for $0.25 and a warrant to purchase an
additional share of common stock for $1.00 during a one year period beginning
with the date of this prospectus. At an offering price of $0.08 per unit, the
offering raised $234,000 from eleven persons, each of whom is a selling
stockholder and some of whom are relatives or affiliates of Akbar Alikhan, who
was an officer and director of Entertainment Boulevard from January 1999 until
May 1999. The $0.25 warrants have since been exercised in full, resulting in the
issuance of 2,925,000 shares for aggregate consideration of $731,250. The $1.00
warrants have not yet been exercised, and the shares underlying those warrants
are included in the registration statement of which this prospectus is a part.
In January 1999, Entertainment Boulevard acquired all of the equity
interests in International Net Broadcasting from two persons, one of whom was
Stephen Brown, the founder of International Net Broadcasting and a director and
executive officer of Entertainment Boulevard. In connection with this
acquisition, Entertainment Boulevard issued 500,000 shares of common stock to
each of the equity owners. Entertainment Boulevard and the owners of
International Net Broadcasting entered into a written agreement in which they
provided various representations, warranties and covenants to each other. In
addition, Entertainment Boulevard issued 1,600,000 shares of common stock to 44
persons in cancellation of International Net Broadcasting's indebtedness to
them.
Stephen Brown, our chief executive officer, entered into an employment
agreement with Entertainment Boulevard in November 1999. In addition, Mr. Brown
was previously granted options to acquire 50,000 shares of common stock under
Entertainment Boulevard.
In July 1999, in order to resolve certain disputes between them,
Entertainment Boulevard, Akbar Alikhan, a former officer and director of
Entertainment Boulevard, Stephen Brown, Arthur Brown and Rizman Alikhan, Akbar
Alikhan's son, entered into a settlement agreement under which, among other
things,
- Arthur Brown and Akbar Alikhan made an unsecured loan of $400,000 to
Entertainment Boulevard at 8.0% annual interest,
48
<PAGE>
- Entertainment Boulevard loaned $400,000 to Stephen Brown for five years,
payable without interest,
- Entertainment Boulevard issued to Stephen Brown and the former debtholders
of International Net Broadcasting warrants to purchase up to 1,900,000
shares of common stock for $1.00 per share until August 1, 2004, of which
1,500,000 were issued to Stephen Brown, and
- the parties granted mutual releases to each other. All of the shares
underlying the foregoing warrants are included in the registration
statement filed in connection with this prospectus.
From time to time, Arthur Brown and Rizman Alikhan have made unsecured loans
to Entertainment Boulevard. These loans have been the subject of litigation. The
outstanding balance of those loans is currently approximately $260,000, bears
interest at 8% per year and is due January 31, 2000.
Ms. Gilson, Entertainment Boulevard's secretary, was granted options under
Entertainment Boulevard's option plan to purchase up to 100,000 shares of common
stock at $1.00 per share. Those options are fully vested and are exercisable
over a five-year term.
On September 3, 1999, H.A.A. Inc., Lowen Holdings and Beestons Investment
Ltd. purchased all of Entertainment Boulevard's outstanding Series A preferred
stock. Prior to that purchase, Beestons Investment Ltd. loaned $250,000 to
Entertainment Boulevard at an interest rate of 10% per year. In connection with
that loan, Beestons Investment Ltd. was issued 75,000 shares of common stock.
The loan has since been repaid.
On November 12, 1999, H.A.A. Inc. and Beestons Investment Ltd. loaned an
aggregate of $500,000 to Entertainment Boulevard. In consideration of the loan,
Entertainment Boulevard issued the lenders a total of 140,000 shares of common
stock. The principal and accrued interest on the loan were converted into
258,542 shares of common stock on March 15, 2000. On January 14, 2000, H.A.A.
Inc. and Forest Equities, Ltd. loaned an aggregate of $200,000 to Entertainment
Boulevard. In consideration of the loan, Entertainment Boulevard issued the
lenders warrants to purchase 50,000 shares of common stock at $1.00 per share.
The principal and accrued interest on the loan were converted into 203,388
shares of common stock on March 15, 2000.
DESCRIPTION OF OUR SECURITIES
The following description is a summary of our securities and selected
provisions of our articles of incorporation and bylaws and is qualified in its
entirety by reference to such documents and Nevada law.
COMMON STOCK. Our articles of incorporation authorize the issuance of up to
50,000,000 shares of common stock, $0.001 par value per share. As of the date of
this prospectus, 16,994,447 shares of our common stock are issued and
outstanding. On all
49
<PAGE>
matters submitted to a vote of the stockholders, each holder of common stock
which was designated at issuance as having voting rights has the right to one
vote for each share held of record. Except for dividend preferences applicable
to any preferred stock that may be outstanding in the future, holders of our
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors.
In the event of a liquidation, dissolution or winding up of Entertainment
Boulevard, holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of our common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to our
common stock. Our articles of incorporation also provide that one-third of the
votes cast on any matter by a stockholder voting group will constitute a quorum
of that voting group for action on that matter.
Nevada law does not require stockholder approval for the issuance of
authorized but unissued shares of common stock. Such issuances may be for a
variety of corporate purposes, including future private and public offerings to
raise additional capital or to facilitate corporate acquisitions.
PREFERRED STOCK. Our articles of incorporation also authorize the issuance
of up to 1,000,000 shares of preferred stock. As of the date of this prospectus,
we have no issued and outstanding preferred stock.
We currently have no plans to issue any shares of preferred stock. The board
of directors does, however, have the authority, without action by the
stockholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series. Such preferred stock, if and when issued, may carry rights
superior to those of the common stock.
We consider it desirable to have preferred stock available to provide
increased flexibility in structuring possible future financings and in meeting
corporate needs that may arise. If opportunities arise that make it desirable to
issue preferred stock through either public or private offerings, the provision
for preferred stock in our articles of incorporation makes it possible to avoid
the delay and expense of a stockholders' meeting, except as may be required by
law or regulatory authorities.
Issuance of additional preferred stock could result, however, in a series of
securities outstanding that would have dividend or liquidation preferences over
our common stock. This would result in dilution of the income per share and net
book value of our common stock. Issuance of additional common stock upon any
conversion right which may be attached to the terms of any series of preferred
stock may also result in the dilution of the net income per share and the net
book value of our common stock.
50
<PAGE>
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. Furthermore, it is not possible at
this time to determine in what respect a particular series of preferred stock
will be superior to our common stock or any other series of preferred stock that
we may issue.
WARRANTS AND OPTIONS. To date, we have issued warrants representing the
right to purchase up to 10,095,000 shares of our common stock at exercise prices
ranging from $0.50 to $3.50 per share. The expiration dates of those warrants
range from one year after the date of this prospectus to January 14, 2005. All
but 3,720,000 of the shares of common stock underlying those warrants are being
registered pursuant to the registration statement filed in connection with this
prospectus.
In addition to options granted under our option plan, we also granted an
option to purchase 50,000 shares of common stock to Venture Catalyst.com for
$6.00 per share through August 2, 2002.
The exercise price of our warrants and options was determined by negotiation
and should not be construed to imply that any price increases in our securities
will occur. We have reserved a sufficient number of shares of common stock for
issuance upon the exercise of those warrants and options.
