<PAGE>
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As filed with the Securities and Exchange Commission on May 16, 2000
SEC Registration No. 333-30520
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ULTIMATE SPORTS ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
DELAWARE 2741 95-0262961
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
2444 WILSHIRE BOULEVARD, SUITE 414, SANTA MONICA, CA 90403
Telephone (310) 829-9590
(Address and Telephone Number of Principal Executive Offices)
2444 WILSHIRE BOULEVARD, SUITE 414, SANTA MONICA, CA 90403
(Address of Principal Place of Business)
FREDERICK R. LICHT, PRESIDENT, ULTIMATE SPORTS ENTERTAINMENT, INC.
2444 WILSHIRE BOULEVARD, SUITE 414, SANTA MONICA, CA 90403
Telephone (310) 829-9590
(Name, Address and Telephone Number of Agent for Service)
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Copies to:
Ronald N. Vance, Esq.
57 West 200 South
Suite 310
Salt Lake City, UT 84101
(801) 359-9300
(801) 359-9310 - FAX
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common 3,600,000 $0.50 $1,800,000 $476
Stock, $.001
par value
Common 770,000(2) $0.50 $385,000 $102
Stock, $.001
par value
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Common 350,000(3) -- -- --
Stock, $.001
par value
TOTAL $578
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457.
(2) These shares are being registered for resale by certain selling
shareholders.
(3) These shares are to be issued to The Orbiter Fund, Ltd. upon the
effective date of this registration statement. These shares are also included in
the shares to be registered for resale by certain selling shareholders.
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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PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 16, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
ULTIMATE SPORTS ENTERTAINMENT, INC.
3,600,000 Shares of Common Stock
$0.50 Per Share
This offering of our shares is not underwritten. The offering is to be made
through our officers and directors, without remuneration to them. The minimum
number of shares a person must purchase is 1,000 shares. An indeterminate number
of the shares may be sold through broker/dealers who are members of the National
Association of Securities Dealers, Inc., and who will be paid a 10% commission
on sales they make. Concurrently with this offering, we are issuing 350,000
shares to The Orbiter Fund, Ltd. for a default on, and extension of, a loan and
registering for resale 770,000 shares to be offered by selling security holders,
including the shares to be issued to The Orbiter Fund. Our shares are not listed
on any national securities exchange or the Nasdaq Stock Market.
We are escrowing proceeds from sales of the shares at US Bank, Anaheim,
California, until the sale of the minimum number of shares is achieved. If the
minimum amount of proceeds is not received prior to ninety days from the date of
this prospectus, which period may be extended for an additional thirty days, at
our option, all escrowed funds will be returned to subscribers without interest
or deduction. This offering will continue past the 120 days only if the minimum
number of shares has been sold, and will end no later than nine months from the
date of this prospectus, but may be terminated sooner in our sole discretion.
<TABLE>
<CAPTION>
PER SHARE TOTAL AMOUNT
<S> <C> <C>
The Offering: Minimum: 2,400,000 shares $0.50 $1,200,000
Maximum: 3,600,000 shares $0.50 $1,800,000
Less Selling Commissions
Minimum $0.05 $120,000
Maximum $0.05 $180,000
Proceeds to us
Minimum $0.45 $1,080,000
Maximum $0.45 $1,620,000
</TABLE>
This Offering Is Highly Speculative and Involves Special Risks Concerning
the Company and its Business. See "Risk Factors" beginning on page 9.
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 prospectus. Any representation to the contrary is a
criminal offense. ________, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary 6
Risk Factors
Our License Agreements Do Not Grant Us Exclusive Rights to Publish Our Comic 7
Books, Which Means That Others Could Enter the Market and Compete with Us
We Rely Extensively upon the Relationship of Our President, Frederick R. Licht, 8
With the Players, Leagues, and Associations to Negotiate the Contracts
For the Rights to Publish the Comic Books and the Ancillary Rights We
Propose to Exploit in the Future
Each of the License Agreements Is for a Relatively Short Duration and There Is No 8
Assurance That Any of the Agreements Will Be Renewed
The Two One-year Extensions of Our License Agreement with the Major League 9
Baseball Players Association May Not Have Been Effective
The Leagues and Players' Associations Have the Right to Approve the Stories, Art 9
Work, and Design of the Comic Books. Changes Required by Such Reviews
Could Be Costly to Us
The Public's Acceptance of Comic Books Using Professional Athletes as Super 10
Heroes Is Largely Untested, and Our Sales of this Type of Comic Book in
The past Is Insufficient to Indicate Whether Significant Sales Will Occur
In the Future
We Have Borrowed Funds in the Past, the Terms of Which May Require Us to Issue 10
Additional Shares of Stock If the Loan Is Defaulted
The Expansion of Our Business into Digitized Comics on the Internet, the 11
Manufacture of Action Figures Based on Super Heros in Our Comic Books,
And Television or Home Video/dvd Programs Based on Super Heros
Developed by Us, Is Dependent upon Obtaining the Rights from the Leagues
And the Players' Associations
Forward Looking Statements 11
Use of Proceeds 12
Dilution 13
Management's Discussion and Analysis of Financial Condition and Results of Operation 14
Business 16
Management 26
Certain Transactions 29
Market Information 30
Shares Eligible For Future Sale 31
Principal Shareholders 32
Selling Shareholders 33
Description of Securities 35
Dividend Policy 37
Plan of Distribution 37
Legal Matters 39
Experts 39
Financial Statements 39
</TABLE>
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PROSPECTUS SUMMARY
OUR COMPANY
We create and publish comic books depicting professional athletes as super
action heroes. Our principal executive offices are located at 2444 Wilshire
Boulevard, Suite 414, Santa Monica, CA 90403, and our telephone number at these
offices is (310) 829-9590.
THE OFFERING
Securities offered
<TABLE>
<S> <C>
Maximum offering 3,600,000 shares
Minimum offering 2,400,000 shares
Shares outstanding at February 10, 2000 7,470,000 shares
Shares outstanding after the offering
Maximum offering 11,070,000 shares
Minimum offering 9,870,000 shares
Total public price $0.50
Selling Commissions
Maximum Offering $180,000
Minimum Offering $120,000
Estimated offering expenses $65,000
Net proceeds
Maximum Offering $1,555,000
Minimum Offering $1,015,000
Shares to be issued to Orbiter Fund 350,000 shares
Resale of shares by selling stockholders 770,000 shares
</TABLE>
We intend to use the net offering proceeds to:
- Repay existing debt;
- Pay license fees;
- Expand our sales, marketing, and advertising efforts; and
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- Cover publishing costs and provide working capital.
The following summary financial information has been derived from our
consolidated financial statements which appear later in this prospectus and
should be read in conjunction with those consolidated financial statements and
related notes.
<TABLE>
<CAPTION>
For the years
ended January 31
2000 1999
---- ----
<S> <C> <C>
Consolidated Statement of
Operations Data:
Net sales $13,047 $15,871
Gross profit (loss) (261,519) (30,672)
Operating loss (1,203,277) (262,557)
Net loss (1,322,025) (286,802)
Loss per share (.41) (.07)
Consolidated Balance Sheet Data:
Cash and cash equivalents $15,949
Working capital (644,051)
Total assets 199,434
Total stockholders' equity (deficit) (571,452)
</TABLE>
RISK FACTORS
Our License Agreements Do Not Grant Us Exclusive Rights to Publish Our Comic
Books, Which Means That Others Could Enter the Market and Compete with Us.
Our existing and any future license agreements with the leagues or players'
associations are key to any success of our business. However, these licenses are
not exclusive, which means the leagues or the players' associations could grant
similar or more favorable license agreements to others. If this were to happen
in the future, we could be competing with others for the same market share. The
only exclusive contract which we currently hold is with Karl Malone. While we
are not aware of any other companies seeking to obtain the rights from the
leagues and associations to publish comic books, as public exposure to our comic
books increases, it is possible that other existing or new comic book publishers
may attempt to enter this field which would significantly increase our
competition and could decrease sales. Such a decrease in potential sales could
be significant since we believe the niche market which we fill may be limited in
number to those whose interests are both in the professional athletes and comic
books. We are not certain that the market would be large enough to support
additional publishers.
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We Rely Extensively upon the Relationship of Our President, Frederick R. Licht,
with the Players, Leagues, and Associations to Negotiate the Contracts for the
Rights to Publish the Comic Books and the Ancillary Rights We Propose to Exploit
in the Future
We rely solely upon the relationship of our president with the
representatives of the leagues and associations, and with the players
themselves, to obtain the various rights necessary to conduct our business. If
we were to lose the services of Mr. Licht there would be a significant question
whether we could continue in our current business. We intend to obtain key man
insurance in the amount of $1,000,000 on Mr. Licht. We also intend to include in
his employment contract provisions which will prohibit him from competing with
us should he terminate his existing employment and leave the company.
Each of the License Agreements Is for a Relatively Short Duration and There Is
No Assurance That Any of the Agreements Will Be Renewed.
Our business requires the acquisition of licensing rights from the sports
leagues and associations, and, in some cases, the professional athletes
themselves. Without these licenses, it would be difficult or, in some cases,
impossible, to continue our present operations. We have a number of licenses
which expire over the next few years. Generally, the agreements do not provide
for automatic renewals or extensions. In addition, our right to market the comic
books will expire when the particular license agreement terminates. The
following table sets forth each particular license agreement which we currently
hold and its expiration date:
<TABLE>
<CAPTION>
LICENSE AGREEMENT EXPIRATION DATE
----------------- ---------------
<S> <C>
Karl Malone November 1, 2000
Major League Baseball Players Association December 31, 2000
Major League Baseball Properties, Inc. November 30, 2000
Major League Baseball Players Alumni Association July 9, 2001
National Hockey League Players' Association June 30, 2001
National Football League Properties, Inc. August 31, 2002
</TABLE>
We will attempt to renew each license before it expires, but we have not
been given any assurances from the licensors that they will renew the
agreements. There is no assurance that if we are able to renew the license
agreements, that they will be renewed under the same terms as we currently have
under our present agreements.
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The Two One-year Extensions of Our License Agreement with the Major League
Baseball Players Association May Not Have Been Effective.
The Major League Baseball Players Association agreement is a one year
license which ended December 31, 1998, but which had options to extend the
initial term for two additional years, namely 1999 and 2000. If our current
extensions are invalid, and the players association does not agree to an
extension, we may not be able to continue to publish comic books using Major
League Baseball Association players. The inability to do so could mean that we
would not be able to continue our business, since four of our existing comic
books, and many of our future comic books, are based upon this license.
The extensions are conditioned on several factors, including written
notice to players association of the intention to extend the license. This
notice must be given no earlier than 120 days and not later than 90 days
prior to the termination of the initial or extension period. We did not make
the required written notices for the extensions within these periods. Also,
the agreement provides that any attempted extension is "void" and "of no
effect" if any of the following events occur:
- If we have breached the agreement;
- If net sales during the license period are not sufficient to generate
actual royalty payments at least equal to the minimum royalty payment;
and
- If we fail to make timely royalty payments.
We did not met all of these conditions. First of all, the agreement
requires that during the period ended December 31, 1998, we must have produced
and marketed three different comic books, each featuring a minimum of four
different players. This did not occur. Second, sales during the initial period
were not sufficient to meet the minimum royalty payment.
The players association accepted the 1999 minimum royalty payments and
continues to work with us in the development and publication of comic books. We
are attempting to clarify the validity of the extensions, but there is no
assurance that we can accomplish this.
The Leagues and Players' Associations Have the Right to Approve the Stories, Art
Work, and Design of the Comic Books. Changes Required by Such Reviews Could Be
Costly to Us.
Under our existing license agreements, the leagues, players' associations,
and, in some cases, the players themselves, are granted the right to review and
approve of the comic books. Our budgeted costs of publishing the comic books
includes minimal changes, and if the leagues, associations, or players require
substantial changes in a significant number of future comic books, the funds
budgeted for publication may be inadequate and we would be required to seek
additional funding or allocate funds from other business categories. We have
experienced occasions in the past where we have had to revise comic books at
various stages of development
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to meet this obligation or to maintain good relations with the licensors. In
each instance it has increased our cost of producing the particular comic book.
As we produce more comic books in the future and work with the representatives
of the leagues, associations, and players on a more regular basis, we believe we
can minimize such revisions. We submit each stage of the development of the
comic books to the representatives for their approval. In some instances changes
are requested and made. In one instance the approvals of a representative were
overridden by a superior in the league which caused us to rework much of the
development of the particular comic book. While we may not have been legally
obligated to make the changes, we made them primarily to maintain the good will
with the league. We will continue to attempt to minimize these problems in the
future, but there is no assurance that we can totally eliminate the costs of
reworking story lines, likenesses, or other aspects of the comic books during
the development stages at our cost.
The Public's Acceptance of Comic Books Using Professional Athletes as Super
Heroes Is Largely Untested, and Our Sales of this Type of Comic Book in the past
Is Insufficient to Indicate Whether Significant Sales Will Occur in the Future.
For the two years ended January 31, 2000, we generated $28,918 in revenues
from sales of our comic books, and experienced total net losses of $1,608,827
for the same period. If we do not generate more sales, we may not be able to
continue our present operations once the funds from this offering are used. To
reverse this trend of operating losses, we need to generate significant future
sales. We have received purchase orders from one of our distributors, but our
distribution agreement does not require any future or minimum purchase orders.
