Rule 424(B)(3)
File No. 333-30520
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. Concurrently
with this offering, we are registering for resale 420,000 shares to be offered
by selling security holders. 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.
Per Share Total Amount
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 -0- -0-
Proceeds to us
Minimum $0.50 $1,200,000
Maximum $0.50 $1,800,000
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
Page
PROSPECTUS SUMMARY 4
RISK FACTORS 5
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. 5
Each of the license agreements is for a relatively short duration and there
is no assurance that any of the agreements will be renewed. 5
The two one-year extensions of our license agreement with the Major League
Baseball Players Association may not have been effective. 6
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. 6
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. 6
We have borrowed funds in the past, the terms of which require us to issue
additional shares of stock upon a default. 7
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. 7
FORWARD LOOKING STATEMENTS 8
USE OF PROCEEDS 8
DILUTION 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
OPERATION 10
BUSINESS 13
MANAGEMENT 23
CERTAIN TRANSACTIONS 26
MARKET INFORMATION 28
SHARES ELIGIBLE FOR FUTURE SALE 29
PRINCIPAL SHAREHOLDERS 30
SELLING SHAREHOLDERS 31
DESCRIPTION OF SECURITIES 33
DIVIDEND POLICY 34
PLAN OF DISTRIBUTION 34
LEGAL MATTERS 36
EXPERTS 36
FINANCIAL STATEMENTS 36
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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
Maximum offering 3,600,000 shares
Minimum offering 2,400,000 shares
Shares outstanding at October 31, 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
Estimated offering expenses $65,000
Net proceeds
Maximum Offering $1,735,000
Minimum Offering $1,135,000
Resale of shares by selling stockholders 420,000 shares
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.
For the six months For the years
ended July 31, ended January 31
2000 1999 2000 1999
Consolidated Statement of
Operations Data:
Net sales $143,204 $8,225 $13,047 $15,871
Gross profit (loss) 54,114 (5,331) (261,519) (30,672)
Operating loss (185,186) (425,308) (1,203,277) (262,557)
Net loss (411,437) (443,137) (1,322,025) (286,802)
Loss per share (.06) (.08) (.21) (.07)
Consolidated Balance Sheet Data:
Cash and cash equivalents -- $15,949
Working capital (1,087,827) (644,051)
Total assets 359,957 199,434
Total stockholders' equity
(deficit) (972,890) (561,452)
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. We are not certain that the market would be large enough to
support additional publishers.
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:
License Agreement Expiration Date
Major League Baseball Players Association December 31, 2000
Major League Baseball Properties, Inc. December 31, 2001
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
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.
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. We may not have
met all of the conditions for an extension. 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 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 to meet this
obligation or to maintain good relations with the licensors. 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 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. During the six months ended July 31, 2000,
we generated $143,204 in revenues from these sales and experienced total net
losses of ($236,437). 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 several distributors, but
our distribution agreements do not require any future or minimum purchase
orders.
We have borrowed funds in the past, the terms of which require us to issue
additional shares of stock upon a default.
In October 1999 we borrowed $600,000 for operations and agreed to
repay the loan in four months. We also agreed to issue 250,000 shares for
each sixty days following the maturity date, during which the loan remains
unpaid. We were unable to repay the loan on the original due date and agreed
with the lender to an extension of the final maturity date to August 1, 2000.
For this extension we agreed to issue 100,000 shares to the lender and, for
the default of the original due date, we agreed to issue 250,000 shares to the
lender. We were again unable to repay the loan on the extended due date and
renegotiated the due date of the loan to October 20, 2000. We were again
unable to repay the loan by the extended due date. The issuance of these
shares if we are unable to repay the loan on or before October 20, 2000, could
significantly dilute the ownership interest of the existing shareholders.
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. 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.
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.
Minimum Maximum
Offering Offering
Gross Proceeds $1,200,000 $1,800,000
Selling commissions -0- -0-
Other offering expenses (65,000) (65,000)
NET OFFERING PROCEEDS $1,135,000 $1,735,000
Use of Net Proceeds
Debt Repayment $660,000 $660,000
Additional Working Capital 475,000 1,075,000
TOTAL $1,135,000 $1,735,000
The $600,000 of principal and approximately $60,000 in interest which
we intend to repay with the proceeds of this offering was borrowed at an
interest rate of 10% per annum in October 1999. 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 agreed to issue
100,000 shares to the lender for renegotiating the loan and 250,000 shares for
the failure to repay the loan on the February 20, 2000, due date. The full
principal and interest of the loan were due on October 20, 2000. We are
currently negotiating an extension of these loans. In the event of a future
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 that were due as of January 1, 2000, and approximately
$155,000 for future license fees through approximately April 15, 2001. In
addition, up to approximately $180,000, if the minimum proceeds are raised,
and $590,000, if the maximum proceeds are raised, will be allocated for sales,
marketing, and advertising needs. In addition, $90,000 will be allocated for
printing costs of the comic books if the minimum proceeds are raised and
$115,000 if the maximum proceeds are raised. Of the remaining funds if the
maximum amount of proceeds is raised, $100,000 will be allocated for acquiring
new licenses; $40,000 for promotional expenses; and $25,000 for Internet
promotions.