The warrants and options do not confer upon the holder any voting or other
rights of a stockholder of Entertainment Boulevard. Among other things, the
warrants and options provide for customary anti-dilution provisions in the event
of certain events, which may include mergers, consolidations, reorganizations,
recapitalizations, stock dividends, stock splits and other changes in our
capital structure.
The foregoing is a summary of the terms generally applicable to the warrants
and options outstanding as of the date of this prospectus. The terms of the
individual warrants and options may vary according to negotiations between us
and the various holders.
REGISTRATION RIGHTS GRANTED BY ENTERTAINMENT BOULEVARD. The shares of
common stock issued to Sony and Virgin in connection with license agreements,
and the shares of common stock issued upon conversion of the Series A preferred
stock have registration rights in certain circumstances and the holders of
outstanding warrants, options and certain convertible promissory notes have
various registration rights with respect to the underlying common stock. The
selling stockholders are participating in this offering as a result of those
registration rights.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for our
common stock is American Securities Transfer & Trust, Inc., located in Denver,
Colorado.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If the maximum number of shares offered under this prospectus are issued,
23,370,447 shares of our common stock will be outstanding. Of that number, all
but 3,946,370 shares will be freely tradable without restriction or further
registration under the Securities Act, unless purchased or held by our
affiliates, as defined in Rule 144 of the Securities Act.
As of the date of this prospectus, we had outstanding 16,994,447 shares of
common stock. Of our outstanding shares of common stock, 13,048,077 are freely
tradable and another 2,600,000 shares may be transferred under Rule 144 of the
Securities Act beginning 90 days after the date of this prospectus.
Upon the exercise of all of our outstanding warrants and options, additional
shares of common stock are issuable in an amount that is not yet determinable.
Of those shares, up to 6,376,000 are covered by this prospectus and will be
freely tradeable, with the exception of 1,425,000 shares obtainable by Stephen
Brown upon the exercise of warrants. He has agreed not to sell or otherwise
transfer those shares prior to May 30, 2000, without the prior written consent
of the purchasers of the Series A preferred stock. In addition to their
inclusion in this offering, certain selling stockholders have other registration
rights which may be exercised if they do not sell all of their shares in this
offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except an affiliate of Entertainment
Boulevard, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which is approximately 170,000 shares as of the date of this prospectus;
or
- the average weekly trading volume of the common stock on the over-the-
counter bulletin board during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Entertainment Boulevard.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Entertainment Boulevard at any time during the 90 days preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
52
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the persons or entities that are offering
their shares of common stock in this prospectus and the number of shares of
common stock being offered by each selling stockholder:
<TABLE>
<CAPTION>
SHARES OWNED PRIOR TO THE SHARES OWNED AFTER THE
OFFERING OFFERING
NUMBER OF SHARES ------------------------- ------------------------
SELLING STOCKHOLDER OFFERED NUMBER PERCENT(1) NUMBER PERCENT(1)
- ------------------- ---------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Stephen Brown(2)........ 1,325,000(3) 1,925,000 10.4% 500,000 2.9%
Daniel A. Thomas........ 175,000(3) 75,000 (5) -0- N/A
Farida Alikhan(4)....... 312,500(3) 312,500 1.8% -0- N/A
Rochford Young.......... 50,000(3) 110,000 (5) 60,000 (5)
Rohail Alikhan.......... 312,500(3) 325,000 1.9% 12,500 (5)
Loretta Harty........... 312,500(3) 325,000 1.9% 12,500 (5)
Ray Longstaff........... 312,500(3) 312,500 1.8% -0- N/A
531287 BC Ltd.(6)....... 187,500(3) 187,500 1.1% -0- N/A
RAK Enterprises(7)...... 187,500(3) 187,500 1.1% -0- N/A
Oughton York
Holdings(6)............ 312,500(3) 312,500 1.8% -0- N/A
Brunswick Ltd.(8)....... 312,500(3) 312,500 1.8% -0- N/A
Ray Alikhan............. 312,500(3) 380,000 2.2% 67,500 (5)
Raaheen Alikhan......... 312,500(3) 325,000 1.9% 12,500 (5)
Latymer Investments
Limited(9)............. 146,640(3) 581,978 3.4% 435,338 2.6%
Simon Ford.............. 50,000(3) 166,059 1.0% 116,059 (5)
Elizabeth Bradley....... 69,610(3) 259,610 1.5% 190,000 (5)
Marionette
Limited(10)............ 34,000(3) 296,529 1.8% 262,529 2.1%
David Ruellan........... 12,000(3) 84,533 (5) 72,533 (5)
Pauline Phillips........ 12,000(3) 77,225 (5) 65,225 (5)
Anthony Phillips........ 12,000(3) 51,857 (5) 39,857 (5)
Michael Clinton......... 8,000(3) 47,826 (5) 39,826 (5)
Christopher Wilkinson... 5,000(3) 18,470 (5) 13,470 (5)
Sorciere Limited(11).... 5,000(3) 26,104 (5) 21,104 (5)
Colin Campbell.......... 5,750(3) 37,776 (5) 32,026 (5)
Anthony Goldsmith....... 4,000(3) 30,378 (5) 26,378 (5)
Paul Wood............... 3,500(3) 25,181 (5) 21,681 (5)
Graham Wedlake.......... 3,000(3) 31,888 (5) 28,888 (5)
William Healey.......... 3,000(3) 21,688 (5) 18,688 (5)
Anthony Cartmell........ 2,250(3) 13,457 (5) 11,207 (5)
Philip Wylie............ 2,000(3) 15,214 (5) 13,214 (5)
Carol McKearney......... 500(3) 5,526 (5) 5,026 (5)
Jonathan Steel.......... 2,000(3) 10,418 (5) 8,418 (5)
Derwent Jeffrey......... 250(3) 1,886 (5) 1,636 (5)
Henrik Hansen........... 2,250(3) 14,276 (5) 12,026 (5)
Peter Thomson-Smith..... 2,000(3) 14,370 (5) 12,370 (5)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED PRIOR TO THE SHARES OWNED AFTER THE
OFFERING OFFERING
NUMBER OF SHARES ------------------------- ------------------------
SELLING STOCKHOLDER OFFERED NUMBER PERCENT(1) NUMBER PERCENT(1)
- ------------------- ---------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
R.A.M. Williams......... 1,500(3) 18,704 (5) 17,204 (5)
William Mills........... 1,500(3) 11,387 (5) 9,887 (5)
John Trotter............ 1,250(3) 10,252 (5) 9,002 (5)
Nick Ivey............... 1,250(3) 10,252 (5) 9,002 (5)
John Craig.............. 1,250(3) 10,252 (5) 9,002 (5)
Alan Quarterman......... 1,000(3) 7,229 (5) 6,229 (5)
John Barkhan............ 1,000(3) 7,605 (5) 6,605 (5)
Michael Wainright....... 1,000(3) 7,605 (5) 6,605 (5)
Jeffrey Worboys......... 1,000(3) 7,605 (5) 6,605 (5)
John Grieves............ 1,000(3) 10,629 (5) 9,629 (5)
Lawrence Olsen.......... 1,250(3) 10,958 (5) 9,708 (5)
Peter Krause............ 1,000(3) 7,229 (5) 6,229 (5)
Industrial Maintenance
Group, Ltd.(12)........ 500(3) 3,781 (5) 3,281 (5)
Joanne Chandra.......... 250(3) 3,235 (5) 2,985 (5)
William Waters.......... 500(3) 3,781 (5) 3,281 (5)
Clive Taylor............ 500(3) 500 (5) -0- N/A
Rev. Bonita Appleton.... 500(3) 3,781 (5) 3,281 (5)
Stephen S. McKeag(13)... 15,000 265,000 1.6% 250,000 1.5%
John McKeag............. 7,500 7,500 (5) -0- N/A
Dominick Gullemot....... 7,500 7,500 (5) -0- N/A
Richard Sandfer......... 7,500 7,500 (5) -0- N/A
Robb Peck McCooey
Clearing
Corporation(14)........ 568,000(3) 568,000 3.2% -0- N/A
Richard Rosenblum(14)... 325,000(3) 325,000 1.9% -0- N/A
David Stefansky(14)..... 325,000(3) 325,000 1.9% -0- N/A
Steven Freifeld(14)..... 102,000(3) 102,000 (5) -0- N/A
Vincent Calicchia(14)... 100,000(3) 100,000 (5) -0- N/A
Anthony K. Soich(14).... 80,000(3) 80,000 (5) -0- N/A
H.A.A. Inc.(15)......... 1,279,242(16) 1,279,242 7.5% -0- N/A
Lowen Holdings(15)...... 408,547 408,547 2.4% -0- N/A
Beestons Investment
Ltd.(4)(15)............ 1,636,094 1,636,094 9.6% -0- N/A
Forest Equities,
Ltd.(16)(17)........... 126,694 126,694 (5) -0- N/A
</TABLE>
- ---------------------
(1) Calculated for each selling stockholder based on 16,994,447 shares of common
stock presently outstanding plus the shares specified for that person in
footnote (3).
