As filed with the Securities and Exchange Commission on December 1, 1997
Registration No.333-26631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 2
F O R M S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
FIRST ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-
0974303
(State Or Other (IRS
Employer ID No.)
Jurisdiction Of
Incorporation)
1999 Broadway, Suite 3135 A.B. Goldberg
Denver, Colorado 80202 1999 Broadway,
Suite 3135
(303) 382-1235 Denver, Colorado
80202
(Address, including zip code (303) 382-1235
and telephone number, including (Name, address,
including zip
area code of Registrant's code, and
telephone number,
principal executive offices) including area code,
of agent
for service)
The Commission is requested to send copies of all communications and
notes to:
DAVID J. WAGNER, ESQ.
David Wagner & Associates, P.C.
8400 E. Prentice Ave, Penthouse
Englewood, Colorado 80111
(303) 793-0304
Approximate date of commencement of proposed sale to the
public:
As soon as practicable following the date on which the
Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant
to dividend or interest reinvestment plans, please check the following
box
If any of the Securities being registered on this Form are to be
offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933,
other than securities offered only in connection with dividend or
interest
reinvestment plans, check the following space. X
CALCULATION OF REGISTRATION FEE
Proposed
Title of Each Maximum Proposed
Class of Amount Offering Maximum
Amount
of
Securities to Be To Be Price Aggregate
Registration
Registered Registered Per Unit(1) Offering
Price(1) Fee
COMMON SHARES 585,000 $1.00 $585,000
$180
$.008 par value
TOTAL
$180
(1) Estimated solely for the purpose of calculating the registration
fee
pursuant to Rule 457.
The Registrant hereby amends this Registration Statement on such date
or dates as
may be necessary to delay its effective date until the Registrant shall
file a
further amendment which specifically states that this Registration
Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act
of 1933 or until the Registration Statement shall become effective on
such date
as the Commission, acting pursuant to said Section 8(a), may determine.
FIRST ENTERTAINMENT, INC.
Cross Reference Sheet Required by Items 1 through 13, Part I of Form S-
3
Item No. and Caption Caption in
Prospectus
1. Forepart of the Registration Facing page of the
Registration
Statement and Outside Front Statement and Outside
Front
Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and
Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk The Company; Risk
Factors
Factors, and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Determination of
Offering
Price
6. Dilution Not Applicable
7. Selling Security Holders Selling Security
Holders
8. Plan of Distribution Plan of
Distribution
9. Description of Securities to Description of
Securities;
be Registered Plan of Distribution
10. Interest of Named Experts Not applicable
and Counsel
11. Material Changes Not Applicable
12. Incorporation of Certain Incorporation by
Reference
Information by Reference
Item No. and Caption Caption in Prospectus
13. Disclosure of Commission Not applicable
Position on Indemnification for
Securities Act Liabilities
14. Other Expenses of Issuance Part II
and Distribution
15. Indemnification of Part II
Directors and Officers
16. Exhibits Part II
17. Undertakings Part II
PROSPECTUS
FIRST ENTERTAINMENT, INC.
A maximum of 585,000 Shares at the Current Market Bid Price
per Share
Outstanding common stock of First Entertainment, Inc. (the
"Company") is hereby offered for sale at the current market
bid price by certain shareholders of the Company (the "Selling
Shareholders") directly to investors on a "best efforts"
basis, for the period of effectiveness of this Prospectus, in
an amount up to the amount registered hereby (the "Shares").
See "SELLING SHAREHOLDERS" and "DESCRIPTION OF SECURITIES."
There are no minimum number of Shares which must be sold by
the Selling Shareholders to utilize the proceeds of the
offering. See "PLAN OF DISTRIBUTION."
The Company's Common Stock is traded in the over-the-counter
market on the NASD Automated Quotation System (NASDAQ) under
the trading symbol FTET. On September 30, 1997, the closing
bid price of the Company's Common Stock was $.97 per share.
See "Risk Factors" for a discussion of certain factors that
should be carefully considered by prospective purchasers of
the Shares offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Shares are offered by the Selling Shareholder, from time
to time, and on a continuous basis at the then-current market
bid price during the effectiveness of this Prospectus, subject
to prior sale and the right to reject orders in whole or in
part.
For the determination of the Offering Price, See
"Determination of Offering Price".
The Selling Shareholders intend to contract from time to time
with licensed Broker-Dealers ("the Broker"), as their agents
for the period of the effective date of this Prospectus for
sale of their Shares on a "best efforts" basis. The term "best
efforts" basis means that the Broker is obligated to use its
best efforts to sell the Shares. All proceeds from the sale of
Shares will be distributed to the Selling Shareholders and
none will be used by the Company. There is no minimum amount
which must be sold by the Selling Shareholders. The Selling
Shareholders will pay the Broker a commission in accordance
with the applicable NASD requirements for all sales of Shares
sold through the Broker. See "PLAN OF DISTRIBUTION".
The date of this Prospectus is December 1 , 1997.
THE SHARES OFFERED HEREBY ARE OFFERED BY THE SELLING
SHAREHOLDERS SUBJECT TO PRIOR SALE, TO ALLOTMENT AND
WITHDRAWAL AND TO CANCELLATION OR MODIFICATION OF THE OFFER
WITHOUT NOTICE. ANY MATERIAL CHANGE TO THE OFFER WILL BE
REFLECTED BY AN AMENDMENT OR SUPPLEMENT TO THE REGISTRATION
STATEMENT, OF WHICH THIS PROSPECTUS IS A PART. THE SELLING
SHAREHOLDERS AND ITS SELLING AGENTS RESERVE THE RIGHT TO
REJECT ORDERS IN WHOLE OR IN PART FOR THE PURCHASE OF ANY OF
THE SHARES OFFERED HEREBY.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities
Exchange Act of 1934 and in accordance therewith is required to file
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission").