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, and the six
months ended July 31, 2000, we have issued a total of 3,850,000 shares to
officers, directors, promoters, and affiliated persons, at an average price of
$0.0026 per share. The following table summarizes, as of July 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:
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
Affiliate Shares 3,850,000 51.68% $10,000 0.006% $0.0026
New investors 3,600,000 48.32% $1,800,000 99.994% $0.50
Total 7,450,000 $1,810,000
Our financial statements at July 31, 2000, show a net tangible book
value of ($1,027,897) or ($.14) 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 July 31,
2000, other than to give effect to the sale of the maximum number of shares
offered hereby, and after deduction of offering expenses, our pro forma net
tangible book value at July 31, 2000, would have been $707,103 or
approximately $.06 per share of common stock, representing an increase in net
tangible book value of approximately $.20 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
July 31, 2000, would have been $107,103 or approximately $.01 per share of
common stock, representing an increase in net tangible book value of
approximately $.15 to existing shareholders and a dilution of approximately
$.49 per share to new investors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
Years ended January 31, 2000 and 1999
We experienced a net loss of $1,322,025 for the year ended January 31,
2000, compared to a net loss of $286,802 for the year ended January 31, 1999.
This increase in net loss resulted primarily from significant increases in the
cost of goods sold, general and administrative expenses, and interest
expenses.
We experienced a gross profit deficiency of $261,519 for the year ended
January 31, 2000, compared to $30,672 for the year ended January 31, 1999.
Our cost of goods sold increased approximately 490% in the year ended January
31, 2000, compared with the year ended January 31, 1999. During the year
ended January 31, 2000, our cost of goods sold increased dramatically because
the cost of manufacturing and the minimum royalties exceeded the sales price
of the comic books. Accordingly, we also reduced the value of the remaining
inventory to its market value. Net sales remained relatively flat and
actually decreased slightly in the year ended January 31, 2000. The low
volume of sales was attributable to our seeking new outlets for our comic
books which we were not able to implement until after the year end.
Cost of goods sold includes minimum royalties, fixed costs of coloring,
illustration and other production costs. Management anticipates that the unit
cost will be reduced through increased production resulting in an improved
gross profit margin.
Our general and administrative expenses increased approximately 387% in
the year ended January 31, 2000, compared with the prior year. These expenses
increased significantly in part because of increased salary and wages paid to
employees and increased marketing and investor relations expenses. Labor
costs totaled $243,281 or 28% of the general and administrative costs in the
year ended January 31, 2000, compared to $5,197 in the year ended January 31,
1999. We also significantly increased our legal and accounting expenses
during the year ended January 31, 2000, by $137,319, or 143%, compared with
last year.
Approximately 17% of the our general and administrative expense was 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 the year ended January 31, 2000 as compared to $81,751 in the
year ended January 31, 1999. Management believes that these expenses will
diminish in the future. 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 the year ended January 31, 2000, and
$22,433 in the year ended January 31, 1999. This 429% increase in interest
expense is primarily due to the amortized portion of the value of the 250,000
shares issued to The Orbiter Fund Ltd. as an incentive for making the loan to
us.
Six Months Ended July 31, 2000 and 1999
Net sales of our comic books for the six months ended July 31, 2000,
increased approximately 1,641% from the six months ended July 31, 1999. This
substantial increase is attributable to an increase in the number and type of
distributors of our comic books. Until April 1, 2000, we sold our books
through a single distributor, with the exception of the Malone and Webber
comic books which were sold in the players' home arenas. Subsequent to April
1, 2000, we also introduced our four baseball books, Cosmic Slam, Shortstop
Squad, Fastball Express, and Super Sluggers. During the period ended July 31,
2000, these books were being sold in 26 of the Major League Baseball stadiums,
convenience stores, 163 Target stores, over the Internet, through our
toll-free telephone number, in amusement parks, sporting goods stores, and
hobby shops, thus providing us a much wider distribution market. We
anticipate that the increase in net sales will continue as we increase our
distribution of comic books by introducing four of our National Football
League books which are anticipated to be available in stadiums this fall,
followed by the introduction of our hockey books this winter.
Our cost of goods sold during the six month period ended July 31, 2000,
increased approximately 557% over the same period last year. As a percentage
of net sales, the cost of goods sold during the six month period ended July
31, 2000, decreased to approximately 62% from approximately 165% for the same
period in 1999. This decrease in the percentage of cost of goods sold is
attributable primarily to the cost savings in making larger printing runs. To
fulfill our wider distribution obligations, we needed to increase our printing
runs. In the printing business, the unit cost decreases drastically the
higher the print run. Not only were printing costs decreased per book, but
the fixed costs of designing, editorial, and artwork of the books were also
drastically decreased, as we were able to offset fixed costs over a higher
number of books. We anticipate that these decreases in the cost of goods sold
should remain consistent or lower as our distribution increases.