(2) Mr. Brown is an officer, director and major stockholder of Entertainment
Boulevard.
54
<PAGE>
(3) All of the shares being offered are issuable upon the exercise of warrants.
(4) This selling stockholder has previously loaned money to Entertainment
Boulevard.
(5) Indicates less than one percent of the total outstanding common stock.
(6) The principal of this entity is Arthur Brown.
(7) The principal of this entity is Ray Alikhan.
(8) The principal of this entity is Julie de Jersey.
(9) The principal of this entity is Robin Phillips.
(10) The principal of this entity is Richard Weedon.
(11) The principals of this entity are David Moorhouse, John Michael Murphy,
Karen Lesley Gough, Paul de Rome and Harriett C. Blum.
(12) The principals of this entity are Roger Gundry, Alfred Gundry, Nigel
Cotterill and John Traynor.
(13) Mr. McKeag is a consultant to Entertainment Boulevard.
(14) This entity provided investment banking services to Entertainment Boulevard
and has a one-year right to appoint a designee to attend meetings of
Entertainment Boulevard's board of directors. Richard Rosenblum,
David Stefansky, Steven Freifeld, Vincent Calicchia and Anthony K. Soich are
affiliates or employees of Robb Peck McCooey Clearing Corporation.
(15) This entity is a principal stockholder of Entertainment Boulevard and has
various other relationships with Entertainment Boulevard.
(16) Includes 25,000 shares issuable upon the exercise of warrants.
(17) The principal of this entity is Joseph Franck.
55
<PAGE>
PLAN OF DISTRIBUTION
We are registering the common stock on behalf of the selling stockholders.
Each selling stockholder is free to offer and sell their shares of common stock
at such times, in such manner and at such prices as they determine. The common
stock may be offered by the selling stockholders in one or more types of
transactions, which may or may not involve brokers, dealers or cash
transactions. The selling stockholders may also use Rule 144 under the
Securities Act to sell their common stock, if they meet the criteria and conform
to the requirements of that rule.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of common stock by the selling stockholders. The selling
stockholders have advised us that sales of common stock may be effected from
time to time by the following means:
- transactions on the over-the-counter bulletin board, including block
transactions;
- negotiated transactions;
- through the writing of options on the common stock; and
- a combination of the above methods of sale at fixed prices, which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices
The selling stockholders may sell common stock directly to purchasers or
through broker-dealers which may act as agents or principals. Broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders.
The selling stockholders and any broker-dealers that act in connection with
the sale of their common stock may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and any profit on the resale of the common stock as principal may be deemed
to be underwriting discounts and commissions under the Securities Act. The
selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Because
selling stockholders may be deemed to be underwriters, they will be subject to
prospectus delivery requirements under the Securities Act. Furthermore, in the
event of a distribution of their common stock, any selling stockholder, any
selling broker-dealer and any affiliated purchasers may be subject to Regulation
M which prohibits any stabilizing bid or stabilizing purchase for the purpose of
pegging, fixing or stabilizing the price of the common stock in connection with
that distribution.
56
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for us by our counsel, Richman, Lawrence, Mann, Chizever & Phillips, Beverly
Hills, California.
EXPERTS
Our consolidated financial statements for the years ended December 31, 1999
and 1998 and the period from April 1, 1997, inception, to December 31, 1999,
which appear in this prospectus beginning at page F-1, have been audited by
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants, as set forth in their report thereon appearing at page F-2 of this
prospectus. The report includes an explanatory paragraph regarding our ability
to continue as a going concern. Such report is given on the authority of that
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC on Form SB-2 relating to
the shares offered by this prospectus. This prospectus does not contain all of
the information included in the registration statement. The information
contained in this prospectus is current as of the date it was filed with the
SEC. Please note that the statements made in this prospectus regarding the
contents of any contract or other document are not necessarily complete. You may
examine a copy of that contract or other document if it has been filed as an
exhibit to the registration statement. All statements about contracts or other
documents in this prospectus are qualified in their entirety by referring you to
the exhibits to the registration statement.
For further information regarding Entertainment Boulevard and its common
stock, reference is made to the registration statement and the exhibits thereto.
You may read and copy the registration statement and any other document we file
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The SEC also maintains a Web site at WWW.SEC.GOV
that contains registration statements and other information regarding companies,
including Entertainment Boulevard, that file electronically with the SEC. As a
result, the registration statement is available at that site as well. Our common
stock is quoted in the over-the-counter bulletin board.
After the effective date of this offering, we intend to furnish to our
stockholders annual reports containing audited financial statements. We will
also file annual and quarterly reports, as well as proxy statements and other
information, with the SEC. Such reports, proxy statements and other information
can be inspected and copied at the SEC's public reference rooms and Web site, as
described above.
57
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................ F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Deficit.......... F-5 - F-6
Consolidated Statements of Cash Flows..................... F-7 - F-9
Notes to Consolidated Financial Statements................ F-10 - F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Entertainment Boulevard, Inc.