All reports, proxy statements and other information filed by the
Company
with the commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washing-
ton, D.C. 20459. Copies can be obtained from the Commission at
prescribed
rates by writing to the Commission at 450 Fifth Street, N.W.,
Washington,
D.C. 20549.
The Company has filed with the Commission a registration statement on
Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Shares offered
hereby.
This Prospectus, which constitutes a part of the Registration
Statement,
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further
information,
reference is hereby made to the Registration Statement, which may be
obtained from the Public Reference section of the Commission at the
address
set forth above. Statements contained in this Prospectus regarding the
contents of any contract or other document are not necessarily
complete,
and in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Company with the
Securities and Exchange Commission, are hereby incorporated by
reference
into this Prospectus except as superseded and modified herein:
1. The Company's Annual Report on Form 10-KSB, as amended, for the
fiscal
year ended December 31, 1996.
2. The Company's Quarterly Report on Form 10-QSB, as amended, for the
fiscal quarters ended March 31, 1997, June 30, 1997 and September 30,
1997.
3.The Company's Current Reports on Form 8-K's dated January 24, 1996,
February 6, 1996, April 19, 1996, April 26, 1996 and July 24, 1996 and
August 29, 1997.
Statements contained in the foregoing documents incorporated by
reference herein
shall be deemed to be modified or superseded for purposes hereof to the
extent
that statements contained herein modify or replace such statements.
Any such
statement so modified or superseded shall not be deemed, except as so
modified
or replaced, to constitute a part of this Prospectus. The Company is
not
providing a copy of the latest Annual Report to prospective purchasers
to
accompany this Prospectus.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13
(c), 14 and 15(d) of the Securities and Exchange Act of 1934, prior to
the
termination of the Offering or the filing of a post-effective amendment
which
indicates that all securities offered have been sold or which indicates
all
securities then remaining unsold, shall be deemed to be incorporated by
reference
in this Prospectus and shall be a part hereof from the date of such
filing.
The Company will provide without charge to each person, including any
beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written
or oral
request of any such person, a copy of any document described above
(other than
exhibits unless such exhibits are specifically incorporated by
reference into the
information that this Prospectus incorporates). Requests for such
copies should
be directed to First Entertainment, Inc., 1999 Broadway, Suite 3135,
Denver,
Colorado 80202, Attention: Secretary (telephone number (303) 382-1235).
THE COMPANY
First Entertainment, Inc. (the "Company" or "FTET") was incorporated
under the
laws of Colorado on January 17, 1985. Currently, the Company is a
multi-media
entertainment conglomerate, holding controlling interests in five
distinct
segments, four active and one inactive. The four active segments,
which are
controlled by the parent company, FTET, are known as "Video," "Radio,"
"Live
Entertainment", and "Retail". The inactive segment is known as "Film".
In
November 1995, the Company determined to discontinue the operations of
its
copyrighted properties segment, which it acquired in 1994. Initially,
the
Company's business consisted of the production of pre-recorded travel
guides and
special interest videos. In 1987, the Company entered the radio
broadcasting
business by acquiring Quality Communications, Inc, a Wyoming
corporation pursuant
to which the Company operates the radio segment of its business. In
1992, the
Company acquired a controlling interest in First Films, Inc. ("FFI"), a
publicly
held Colorado corporation, under which its film and live entertainment
operations
are undertaken. In December 1996, the Company commenced operations of
selling
infomercial products in free standing unmanned kiosks in major retail
malls
including U.S. Military bases. This segment is known as the "retail"
segment.
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a
high degree of risk of a loss of part or all of the investment.
Therefore,
prospective investors should read this entire Prospectus and carefully
consider,
among others, the following risk factors in addition to the other
information set
forth elsewhere in this Prospectus prior to making an investment.
RISKS OF THE OFFERING
History of Losses.
During the period from inception (January 17, 1985) to December 31,
1996, the
Company incurred operating losses in each fiscal year. Cumulative net
losses for
that period amount to approximately $11,830,000. As of December 31,
1996, the
Company had a stockholders' equity of approximately $1,143,000, had an
excess
of current liabilities over current assets of approximately $1,261,000
and, in
some cases, has been unable to meet its obligations as they become due.
The
independent certified public accountants' report on the financial
statements of
the Company contain an explanatory paragraph, which, in general,
indicates that
the Company has suffered recurring losses from operations, has a
working capital
deficiency and has defaulted on a substantial portion of its debt.
These
conditions raise substantial doubt about its ability to continue as a
going
concern. Management's plans include obtaining additional financing,
and/or
extending its existing debt obligations, and/or obtaining additional
equity
capital and ultimately achieving profitable operations. The financial
statements
do not include any adjustments that might result from these
uncertainties.
"Best Efforts-No Minimum" Distribution
The Shares offered hereby are offered on a "Best Efforts-No Minimum"
only basis
by the Selling Shareholders, and no individual or firm is committed to
purchase
or take down any of the Shares so offered; there is no assurance that
any portion
of the Shares so offered will be sold. Such proceeds will be utilized
immediately
regardless of how much may be raised in this offering. The funds will
be
transmitted to the Selling Shareholders and the Shares will thereupon
be issued
and no refund will be made to investors thereafter. See "PLAN OF
DISTRIBUTION."
