<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from__________to____________.
Commission file number 000-28327
ENTERTAINMENT BOULEVARD, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 980182797
----------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12910 Culver Boulevard, Suite I, Los Angeles, California 90066
(Address of principal executive offices)
(310) 578-5404
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for at least the past
90 days.
Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 15, 2000, there were 23,650,362 shares of common stock, $0.001 par
value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
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Entertainment Boulevard, Inc.
INDEX
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<CAPTION>
ITEM PAGE NO.
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PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at December 31, 1999 and
March 31, 2000 3
Condensed Consolidated Statements of Operations for the Period from
April 1, 1997 to March 31, 2000 and for the Three Months Ended
March 31, 2000 and March 31, 1999 5
Condensed Consolidated Statements of Cash Flows for the Period from
April 1, 1997 to March 31, 2000 and for the Three Months Ended
March 31, 2000 and March 31, 1999 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,548,180 $ 429,408
Accounts receivable 72,884 222,324
Debt issuance proceeds receivable 306,000 -
Subscriptions receivable 877,470 -
Prepaid expenses 178,697 8,496
Deferred license fees 6,395,254 -
--------------- ----------------
Total current assets 11,378,445 660,228
NOTE RECEIVABLE - RELATED PARTY 400,000 400,000
ADVANCES 850,202 -
FURNITURE AND EQUIPMENT, net 1,517,953 419,549
DEPOSITS 162,956 26,700
DEBT ISSUANCE COSTS, net 27,318 110,000
DEFERRED FINANCING COSTS 157,013 1,735,583
--------------- ----------------
TOTAL ASSETS $14,493,887 $3,352,060
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND MARCH 31, 2000 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
2000 1999
----------- ------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $ 640,000 $1,854,095
Note payable - related party 400,000 400,000
Convertible notes - 500,000
Accounts payable 1,437,897 589,241
Accrued liabilities 78,674 299,401
Deferred revenue - 67,000
--------------- ----------------
Total current liabilities 2,556,571 3,709,737
--------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Series A preferred stock, $0.01 par value
1,000,000 shares authorized
0 (unaudited) and 2,000 shares issued and outstanding - 20
Common stock, $0.001 par value
50,000,000 shares authorized
22,282,410 (unaudited) and 12,477,500 shares issued
and outstanding 22,282 12,478
Deferred compensation (198,740) (252,685)
Additional paid-in capital 81,420,947 14,899,249
Deficit accumulated during the development stage (69,307,173) (15,016,739)
--------------- ----------------
Total stockholders' deficit 11,937,316 (357,677)
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $14,493,887 $3,352,060
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1997
(INCEPTION) TO MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
For the
Period from
For the April 1,
Three Months Ended 1997
March 31, (Inception) to
------------------------------------- March 31,
2000 1999 2000
----------------- ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUE $ 165,021 $ - $ 433,060
OPERATING EXPENSES 5,657,653 930,152 14,769,254
----------------- ------------------ ------------------
LOSS FROM OPERATIONS (5,492,632) (930,152) (14,336,194)
----------------- ------------------ ------------------
OTHER EXPENSE
Interest expense, net 164,048 8,557 222,242
Financing costs 35,525,500 4,597,000 41,640,737
----------------- ------------------ ------------------
Total other expense 35,689,548 4,605,557 41,862,979
----------------- ------------------ ------------------
NET LOSS (41,182,180) (5,535,709) (56,199,173)
PREFERRED STOCK DIVIDENDS 13,108,000 - 13,108,000
----------------- ------------------ ------------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $(54,290,180) $(5,535,709) $ (69,307,173)
================= ================== ==================
BASIC AND DILUTED LOSS AVAILABLE TO COMMON
STOCKHOLDERS PER SHARE $ (3.64) $ (0.53) $ (9.21)
================= ================== ==================
WEIGHTED-AVERAGE SHARES OUTSTANDING 14,917,623 10,354,856 7,515,004
================= ================== ==================
The accompanying notes are an integral part of these financial statements.
5
</TABLE>
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1997
(INCEPTION) TO MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
April 1,
For the 1997
Three Months Ended (Inception) to
March 31, March 31,
2000 1999 2000
----------------- ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (41,182,180) $ (5,535,709) $ (56,198,919)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 122,845 7,880 216,919
Other non-cash charges 2,620,682 - 2,485,682
Stock options and warrants issued for
compensation 53,945 62,107 2,213,803
Financing charges 35,525,500 4,597,000 41,640,237
Stock options issued to vendors - - 578,750
Stock issued to vendors 660,000 - 713,125
(Increase) decrease in operating assets (176,977) 121,141 (434,497)
Increase (decrease) in operating liabilities 561,439 - 1,517,081
----------------- ------------------ ------------------
Net cash used in operating activities (1,815,246) (747,581) (7,267,819)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (1,221,259) (25,544) (1,709,912)
Purchase of license agreement (300,000) - (300,000)
Unsecured advances (850,202) - (850,202)
----------------- ------------------ ------------------
Net cash used in investing activities (2,371,461) (25,544) (2,860,114)
----------------- ------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1997
(INCEPTION) TO MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
April 1,
For the 1997
Three Months Ended (Inception) to
March 31, March 31,
2000 1999 2000
(unaudited) (unaudited) (unaudited)
----------------- ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt $ 9,659,000 $ - $ 12,641,875
Payments on short-term debt (854,095) - (1,509,095)
Proceeds from long-term borrowings - - 878,518
Capital contributions - - 621,600
Proceeds from private placement 1,122,530 - 3,390,705
Proceeds from execution of warrants - 731,250 731,250
Debt issuance costs (1,301,500) - (1,301,500)
Offering costs (1,320,456) (106,575) (1,777,240)
----------------- ------------------ ------------------
Net cash provided by financing activities 7,305,479 684,675 13,676,113
----------------- ------------------ ------------------
Net increase (decrease) in cash 3,118,772 (148,450) 3,548,180
CASH, BEGINNING OF PERIOD 429,408 200,072 -
----------------- ------------------ ------------------
CASH, END OF PERIOD $ 3,548,180 $ 51,622 $ 3,548,180
================= ================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 17,172 $ - $ 21,338
================= ================== ==================
INCOME TAXES PAID $ - $ - $ -
================= ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared by Entertainment Boulevard, Inc. and subsidiary, dba Vidnet
(collectively, the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally present
in annual consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The results of the three months ended March
31, 2000 are not necessarily indicative of the results to be expected
for the full year ending December 31, 2000.
NOTE 2 - GOING CONCERN ISSUES
The Company has received a report from its independent auditors that
includes an explanatory paragraph describing the Company's uncertainty
to continue as a going concern. These consolidated financial statements
contemplate the ability to continue as such and do not include any
adjustments that might result from this uncertainty.
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. 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.
8
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
The Company utilizes 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.
