<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 2000
REGISTRATION NO. 333-91825
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ENTERTAINMENT BOULEVARD, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
NEVADA 7375 98-0182797
(State or other jurisdiction (Primary Standard (IRS Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
--------------------------
12910 CULVER BOULEVARD, SUITE I
LOS ANGELES, CALIFORNIA 90066
(310) 578-5404
(Address and telephone number of principal executive offices)
--------------------------
STEPHEN BROWN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
ENTERTAINMENT BOULEVARD, INC.
12910 CULVER BOULEVARD, SUITE I
LOS ANGELES, CALIFORNIA 90066
(310) 578-5404
(Name, address and telephone number of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT
FOR SERVICE, SHOULD BE SENT TO:
GERALD M. CHIZEVER, ESQ.
DAVID S. HAMILTON, ESQ.
VANITA J. TYLER, ESQ.
RICHMAN, LAWRENCE, MANN, CHIZEVER & PHILLIPS
9601 WILSHIRE BOULEVARD, PENTHOUSE SUITE
BEVERLY HILLS, CALIFORNIA 90210-5270
TELEPHONE NO.: (310) 274-8300
FACSIMILE NO.: (310) 274-2831
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement until such
time that all of the shares registered hereunder have been sold.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.......... 9,897,500 $2.2495 $22,264,427 $5,878
</TABLE>
(1) Pursuant to Rule 416, there are also being registered such indeterminate
number of shares as may become issuable as a result of stock splits, stock
dividends or similar events.
(2) Based upon the average of the bid and asked price of the Registrant's common
stock as reported on the Over-the-Counter Bulletin Board on November 26,
1999 and estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457.
--------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL, NOR DOES IT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED [ ], 2000.
[LOGO]
ENTERTAINMENT BOULEVARD, INC.
BETWEEN 9,143,020 AND 9,745,180 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 55 and 56 of this
prospectus.
- This prospectus covers the resale of up to 9,745,180 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 [ ], 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.................................................... 22
MANAGEMENT.................................................. 43
PRINCIPAL STOCKHOLDERS...................................... 47
CERTAIN TRANSACTIONS AND RELATIONSHIPS...................... 49
DESCRIPTION OF OUR SECURITIES............................... 50
SHARES ELIGIBLE FOR FUTURE SALE............................. 54
SELLING STOCKHOLDERS........................................ 55
PLAN OF DISTRIBUTION........................................ 58
LEGAL MATTERS............................................... 59
EXPERTS..................................................... 59
WHERE YOU CAN FIND MORE INFORMATION......................... 59
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
3
<PAGE>
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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................................. Between 9,143,020 and 9,745,180 shares
Common stock outstanding after this offering......... Between 21,342,020 and 21,944,180
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 outstanding
warrants;
- Between 2,064,520 and 2,666,680 shares of common stock issuable upon the
conversion of our Series A preferred stock. These numbers are based on an
assumed minimum conversion rate of 516.13 shares of common stock for each
share of our 8% Mandatorily Convertible Series A preferred stock and an
assumed maximum conversion rate of 666.67 shares of common stock for each
share of Series A preferred stock and the issuance of an additional 2,000
shares of Series A preferred stock; and
- 450,000 shares of common stock issuable upon conversion of certain
outstanding promissory notes.
It does not include up to 4,630,000 shares of common stock that could be
issued upon the exercise of outstanding warrants and options.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------- -----------------------
1999 1998 1998 1997
--------------- -------------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues....................... $ 12,715 -- -- --
Costs and expenses............. 4,251,928 $ 905,095 $ 1,431,398 $ 649,626
---------- ----------- ---------
Operating loss................. (4,239,213) (905,095) (1,431,398) (649,626)
Interest expense............... (5,334,490) -- (3,755) --
Income taxes................... -- -- -- --
----------- ---------- ----------- ---------
Net loss....................... $(9,573,703) $ (905,095) $(1,435,153) $(649,626)
=========== ========== =========== =========
Net loss per share............. $ (0.82) $ (0.19) $ (0.30) $ (0.59)
=========== ========== =========== =========
Shares used in computing net
loss per share............... 11,687,086 4,750,000 4,814,286 1,109,124
=========== ========== =========== =========
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets.................. $ 641,388 $ 200,072
Working capital deficiency...... (962,954) (432,609)
Total assets.................... 1,389,626 267,178
Total liabilities............... 1,604,342 1,484,949
Stockholders' deficiency........ (214,716) (1,217,771)
</TABLE>
6
<PAGE>
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 year ended December 31, 1998 and for the
periods from April 1, 1997, the date of inception, through December 31, 1997 and
1998 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 $9,574,000 during the nine month period
ended September 30, 1999. As of September 30, 1999, our accumulated deficit was
approximately $11,658,000. 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 CAN NOT 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 obtain.
7
<PAGE>
We do not have a line of credit. At this time, we are in the process of raising
between $5 million and $7 million in a private placement of our securities. If
successful, that amount, plus cash reserves, proceeds from the 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.
8
<PAGE>
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.
9
<PAGE>
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 January 14, 2000, the closing bid price for our common
stock was $3.8125. The 52-week low bid price was $1.00 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 January 21, 1999, there were 85 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. While any shares of our Series A preferred stock are outstanding, we are
prohibited from paying dividends on our common stock, other than dividends paid
in additional shares of common stock. 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
<PAGE>
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 periods
from April 1, 1997, the date of our inception, to December 31, 1997 and 1998,
and the balance sheet data at December 31, 1998, are derived from financial
statements of Entertainment Boulevard which have been audited by Singer Lewak
Greenbaum and Goldstein LLP, independent certified public accountants. The
selected financial data for the nine month periods ended September 30, 1998 and
1999 are derived from unaudited financial statements of Entertainment Boulevard
and, in the opinion of management, include all necessary adjustments to present
fairly the results of operations and financial position for those periods.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -----------------------
1999 1998 1998 1997
----------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................... $ 12,715 -- -- --
Costs and expenses......................... 4,251,928 $ 905,095 $ 1,431,398 $ 649,626
---------- ----------- ---------
Operating loss............................. (4,239,213) (905,095) (1,431,398) (649,626)
Interest expense........................... (5,334,490) -- (3,755) --
Income taxes............................... -- -- -- --
----------- ---------- ----------- ---------
Net loss................................... $(9,573,703) $ (905,095) $(1,435,153) $(649,626)
=========== ========== =========== =========
Net loss per share......................... $ (0.82) $ (0.19) $ (0.30) $ (0.59)
=========== ========== =========== =========
Shares used in computing net loss per
share.................................... 11,687,086 4,750,000 4,814,286 1,109,124
=========== ========== =========== =========
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets.......................... $ 641,388 $ 200,072
Working capital deficiency.............. (962,954) (432,609)
Total assets............................ 1,389,626 267,178
Total liabilities....................... 1,604,342 1,484,949
Stockholders' deficiency................ (214,716) (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
12
<PAGE>
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 September 30, 1999 these transactions have not resulted in any
material affect on our operations. Therefore, 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 September 30, 1999, we had an accumulated
deficit of approximately $11,658,000. 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
13
<PAGE>
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--NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 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 $12,715 for the nine months ended
September 30, 1999, from $0 for the same period in 1998. Such increase is due to
advertising revenues.
COMPENSATION EXPENSE. Compensation expense increased 314% to $2,201,000 for
the nine months ended September 30, 1999, from $531,000 for the same period in
1998. This increase was due primarily to non-cash charges related to stock-based
compensation of $1,884,000 and an increase in our staff to twenty employees at
September 30, 1999 from seven employees at September 30, 1998, partially offset
by the elimination of an officer's salary.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 422%
to approximately $39,700 for the nine months ended September 30, 1999, from
approximately $7,600 for the same period in 1998, primarily as a result of
increased capital expenditures.
CONSULTING EXPENSE. Consulting expense increased to approximately $196,000
for the nine months ended September 30, 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 396% to $1,814,000 for the
nine months ended September 30, 1999, from $366,000 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 $38,000 for
the nine months ended September 30, 1999, from $0 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 $5,297,000 for the nine
months ended September 30, 1999, from $0 for the same period in 1998. This
non-cash expense relates 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.