We Have Borrowed Funds in the Past, the Terms of Which May Require Us to Issue
Additional Shares of Stock If the Loan Is Defaulted.
In October 1999 we borrowed $600,000 for operations and agreed to repay the
loan in four months. We were unable to repay the loan on the original due date
and incurred an obligation to issue 250,000 shares to the lender for our failure
to make timely repayment and 100,000 shares to extend the repayment date of the
loan. If we do not repay $60,000 of the loan on or before May 31, 2000, or the
balance on or before August 1, 2000, we are obligated to issue 250,000 shares to
the lender for each 60 day period thereafter that the loan remains unpaid. If we
do not raise the minimum amount of this offering by May 31, 2000, or sixty days
thereafter, we will be obligated to issue the additional shares, unless we can
secure funds from other sources for which we currently have no arrangements. The
issuance of these shares could significantly dilute the ownership interest of
the existing shareholders.
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The Expansion of Our Business into Digitized Comics on the Internet, the
Manufacture of Action Figures Based on Super Heros in Our Comic Books, and
Television or Home Video/dvd Programs Based on Super Heros Developed by Us, Is
Dependent upon Obtaining the Rights from the Leagues and the Players'
Associations.
Our current license agreements with the leagues and the player's
associations are generally limited to the publication of comic books. In order
to create digitized comics on our Internet site, to commence the manufacture and
marketing of action figures, and to create live-action animated series based
upon super heros developed by us, we are required to negotiate additional
license agreements with the leagues, players' associations, and, in some cases,
the players. While we have commenced the negotiation process, we have not
entered into definitive arrangements or agreements and we cannot assure you that
we will be able to complete the negotiations in terms sufficiently favorable to
enter these markets. Leagues with their own web sites may not want digitized
comics on our web site competing with their own web site, and therefore may not
grant such rights. In addition, such electronic rights may be part of a larger
package of rights granted to other licensees which may preclude us from obtain
the rights. Also, in the case of action figures, we may be required to negotiate
with the existing manufacturing licensees.
FORWARD LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the future.
Forward- looking statements include statements about the future of the comic
book or super action hero industry, statements about our future business plans
and strategies, and most other statements that are not historical in nature. In
this prospectus forward-looking statements are generally identified by the words
"anticipate," "plan," "believe," "expect," "estimate," and the like. Although we
believe that any forward-looking statements we make in this prospectus are
reasonable, because forward-looking statements involve future risks and
uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements,
besides the specific factors identified in the Risk Factors section of this
prospectus, include the following:
- protracted league labor negotiations, strikes, or lock-outs;
- changes in our business strategies; and
- a decline in consumer interest in professional sports and athletes.
In light of the significant uncertainties inherent in the forward-looking
statements made in this prospectus, particularly in view of our early stage of
operations, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
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The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar statements by existing public companies, does not
apply to our offerings.
USE OF PROCEEDS
The following table sets forth the use of estimated proceeds, alternatively
under the minimum and maximum offering, and management's present estimate of the
allocation and prioritization of net proceeds expected to be received from this
offering. If funds in excess of the minimum amount, but less than the maximum,
are received, the funds will be allocated first to the repayment of debt and the
balance to the additional working capital. Pending use of the funds, the Company
will invest the net proceeds in investment-grade, short-term, interest bearing
securities.
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
---------- ----------
<S> <C> <C>
Gross Proceeds $1,200,000 $1,800,000
Selling commissions (120,000) (180,000)
Other offering expenses (65,000) (65,000)
---------- ----------
NET OFFERING PROCEEDS $1,015,000 $1,555,000
========== ==========
Use of Net Proceeds
Debt Repayment $600,000 $600,000
Additional Working Capital 415,000 955,000
---------- ----------
TOTAL $1,015,000 $1,555,000
========== ==========
</TABLE>
The $600,000 which we intend to repay with the proceeds of this offering
was originally borrowed at an interest rate of 10% per annum. The loan was
originally due February 20, 2000; however we renegotiated a repayment schedule
to pay $60,000 on or before May 31, 2000 and the balance, plus interest, on or
before August 1, 2000. As consideration for the extension on repayment, we
issued 100,000 shares to the lender. In the event of default, we will be
required to issue an additional 250,000 shares to the lender for each period of
sixty days which we remain in default. The funds were used for working capital
and approximately $20,000 of such funds were used to pay salaries to executive
officers.
The funds allocated for our additional working capital needs will include
the payment of licensing fees of approximately $50,000 in new and existing
license fees due as of January 1, 2000, and approximately $155,000 for future
license fees through approximately April 15, 2001. In addition, up to
approximately $60,000, if the minimum proceeds are raised, and $120,000, if the
maximum proceeds are raised, will be allocated for sales, marketing, and
advertising needs. In addition, $150,000 will be allocated for printing costs of
the comic books if the minimum
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proceeds are raised and $175,000 if the maximum proceeds are raised. Any balance
remaining will be allocated for our general business needs.
We estimate that the minimum net proceeds of this offering will satisfy our
cash needs for approximately 12 months. We do not anticipate that it will be
necessary to raise additional funds in the next 12 months.
DILUTION
During the years ended January 31, 2000, 1999 and 1998, we have issued a
total of 3,850,000 shares to officers, directors, promoters, and affiliated
persons, at an average price of $0.01 per share. The following table summarizes,
as of January 31, 2000, the relative investments of all existing shareholders
and the new investors, after giving pro forma effect to the sale of the shares
by us in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- ------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Affiliate Shares 3,850,000 51.68% $10,000 0.006% $0.01
New investors 3,600,000 48.32% $1,800,000 99.994% $0.50
Total 7,450,000 $1,810,000
</TABLE>
Our financial statements at January 31, 2000, show a net tangible book
value of ($571,452) or ($.07) per share. Net tangible book value per share
represents the amount of our tangible assets, less total liabilities, divided by
the number of shares of common stock outstanding. Without taking into account
any further adjustments in net tangible book value after January 31, 2000, other
than to give effect to the sale of the maximum number of shares offered hereby,
and after deduction of potential selling commissions and other offering
expenses, our pro forma net tangible book value at January 31, 2000, would have
been $984,000 or approximately $.06 per share of common stock, representing an
increase in net tangible book value of approximately $.13 to existing
shareholders and a dilution of approximately $.44 per share to new investors. If
only the minimum number of shares is sold, our pro forma net tangible book value
at January 31, 2000, would have been $444,000 or approximately $.03 per share of
common stock, representing an increase in net tangible book value of
approximately $.10 to existing shareholders and a dilution of approximately $.47
per share to new investors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
We experienced a gross profit deficiency and net loss of $261,519 and
$1,322,025, respectively, for the year ended January 31, 2000, compared to a
gross profit deficiency and net loss of $30,672 and $286,802, respectively, for
the year ended January 31, 1999.
Cost of goods sold includes fixed costs of coloring, illustration and other
production costs that were not fully absorbed by current year sales levels.
Management is projecting these costs, royalty expenses and a portion of the
printing costs will be absorbed in the future through advertising revenues. We
are actively selling advertising space to companies whose consumer base is
primarily by 8 -14 year old males. The gross profit generated by the sales of
the comic books would then be available to cover the general and administrative
costs. During the year ended January 31, 2000, we experienced increases in
royalty expense, editorial and writing, and printing.
We invested 17% of the our general and administrative expense in marketing
and Internet development for the year ended January 31, 2000. The projected
benefit from this investment is improved name recognition with sales to follow.
We have also incurred professional and investor relations expenses of $185,382
in 2000 as compared to $81,751 in 1999. Management believes that these expenses
will diminish in the future. Labor costs totaled $243,281 or 28% of the general
and administrative costs in 2000 compared to $5,197 in 1999. Depreciation
expense and amortization of licenses were $61,467 and $15,382 during the years
ended January 31, 2000 and 1999, respectively.
Interest expense was $118,748 in 2000 and $22,433 in 1999. We funded these
expenses through the issuance of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
We had a working capital deficit of $644,051 as of January 31,2000.
Management believes that it will be able to meet current working capital,
license and debt service requirements through private placement offerings and
renegotiations of the related party debt, improved revenues and reductions in
costs. Proceeds from the offering are estimated by management to provide us with
additional working capital ranging from $78,000 to $502,000.
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We have a capital lease commitment for $337 per month through December
2002. There are no other commitments for capital expenditures at this time, nor
does management anticipate acquiring or leasing any additional tangible assets
in the near term.
CASH FLOWS FROM OPERATING ACTIVITIES
We had a net use of cash from operating activities of $1,216,605.
INVENTORY - Our continued expansion of our comic book lines resulted in an
increase in inventory of $31,297 as of January 31, 2000.
PAYABLES - Liabilities increased by $18,574. The liabilities include
accrued interest on related party debt of $18,574 at January 31, 2000.
CASH FLOWS FROM INVESTING ACTIVITIES
We had a use of cash from investing activities during the period ended
January 31, 2000, of ($14,196).
CAPITAL EXPENDITURES - We had expenditures of $14,196 for equipment.
CASH FLOWS FROM FINANCING ACTIVITIES
We realized net cash from financing activities of $1,246,650 during the
year ended January 31, 2000.
DEBT SERVICE - We obtained unsecured financing from three of our
shareholders during the year ended January 31, 2000. The proceeds were used in
operations and to repay previous shareholder borrowings. We reduced related
party debt and the capital lease obligation as scheduled.
ISSUANCE OF STOCK - Our limited offering in April 1999 provided the Company
with $650,000. The proceeds were used to repay debt of $200,000 and in our
operations.
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BUSINESS
BACKGROUND AND HISTORY
We were originally incorporated under the laws of the State of Utah on
August 24, 1981, under the name "Edge Investment Company." On October 13, 1983,
we changed our name to "American Surgical Laser, Inc." We subsequently changed
domicile to Delaware by merging into a Delaware corporation formed for this
purpose. The merger was effective on April 12, 1985. The Delaware corporation
was incorporated on January 21, 1985, under the name "American Surgical
Laser-Del, Inc." We changed our name to "Eclipse Imports, Inc." on June 10,
1997. On March 12, 1999, we changed the name to "Neurochemical Research
International, Corp." The effective date of the name change to "Ultimate Sports
Entertainment, Inc." was April 7, 1999.
We were initially formed for the purpose of investing in and managing real
property and in late 1983 we entered the laser medical research and development
field. The development activity continued until 1986 when the project was
discontinued because of lack of funds and a conflict in management.
During September 1983 we issued 5,000 shares in a public offering and
received $20,000 cash.
Effective October 12, 1983, we forward split our outstanding shares at the
rate of 3.8789-for-one, which means that each share of stock outstanding
immediately prior to the effective date of the forward split was increased to
3.8789 shares after the split. Effective July 17, 1997, we reverse split the
outstanding shares at the rate of one-for-two hundred, which means that each 200
shares of stock outstanding immediately prior to the effective date of the
reverse split was decreased to one share after the split.
In February 1999 we proposed to enter into a merger transaction with
Neurochemical Research Corp. In contemplation of the closing of the merger
transaction, we changed our name to "Neurochemical Research International,
Corp." A special meeting of shareholders was called and held on February 12,
1999, to approve the merger transaction. The shareholders voted not to proceed
with the merger, but did approve a one-for-ten reverse split of the outstanding
shares effected March 22, 1999, which means that each ten shares of stock
outstanding immediately prior to the effective date of the reverse split was
decreased to one share after the split.
On March 30, 1999, we entered into a reorganization agreement with AllStar
Arena Entertainment, a privately-held California corporation, and the
shareholders of this entity. At this time we were an inactive entity with no
significant assets or liabilities. AllStar Arena was incorporated in the State
of California on June 28, 1996, under the name "Lobito Publishing
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Group" and amended its articles of incorporation to change its name to "AllStar
Arena Entertainment" on January 26, 1998. The agreement provided that on the
closing date the shareholders of AllStar Arena would exchange all of their
shares for 3,850,000 shares of our company, such that AllStar Arena would become
a wholly owned subsidiary and the shareholders of AllStar Arena would own
approximately 54% of the outstanding stock of our company. The closing of the
reorganization agreement was held on April 6, 1999.
Also in connection with the reorganization agreement with AllStar Arena, we
forward split the outstanding shares at the rate of four-for-one, which means
that each share of stock outstanding immediately prior to the effective date of
the forward split was increased to four shares after the split. We also canceled
2,030,680 outstanding shares, and issued 1,300,000 shares in a limited offering.
As a result of the closing of the reorganization agreement, old management
resigned in favor of directors and officers who were designated by AllStar
Arena.
Unless otherwise indicated, all references to our outstanding shares give
effect to all previous stock splits.
Immediately following the closing of the reorganization agreement, we
entered into a six-month advertising and promotional services agreement with
Noble House of Boston, Inc. wherein Noble House agreed to provide certain
advertising and promotional services. The initial term of the advertising and
promotion agreement with Noble House expired on October 2, 1999, and we are
currently negotiating a renewal of the agreement. However, we do not
anticipate entering into another agreement with them until after the
completion of this public offering.