NOTE 4 - ADVANCES
During the three months ended March 31, 2000, the Company made
unsecured advances to an unrelated, digital production company. The
advances are due on demand. As of March 31, 2000, these advances
totaled $850,202. Subsequent to March 31, 2000, the Company entered
into negotiations to acquire the digital production company.
NOTE 5 - LICENSE AGREEMENTS
During the three months ended March 31, 2000, the Company entered
into a one-year license agreement with Virgin Holdings, Inc.
Pursuant to the agreement, the Company issued 678,685 shares of
common stock valued at $2,456,840 and paid $300,000 in cash. The
agreement also calls for the payment of a share of the gross
receipts derived from the Company's websites. In exchange for this
consideration, the Company received the rights to broadcast certain
videos on the Company's websites. The agreement is renewable by
Virgin Holdings, Inc. for additional one-year periods.
During the three months ended March 31, 2000, the Company entered
into a one-year license agreement with Sony Music for the rights to
broadcast certain music videos on the Company's websites. The
Company was required to pay $225,000 in cash and 678,875 shares of
the Company's common stock valued at $4,708,038. The agreement
provides for licensing fees equal to a portion of the gross revenues
received by the Company in connection with the licensed material.
Related to these two agreements, the Company has capitalized $6,395,254
in deferred license fees and charged $1,069,624 to operations.
9
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 6 - SHORT-TERM DEBT
As of March 31, 2000 and December 31, 1999, the Company has received
advances from various investors through short-term, unsecured debt
instruments. The advances bear interest at 10% and are generally due
within one year of the original advance date. Balances on these
short-term advances were paid in full (unaudited) at March 31,
2000.
During the three months ended March 31, 1999, the Company issued
$9,765,000 of short-term, secured promissory notes. The notes bear
interest at 10% per annum and are secured by substantially all of the
assets of the Company. The notes included detachable stock purchase
warrants for 3,906,000 shares of common stock, which were immediately
exercisable at $1 per share and expire in five years. Related to the
warrants, the Company recorded deferred financing costs of $7,187,040,
which represents the fair market value of the warrants. In accordance
with generally accepted accounting principles, this discount is being
amortized over the term of the debt.
On March 15, 2000, the Company offered holders of its 90-day, 10%,
unsecured notes the opportunity to exchange their notes for common
stock at an exchange rate of $2 per share. In addition, the note
holders were to receive 20,000 stock purchase warrants for each
$100,000 of debt. The warrants are exercisable at $4 per share and have
a five-year term. Because the exchange rate was beneficial to the note
holders, the Company recognized the intrinsic value of the exchange
feature as financing costs of $22,984,000. Further, the Company
recognized the fair market value of the warrants as additional
financing costs of $2,020,890. In connection with the exchange offer,
holders of short-term debt totaling $9,875,000, plus accrued interest,
exercised the option and exchanged their notes for 5,005,087 shares of
common stock and received 1,975,000 warrants After the exchange, the
Company had total balances outstanding on these notes of $640,000.
In connection with the above offer to exchange notes for stock,
additional holders of notes aggregating $250,000 were also extended the
same offer. Related to their notes, the Company recognized $554,000 of
financing costs due to the beneficial exchange feature and $46,500 on
the warrants. These notes were converted into 128,438 shares of common
stock on March 15, 2000 and received 50,000 warrants at $4 per share.
Because of the early retirement of these notes, the Company wrote off
related additional deferred financing costs and recognized amortization
aggregating to $8,765,610. Deferred financing costs capitalized at
March 31, 1999 were $157,013.
10
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 7 - CONVERTIBLE NOTES
On November 12, 1999, the Company issued $500,000 of short-term bridge
notes that were convertible at $2 per share into the Company's common
stock. These notes and accrued interest of $8,542 were converted into
258,542 shares of common stock during the three months ended March 31,
2000. Additionally, the note holders received warrants to purchase
250,000 shares of common stock at $2.50 per share and 250,000 shares of
common stock at $3 per share. The warrants were immediately exercisable
and expire in five years. Related to these warrants, the Company
amortized financing costs of $416,250 during the three months ended
March 31, 2000.
On January 14, 2000, the Company issued a $200,000 convertible
promissory note. The note bears interest at 10% per annum and was due
in 60 days. On March 15, 2000, the note plus accrued interest of
$203,389 was converted into 203,389 shares of common stock. Related to
this conversion feature of the note, the Company recognized financing
costs of $1,081,000. In connection with this note, the Company issued
50,000 warrants, which are exercisable at $1 per share. Financing costs
recognized related to these warrants were $73,500.
NOTE 8 - STOCKHOLDERS' DEFICIT
SERIES A PREFERRED STOCK
On March 15, 1999, the Company sold 2,000 shares of its Series A, $0.01
par value, convertible preferred stock for $1,000 per share, net of
issuance costs of $245,060, which consisted of lawyers' fees and
placement agent fees. In connection with these sales, the Company
recorded stock subscriptions receivable of $877,470. In connection with
the offering, a warrant for the purchase of 250,000 shares of the
Company's common stock was issued to the placement agent. The warrant
is exercisable on September 3, 2000 at $2 per share and expires on
September 2, 2004.
Immediately following the issuance of the preferred stock, the Company
converted 4,000 shares of its Series A preferred stock, plus accrued
dividends, into 2,723,647 shares of common stock. Since the conversion
was significantly below the trading price of the Company's common
stock, the Company recognized a preferred dividend of $13,108,000,
which is reflected as a reduction in net income available to common
stockholders.
11
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ENTERTAINMENT BOULEVARD, INC. AND SUBSIDIARY,
DBA VIDNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 9 - STOCK OPTIONS AND WARRANTS
STOCK PURCHASE WARRANTS
During the three months ended March 31, 2000, the Company issued
warrants to purchase 500,000 shares of its common stock to a placement
agent as a fee for the termination of certain of its rights under a
placement agreement. Of these 500,000 warrants, 250,000 are exercisable
on March 31, 2000 at $0.50 per share and expire in five years. The
remaining 250,000 warrants are exercisable on March 31, 2000 at $3.50
per share and also expire in five years. The Company recognized
$660,000 in termination fees related to the issuance of these warrants.
NOTE 10 - SUBSEQUENT EVENTS
On April 4, 2000, an officer of the Company exercised his warrant to
purchase 1,325,000 shares of common stock. The exercise was performed
on a cashless basis, whereby the Company issued 1,030,556 shares of
common stock in exchange for the warrant. Related to this exercise,
the Company expects to record a charge of $800,000 in the second
quarter of 2000.
During April 2000, the Company collected debt issuance proceeds
receivable and subscriptions receivable of $306,000 and $877,470,
respectively.
Subsequent to March 31, 2000, the Company advanced $450,000 to an
officer of the Company under a promissory note.