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RESULTS OF OPERATIONS--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 $2,380,175 and private sales of our
equity securities totaling $3,621,025. As of September 30, 1999, we had on hand
approximately $554,000 in cash, cash equivalents and short-term investments. We
do not have access to a line of credit. However, we expect to raise $2,000,000
through the sale of additional shares of Series A preferred stock on or before
March 15, 2000 and between $5,000,000 and $7,000,000 through the sale of units
consisting of Series B convertible preferred stock and warrants to purchase
common stock. For the nine months ended September 30, 1999, we had revenues of
approximately $12,700 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 nine months ended September 30, 1999, operating activities used net
cash of approximately $2,031,000, primarily from a net loss from operations of
approximately $9,574,000 which was partially offset by non-cash stock-based
compensation and financing charges of $7,377,000. In addition, financing
activities provided net cash of approximately $2,602,000, primarily from the
proceeds from the placement of short-term debt and the sale of equity securities
which totaled $3,801,000. This was partially offset by payments on the
short-term debt and offering costs which totaled approximately $1,199,000. For
the nine months ended September 30, 1999, our investing activities used net cash
of approximately $217,000, primarily to purchase equipment.
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For the period from inception to December 31, 1998, operating activities
used net cash of approximately $1,888,000, primarily from a net loss from
operations of approximately $2,085,000 which was partially offset by an increase
in accounts payable and accrued liabilities of approximately $174,000. In
addition, financing activities provided net cash of approximately $2,178,000,
primarily from the proceeds from the placement of debt and the sale of equity
securities which totaled $2,201,000. This was partially offset by offering costs
of approximately $23,000. For the period from inception to December 31, 1998,
our investing activities used net cash of approximately $90,000, 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
$200,000 per month, we expect that our present cash balance, plus net proceeds
from the anticipated sale of additional shares of Series A preferred stock, the
sale of units consisting of Series B convertible preferred stock and warrants to
purchase common stock 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 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.
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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 is expected to close on or before March 15, 2000. We
expect that all 4,000 shares of Series A preferred stock will be converted into
2,666,680 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.
The shares of Series A preferred stock have the rights, preferences and
privileges described in "Description of Our Securities--Preferred stock,"
including the right to convert into shares of common stock at a specified
conversion rate which is subject to adjustment if we fail to meet certain
conditions as to the registration of their underlying common stock.
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
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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,
- warrants for an additional 250,000 shares upon the same terms upon
completion of the sale of the additional shares of Series A preferred
stock.
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 1,500,000 shares obtainable by him through the exercise of warrants.
See "Shares Eligible for Future Sale" and "Certain Transactions and
Relationships."
SHORT-TERM LOANS. On November 12, 1999, H.A.A. Inc. and Beestons Investment
Ltd. loaned us a total of $500,000. The loan bears interest at 10% per year and
was originally payable in full on or before February 15, 2000. The due date has
been extended until the sale of the additional shares of Series A preferred
stock closes. We expect to repay the loan out of the proceeds we receive from
that sale. The loan is secured by all of our assets and, prior to repayment, is
convertible into 250,000 shares of our common stock at the lenders' election.
In connection with the loan, we also issued a total of 140,000 shares of our
common stock to the lenders and granted such shares certain stock registration
rights. The shares issued to the lenders and the shares obtainable upon
conversion of the loan are included in the shares being registered for H.A.A.
Inc. and Beestons Investment Ltd. as selling stockholders in this prospectus. In
addition, Robb Peck and some of its key employees were granted warrants to
purchase an additional 500,000 shares of common stock in connection with this
loan. Those shares are included in the shares being registered for Robb Peck and
its key employees as selling stockholders in this prospectus.
On January 14, 2000, H.A.A. Inc. and Forest Equities, Ltd. loaned us a total
of $200,000. As with the $500,000 loan described above, this loan also bears
interest at 10% per year and is secured by all of our assets. The loan is
convertible into 200,000 shares of our common stock at the lenders' election
and, 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 obtainable 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. Originally, this loan was also payable in full on or before
February 15, 2000. That deadline was also extended, with payment now due at such
time as the sale of the additional shares of Series A preferred stock closes.
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SALE OF UNITS. 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
89.5 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. We
expect to repay the loans out of the proceeds we receive from the sale of the
additional shares of Series A preferred stock and the sale of a new series of
preferred stock, as described below.
SALE OF SERIES B PREFERRED STOCK. On January 14, 2000, we signed a term
sheet with an investment banking firm for the private placement of Series B
convertible preferred stock and warrants to purchase common stock. The terms of
the agreement will provide for a minimum offering of $5 million and a maximum
offering of $7 million for up to 140 units. Each unit consists of 2,500 shares
of Series B convertible preferred stock with a $20 liquidation preference and
warrants to purchase 10,000 shares of common stock at $4 per share. The
placement is expected to close on or before March 15, 2000. We intend to use the
proceeds from the offering for working capital and general corporate purposes.
Initially, each share of Series B preferred stock will be convertible at any
time into 10 shares of common stock, subject to certain anti-dilution
provisions. Shares will automatically convert into common stock upon the earlier
of the effective date of a registration statement registering the common stock
issuable upon conversion of the Series B preferred stock or two years from the
closing date. We expect that the purchasers of the Series B preferred stock will
be granted certain registration rights with respect to the shares of common
stock issuable upon conversion of their Series B preferred stock. In addition,
they will have the right to appoint one member of the board of directors for one
year.
Holders of the Series B preferred stock will also have the right to vote
with the holders of the common stock on all matters in which holders of the
common stock have the right to vote, as well as veto rights as to certain
transactions involving Entertainment Boulevard or the Series B preferred stock.
The Series B preferred stock will rank PARI PASSU with respect to dividend
rights and liquidation preference to any other shares of our preferred stock and
senior to the common stock.
TERMINATION AGREEMENT. In connection with our agreements with the
investment banking firm that placed 89.5 units of our securities in December
1999, 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.
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The termination agreement also provides that if the investment banking firm
raises at least $5 million on or before March 15, 2000 , Robb Peck will 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 will be one share of common stock for each $1.50
of stated value of Series A preferred stock. This will result in the issuance of
2,666,680 shares of 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 includes interviews and baseball
statistics and trends with fantasy and rotisserie implications.
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- 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.
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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.
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
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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 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
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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 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
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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 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.
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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.
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 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.
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.
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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 expires 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.
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
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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 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 expires 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
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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 www.ifilm.com which features, among other things, a community for the
viewing and discussion of films.
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.
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.
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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 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.
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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;
- 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;
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- 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 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.
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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. 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
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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 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 September 30, 1999, we had 23 full-time employees, of which 15 were
engaged in technical activities, four in general administration and executive
activities and four 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.
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<PAGE>
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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<PAGE>
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
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.
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 September 30, 1999. In addition, although Colin Leech-Porter
resigned as Entertainment Boulevard's chief executive officer on January 13,
1999, he held that position on December 31, 1998. As a result, the table also
provides summary information as to the compensation paid to him for services
rendered in all capacities during fiscal 1998. We had no executive officer whose
total cash compensation exceeded $100,000 for fiscal 1998, and, other than
Stephen Brown, none of our present executive officers have compensation at that
level.
43
<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
Colin Leech-Porter,
Chief executive officer....... 1998 -0- -0- -0- -0-
</TABLE>
The following table provides information through September 30, 1999
concerning stock options granted to Mr. Brown and Dr. Leech-Porter during the
years 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
Colin Leech-Porter... 1998 -0- N/A N/A N/A
</TABLE>
No options have ever been exercised by Dr. Leech-Porter or Mr. Brown. As to
each of them, the following table sets forth the number and value of vested and
unvested options held as of September 30, 1999.
OPTION VALUE AT SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT SEPTEMBER 30 OPTIONS AT SEPTEMBER 30
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen Brown........................ 50,000 -0- $ 53,124 N/A
Colin Leech-Porter................... -0- -0- N/A 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.
44
<PAGE>
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.
As of September 30, 1999, there were 447,000 options outstanding under the
option plan at a weighted average price of $1.14 per share.
EMPLOYMENT ARRANGEMENTS. Stephen Brown is our only officer or director with
an employment agreement. 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
45
<PAGE>
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 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.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock and Series A preferred stock as of
January 21, 2000, after giving effect to the anticipated sale of another 2,000
shares of Series A preferred stock. 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 or Series A preferred 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;
- issuable upon conversion of Series A preferred stock and certain
outstanding promissory notes.