Our total operating expenses for the six months ended July 31, 2000,
decreased by approximately 43% from those of the same period in 1999. These
expenses decreased significantly from the same period last year for several
reasons. We lowered our expenses by reducing management salaries and electing
to hire subcontractors to design our comic books outside the office. We also
streamlined our shipping costs.
Interest expense was $226,251 in the six months ended July 31, 2000, and
$17,829 in the six months ended July 31, 1999. This increase in interest
expense is primarily due to the value of the additional 350,000 shares due to
The Orbiter Fund Ltd. for the extension of the $600,000 loan and the original
default on the loan. The 350,000 shares to be issued have been recorded as
interest payable of $175,000 at July 31, 2000.
Liquidity and Capital Resources
Our financial condition remains tenuous. At January 31, 2000, our total
cash and cash equivalents were only $15,949, which was only a modest increase
from the close of the year ended January 31, 1999, at which time we had no
cash or cash equivalents. As of January 31, 2000, our operating activities
consumed $1,216,505, which were satisfied by financing activities of
$1,246,650. At July 31, 2000, our operating activities consumed $259,497,
which was satisfied by a combination of loans from shareholders and the cash
remaining at prior year end.
We had a working capital deficit of $644,051 as of January 31, 2000, and
$1,087,827 as of July 31, 2000. Management believes that it will be able to
meet current working capital, license and debt service requirements through
this offering, improved revenues and reductions in costs. Proceeds from the
offering are estimated by management to provide us with additional working
capital ranging from $415,000 to $955,000. The following individual items are
of significance in our cash flows from our operating activities:
Non-cash expense - During the year ended January 31, 2000, we had a
non-cash expense of $127,500, which was an issuance of stock as a payment of
interest on the payable to The Orbiter Fund Ltd.
Inventory and accounts receivable - Our continued expansion of our comic
book lines resulted in an increase in inventory during the year ended January
31, 2000 of $31,297, and an additional increase in inventory of $79,767 during
the six months ended July 31, 2000. During the six months ended July 31,
2000, accounts receivable increased $77,195. The larger distribution of our
comic books accounts for the higher inventory and accounts receivable. As we
launched our new books, some of them were sold into the market place on a
consignment/guaranteed basis. We are owed money from several stadiums and
stores throughout the country. Generally, the comic books are paid for on
terms of net 30 days.
Liabilities - Accounts payable and other accrued expenses increased by
$16,637 for the year ended January 31, 2000, and $328,305 for the six months
ended July 31, 2000. This is resulting primarily from increased inventory
purchases and accrued interest. During the six months ended July 31, 2000, we
recorded $175,000 in accrued interest payable for the 350,000 unissued shares
of common stock valued at $1.50 per share to be issued in connection with the
$600,000 loan from The Orbiter Fund Ltd.
We had a use of cash from investing activities during the year ended
January 31, 2000, of $14,196 in connection with the purchase of office
equipment. We used $30,108 during the six months ended July 31, 2000, to
purchase license agreements.
We realized net cash from financing activities of $1,246,650 during the
year ended January 31, 2000. This amount was derived primarily from a note
payable in the amount of $600,000 and a limited offering of common stock in
the amount of $650,000. During the six months ended July 31, 2000, we borrowed
an additional $235,000. The proceeds were used in operations.
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 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 a majority of the outstanding stock of our company. The closing of the
reorganization agreement was held on April 6, 1999, and old management
resigned in favor of directors and officers who were designated by AllStar
Arena. Contemporaneous with the closing on April 6, 1999, we issued 1,300,000
shares in a limited offering and canceled 2,030,680 shares which had
previously been issued in connection with the proposed transaction with
Neurochemical Research Corp. in February 1999. As a result of the closing the
shareholders of AllStar Arena owned approximately 54% of the outstanding
shares, taking into account the issuance of the 1,300,000 shares and the
cancellation of the 2,030,680 shares.
Also in connection with the reorganization agreement with AllStar
Arena, we forward split the outstanding shares at the rate of four-for-one
effective March 29, 1999, 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 amended our articles of incorporation
and increased the number of authorized common shares from 11,000,000 to
50,000,000 shares on April 7, 1999.
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 January 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.
License Agreements
Our license agreements with National Basketball Association players
Chris Webber of the Sacramento Kings and Karl Malone of the Utah Jazz expired
in March and November 2000, respectively, and we do not intend to renew them.