Subsequent to March 31, 2000, the Company entered into negotiations to
acquire the digital production company to which it had previously
extended unsecured advances.
In April 2000 the company executed an employment agreement with its
Chief Executive Officer. The agreement requires annual payments of
$350,000 and 3,000,000 warrants exercisable at $2.75 per share. The
Company does not expect to incur significant costs related to these
warrants as the exercise price approximated the fair market value of
the company's stock at the date of issue.
During May 2000 the company entered into an employment agreement
with its Chief Financial Officer. The agreement requires monthly
payments of $12,500 and 300,000 warrants exerciseable at $1.38 per
share. The Company does not expect to incur significant costs related
to these warrants as the exercise price approximated the fair market
value of the company's stock at the date of issue.
Subsequent to March 31, 2000, the company advanced $185,000 to an
officer of the Company against all future compensation.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company has included in this filing certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning the Company's business, operations and financial condition. The
words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimates", "projects", and similar words and phrases are intended to
identify such forward-looking statements. Such forward-looking statements are
subject to various known and unknown risks and uncertainties, and the Company
cautions you that any forward-looking information provided by or on behalf of
the Company is not a guarantee of future performance. Actual results could
differ materially from those anticipated in such forward-looking statements
due to a number of factors, some of which are beyond the Company's control,
in addition to those discussed in the Company's other public filings, press
releases and statements by the Company's management, including: (i) the
volatile and competitive nature of the Internet and entertainment industries,
(ii) changes in domestic and foreign economic and market conditions, (iii)
the effect of federal, state and foreign regulation on the Company's
business, (iv) failure of the Company, its vendors or other third parties to
achieve Year 2000 compliance and (v) the effect of any future acquisitions.
All such forward-looking statements are current only as of the date on which
such statements were made. The Company does not undertake any obligation to
publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to
reflect the occurrence of unanticipated events.
The Company's fiscal year ends on December 31 of each calendar year.
RECENT EVENTS
Business Related
During the three months ended March 31, 2000, the Company made unsecured
advances to an unrelated, digital production company. The advances are due on
demand. As of March 31, 2000, these advances totaled $850,202. Subsequent to
March 31, 2000, the Company entered into negotiations to acquire the digital
production company.
In April 2000, the Company entered into an employment agreement with it's
Chief Executive Officer, Stephen Brown. The agreement calls for annual
payments of $350,000 and 3,000,000 warrants to purchase shares of the
Company's common stock at $2.75 per share. The agreement provides for a three
year term. The agreement is terminable with cause by the Company and Mr.
Brown. In the event that the Company terminates Mr. Brown without cause prior
to the expiration of the three year term, the Company is obligated to pay Mr.
Brown his annual compensation for the remainder of the term.
On May 10, 2000, the Company entered into an employment agreement with it's
Chief Financial Officer, Paul Mattoon. The agreement calls for monthly
payments of $12,500 and 300,000 warrants to purchase shares of the Company's
common stock at $1.38 per share. The agreement is terminable with 30 days
written notice from either party.
Both employment agreements provide that the employees may not participate in
any activities which may interfere with the employee's duties to the Company
and/or which are competitive with the Company's activities.
Related Transactions
On April 26, 2000, the Company loaned it's Chief Executive Officer $450,000
pursuant to a 30 day promissory note bearing interest at 8% per annum. The note
is secured by all of the stock holdings of the Chief Executive Officer.
On May 12, 2000, the Company advanced to it's Chief Executive Officer $185,000
against all future compensation owed by the Company.
Finance Related
On January 14, 2000, the Company raised $200,000 with a convertible promissory
note bearing interest at 10% per annum and five year warrants to purchase 50,000
shares of the Company's common stock at $1 per share. On March 15, 2000 the note
plus accrued interest of $3,389 converted into 203,389 shares of common stock.
On January 28, 2000, the Company raised $9,765,000 in promissory notes due 90
days from issuance, bearing interest at 10% per annum, and five year warrants
to purchase 40,000 shares of common stock at $1 per share for each $100,000
note. Outstanding promissory notes totaling $750,000 at December 31, 1999
rolled into the financing on January 28, 2000 increasing the total of the
debt outstanding to $10,515,000. The Company issued
13
<PAGE>
4,206,000 warrants to purchase common stock at $1 per share in connection
with the financing. On March 16, 2000 $9,875,000 of the outstanding debt plus
accrued interest converted into 5,005,087 shares of common stock and
1,975,000 warrants to purchase shares of the Company's common stock at $4 per
share. The remaining $640,000 in promissory notes and accrued interest of
$16,000 was paid off in cash on April 28, 2000.
On March 15, 2000, a note payable outstanding at December 31, 1999 in the
amount of $250,000 plus accrued interest of $6,875 converted into 128,438
shares of common stock and 50,000 warrants to purchase shares of the
Company's common stock at $4 per share.
On March 15, 2000, notes payable outstanding at December 31, 1999 in the
amount of $500,000 plus accrued interest of $17,084 converted into 258,542
shares of common stock.
OVERVIEW
Entertainment Boulevard is an Internet broadcasting company that provides video
entertainment in an on-line, on-demand environment. The Company's current
content library includes music videos, live concert events, archived concert
events, movie trailers, extreme sports clips, interview clips, netfomercials and
other special events and programming. The Company also provides video encoding
services to third-party companies and also hosts videos for a number of third
party Internet sites through the use of a co-branded pop-up player. The on-line
on-demand video entertainment is delivered on the Internet primarily at
WWW.VIDNET.COM.
The Company was incorporated in December 1997. Prior to February 2, 1999, we
operated under the name Sedmet Exploration Inc. and acquired certain mining
rights in Tooele County, Utah. We currently operate a web site at WWW.VIDNET.COM
through our wholly-owned subsidiary, International Net Broadcasting, which we
acquired in January 1999.
RESULTS OF OPERATIONS
Revenues:
Revenues during the three months ended March 31, 2000 were $165,021 increasing
from $0 for the three months ending March 31, 1999. The increase in net revenues
was attributable to advertising revenues and web development revenues.
Advertising Revenues
Advertising revenues during the three months ended March 31, 2000 were $97,360
increasing from $0 for the three months ending March 31, 1999. The Company
increased advertising revenues primarily by increasing the inventory of
impressions and unique users on the Company's web site.
Web Site Development Revenues
Web site development revenues during the three months ended March 31, 2000 were
$67,661 increasing from $0 for the three months ending March 31, 1999. Web
development revenues increased due to work performed on a third party web-site
development. The Company does not expect to generate any significant revenues in
the future from web site development.
Operating Expenses
General and Administrative Expenses
General and administrative expenses during the three months ended March 31,
2000 were $967,798. Payroll & payroll related expenses were $511,469,
web-site related expenses were $263,570 and rents on our facility were
$103,417.