"Percentage of Class" is based on 12,451,500 outstanding shares of common
stock and 4,000 outstanding shares of Series A preferred stock and assumes
conversion of Series A preferred stock and promissory notes and 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 2,050,000 14.6%
c/o Entertainment Boulevard, Inc.,
12910 Culver Boulevard, Suite I,
Los Angeles, California 90066
Arthur P. Brown........................... Common 187,500(1) 1.5%
c/o Entertainment Boulevard, Inc.,
12910 Culver Boulevard, Suite I,
Los Angeles, California 90066
Wilfred L. Von der Ahe, Jr................ Common 802,000 6.4%
2964 Triangle Road,
Mariposa, California 95338
H.A.A. Inc.(2)............................ Common 1,042,582 7.8%
1601 42nd St., Brooklyn, NY 11204 Series A 1,400 35%
Lowen Holdings(3) ........................ Common 309,678 2.4%
West Street 51, Zurich, Switzerland Series A 600 15%
Beestons Investment Ltd.(4)............... Common 1,302,260 9.6%
P. O. Box 65, Duke Street, Gretton Series A 2,000 50%
House, Grand Turks, Caicos
</TABLE>
47
<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, Arthur Brown and
Debra Gilson)............................ Common 2,150,000 15.2%
</TABLE>
- ------------------------
(1) The shares are obtainable upon exercise of warrants held by 531287 BC Ltd.
of which Mr. Brown is principal.
(2) The principal of this entity is Aaron Langsam.
(3) The principal of this entity is Susan Gold.
(4) The principal of this entity is C.B. Williams.
48
<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 entered into an employment agreement with Entertainment
Boulevard. 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,
- Entertainment Boulevard loaned $400,000 to Stephen Brown for five years,
payable without interest,
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<PAGE>
- 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. On January 14, 2000, H.A.A.
Inc. and Forest Equities, Ltd. loaned an aggregate of $200,000 to Entertainment
Boulevard.
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, 12,451,500 shares of our common stock are issued and
outstanding. On all 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 our Series A preferred stock or 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
50
<PAGE>
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 authorized the issuance of up to 10,000 shares of Series A preferred
stock, of which 2,000 shares are presently issued and outstanding and 2,000 more
are expected to be issued in the near future.
Each share of Series A preferred stock bears cumulative annual dividends
equal to 8.0% of its stated value payable on the last day of February and August
of each year, beginning on February 29, 2000. Dividends are payable in cash or
by a specified increase in the stated value. Each share of Series A preferred
stock also has a liquidation preference equal to its stated value and ranks
senior to our common stock with respect to dividend and liquidation payments. We
are restricted in the payment of dividends on our common stock so long as any
Series A preferred stock is outstanding.
Each share of Series A preferred stock has a stated value, which is
presently $1,000 per share, and is convertible into our common stock at a
conversion ratio which is:
- the sum of the stated value plus any accumulated but unpaid Series A
preferred stock dividends
- divided by the conversion price then in effect.
At the present time, the conversion price for each share of Series A
preferred stock is the lesser of:
- $2.00 or
- an amount equal to the average per share market value for the three
trading days having the lowest per share market value during the 30
trading days immediately before the conversion rate is determined.
Except as otherwise required by Nevada law, holders of Series A preferred
stock have the right to vote with the common stock on all matters in which
holders of common stock have the right to vote. In addition, approval of 66 2/3%
of the
51
<PAGE>
outstanding Series A preferred stock is required before we can take certain
actions which could affect the Series A preferred stock.
All shares of Series A preferred stock are convertible, at the holder's
option, into shares of common stock at a specified conversion price, which would
yield 516.13 shares of common stock for each share of Series A preferred stock
as of the date of this prospectus. In addition, beginning September 3, 2002, or
earlier if the Series A preferred stock maintains a value of $6.00 per share or
greater for a specified time period, we have the right to cause all outstanding
shares of Series A preferred stock to be converted at the conversion price then
in effect.
The maximum number of shares of common stock offered by this prospectus has
been determined by assuming a Series A preferred stock conversion price of $1.50
and no accumulated but unpaid Series A preferred stock dividends. While we
believe that such assumptions accurately state the number of shares issuable
upon conversion of the Series A preferred stock, it is impossible to predict the
conversion price which will be in effect at the time that some or all of the
Series A preferred stock is converted into common stock.
If the effectiveness of the registration statement filed in connection with
this prospectus is not maintained as agreed upon, the applicable conversion
price for each share of Series A preferred stock is subject to decrease pursuant
to an agreed upon formula, up to a specified limit.
All of the outstanding shares of Series A preferred stock are fully paid and
non-assessable and the shares of common stock to be issued upon conversion of
the Series A preferred stock will be fully paid and non-assessable when issued.
All of the shares of common stock into which the outstanding shares of Series A
preferred stock are convertible are being registered pursuant to the
registration statement filed in connection with this prospectus.
Except as described in "Recent Developments," we currently have no plans to
issue any additional 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
52
<PAGE>
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.
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 9,955,000 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 3,580,000 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 holders of
outstanding warrants, options and shares of Series A preferred stock 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.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Deficit.......... F-5
Consolidated Statements of Cash Flows..................... F-6 - F-8
Notes to Consolidated Financial Statements................ F-9 - F-24
</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 (a development stage company) as of December 31,
1998, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the year then ended, and for the periods from
April 1, 1997 (inception) to December 31, 1998 and 1997. 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 as of December 31, 1998, and the
results of its operations and its cash flows for the year then ended, and for
the periods from April 1, 1997 (inception) to December 31, 1998 and 1997 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 year
ended December 31, 1998 and the period from April 1, 1997 (inception) to
December 31, 1997, the Company incurred net losses of $1,435,153 and $649,626,
respectively. In addition, the Company's net cash used in operating activities
was $1,300,205 and $587,591, respectively, for the year ended December 31, 1998
and the period from April 1, 1997 (inception) to December 31, 1997, and the
Company's accumulated deficit was $2,084,779 as of December 31, 1998. 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
July 16, 1999
F-2
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 553,673 $200,072
Accounts receivable....................................... 12,715 --
Prepaid expenses.......................................... 75,000 --
---------- --------
Total current assets.................................. 641,388 200,072
NOTE RECEIVABLE--RELATED PARTY.............................. 400,000 --
FURNITURE AND EQUIPMENT, NET................................ 244,860 58,450
INTANGIBLE ASSET, net of accumulated amortization of
$10,000 (unaudited) and $1,344............................ -- 8,656
DEPOSITS.................................................... 103,378 --
---------- --------
TOTAL ASSETS.................................. $1,389,626 $267,178
========== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt........................................... $ 712,907 $ 458,552
Note payable--related party............................... 400,000 --
Accounts payable.......................................... 261,980 46,103
Accrued liabilities....................................... 229,455 128,026
------------ -----------
Total current liabilities............................... 1,604,342 632,681
LONG-TERM DEBT.............................................. -- 852,268
------------ -----------
Total liabilities..................................... 1,604,342 1,484,949
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Series A preferred stock, $0.01 par value
1,000,000 shares authorized
2,000 (unaudited) shares issued and outstanding......... 20 --
Common stock, $0.001 par value
50,000,000 shares authorized
12,312,500 (unaudited) and 7,675,000 shares issued and
outstanding............................................. 12,313 7,675
Deferred compensation..................................... (27,025) --
Additional paid-in capital................................ 11,458,458 859,333
Deficit accumulated during the development stage.......... (11,658,482) (2,084,779)