Limited Public Market
Historically, there has been a limited public market for the Common
Shares of the
Company. This situation has not changed with the listing of the
Company on the
NASDAQ. There can be no assurance that a larger, liquid market will
ever develop
or that if developed, it will be sustained. Individuals may not be able
to
liquidate their investment on favorable terms at the time they desire
to do so.
Potential Future Sales Pursuant To Rule 144 By Existing Shareholders
At September 30, 1997, there were 6,176,504 shares issued and
outstanding. As
most of these shares of Common Stock held by the Company's present
shareholders
have not been registered under the Securities Act of 1933, as amended
(the "Act")
but are, under certain circumstances, available for public sale
pursuant to Rule
144, promulgated under the Act. Approximately 95% of these restricted
shares
have passed the date upon which such restricted shares may be sold in
reliance
upon Rule 144. Generally, under Rule 144, a person (or persons whose
shares are
aggregated) who has satisfied a one year holding period may, under
certain
circumstances, sell within any three month period a number of shares
which does
not exceed the greater of one percent (1%) of the then outstanding
Common Stock
or the average weekly trading volume during the four calendar weeks
prior to such
sale. Rule 144(k) also permits, under certain circumstances, the sale
of shares
without any quantity limitation by a person who has not been an
affiliate of the
Company for at least 90 days and who has satisfied a two year holding
period. The
possibility of sales under Rule 144 may adversely affect the market
price of the
Company's securities. However, there can be no guarantee what the
precise effect,
if any, will be as a result of the registration of these Common Shares.
BUSINESS RISKS
Intense Competition.
Competition is intense in each segment of the entertainment industry in
which the
Company engages. Many of the organizations with which the Company will
be in
competition have far greater financial and creative resources and
larger staffs
than the Company. In addition, many of such organizations have proven
operating
histories, which the Company lacks. See BUSINESS--Competition.
Negotiation of Rights to Literary Properties and Other Risks.
The negotiation of acquisition, production financing, production,
distribution
and sub-distribution agreements can be a critical factor in the
Company's
business. There can be no assurance of the success of any such
negotiations.
It is possible that any or all of the projects packaged by the Company
could
fail to receive any commitment for production financing, production or
distribution.
Even when funds are obtained for the production of a particular
project, its
actual production may be delayed because of various events beyond the
control of
the company such as labor problems, delays in supplies, props or
costumes,
equipment breakdowns, weather delay and other circumstances. The
Company intends
to seek insurance in order to reduce its exposure to such risks, but
the
company's success in obtaining insurance against all such contingencies
is
unlikely and additional financing may be required under such
circumstances. In
the absence of a completion bond, and in the event that such financing
is not
available, or substitute artists, screenwriters or producers cannot be
engaged,
the project may have to be abandoned. If, on the other hand, a delayed
project
can be produced, it might be completed only at a substantially higher
cost to the
Company.
Speculative Nature of the Company's Business.
Profits, if any, from the businesses in which the Company engages are
dependent
on widespread public acceptance of, and interest in, each creative
project
undertaken by the Company's various segments. Audience appeal depends
upon
factors which cannot be ascertained reliably in advance and over which
the
Company may have no control, including, among other things,
unpredictable
critical reviews, positioning in the market and changeable public
taste. Due to
factors such as the unpredictability of audience appeal, many of the
Company's
completed projects may fail to generate sufficient revenues to recover
their
costs of acquisition, development, production and distribution. The
Company may
not recoup all or any portion of its investment in a particular
project, and
there can be no assurance that any project will yield profits to the
Company.
Success Dependent on Management.
Success of the Company depends on the continued active participation of
A.B.
Goldberg, the Company's President. There is no employment agreement
with him, and
the Company has not obtained any "key-man" insurance from which it
would benefit
in the event of his death. However, the Company intends in the future
to
negotiate an employment agreement with him. The loss of the services of
Mr.
Goldberg would adversely affect the continued development of the
Company's
business.
BUSINESS
General
First Entertainment, Inc. (the "Company" or "FTET") was incorporated
under the
laws of Colorado on January 17, 1985. Currently, the Company is a
multi-media
entertainment company, holding controlling interests in five distinct
segments,
four active and one inactive. The four active segments, which are
controlled by
the parent company, FTET, are known as "Video," "Radio," "Live
Entertainment,"
and "Retail". The inactive segment is known as "Film". In November
1995, the
Company determined to discontinue the operations of its copyrighted
properties
segment, which it acquired in 1994. Initially, the Company's business
consisted
of the production of pre-recorded travel guides and special interest
videos. In
1987, the Company entered the radio broadcasting business by acquiring
Quality
Communications, Inc., a Wyoming corporation pursuant to which the
Company
operates the radio segment of its business. In 1992, the Company
acquired a
controlling interest in First Films, Inc. ("FFI"), a publicly held
Colorado
corporation, under which its film and live entertainment operations are
undertaken. In December 1996, the Company commenced operations of
selling
infomercial products in free standing unmanned kiosks in major retail
malls
including U.S. Military bases. This segment is known as the "retail"
segment.
Video
Initially, the Company entered the pre-recorded videocassette product
market
through the design, production and distribution of pre-recorded
videocassette
travel guides and later expanded into production and distribution of
special
interest videocassette productions. In June 1986, the Company entered
into a
trademark licensing agreement with Rand McNally, providing the Company
the right
to use the Rand McNally name worldwide for its Video Trip product.