Sales and Marketing Expenses
Sales and marketing expenses during the three months ended March 31, 2000
were $1,491,591 increasing from $0 for the three months ending March 31,
1999. Sales and marketing expenses increased as a result the cost to acquire
new users on the Vidnet.com web-site. Costs included web advertising, radio
advertising, print advertising, live events, sponsorships and conferences. We
expect sales and marketing expenses to increase in absolute dollars as we
pursue additional marketing campaigns and build an in-house sales and
marketing team.
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Other operating expenses during the three months ended March 31, 2000 were
$1,113,374 increasing from $0 for the three months ended March 31, 1999. The
expense related to license fees for web site content.
Depreciation and Amortization expenses
Depreciation and amortization expense during the three months ended March 31,
2000 were $1,487,027 increasing from $7,880 for the three months ended March
31, 1999. $122,845 related to depreciation of furniture and equipment and
$1,364,182 of amortized loan fees related to financing during the period.
Interest Expense. Net interest expense, net consists of interest earned on cash
and cash equivalents and short-term investments, offset by interest expense on
borrowings. Net interest expense during the three months ended March 31, 2000
were $164,408 increasing from $8,557 for the three months ending March 31, 1999.
Financing Costs
Financing costs during the three months ended March 31, 2000 of $35,525,500
increasing from $0 during the three months ended March 31, 1999, consisted
primarily of $25,734,000 from the conversion of debt financing into the
Company's common stock and $9,143,917 related to warrants issued in
connection with financings during the period.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through loans and
private sales of our equity securities. As of March 31, 2000, we had on hand
approximately $3,548,180 in cash, cash equivalents and short-term investments.
We have in place a $1 million line of credit but we currently have not drawn on
the balance at this time.
For the three months ended March 31, 2000, operating activities used net cash
of approximately $1,815,246, primarily from a net loss from operations of
approximately $41,182,180 which was partially offset by depreciation and
amortization of $122,845 other non-cash charges of $2,620,682, stock options
and warrants issued for compensation of $53,945, financing charges of
$35,525,000 and stock issued to vendors of $660,000.
For the three months ended March 31, 2000, investing activities used net cash of
approximately $2,371,461, primarily from the purchase of furniture and equipment
of $1,221,259, the funding of a license agreement for $300,000 and unsecured
advances to a digital production company of $850,202.
In addition, financing activities provided net cash of approximately
$7,305,479, primarily from the proceeds from the placement of short-term debt
and the sale of equity securities which totaled approximately $10,781,530.
This was partially offset by payments on short-term debt and offering costs
which totaled approximately $3,477,051.
RISKS THAT MAY AFFECT RESULTS
We have experienced a substantial increase in our content acquisition costs,
marketing costs, capital expenditures, compensation expenses and other operating
costs. We expect that our present cash balance and revenues from operations will
not be sufficient to meet our anticipated needs for working capital and capital
expenditures.
OUR ABILITY TO CONTINUE THE OPERATIONS OF THE COMPANY WILL DEPEND ON OUR ABILITY
TO RAISE ADDITIONAL CAPITAL IN THE NEXT 60 DAYS.
We will need to raise additional funds to:
- - Continue the operations of the Company
- - Be prepared for unanticipated opportunities including:
- The development of an in-house advertising sales team;
- The acquisition of complementary businesses; and
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- The development of new products;
- - To 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 The Company, 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.
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 upon our ability to obtain meaningful advertising and sponsorship
revenues, our ability to develop our encoding solutions business and to generate
significant encoding contracts and alliances and our ability to develop an
in-house e-commerce store and generate sales in that endeavor. To date, the
Company has not generated significant revenues 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 which rely on Internet advertising and
promotions and are involved with rapidly evolving technologies such as encoding
solutions and 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. We
believe that our future Internet commerce and advertising revenue depends
largely on increasing the Vidnet.com audience.
We have recently begun to market our services to derive revenues by encoding
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.
We have incurred significant net losses and negative cash flows from operations
since our inception. As of March 31, 2000, we had an accumulated deficit of
approximately $69,873,626. 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
16
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and negative cash flows from operations for the foreseeable future, and that
such losses and negative cash flows will increase for at least the next year. To
achieve profitability, we need to increase the size of our audience and our
revenues from advertising, encoding services and e-commerce sales.
YEAR 2000 COMPLIANCE
The Company has completed a comprehensive review of its computer
systems to identify the systems that could be affected by ongoing Year 2000
problems. Upgrades to systems judged critical to business operations have
been successfully installed. To date, no significant costs have been incurred
in the Company's systems related to the Year 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
On March 15, 2000, the Company through its placement agent Roth
Capital Partners, offered holders of its 10% promissory notes the opportunity
to convert their notes into shares of common stock and warrants. The
conversion rate for the common stock was one share of common stock for every
$2.00 of debt. The conversion rate for the warrants was one warrant to
purchase 20,000 shares of common stock for every $100,000 of debt. The
warrants have an exercise price of $4.00 per share and a five year term. In
connection with the offer, holders of a total of $10,125,000 of debt, plus
accrued interest elected to convert. As a result of the conversion, the
Company issued a total of 5,133,525 shares of common stock and warrants to
purchase 2,025,000 shares of common stock. The Company paid a 10% cash
commission, or $1,012,500, to Roth on the total amount of debt that
converted. The issuance of common stock and warrants upon conversion was
exempt from the registration provisions of the Securities Act of 1933, as
amended (the "Act") pursuant to Section 4(2) thereof.
On March 15, 2000, the holder of the Company's convertible
promissory note originally issued in January 2000, elected to convert the
note plus accrued interest, $203,389, into 203,389 shares of common stock. No
commission or other remuneration was paid or given in connection with the
election to convert. The conversion was exempt from the registration
provisions of the Act pursuant to Section 3(a)(9) and Section 4(2) thereof.
During the first quarter, holders of the Company's convertible
promissory notes originally issued in November 1999, elected to convert the
notes totaling $500,000 plus interest into 258,542 shares of common stock.
The conversion rate for the common stock was one share of common stock for
$2.00 of debt. No commission or other remuneration was paid or given in
connection with the election to convert. The conversion was exempt from the
registration provisions of the Act pursuant to Section 3(a)(9) and Section
4(2) thereof.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(b) EXHIBITS:
(10.1) Employment Agreement between Entertainment Boulevard, Inc.
and Stephen Brown dated April 11, 2000.
(10.2) Employment Agreement between Entertainment Boulevard, Inc.
and Paul C. Mattoon dated May 10, 2000.
(27) Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 22, 2000 By: /s/ PAUL C. MATTOON
----------------------------------------
Paul C. Mattoon, Chief Financial Officer
17
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EXHIBIT INDEX
-------------
10.1 Employment Agreement between Entertainment Boulevard, Inc. and
Stephen Brown dated April 11, 2000.