------------ -----------
Total stockholders' deficit........................... (214,716) (1,217,771)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT......... $ 1,389,626 $ 267,178
============ ===========
</TABLE>
F-3
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE FOR THE PERIOD FROM PERIOD FROM
NINE NINE APRIL 1, APRIL 1,
MONTHS MONTHS FOR THE 1997 1997
ENDED ENDED YEAR ENDED (INCEPTION) TO (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1998
------------- ------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE........................ $ 12,715 $ -- $ -- $ -- $ --
----------- ---------- ----------- ---------- -----------
OPERATING EXPENSES
Compensation expense......... 2,201,026 531,108 708,145 415,385 1,123,530
Consulting expense........... 196,250 -- -- -- --
Depreciation and
amortization............... 39,694 7,573 20,089 2,765 22,854
Other operating expense...... 1,814,958 366,414 703,164 231,476 934,640
----------- ---------- ----------- ---------- -----------
Total operating expenses....... 4,251,928 905,095 1,431,398 649,626 2,081,024
----------- ---------- ----------- ---------- -----------
LOSS FROM OPERATIONS........... (4,239,213) (905,095) (1,431,398) (649,626) (2,081,024)
----------- ---------- ----------- ---------- -----------
OTHER EXPENSE
Interest expense............. (37,690) -- (3,755) -- (3,755)
Financing costs.............. (5,296,800) -- -- -- --
----------- ---------- ----------- ---------- -----------
Total other expense........ (5,334,490) -- (3,755) -- (3,755)
----------- ---------- ----------- ---------- -----------
NET LOSS....................... $(9,573,703) $ (905,095) $(1,435,153) $ (649,626) $(2,084,779)
=========== ========== =========== ========== ===========
BASIC AND DILUTED LOSS PER
SHARE........................ $ (0.82) $ (0.19) $ (0.30) $ (0.59) $ (0.65)
=========== ========== =========== ========== ===========
WEIGHTED-AVERAGE SHARES
OUTSTANDING.................. 11,687,086 4,750,000 4,814,286 1,109,124 3,225,430
=========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1997,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- ---------------------- DEFERRED PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT COMPENSATION CAPITAL STAGE
-------- -------- ----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1997
(INCEPTION)................. -- $ -- -- $ -- $ -- $ -- $ --
CAPITALIZATION OF
INTERNATIONAL NET
BROADCASTING, LLC........... 1,000,000 1,000 (900)
COMMON STOCK ISSUED IN PRIVATE
PLACEMENT................... 3,700,000 3,700 30,475
STOCK ISSUED IN CONNECTION
WITH MINERAL RIGHTS......... 50,000 50 (50)
CAPITAL CONTRIBUTIONS......... 88,500
NET LOSS...................... (649,626)
----- ---- ----------- ------- -------- ----------- ------------
BALANCE, DECEMBER 31, 1997.... -- -- 4,750,000 4,750 -- 118,025 (649,626)
CAPITAL CONTRIBUTIONS......... 533,000
COMMON STOCK ISSUED IN PRIVATE
PLACEMENT................... 2,925,000 2,925 208,308
NET LOSS...................... (1,435,153)
----- ---- ----------- ------- -------- ----------- ------------
BALANCE, DECEMBER 31, 1998.... -- -- 7,675,000 7,675 -- 859,333 (2,084,779)
WARRANTS
EXERCISED(unaudited)........ 2,925,000 2,925 728,325
STOCK OPTIONS ISSUED TO
VENDORS (unaudited)......... 196,250
STOCK OPTIONS ISSUED AS
COMPENSATION (unaudited).... $ $ $(27,025) $ 130,732 $
CONVERSION OF LONG-TERM DEBT
(unaudited)................. 1,600,000 1,600 850,668
WARRANTS ISSUED TO EXECUTIVE
FOR
COMPENSATION(unaudited)..... 1,780,500
WARRANTS ISSUED TO DEBT
HOLDERS (unaudited)......... 474,800
FINANCING COSTS ON CONVERSION
OF LONG-TERM DEBT
(unaudited)................. 4,597,000
STOCK-BASED INTEREST ON BRIDGE
FINANCING(unaudited)........ 112,500 113 224,887
PREFERRED STOCK SALE
(unaudited)................. 2,000 20 1,999,980
OFFERING COSTS ON PLACEMENTS
AND WARRANTS (unaudited).... (384,017)
NET LOSS (unaudited).......... (9,573,703)
----- ---- ----------- ------- -------- ----------- ------------
BALANCE, SEPTEMBER 30,
1999(unaudited)............. 2,000 $ 20 $12,312,500 $12,313 $(27,025) $11,458,458 $(11,658,482)
===== ==== =========== ======= ======== =========== ============
<CAPTION>
TOTAL
-----------
<S> <C>
BALANCE, APRIL 1, 1997
(INCEPTION)................. $ --
CAPITALIZATION OF
INTERNATIONAL NET
BROADCASTING, LLC........... 100
COMMON STOCK ISSUED IN PRIVATE
PLACEMENT................... 34,175
STOCK ISSUED IN CONNECTION
WITH MINERAL RIGHTS......... --
CAPITAL CONTRIBUTIONS......... 88,500
NET LOSS...................... (649,626)
-----------
BALANCE, DECEMBER 31, 1997.... (526,851)
CAPITAL CONTRIBUTIONS......... 533,000
COMMON STOCK ISSUED IN PRIVATE
PLACEMENT................... 211,233
NET LOSS...................... (1,435,153)
-----------
BALANCE, DECEMBER 31, 1998.... (1,217,771)
WARRANTS
EXERCISED(unaudited)........ 731,250
STOCK OPTIONS ISSUED TO
VENDORS (unaudited)......... 196,250
STOCK OPTIONS ISSUED AS
COMPENSATION (unaudited).... $ 103,707
CONVERSION OF LONG-TERM DEBT
(unaudited)................. 852,268
WARRANTS ISSUED TO EXECUTIVE
FOR
COMPENSATION(unaudited)..... 1,780,500
WARRANTS ISSUED TO DEBT
HOLDERS (unaudited)......... 474,800
FINANCING COSTS ON CONVERSION
OF LONG-TERM DEBT
(unaudited)................. 4,597,000
STOCK-BASED INTEREST ON BRIDGE
FINANCING(unaudited)........ 225,000
PREFERRED STOCK SALE
(unaudited)................. 2,000,000
OFFERING COSTS ON PLACEMENTS
AND WARRANTS (unaudited).... (384,017)
NET LOSS (unaudited).......... (9,573,703)
-----------
BALANCE, SEPTEMBER 30,
1999(unaudited)............. $ (214,716)
===========
</TABLE>
F-5
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE NINE FOR THE NINE PERIOD FROM PERIOD FROM
MONTHS MONTHS FOR THE YEAR APRIL 1, 1997 APRIL 1, 1997
ENDED ENDED ENDED (INCEPTION) TO (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1998
------------- ------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss....................... $(9,573,703) $(905,095) $(1,435,153) $(649,626) $(2,084,779)
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation and
amortization............... 39,694 7,573 20,089 2,765 22,854
Non-cash compensation........ 1,884,207 -- -- -- --
Financing charges............ 5,296,800 -- -- -- --
Stock options issued to
vendors.................... 196,250 -- -- -- --
Increase in
Accounts receivable.......... (12,715) -- -- -- --
Prepaid expenses............. (75,000) -- -- -- --
Deposits..................... (103,378) -- -- -- --
Increase (decrease) in
Accounts payable............. 215,877 (2,842) 25,558 20,545 46,103
Accrued liabilities.......... 101,429 50,125 89,301 38,725 128,026
----------- --------- ----------- --------- -----------
Net cash used in operating
activities................... (2,030,539) (850,239) (1,300,205) (587,591) (1,887,796)
----------- --------- ----------- --------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of furniture and
equipment.................. $ (217,448) $ (32,060) $ (64,410) $ (15,550) $ (79,960)
Purchase of mineral rights... -- -- -- (10,000) (10,000)
----------- --------- ----------- --------- -----------
Net cash used in investing
activities................... (217,448) (32,060) (64,410) (25,550) (89,960)
----------- --------- ----------- --------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from short-term
debt....................... 1,069,355 66,750 432,302 -- 432,302
Payments on short-term
debt....................... (815,000) -- -- -- --
Long-term debt............... -- 363,744 389,994 488,524 878,518
Capital contributions........ -- 459,000 533,000 88,600 621,600
Proceeds from private
placement.................. 2,000,000 -- 234,000 34,175 268,175
</TABLE>
F-6
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE NINE FOR THE NINE PERIOD FROM PERIOD FROM
MONTHS MONTHS FOR THE YEAR APRIL 1, 1997 APRIL 1, 1997
ENDED ENDED ENDED (INCEPTION) TO (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1998
------------- ------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Proceeds from execution of
warrants................... 731,250 -- -- -- --
Offering costs............... (384,017) -- (22,767) -- (22,767)
----------- --------- ----------- --------- -----------
Net cash provided by financing
activities................... 2,601,588 889,494 1,566,529 611,299 2,177,828
----------- --------- ----------- --------- -----------
Net increase (decrease) in
cash......................... $ 353,601 $ 7,195 $ 201,914 $ (1,842) $ 200,072
CASH (BOOK OVERDRAFT),
BEGINNING OF PERIOD.......... 200,072 -- (1,842) -- --
----------- --------- ----------- --------- -----------
CASH (BOOK OVERDRAFT), END OF
PERIOD....................... $ 553,673 $ 7,195 $ 200,072 $ (1,842) $ 200,072
=========== ========= =========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
INTEREST PAID................ $ 4,166 $ -- $ -- $ -- $ --
=========== ========= =========== ========= ===========
INCOME TAXES PAID.............. $ -- $ -- $ -- $ -- $ --
=========== ========= =========== ========= ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the period from April 1, 1997 (inception) to December 31, 1997, the
Company issued 50,000 shares of common stock in exchange for mineral rights.
On January 15, 1999, the Company converted long-term debt of $852,268
(unaudited) to 1,600,000 (unaudited) shares of common stock. In connection with
the conversion, the Company recognized financing costs of $4,597,000 (unaudited)
related to beneficial conversion rates.
During the nine months ended September 30, 1999, the Company issued options
to purchase 250,000 (unaudited) shares of common stock to vendors. The options
were valued at $196,250 (unaudited).