We have licenses with the Major League Baseball Players Association; the Major
League Baseball Properties, Inc.; the National Hockey League Players'
Association; the National Football League Properties, Inc.; and the National
Football League Quarterback Club. We have also negotiated, but not executed,
a license agreement with the Major League Baseball Players Alumni
Association. Total minimum guaranteed royalty payments to be made by us under
these contracts for the years ended January 31, 1999 and 2000 were $50,000 and
$120,000 respectively. For the years ending January 31, 2001, 2002, and 2003,
the estimated aggregate amounts of the minimum guaranteed royalty payments to
be made pursuant to these license agreements will be approximately $195,000,
$220,000, and $250,000, respectively. Set forth below is a brief description
of each of these license agreements:
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 expires on
December 31, 2000. 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. 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 1999 and 2000 extensions of our licensing agreement with the players
association were originally conditioned on several factors, including written
notice to players association of the intention to extend the license. This
notice was required to 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 provided that any attempted extension would be "void" and
"of no effect" if any of the following events occur:
- If we had breached the agreement;
- If net sales during the license period were not sufficient to
generate actual royalty payments at least equal to the minimum royalty payment;
and
- If we failed to make timely royalty payments.
We did not met all of these conditions. First of all, the agreement
required 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 and 2000 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.
Our counsel has been negotiating a new agreement to extend our license
agreement with the players association. We are presently in final
negotiations and we expect the agreement to be a one-year license with two
successive one year options. We anticipate that the new agreement should be
completed prior to the expiration of the current term.
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 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.
We rely extensively 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.
Publication of Comic Books
As of November 1, 2000, we had published ten 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; The
Shortstop Squad featuring Derek Jeter, Cal Ripken, Jr., Alex Rodriguez, and
Barry Larkin; Supper Sluggers featuring Barry Bonds, Ken Griffey Jr., Ken
Caminiti, and Mike Piazza; Fast Ball Express featuring Randy Johnson, Roger
Clemens, Greg Maddux, Chan Ho Park, and Hideo Nomo; Amazing Mets featuring
Mike Piazza, John Franco, Armando Benitez, Edgardo Alfonzo, and Robin Ventura;
Gridiron Giants Numbers 1 and 2 both featuring Dan Marino, Terrell Davis,
Barry Sanders, and Jake Plummer; and Two Minute Warning featuring John Elway,
Junior Seau, Steve Young, and Drew Bledsoe. We are also developing two hockey
comic books which we believe will be ready for release this year and four
baseball comic books which we believe will be ready for release for the spring
2001 baseball season. 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 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 both Quebecor
Printing of Montreal, Canada, and Brenner Printing of San Antonio, Texas, as
our primary printers of the comic books, but we have no contractual agreement
with either of them to print future comic books as they are produced. We
believe that these are the two printers in North America which are capable of
printing comic books of the quality required by us. We also believe that the
risk is low that these printers would 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 they 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 our current printers; however, shipping costs could
be significantly greater.
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 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.
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 November 1,
2000, Diamond published ten 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 will offer the
football comic books directly to the stadiums and teams.
We have a toll-free telephone number and a mail order distribution and
fulfillment center in-house to handle direct mail and direct telephone orders.
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 pro
motional programs of the team. We completed one such program with the New
York Mets at Shea Stadium on July 1, 2000. The Amazing Mets comic book was
sponsored by DiGiorno Pizza and given away to kids 14 and under. We are in
discussions with other teams and sponsors and intend to expand this program in
the future.
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 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
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 November 1, 2000, we had three full-time employees, including two
members of management. We also employ one part-time person and four
consultants.
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.
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 increased to $2,323 on June 1, 2000, and
increases 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 claim of wrongful
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 Joseph Yukich, Michael Walsh, and Herbert Dogan. The
complaint is 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
Ltd.; the funds borrowed from Mr. Tichenor and Mr. Skalko; the sale 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 established at trial; and punitive damages in an amount
sufficient to punish or make an example of the defendants. Our counsel,
Richard LeBell Morgan, Inc., is of the opinion that this action lacks merit
and the court has sustained a demurrer to the complaint on the ground that it
failed to state a cause of action. Thereafter the plaintiff amended the
complaint and we again demurred against the amended complaint. The matter is
scheduled for hearing in December 6, 2000. We intend to vigorously defend
this action.
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. To the extent Mr.
Yukich contributed, if at all, ideas and/or content to any of the above-named
comic books, Mr. Yukich did so at the time he was working as an employee and
president of the company. The company never agreed to grant Mr. Yukich any
copyright rights. In fact, it was explicitly understood by all concerned that
Mr. Yukich was not entitled to any personal interest in the copyright. Based
on and relying upon this information, the company's legal counsel in the
action, attorney David B. Felsenthal, has concluded that any contribution by
Mr. Yukich was a "work made for hire" under United States copyright laws and
that Mr. Yukich has no legal justification for claiming he has any legal right
to the copyrights for these comic books. For this reason, our counsel is of
the opinion that Mr. Yukich's claims in this action are without merit. We
intend to vigorously defend against Mr. Yukich's action.
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 executive officer, a significant employee of our company, their
ages, and all offices and positions. Mr. Gitlin is not considered an
executive officer, but is deemed to be a significant employee. 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.
Name Age Position Director Since
Frederick R. Licht 33 Director, President, CEO 1999
Secretary/Treasurer, & CFO
Drew Gitlin 41 Chief Operating Officer --
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, a wholesale and retail home mortgage
banking company. From 1987 until 1997 he was employed by Reprise Records as a
local promotion manager. Reprise Records is a music company that signs music
artists and records their music on compact disks and cassettes for sale to
retail outlets throughout the world.