10.2 Employment Agreement between Entertainment Boulevard, Inc. and Paul
C. Mattoon dated May 10, 2000.
27.1 Financial Data Schedule
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 11th
day of April, 2000, by and between ENTERTAINMENT BOULEVARD, INC. ("Company"), a
Nevada corporation, and STEPHEN BROWN ("Employee"), with reference to the
following facts:
WHEREAS, Company wishes to continue to employ Employee as a full-time
employee of Company, and Employee wishes to accept such employment, upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions and the mutual
agreements and covenants set forth herein, the parties hereto agree as follows:
1. SCOPE OF EMPLOYMENT; TERMINATION OF PRIOR AGREEMENT.
1.1 CAPACITY. Company hereby agrees to continue to employ Employee,
and Employee hereby accepts such employment, as President and Chief Executive
Officer of Company during the term of this Agreement. Employee shall report to
the Board of Directors of Company and perform the services and duties
customarily incident to such office and as otherwise decided upon by the Board
of Directors.
1.2 DEVOTION OF SERVICES. Employee shall be a full-time employee of
Company during the term of this Agreement. Employee shall not participate in any
activities which may interfere with his duties hereunder and/or which are
competitive with Employer's activities. Employee shall perform and discharge
well and faithfully those duties assigned him by Company.
1.3 PRIOR AGREEMENT. This Agreement supersedes that certain Employment
Agreement entered into on November 1, 1999, between Company and Employee ("Prior
Employment Agreement") and the parties hereby agree that the Prior Employment
Agreement is hereby terminated.
2. TERM. Subject to Section 6 herein, the term of this Agreement shall
commence as of April 11, 2000, and shall continue and remain in full force and
effect for a period of three (3) years. However, in the event that Company
thereafter continues to employ Employee, this Agreement shall be deemed
automatically renewed upon the same terms and conditions set forth herein except
(a) that the parties may mutually agree to revise any of the terms set forth
herein, and (b) the employment relationship will be on an "at will" basis, which
means that, subject to Section 6.4 herein, either Company or Employee may elect
to terminate the employment relationship at any time for any reason whatsoever,
with or without cause. Employee acknowledges that no representation has been
made by Company as to any minimum or specified term or length of employment
following the term set forth above.
<PAGE>
3. COMPENSATION.
3.1 SALARY AND BONUS. In consideration of the services to be rendered
by Employee hereunder, including without limitation any services rendered as an
officer or director of Company or any subsidiary or affiliate thereof, during
the term of this Agreement Company shall pay to Employee the following:
(a) A salary in the amount of $350,000.00 per annum. The Board of
Directors may, at its sole and absolute discretion, increase Employee's salary;
provided, however, Employee's annual salary shall be increased at the end of
each twelve (12) month period by at least 15% over the previous year.
(b) The Company's Board of Directors may, but shall not be obligated
to, award bonuses to Employee based upon his performance and the Company's
profitability.
(c) All payments to Employee shall be subject to the regular
withholding requirements of all appropriate governmental taxing authorities.
3.2 OTHER BENEFITS. Employee shall be entitled to participate in any
medical and insurance plan which Company is presently providing or may provide
to its senior executives. Employee acknowledges that the terms of such plans may
change from time to time.
3.3 EXPENSES. Company will advance to or reimburse Employee for all
reasonable travel and entertainment required by Company and other reasonable
expenses incurred by Employee in connection with the performance of his services
under this Agreement in accordance with Company policy as established from time
to time. In addition, Employee shall receive an automobile lease allowance of
$1,500.00 per month and, in addition, Company shall pay for gas, maintenance and
repairs of said automobile.
4. INVENTIONS.
4.1 RIGHT TO INVENTIONS. Employee agrees that any discoveries,
inventions or improvements of whatever nature (collectively "Inventions") made
or conceived by Employee, solely or jointly with others, during the term of his
employment with Company, that relate, at the time of conception of or reduction
to practice, to the business of Company or Company's actual or demonstrably
anticipated research or development; or that result from any work performed by
Employee for Company, shall belong to Company. Employee also agrees that Company
shall have the right to keep any such Inventions as trade secrets, if Company so
chooses.
4.2 ASSIGNMENT OF INVENTIONS AND PATENTS. In furtherance of, and not
in contravention, limitation and/or in place of, the provisions of Section 4.1
above, Company hereby notifies Employee of California Labor Code Section 2870,
which provides:
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<PAGE>
"Any provision in an employment agreement which provides that
an employee shall assign or offer to assign any of his or her rights in
an invention to his or her employer shall not apply to an invention for
which no equipment, supplies, facility, or trade secret information of
the employer was used and which was developed entirely on the
employee's own time, and (a) which does not relate (1) directly or
indirectly to the business of the employer or (2) to the employer's
actual or demonstrably anticipated research or development, or (b)
which does not result from any work performed by the employee for the
employer. Any provision which purports to apply to such an invention is
to that extent against the public policy of this state and is to that
extent void and unenforceable."
Employee acknowledges that he has been notified by the Company of this law,
and understands that this Agreement does not apply to Inventions which are
otherwise fully protected under the provisions of said Labor Code Section 2870.
Therefore, Employee agrees to promptly disclose in writing to the Company all
Inventions, whether Employee personally considers them patentable or not, which
Employee alone, or with others, conceives or makes during his employment with
Company or as is otherwise required and set forth under Section 4.1 above.
Company shall hold said information in strict confidence to determine the
applicability of California Labor Code Section 2870 to said Invention and, to
the extent said Section 2870 does not apply, Employee hereby assigns and agrees
to assign all his right, title and interest in and to those Inventions which
relate to business of the Company and Employee agrees not to disclose any of
these Inventions to others without the prior written express consent of Company.
Employee agrees to notify Company in writing prior to making any disclosure or
performing any work during the term of his employment with Company which may
conflict with any proprietary rights or technical know-how claimed by Employee
as his property. In the event Employee fails to give Company notice of such
conflict, Employee agrees that Employee shall have no further right or claim
with respect to any such conflicting proprietary rights or technical know-how.
5. CONFIDENTIALITY.
5.1 RESTRICTIONS ON USE OF TRADE SECRETS AND RECORDS. During the term
of his employment, Employee will have access to and become acquainted with
various trade secrets of Company, consisting of formulas, patterns, devices,
secret Inventions, processes, compilations of information, records and
specifications (collectively "Trade Secrets"), all of which are owned by Company
and used in the operation of Company's business. Additionally, Employee will
have access to and may become acquainted with various files, records, customer
lists, documents, drawings, specifications, equipment and similar items relating
to the business of Company (collectively "Confidential Information"). All such
Trade Secrets and Confidential Information, whether they are designed, conceived
or prepared by Employee or come into Employee's possession or knowledge in any
other way, are and shall remain the exclusive property of Company and shall not
be removed from the premises of Company under any circumstances whatsoever
without the prior written consent of Company. Employee promises and agrees that
he will not use for himself or for others, or divulge or disclose to any other
person or entity, directly or indirectly, either during
3
<PAGE>
the term of his employment by Company or at any time thereafter, for his own
benefit or for the benefit of any other person or entity or for any reason
whatsoever, any of the Trade Secrets or Confidential Information described
herein, which he may conceive, develop, obtain or learn about during or as a
result of his employment by Company unless specifically authorized to do so in
writing by Company.