We have audited the accompanying consolidated balance sheet of Entertainment
Boulevard, Inc. and subsidiary, dba Vidnet (a development stage company) as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for each of the two years in the period
ended December 31, 1999, and for the period from April 1, 1997 (inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Entertainment Boulevard, Inc. and subsidiary, dba Vidnet as of December 31,
1999, and the results of their consolidated operations and their consolidated
cash flows for each of the two years in the period ended December 31, 1999, and
for the period from April 1, 1997 (inception) to December 31, 1999 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. During the years
ended December 31, 1999 and 1998, the Company incurred net losses of $12,931,960
and $1,435,153, respectively. In addition, the Company's net cash used in
operating activities was $3,564,777 and $1,300,205 for the years ended
December 31, 1999 and 1998, respectively, and the Company's accumulated deficit
was $15,016,739 as of December 31, 1999. Recovery of the Company's assets is
dependent upon future events, the outcome of which is indeterminable. In
addition, successful completion of the Company's transition, ultimately, to the
attainment of profitable operations is dependent upon obtaining adequate
financing to fulfill its development activities and achieving a level of sales
adequate to support the Company's cost structure. These factors, among others,
as discussed in Note 2 to the consolidated financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 29, 2000
F-2
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 429,408
Accounts receivable....................................... 222,324
Prepaid expenses.......................................... 8,496
------------
Total current assets.................................... 660,228
NOTE RECEIVABLE--RELATED PARTY.............................. 400,000
FURNITURE AND EQUIPMENT, NET................................ 419,549
DEPOSITS.................................................... 26,700
DEBT ISSUANCE COSTS, NET.................................... 110,000
DEFERRED FINANCING COSTS.................................... 1,735,583
------------
TOTAL ASSETS.......................................... $ 3,352,060
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term debt........................................... $ 1,854,095
Note payable--related party............................... 400,000
Convertible notes......................................... 500,000
Accounts payable.......................................... 589,241
Accrued liabilities....................................... 299,401
Advances on contracts..................................... 67,000
------------
Total current liabilities............................... 3,709,737
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Series A preferred stock, $0.01 par value 1,000,000 shares
authorized 2,000 shares issued and outstanding.......... 20
Common stock, $0.001 par value 50,000,000 shares
authorized 12,477,500 shares issued and outstanding..... 12,478
Deferred compensation..................................... (252,685)
Additional paid-in capital................................ 14,899,249
Deficit accumulated during the development stage.......... (15,016,739)
------------
Total stockholders' deficit........................... (357,677)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT......... $ 3,352,060
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED APRIL 1, 1997
DECEMBER 31, (INCEPTION) TO
-------------------------- DECEMBER 31,
1999 1998 1999
------------ ----------- --------------
<S> <C> <C> <C>
REVENUE................................ $ 268,039 $ -- $ 268,039
------------ ----------- ------------
OPERATING EXPENSES
Compensation expense................. 2,921,494 708,145 4,045,024
Consulting expense................... 631,875 -- 631,875
Depreciation and amortization........ 71,220 20,089 94,074
Other operating expense.............. 3,095,734 703,164 4,030,374
Settlement expense................... 310,000 -- 310,000
------------ ----------- ------------
Total operating expenses........... 7,030,323 1,431,398 9,111,347
------------ ----------- ------------
LOSS FROM OPERATIONS................... (6,762,284) (1,431,398) (8,843,308)
------------ ----------- ------------
OTHER EXPENSE
Interest expense..................... (54,439) (3,755) (58,194)
Financing costs...................... (6,115,237) -- (6,115,237)
------------ ----------- ------------
Total other expense................ (6,169,676) (3,755) (6,173,431)
------------ ----------- ------------
NET LOSS............................... $(12,931,960) $(1,435,153) $(15,016,739)
============ =========== ============
BASIC AND DILUTED LOSS PER SHARE....... $ (1.09) $ (0.30) $ (2.36)
============ =========== ============
WEIGHTED-AVERAGE SHARES OUTSTANDING.... 11,868,537 4,814,286 6,366,332
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
SERIES A PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DURING THE
----------------------- -------------------- DEFERRED PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT COMPENSATION CAPITAL STAGE TOTAL
---------- ---------- --------- -------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1997 (Inception)... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Capitalization of
International
Net Broadcasting,
LLC................ 1,000,000 1,000 (900) 100
Common stock issued
in private
placement.......... 3,700,000 3,700 30,475 34,175
Stock issued in
connection with
mineral rights..... 50,000 50 (50) --
Capital
contributions...... 88,500 88,500
Net loss............. (649,626) (649,626)
---------- ---------- --------- ------- --------- ------- ---------- ----------
Balance, December 31,
1997............... -- -- 4,750,000 4,750 -- 118,025 (649,626) (526,851)
Capital
contributions...... 533,000 533,000
Common stock issued
in private
placement.......... 2,925,000 2,925 208,308 211,233
Net loss............. (1,435,153) (1,435,153)
---------- ---------- --------- ------- --------- ------- ---------- ----------
Balance, December 31,
1998............... -- -- 7,675,000 7,675 -- 859,333 (2,084,779) (1,217,771)
Warrants exercised... 2,925,000 2,925 728,325 731,250
Stock options issued
to vendors......... 578,750 578,750
Stock options issued
as compensation.... (252,685) 632,043 379,358
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- --------------------- DEFERRED PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT COMPENSATION CAPITAL STAGE TOTAL
-------- -------- ---------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of long-
term debt........... $ $1,600,000 $ 1,600 $ $ 850,668 $ $ 852,268
Warrants issued to
executive for
compensation........ 1,780,500 1,780,500
Warrants issued to
debt holders........ 474,800 474,800
Financing costs on
conversion of long-
term debt........... 4,597,000 4,597,000
Stock-based interest
on bridge
financing........... 252,500 253 535,267 535,520
Preferred stock
sale................ 2,000 20 1,999,980 2,000,000
Warrants issued in
conjunction with
bridge financing.... 2,198,500 2,198,500
Stock issued for
services............ 25,000 25 53,100 53,125
Fixed discount on
convertible debt.... 45,000 45,000
Offering costs........ (434,017) (434,017)
Net loss.............. (12,931,960) (12,931,960)
----- --- ---------- ------- --------- ----------- ------------ ------------
Balance, December 31,
1999................ 2,000 $20 12,477,500 $12,478 $(252,685) $14,899,249 $(15,016,739) $ (357,677)
===== === ========== ======= ========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, FROM APRIL 1, 1997
-------------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1999
--------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................... $(12,931,960) $(1,435,153) $(15,016,739)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization........ 71,220 20,089 94,074
Warrants issued for compensation..... 1,780,500 -- 1,780,500
Stock options issued for
compensation....................... 379,358 -- 379,358
Financing charges.................... 6,115,237 -- 6,115,237
Stock options issued to vendors...... 578,750 -- 578,750
Stock issued to vendors.............. 53,125 -- 53,125
(Increase) decrease in Accounts
receivable........................... (222,324) -- (222,324)
Prepaid expenses..................... (8,496) -- (8,496)
Deposits............................. (26,700) -- (26,700)
Debt issuance costs.................. (135,000) -- (135,000)
Increase (decrease) in Accounts
payable.............................. 543,138 25,558 589,241
Accrued liabilities.................. 171,375 89,301 299,401
Advances on contracts................ 67,000 -- 67,000
------------ ----------- ------------
Net cash used in operating
activities........................... (3,564,777) (1,300,205) (5,452,573)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and
equipment.......................... (398,693) (64,410) (478,653)
Purchase of mineral rights........... -- -- (10,000)
------------ ----------- ------------
Net cash used in investing
activities........................... (398,693) (64,410) (488,653)
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
DECEMBER 31, FROM APRIL 1, 1997
---------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1999
---------- --------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt........... $2,550,573 $ 432,302 $2,982,875
Payments on short-term debt............. (655,000) -- (655,000)
Proceeds from long-term borrowings...... -- 389,994 878,518
Capital contributions................... -- 533,000 621,600
Proceeds from private placement......... 2,000,000 234,000 2,268,175
Proceeds from execution of warrants..... 731,250 -- 731,250
Offering costs.......................... (434,017) (22,767) (456,784)
---------- --------- ----------
Net cash provided by financing
activities.............................. 4,192,806 1,566,529 6,370,634
---------- --------- ----------
Net increase in cash...................... 229,336 201,914 429,408
---------- --------- ----------
CASH (BOOK OVERDRAFT), BEGINNING OF
PERIOD.................................. 200,072 (1,842) --
---------- --------- ----------
CASH, END OF PERIOD....................... $ 429,408 $ 200,072 $ 429,408
========== ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
INTEREST PAID........................... $ 4,166 $ -- $ 4,166
========== ========= ==========
INCOME TAXES PAID......................... $ -- $ -- $ --
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1999
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On January 15, 1999, the Company converted long-term debt of $852,268 to
1,600,000 shares of common stock. In connection with the conversion, the Company
recognized financing costs of $4,597,000 related to beneficial conversion rates.