In 1993, the Company negotiated the termination of its relationship
with Rand
McNally. In July 1993, the Company entered into a new agreement,
entitling it
to use the KODAK trademark of Eastman Kodak Company for video through
its
exclusive U.S. distributor, Woodknapp and Company, Inc. This agreement
allowed
Woodknapp and Company, Inc. to become the exclusive domestic
distributor for the
Company's Video Trip product and allowed the Company to receive
sponsorship
assistance from Eastman Kodak Company. This agreement allowed the
Company to
pass through some of the costs of packaging, marketing and distribution
to
Woodknapp, who is one of the largest distributors of special interest
video in
the United States. The Company bore the expense of editing the Rand
McNally
trademarks from the programs. This editing was completed in December
1993 and
shortly thereafter, Woodknapp released, domestically, the first of five
release
groups created from the Video Trip library. In January 1995, the
Company was
informed that Woodknapp and Company, Inc. had ceased operations and
would not be
able to honor its contract as the Company's exclusive U.S. distributor
of Video
Trips. The Company feels that because of cash flow problems of
Woodknapp they
were not able to effectively market their Video Trips in 1994.
In 1995, the Company signed a three year distribution agreement with
Fox Lorber,
whereby Fox Lorber would test the distribution of 12 video trip titles
in North
America. Fox Lorber has the right to acquire the remaining 28 video
trip titles
and extend the term of the agreement from three years to seven years
with an
additional advance royalty payment of $58,000. During 1996, the
Company sold all
its foreign distribution rights to Fox Lorber for $50,000.
Radio
In October 1987, the Company entered the radio broadcasting business
through the
acquisition of Quality Communications, Inc. ("Quality Communications"),
a Wyoming
corporation. At that time, Quality Communications owned and operated
three radio
stations, which serve markets in Northeast Wyoming and central Iowa.
In August
1989, the Company sold two radio stations in Boone, Iowa. The Company,
through
Quality Communications, operates a radio station, 100.7, The Fox,
located in
Gillette, Wyoming.
In November 1993, the Company changed the music format of the radio
station
formerly known as KGWY, or Y-100, from a top-40 station to a format
known as the
"Heart of Rock". In February, 1995 the format was changed again to
contemporary
country. The changes have had a positive effect on its market share
and gross
revenues. Independent market surveys show the radio station has
approximately
44% of the market in Gillette, Wyoming. In 1996, the radio station
started
promoting concerts using up and coming country and western singers.
The radio
station was a venue to promote the concerts and add an additional
source of
revenue for the radio station.
Live Entertainment
FFI owned and operated two comedy clubs, one located in Denver,
Colorado and one
in Tampa, Florida. The Tampa, Florida, club was closed on January 29,
1995 due
to less than expected attendance.
The goal of this division is to produce first-rate shows in the theater
environment. Revenues are generated through both ticket sales at the
door and
beverage and food sales at tables. Clubs are open to the public only
for shows,
which last from 1 to 2 hours each, and number as many as three per
night. Non-
show times are devoted to preparing and producing a show that changes
completely
each week, and to promoting and marketing the nightclub.
FFI acquired 100 percent of the outstanding stock of Comedy Works,
Inc., a
Colorado corporation, on September 13, 1990 in an exchange for
200,000,000 shares
of common stock. Comedy Works was incorporated in 1982 and has
operated from its
Larimer Square, Denver, Colorado location since that time. Comedy
Works Larimer
Square typically has ten shows per week and has averaged over 2,000
customers per
week for the past fifteen years.
Retail
In December, 1996 the Company commenced operations of its retail
segment. The
segment consists of selling the most common and most popular
infomercial products
in free standing un-manned kiosks in retail outlets throughout the
United States.
The Company intends to expand operations to include manned kiosks in
major
retail malls. Each manned kiosks will be approximately 250 square feet
and will
have approximately 35 to 50 of the top selling infomercial products.
The Company
opened its first four locations in December, 1996, in Pearl Harbor,
Andrews Air
Force Base and Bolling Air Force Base in Washington, D.C. and
Leichmere's in
Cambridge, Massachusetts. The Company intends to complete a private
placement
of up to $800,000 in 1997 to fund the planned expansion of manned
kiosks in major
retail malls throughout the United States. The Company operates the
kiosks under
the name "The Best of As Seen on TV" ("ASOTV").
Other Business Development
Balzac
In April 1996, the Company acquired certain assets from Balzac, Inc., a
private
company which manufactures and distributes toys, including a product
line of toy
balls. The assets and rights acquired consisted of the following:
inventory of
Balzac toys, the exclusive license of Balzac for Australia and various
other
rights.
The exclusive license agreement for Australia was acquired for $800,000
payable
within five years based upon a formula of 60% of net profits from the
sale of
Balzac products in Australia. The inventory and various other rights
were
acquired by issuing 1,100,000 shares of the Company's restricted common
stock
valued at $1.2 million. In addition, the Company granted certain stock
options
to Balzac to purchase shares of common stock of the Company.
During 1996, a dispute arose between the Company and Balzac where
Balzac asserted
a violation of the Purchase Agreement. Balzac seized the inventory
valued at $1
million, which was collateral on the fixed obligation due under the
Australian
Licensing Agreement, to satisfy the $800,000 obligation under the
Licensing
Agreement. The Company asserted that Balzac had no right under the
Purchase
Agreement or License Agreement to seize the inventory and apply the
proceeds
against the note obligation under the License Agreement.