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.
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:
Annual Compensation Long-Term Compensation
Other Awards Payouts All
Annual Restricted Other
Name and Compensation Stock Options/ LTIP Compen
Principal Award(s) SARS Payouts -sation
Positions Year Salary Bonus
---------- ---- ------ ----- --- ------- ------- ------- ------
Frederick
R. Licht, CEO 2000 $102,000 -- -- -- -- -- --
1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
Angela Ross
2000 -- -- -- -- -- -- --
1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
Mr. Licht has served as our chief executive officer since April 7, 1999.
Ms. Ross served as our chief executive officer from November 19, 1998,
until April 7, 1999. She received no compensation during the years 1998,
1999, or 2000.
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
fourth 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 the year ended June 30, 1999; Mr. Licht has waived his fee to date.
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. Non-qualified 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.
At November 1, 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. The shares were valued at $10,000. As of October 30, 2000, Mr.
Vance had also received cash compensation of $20,000 for the preparation of
the registration statement of which this prospectus is a part.
In April 1999 we loaned $42,500 to Joseph Yukich, a former officer and
director of AllStar Arena. Repayment of this loan is 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 occurred 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. We have demanded
repayment 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 shareholders. The loan
agreement originally provided for a term of four months with interest of 10%
per annum payable upon maturity of the loan and granted the lender the right
to convert the loan into our stock at the rate of $1.00 per share. As an
incentive for loaning the funds to us, we issued 250,000 shares to The Orbiter
Fund Ltd. 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. 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. These
additional 350,000 shares have not yet been issued. We were unable to make
the required payments on May 31, 2000, and on August 1, 2000, and renegotiated
the maturity date of the loan to October 20, 2000, at which time the entire
principal and interest was due. We are currently negotiating an extension of
the loan. We also eliminated the right of the lender to convert the loan to
stock.
From March 10, 2000, until May 17, 2000, J.L.B Equities, Inc., an
entity owned and controlled by Jay Botchman, a major shareholder, loaned us an
aggregate of $160,000. The funds were used for the general operations of the
company. On June 20, 2000, David Rosenberg and John J. Gerard, two of our
shareholders, also loaned $25,000 and $50,000, respectively, to us. And, on
August 9, 2000, Mr. Gerard loaned another $50,000 to us. These funds were
likewise used for operation expenses. In regard to the loan payable to Mr.
Rosenberg, Martin Burke III, a principal shareholder, pledged 50,000 of his
shares, and in regard to the two loans payable to Mr. Gerard, he pledged a
total of 100,000 of his shares as collateral security for the loans. Each of
these loans bears an interest rate of 20% and is payable as follows: interest
at the rate of 1% in excess of the prime commercial loan rate from time to
time announced by The Chase Manhattan Bank, N.A. is payable monthly commencing
one month from the date of the loan; the balance of the interest, less any
amount paid pursuant to the foregoing provision, is payable on the maturity
date; and the unpaid principal, thereof together with any interest payable
pursuant to the foregoing provision, is due on the maturity date of June 20,
2001.
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.
Quarter High Low
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
FISCAL YEAR ENDING
JANUARY 31, 2001 First $0.75 $0.35
Second $0.85 $0.18
Third $0.60 $0.30
At November 1, 2000, we had outstanding options to purchase 592,500
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 592,500 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 420,000 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 October 31, 2000, there were approximately 474 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, 420,000 outstanding restricted shares are being registered for resale.
Of the remaining shares, 4,672,840 shares are designated as restricted
shares by the transfer agent, and are not being registered for resale. Of
these shares 3,850,000 where issued in connection with the reorganization
with AllStar Arena Entertainment, and 100,000 where issued in a non-public
conversion of outstanding promissary notes after the reogranization, and
therefore may be available for resale during the period beginning ninety
days after the date of this prospectus, through one year from the date of
this prospectus, if all of the requirements of Rule 144 in addition to
the holding period are met; 1,639,600 of these 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. We have been advised by the staff
of the Securities and Exchange Commission that Rule 144 would not be
available for the remaining 722,840 shares designated as restricted if
the shares were issued at a time during which the issuer was a blank check
issuer and that these shares could only be resold through a registered
offering.
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 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 October 31, 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.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Before Offering After Offering
Min. Max.
Frederick R. Licht 1,038,750 13.9% 10.5% 9.4%
2444 Wilshire Boulevard
Suite 414
Santa Monica, CA 90403
Executive officers and
directors as a group
(1 person) 1,038,750 13.9% 10.5% 9.4%
Drew Gitlin 500,000 6.3% 4.8% 4.3%
1501 N. Anita Dr.
Los Angeles, CA 90049
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 7.43% 5.9% 5.3%
The Orbiter Fund Ltd.
475 Steamboat Road
Greenwich, CT 06830
The number of shares stated for Mr. Gitlin 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.
Of the shares beneficially owned by Mr. Lauer, 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; however,
these additional shares have not been issued. 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 420,000 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 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 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.