During the year ended December 31, 1999, the Company issued options to
purchase 425,000 shares of common stock to vendors. The options were valued at
$578,750.
During the year ended December 31, 1999, the Company issued stock options to
employees as compensation. Related to these options, the Company capitalized
deferred compensation of $252,685 and recognized compensation expense of
$379,358.
During the year ended December 31, 1999, the Company issued 252,500 shares
of common stock as interest expense on bridge loans. In connection with the
shares of common stock, the Company recognized financing charges of $535,520.
During the year ended December 31, 1999, the Company settled a dispute with
a stockholder by issuing a note payable for $400,000.
During the year ended December 31, 1999, the Company issued warrants to
purchase a total of 940,000 shares of the Company's common stock in conjunction
with the issuance of short-term debt. The Company recognized financing costs of
$462,917 in conjunction with these warrants.
On July 14, 1999, the Company issued warrants to purchase 1,500,000 shares
of the Company's common stock to its Chief Executive Officer. In connection with
the warrants, the Company recognized compensation expense of $1,780,500.
On July 14, 1999, the Company issued warrants to purchase 400,000 shares of
the Company's common stock to certain debt holders. In connection with the
warrants, the Company recognized financing charges of $474,800.
On November 12, 1999, the Company recognized $45,000 of financing costs
related to the issuance of debt convertible to common stock at rates beneficial
to the debt holders.
F-9
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1--ORGANIZATION AND LINE OF BUSINESS
International Net Broadcasting was originally founded on April 1, 1997 as a
proprietorship and began to solicit funds from investors in order to establish
an on-line marketplace for entertainment-related products and services. On
September 18, 1998, the proprietorship formed International Net Broadcasting,
LLC ("INB"), a limited liability company and continued operations as such. On
January 15, 1999, 100% of INB was acquired by Sedmet Explorations, Inc.
("Sedmet"), a public shell with substantially no assets (see Note 4). Subsequent
to the acquisition, Sedmet changed its name to Entertainment Boulevard, Inc.
("EBI"). The acquisition has been accounted for in a manner similar to a pooling
of interests.
Subsequent to and in connection with the acquisition, certain of INB's debt
was converted to common stock of EBI.
Subsequent to the year ended December 31, 1999, EBI and INB (collectively,
the "Company") began to do business as Vidnet.
The Company remains in the business of providing Internet sales and
distribution of entertainment products and services, as well as the distribution
of certain other infomercial-related merchandise and sports-related information
services. To date, the Company has continued to expend its resources in the
development of its web-based business and has not begun to generate sales or
revenues of a material nature.
NOTE 2--GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the years ended December 31, 1999 and 1998, the Company
incurred losses of $12,931,960 and $1,435,153, respectively. In addition, the
Company's cash flow requirements have been met by the generation of capital
through private placements of the Company's preferred and common stock and
placement of unsecured debt to investors. No assurance can be given that this
source of financing will continue to be available to the Company and demand for
the Company's equity instruments will be sufficient to meet its capital needs.
If the Company is unable to generate profits and unable to continue to obtain
financing for its working capital requirements, it may have to cease business
altogether.
F-10
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2--GOING CONCERN MATTERS (CONTINUED)
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis, to retain its current financing,
to obtain additional financing, and ultimately to attain profitability.
To meet these objectives, the Company expects to complete an additional
$2,000,000 private placement of preferred equity and an additional $9,000,000 in
bridge financings, which the Company expects to convert to common shares in
early 2000. Management expects these financings will provide sufficient funding
to continue the Company's present operations and support future marketing and
development activities.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of EBI and its
wholly owned subsidiary, INB. All significant intercompany accounts have been
eliminated.
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all of its
present efforts to establish a new business, and its planned principal
operations have not yet commenced. All losses accumulated since inception have
been considered as part of the Company's development stage activities.
CASH
The Company maintains cash balances in one bank located in Southern
California. Deposits at the bank are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of December 31, 1999, uninsured portions of the
balance totaled approximately $357,000.
F-11
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months or
less to be cash equivalents.
INTANGIBLE ASSET
Intangible asset represents the rights to certain mining and related leases
(see Note 10) and has been accounted for at cost. As of December 31, 1999, the
rights were fully amortized.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets. The principal classes and estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment........... 3 years
Furniture.................... 7 years
Leasehold improvements....... The shorter of the life of
the lease, or useful life of
the improvements
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized.
DEBT ISSUANCE COSTS
Costs incurred in connection with issuing short-term debt are capitalized
and amortized over the term of the related debt. As of December 31, 1999,
accumulated amortization of debt issuance costs amounted to $25,000.
INCOME TAXES
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and
F-12
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
From time to time, the Company enters into non-cash barter arrangements with
other Internet service providers for advertising. These contracts are considered
immaterial and as such, have not been recorded on the Company's financial
statements.
Additionally, the company bills its customers for services rendered and
recognizes these revenues when earned. Amounts included in accounts receivable
were paid in cash subsequent to year-end.
ADVANCES ON CONTRACTS
The Company has received an advance on a fixed price contract in excess of
revenue earned.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share." SFAS No. 128 replaced the previously reported
primary and fully diluted loss per share with basic and diluted loss per share.
Unlike primary loss per share, basic loss per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted loss per share
is very similar to the previously reported fully diluted loss per share. Basic
loss per share is computed using the weighted-average number of common shares
outstanding during the period. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive. As such, basic and diluted loss
per share are the same.
F-13
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash, accounts payable, and accrued liabilities, the
carrying amounts approximate fair value due to their short maturities.
ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
COMPREHENSIVE INCOME
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financials statements since the Company did not have
any of the items of comprehensive income in any period presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-Retirement Benefits." The Company does not expect
adoption of SFAS No. 132 to have a material impact, if any, on its financial
position or results of operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This statement is not applicable to
the Company.
F-14
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with the first fiscal quarter
beginning after December 15, 1998. This statement is not applicable to the
Company.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years beginning
February 1999. This statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect adoption of
SFAS No. 137 to have a material impact, if any, on its financial position or
results of operations.
NOTE 4--ACQUISITION OF INTERNATIONAL NET BROADCASTING, LLC ("INB")
On January 15, 1999, the Company exchanged 1,000,000 shares of the Company's
common stock for a 100% interest in INB. INB primarily operates as an Internet
content provider of entertainment-related products.
This transaction has been accounted for as a pooling of interests.
Accordingly, the financial statements for all periods presented have been
restated to include the
F-15
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4--ACQUISITION OF INTERNATIONAL NET BROADCASTING, LLC ("INB") (CONTINUED)
accounts and operations of INB. The combined entities' separate operating
results for the years ended December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net revenues
The Company....................... $ -- $ --
INB............................... 268,039 --
------------ -----------
COMBINED........................ $ 268,039 $ --
============ ===========
Net loss
The Company....................... $ -- $ --
INB............................... (12,931,960) (1,435,153)
------------ -----------
COMBINED........................ $(12,931,960) $(1,435,153)
============ ===========
Net loss per common share
PRIOR TO ACQUISITION.............. $ -- $ --
============ ===========
AS RESTATED....................... $ (1.09) $ (0.30)
============ ===========
</TABLE>
NOTE 5--FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Computer equipment................................. $317,877
Furniture.......................................... 36,478
Leasehold improvements............................. 124,298
--------
478,653
Less accumulated depreciation and amortization..... 59,104
--------
TOTAL............................................ $419,549
========
</TABLE>
F-16
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 6--SHORT-TERM DEBT
During the years ended December 31, 1999 and 1998, the Company received
advances from various investors through short-term, unsecured debt instruments.
The advances bear interest at 10% and are generally due within one year of the
original advance date. Balances on these short-term advances aggregated to
$754,095 and $458,552 at December 31, 1999 and 1998, respectively.
In December 1999, the Company issued $750,000 of short-term, secured
promissory notes. The notes are convertible in three months from the issuance
date, bear interest at 10% per annum, and are secured by substantially all of
the assets of the Company. The notes included detachable stock purchase warrants
for 300,000 shares of common stock, which were immediately exercisable at $1 per
share and expire in five years. Related to the warrants, the Company recorded
deferred financing costs of $1,086,000, which represents the fair market value
of the warrants. In accordance with generally accepted accounting principles,
this discount is being amortized over the term of the debt.
In December 1999, the Company issued three-month, secured promissory notes
totaling $350,000. The notes bear interest at 10% and are secured by the assets
of the Company. The promissory notes included detachable stock purchase warrants
for 140,000 shares of the Company's common stock, which were immediately
exercisable at $1 per share and expire in five years. At December 31, 1999, the
Company recorded the fair market value of the warrants as deferred financing
costs of $233,373, which is being amortized into finance costs over the term of
the notes. The Company recognized finance costs in the amount of $46,667 related
to these warrants.
From time to time, the Company has borrowed unsecured amounts for working
capital requirements from officers of the Company. During the year ended
December 31, 1999, advances and repayments of these bridge financings aggregated
to $500,000, none of which were outstanding at December 31, 1999. Associated
with these bridge financings, the Company issued 252,500 shares of its common
stock as interest and recorded $535,520 of financing costs related to the stock.
NOTE 7--CONVERTIBLE NOTES
On November 12, 1999, the Company issued $500,000 of short-term bridge notes
that are convertible into 250,000 shares of common stock at the lender's
election. These notes are secured by all assets of the Company and are payable
on or before
F-17
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7--CONVERTIBLE NOTES (CONTINUED)
February 15, 2000, including interest at 10% per annum. In connection with these
notes, the Company recognized $45,000 of financing costs due to a conversion
rate below the fair market value of the Company's common stock at the date of
issuance.
Additionally, the note holders received warrants to purchase 250,000 shares
of common stock at $2.50 per share and 250,000 shares of common stock at $3 per
share. The warrants are immediately exercisable and expire in five years.
Related to these warrants, the Company recorded deferred financing costs of
$416,250 and finance costs of $416,250. The remaining deferred costs will be
amortized over the remaining term of the notes.
NOTE 8--LONG-TERM DEBT
During the development stage, the Company has been funded in part through
the use of long-term advances from various investors located overseas. These
advances bear no interest and have no stated maturity date. On January 15, 1999,
in connection with the acquisition of the Company by Sedmet, these advances were
converted into 1,600,000 shares of the Company's $0.001 par value common stock.
Due to the advances being converted at a rate below-market to the debt holders,
the Company incurred a charge to earnings for financing costs of $4,597,000.
Certain long-term debt holders were granted 400,000 warrants subsequent and
related to the conversion (see Note 13). As of December 31, 1999, there were no
long-term advances outstanding.
NOTE 9--RELATED PARTY TRANSACTIONS
The Company incurred expenses in the amounts of approximately $210,000 and
$520,000 related to compensation for officers of the Company during the years
ended December 31, 1999 and 1998, respectively. Included in these amounts are
consulting fees and expenses paid on behalf of the officers.
On August 20, 1999, the Company settled a dispute with a major stockholder
by issuing a note payable for $400,000. The note bears interest at 8%, was due
and payable on November 30, 1999, and is currently in default. In addition, the
Company paid the stockholder $310,000 in accordance with that agreement.
Related to the above settlement, an officer of the Company signed a
non-interest-bearing note promising to pay $400,000 to the Company. The note
receivable is due in eight years, and management believes it is fully
collectible.
F-18
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
On November 1, 1999, the Company entered into an employment agreement with
its Chief Executive Officer. The agreement calls for annual payments of
$240,000, plus stock option grants to purchase a minimum of 50,000 shares of the
Company's common stock per year. The options expire two years from issuance.
NOTE 10--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under a non-cancelable lease, which
commenced on September 1, 1999 and expires on December 31, 2004. The lease
includes a yearly increase of 3.5% in the monthly rent and requires the Company
to pay a percentage of the operating expenses associated with the property. The
lease also includes a provision for an additional security deposit of $135,595
to be paid in January 2000.
Minimum annual payments required under the lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING,
DECEMBER 31,
------------
<S> <C>
2000............................................. $ 323,871
2001............................................. 335,206
2002............................................. 346,939
2003............................................. 359,081
2004............................................. 371,649
----------
TOTAL.......................................... $1,736,746
==========
</TABLE>
Rent expense was $211,165 and $36,585 for the years ended December 31, 1999
and 1998, respectively.
MINING RIGHTS
Prior to the acquisition of INB, the Company entered into an agreement,
whereby the Company assumed all terms and obligations of a 20-year lease
relating to mining claims in Utah. Under the agreement, the Company is required
to pay a 1% net smelter returns royalty upon commencement of commercial
production. In exchange for the rights, the Company paid $10,000 and issued
50,000 shares of common stock.