In April 1997, Balzac and the Company entered into an agreement whereby
Balzac
will buy back the Australian Licensing Agreement for $800,000 and will
repay the
Company $200,000 which was the difference between the value of the
seized
inventory and the obligation under the licensing agreement. The
$1,000,000 will
be repaid over forty months at 8% per annum.
Image Marketing Group
On September 6, 1994, the Company acquired an 84 percent interest in
Image
Marketing Group, Inc. ("Image"). The Company issued 248,297 shares of
its
restricted common stock in exchange for 1,986,374 issued and
outstanding shares
of Image. In addition, the Company issued 231,976 shares of its Class
B
preferred stock in exchange for all the issued and outstanding
preferred stock
of Image and approximately $420,000 of related party debt.
Image had a substantial amount of working capital invested in inventory
items
that were not selling, therefore it was unable to recover its
investment in
inventory or reinvest in new images from the sale of existing
inventory. FTET
invested approximately $700,000 in Image in an effort to generate sales
through
introduction of new images to customers. Image was unable to generate
enough
sales or liquidate its inventory to generate working capital to support
continued
operations. Since 1993, Image has had losses from operations and at
the time it
was acquired by the Company was in need of working capital to finance
inventory
growth. Even with a working capital infusion of approximately
$700,000, Image
continued to incur losses as a result of declining sales. In November,
1995 it
was determined that additional working capital would not be advanced to
Image and
that the Company would terminate operations and seek a buyer for Image.
The
discontinuance of operations of Image resulted in a loss of
approximately $2.2
million for the year ended December 31, 1995 of which $1.6 million
represents the
write down of assets to their net realizable value.
On April 24, 1996 The Company and Harvey Rosenberg, a former officer
and director
of the Company entered into a Purchase Agreement for the sale of Image.
Mr.
Rosenberg purchased the Companys 1,986,376 shares of Image for $1,000
resulting
in a gain of approximately $414,000. At the time of the disposition of
Image,
Image had liabilities in excess of assets.
The results of operations of Image for the year ended December 31,1996
and 1995
are disclosed in the accompanying statements of operations as
discontinued
operations.
Indian Licensing
In February 1995, the Company signed a series of agreements giving it
certain
licensing and merchandising rights for the Indian Motor Company, which
required
the approval of the bankruptcy court. These rights were never approved
by the
Bankruptcy Court.
In January, 1996 A.B. Goldberg, Harvey Rosenberg, a former director and
several
other unrelated parties were named as defendants in a law suit filed by
Sterling
Consulting Corporation, Receiver for Indian Motorcycle Manufacturing,
Inc. The
Company filed a counter claim against the Receiver in July, 1996. In
September
1996, the Company and the Receiver commenced settlement negotiations
whereby all
parties would resolve their dispute. In February, 1997 the Company and
the
Receiver agreed to the terms of a settlement. The proposed Settlement
Agreement
calls for the Company to relinquish all rights or claims to the Indian
Motorcycle
Trademark or the use of the Trademark and any licensing rights. In
addition, all
claims by the Receiver and the Company shall be released and the
Company shall
pay to the Receiver approximately $114,000. All rights acquired from
Scott
Kajiya and Jamie Ruiz for the use of the Indian Motorcycle Trademark in
Japan are
also assigned to the Receiver.
The transactions described above relating to Indian Licensing have been
rescinded
in the accompanying financial statements effective from the date the
transactions
were entered into as if the transactions did not occur.
Letters of Intent
In January, 1997, a non-binding letter of intent was signed with
Enternet
Corporation, an international marketer of infomercial products.
Enternet has
successfully combined international wholesaling as well as the
franchising of its
retail kiosk concept under the name "TV to You". In addition, Enternet
operates
the most prominent "As Seen on TV" internet shopping site under the
name "As On
TV", offering a complete array of infomercial products. This potential
acquisition fits in well with the development of "The Best of As Seen
on TV" in
retail locations in the United States, combined with Enternet
International
expertise and an internet web site. The Company would issue 300,000
shares of
common stock of the Company and 100,000 shares of ASOTV for 60% of
Enternet.
Consummation of the acquisition was subject to a number of conditions
including
the negotiation of definitive agreements, completion of due diligence
and
approval by the Board of Directors of both companies. Upon completion
of the
Company's due diligence, the letter of intent was terminated.
In March, 1997, a non-binding letter of intent was signed with ONLINE
Casino's,
Inc. ("ONLINE") regarding the potential acquisition of ONLINE, which
consists of
a fully licensed operating gaming casino in the Caribbean, along with
an internet
gaming license and internet gaming software that controls all aspects
of the
system. The purchase price of ONLINE was estimated to be $26 million
consisting
of debt and equity financing. Consummation of the acquisition was
subject to a
number of conditions including the negotiation of definitive
agreements,
completion of due diligence and approval by the Directors of both
Companies. By
mutual agreement, the Company and ONLINE decided to terminate the
transaction.
The Company signed a letter of intent with Global Casinos, Inc. to
acquire
control of their subsidiary Global Internet Corporation (Internet).
The
transaction is planned as a purchase such as that Internet will become
a
subsidiary of the Company. If the transaction is completed the former
shareholders of Internet would own approximately 4.7% of the Company.
The
transaction is intended to be structured as an exchange of Class B
convertible
preferred stock of the Company for the common stock of Internet. At
the present
time, approximately 50% of the shares of Internet has been exchanged
for
approximately 30,000 shares of Class B Convertible Preferred stock of
the Company
that is convertible into 375,000 common shares. (See Acquisitions and
Mergers-
Global Internet)
The present exchange would give the Company effective control of
Internet, and
the current shareholders of Internet would become affiliates of the
Company.