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
The Orbiter Fund,
Ltd. 600,000 250,000 350,000 3.16%
Ronald N. Vance 44,000 20,000 24,000 *
Noble House of
Boston, Inc. 169,000 150,000 19,000 *
*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.
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 October 31, 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 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. In
connection with the transaction, we agreed to use our best efforts to include
the 250,000 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.
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 minimum subscription is 1,000 shares. We will
not pay a commission to Mr. Licht for sales made by him. No one 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 ninety days from the date of this prospectus, 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 for nine months from the date of this
prospectus.
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 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.
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. We have also included our unaudited interim financial statements for
the six months ended July 31, 2000, consisting of a balance sheet at July 31,
2000, and the related statements of operations and cash flows for the six
months ended July 31, 2000 and 1999.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS PAGE
- Accountants' Disclaimer of Opinion 1
- Unaudited Condensed Consolidated Balance Sheet,
July 31 2000 2
- Unaudited Condensed Consolidated Statements of
Operations, for the six months ended July 31,
2000 and 1999 3
- Unaudited Condensed Consolidated Statements of
Cash Flows, for the six months ended July 31, 2000
and 1999 4 - 5
- Notes to Unaudited Condensed Consolidated Financial
Statements 6 - 10
<PAGE>
ACCOUNTANTS' DISCLAIMER OF OPINION
Board of Directors
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
Santa Monica, California
The accompanying financial statements of Ultimate Sports Entertainment, Inc
and Subsidiary. as of July 31, 2000 and 1999 and for the related periods then
ended were not audited by us, and accordingly, we do not express an opinion on
them.
/s/ PRITCHETT, SILER & HARDY, P.C.
August 7, 2000
Salt Lake City, Utah
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
July 31,
2000
___________
CURRENT ASSETS:
Cash and cash equivalents $ -
Accounts receivable 81,168
Inventory 162,223
___________
Total Current Assets 243,391
___________
PROPERTY AND EQUIPMENT, net 18,009
___________
OTHER ASSETS:
Deposits 1,050
License agreements 45,007
Note receivable - shareholder 42,500
Deferred stock offering costs 10,000
___________
Total Other Assets 98,557
___________
$ 359,957
___________
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Amount due to bank $ 3,513
Accounts payable 250,139
Accrued liabilities 15,428
Accrued interest 223,584
Notes payable 75,000
Notes payable - related parties 760,000
Current portion of capital lease obligation 3,554
___________
Total Current Liabilities 1,331,218
CAPITAL LEASE OBLIGATION, LESS
CURRENT PORTION 1,629
___________
Total Liabilities 1,332,847
___________
STOCKHOLDERS' (DEFICIT):
Common stock, $.001 par value, 50,000,000
shares authorized, 7,470,000 shares issued
and outstanding 7,470
Additional paid in capital 1,156,258
Accumulated (deficit) (2,136,618)
___________
Total Stockholders' (Deficit) (972,890)
___________
$ 359,957
___________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statement.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six
Months Ended
July 31,
______________
2000 1999
_________ ________
SALES, net of returns and discounts $ 143,204 $ 8,225
COST OF GOODS SOLD 89,090 13,556
_________ ________
GROSS PROFIT (LOSS) 54,114 (5,331)
_________ ________
OPERATING EXPENSES:
General and administrative 215,590 372,059
Selling Expenses 23,710 47,918
_________ ________
Total Operating Expenses 239,300 419,977
_________ ________
LOSS FROM OPERATIONS (185,186) (425,308)
_________ ________
OTHER EXPENSE:
Interest expense (226,251) (17,829)
_________ ________
Total Other (Expense) (226,251) (17,829)
_________ ________
LOSS BEFORE INCOME TAXES (411,437) (443,137)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
_________ ________
NET LOSS $ (411,437)$(443,137)
_________ ________
LOSS PER COMMOM SHARE $ (.06) $ (.08)
_________ ________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statement.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents
For the Six
Months Ended
July 31,
_______________________
2000 1999
_________ ________
Cash Flows Provided by Operating Activities:
Net loss $ (411,437) $ (443,137)
_________ ________
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 2,264 1,463
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (77,195) (4,800)
(Increase) in inventory (79,767) (62,984)
(Increase) decrease in prepaid assets 20,833 (4,800)
Increase (decrease) in accounts payable
- trade 113,646 (62,984)
Increase in accrued expenses 6,228 45,812
(Increase) decrease in bank overdraft 3,513 (1,957)
Increase (decrease) in interest payable 204,918 -
_________ ________
Total Adjustments (194,440) (49,610)
_________ ________
Net Cash (Used) by Operating Activities (216,997) (492,757)
_________ ________
Cash Flows Provided by Investing Activities:
Purchase of equipment - (14,196)
Increase in shareholder advance 2,500 42,500
Decrease in other assets 30,608 (46,640)
_________ ________
Net Cash (Used) by Investing Activities 32,608 (18,336)
_________ ________
Cash Flows Provided by Financing Activities:
Proceeds from notes payable - related party 235,000 650,000
Payments on notes payable - related party - (126,159)
Payments on capital lease obligations (1,344) (1,404)
_________ ________
Net Cash Provided by Financing Activities 233,656 522,437
_________ ________
Net Increase in Cash and Cash Equivalents (15,949) 11,344
Cash and Cash Equivalents at Beginning of Period 15,949 -
_________ ________
Cash and Cash Equivalents at End of Period $ - $ 11,344
_________ ________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ -
<PAGE>
[Continued]
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the six months ended July 31, 2000:
None.