During the nine months ended September 30, 1999, the Company issued stock
options to employees as compensation. Related to these options, the Company has
F-7
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998,
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
capitalized deferred compensation of $27,025 (unaudited) and recognized
compensation expense of $103,707(unaudited).
During the nine months ended September 30, 1999, the Company issued 112,500
(unaudited) shares of common stock as interest expense on bridge loans. In
connection with the shares of common stock, the Company recognized financing
charges of $225,000 (unaudited).
On July 14, 1999, the Company issued warrants to purchase 1,500,000
(unaudited) 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 (unaudited).
On July 14, 1999, the Company issued warrants to purchase 400,000
(unaudited) shares of the Company's common stock to certain debt holders. In
connection with the warrants, the Company recognized financing charges of
$474,800 (unaudited).
F-8
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
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. The
acquisition has been accounted for as a pooling of interests transaction.
Subsequent to and in connection with the acquisition, certain of INB's debt
was converted to common stock of Entertainment Boulevard, Inc.
Entertainment Boulevard, Inc. remains in the business of providing Internet
distribution of entertainment products and services, as well as the distribution
of certain other infomercial-related merchandise and sports-related information
services. To date, Entertainment Boulevard, Inc. 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 year ended December 31, 1998, the period from April 1,
1997 (inception) to December 31, 1998, and the nine months ended September 30,
1999 and 1998, the Company incurred losses of $1,435,153, $649,626, $9,573,703
(unaudited), and $905,095 (unaudited), 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
F-9
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 2--GOING CONCERN MATTERS (CONTINUED)
continue to obtain financing for its working capital requirements, it may have
to cease business altogether.
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 in early 2000, contingent on
the filing and effectiveness of a Registration Statement, which management
expects 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 Entertainment
Boulevard, Inc. and its wholly-owned subsidiary, INB (collectively, the
"Company"). 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.
INTERIM UNAUDITED FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management,
F-10
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are necessary to fairly state the Company's financial position, the results of
operations, and cash flows for the periods presented. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
results for the entire fiscal year ending December 31, 1999.
CASH
Cash consists primarily of cash in banks. Deposits at the banks are insured
by the Federal Deposit Insurance Corporation up to $100,000. As of December 31,
1998 and September 30, 1999, uninsured portions of the balance totaled
approximately $102,000 and $450,700 (unaudited), respectively.
INTANGIBLE ASSET
Intangible asset represents the rights to certain mining and related leases
(see Note 9) and has been accounted for at cost. As of September 30, 1999, the
rights were fully amortized (unaudited).
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 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.
F-11
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
From time to time, the Company enters into non-cash barter arrangements with
other Internet service providers. These contracts are considered immaterial and
as such, have not been recorded on the Company's financial statements.
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.
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
For the period from April 1, 1997 (inception) to December 31, 1998, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement
F-12
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-13
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 accounts and operations of INB. The combined entities'
separate operating results for the period from April 1, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Net revenues
The Company......................... $ -- $ --
INB................................. -- --
----------- ---------
COMBINED........................ $ -- $ --
=========== =========
Net loss
The Company......................... $ -- $ (24,175)
INB................................. (1,435,153) (625,451)
----------- ---------
COMBINED........................ $(1,435,153) $(649,626)
=========== =========
Net loss per common share
PRIOR TO ACQUISITION................ $ -- $ (0.17)
----------- ---------
AS RESTATED......................... $ (0.30) $ (0.59)
=========== =========
</TABLE>
F-14
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 5--FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Computer equipment...................... $284,712 $72,960
Furniture............................... 12,696 7,000
-------- -------
297,408 79,960
Less accumulated depreciation........... 52,548 21,510
-------- -------
TOTAL................................. $244,860 $58,450
======== =======
</TABLE>
NOTE 6--SHORT-TERM DEBT
During the year ended December 31, 1998, the Company received advances from
various investors through short-term, unsecured debt instruments. The advances
bear interest at 8% and are generally due within one year of the original
advance date. Balances on these short-term advances aggregated to $458,552 and
$712,907 (unaudited) at December 31, 1998 and September 30, 1999, respectively,
and accrued interest was $3,755 and $33,524 (unaudited), respectively.
From time to time, the Company has borrowed unsecured amounts for working
capital requirements. During the nine months ended September 30, 1999, advances
and repayments of these bridge financings aggregated to $500,000 (unaudited),
none of which were outstanding at September 30, 1999. Associated with these
bridge financings, the Company issued 112,500 (unaudited) shares of its common
stock as interest and recorded $225,000 (unaudited) of interest expense related
to the stock.
NOTE 7--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, totaling $852,268 at December 31, 1998, 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
F-15
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 7--LONG-TERM DEBT (CONTINUED)
to the debt holders, the Company incurred a charge to earnings for financing
costs of $4,597,000 (unaudited). Certain long-term debt holders were granted
400,000 (unaudited) warrants subsequent and related to the conversion (see
Note 11).
NOTE 8--RELATED PARTY TRANSACTIONS
The Company incurred expenses in the amounts of approximately $520,000 and
$360,000 related to compensation for officers of the Company during the year
ended December 31, 1998 and the period from April 1, 1997 (inception) to
December 31, 1997, respectively. Included in these amounts are consulting fees
and expenses paid on behalf of the officers.
On August 20, 1999 (unaudited), the Company settled a dispute with a major
stockholder by issuing a note payable for $400,000. The note is due on
November 30, 1999 and bears interest at 8% per annum. Related to this
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
5 years, and management believes it is fully collectible.
NOTE 9--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under a non-cancelable lease, which
commenced on September 1, 1999 and expired on August 31, 1999. The lease
requires monthly payments of $3,139 and is renewable at the Company's option.
Rent expense was $36,585, $23,568, $54,932 (unaudited), and $27,167
(unaudited) for the year ended December 31, 1998, the period from April 1, 1997
(inception) to December 31, 1997, and the nine months ended September 30, 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 twenty-year lease
relating to mining claims in Utah. Under the agreement, the Company is required
to
F-16
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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. In addition, the Company must pay a 3% net smelter return
starting on the date of commencement of commercial production.
AGREEMENTS
On February 2, 1999 (unaudited), 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>
1999................................ $31,890
2000................................ 37,428
2001................................ 9,357
-------
TOTAL............................. $78,675
=======
</TABLE>
On July 31, 1999 (unaudited), the Company executed an agreement with an
investor relations firm. The agreement calls for monthly payments in the amount
of $5,000 (unaudited) and an option to purchase 50,000 (unaudited) shares of the
Company's common stock (see Note 12).
F-17
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
NOTE 10--INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
for federal income taxes consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- ------------
<S> <C> <C>
Deferred tax assets
Operating losses...................... $1,836,000 $13,000
Temporary differences from stock
options............................. 102,000 --
Valuation allowance..................... (1,938,000) (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. The operating
losses at September 30, 1999 were approximately $4,600,000 (unaudited) and were
generated during an interim period and as such, may be impacted as a result of
the Company's operations for the remainder of the tax year.
NOTE 11--STOCKHOLDERS' DEFICIT
SERIES A PREFERRED STOCK
On September 3, 1999, the Company sold 2,000 (unaudited) shares of its
Series A $0.01 par value convertible preferred stock for $1,000 (unaudited) per
share. The sale provided for an additional 2,000 (unaudited) 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 (unaudited), which
consisted of lawyers' fees and placement agent fees.
F-18
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 11--STOCKHOLDERS' DEFICIT (CONTINUED)
In addition, a warrant for the purchase of 250,000 (unaudited) 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 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 September 30, 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 and the period from April 1, 1997
(inception) to December 31, 1997, an officer of the Company contributed $533,000
and $88,500, respectively, to the Company.
On December 23, 1997, the Company issued 3,700,000 shares of common stock in
a private placement for $34,175.
F-19
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 11--STOCKHOLDERS' DEFICIT (CONTINUED)
During the period from April 1, 1997 (inception) to December 31, 1997, the
Company issued 50,000 shares of common stock in connection with the purchase of
certain mineral rights (see Note 9).
NOTE 12--STOCK OPTIONS AND WARRANTS (UNAUDITED)
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 (see Note 11). Subsequent to December 31, 1998, all of these
warrants were exercised for $731,250 with associated costs of $106,175. In
addition, the Company issued warrants to purchase 2,925,000 shares of common
stock at $1 per share. The warrants are exercisable for a period of one year
from the effective date of the Registration Statement. As of December 31, 1998,
none of these 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.
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.