5.2 NON-INTERFERENCE. Employee recognizes that Company has invested
substantial effort in assembling its present employees and in developing its
customer base. As a result, and particularly because of Company's many types of
confidential business information, Employee understands that any solicitation of
a customer or employee of Company, in an effort to get them to change business
affiliations, would presumably involve a misuse of Company's confidences, Trade
Secrets and Confidential Information. Employee therefore agrees that, for a
period of one (1) year from the later of the date of termination of Employee's
employment with Company for any reason whatsoever or the receipt by Employee of
any compensation paid to Employee by Company, Employee will not influence, or
attempt to influence, existing employees or customers of Company in an attempt
to divert, either directly or indirectly, their services or business from
Company.
6. TERMINATION OF AGREEMENT.
6.1 TERMINATION BY COMPANY. Company may terminate Employee's
employment hereunder at any time for cause without payment of severance or
similar benefits. For purposes of this Section 6.1, "cause" shall mean the
following events: (a) any willful breach of duty by Employee in the course of
his employment, (b) the breach of any provision of this Agreement or any
misrepresentation by Employee hereunder, (c) misconduct, neglect or negligence
in the performance of Employee's duties and obligations, (d) disloyal,
dishonest, willful misconduct, illegal, immoral or unethical conduct by
Employee, (e) such carelessness or inefficiency in the performance of his duties
that Employee is unfit to continue in the service of Company, (f) failure of
Employee to comply with the policies or directives of Company and/or failure to
take direction from Company's Board of Directors, or (g) such other conduct
which is substantially detrimental to the best interests of Company. Any such
termination shall become effective upon delivery of written notice to Employee.
6.2 TERMINATION BY EMPLOYEE. Employee may terminate his employment
hereunder at any time for cause. For purposes of this Section 6.2, "cause" shall
mean the breach of any provision of this Agreement by Company which is not cured
within thirty (30) days after Employee delivers written notice to the Company's
Board of Directors describing such breach. If the breach is not so cured within
such thirty (30) days after delivery of such notice, the termination of
employment shall become effective after the expiration of such cure period.
6.3 DEATH OR DISABILITY. Employee's employment with Company shall
cease upon the date of his death. In the event Employee becomes physically or
mentally disabled so as to become unable for more than one hundred eighty (180)
days in the aggregate in any twelve
4
<PAGE>
(12) month period to perform his duties on a full-time basis with reasonable
accommodations, Company may, at its sole discretion, terminate this Agreement
and Employee's employment.
6.4 TERMINATION FOLLOWING AUTOMATIC RENEWAL. In the event that this
Agreement is automatically renewed pursuant to Paragraph 2 herein, either
Company or Employee may terminate Employee's employment hereunder at any time
and for any reason whatsoever, with or without cause, upon thirty (30) days
prior written notice delivered to the other party.
6.5 EFFECT OF TERMINATION. Upon the termination of Employee's
employment hereunder or the expiration or termination of the Agreement, (a)
Company shall pay Employee all compensation accrued and outstanding as of the
date of such termination or expiration, and (b) notwithstanding anything to the
contrary contained herein, the rights and obligations of each party under
Paragraphs 4, 5 and 8 herein shall survive such termination or expiration.
Notwithstanding anything to the contrary contained in this Agreement, if, prior
to the end of the initial three (3) year term, Employer terminates this
Agreement without cause, Employee shall continue to be entitled to receive all
of the compensation and other benefits provided for in Paragraph 3 for the
remainder of said three (3) year term without any deduction or offset for any
compensation earned or received by Employee from any other sources.
7. EMPLOYEE'S REPRESENTATIONS. As an inducement for Company to execute this
Agreement, Employee represents and warrants to Company that the negotiation,
execution and delivery of this Agreement by Employee together with the
performance of his obligations hereunder does not breach or give rise to a
breach under any employment, confidentiality, non-disclosure, non-competition or
any other agreement, written or oral, to which Employee is a party.
8. EQUITABLE REMEDIES.
8.1 INJUNCTIVE RELIEF. Employee acknowledges and agrees that the
covenants set forth in Paragraphs 4 and 5 herein are reasonable and necessary
for protection of Company's business interests, that irreparable injury will
result to Company if Employee breaches any of the terms of said covenants and
that, in the event of Employee's actual or threatened breach of said covenants,
Company will have no adequate remedy at law. Employee accordingly agrees that in
the event of actual or threatened breach of any of such covenants, Company shall
be entitled to immediate injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages. Nothing contained
herein shall be construed as prohibiting Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovering of any damages which it is able to prove. Each of the covenants in
Paragraphs 4 and 5 shall be construed as independent of any other covenants or
provisions of this Agreement. In the event of any judicial determination that
any of the covenants set forth in Paragraphs 4 and 5 herein or any other
provisions of the Agreement are not fully enforceable, it is the intention and
desire of the parties that the court treat said covenants as having been
modified to the extent deemed necessary
5
<PAGE>
by the court to render them reasonable and enforceable and that the court
enforce them to such extent.
8.2 SPECIFIC ENFORCEMENT. Employee agrees and acknowledges that he is
obligated under this Agreement to render services of a special, unique, unusual,
extraordinary and intellectual character, thereby giving this Agreement peculiar
value, so that the loss thereof could not be reasonable or adequately
compensated in damages in an action at law. Therefore, in addition to other
remedies provided by law, Company shall have the right, during the term of this
Agreement, to obtain specific performance hereof by Employee and to obtain
injunctive relief against the performance of service elsewhere by Employee
during the term of this Agreement.
9. GENERAL.
9.1 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them.
9.2 AMENDMENT. This Agreement may not be modified, amended, altered or
supplemented except by written agreement between Employee and Company.
9.3 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
9.4 JURISDICTION. Each party hereby consents to the exclusive
jurisdiction of the state and federal courts sitting in Los Angeles County,
California, in any action on a claim arising out of, under or in connection with
this Agreement or the transactions contemplated by this Agreement. Each party
further agrees that personal jurisdiction over him may be effected by service of
process by registered or certified mail addressed as provided in Section 9.9
herein, and that when so made shall be as if served upon him personally within
the State of California.
9.5 EXPENSES. In the event an action at law or in equity is required
to enforce or interpret the terms and conditions of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees and costs in
addition to any other relief to which that party may be entitled.