F-19
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Under the lease, the Company is granted the exclusive and irrevocable right
and option to purchase the mining project at any time for $1,000,000, less all
amounts previously paid to the owner and all annual advance minimum royalty
payments, under certain conditions.
Until the lease is terminated or the project purchased, the Company must
complete certain improvements and pay advance minimum royalties in the amount of
$3,000 on or before January 11, 1999, $6,000 on or before January 11, 2000,
$9,000 on or before January 11, 2001, and $12,000 on or before January 11, 2002
and succeeding years. As of December 31, 1999, the Company has not paid any
amounts related to this agreement.
AGREEMENTS
On February 2, 1999, the Company entered into a "Web Access" service
agreement with a worldwide web access provider. The agreement requires the
Company to pay minimum monthly payments through March 2001. Minimum annual
payments required under the agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDING,
DECEMBER 31,
-------------
<S> <C>
2000............................................... $37,428
2001............................................... 9,357
-------
TOTAL............................................ $46,785
=======
</TABLE>
On July 31, 1999, the Company executed an agreement with an investor
relations firm. The agreement calls for monthly payments in the amount of $5,000
and an option to purchase 50,000 shares of the Company's common stock (see
Note 13).
LITIGATION
The Company may become involved in various litigation arising in the normal
course of business. Management believes the outcome of such litigation would not
have a material effect on the Company.
F-20
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 11--INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
for federal income taxes for the years ended December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Deferred tax assets
Operating losses....................... $1,978,000 $13,000
Temporary differences from stock
options and warrants................. 931,000 --
Valuation allowance...................... (2,909,000) (13,000)
---------- -------
NET DEFERRED TAX ASSET............. $ -- $ --
========== =======
</TABLE>
Deferred tax assets consisted of net operating loss carryforwards and
temporary differences arising from the issuance of stock options and warrants
for compensation. The federal net operating loss carryforwards at December 31,
1999 were approximately $6,815,000.
NOTE 12--STOCKHOLDERS' DEFICIT
SERIES A PREFERRED STOCK
On September 3, 1999, the Company sold 2,000 shares of its Series A, $0.01
par value, convertible preferred stock for $1,000 per share. The sale provided
for an additional 2,000 shares to be purchased within 10 days after the
effective date of a Registration Statement to be filed within 60 business days
from the initial purchase of securities. Offering costs associated with the
purchase were $277,842, which consisted of lawyers' fees and placement agent
fees. In addition, a warrant for the purchase of 250,000 shares of the Company's
common stock was issued to the placement agent in connection with the offering.
The warrant is exercisable immediately at $2 per share and expires on
September 3, 2004.
The Company's Series A, $0.01 par value, convertible preferred stock bears
an 8% cumulative dividend and is convertible at the option of the holder, 50%
after the 31st day after its original issue and the remaining after the 91st day
after the original issue. The stock is convertible to the Company's common stock
at the stated value ($1,000 per share), plus accumulated, unpaid dividends,
divided by the lesser of (i) $2 per share or (ii) an amount equal to the average
per share market value for the three
F-21
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 12--STOCKHOLDERS' DEFICIT (CONTINUED)
trading days having the lowest per share market value during the 30 trading days
immediately before the conversion date, subject to certain adjustments. The
conversion price at the date of issue approximated the fair market value of the
Company's common stock. At December 31, 1999, none of the convertible shares
were exercisable. Due to the nature of the conversion feature, changes in the
trading price of the underlying stock could result in significant changes in the
number of common shares issued upon conversion.
COMMON STOCK
During the year ended December 31, 1998, the Company completed a private
placement of the Company's common stock, whereby investors paid $0.08 per share
for one share of common stock, one warrant for the purchase of an additional
share of common stock at $0.25 per share, and one warrant for the purchase of
one share of common stock for $1 per share. In the placement, the Company
generated cash in the amount of $234,000 and issued 2,925,000 shares of common
stock. In connection with the offering, the Company incurred offering costs of
$22,767.
During the year ended December 31, 1998, an officer of the Company
contributed $533,000 to the Company.
NOTE 13--STOCK OPTIONS AND WARRANTS
STOCK PURCHASE WARRANTS
In connection with a private placement of its $0.001 par value common stock,
the Company issued warrants to purchase 2,925,000 shares of common stock at
$0.25 per share and an additional 2,925,000 shares of common stock at $1 per
share. During the year ended December 31, 1999, all of the $0.25 warrants were
exercised for $731,250 with associated costs of $106,175. The $1 warrants are
exercisable for a period of one year from the effective date of the Registration
Statement. As of December 31, 1999, none of the $1 warrants were exercised.
On July 14, 1999, the Company issued warrants to purchase 1,500,000 shares
of the Company's common stock to its Chief Executive Officer. The warrants are
exercisable at $1 per share and expire on August 1, 2004. In connection with the
warrants, the Company recognized $1,780,500 in compensation expense.
F-22
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--STOCK OPTIONS AND WARRANTS (CONTINUED)
On July 14, 1999, the Company issued warrants to purchase 400,000 shares of
the Company's common stock to certain debt holders. The warrants are exercisable
at $1 per share and expire on August 1, 2004. In connection with the warrants,
the Company recognized financing charges of $474,800.
The following tables summarizes information about warrants outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE WARRANTS WARRANTS
PRICE OUTSTANDING EXERCISABLE
--------------------- ----------- -----------
<S> <C> <C>
$1.00 5,265,000 3,765,000
$2.00 250,000 250,000
$2.50 250,000 250,000
$3.00 250,000 250,000
---------- ----------
6,015,000 4,515,000
========== ==========
</TABLE>
STOCK OPTION PLAN
The Company adopted the 1999 Stock Option Plan (the "1999 Plan") on
February 2, 1999. The purpose of the 1999 Plan is to obtain, retain, and
motivate the best available employees and directors by giving them incentives
which are linked directly to increases in the value of the common stock of the
Company. Each director, officer, employee, or other individual as determined by
the Board of Directors of the Company is eligible to be considered for the grant
of awards under the 1999 Plan. The maximum number of shares of common stock that
may be issued pursuant to awards granted under the 1999 Plan is 1,000,000. Any
shares of common stock subject to an award, which for any reason expires or
terminates unexercised, are again available for issuance under the 1999 Plan.
Under the 1999 Plan, no incentive stock option will be less than 85% of the fair
market value of the shares on the date the stock option is granted, provided
that no employee inventive stock option shall be granted at an exercise price
less than 100% of the fair market value of the Company's common stock.
F-23
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--STOCK OPTIONS AND WARRANTS (CONTINUED)
STOCK OPTIONS
Stock options were granted during the year ended December 31, 1999, which
under certain agreements, allow employees to purchase shares of common stock,
which were issued under the provisions of the 1999 Plan. These options expire
upon certain events and were issued at exercise prices below the trading value
of the Company's underlying common stock. In accordance with generally accepted
accounting principles, the Company has recognized deferred compensation to the
extent of the fair market value of the underlying securities over the exercise
price of the stock options. The deferred compensation is being amortized over
the vesting period of the options.