STOCK OPTION PLAN
The Company adopted the 1999 Stock Option Plan (the "1999 Plan") in 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
F-20
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 12--STOCK OPTIONS AND WARRANTS (UNAUDITED) (CONTINUED)
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 110% of
the fair market value of the Company's common stock.
STOCK OPTIONS
Stock options were granted during the nine months ended September 30, 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 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 $27,025 and recognized compensation expense of $103,707 during
the nine months ended September 30, 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. 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
F-21
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 12--STOCK OPTIONS AND WARRANTS (UNAUDITED) (CONTINUED)
and were immediately vested. In connection with these options, the Company
recognized expense of $153,000.
The following summarizes the Company's stock option transactions:
<TABLE>
<CAPTION>
ALL OPTIONS EMPLOYEE PLAN OTHER OPTIONS
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
OPTIONS AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE
OUT- EXERCISE OUT- EXERCISE OUT- EXERCISE
STANDING PRICE STANDING PRICE STANDING PRICE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING, SEPTEMBER 30, 1999... 497,000 $1.97 322,000 $1.50 175,000 $2.84
======= ======= =======
EXERCISABLE AT SEPTEMBER 30,
1999............................ 360,000 $2.15 185,000 $1.50 175,000 $2.84
======= ======= =======
</TABLE>
The following table summarizes information about the options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
STOCK OPTIONS STOCK OPTIONS REMAINING
EXERCISE PRICE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE
-------------- ------------- ------------- ----------------
<C> <C> <C> <S>
$1.50 322,000 185,000 10 years
$2.00 125,000 125,000 10 years
$6.00 50,000 50,000 10 years
------- -------
497,000 360,000
======= =======
</TABLE>
NOTE 13--YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is dependent on computer processing in the conduct of its
business activities.
F-22
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 13--YEAR 2000 ISSUE (CONTINUED)
Based on the review of the computer systems, management does not believe the
cost of implementation will be material to the Company's financial position and
results of operations.
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED)
On November 1, 1999, the Company issued options to purchase 250,000 shares
of the Company's common stock to a consultant. The options are exercisable at
$1.50 per share, were immediately vested, and expire in five years from the date
of grant.
Subsequent to September 30, 1999, the Company began leasing new facilities.
The new lease calls for annual payments totaling $320,136 for the first year
with a 3.5% escalation rate each year thereafter. The lease expires on
December 31, 2004. Under the provisions of the lease, the Company is required to
deliver to the lessor a letter of credit in the amount of $240,000.
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, and expires two years from execution.
On November 12, 1999, the Company received $500,000 in bridge financing,
secured by all assets of the Company. The advance bears an interest rate of 10%
and is due and payable on or before February 15, 2000. The loan is convertible
into 250,000 shares of common stock at the lender's election. Also in connection
with this loan, the Company issued 140,000 shares of common stock to the lenders
and granted certain stock registration rights. The financing costs associated
with the issuance of the 140,000 shares amounts to $310,520.
From December 28, 1999 through February 3, 2000, the Company issued 89.5
units of its securities, each unit consisting of a $100,000 promissory note at
10%, and a five-year warrant to purchase 40,000 shares of common stock at
$1.00 per share. The notes mature and become immediately due and payable after
three months. Related to the warrants, the Company will recognize interest
expense ratably over the term of the notes. If the notes are retired early, the
remaining unamortized portion will be recognized immediately.
F-23
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM APRIL 1, 1997 (INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED.)
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Subsequent to September 30, 1999 the company negotiated a term Sheet with a
placement agent to place a minimum of $5,000,000 to a maximum of $7,000,000 of
convertible preferred stock and stock purchase warrants.
On January 14, 2000, the company borrowed $200,000 in a convertible
promissory note. The note bears interest at 10% and is secured by all of the
assets of the company. The note is convertible into 200,000 shares of common
stock and was issued in conjunction with warrants to purchase 50,000 shares of
the company's common stock at $1.00 per share. In connection with the debt, the
company will recognize finance charges equal to the excess of the market value
of the company's common stock over the conversion rate of the debt.
F-24
<PAGE>
BETWEEN 9,143,020 AND 9,745,180 SHARES OF COMMON STOCK
[LOGO]
ENTERTAINMENT BOULEVARD, INC.
---------------------
PROSPECTUS
---------------------
UNTIL [ ], 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.
[ ], 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Nevada law, Article V of the Registrant's Articles of
Incorporation provides that "no director or officer of the Corporation shall be
liable to the Corporation or to its stockholders for damages for breach of
fiduciary duty as a director or officer." Excepted from that immunity are:
(i) acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law or (ii) the payment of improper distributions.
Under certain circumstances, Nevada law provides for indemnification of the
Registrant's officers, directors, employees and agents against liabilities that
they may incur in such capacities. In general, any officer, director, employee
or agent may be indemnified against expenses, fines, settlements or judgments
arising in connection with a legal proceeding to which such person is a party,
if that person's actions were in good faith, were believed to be in the
Registrant's best interest, and were not unlawful. Unless such person is
successful upon the merits in such action, indemnification may be awarded only
after a determination by independent decision of the Board of Directors, by
legal counsel, or by a vote of the stockholders, that the applicable standard of
conduct was met by the person to be indemnified.
The circumstances under which indemnification is granted in connection with
an action brought on behalf of the Registrant is generally the same as those set
forth above; however, with respect to such actions, indemnification is granted
only with respect to expenses actually incurred in connection with the defense
or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith and in a manner believed to have been in the
Registrant's best interest, and must not have been adjudged liable for
negligence or misconduct.
Consistent with Nevada law, Article VI of the Registrant's Articles of
Incorporation, as amended, provides as follows:
"The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person against all liability
and expense (including attorneys' fees) incurred by reason of the fact that
he is or was a director or officer of the Corporation, he is or was serving
at the request of the Corporation as a director, officer, employee or agent
of, or in any similar managerial or fiduciary position of, another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation shall also indemnify any person who is serving or has served the
Corporation as a director, officer, employee or agent of the Corporation to
the extent and in the manner provided in any bylaw, resolution of the
shareholders or directors, contract, or otherwise, so long as such provision
is legally permissible."
In addition, Article VI of the Registrant's Bylaws provides as follows:
II-1
<PAGE>
"6.1 INDEMNIFICATION; ADVANCEMENT OF EXPENSES. To the fullest extent
permitted by the laws of the State of Nevada (currently set forth in NRS
78.751), as the same now exists or may hereafter be amended or supplemented,
the Corporation shall indemnify its directors and officers, including
payment of expenses as they are incurred and in advance of the final
disposition of any action, suit or proceeding. Employees, agents and other
persons may be similarly indemnified by the Corporation, including
advancement of expenses, in such case or cases and to the extent set forth
in a resolution or resolutions adopted by the Board of Directors. No
amendment of this Section shall have any effect on indemnification or
advancement of expenses relating to any event arising prior to the date of
such amendment.
6.2 INSURANCE AND OTHER FINANCIAL ARRANGEMENTS AGAINST LIABILITY OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. To the fullest extent permitted
by the laws of the State of Nevada (currently set forth in NRS 78.752), as
the same now exists or may hereafter be amended or supplemented, the
Corporation may purchase and maintain insurance and make other financial
arrangements on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, for any
liability asserted against such person and liability and expense incurred by
such person in its capacity as a director, officer, employee or agent, or
arising out of such person's status as such, whether or not the Corporation
has the authority to indemnify such person against such liability and
expenses."
The Registrant has also entered into, or intends to enter into,
indemnification agreements (the "Indemnification Agreement") with its directors
and officers providing indemnity consistent with the foregoing. The
Indemnification Agreements constitute binding agreements between the Registrant
and each of the other parties thereto, thus preventing the Registrant from
modifying its indemnification policy in a way that is adverse to any person who
is a party to an Indemnification Agreement. The Registrant has also obtained
officer and director liability insurance with respect to liabilities arising out
of certain matters, including matters arising under the Securities Act.
The foregoing is only a summary description and is qualified in its entirety
by reference to the applicable Nevada statutes.
See Part 4 of Item 28 below for information regarding the position of the
Securities and Exchange Commission with respect to the effect of any
indemnification for liabilities arising under the Securities Act of 1933, as
amended.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities offered hereby, all of which will be
paid by the Registrant.