9.6 INTERPRETATION. The headings herein are inserted only as a matter
of convenience and reference, and in no way define, limit or describe the scope
of this Agreement or the intent of any provisions thereof. No provision of this
document is to be interpreted for or against any party because that party or
party's legal representative drafted it.
9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their heirs, successors, assigns
and personal
6
<PAGE>
representatives. As used herein, the successors of Company shall include, but
not be limited to, any successor by way of merger, consolidation, sale of all or
substantially all of its assets or similar reorganization. In no event may
Employee assign any rights or duties under this Agreement.
9.8 CONTROLLING LAW; SEVERABILITY. The validity and construction of
this Agreement or of any of its provisions shall be determined under the laws of
the State of California. Should any provision of this Agreement be invalid
either due to the duration thereof or the scope of the prohibited activity, such
provision shall be limited by the court to the extent necessary to make it
enforceable and, if invalid for any other reason, such invalidity or
unenforceability shall not affect or limit the validity and enforceability of
the other provisions hereof.
9.9 NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally received by the
party to whom it is sent or delivered, or if sent by registered or certified
mail, postage prepaid, to Employee's residence in the case of notice to
Employee, or to its principal office if to Company. A notice is deemed received
or delivered on the earlier of the day received or three (3) days after being
sent by registered or certified mail in the manner described in this Section.
9.10 WAIVER OF BREACH. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENTERTAINMENT BOULEVARD, INC.
By: /s/ Stephen Brown
-----------------------------------------------
Stephen Brown, President
/s/ Stephen Brown
--------------------------------------------------
STEPHEN BROWN
7
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
10th day of May, 2000, by and between ENTERTAINMENT BOULEVARD, INC. ("Company"),
a Nevada corporation, and PAUL C. MATTOON ("Employee"), with reference to the
following facts:
WHEREAS, Company wishes to continue to employ Employee as a full-time
employee of Company, and Employee wishes to continue to accept such employment,
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions and the mutual
agreements and covenants set forth herein, the parties hereto agree as follows:
1. SCOPE OF EMPLOYMENT.
1.1 CAPACITY. Company hereby agrees to employ Employee, and Employee hereby
accepts such employment, as Chief Financial Officer of Company during the term
of this Agreement. Employee shall report to the Board of Directors of Company
and perform the services and duties customarily incident to such position.
1.2 DEVOTION OF SERVICES. Employee shall be a full-time employee of Company
during the term of this Agreement. Employee shall not participate in any
activities which may interfere with the duties hereunder and/or which are
competitive with Company's activities (except as the passive owner of less than
2% of the issued and outstanding capital stock of a publicly traded
corporation). Employee shall perform and discharge well and faithfully those
duties assigned by Company.
2. TERM. Subject to Section 6 hereof, the term of this Agreement shall
commence as of the date first above written, and shall continue and remain in
full force and effect until either party terminates this Agreement for any
reason whatsoever, with or without cause, by giving the other party at least
thirty (30) days written notice. The parties hereto understand and agree that
the employment relationship provided for herein is on an "at will" basis, which
means that either Company or Employee may elect to terminate this Agreement and
the employment relationship at any time for any reason whatsoever, with or
without cause. Employee acknowledges that no representation has been made by
Company as to any minimum or specified term or length of employment following
the term set forth above.
3. COMPENSATION.
3.1 SALARY. In consideration of the services to be rendered by Employee
hereunder, during the term of this Agreement Company shall pay to Employee the
following:
(a) A salary in the amount of $12,500 per month. The Board of Directors may, at
its sole and absolute discretion, increase Employee's salary.
<PAGE>
(b) All payments to Employee shall be subject to the regular withholding
requirements of all appropriate governmental taxing authorities.
3.2 OTHER BENEFITS. Employee shall be entitled to participate in any medical,
dental, vision, disability or other insurance plans and other benefit plans such
as any 401-K or cafeteria plan which Company is presently providing or may
provide to its senior executives generally. Employee acknowledges that the terms
of such plans may change from time to time. Employee shall be entitled to sick
leave benefits comparable to those provided to its other senior executives
generally.
3.3 EXPENSES. Company will advance to or reimburse Employee for all reasonable
travel and entertainment required by Company and other reasonable expenses
incurred by Employee in connection with the performance of his services under
this Agreement in accordance with Company policy as established from time to
time. In addition, Employee shall receive an automobile lease allowance of
$500.00 per month.
3.4 WARRANTS. Concurrently with the execution and delivery of this Agreement by
the parties, Company agrees to execute and deliver to Employee a
non-transferable warrant to purchase up to 300,000 shares of the common stock of
Company at a purchase price of $1.38 per share (in each case subject to certain
adjustments provided for therein).
4. INVENTIONS.
4.1 RIGHT TO INVENTIONS. Employee agrees that any discoveries, inventions or
improvements of whatever nature (collectively "Inventions") made or conceived by
Employee, solely or jointly with others, during the term of his employment with
Company, that relate, at the time of conception of or reduction to practice, to
the business of Company or Company's actual or demonstrably anticipated research
or development; or that result from any work performed by Employee for Company,
shall belong to Company. Employee also agrees that Company shall have the right
to keep any such Inventions as trade secrets, if Company so chooses.
4.2 ASSIGNMENT OF INVENTIONS AND PATENTS. In furtherance of, and not in
contravention, limitation and/or in place of, the provisions of Section 4.1
above, Company hereby notifies Employee of California Labor Code Section 2870,
which provides:
"Any provision in an employment agreement which provides that
an employee shall assign or offer to assign any of his or her rights in
an invention to his or her employer shall not apply to an invention for
which no equipment, supplies, facility, or trade secret information of
the employer was used and which was developed entirely on the
employee's own time, and (a) which does not relate (1) directly or
indirectly to the business of the employer or (2) to the employer's
actual or demonstrably anticipated research or development, or (b)
which does not result from any work performed by the employee for the
employer. Any provision which purports to apply to such an invention is
to that extent against the public policy of this state and is to that
extent void and unenforceable."
2
<PAGE>
Employee acknowledges that he has been notified by the Company of this law,
and understands that this Agreement does not apply to Inventions which are
otherwise fully protected under the provisions of said Labor Code Section 2870.
Therefore, Employee agrees to promptly disclose in writing to the Company all
Inventions, whether Employee personally considers them patentable or not, which
Employee alone, or with others, conceives or makes during his employment with
Company or as is otherwise required and set forth under Section 4.1 above.
Company shall hold said information in strict confidence to determine the
applicability of California Labor Code Section 2870 to said Invention and, to
the extent said Section 2870 does not apply, Employee hereby assigns and agrees
to assign all his right, title and interest in and to those Inventions which
relate to business of the Company and Employee agrees not to disclose any of
these Inventions to others without the prior written express consent of Company.