In August 1999 we borrowed $50,000 each from Roger Tichenor and James
Skalko. These loans, plus interest, were converted into 100,000 shares of common
stock in February 2000.
We are presently engaged in the publication of comic books depicting
professional athletes as super heroes. We are able to use these athletes because
of our license agreements with the individual athletes and the major league
players' associations. Business operations are conducted through both the parent
and the subsidiary companies without material differentiation between the two
entities. Management proposes to merge AllStar Arena into the parent company to
form a single operating entity sometime after the completion of this offering.
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LICENSE AGREEMENTS
We presently have one license agreement with a National Basketball
Association player: Karl Malone of the Utah Jazz. Our license with Chris Webber
of the Sacramento Kings expired in March 2000, and we do not intend to renew it.
We also have licenses with the Major League Baseball Players Association; Major
League Baseball Properties, Inc.; and the National Hockey League Players'
Association. We have also negotiated, but not executed, license agreements with
Major League Baseball Players Alumni Association; National Football League
Properties, Inc.; and the National Football League Quarterback Club. Set forth
below is a brief description of each of these license agreements:
THE MALONE LICENSE
The license with Mr. Malone was entered into in November 1997 with Karl
Malone and Karl Malone Properties, Inc. and expires in November 2000. The
license grants the worldwide, exclusive right to reproduce, publish, print,
reprint, and distribute a comic book using a character based upon Mr. Malone.
However, each particular use of Mr. Malone's name or likeness requires the prior
approval of Mr. Malone. Mr. Malone has agreed to help promote the comic books by
making one personal appearance per calendar year and has agreed that he will not
impair the value of the comic books by conducting himself in any way that would
disparage or diminish the value of the developed character. The license also
grants the right to exploit the character through merchandising. The rights to
the comic books and the Malone character developed for them, or any copyrights
or trade marks associated with them, are owned 50% by each party and all
decisions affecting the use and exploitation of the character and copyrights or
trade marks are to be made jointly. The license also provides for royalty
payments to be made to Mr. Malone from the gross proceeds from the sale of the
comic books, from the amounts collected through merchandising rights, and from
the gross revenues from film, television, multimedia, and other rights. We have
agreed to indemnify Mr. Malone for any action alleging copyright or trade mark
infringement based on the comic books or regarding any contract or other
transaction involving us and Mr. Malone.
THE MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION LICENSE
This license allows us to use the likenesses of individual players in our
comic books. The license was entered into on May 13, 1998, and provides for an
initial license period ending December 31, 1998, and two successive calendar
year renewal periods. Such renewals are subject to certain requirements,
including the marketing of a certain number of issues of comic books during the
license periods. We did not meet these requirements and the license may be void.
However, we have continued to pay the minimum royalty amounts and the Major
League Baseball Players Association has continued to accept these payments. The
license grants the non-exclusive right to publish and market comic books in the
United States and Canada featuring animated cartoon super-heroes based on Major
League Baseball Association players. The agreement also provides for royalties
to be paid by us based upon sales of the comic books and
<PAGE>
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establishes minimum royalties to renew the license. The content of each comic
book is subject to the prior approval of the Major League Baseball Players
Association. Following the termination of the license, we have no further
right to market the comic books. The agreement also requires us to indemnify
the association against any actions involving it arising out of our acts or
omissions. We must also maintain liability insurance.
THE MAJOR LEAGUE BASEBALL PROPERTIES LICENSE
This license permits us to use the league and team names and logos in our
comic books. The license was entered into on September 23, 1999, and provides
for an initial license period ending November 30, 2000, with an automatic
extension through December 31, 2001, so long as the licensor does not lose its
licenses with the teams. Prior to the expiration of the license agreement, the
parties agree to discuss in good faith the renewal of the agreement for an
additional period. The license grants the non-exclusive right to use the Major
League Baseball logos, league names, teams, and the all-star game, division,
league, and world series. The agreement also provides for royalties to be paid
by us based upon sales of the comic books and establishes minimum royalties to
be paid against actual royalties earned. The content of each comic book is
subject to the prior approval of the licensor. Following the termination of the
license, we have no further right to market the comic books. The agreement also
requires us to indemnify the licensor against any actions involving it arising
out of our acts or omissions. We must also maintain liability insurance.
THE MAJOR LEAGUE BASEBALL PLAYERS ALUMNI ASSOCIATION LICENSE
This license will allow us to use the trademarks and service marks
associated with the Major League Baseball Players Alumni Association. As
presently negotiated, it will expire on July 9, 2001. The license will grant to
us the non-exclusive right to use the marks in our comic books. The form of the
agreement also provides for royalties to be paid by us based upon sales of the
comic books and establishes guaranteed minimum royalties to be paid against
actual royalties earned. The content of each comic book will be subject to the
prior approval of the association. Following the termination of the license, we
will have no further right to market the comic books. The form of the agreement
also requires us to indemnify the association against any actions involving it
arising out of our acts or omissions. We will also be required to maintain
liability insurance. We anticipate entering into the definitive agreement upon
completion of this offering and the payment of the advance payments that will be
due under the agreement.
NATIONAL FOOTBALL LEAGUE PROPERTIES LICENSE
This license will allow us to use the trademarks, service marks, and other
identifying symbols, slogans, and indicia adopted for commercial use by the
National Football League. The initial term will expire on August 31, 2002. The
license will grant to us the non-exclusive right to use the marks in our comic
books. The form of the agreement also provides for royalties to be paid by us
based upon sales of the comic books and establishes guaranteed minimum royalties
to
<PAGE>
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be paid against actual royalties earned. The content of each comic book will be
subject to the prior approval of the licensor. Following the termination of the
license, we will have no further right to market the comic books, except to sell
existing stock for a period of ninety days following the termination. The form
of the agreement also requires us to indemnify the licensor, the league, and the
member clubs against any actions involving it arising out of our acts or
omissions. We will also be required to maintain liability insurance.
NATIONAL FOOTBALL LEAGUE QUARTERBACK CLUB LICENSE
This license, also with the National Football League Properties, Inc., will
allow us to use the likenesses of the members of the NFL Quarterback Club. The
initial term will expire on August 31, 2002. The license will grant to us the
non-exclusive right to use the likenesses in our comic books. The form of the
agreement also provides for royalties to be paid by us based upon sales of the
comic books and establishes guaranteed minimum royalties to be paid against
actual royalties earned. The content of each comic book will be subject to the
prior approval of the licensor. Following the termination of the license, we
will have no further right to market the comic books, except to sell existing
stock for a period of ninety days following the termination. The form of the
agreement also requires us to indemnify the licensor, the league, and the member
clubs against any actions involving it arising out of our acts or omissions. We
will also be required to maintain liability insurance.
THE NATIONAL HOCKEY LEAGUE PLAYERS' ASSOCIATION LICENSE
The National Hockey League Players' Association License was entered into on
July 1, 1999, and terminates automatically on June 30, 2001. The license grants
to us the non-exclusive right to publish and market comic books throughout the
world featuring National Hockey League players. However, the players retain the
option not to participate in the agreement. As of the date of this prospectus,
only one such player has indicated he will not participate in the agreement. The
agreement also provides for royalties to be paid by us based on sales of the
comic books and establishes minimum annual royalties. The content of each comic
book is subject to the approval of the association. Following the termination of
the license, we have no further right to market the comic books. The agreement
also requires us to indemnify the association against any actions involving it
arising out of our acts or omissions. We must also maintain publisher's
liability insurance.
PUBLICATION OF COMIC BOOKS
As of January 26, 2000, we had published four comic books: WEBBER'S WORLD,
featuring Chris Webber; THE MAILMAN, featuring Karl Malone; COSMIC SLAM,
featuring Jeff Bagwell, Sammy Sosa, Dave Justice, and Mark McGwire, and THE
SHORTSTOP SQUAD featuring Derek Jeter, Cal Ripken, Jr., Alex Rodriguez, and
Barry Larkin. Each of the comic books consists of a single story featuring one
or more well-known sports figures as super heroes. Stories for the comic
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books are developed, and in some cases written, by management. In other cases we
retain free lance writers to work with us to develop and write the stories and
the dialogue. Upon completion of the story, we hire illustrators to create the
black and white drawings to correspond to the story and dialogue. Finally, the
book is sent to a coloring house or a freelance colorist to include the color
for the illustrations. We are currently negotiating with design firms which
could perform all of these functions for us.
Once the particular issue of the comic book has been composed, illustrated
and colored, it is down-loaded onto a disk and forwarded to the printer to
create the plates for printing. We have used Quebecor Printing of Montreal,
Canada, as our sole printer of the comic books, but we have no contractual
agreement with them to print future comic books as they are produced. We believe
that Quebecor is one of only two printers in North America which is capable of
printing comic books of the quality required by us. We also believe that the
risk is low that Quebecor could not continue to print our comic books in the
future under the same terms and similar costs as in the past. If for any reason
Quebecor could not print the comic books, we believe that suitable printers
could be located overseas which could print the comic books at the same or near
the cost charged by Quebecor; however, shipping costs could be significantly
greater.
After the comic books have been printed, they are shipped for storage to
Quebecor's warehouse in New York. The comic books are then shipped from the
warehouse either directly to the client or to a distributor.
The retail price of our comic books is from $2.95 to $4.95, with most being
offered at $3.95. This is higher than the retail prices of most other comic
books which are sold at between $1.95 to $3.95, with most at $2.75 per issue.
One reason for the higher price of our comic books is our expense of paying
royalties to the professional players and the leagues which would not be
required in connection with most other comic books.
We have also completed two comic books featuring National Football League
athletes. These comic books are ready to go to the printer and we hope to
release these in September 2000. We have four baseball comic books which were
released in April 2000 to coincide with the opening of baseball season. We are
also developing four hockey comic books which we believe will be ready for
release this year.
We believe one reason people may be interested in our comic books is the
favorable image projected by the athletes used in our comic books. Obviously, we
have no control over the lives of these athletes. Should one of them do
something which would cause readers not to view them as potential super heroes,
it could materially affect our ability to market the comic books. We are unable
to predict what type of actions would affect potential sales, but certainly
anything which would negatively affect the athlete's moral character could
affect our selling efforts.
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MARKETING
The first two comic books published by us, WEBBER'S WORLD and THE MAILMAN,
were distributed through direct mail campaigns and newspaper advertisements and
at stadiums. THE MAILMAN has been sold primarily to the concessionaires at the
stadium in Salt Lake City, Utah, at which Karl Malone plays his home games, and
also by direct mail campaigns. Prior to and during the basketball season, we
contact the concessionaires and solicit purchase orders for the comic books
which are then shipped directly to the stadiums from the warehouse in New York.
WEBBER'S WORLD has been sold by direct mail and through advertisements in the
Sacramento, California, newspapers.
Beginning with the baseball comic books we have introduced a broader
marketing plan. In addition to offering the comic books to concessionaires in
the stadiums where the athletes play, we have also placed regional
advertisements in newspapers to solicit direct customer orders. Also, we have
negotiated an arrangement with Diamond Comic Distributors, Inc. to distribute
our comic books throughout the United States and Canada. As of January 11, 2000,
Diamond published seven of our comic books in their catalogue for their retail
distributers and agreed to add new issues as they are published. Purchase orders
from Diamond will require three weeks delivery time. Upon receipt of such an
order, we will contact the printer to run an appropriate number of comic books
and ship them directly to Diamond. So long as the comic books are delivered on
time, Diamond has agreed to purchase all comic books ordered and not to return
any unsold copies. We are also negotiating with a national distributor of
publications to newsstands to distribute the comic books and with a national
publication for collectibles in which advertisements for the comic books could
be placed. Since these arrangements would likely involve returns of unsold comic
books, we are also negotiating for an outlet for our unsold books.
We continue to offer our comic books in the stadiums and for our baseball
comic books, we have entered into an exclusive agreement with MJ Sports to
distribute our non-premium baseball comic books in the stadiums beginning
January 1, 2000, through the 2000 baseball world series.
We have entered into a two year agreement with Comic Cavalcade which
commenced September 1, 1999, in which Comic Cavalcade manages our comic book
orders made via a toll-free telephone number and orders shipped to stadiums.
They also handle credit card orders and disburse these funds to us. We can
terminate the agreement upon thirty days notice, but we must pay a penalty of
$250 times the number of months remaining in the agreement.
We have also developed a promotional plan to sell comic books developed for
an individual team and offered at the team's stadium in conjunction with
promotional programs of the team. At December 31, 1999, we had not consummated
agreements with any team.
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PROPOSED BUSINESS
With the funds from this offering, we are proposing to broaden our current
business to include the creation of animated characters based on the super
heroes portrayed in the comic books, the manufacture and sale of merchandise
associated with the super hero athletes, and the sale of the comic books and
merchandise on cable network shopping channels and on the Internet.
We are negotiating with Film Roman, Inc. to produce a short animated pilot
cartoon using the athlete super heroes from our comic books. If the negotiations
are successful, we would assign our rights from the players, leagues, and
players' associations to Film Roman in order to create the pilot. If the pilot
is successful, Film Roman would also have the merchandising rights to the
products associated with the animation series and we would receive royalties. It
is anticipated that Film Roman would pay for the production of the pilot. We are
also negotiating with the various professional athletic leagues and players'
associations to secure the rights to create animated series using the
professional athletes and to manufacture and sell the merchandise associated
with the series. Our current license agreements do not provide such rights. We
are also required to negotiate with the licensee which holds the distribution
rights for such products with the leagues.