<TABLE>
<S> <C>
SEC Registration fee......................... $ 5,878
NASD Registration fee........................ Not applicable
Printing and engraving....................... $ 25,000*
Accountants' fees and expenses............... $ 100,000*
Legal fees................................... $ 75,000*
Transfer agent's fees and expenses........... $ 1,000*
Blue Sky fees and expenses................... $ 5,000*
Miscellaneous................................ $ 5,000*
---------------
Total.................................... $ 216,878
===============
</TABLE>
- ---------------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its formation, the Registrant has issued securities to a limited
number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
Between February 24, 1998 and March 31, 1998, the Registrant privately
issued 3,700,000 shares of common stock to various investors for a total of
$37,000 in cash. The Registrant's current management has only limited
information regarding the issuances; however, it is believed that they were made
in reliance on Section 4(2) of the Securities Act of 1933 and that one of the
investors was the Registrant's sole officer and director.
On April 29, 1998, the Registrant privately issued 50,000 shares of Common
Stock to Dunn Creek Management in connection with the Registrant's acquisition
of certain mining property. The Registrant's current management has only limited
information regarding the issuance; however, it is believed that it was made in
reliance on Section 4(2) of the Securities Act of 1933 and that the investor was
sophisticated and had access to information regarding the Registrant.
In December 1998, the Registrant privately issued 2,925,000 units, each unit
consisting of one share of Common Stock, one warrant exercisable for $0.25 per
share and one warrant exercisable for $1.00 per share for one year after the
effective date of a registration statement filed by the Registrant with the
Securities and Exchange Commission. The issuance was to eleven investors for
$234,000 in cash pursuant to Rule 504 of Regulation D under the Securities Act
of 1933. In connection with the offering, a private offering memorandum was
provided to prospective investors. All 2,925,000 of the $0.25 warrants were
exercised in February 1999.
II-3
<PAGE>
On January 15, 1999, the Registrant privately issued 2,600,000 shares of
Common Stock to the 46 holders of debt or equity in International Net
Broadcasting, LLC (the "INB Holders") in return for all of their equity or debt
interests in that entity. The offering was made in reliance on Section 4(2) of
the Securities Act of 1933 in a negotiated transaction involving a Stock
Purchase Agreement which contained various representations, warranties and other
disclosures regarding the Registrant. Each investor was sophisticated and was
provided with information regarding the Registrant.
On July 1, 1999, the Registrant privately issued 25,000 shares of Common
Stock to Typhoon Capital Consultants, LLC as payment for consulting services.
The issuance was made in reliance on Section 4(2) of the Securities Act of 1933
to a sophisticated investor, the principal of which had access to information
regarding the Registrant.
On July 30, 1999, the Registrant privately issued to Venture Catalyst.com a
three-year option to purchase 50,000 shares of Common Stock at $6.00 per share.
That option was granted as partial payment for investor relations and financial
communication services. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 to a sophisticated investor, the principal of which had
access to information regarding the Registrant.
In July 1999, the Registrant privately issued to certain of the INB Holders
five-year warrants to purchase 1,900,000 shares of Common Stock at $1.00 per
share. Those warrants were granted as part of a dispute settlement with those
INB Holders. The issuances were made pursuant to Section 4(2) of the Securities
Act of 1933 to persons who were already stockholders in the Registrant (see
above). Each investor was sophisticated and was provided with information
regarding the Registrant.
On August 4, 1999, the Registrant privately issued 37,500 shares of Common
Stock to four persons. Those shares were issued in consideration of a $125,000
loan to the Registrant. The issuances were made pursuant to Section 4(2) of the
Securities Act of 1933 to sophisticated investors who had access to information
regarding the Registrant.
On August 4, 1999, the Registrant privately issued 75,000 shares of Common
Stock to Beestons Investment Ltd. Those shares were issued in consideration of a
$250,000 loan to the Registrant. The issuance was made pursuant to Section 4(2)
of the Securities Act of 1933 to an accredited investor as a prelude to a larger
investment (see below).
On September 3, 1999, the Registrant (i) privately issued 2,000 shares of
8.0% Mandatorily Convertible Series A Preferred Stock to three investors
(H.A.A. Inc., Beestons Investment Ltd. and Lowen Holdings) for $2,000,000 in
cash and (ii) agreed to issue an additional 2,000 shares of that Preferred Stock
to the investors for another $2,000,000 in cash upon the occurrence of certain
events. The offering was made pursuant to Rule 506 of Regulation D and Section
4(6) of the Securities Act of 1933 in a negotiated transaction involving a
Securities Purchase Agreement and a Registration Rights Agreement. The
purchasers of the Series A preferred stock were
II-4
<PAGE>
accredited investors with access to information regarding the Registrant. In
connection with that transaction, the Registrant entered into a Placement Agency
Agreement with Robb Peck McCooey Clearing Corporation ("Robb Peck") pursuant to
which that entity and its affiliates were granted five-year warrants to purchase
a total of 250,000 shares of the Registrant's Common Stock for $2.00 per share
and Robb Peck was paid cash in the amount of $240,000. In addition, Robb Peck
and its affiliates will be granted additional warrants to purchase a total of
250,000 shares of the Registrant's Common Stock on the same terms upon
completion of the sale of the additional shares of Series A preferred stock. The
recipients of the warrants were accredited investors with access to information
regarding the Registrant.
From January 1999 until November 1, 1999, the Registrant has granted various
employees and consultants options to purchase a total of 808,000 shares of
Common Stock under the Option Plan. These options are exercisable over five
years at prices ranging from $1.00 to $1.75 per share. The grants were made in
reliance on Rule 701 under the Securities Act of 1933 pursuant to compensatory
benefit plans and/or contracts relating to compensation. Through their
employment or consulting relationship, each option holder had access to
information regarding the Registrant.
On November 12, 1999, the Registrant privately issued 140,000 shares of
Common Stock to H.A.A. Inc. and Beestons Investment Ltd. in consideration of a
$500,000 loan to the Registrant. The loan itself is convertible into 250,000
shares of Common Stock. In connection with that transaction, Robb Peck and its
affiliates were granted five-year warrants to purchase a total of 500,000 shares
of the Registrant's Common Stock for $2.50 and $3.00 per share. The issuances
were made in reliance on Section 4(2) of the Securities Act of 1933 to investors
who were accredited and already held substantial interests in the Registrant
(see above).
From December 28, 1999 through February 3, 2000, the Registrant privately
issued 89.5 units of its securities, each unit consisting of a $100,000
promissory note and a warrant to purchase 40,000 shares of common stock at $1.00
per share. The issuances were made pursuant to Section 4(2) of the Securities
Act of 1933 to investors who were accredited and had access to information
regarding the Registrant.
On January 14, 2000, the Registrant privately issued five-year warrants to
purchase 50,000 shares of Common Stock at $1.00 per share to H.A.A. Inc. and
Forest Equities, Ltd. in consideration of a $200,000 loan to the Registrant. The
loan itself is convertible into 200,000 shares of Common Stock. The issuances
were made in reliance on Section 4(2) of the Securities Act to investors who
were accredited and had access to information regarding the Registrant.
On January 25, 2000, the Registrant and Robb Peck entered into a Termination
Agreement whereby Robb Peck agreed to terminate certain contractual rights in
return for five-year warrants to purchase 500,000 shares of the Registrant's
Common Stock for $0.50 and $3.50 per share. The warrants were granted in
reliance on Section 4(2) of the Securities Act of 1933 to persons who had access
to information
II-5
<PAGE>
regarding the Registrant and who had previously been granted warrants in the
Registrant (see above).
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- --------------------- -------------------
<C> <S>
3.1* Articles of Incorporation, as amended to date
3.2* Bylaws, as amended to date
4.1* Form of Common Stock certificate
4.2* Form of 8% Mandatorily Convertible Series A Preferred Stock
certificate
4.3* Form of Warrant issued to Farida Alikhan, Rochford Young,
Rohail Alikhan, Loretta Harty, Ray Longstaff, 531287
BC Ltd., RAK Enterprises, Oughton York Holdings,
Brunswick Ltd., Ray Alikhan and Raaheen Alikhan
4.4* Form of Warrant issued to Stephen Brown
4.5* Form of Warrant issued to various other investors
4.6* Form of Warrant issued to Robb Peck McCooey Clearing
Corporation
4.7* Form of Warrant issued to unit purchasers in private
placement on December 28, 1999
5.1 Opinion of Richman, Lawrence, Mann, Chizever & Phillips
10.1* Standard Office Lease between the Registrant and Westbrook
Marina Office, LLC dated August 18, 1999
10.2* Employment Agreement between the Registrant and Stephen
Brown dated November 1, 1999
10.3* 1999 Stock Option Plan
10.4* Form of Non-Qualified Stock Option Agreement
10.5* Form of Indemnification Agreement for the Registrant's
directors and officers
10.6* License Agreement between the Registrant and Sonique dated
as of June 3, 1999
10.7* Co-Marketing Agreement between the Registrant and
Everything LLC (d/b/a CheckOut.com) dated as of July 21,
1999
10.8* Media Search License Agreement between the Registrant and
AltaVista Company dated October 28, 1999
10.9* Affiliate Agreement between the Registrant and IFILM Corp.