Employee agrees to notify Company in writing prior to making any disclosure or
performing any work during the term of his employment with Company which may
conflict with any proprietary rights or technical know-how claimed by Employee
as his property. In the event Employee fails to give Company notice of such
conflict, Employee agrees that Employee shall have no further right or claim
with respect to any such conflicting proprietary rights or technical know-how.
5. CONFIDENTIALITY.
5.1 RESTRICTIONS ON USE OF TRADE SECRETS AND RECORDS. During the term of his
employment, Employee will have access to and become acquainted with various
trade secrets of Company, consisting of formulas, patterns, devices, secret
Inventions, processes, compilations of information, records and specifications
(collectively "Trade Secrets"), all of which are owned by Company and used in
the operation of Company's business. Additionally, Employee will have access to
and may become acquainted with various files, records, customer lists,
documents, drawings, specifications, equipment and similar items relating to the
business of Company (collectively "Confidential Information"). All such Trade
Secrets and Confidential Information, whether they are designed, conceived or
prepared by Employee or come into Employee's possession or knowledge in any
other way, are and shall remain the exclusive property of Company and shall not
be removed from the premises of Company under any circumstances whatsoever
without the prior written consent of Company. Employee promises and agrees that
he will not use for himself or for others, or divulge or disclose to any other
person or entity except in the course of his employment, directly or indirectly,
either during the term of his employment by Company or at any time thereafter,
for his own benefit or for the benefit of any other person or entity or for any
reason whatsoever, any of the Trade Secrets or Confidential Information
described herein, which he may conceive, develop, obtain or learn about during
or as a result of his employment by Company unless specifically authorized to do
so in writing by Company.
5.2 NON-INTERFERENCE. Employee recognizes that Company has invested substantial
effort in assembling its present employees and in developing its customer base.
As a result, and particularly because of Company's many types of confidential
business information, Employee understands that any solicitation of a customer
or employee of Company, in an effort to get them to change business affiliations
might presumably involve a misuse of Company's confidences, Trade Secrets and
Confidential Information. Employee therefore agrees that, for a period of one
(1) year from date of termination of Employee's employment with Company for any
reason whatsoever, Employee will not influence, or attempt to
3
<PAGE>
influence, existing employees or customers of Company in an attempt to divert,
either directly or indirectly, their services or business from Company.
6. EMPLOYEE'S REPRESENTATIONS. As an inducement for Company to execute this
Agreement, Employee represents and warrants to Company that the negotiation,
execution and delivery of this Agreement by Employee together with the
performance of his obligations hereunder does not breach or give rise to a
breach under any employment, confidentiality, non-disclosure, non-competition or
any other agreement, written or oral, to which Employee is a party.
7. EQUITABLE REMEDIES.
7.1 INJUNCTIVE RELIEF. Employee acknowledges and agrees that the covenants set
forth in Sections 4 and 5 hereof are reasonable and necessary for protection of
Company's business interests, that irreparable injury will result to Company if
Employee breaches any of the terms of said covenants and that, in the event of
Employee's actual or threatened breach of said covenants, Company will have no
adequate remedy at law. Employee accordingly agrees that in the event of actual
or threatened breach of any of such covenants, Company shall be entitled to
immediate injunctive and other equitable relief, without bond and without the
necessity of showing actual monetary damages. Nothing contained herein shall be
construed as prohibiting Company from pursuing any other remedies available to
it for such breach or threatened breach, including the recovering of any damages
which it is able to prove. Each of the covenants in Sections 4 and 5 hereof
shall be construed as independent of any other covenants or provisions of this
Agreement. In the event of any judicial determination that any of the covenants
set forth in Sections 4 and 5 hereof or any other provisions of the Agreement
are not fully enforceable, it is the intention and desire of the parties that
the court treat said covenants as having been modified to the extent deemed
necessary by the court to render them reasonable and enforceable and that the
court enforce them to such extent.
7.2 SPECIFIC ENFORCEMENT. Employee agrees and acknowledges that he is obligated
under this Agreement to render services of a special, unique, unusual,
extraordinary and intellectual character, thereby giving this Agreement peculiar
value, so that the loss thereof could not be reasonable or adequately
compensated in damages in an action at law. Therefore, in addition to other
remedies provided by law, Company shall have the right, during the term of this
Agreement, to obtain specific performance hereof by Employee.
8. GENERAL.
8.1 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
the parties hereto and supersedes all other oral and written agreements or
understandings between them.
8.2 AMENDMENT. This Agreement may not be modified, amended, altered or
supplemented except by written agreement between Employee and Company.
8.3 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4
<PAGE>
8.4 JURISDICTION. Each party hereby consents to the exclusive jurisdiction of
the state and federal courts sitting in Los Angeles County, California, in any
action on a claim arising out of, under or in connection with this Agreement or
the transactions contemplated by this Agreement. Each party further agrees that
personal jurisdiction over him may be effected by service of process by
registered or certified mail addressed as provided in Section 9.9 hereof, and
that when so made shall be as if served upon him personally within the State of
California.
8.5 EXPENSES. In the event an action at law or in equity is required to enforce
or interpret the terms and conditions of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees and costs in addition to any
other relief to which that party may be entitled.
8.6 INTERPRETATION. The headings herein are inserted only as a matter of
convenience and reference, and in no way define, limit or describe the scope of
this Agreement or the intent of any provisions thereof. No provision of this
document is to be interpreted for or against any party because that party or
party's legal representative drafted it.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their heirs, successors, assigns and
personal representatives. As used herein, the successors of Company shall
include, but not be limited to, any successor by way of merger, consolidation,
sale of all or substantially all of its assets or similar reorganization. In no
event may Employee assign any rights or duties under this Agreement.
8.8 CONTROLLING LAW; SEVERABILITY. The validity and construction of this
Agreement or of any of its provisions shall be determined under the laws of the
State of California. Should any provision of this Agreement be invalid either
due to the duration thereof or the scope of the prohibited activity, such
provision shall be limited by the court to the extent necessary to make it
enforceable and, if invalid for any other reason, such invalidity or
unenforceability shall not affect or limit the validity and enforceability of
the other provisions hereof.
8.9 NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if personally received by the party to
whom it is sent or delivered, or if sent by registered or certified mail,
postage prepaid, to Employee's residence in the case of notice to Employee, or
to its principal office if to Company. A notice is deemed received or delivered
on the earlier of the day received or three (3) days after being sent by
registered or certified mail in the manner described in this Section.
8.10 WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENTERTAINMENT BOULEVARD, INC. EMPLOYEE:
/s/ Stephen Brown /s/ Paul C. Matton
By: ------------------------------ By:-----------------------------------------
Stephen Brown, President Paul C. Mattoon
6
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<PP&E> 1,694,914
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<COMMON> 22,282
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<TOTAL-LIABILITY-AND-EQUITY> 14,493,887
<SALES> 165,021
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