We have created a web site which includes information about our company and
its products. We also intend to offer digitized comics developed specifically
for the web site. We do not anticipate commencing the project until we have
secured the necessary rights from the professional sports leagues and players'
associations. The present license agreements held by us do not provide such
rights.
We are also negotiating with the companies which hold the license to
manufacture action figures using professional athletes. We hope to enter into
agreements which would permit us to manufacture and market action figures based
upon characters developed for our comic books. In order to accomplish this, we
will need to negotiate agreements with the manufacturers and the leagues and
player's associations.
We are negotiating with several entities which specialize in promoting
limited edition and signed articles on television home shopping programs. If the
negotiations are successful, we anticipate that signed copies of our comic books
published in special limited editions will be offered on cable home shopping
channels by the first company willing to commit to a significant initial order.
COMPETITION
Our share of the comic book market is insignificant in comparison to other
comic book publishers. The comic book market is dominated primarily by Marvel
Comics and DC Comics, each of which has substantially greater assets, manpower,
and market share than do we. While neither of these entities publishes a comic
book using athletes as super hero characters, they do
<PAGE>
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publish a significant number of comic books using various super heroes. And
while we do not compete directly with these companies, we may compete for some
of their readers who may be interested in the sports figures in our comic books.
We may not have the resources or facilities to compete directly with these
publishers.
There are a number of smaller comic book publishers, most of which have had
more experience in this industry and are better financed. While we are familiar
with a limited number of other companies which publish comic books using
athletes in stories in which they are portrayed in their particular athletic
capacity, for example as a wrestler, we are not aware of any of these publishers
using professional athletes as super action figures in their comic books as we
do. However, we will likewise compete with these publishers for comic book
readers in general, and perhaps those interested in the sports.
We are also aware of manufacturers of action figures based on athletes. If
we are successful in entering the action figure market, we will be competing
with these companies as well.
We believe that our comic books will appeal to a certain niche audience
which is interested in both sports and comic books. We also believe we will be
able to compete in this niche market with other publishers of comic books
because of the appeal of the star athletes who appear in our comic books.
GOVERNMENT REGULATION
We are not subject to any significant government regulations, except as may
relate to compliance with the corporate laws of the States of Delaware and
California.
EMPLOYEES
At December 1, 1999, we had four full-time employees, including two members
of management. We also employ one part-time person.
TRADEMARKS AND COPYRIGHTS
On June 4, 1999, we filed for a federal trademark for "Ultimate Sports
Force" and in January 2000 we filed for a federal trademark for "Ultimate Sports
Entertainment, Inc." We have received preliminary notification from the examiner
that there may be a conflict with "Ultimate Sports Force," but we may not know
for more than one year whether we will be issued such trademark.
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DESCRIPTION OF FACILITIES AND EQUIPMENT
We lease approximately 1,156 square feet of office space located at our
principal executive offices at 2444 Wilshire Boulevard, Suite 414, Santa Monica,
California. The office space is leased under a three year lease which commenced
on May 15, 1999, and terminates on May 31, 2002. The initial base rent for the
space is $2,255 per month, plus our share of common space expenses. The monthly
base rent increases to $2,323 commencing June 1, 2000, and to $2,393 commencing
June 1, 2001. The lease grants to us the right to extend the lease for one
additional three-year period.
We also lease some of our computer equipment under a three year lease which
commenced in December 1998. The value of the leased equipment at the time of the
lease was $9,016 and we have the option to purchase the equipment at the end of
the lease at the greater of the then fair market value or 15% of the original
value of the equipment. Monthly payments are $313. The lease is personally
guaranteed by Joseph Yukich, a former officer and director of AllStar Arena, by
Martin Burke, III, a former director, and by Paul Fairchild, a former officer.
LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings or government
actions, including any material bankruptcy, receivership, or similar
proceedings. We do not believe that there are any material proceedings to which
any director, officer or affiliate of our company, any owner of record of
beneficially of more than five percent of our common stock, or any associate of
any such director, officer, affiliate of ours, or security holder is a party
adverse to us or has a material interest adverse to us. However, Paul Fairchild,
a former officer has notified us through his attorney that he may seek damages
against us because of his termination. We do not believe that this action would
have a material adverse effect upon us.
On May 2, 2000, a complaint was filed in the Superior Court of the State
of California, County of Los Angeles, Case No. BC229219, against us, and
Frederick R. Licht, our president and director, and Asher Fensterheim, our
corporate counsel, by Joesph Yukich, Michael Walsh and Herbert Dogan. The
complaint its titled as a shareholder derivative action. The complaint
alleges that the individual defendants, in particular Mr. Licht, have
mismanaged the affairs of the company, and sites as examples the loan with
The Orbiter Fund; the funds borrowed from Mr. Tichenor and Mr. Skalko; the
granting of warrants to the wife of Mr. Fensterheim; the placing of comic
book material on the Internet; straining the relationship with the Major
League Baseball Players Association; and paying excessive salaries to Mr.
Licht. The plaintiffs are seeking a temporary and permanent injunction
against further conduct as described in the complaint; general damages in
favor of the company in an amount to be establsihed at trial; and punitive
damages in an amount sufficient to punish or make an example of the
defendants. Management does not believe this action has merit and intends to
vigorously defend it.
On May 3, 2000, a complaint was filed in the United States District Court,
Central District of California, Case No. 00-04636, against Mr. Licht and us
by Joseph Yukich. The complaint seeks damages and injunctive relief for
alleged copyright infringement in connection with the "The Cosmic Slam,"
"Webber's World," "Karl Malone the Mailman," "Supper Sluggers," "The
Shortstop Squad," and "Fastball Express." Mr. Yukich claims to be a one-third
owner of the copyrights for the comic books bearing these names. Management
does not believe this action has merit and intends to vigorously defend it.
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REPORTS TO OUR SECURITY HOLDERS
Our fiscal year ends on January 31st. We do not presently intend to furnish
our shareholders with annual reports. However, we intend to become a reporting
company and file annual, quarterly, and current reports, and other information
with the SEC. You may read and copy any reports, statements or other information
we file at the SEC's public reference room at 450 fifth Street, N.W., Washington
D.C. 20549. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC Internet site at
http://www.sec.gov.
MANAGEMENT
GENERAL
The following table sets forth information concerning our current sole
director and our executive officers, their ages, and all offices and positions.
Mr. Gitlin is considered an executive officer. Directors are elected for a term
of one year and until his successor is elected and qualified. Annual meetings
are to be scheduled by the Board of Directors. Officers are elected by the Board
of Directors and hold office until their successors are chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C>
Frederick R. Licht 33 Director, President, CEO 1999
Secretary/Treasurer, & CFO
Drew Gitlin 41 Chief Operating Officer --
</TABLE>
FREDERICK R. LICHT, has been the president and chief executive officer of
AllStar Arena since 1999. From 1994 to January 1999, he was self-employed as an
attorney representing professional athletes. Mr. Licht graduated from Brandeis
University in 1989 with a bachelor of arts degree. He received his juris doctor
degree from UCLA School of Law in 1992.
DREW GITLIN, has been the chief operating officer since January 2000.
From January 1999 until December 1999 he was self-employed as a writer. From
September 1997 until December 1998 he was employed as a mortgage banker and
was President of American Home Credit. From 1987 until 1997 he was employed
by Reprise Records as a local promotion manager.
The Board of Directors has no nominating, auditing or compensation
committee. There are no arrangements or understandings between Mr. Licht and any
other person or persons pursuant to which he was selected as an officer or
director.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate executive compensation awarded
to, earned by, or paid to the named executive officers for all services rendered
in all capacities to our company or any of its subsidiaries for the years ended
January 31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- ---------------------------------------
Awards Payouts
Other -------------------------- -----------
Annual Restricted All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Positions Year Salary Bonus sation Award(s) SARs Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frederick R. Licht, 2000 $102,000 -- $10,000(2) -- -- -- --
CEO (1)
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
1999 -- -- $10,000(2) -- -- -- --
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
1998 -- -- -- -- -- -- --
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
Angela Ross (3) 2000 -- -- -- -- -- -- --
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
1999 -- -- -- -- -- -- --
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
1998 -- -- -- -- -- -- --
- ---------------------- --------- ------------- --------- -------------- ------------ ------------ ----------- -----------
</TABLE>
(1) Mr. Licht has served as our chief executive officer since April 7,
1999.
(2) Mr. Licht has accrued these amounts as director's fees for these years.
The fees will be paid from our future profits, if any.
(3) Ms. Ross served as our chief executive officer from November 19, 1998,
until April 7, 1999.
We have agreed to provide Mr. Licht with a two year employment contract
beginning retroactively to January 1, 1999. We paid him $7,500 per month during
the first year and will pay him $10,000 per month during the second year. We
anticipate completing the definitive employment contract during the second
quarter of 2000.
COMPENSATION OF DIRECTORS
Directors are permitted to receive fixed fees and other compensation for
their services as directors, as determined by the Board of Directors. We have
decided to pay our directors a fee of $10,000 per year for serving as a
director. This fee was paid to Mr. Martin Burke, III, a former director during
this current year; Mr. Licht has deferred his fee until it can be paid out of
profits, if any.
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STOCK OPTION PLAN
We have adopted a stock option plan, pursuant to which we are authorized to
grant options to purchase up to 1,000,000 shares of our common stock to our key
employees, officers, directors, consultants, and other independent advisors.
Awards under the plan will consist of both non-qualified and incentive stock
options. We cannot grant incentive stock options until the plan is approved by
the shareholders.
The plan is administered by the Board of Directors which will determine the
persons to whom awards will be granted, the number of awards to be granted and
the specific terms of each grant, including the vesting thereof, subject to the
provisions of the plan.
Persons who are eligible to participate in the plan include the following:
- Employees, as to both incentive and non-qualified options;
- Non-employee members of the Board, as to non-qualified options; and
- Consultants and other independent advisors, as to non-qualified
options.
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant, or 110% of the fair market value in the case of a grantee
holding more than 10% of our outstanding stock. The aggregate fair market value
of shares for which qualified stock options are exercisable by such employee, or
10% shareholder, during any calendar year may not exceed $100,000. Nonqualified
stock options granted under the plan may be granted at a price determined by the
Board of Directors, not to be less than the fair market value of the common
stock on the date of grant.
No option may be granted to be exercised more than 10 years after the grant
date. The terms of options outstanding at the time of a persons cessation of
service, death, permanent disability, or misconduct are reduced to the following
periods, but not to exceed the original term:
- Three months after cessation of services, except by reason of death,
permanent disability, or misconduct;
- Twelve months after the optionee's death or permanent disability; and
- Immediately upon termination for misconduct.
The Plan also contains provisions affecting outstanding options in the case
of certain corporate transactions or in the event of a change of control. If we
should enter into a merger or consolidation, or in the event of a tender or
exchange offer, in which securities representing more than 50% of the voting
control are transferred to an outside party, or if we should sell, transfer, or
dispose of all, or substantially all of our assets, we could accelerate the
vesting and termination dates of these options. We could also elect to terminate
outstanding purchase rights associated with the options. In the alternative, the
options could be assumed and adjusted for the particular corporate transaction.
<PAGE>
Page 29 of 48
At April 18, 2000, 500,000 options were held by Drew Gitlin, our chief
operating officer.
CERTAIN TRANSACTIONS
In April 1999, the shareholders of AllStar Arena Entertainment, including
Frederick R. Licht, an officer, director and principal share holder of our
company, Martin J. Burke, III, a principal shareholder and a former director or
our company, and Joseph Yukich, a principal shareholder and a former officer and
director of our company, exchanged shares of stock of AllStar Arena
Entertainment for the shares which they currently hold in our company. Mr. Licht
paid $1,000 for his shares in AllStar Arena, Mr. Burke paid $7,000, and Mr.
Yukich paid $1,000.
In November 1999 we sold 250,000 warrants to Deborah Fensterheim, the wife
of Asher Fensterheim, an attorney for us. The consideration we received for
issuing these warrants to Mrs. Fensterheim was $2,500. The warrants are
exercisable at $2.00 per share at any time until October 31, 2004. The warrant
certificate provides for a "cashless" exercise by surrendering the number of
warrants having a fair market value equal to or greater than the required total
exercise price. The warrant certificate also provides for registration rights of
the underlying shares.
Also in November 1999 we issued 20,000 shares to our counsel, Ronald N.
Vance, as part of the consideration to our counsel for the preparation of this
registration statement. These shares are included for resale in this prospectus.
In April 1999 we loaned $42,500 to Joseph Yukich, a former officer and
director of AllStar Arena. These funds are secured by the stock received by Mr.
Yukich in the reverse acquisition transaction between AllStar Arena and us. The
loan includes interest at 5% per annum from the date of the loan. The loan is
due upon the expiration of the one-year holding period of Rule 144 which should
occur in April 2000. The loan may be repaid by tendering to us the number of
shares equal in market value to the amount of the outstanding loan, plus accrued
interest, or by selling the shares, provided that the net proceeds of such sales
are used to repay the loan, plus accrued interest. If shares are used to repay
the loan directly, the market value of the shares shall be determined by the
average bid price of the stock for the five trading days immediately preceding
the due date of the loan.