For the six months ended July 31, 1999:
None.
The accompanying notes are an integral part of this unaudited condensed
consolidated financial statement.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED 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.
Condensed Financial Statements - The accompanying financial statements have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
July 31, 2000 and 1999 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's January 31, 2000
audited financial statements. The results of operations for the periods ended
July 31, 2000 are not necessarily indicative of the operating results for the
full year.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RECAPITALIZATION
On March 30, 1999, the Parent entered into a reorganization agreement with All
Star Arena Entertainment. At the time of the reorganization the Parent was an
inactive entity with no significant assets or liabilities. 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 Arena Entertainment 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.
NOTE 3 - INVENTORY
Inventory consists of $162,223 in finish goods at July 31, 2000:
NOTE 4 - NOTE RECEIVABLE - RELATED PARTY
As of July 31, 2000, the Company was due $42,500 from a shareholder. The loan
was due on April 6, 2000 and is currently in default.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
During October 1999, the Company issued a 10% convertible note payable to a
shareholder for $600,000. The note is due February 20, 2000 and is
convertible into common stock of the Company at $1.00 per share. The note
payable contains an option for the note holder to purchase such number of
shares equal to one share of the Company's common stock from certain officers
and shareholders of the Company at $.10 per share for each $3.00 of loan
principle being so converted. The note calls for the Company to issue 250,000
shares of the Company's common stock to the note holder in compensation for
making the loan. And an additional 250,000 shares of common stock for each 80
day period that the note remains unpaid following the maturity date. As of
July 31, 2000, the Company is obligated to issue an additional 250,000 shared
of common stock for failure to make timely repayment. The Company also
entered into a agreement wherein they agreed to issue 100,000 shares of the
Company's common stock to extend the maturity date of the loan to May 31, 2000
for the first $60,000 and August 1, 2000 for the remaining $540,000. At July
31, 2000 the Company has recorded $175,000 in interest expense related to
350,000 additional common shares to be issued at $.50 per share.
During March 2000, an entity controlled by a shareholder of the Company loaned
the Company an additional $160,000. The note payable is unsecured, payable on
demand and bears interest at 10%.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE
At July 2000, the Company had two outstanding notes payable to individuals
totaling $75,000. The notes provide for interest at 10% per annum and are due
on demand.
NOTE 7 - 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 July 31, 2000 and 1999:
For the Six
Months Ended
July 31,
______________________
2000 1999
__________ __________
Loss from continuing operations
available to common stockholders
(numerator) $ (411,437) $ (443,137)
Weighted average number of
common shares outstanding
used in basic earnings per
share (denominator) 7,470,000 5,250,552
__________ __________
Weighted number of common
shares and potential dilutive
common shares outstanding
used in dilutive earnings per
share (denominator) N/A N/A
__________ __________
Dilutive loss per share was not presented, as the affect is anti-dilutive.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - 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 July 31, 2000, unused operating loss
carryforwards of approximately $2,000,000 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 $680,000 as of July 31, 2000, with an
offsetting valuation allowance at year end of the same amount resulting in a
change in the valuation allowance of approximately $94,000 during the period
ended July 31, 2000.
NOTE 9 - 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 $912,827 at July 31, 2000, and has a stockholders'
deficit of $807,890. 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.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
Proposed Public Offering of Common Stock - The Company is proposing to make a
public offering of 3,600,000 shares of common stock at a price of $.50 per
share. The Company has filed 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 $.50 per share has arbitrarily been determined by
the Company. The offering will be managed by the Company without any
underwriter. The shares 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.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS PAGE
- Independent Auditor's Report 1
- Consolidated Balance Sheet, January 31, 2000 2
- Consolidated Statements of Operations, for the
years ended January 31, 2000 and 1999 3
- Consolidated Statement of Stockholders' (Deficit),
for the years ended January 31, 2000 and 1999 4
- Consolidated Statements of Cash Flows, for the
years ended January 31, 2000 and 1999 5 - 6
- Notes to Consolidated Financial Statements 7 - 14
<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.