Related to these options, the Company has capitalized deferred compensation
in the amount of $252,685 and recognized compensation expense of $379,358 during
the year ended December 31, 1999.
On July 31, 1999, the Company granted an option to purchase 50,000 shares of
the Company's common stock at $6 per share to an investor relations firm. The
option is exercisable immediately and expires on August 2, 2002. In connection
with the option, the Company charged $5,000 to operations.
On March 26, 1999, the Company issued 25,000 options to purchase common
stock for $1.50 per share to a consultant for services. The options expire in
five years and were immediately vested. In connection with these options, the
Company recognized expense of $38,250.
On March 26, 1999, the Company issued 100,000 options to purchase common
stock at $1.50 per share to a consultant for services. The options expire in
five years and were immediately vested. In connection with these options, the
Company recognized expense of $153,000.
On November 2, 1999, the Company issued 250,000 options to purchase common
stock at $1.25 per share to a consultant for services. The options expire in
five years and were immediately vested. In connection with these options, the
Company recognized expense of $252,500.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related
F-24
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--STOCK OPTIONS AND WARRANTS (CONTINUED)
Interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans other than for restricted stock
and options/warrants issued to outside third parties. If the Company had elected
to recognize compensation expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net loss and loss per share would be reduced to the pro
forma amounts indicated below for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net loss
As reported....................... $(12,931,960) $(1,435,153)
Pro forma......................... $(13,071,752) $(1,435,153)
Loss per common share
As reported....................... $ (1.09) $ (0.30)
Pro forma......................... $ (1.10) $ (0.30)
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the year ended December 31, 1999. (The Company granted no
options during the year ended December 31, 1998): dividend yields of 0%,
expected volatility of 100%, risk-free interest rates of 6.5%, and expected life
of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-25
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes the Company's stock option transactions:
<TABLE>
<CAPTION>
ALL OPTIONS EMPLOYEE PLAN OTHER OPTIONS
------------------------ -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE
OPTIONS OUT- EXERCISE OUT- EXERCISE OUT- EXERCISE
STANDING PRICE STANDING PRICE STANDING PRICE
------------ --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ISSUED AND OUTSTANDING,
DECEMBER 31, 1999...... 1,253,000 $ 1.44 828,000 $ 1.21 425,000 $ 1.88
========= ======= =======
EXERCISABLE AT
DECEMBER 31, 1999...... 710,000 $ 1.53 285,000 $ 1.00 425,000 $ 1.88
========= ======= =======
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
WEIGHTED- AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
RANGE OF STOCK STOCK REMAINING PRICE OF PRICE OF
EXERCISE OPTIONS OPTIONS CONTRACTUAL OPTIONS OPTIONS
PRICES OUTSTANDING EXERCISABLE LIFE OUTSTANDING EXERCISABLE
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.75.. 1,203,000 660,000 9.6 years $ 1.21 $ 1.00
$6.00.......... 50,000 50,000 2.6 years $ 6.00 $ 6.00
--------- -------
1,253,000 710,000
========= =======
</TABLE>
NOTE 14--MAJOR CUSTOMERS
The Company transacts a significant amount of business with three individual
customers. At December 31, 1999, the balances from these three customers
represented 45%, 27%, and 19% of total accounts receivable. For the years ended
December 31, 1999 and 1998, total revenue from four individual customers
aggregated to 88% of total revenue.
NOTE 15--YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by ongoing Year 2000 problems.
Upgrades to systems judged critical to business operations have been
successfully installed. To
F-26
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 15--YEAR 2000 ISSUE (CONTINUED)
date, no significant costs have been incurred in the Company's systems related
to the Year 2000.
Based on the review of the computer systems, management believes all action
necessary to prevent significant additional problems has been taken. While the
Company has taken steps to communicate with outside suppliers, it cannot
guarantee that they have all taken the necessary steps to prevent any service
interruption that may affect the Company.
NOTE 16--SUBSEQUENT EVENTS
On January 1, 2000, the Company entered into an agreement with Virgin
Holdings, Inc. ("Virgin"), allowing the Company to broadcast certain licensed
videos on the Company's website for a period of one year. As consideration, the
Company paid $100,000 as a licensing fee and is required to pay to Virgin a
percentage of all gross receipts generated from the Company's website. In
addition, Virgin has been granted 678,685 shares of the Company's common stock
as additional consideration.
On January 14, 2000, the Company borrowed $200,000 with a convertible
promissory note. The note bears interest at 10% per annum and is secured by all
of the assets of the Company. The note is convertible into 200,000 shares of the
Company's common stock and was issued in conjunction with warrants to purchase
50,000 shares of the Company's common stock at $1 per share.
Subsequent to the year ended December 31, 1999, the Company made advances of
$486,223 to a digital production company. The advances are payable upon demand.
Subsequent to the year ended December 31, 1999, the Company began
negotiating a $1,000,000 line of credit with a bank.
During January and February 2000, the Company raised approximately
$9,765,000 in promissory notes, due 90 days from issuance, bearing interest at
10% per annum, and a five-year warrant to purchase 40,000 shares of common stock
at $1 per share for each $100,000 raised.
In accordance with generally accepted accounting principles, the Company
will recognize the fair market value of the warrants as financing costs over the
term of the notes. The aggregate value of the warrants issued in connection with
this debt is
F-27
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
approximately $15,500,000 which the Company expects will be recorded in the
first quarter of 2000.
In addition, on February 24, 2000, the Company offered these debt holders
the opportunity to convert their 90-day, 10%, secured bridge notes for shares of
common stock. The aggregate amount of debt outstanding related to these
potential conversions was approximately $10,515,000 at the time the offer was
made. The exchange rate offered to these debt holders is 50,000 shares of common
stock and 20,000 stock purchase warrants with an exercise price of $4 per share
for every $100,000 of debt held. The conversion rate at the time of the offer is
beneficial to the debt holder. The closing stock price at the time of the offer
was $6.87 per share. If all of the debt holders were to convert, the Company
would incur a charge to earnings of approximately $25,500,000, which represents
the difference between the trading price of the stock and the conversion rate of
the debt. The Company expects this charge to be recorded in the first quarter of
2000.
On February 29, 2000, the Company entered into an agreement with Sony Music
Entertainment, Inc. ("Sony"), allowing the Company to broadcast certain music
videos on the Company's website for a period of one year. As consideration, the
Company paid $225,000 as a licensing fee and is required to pay to Sony a
percentage of all gross receipts generated from the Company's website.
Additionally, the Company issued 678,675 shares to Sony as consideration.
In February 2000, the Company entered into a content provider agreement that
requires the Company to pay $12,000 monthly for certain promotional services.
On March 15, 2000, the Company raised $2,000,000 through the placement of
2,000 shares of its Series A preferred stock. On that date, all 4,000 shares
were converted to 2,723,647 shares of common stock.
F-28
<PAGE>
9,814,077 SHARES OF COMMON STOCK
[LOGO]
ENTERTAINMENT BOULEVARD, INC.
---------------------
PROSPECTUS
---------------------
UNTIL JUNE 29, 2000 ALL DEALERS THAT EFFECT TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
MARCH 31, 2000