dated December 22, 1999
10.10* Bolt/EBLD Agreement between the Registrant and Bolt
Media, Inc. dated as of July 26, 1999
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- --------------------- -------------------
<C> <S>
10.11* College Broadcast/Entertainment Boulevard Agreement between
the Registrant and College Broadcast, Inc. dated as of
August 4, 1999
10.12* Hosting Service Agreement between International Net
Broadcasting, LLC and Liquid Audio, Inc. dated August 31,
1998
10.13* License Agreement between International Net
Broadcasting, LLC and Marathon Sports Group, Inc. dated
October 29, 1998
10.14* Web Collocation Service Order Form between the Registrant
and Level (3) Communications dated February 8, 1999
10.15* Strategic and Co-Marketing Partnership Agreement between the
Registrant and Scour Inc. dated February 25, 1999
10.16* Video Content Management & Delivery Services Agreement
between the Registrant and InterVU dated February 8, 1999
10.17* License Agreement between the Registrant and Dimension
Music, Inc. dated as of February 25, 1999
10.18* License Agreement between the Registrant and SRN
Broadcasting & Marketing, Inc. dated March 4, 1999
10.19* Sales Agent Agreement between the Registrant and EarthLink
Network, Inc. dated March 11, 1999
10.20* Hearme.com Syndication Partner Program Agreement between the
Registrant and Mpath Interactive, Inc. dated March 18, 1999
10.21* Agreement between the Registrant and L.A. Group, Inc. dated
as of March 30, 1999
10.22* License Agreement between the Registrant and Synge.com dated
as of June 7, 1999
10.23* Strategic Alliance Agreement between the Registrant and
Digital Bitcasting Corp. dated July 23, 1999
10.24* Wall of Sound/Vidnet Agreement and addendum between the
Registrant and ABC News/Starwave Partners d/b/a ABC Internet
Ventures dated as of June 14, 1999
10.25* $125,000 Bridge Loan evidenced by promissory notes payable
to each of Steve McKeag, Richard Sandfer, John McKeag and
Dominick Guillemot
10.26* Loan and Security Agreement dated August 6, 1999 between the
Registrant and Beeston Investment Ltd.
10.27* $400,000 Promissory Note from the Registrant to Arthur Brown
and Riz Alikhan dated August 20, 1999
10.28* Stock Purchase Agreement between Sedmet Exploration, Inc.
and International Net Broadcasting, LLC dated as of
January 15, 1999
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- --------------------- -------------------
<C> <S>
10.29* Securities Purchase Agreement between the Registrant and
H.A.A. Inc., Lowen Holdings and Beestons Investment Ltd.
dated as of September 3, 1999
10.30* Placement Agency Agreement between the Registrant and Robb
Peck McCooey Clearing Corporation dated September 3, 1999
10.31* Registration Rights Agreement between the Registrant and
Robb Peck McCooey Clearing Corporation to purchase 250,000
shares of common stock dated September 3, 1999
10.32* Registration Rights Agreement between the Registrant and the
purchasers of the 8.0% Mandatorily Convertible Series A
Preferred Stock dated September 3, 1999
10.33* Settlement Agreement between the Registrant, Arthur Brown,
Akbar Alikhan, Riz Alikhan and Stephen Brown dated as of
July 14, 1999
10.34* Loan and Security Agreement dated November 12, 1999 between
the Registrant and Beestons Investment Ltd. and H.A.A. Inc.
10.35* Web Site Link Agreement between the Registrant and ICTV,
Inc. dated as of April 14, 1999, with Addendum
10.36* Webcast Distribution Agreement between the Registrant and
iBeam Broadcasting Corporation dated August 3, 1999
10.37* Content Provider Agreement dated September 8, 1999 between
the Registrant and ServiceCo, LLC dba Road Runner
10.38* ISP and Microsoft Network Credits Program Services Agreement
dated October 1, 1999
10.39* Form of Loan and Security Agreement dated December 28, 1999
between the Registrant and the Cruttenden Roth investors
10.40* Form of Subscription Agreement dated December 28, 1999
between the Registrant and the Cruttenden Roth investors
10.41* Termination Agreement dated December 28, 1999 between the
Registrant and Robb Peck McCooey Clearing Corporation
10.42* Loan and Security Agreement dated January 14, 2000 between
the Registrant and each of H.A.A. Inc. and Forest Equities,
Ltd.
21.1* Subsidiaries of the Registrant
23.1 Consent of Singer Lewak Greenbaum & Goldstein, LLP, the
Registrant's Independent Auditors
23.2 Consent of Richman, Lawrence, Mann, Chizever & Phillips
(included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-11)
27* Financial Data Schedule (electronic filing version only)
</TABLE>
- ---------------------
* Previously filed.
II-8
<PAGE>
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe it
meets all the requirements of filing on Form SB-2 and authorized this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in Los Angeles, California on
February 7, 2000.
<TABLE>
<S> <C> <C>
ENTERTAINMENT BOULEVARD, INC.
By: /s/ STEPHEN BROWN
-----------------------------------
Stephen Brown,
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND TREASURER
</TABLE>
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement, as amended, was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN BROWN President, Chief Executive
---------------------------------- Officer, Treasurer and February 7, 2000
Stephen Brown Director
/s/ ARTHUR BROWN*
---------------------------------- Director February 7, 2000
Arthur Brown
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN BROWN
-----------------------------
Stephen Brown
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen Brown his true and lawful attorney-
in-fact and agent, with full power of substitution and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits and schedules thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully ratifying and confirming all that said attorney-in-fact and agent or their
substitutes or substitute may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 23, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ ARTHUR BROWN
---------------------------------- Director
Arthur Brown
</TABLE>
II-11
<PAGE>
EXHIBIT 5.1
[Richman Lawrence Letterhead]
February 7, 2000
Entertainment Boulevard, Inc.
12910 Culver Boulevard, Suite I
Los Angeles, California 90066
Gentlemen:
We have acted as counsel to Entertainment Boulevard, Inc., a Nevada
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act") of between 9,143,020 and
9,745,180 shares of the Company's common stock, $0.001 par value per share (the
"Common Stock"), which includes (1) 252,500 shares of the Common Stock currently
outstanding, (2) 6,376,000 shares of the Common Stock issuable upon exercise of
outstanding warrants (the "Warrant Shares"), (3) between 2,064,520 and 2,666,680
shares of Common Stock issuable upon the conversion of the 8% Mandatorily
Convertible Series A Preferred Stock (the "Preferred Stock Shares"), and (4)
450,000 shares of the Common Stock issuable upon conversion of certain
convertible notes (the "Note Shares"). This opinion is delivered to you in
accordance with the requirements of Item 601(b)(5) of Regulation S-B under the
1933 Act in connection with the Registration Statement on Form SB-2,
Registration Number 333-91825, including all pre-effective and post-effective
amendments thereto (the "Registration Statement") for the resale of the Common
Stock, filed with the Securities and Exchange (the "Commission") under the 1933
Act.
In rendering the opinions set forth herein, we have relied only upon the
Registration Statement and the proceedings of the Board of Directors of the
Company relating to the issuance of the Common Stock. We have not undertaken,
nor do we intend to undertake, any independent investigation beyond such
documents or to verify the adequacy or accuracy of same. In rendering this
opinion, we have assumed the genuineness of all signatures on original
documents, the authenticity, accuracy and completeness of all documents
submitted to us as originals and the conformity with originals documents
submitted to us as copies.
Based upon the foregoing, we are of the opinion that:
1. All of the shares of Common Stock currently outstanding have
been duly authorized and are validly issued, fully paid and
non-assessable;
2. The Warrant Shares have been duly authorized and, upon exercise
of the warrants and the payment of the exercise price in
accordance with the terms of the
<PAGE>
applicable warrants, the Warrant Shares will be validly issued,
fully paid and non-assessable;
3. The Note Shares have been duly authorized and, upon conversion
of the notes and the payment of the conversion price in
accordance with the terms of the applicable notes, the Note
Shares will be validly issued, fully paid and non-assessable;
and
4. The Preferred Stock Shares have been duly authorized and, upon
conversion of the preferred stock and the payment of the
conversion price in accordance with the terms of the preferred
stock, the Preferred Stock Shares will be validly issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations thereunder.
Very truly yours,
/s/ Richman, Lawrence, Mann, Chizever & Phillips
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated July 16, 1999, accompanying the financial
statements of Entertainment Boulevard, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 7, 2000