March 26, 2000
Salt Lake City, Utah
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
January 31,
2000
___________
CURRENT ASSETS:
Cash and cash equivalents $ 15,949
Accounts receivable 3,973
Inventory 82,456
Prepaid expense 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
Deferred stock offering cost 10,000
___________
Total Other Assets 65,949
___________
$ 209,434
___________
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, 7,470,000 shares issued
and outstanding 7,470
Additional paid in capital 1,156,258
Retained (deficit) (1,725,180)
___________
Total Stockholders' (Deficit) (561,452)
___________
$ 209,434
___________
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year
Ended
January 31,
_______________________
2000 1999
__________ __________
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) (231,885)
__________ __________
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 $ (.21) $ (.07)
__________ __________
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
Common Stock Additional
________________ Paid in Retained
Shares Amount Capital (Deficit)
________ ________ __________ _________
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 -
Effect of recapitalization of
subsidiary, April 1999 1,950,000 1,950 (1,950) -
Forgiveness of notes payable
by shareholders of the company - - 266,228 -
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, January
2000 100,000 100 99,900 -
Common stock issued for
professional services
rendered at $.50 per share,
November 1999 20,000 20 9,980 -
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 7,470,000 $ 7,470 $1,156,258 $(1,725,180)
_________ ________ _______ _________
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents
For the Year
Ended
January 31,
____________
2000 1999
_______ _______
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 $ - $ -
[Continued]
<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, 2000:
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.
Forgiveness of $266,228 in notes payable by shareholders of the company
recorded as contribution to capital.
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
The Company issued 20,000 shares of common stock for services rendered, valued
at $10,000.
For the year ended January 31, 1999:
The Company entered into a capital lease for equipment valued at $9,917.
The accompanying notes are an integral part of these financial statements.
<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].
<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 March 30, 1999, the Parent entered into a reorganization agreement with All
Star Arena Entertainment. At the time of the reorganization the Parent was an
inactive entity with no significant assets or liabilities. 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.
<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:
2000
___________
Office equipment $ 24,113
___________
24,113
Less: accumulated depreciation (3,839)
___________
20,274
___________
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:
2000
___________
Work-in-progress $ 37,700
Finished goods 44,756
___________
Total Inventory $ 82,456
___________
NOTE 6 - ACCRUED LIABILITIES
The following is a summary of accrued liabilities as of January 31, 2000:
2000
___________
Accrued payroll taxes $ 9,200
Accrued interest 18,666
___________
$ 27,866
___________
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE - RELATED PARTY
During October 1999, the Company issued a 10% convertible note payable to a
shareholder for $600,000. The note is due February 20, 2000. The note payable
contains an option for the note holder to purchase such number of shares equal
to one share of the Company's common stock from certain officers and
shareholders of the Company at $.10 per share for each $3.00 of loan principle
being so converted. The note calls for the Company to issue 250,000 shares of
the Company's common stock to the note holder in compensation for making the
loan. And an additional 250,000 shares of common stock for each 60 day period
that the note remains unpaid following the maturity date. At January 31, 2000
the Company has recorded $104,167 in interest expense and $20,833 in deferred
loan cost related to 250,000 common shares issued at $.50 per share.
Subsequent to the year ending January 31, 2000, the Company is obligated to
issue an additional 250,000 shared of common stock for failure to make timely
repayment. The Company also entered into a agreement wherein they agreed to
issue 100,000 shares of the Company's common stock to extend the maturity date
of the loan to May 31, 2000 for the first $60,000 and August 1, 2000 for the
remaining $540,000. The note was subsequently extended through October 20,
2000
During the year ended January 2000, the Company recorded $266,228 in
contributed capital for the forgiveness of notes payable from shareholders.
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.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASE OBLIGATIONS [Continued]
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:
Period ending January 31, Lease Payments
_____________________ ______________
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
__________
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.
Period Ending Minimum Annual
January 31, Rental Payments
__________ _____________
2000 $ 27,084
2001 6,771
2002 -
2003 -
2004 -
_____________
$ 33,855
_____________
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
For the Period Ended
January 31,
____________________________
2000 1999
____________ ____________
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) 6,304,493 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
____________ ____________
Dilutive loss per share was not presented, as the affect is anti-dilutive.
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 $450,000 during the period
ended January 31, 2000.
NOTE 11 - CAPITAL STOCK
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).
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK [Continued]
During the year ended January 2000, the Company recorded $266,228 in
contributed capital for the forgiveness of notes payable from shareholders.
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 October 1999, the Company issued 250,000 shares of its previously
authorized, but unissued common stock to pay loan origination incentive fees
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.
The Company issued 20,000 shares of common stock, valued at $.50 per share,
during November, 1999 for legal services rendered.
During January 2000, the Company issued 100,000 shares of its previously
authorized, but unissued common stock in payment of a $100,000 note payable.
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.
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 $561,452. 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.
<PAGE>
ULTIMATE SPORTS ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 3,600,000 shares of common stock at a price of $.50 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 $.50 per share has arbitrarily been
determined by the Company. The offering will be managed by the Company
without any underwriter. The shares 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 agreed to 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. The Company entered into an agreement to
issue an additional 100,000 shares of common stock to extend the maturity of
$60,000 of the note to May 31, 2000 and the remaining $540,000 to August 1,
2000.
<PAGE>
[OUTSIDE BACK COVER]
Dealer Prospectus Delivery Obligation
Until March 13, 2001, (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.