On October 20, 1999, we borrowed $600,000 from The Orbiter Fund Ltd, an
entity controlled by Michael Lauer, one of our principal shareholders. The loan
agreement originally provided for a term of four months with interest of 10% per
annum payable upon maturity of the loan. As an incentive for loaning the funds
to us, we issued 250,000 shares which we agreed to register for resale in this
prospectus. The loan document also provides that if we do not repay it in full
within fifteen days following its due date, we will issue an additional 250,000
shares for each sixty day period the loan remains unpaid. The lender also has
the right to convert the loan
<PAGE>
Page 30 of 48
into our shares at $1.00 per share. If the loan is converted, three of our
shareholders, Frederick R. Licht, a current officer, director, and principal
shareholder, Martin J. Burke, III, a former director and a principal
shareholder, and Jay Botchman, have agreed to sell their shares in equal amounts
to the lender at $0.10 per share, up to an aggregate of 500,000 shares, for each
$3.00 of loaned funds converted by the lender. We were unable to repay the loan
on the original due date. We negotiated an extension of the loan and agreed to
pay $60,000 on or before May 31, 2000, and the balance, plus interest, on or
before August 1, 2000. We also agreed to issue 250,000 shares to the lender for
failure to repay the loan on the original due date and 100,000 shares for
agreeing to extend repayment of the loan. We have agreed to register these
shares for resale in this prospectus.
MARKET INFORMATION
Our shares were quoted on the OTC Electronic Bulletin Board beginning
August 11, 1998, through November 1999; they are currently quoted on the Pink
Sheets. Based upon the limited volume of trading, we do not believe that there
exists an established market for our stock. The table below sets forth for the
periods indicated the high and low bid quotations as reported by the Trading and
Marketing Services Department of NASDAQ. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C> <C>
FISCAL YEAR ENDED Third $0.1250 -0-
JANUARY 31, 1999 Fourth $0.3125 $0.0938
FISCAL YEAR ENDED
JANUARY 31, 2000 First $3,9375 $0.1250
Second $3.0625 $1.6563
Third $3.00 $0.75
Fourth $0.75 $0.375
</TABLE>
At May 1, 2000, we had outstanding options to purchase 592,000 shares and
outstanding warrants to purchase 250,000 shares. The options were issued under
our existing stock option plan.
None of the shares of common stock is subject to outstanding options or
warrants to purchase, or securities convertible into our common stock, except
for the 592,000 outstanding options issued under our stock option plan and the
warrants held by Ms. Fensterheim to purchase 250,000 shares. None of our shares
is being, nor have any shares proposed to be, publicly offered by us. However,
we have granted registration rights to the selling shareholders to register up
to
<PAGE>
Page 31 of 48
770,000 of the outstanding restricted shares and to Deborah Fensterheim to
register the shares underlying the warrants granted to her. In connection
with the 150,000 restricted shares held by Noble House of Boston, Inc., we
have agreed to provide up to three opportunities to register these shares at
any time commencing April 5, 2000 and ending four years thereafter.
As of January 7, 2000, there were approximately 478 holders of record of
our shares as reported to us by our transfer agent.
Our shares are subject to Rule 15g-9 under the Exchange Act. That rule
imposes additional sales practice requirements on broker-dealers that sell
low-priced securities designated as "penny stocks" to persons other than
established customers and institutional accredited investors. The SEC's
regulations define a "penny stock" to be any equity security that has a market
price less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. Initially our stock will be penny stock.
We cannot assure you that our shares will ever qualify for exemption from these
restrictions. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may affect the ability of broker-dealers to sell our shares and may affect
the ability of holders to sell their shares in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 11,070,000 outstanding
shares. Of those, the 3,600,000 shares being offered in this offering, will,
subject to any applicable state law restrictions on secondary trading, be freely
tradeable without restriction under the Securities Act, except that any shares
purchased by "affiliates," as that term is defined in Rule 144 under the
Securities Act, will be subject to the resale limitations of Rule 144. Also,
770,000 outstanding restricted shares are being registered for resale.
The remaining 4,622,240 shares are "restricted" within the meaning of Rule
144 under the Securities Act, and are not being registered for resale. Of this
number, approximately 9,988 shares may be eligible for immediate sale in the
public market without restriction under Rule 144(k). In the reverse acquisition
transaction between us and AllStar Arena which closed on April 6, 1999, we
issued 3,850,000 restricted shares to the shareholders of AllStar. All but
1,639,600 of these shares may be available for resale beginning approximately
April 6, 2000, or ninety days after the date of this prospectus, whichever is
later, if all of the requirements of Rule 144 in addition to the holding period
are met; the remaining shares are subject to the lock-up agreement and will not
be eligible for resale until at least one year from the date of this prospectus.
In general, under Rule 144, as currently in effect, any person who has
beneficially owned restricted shares for at least one year, is entitled to sell,
within any three-month period, a number
<PAGE>
Page 32 of 48
of shares that does not exceed the greater of 1% of our then outstanding shares,
or the average weekly trading volume of our stock during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
SEC. Sales pursuant to Rule 144 are also subject to certain requirements
relating to manner of sale, notice and availability of current public
information about us. A person who is not deemed to have been an affiliate at
any time during the 90 days immediately preceding the sale and whose restricted
shares have been fully-paid for two years since the later of the date they were
acquired from us, or the date they were acquired from one of our affiliates, may
sell these restricted shares under Rule 144(k) without regard to the limitations
and requirements described above. Restricted shares may not be resold under Rule
144 until ninety days from the date of this prospectus, regardless of when the
one year holding period expires.
We cannot predict the effect, if any, that sales of shares under Rule 144
or the availability of shares for sale will have on the market price of our
stock prevailing from time to time. We are unable to estimate the number of
shares that may be sold in the public market under Rule 144, because the amount
will depend on the trading volume in, and market price for, our stock and other
factors. Nevertheless, sales of substantial amounts of shares in the public
market, or the perception that sales of these shares could occur, could
adversely affect the market price of our stock.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the shares
common stock ownership as of February 10, 2000, of each person who is known to
us to be the beneficial owner of more than five percent of our common stock; by
each of our executive officers and directors; and by executive officers and
directors as a group. Such information was furnished to us by such persons or
was obtained from information provided by the transfer agent.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
Of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Before Offering After Offering
--------------- --------------
Min. Max.
---- ----
<S> <C> <C> <C> <C>
Frederick R. Licht 1,038,750 13.9% 10.5% 9.4%
2444 Wilshire Boulevard
Suite 414
Santa Monica, CA 90403
Drew Gitlin 500,000(1) 6.3% 4.8% 4.3%
1501 N. Anita Dr.
Los Angeles, CA 90049
<PAGE>
Page 33 of 48
Executive officers and
directors as a group (2 persons) 1,538,750 19.3% 14.8% 13.3%
Martin J. Burke III 710,750 9.51% 7.2% 6.4%
3401 N. Louise Ave.
Sioux Falls, SD 57107
Joseph Yukich 392,500 5.25% 4% 3.5%
16035 East Marlinton Dr.
Whittier, CA 90604
Michael Lauer 600,000(2) 7.43% 5.9% 5.3%
The Orbiter Fund
475 Steamboat Road
Greenwich, CT 06830
</TABLE>
(1) The number of shares stated represents presently exercisable options to
purchase this number of shares. For purposes of the number of shares
beneficially owned by Mr. Gitlin, and the percentage of shares which he owns,
they are deemed to be issued and outstanding.
(2)Of these shares 250,000 are currently issued and held directly in the
name of The Orbiter Fund Ltd. This fund also has the right to receive an
additional 350,000 shares immediately. These additional shares are deemed
outstanding for purposes of computing the percentage ownership held by Mr. Lauer
and The Orbiter Fund Ltd. Mr. Lauer is the investment manager of The Orbiter
Fund Ltd. Mr. Lauer controls the voting and disposition of these shares by
virtue of being the investment manager for this entity.
LOCK-UP OF SHARES
Frederick R. Licht, our sole officer and director, Martin Burke, III, a
former director and principal shareholder, and Jay Botchman, a shareholder, have
entered into an agreement not to sell, pledge, hypothecate, transfer, or
otherwise dispose of 80% of any shares of common stock owned by them for a
period of 12 months from the date of this prospectus, unless required pursuant
to the loan agreement with The Orbiter Fund Ltd. The shares subject to the
lock-up consist of 1,639,600 shares owned by these parties.
SELLING SHAREHOLDERS
An aggregate of up to 770,000 shares issued previously may be offered for
resale pursuant to this registration statement by the investors listed below.
The following table sets forth certain information with respect to each selling
security holder. We will not receive any of the proceeds from the sale of these
securities. There are no material relationships between any of the selling
<PAGE>
Page 34 of 48
security holders and us, or any of our predecessors or affiliates, nor have any
such material relationships existed within the past three years, except as
follows:
- The Orbiter Fund, Ltd., an entity for which Michael Lauer, one of our
principal shareholders, acts as investment manager, has loaned us
$600,000, which amount is still outstanding.
- Mr. Vance has acted as legal counsel for us since approximately March
1999.
- Nobel House of Boston, Inc., an entity controlled by Douglas L.
Carley, the president and principal shareholder of this company,
provided advertising and promotional services for us from March 1999
until October 1999.
Except as described below, no selling security holder will beneficially own
any of our securities if the selling security holders' shares are sold. Each of
the selling security holders intends to offer and sell all of the securities
listed below.
<TABLE>
<CAPTION>
Number of
Securities to % of
Number of Number of be Beneficially Class
Name of Selling Securities Securities Owned on Comple- After
Shareholder Beneficially Owned Being Offered tion of Offering Offering
- ----------- ------------------ ------------- ---------------- --------
<S> <C> <C> <C> <C>
The Orbiter Fund,
Ltd. 600,000 600,000 -0- -0-
Ronald N. Vance 44,000 20,000 24,000 *
Noble House of
Boston, Inc. 169,000 150,000 19,000 *
</TABLE>
- --------------
*Less than 1%
The sale of the shares by the selling security holders may be effected from
time to time in transactions in the over-the-counter market or in negotiated
transactions or otherwise. These transactions may include block transactions by
or for the account of the selling security holders. Sales may be made at fixed
prices which may be changed, at market prices, if any, prevailing at the time of
sale, or at negotiated prices.
<PAGE>
Page 35 of 48
The selling security holders may effect these transactions by selling their
shares directly to purchasers, through broker-dealers acting as agents for the
selling security holders or to broker-dealers who may purchase the securities as
principals and thereafter sell the securities from time to time in the
over-the-counter market, if any, in negotiated transactions or otherwise. These
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or the purchasers
for whom the broker dealers may act as agents or to whom they may sell as
principals or otherwise, which compensation as to a particular broker-dealer may
exceed customary commissions.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in the distribution of the selling security holders' shares
may not simultaneously engage in market making activities with respect to any of
our securities for a period of at least two, and possibly nine, business days
prior to the start of any distribution.
The selling security holders and broker-dealers, if any, acting in
connection with these sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
We will attempt to maintain the effectiveness of the registration statement
of which this prospectus is a part for at least 180 days for the selling
security holders.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share. As of February 10, 2000, we had outstanding 7,470,000 shares.
All common shares are equal to each other with respect to voting, and dividend
rights, and are equal to each other with respect to liquidations rights. Special
meetings of the shareholders may be called by the president, the Board of
Directors, or upon the request of holders of at least one-tenth of the
outstanding voting shares. Holders of common shares are entitled to one vote at
any meeting of the shareholders for each common share they own as of the record
date fixed by the Board of Directors. At any meeting of shareholders, a majority
of the outstanding common shares entitled to vote, represented in person or by
proxy, constitutes a quorum. A vote of the majority of the common shares
represented at a meeting will govern, even if this is substantially less than a
majority of the common shares outstanding. Holders of shares are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor, and upon liquidation are entitled to participate pro
rata in a distribution of assets available for such a distribution to
shareholders. There are no conversion, pre-emptive or other subscription rights
or privileges with respect to any share. Reference is made to our Articles of
Incorporation and Bylaws, as well as to the applicable statutes of the State of
Delaware, for a more complete description of the rights and liabilities of
holders of shares. The shares do not have cumulative
<PAGE>
Page 36 of 48
voting rights, which means that the holders of more than fifty percent of the
common shares voting for election of directors may elect all the directors if
they choose to do so. In such event, the holders of the remaining shares
aggregating less than fifty percent will not be able to elect directors.
REGISTRATION RIGHTS OF OUTSTANDING SHARES
In April 1999, one of our shareholders transferred 150,000 restricted
shares of our stock to Noble House of Boston, Inc. for marketing and promotional
services rendered by them. In connection with the agreement for the services
rendered by Noble House, we entered into a Registration Rights Agreement which
provides both demand and piggy-back registration rights. Under the demand
rights, the holders of at least 50% of the shares issued to Noble House have the
right to request registration of the shares up to three times through April 5,
2003. Noble House has also agreed to lock up these shares and not sell them
prior to April 5, 2000. The agreement also provides for reciprocal
indemnification if either party furnishes information containing an untrue or
alleged untrue statement of material fact which is contained in the registration
statement.