The Company has decided to engage in the transaction with Internet to
broaden the
asset base and increase the value of the Company's shares as a result
of
acquiring a potentially profitable business. None of the rights of any
securities
holders will be affected by this transaction. The securities of the
Company
which have been issued in this transaction are Class B preferred
shares. It is
probable that the Class B shareholders will elect to convert their
shares into
common shares of the Company, which will have the same rights and
privileges as
all other common shares but will be restricted securities under the
Securities
Act of 1933, as amended. To obtain conversion of Class B preferred
shares into
common shares, the Company must obtain approval of the shareholders to
increase
its authorized common shares and must file Articles of Amendment with
the
Secretary of State of Colorado. While the Class B preferred shares
have been
issued, the filing for additional common shares must await the approval
of the
shareholders to increase in authorized common shares.
Competition
Video
The production and marketing of pre-recorded video cassettes is a
highly
competitive business. The Company vies with many companies and
individuals that
have substantial experience in acquiring, producing and distributing
such
products. Most have resources substantially greater than those of the
Company.
These competitors include both large and small independent production
companies,
television and film studios, and others. The Company knows of numerous
other
videocassette travel guide series (including International Video
Network's Video
Visits, Travelview, Laura McKenzie's Travel Guide and Fodor's Travel
Video);
however, the Company believes that the Kodak name and the quality of
its programs
set it apart from its competitors.
Radio
FM100.7, "The Fox" competes with seven other signals available in the
area. Two
of these radio signals originate from Gillette, Wyoming. The Company
presently
enjoys the largest share of the market, estimated to be 44 percent.
Live Entertainment
Competition is intense in the comedy and music night club entertainment
industries. On a national level, the Company competes for entertainers
with
companies that are better capitalized, highly visible and have longer
operating
histories and larger staffs in their respective locations. None of the
national
comedy clubs have locations in Denver, Colorado. Comedy Works Larimer
Square has
been in business in Denver, Colorado for 15 years and the Company
believes it to
be the highest revenue-producing comedy club in the area. The Company
believes
that Comedy Works Larimer Square provides higher-quality acts than its
local
competitors, reflected in the fact that it charges approximately twice
the
admission price of its local competitors. The two main competitors of
Comedy
Works Larimer Square are both individually-owned and located in
shopping centers
in the suburbs, while Comedy Works is located in the downtown Denver
area.
Retail
There are several companies that sell infomercial products in retail
locations,
none of which have a national presence. Other companies are more
experienced and
are better capitalized but the Company believes it will distinguish
itself from
competition by offering only the best and most popular infomercial
products and
by having a better, more up-scale presentation of its products.
Licenses
The Federal Communications Commission (FCC) issues radio broadcasters a
license
to operate within their assigned frequency for seven years. These
licenses, upon
application, are renewable for additional seven year periods. The FCC
issued
KGWY its original license on October 1, 1983, to operate at a frequency
of 100.7
MHz, 24 hours a day, at 100,000 watts of effective radiated power. It
was
subsequently reissued in October of 1997. It will be up for renewal
again on
October 1, 2004. During the renewal process the public has an
opportunity to
express its opinion of how well the particular station is servicing its
broadcast
area. Extreme public negativity during this period can hold up the
reissuance
process. In addition, frequent violations of FCC rules and regulations
can be
cause for the denial of the station's license renewal.
The FCC allots a certain number of frequencies for each broadcast area,
based
upon community need, population factors and the determination of the
economic
viability of another station in the designated region. Currently there
are no
other licenses available in the Gillette area. It is possible to
request that
the FCC reconsider opening up further frequencies through its rule
making body,
but this can be a time consuming process. All sales of stations and
subsequent
transfers of licenses must be approved by the FCC.
Seasonality
Video
Although revenues are spread over the entire calendar year,
historically the
third quarter generally reflects the highest revenues for each year due
to
increase in wholesale buying for the holiday season.
Radio
Although revenues are spread over the entire calendar year, the first
quarter
generally reflects the lowest and the fourth quarter generally reflects
the
highest revenues for each year. The increase in retail advertising
each fall in
preparation for the holiday season, combined with political
advertising, tends
to increase fourth quarter revenues.
Retail
Historically retail is the strongest in the October through December
months. The
Company projects a decline in sales during January through March and
July through
September with the second and fourth quarters showing the stronger
sales.
Live Entertainment
The Company has found that its highest-revenue months are from July 15
to October
15 of each year. From approximately May 15 to July 15 of each year,
business is
typically down 30 percent below average, primarily because customers
prefer
outdoor activities at that time of year. During the holiday season,
management
has found a slight increase due to once-a-year customers, on vacation
or hosting
visiting friends or relatives.
Employees
First Entertainment, Inc.
Currently, FTET, the Holding Company, employs one executive and one
administrative person. The Holding Company contracts the accounting
and
administrative function to a company owned by the former president and
to other
independent consultants.
Video
The Company does not have any video employees, but rather relies upon
its
distribution for video sales.
Radio
The Company employs approximately five full-time employees and eight
part-time
employees. Of the full-time employees, they are engaged mainly in the
administrative radio operations and sales. The part-time employees are
engaged
in the on-air activities as on-air personalities.
Live Entertainment
This division has three full-time employees and approximately 20 part-
time
employees. Full-time employees are management staff and part-time
employees are
waitresses, bartenders, and door personnel.