In October 1999, we issued 250,000 shares to The Orbiter Fund Ltd. in
connection with a loan by that entity to us in the amount of $600,000. We
subsequently issued another 350,000 shares to The Orbiter Fund Ltd. In
connection with the transaction, we agreed to use our best efforts to include
the 600,000 shares in our next registration statement.
In November 1999, we issued 20,000 shares to Ronald N. Vance, P.C., our
counsel, as partial consideration for preparation of this registration
statement. We agreed to include these shares in this registration statement.
Also in November 1999 we sold 250,000 warrants to Deborah Fensterheim. The
warrant certificate provides both piggy-back and demand registration rights. If
we file a registration statement in the future, except in connection with any
stock option plan, stock purchase plan, savings or similar plan or an
acquisition, merger, or exchange of stock, Ms. Fensterheim will have the right,
at our expense, to include the shares underlying the warrants. She has waived
her right to have such shares included in this offering. She also has the right
to demand that such shares be included in a registration statement subsequent to
this one if one is not otherwise filed prior to December 31, 2000. We would bear
the full cost of preparing and filing such registration statement.
TRANSFER AGENT
The transfer agent for our common stock is Interwest Transfer Company,
Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117.
<PAGE>
Page 37 of 48
DIVIDEND POLICY
We have not declared or paid any cash dividends as yet on the common stock
and the Board of Directors has not yet decided on a dividend policy. Whether
dividends will be paid will be determined by the Board of Directors and will
necessarily depend on our earnings, financial condition, capital requirements
and other factors. The Board of Directors has no current plans to declare any
dividends in the foreseeable future.
PLAN OF DISTRIBUTION
This offering is being conducted by us, through Mr. Licht, our sole officer
and director. Mr. Licht anticipates offering the shares to persons with whom he
has existing personal and business relationships, and to persons referred to him
by such persons. The arrangement with Mr. Licht does not provide for
indemnifying him against liability under the Securities Act. Insofar as
indemnification by us for liabilities arising under the Securities Act may be
permitted to Mr. Licht, we are aware that in the opinion of the Securities and
Exchange Commission this indemnification would be against public policy as
expressed in the Securities Act and is therefore, unenforceable.
The minimum amount of this offering by us is 2,400,000 shares and all of
these shares must be sold if any are to be sold. The maximum number of shares to
be sold by us in this offering is 3,600,000. The cash offering price is $0.50
per share. The common stock may also be offered and sold through participating
brokers/dealers who are members of the NASD. We will pay a maximum commission of
10% of the offering price for shares sold by these broker/dealers. The minimum
subscription is 1,000 shares. We will not pay a commission to Mr. Licht for
sales made by him. We and participating broker/dealers may further agree to
indemnify each other against certain liabilities, including liabilities arising
under the Securities Act of 1933. No one, including us or any broker/dealer, has
made any commitment to purchase any or all of the shares offered hereby. Rather,
Mr. Licht will use his best efforts to find purchasers for the minimum shares
until ______, 2000, subject to an extension in our sole discretion for an
additional period not to exceed thirty days. The maximum duration of the
offering will be until ____, 2000.
All proceeds from subscriptions with respect to the first 2,400,000 shares
being offered by us will be deposited promptly with US Bank, as escrow agent for
this offering pursuant to the terms of a Funds Escrow Agreement. All of the
proceeds of this offering will be deposited in the escrow account no later than
noon of the business day next following receipt. In the event that the minimum
number of shares is not sold, on or before ninety days from the date of this
prospectus, subject to an additional period not to exceed thirty days, all funds
will be refunded promptly to subscribers in full without deduction therefrom or
interest thereon. If the minimum proceeds are received before expiration of the
minimum offering period, the funds will be disbursed to us. Subsequent proceeds
will be immediately disbursed to us. During the offering
<PAGE>
Page 38 of 48
period or any extension thereof, no subscriber will be entitled to a refund of
any subscription. We reserve the right to accept or reject any subscription, in
whole or in part.
We anticipate making sales of the shares to residents of the states of
New York, California and Texas, as well as other persons resident in other
states who have expressed an interest in our company, or persons we believe
may be interested in purchasing our shares. We may sell shares to these
persons only if they reside in a state in which we are permitted to sell the
shares.
Our officers, directors, present shareholders and persons associated with
them, may purchase some of the shares offered hereby. However, officers,
directors, present shareholders and their associates will not be permitted to
purchase more than twenty percent of the shares to be sold hereunder and these
shares will be held by those persons for investment and not for distribution. To
the extent that these persons acquire shares in the offering, the number of
shares required to be purchased by new investors to reach the minimum will be
reduced by a like amount. Any of these sales will be made on the same terms and
conditions as sales made to other purchasers. No proceeds from this offering
will be used to finance any purchases of shares by officers, directors, present
shareholders or their associates.
PRICING THE COMMON STOCK
The offering price of our shares of common stock was not determined in any
arms' length negotiations. In arriving at that price, our board of directors
took into account such factors as the current market price of our shares, our
lack of significant history and operations, our assets, plan of operation, and
anticipated costs of our continued development and operation. However, the
offering price of the shares should not be understood as an indication of the
value of the shares offered or an assurance that you will be able to resell
these shares for an amount equal to or more than the offering price. The
offering price of the shares bears no necessary relationship to the market
price, our assets, book value, lack of earnings, net worth or other recognized
criterion of value.
In as much as we have not retained an underwriter or broker/dealer to
assist in this offering, the offering price has not been arrived at through a
process of arms-length negotiation. Accordingly, new investors bear a
disproportionate risk to that of existing shareholders attendant to the fact
that the offering price was arrived at arbitrarily, rather than by arms-length
bargaining.
DELIVERY OF COMMON STOCK
We intend to timely issue certificates for the shares after completion of
the minimum offering, and thereafter upon receipt and acceptance of additional
subscriptions. We will forthwith mail such certificates directly to investors at
their addresses as set forth in their subscription agreements.
<PAGE>
Page 39 of 48
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for us by
Ronald N. Vance, P.C., Attorney at Law, Salt Lake City, Utah. Mr. Vance is the
beneficial owner of 44,000 shares. Of these, 20,000 were received as partial
consideration for representing us in the preparation of the registration
statement of which this prospectus is a part.
EXPERTS
Our financial statements for the years ended January 31, 2000 and 1999,
included in this prospectus have been examined by Pritchett, Siler & Hardy,
P.C., Certified Public Accountants. The financial statements examined by the
Certified Public Accountants have been included in reliance upon their audit
report.
FINANCIAL STATEMENTS
We have attached to this prospectus copies of our audited financial
statements as of January 31, 2000 and 1999, consisting of balance sheets at
January 31, 2000 and 1999, and the related statements of operations,
stockholders' deficit and cash flows for the years ended January 31, 2000 and
1999.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Santa Monica, California
We have audited the accompanying balance sheet of Ultimate Sports Entertainment,
Inc. and Subsidiary as of January 31, 2000, and the related statements of
operations, stockholders' (deficit) and cash flows for the years ended January
31, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Ultimate Sports Entertainment, Inc.
and Subsidiary as of January 31, 2000 and the results of their operations and
their cash flows for the years ended January 31, 2000 and 1999, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 13 to the financial
statements, the Company has incurred significant losses, has current liabilities
in excess of current assets and has a stockholders' (deficit), raising
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 13. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
March 26, 2000
Salt Lake City, Utah
F-1
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
January 31,
2000
-----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,949
Inventory 82,456
Accounts receivable 3,973
Prepaid assets 20,833
-----------
Total Current Assets 123,211
-----------
PROPERTY AND EQUIPMENT, net 20,274
-----------
OTHER ASSETS:
Deposits 1,050
License agreements 14,899
Receivable from shareholder 40,000
-----------
Total Other Assets 55,949
-----------
$ 199,434
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 136,493
Accrued liabilities 27,866
Notes payable - related party 600,000
Current portion of capital lease obligation 2,903
-----------
Total Current Liabilities 767,262
LONG-TERM OBLIGATIONS:
Capital lease obligation, less current portion 3,624
-----------
Total Long-Term Obligations 3,624
-----------
Total Liabilities 770,886
-----------
STOCKHOLDERS' (DEFICIT):
Common stock, $.001 par value, 50,000,000
shares authorized, 7,982,457 shares issued
and outstanding 7,982
Additional paid in capital 1,145,746
Retained (deficit) (1,725,180)
-----------
Total Stockholders' (Deficit) (571,452)
-----------
$ 199,434
===========
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
F-2
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
January 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
SALES, net of returns and discounts $ 13,047 $ 15,871
COST OF GOODS SOLD 274,566 46,543
----------- -----------
GROSS LOSS (261,519) (30,672)
----------- -----------
OPERATING EXPENSES:
General and administrative 869,914 178,668
Selling Expenses 71,844 53,217
----------- -----------
Total Operating Expenses (941,758) (231,855)
----------- -----------
LOSS FROM OPERATIONS (1,203,277) (262,557)
----------- -----------
OTHER EXPENSE:
Interest expense (118,748) (22,433)
Loss on disposal of assets -- (1,812)
----------- -----------
Total Other (Expense) (118,748) (24,245)
----------- -----------
LOSS BEFORE INCOME TAXES (1,322,025) (286,802)
CURRENT TAX EXPENSE -- --
DEFERRED TAX EXPENSE -- --
----------- -----------
NET LOSS $(1,322,025) $ (286,802)
=========== ===========
LOSS PER COMMOM SHARE $ (.41) $ (.07)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
[RESTATED]
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid in Retained
Shares Amount Capital (Deficit)
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, January 31, 1998 3,850,000 3,850 6,150 (116,353)
Net loss for the year ended
January 31, 1999 -- -- -- (286,802)
--------- ----------- ----------- -----------
BALANCE, January 31, 1999 3,850,000 3,850 6,150 (403,155)
Common stock issued for
cash at $.50 per share,
April 1999 1,300,000 1,300 648,700 --
Common stock issued in
connection with
reorganization of
subsidiary, April 1999 1,950,000 1,950 (1,950) --
Common stock issued to
retire notes payable at
$.50 per share, August 1999 532,457 532 265,696 --
Common stock issued for
interest expense at $.50
per share, October 1999 250,000 250 124,750 --
Common stock issued
to retire notes payable at
$1.00 per share, August 1999 100,000 100 99,900 --
Issuance of 250,000 warrants to
purchase common stock for services
rendered, valued at $2,500,
November 1999 -- -- 2,500 --
Net loss for the year ended
January 31, 2000 -- -- -- (1,322,025)
--------- ----------- ----------- -----------
BALANCE, January 31, 2000 7,982,457 $ 7,982 $ 1,145,746 $(1,725,180)
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
F-4
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For the Year
Ended
January 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $(1,322,025) $ (286,802)
----------- -----------
Adjustments to reconcile net loss to net cash used by operating activities:
Loss on disposal of equipment -- 1,812
Depreciation and amortization 3,655 381
Non-cash expense 127,500 --
Changes in assets and liabilities:
(Increase) in other assets 13,851 (50,417)
(Increase) decrease in accounts receivable (3,973) 18,039
(Increase) in inventory (31,297) (41,309)
Increase (decrease) in accounts payable - trade 43,311 72,320
Increase in accrued expenses (24,737) 42,117
(Increase) in bank overdraft (1,957) 1,755
Increase (decrease) in taxes payable -- 800
(Increase) decrease in prepaid assets (20,833) --
----------- -----------
Total Adjustments 105,520 45,498
----------- -----------
Net Cash (Used) by Operating Activities (1,216,505) (241,304)
----------- -----------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchase of equipment (14,196) (2,009)
----------- -----------
Net Cash (Used) by Investing Activities (14,196) (2,009)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from common stock issuance 650,000 --
Proceeds from notes payable - related party 600,000 339,400
Payments on notes payable - related party -- (95,863)
Payments on capital lease obligations (3,350) (224)
----------- -----------
Net Cash Provided by Financing Activities 1,246,650 243,313
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,949 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,949 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
</TABLE>
[CONTINUED]
F-5
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
[CONTINUED]
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended January 31, 1999:
The Company issued 3,850,000 shares of common stock in a non-cash
acquisition accounted for as a reorganization of the Company.
The Company issued 250,000 shares of common stock in payment of interest
of $125,000.
The Company issued 532,457 shares of common stock to retire notes payable
for $266,228.
The Company issued 100,000 shares of common stock to retire notes payable
for $100,000.
The Company issued 250,000 warrants to purchase common stock for services
valued at $2,500
For the year ended January 31, 1998:
The Company entered into a capital lease for equipment valued at $9,917.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - Ultimate Sports Entertainment, Inc.
[Parent] was originally incorporated under the laws of the State of Utah on
August 24, 1981, under the name "Edge Investment Company." On October 13,
1983, the Company changed its name to "American Surgical Laser, Inc." The
Company changed its domicile to Delaware by merging into a Delaware
corporation formed for this purpose. The merger was effective on April 12,
1985. The Delaware corporation was incorporated on January 21, 1985, under
the name "American Surgical Laser-Del, Inc." The Company changed its name
to "Eclipse Imports, Inc." on June 10, 1997. On March 12, 1999, the Company
changed its name to "Neurochemical Research International, Corp." The
effective date of the name change to "Ultimate Sports Entertainment, Inc."
was April 7, 1999.
The Company was initially formed for the purpose of investing in and
managing real property and in late 1983 entered the laser medical research
and development field. The development activity continued until 1986 when
the project was discontinued because of a lack of funds and a conflict in
management. The Company is currently engaged in the manufacturing and
marketing of comic books through its wholly-owned subsidiary. The Company's
principal markets are geographically disbursed throughout the United
States.
AllStar Arena Entertainment [Subsidiary] (a California Corporation
incorporated June 26, 1996, formerly Lobito Publishing Group, Inc.), is
engaged in the manufacturing and marketing of Comic Books.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All
significant intercompany transactions have been eliminated in
consolidation.
INVENTORIES - Inventories are stated at the lower of cost or market value
using the first-in, first-out method [See Note 5].
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes [See Note 9].
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to operating expense
as incurred. Expenditures for additions and betterments that extend the
useful lives of property and equipment are capitalized, upon being placed
in service. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is included in operations.
DEPRECIATION - Depreciation of equipment is computed using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lease period or the estimated
useful life of the improvements, whichever is less.
LOSS PER SHARE - Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," requires the Company to present basic loss per share
and dilutive earnings (loss) per share when the effect is dilutive. The
computation of loss per share is based on the weighted average number of
shares outstanding during the period presented. [See Note 9].
F-7
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
CASH AND CASH EQUIVALENTS - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION - Revenue is recognized when the product is shipped.
RECENTLY ENACTED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards (SFAS) No. 132, "Employer's Disclosure about Pensions and Other
Postretirement Benefits", SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", SFAS No. 134, "Accounting for
Mortgage-Backed Securities...", SFAS No. 135, "Rescission of FASB Statement
No. 75 and Technical Corrections", SFAS No. 136, "Transfers of Assets to a
not for profit organization or charitable trust that raises or holds
contributions for others", and SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - deferral of the effective date of FASB
statement No. 133 ( an amendment of FASB Statement No. 133.)," were
recently issued. SFAS No. 132, 133, 134, 135, 136 and 137 have no current
applicability to the Company or their effect on the financial statements
would not have been significant.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated by management.
NOTE 2 - RECAPITALIZATION
On April 6, 1999 the Parent acquired all of the outstanding stock of the
Subsidiary by issuing 3,850,000 post-split shares of common stock for all
of the outstanding shares of AllStar Arena Entertainment which made it a
wholly owned Subsidiary. The Company also issued 1,300,000 post split
shares of common stock at $.50 per share in a limited offering preceding
the closing of the agreement pursuant to Rule 504 of Regulation D. The
proceeds of the offering were transferred to AllStar at the closing. The
acquisition was accounted for as a recapitalization of the Subsidiary as
the shareholders of the Subsidiary controlled the combined Company after
the acquisition. There was no adjustment to the carrying values of the
assets or liabilities of the Parent or the Subsidiary as a result of the
recapitalization. The consolidated financial statements include the
accounts of the Parent and the Subsidiary. All significant intercompany
transactions between Parent and Subsidiary have been eliminated in
consolidation.
F-8
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation and amortization as of January 31, 2000:
<TABLE>
<CAPTION>
2000
---------
<S> <C>
Office equipment $ 24,113
---------
24,113
Less: accumulated depreciation (3,839)
---------
20,274
---------
</TABLE>
Depreciation and amortization expense for the periods ended January 31,
2000 and 1999 amounted to $3,655 and $184.
NOTE 4 - LICENSE AGREEMENTS
License Agreements consist of two one year license agreements, one with
Major League Baseball and the other with National Football League, for the
use of their names and likeness in the comic books produced by the Company.
As of January 31, 2000, the net amortized value was $14,899.
NOTE 5 - INVENTORY
Inventory consists of the following at January 31, 2000:
<TABLE>
<CAPTION>
2000
---------
<S> <C>
Finished goods $ 44,756
Work-in-progress 37,700
---------
Total Inventory $ 82,456
---------
</TABLE>
NOTE 6 - ACCRUED LIABILITIES
The following is a summary of accrued liabilities as of January 31, 2000:
<TABLE>
<CAPTION>
2000
---------
<S> <C>
Accrued payroll taxes $ 9,200
Accrued interest 18,666
---------
$ 27,866
---------
</TABLE>
F-9
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE - RELATED PARTY
The following is a summary of notes payable to related parties, as of
January 31, 2000:
<TABLE>
<CAPTION>
2000
---------
<S> <C>
10% unsecured note payable
to a shareholder due February 20,
2000, subsequently in default $ 600,000
---------
600,000
Less: current portion (600,000)
---------
Long-term portion $ --
---------
</TABLE>
During the years ended January 31, 2000 and 1999 the Company received
various advances from shareholders totaling $366,228. All the advances
where converted to stock during the fiscal year ended January 31, 2000 (See
Note 11).
NOTE 8 - LEASE OBLIGATIONS
CAPITAL LEASE - During the year ended January 31, 1999, the Company entered
into a capital lease of computer equipment which expires in December 2001.
The asset and liability under the capital lease was recorded at $9,917.
Depreciation expense for the period ended January 31, 2000 amounted to
$2,480.
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the period ended October 31:
<TABLE>
<CAPTION>
Period ending January 31, Lease Payments
------------------------- --------------
<S> <C>
2001 $ 4,042
2002 3,705
2003 --
2004 --
----------
Total future minimum lease payments $ 7,747
Less: amounts representing interest and executory costs (1,220)
----------
Present value of the future minimum lease payments 6,527
Less: current portion (2,903)
----------
Capital lease obligations - long-term $ 3,624
----------
</TABLE>
F-10
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASE OBLIGATIONS [CONTINUED]
OPERATING LEASE - The Company has entered into a building lease for its
office and production facility. The lease on the facility expires in May,
2002, and may be extended by mutual agreement on a year-to-year basis. The
lease can be canceled if either side provides written notice one year in
advance. Lease expense for the period ended January 31, 2000 amounted to
$24,701. Following is a schedule of minimum annual rental payments for the
next five years.
<TABLE>
<CAPTION>
Period Ending Minimum Annual
January 31, Rental Payments
------------- ---------------
<S> <C>
2000 $ 27,084
2001 6,771
2002 --
2003 --
2004 --
---------
$ 33,855
---------
</TABLE>
NOTE 9 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of potential
dilutive common stock for the periods ended January 31, 2000 and 1999:
<TABLE>
<CAPTION>
For the Period Ended
January 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Loss from continuing operations available
to common stockholders (numerator) $(1,322,025) $ (286,802)
Weighted average number of common
shares outstanding used in basic
earnings per share (denominator) 3,227,702 3,850,000
----------- -----------
Weighted number of common shares and potential
dilutive common shares outstanding used in
dilutive earnings per share (denominator) N/A N/A
----------- -----------
</TABLE>
Dilutive loss per share was not presented, as the affect is anti-dilutive.
F-11
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards.
The Company has available at January 31, 2000, unused operating loss
carryforwards of approximately $1,725,000 which may be applied against
future taxable income and which expire in various years from 2010 through
2020. The amount of and ultimate realization of the benefits from the
operating loss carryforwards for income tax purposes is dependent, in part,
upon the tax laws in effect, the future earnings of the Company, and other
future events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the amount of the
loss carryforwards, therefore, no deferred tax asset has been recognized
for the loss carryforwards. The net deferred tax asset is approximately
$586,000 as of January 31, 2000, with an offsetting valuation allowance at
year end of the same amount resulting in a change in the valuation
allowance of approximately $324,000 during the period ended January 31,
2000.
NOTE 11 - CAPITAL STOCK
COMMON STOCK - During June 1996, the Company issued 1,950,000 shares of its
previously authorized, but unissued common stock for cash. Total proceeds
from the sale of stock amounted to $10,000 (or $0.01 per share).
During April 1999, the Company completed a 504(D) limited offering. The
Company issued 1,300,000 shares of its previously authorized, but unissued
common stock for cash. Total proceeds from the sale of stock amounted to
$650,000 (or $.50 per share).
During April 1999, the Company issued 3,850,000 shares of its previously
authorized, but unissued common stock in connection with a business
recapitalization (See Note 2).
During August 1999, the Company issued 532,457 and 100,000 shares of its
previously authorized, but unissued common stock to retire debt, at $.50
and $1.00 per share, respectively.
During October 1999, the Company issued 250,000 shares of its previously
authorized, but unissued common stock to pay interest expense at $.50 per
share.
During November 1999, the Company issued 250,000 warrants to purchase
common stock at $2.00 per share. Consideration for the warrants was $2,500
of legal services.
NOTE 12 - RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO SHAREHOLDERS - During the period from June 1996 through
January 2000, shareholders of the Company loaned the Company $600,000 at
interest rates of 10% compounding yearly. At January 31, 2000, accrued
interest amounted to $18,666.
RECEIVABLE FROM SHAREHOLDER - During the year ended January 31, 2000, the
Company advanced a shareholder $40,000, which is included on other assets.
F-12
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has incurred
significant losses during 2000 and 1999, has current liabilities in excess
of current assets of $644,051 at January 31, 2000, and has a stockholders'
deficit of $571,452. These items raise substantial doubt about the ability
of the Company to continue as a going concern.
Management's plans in regards to these matters are as follows:
Management is proposing to raise any necessary additional funds not
provided by operations through loans and/or through additional sales
of its common stock. Management believes that it can improve
operations, refinance debt, convert debt to equity, and reduce
expenses. Management believes that a combination of these efforts will
be necessary to continue operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to obtain additional financing, establish profitable
operations or realize its plans.
NOTE 14 - LITIGATION
The Company is involved in various litigation as part of its normal
business operations. In management's opinion, the ultimate resolution of
these cases will not have a material adverse effect on the Company's
financial position.
NOTE 15 - SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK - The Company is proposing to make
a public offering of 3,500,000 shares of common stock at a price of $1.00
per share. The Company plans to file a registration statement with the
United States Securities and Exchange Commission on Form SB-2 under the
Securities Act of 1933. An offering price of $1.00 per unit has arbitrarily
been determined by the Company. The offering will be managed by the Company
without any underwriter. The units will be offered and sold by the
directors and officers of the Company, who will receive no reimbursement of
expenses actually incurred on behalf of the Company in connection with the
offering. An undetermined number of shares may be sold through
broker/dealer who are members of the National Association of Securities
Dealer, Inc. and who will be paid a 10% commission on any sale they make.
The Company estimates it will incur stock offering costs of approximately
$65,000, but any such costs will be deferred and netted against the
proceeds of the proposed public stock offering.
STOCK TO BE ISSUED UPON RENEWAL OF N/P - Subsequent to the date of the
financial statements, the Company issued 250,000 shares of common stock to
the holders of the $600,000 related party note payable due to a special
negotiated default right.
F-13
<PAGE>
Page 40 of 48
[OUTSIDE BACK COVER]
Dealer Prospectus Delivery Obligation
Until _____, 2000, (ninety days after the date of this prospectus) all
dealers that effect transactions in these securities may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
Page 41 of 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
expressly authorizes a Delaware corporation to indemnify its officers,
directors, employees, and agents against claims or liabilities arising out of
such persons' conduct as officers, directors, employees, or agents for the
corporation if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the Company. Article VI of the
Bylaws of the Company provides that the corporation shall indemnify its
officers, directors, and agents to the fullest extent permitted under Delaware
law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Item 2. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the offering described in the registration statement:
<TABLE>
<S> <C>
Registration Fee $390
Blue Sky Fees 2,000
Accounting Fees and Expenses 24,000
Legal Fees and Expenses 30,000
Printing and Engraving 5,000
Transfer Agent Fees 500
Miscellaneous 3,110
-------
Total Expenses $65,000
=======
</TABLE>
None of the expenses will be paid by the selling securityholders.
Item 3. Undertakings
(a) The Company hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section
<PAGE>
Page 42 of 48
10(a)(3) of the Securities Act of 1933; (ii) reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change in the
information in the registration statement; and (iii) 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 the purpose of determining liability under the Securities Act of
1933, treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall be the
initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer 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 Act and will be governed by the final adjudication of such
issue.
(d) The Company will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the Company under Rule 424(b) (1) or (4) or 497(h) under the Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that the offering of
the securities at that time as the initial bona fide offering of those
securities.
(e) The Company will use a sticker amendment if between 5% and 10% of the shares
subject to the lock-up agreement attached as an exhibit to this registration
statement are released from this agreement. If greater than 10% of such shares
are released, the Company will file a post-effective amendment to this
registration statement.
<PAGE>
Page 43 of 48
Item 4. Unregistered Securities Issued or Sold Within Three Years
In February 1997 the Company issued 6,000 shares each (adjusted for
subsequent stock splits) of the Common Stock of the Company to two of its
directors, Layne Meriwether and Darryl Meiwether. These shares were subsequently
canceled for failure of consideration. It also issued 6,000 shares to Mark
Meriwether. Such shares were issued without registration under the Act by reason
of the exemption from registration afforded by the provisions of Section 4(2)
thereof as transactions by an issuer not involving any public offering. Each of
the stock certificates received by the named parties contained restrictive
legends pursuant to Rule 144. No underwriting discounts or commissions were paid
in connection with such issuance. Management believes that no form of general
solicitation was used in connection with such issuance. Management also believes
that Mr. Meriwether was a sophisticated investor at the time of receipt of the
stock and had access to the kind of information normally provided in a
prospectus.