Retail
Currently, this division has one full-time employee.
Legal Proceedings
The Company knows of no litigation pending, threatened, or
contemplated, or
unsatisfied judgments against it, or any proceedings of which the
Company or any
of its subsidiaries is a party, except as specified below. The Company
knows of
no legal actions pending or threatened, or judgment entered against any
of its
officers or directors or any of its subsidiaries in their capacities as
such,
except as specified below.
In January, 1996 the Company, AB Goldberg, Harvey Rosenberg and several
other
related and unrelated third parties were named as defendants in a
lawsuit filed
by Sterling Consulting Corporation as Receiver for Indian Motorcycle
Manufacturing, Inc.("IMMI") The Complaint alleges interference by
defendants in
the business of IMMI, conflicts of interest of AB Goldberg, breach of
fiduciary
duty, unjust enrichment, and bankruptcy fraud.
In July 1996, The Company filed suit against the Receiver alleging
intentional
interference of contracted relationships and breach of licensing
agreements. In
September 1996, the Company and the Receiver commenced settlement
negotiations
whereby all parties would resolve their disputes.
In February 1997, the Company agreed to terms of a Settlement Agreement
with the
Receiver whereby the Company would relinquish all rights to the Indian
Motorcycle
Trademark and pay the Receiver approximately $114,000. (See Item 1,
Other
Business Developments herein)
In March 1997, the Company commenced legal proceedings against Image
Marketing
Group, Inc. and Harvey Rosenberg, Burt Katz ( a director of the
Company) and
Michael Katz, individually (the Defendants), for collection of
approximately
$700,000 in advances to Image Marketing. The suit was filed in Denver
District
Court. The suit was settled in July 1997 whereby the defendants
returned 144,410
shares of common stock of the Company and Burt Katz resigned from the
board.
In addition, the Company has commenced legal proceedings against HK
Retail
Concepts for breech of contract. The claims are for unspecified
damages at this
time. The suit was filed in Denver District Court.
In May, 1997 First Entertainment, Inc. was named as a co-defendant in a
lawsuit
filed in Superior Court California, Court of San Diego. The plaintiff
alleges
securities fraud and is seeking the return of their $75,000 investment,
interest
at 10% from the date of their investment through the date of repayment
and legal
fees. The Company believes the lawsuit is without merit. While action
involves
matters for which the ultimate liability, if any, has not been
determined,
management does not expect the outcome to have a material adverse
effect on the
financial position of the Company.
ACQUISITIONS AND MERGERS
Since inception the Company has engaged in a series of mergers and
acquisitions
resulting in its present corporate structure and operating
subsidiaries.
Currently, the Company has the following transactions to report:
Power Media
In July, 1996, the Company issued 770,000 shares of its restricted
common stock,
valued at $408,100, in exchange for 18,000 of the 25,000 then issued
and
outstanding shares of Power Media Communications International, Inc.
(Power
Media), or 72% ownership. Power Media was a substantially dormant
company that
had developed the concept of selling infomercial products in kiosks
primarily
located in retail malls.
In November 1996, a new entity was formed called "The Best Of As Seen
on TV",
Inc. ("ASOTV") for the purpose of acquiring all of the issued and
outstanding
common stock of Power Media and to provide original incorporators with
ownership
in ASOTV. The original incorporators of ASOTV were issued 464,000
shares of
ASOTV for par value ($.001 per share), which included 220,800 shares
issued to
NMG, LLP, an entity owned by the wife of the president of the Company.
ASOTV
then issued 1,015,000 shares of common stock to the Company for their
18,000
shares of Power Media and issued 324,500 shares to an unrelated party
for the
remaining 7,000 shares of Power Media. In addition, ASOTV received a
stock
subscription from the previous owner of the 7,000 shares of Power Media
to
purchase approximately 325,000 shares of common stock of ASOTV for
$150,000, of
which $100,000 was received in 1996. As a result of the above
transactions,
ASOTV owned 100% of Power Media and the Company owned approximately 56
percent
of ASOTV as of December 31, 1996.
Polton
On May 10, 1994, the Company acquired approximately 80% of the issued
and
outstanding common stock of the Polton Corporation ("Polton") by
issuing 75,000
shares of the Company's restricted common stock valued at $318,000. In
addition,
the Company advanced Polton $200,000 for working capital. Polton is
primarily
engaged in the manufacturing and distribution of compact discs and
cassettes for
Warner Music labels.
Shortly after the consummation of the Polton acquisition a dispute
arose between
the Company and Polton whereby Polton refused to provide financial
information
to the Company necessary to report the consolidated results of
operations since
the date of acquisition.
In November, 1995, the Company reached an agreement with Mr. Gary
Firth,
president of Polton, and Polton whereby Mr. Firth would return the
75,000 shares
of the Company's common stock and repay $100,000 of the $200,000
advanced as
working capital. The agreement resulted in a write down of the note
receivable
of $100,000 which has been reflected in the accompanying consolidated
statement
of operations in selling, general and administrative expenses during
1995.
Global Internet Corporation
General
The Board of Directors had previously decided that the Company should
look at the
Internet gaming industry as a potential area of development. The Board
of
Directors felt that this industry, while new and subject to potential
risk and
uncertainty, particularly in the regulatory area, offered unique
opportunities
for substantial profits over a relatively short period of time with
minimal
investment. The Board of Directors exercised its discretion under the
Business
Judgement Rule as adopted in the State of Colorado to seek to place the
Company
into the Internet gaming industry and believes that such a move is the
most
appropriate action for the Company at this time.