In March 1997 the Company issued 13,333 shares each (adjusted for
subsequent stock splits) of the Common Stock of the Company to two of its
directors, Layne Meriwether and Darryl Meiwether. These shares were subsequently
canceled for failure of consideration. It also issued 13,333 shares to Mark
Meriwether. Such shares were issued without registration under the Act by reason
of the exemption from registration afforded by the provisions of Section 4(2)
thereof as transactions by an issuer not involving any public offering. Each of
the stock certificates received by the named parties contained restrictive
legends pursuant to Rule 144. No underwriting discounts or commissions were paid
in connection with such issuance. Management believes that no form of general
solicitation was used in connection with such issuances. Management also
believes that the Meriwethers were sophisticated investors at the time of
receipt of the stock and had access to the kind of information normally provided
in a prospectus.
In June 1997 the Company issued 800,000 shares (adjusted for subsequent
stock splits) of Common Stock of the Company to the two shareholders of Eclipse
Imports, Inc., Collette D. Meriwether and Betty L. Meriwether, directors of the
Company, in a stock for stock exchange. Such securities were issued without
registration under the Act by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, as transactions by an issuer not
involving any public offering. Each of the shareholders of Eclipse delivered
appropriate investment representations to the Company with respect to such
transaction and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance. Management believes that
no form of general solicitation was used in connection with such issuances.
Management also believes that the Meriwethers were sophisticated investors at
the time of receipt of the stock and had access to the kind of information
normally provided in a prospectus.
In November 1997 the Company issued 1,099,684 shares (adjusted for
subsequent stock splits) of Common Stock of the Company to various persons
without registration in a limited
<PAGE>
Page 44 of 48
public offering pursuant to Rule 504 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933 and Section 3(b) thereunder.
Aggregate proceeds were $10,997. No underwriting discounts or commissions were
paid in connection with such issuances.
In July 1998 the Company issued 38,666 shares (adjusted for subsequent
stock splits) of Common Stock of the Company to Betty L. Meriwether. Such
securities were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof,
as transactions by an issuer not involving any public offering. The stock
certificate received by the named party contained a restrictive legend pursuant
to Rule 144. No underwriting discounts or commissions were paid in connection
with such issuance. Management believes that no form of general solicitation was
used in connection with such issuance. Management also believes that Ms.
Meriwether was a sophisticated investor at the time of receipt of the stock and
had access to the kind of information normally provided in a prospectus.
In September 1998 the Company issued 800,000 shares (adjusted for
subsequent stock splits) of Common Stock of the Company to Mark L. Meriwether,
the president of the Company. Such securities were issued without registration
under the Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, as transactions by an issuer not involving
any public offering. The stock certificate received by the named party contained
a restrictive legend pursuant to Rule 144. No underwriting discounts or
commissions were paid in connection with such issuance. Management believes that
no form of general solicitation was used in connection with such issuance.
Management also believes that Mr. Meriwether was a sophisticated investor at the
time of receipt of the stock and had access to the kind of information normally
provided in a prospectus.
In October 1998 the Company issued 2,000,000 shares each (adjusted for
subsequent stock splits) of Common Stock of the Company to Trinamix, Inc. for
$5,000. Such securities were issued without registration under the Act by reason
of the exemption from registration afforded by the provisions of Section 4(2)
thereof, as transactions by an issuer not involving any public offering. No form
of general solicitation was used in connection with such issuance. The stock
certificates received by the named parties contained restrictive legends
pursuant to Rule 144. No underwriting discounts or commissions were paid in
connection with such issuance. Both persons were sophisticated investors at the
time of receipt of the stock and had access to the kind of information normally
provided in a prospectus.
In April 1999 the Company issued 3,850,000 shares of Common Stock of the
Company to the shareholders of AllStar Arena Entertainment. The shares were
issued in a reverse acquisition transaction between the Company and AllStar, in
which such shareholders exchanged all of their shares for the shares of the
Company. Such securities were issued without registration under the
<PAGE>
Page 45 of 48
Act by reason of the exemption from registration afforded by the provisions of
Section 4(2) thereof, as transactions by an issuer not involving any public
offering. No form of general solicitation was used in connection with such
issuance. Each of the shareholders of AllStar delivered appropriate investment
representations to the Company with respect to such transaction and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance. The Company determined that each shareholder was a
sophisticated investor, or that the shareholder's representative was
sophisticated, at the time of the transaction. Each of the shareholders of
AllStar was provided the information set forth pursuant to Rule 15c2-11(a)(5),
including financial statements of the Company for the years ended December 31,
1998, 1997, and 1996.
Also in April 1999 the Company issued 1,300,000 shares of Common Stock of
the Company for an aggregate of $650,000 to various persons without registration
in a limited public offering pursuant to Rule 504 promulgated by the Securities
and Exchange Commission under the Securities Act of 1933 and Section 3(b)
thereunder. No underwriting discounts or commissions were paid in connection
with such issuances.
In November 1999 the Company issued a loan document and 250,000 shares of
Common Stock of the Company to The Orbiter Fund Ltd, an accredited investor as
defined in Rule 501(a) of Regulation D. The securities were issued in connection
with a loan of $600,000 to the Company by such fund. Such securities were issued
without registration under the Act by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof, and Rule 506 of Regulation
D, as transactions by an issuer not involving any public offering. No form of
general solicitation was used in connection with such issuance. The Orbiter Fund
delivered appropriate investment representations to the Company with respect to
such transaction and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
Also in November 1999 the Company issued 20,000 shares to Ronald N. Vance,
P.C. in connection with legal services provided by him. Such shares were issued
without registration under the Act by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof as transactions by an issuer
not involving any public offering. No form of general solicitation was used in
connection with such issuance. Mr. Vance delivered appropriate investment
representations to the Company with respect to such issuance and consented to
the imposition of a restrictive legend upon the certificate evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance. Mr. Vance was a sophisticated investor at the time of
receipt of the stock and had access to the kind of information normally provided
in a prospectus. The Company had delivered all of its material books and records
to Mr. Vance prior to the time of the stock issuance.
<PAGE>
Page 46 of 48
Also in November 1999 the Company sold 250,000 warrants to Deborah
Fensterheim. Such warrants were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of Section
4(2) thereof as transactions by an issuer not involving any public offering. No
form of general solicitation was used in connection with such issuance. Mrs.
Fensterheim delivered appropriate investment representations to the Company with
respect to such issuance and consented to the imposition of a restrictive legend
upon the certificate evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance. The purchaser
representative for Mrs Fensterheim, Mr. Fensterheim, was sophisticated at the
time of receipt of the stock and had access to the kind of information normally
provided in a prospectus. The Company had delivered copies of all of its
material books and records to Mr. Fensterheim prior to the time of the stock
issuance.
In August 1999 the Company issued six-month promissory notes to Roger
Tichenor and James Skalko for $50,000 each. Such notes were issued without
registration under the Act by reason of an exemption from registration afforded
by the provisions of Section 3(a)(3) thereof. In January 2000 the Company issued
100,000 shares of Common Stock in connection with the conversion of such loans.
Such shares were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 3(a)(9)
thereof as an exchange by the Company with the note holders exclusively where no
commission or other remuneration was paid or given, directly or indirectly.
In January 2000 the Company granted 342,500 options to various employees
and consultants. Such options were granted without registration under the Act by
reason of the exemption from registration afforded by Rule 701 promulgated by
the Securities and Exchange Commission. No underwriting discounts or commissions
were paid in connection with such issuance. Each of these persons was either an
employee of the Company or a business consultant who provided bona fide services
which were not in connection with the offer or sale of securities in a capital
raising transaction and not directly or indirectly to promote or maintain a
market for the Company's securities.
Item 5. Exhibits
The exhibits set forth in the following index of exhibits are filed as a
part of this registration statement.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Location
<S> <C> <C>
1.1 Funds Escrow Agreement (to be filed by amendment)
2.1 Reorganization Agreement with AllStar Arena, as amended *
3.1 Articles of Incorporation, as amended *
3.2 By-Laws of the Company currently in effect *
<PAGE>
Page 47 of 48
4.1 Form of certificate evidencing shares of Common Stock *
5.1 Opinion re Legality
10.1 Lock-up Agreement *
10.2 Webber License Agreement (Confidential treatment has
been requested for a portion of this exhibit) *
10.3 Malone License Agreement (Confidential treatment has
been requested for a portion of this exhibit) *
10.4 MLB Properties License Agreement (Confidential treatment
has been requested for a portion of this exhibit) *
10.5 MLB Players Association License Agreement (Confidential
treatment has been requested for a portion of this exhibit) *
10.6 Form of MLB Players Alumni Association License (Confidential
treatment has been requested for a portion of this exhibit) *
10.7 Form of NFL Properties License (Confidential treatment has been
requested for a portion of this exhibit) *
10.8 Form of NFL Quarterback Club License (Confidential treatment
has been requested for a portion of this exhibit) *
10.9 NHL Players' Association License Agreement (Confidential
treatment has been requested for a portion of this exhibit) *
10.10 Diamond Comic Distribution Agreement *
10.11 MJ Sports Agreement *
10.12 Comic Cavalcade Agreement *
10.13 Office Lease *
10.14 Madison Leasing Agreement *
10.15 Noble House of Boston, Inc. Advertising and Promotional
Services Agreement *
10.16 The Orbiter Fund Ltd. Loan Agreement, as amended
10.17 Stock Option Plan *
10.18 Stock Option Grant Form with Schedule of Option Holders *
10.19 Warrant Certificate for Deborah Fensterheim *
10.20 Tichenor Promissory Note *
10.21 Skalko Promissory Note *
21.1 List of Subsidiaries *
23.1 Consent of Pritchett, Siler & Hardy, P.C.
23.2 Consent of Ronald N. Vance (contained in
Exhibit 5.1 above) --
</TABLE>
- ---------------------
*Filed as an exhibit with the original filing of the registration statement
of the Company on Form SB-2 on February 15, 2000 (SEC File No. 333-30520).
<PAGE>
Page 48 of 48
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of Los
Angeles, State of California, on the 5th day of May 2000.
ULTIMATE SPORTS ENTERTAINMENT, INC.
By: /s/ Frederick R. Licht, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Date: May 5, 2000 /s/ Frederick R. Licht, Director, Chief Financial
Officer, and Principal Accounting Officer
<PAGE>
EXHIBIT 5.1
RONALD N. VANCE, P.C.
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
February 15, 2000
Frederick R. Licht, President
Ultimate Sports Entertainment, Inc.
2444 Wilshire Boulevard
Suite 414
Santa Monica, CA 90403
Re: Registration Statement on Form SB-2
Dear Mr. Licht:
You have requested my opinion as to whether or not the securities to be
issued by Ultimate Sports Entertainment, Inc. (the "Company") in the
above-referenced registration statement will be legally issued and, when issued,
will be fully paid and non-assessable shares of the Company. In connection with
this engagement I have examined the form of the registration statement to be
filed by the Company; the Articles of Incorporation of the Company; the By-laws
of the Company currently in effect; and the minutes of the Company relating to
the registration statement and the issuance of the shares of common stock by the
Company.
Based upon the above-referenced examination, I am of the opinion that
pursuant to the corporate laws of the State of Delaware, the shares of common
stock to be issued by the Company and to be registered for sale by the Company
pursuant to said registration statement will be legally issued and, when issued,
will be fully paid and non-assessable.
I hereby consent to being named in the registration statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the registration statement.
Sincerely,
/s/ Ronald N. Vance
<PAGE>
EXHIBIT 10.16
ULTIMATE
SPORTS
FORCE
The Orbiter Fund Ltd.
Kaya Flamboyan 9
Curacao, Netherlands Antillies
Attn: Mr. Michael Lauer
Re: The Orbiter Fund Ltd. - Lender
Ultimate Sports Entertainment, Inc. - Borrower
$600,000 loan pursuant to letter agreement (the "Loan Agreement") dated
October 20, 1999 (the "Loan")
Gentlemen:
This will confirm our agreement that the time for repayment of the Loan has
been extended so that the same shall be repayable as follows:
- $60,000 on or before May 31, 2000
- The balance, plush all accrued and unpaid interest on or before August
1, 2000
All other terms and conditions of the Loan Agreement shall remain and
continue the same.
In consideration for your agreeing to the foregoing extension of time of
payment, we agree to deliver to you 100,000 shares of our common stock in
addition to any other shares to which you may be entitled pursuant to the terms
of the Loan Agreement.
Very truly yours,
Ultimate Sports Entertainment, inc.
By: /s/ Frederick R. Licht, President
The above is confirmed and agreed to:
The Orbiter Fund Ltd.
By: /s/ Michael Lauer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 for Ultimate Sports Entertainment, Inc., of
our report dated march 26, 2000, relating to the January 31, 2000 financial
statements of Ultimate Sports Entertainment, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts".
/s/ Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
May 5, 2000