It was the feeling of the Board of Directors of the Company that the
Company
should look to acquire a company already in that business, even if only
on a
development stage or preliminary basis, to accelerate the Company's
ability to
become operational in this industry. The Company looked at two
companies in this
industry, including Internet. The other company was called OnLine
Casinos, Inc,
a private company. No other companies were considered because these
were the only
companies which the Company could find that could be potentially
acquired and
were of a size which the Company believed it could absorb into its
operations.
The Company performed due diligence on each company. After conducting
its due
diligence, the Company chose Internet over OnLine Casinos, Inc. because
the
Internet transaction was less dilutive to shareholders, was less
complex to
complete, and did not involve a substantial assumption of debt, which
would have
been required in the other transaction. The transaction with OnLine
Casinos, Inc.
would have required the Company issuing approximately $10 Million worth
of its
own securities and assuming approximately $15 Million in debt. In
addition,
OnLine Casinos, Inc. did not have software development contracts in
place to the
extent that Internet did. The transaction was negotiated with Internet
on an
arms-length basis. The Company's due diligence and prior negotiation
with OnLine
Casinos, Inc. had given the Board of Directors an indication of the
prevailing
values in this industry.
The Company has decided to engage in the transaction to broaden the
asset base
and increase the value of the Company's shares as a result of acquiring
a
business which plans to be in an industry which the Company believes
can be a
source of profit in a short period of time. None of the rights of any
securities
holders will be affected by this transaction. The securities of the
Company
issued in this transaction are preferred shares, which have the same
rights and
privileges as all other preferred shares of the same class and are
restricted
securities under the Securities Act of 1933, as amended. The Company
is
acquiring Internet for its preexisting debt, as measured in the
securities of the
Company, with no premium attached to the price of the acquisition.
As far as the Company's common share are concerned, both the high and
low bid
prices as of the date preceding public announcement of the transaction
were
$1.06.
The Terms.
This transaction was planned as a purchase such that Internet became a
subsidiary of the Company and the former shareholders of Internet would
thereby
own approximately 4.7%of the Company. This transaction has been
accounted for
as a purchase. At the present time, approximately 50% of the shares of
Internet
has been exchanged for approximately 30,000 shares of Class B
Convertible
Preferred stock of the Company that is convertible into 375,000 common
shares.
This percentage will be the total ownership of the Company in Global
and will
require the authorization of approximately 350,000 additional common
shares by
the shareholders to complete the transaction.
The present exchange has given the Company effective control of
Internet, and the
current control shareholders of Internet are now affiliates of the
Company.
However, at the present time, Internet is in the development stage and
has not
commenced operations. Internet is expected to commence operations only
after the
Company has completed a private placement to fund its efforts.
The Company has decided to engage in the transaction with Internet to
broaden the
asset base and increase the value of the Company's shares as a result
of
acquiring a potentially profitable business. At the present time,
Global, as
well as the Company, has a going concern qualification to its financial
statements. In addition, Global will need substantial capital and must
overcome
potentially significant regulatory hurdles to begin business. However,
the
Company believes that the combination of the two companies will create
a
potential which neither company presently has to raise additional
capital to
carry out the Global business plan.
None of the rights of any securities holders will be affected by this
transaction. The securities of the Company which have been issued in
this
transaction are Class B preferred shares. It is probable that the Class
B
shareholders will elect to convert their shares into common shares of
the
Company, which will have the same rights and privileges as all other
common
shares but will be restricted securities under the Securities Act of
1933, as
amended. To obtain conversion of the Class B preferred shares into
common shares,
the Company must obtain the approval of the shareholders to increase
its
authorized common shares and must file Articles of Amendment with the
Secretary
of State of Colorado. While the Class B preferred shares have been
issued, the
filing for additional common shares must await the approval of the
shareholders
to the increase in authorized common shares.
Global Internet Corporation (Internet) was incorporated in June 1996,
for the
purpose of developing a virtual casino to provide gambling on the
Internet.
Internet's operations will eventually be based offshore and Internet
will focus
its attention on creating a worldwide market. Internet is a development
stage
company which has not yet commenced operations. Internet has no
material
inventories or accounts receivable. No independent market surveys have
ever been
conducted to determine demand for the Internet's products and services.
Internet
has never generated any revenues. At the present time, Internet's
principal
assets are the software contracts which it possesses to develop a
virtual casino.
Narrative Description of the Business
In June 1996, Internet entered into a Web Site Development and
Maintenance
Agreement with DDB Needham Interactive Communications ("DDB"), whereby
DDB, with
the assistance of Electronic Data Systems Corporation ("EDS") as a
subcontractor,
agreed to develop a Virtual Internet Casino. As of March 1997, the
June
Agreement was superseded with a new agreement.
The agreement outlines a two-phase Web Site development program. Under
Phase 1,
the agreement calls for the development of five gaming sites: black
jack, poker,
roulette, slot machines and keno. At these sites, players would be able
to use
money to play against the house or to enter tournaments in which top
place
finishers would win prizes. The purpose of Phase 1 is to have a fully
operational site where the application can gain acceptance while a
customer base
is being developed. In Phase 2, Internet intends to expand the
complexity of the
games to include multi-player games site that will generate additional
revenue
as a percentage of the money gambled.
Internet has to date paid DDB a total of $282,509 for the work which
has already
been completed. The new agreement provides that DDB will resume work
on Phase
1 once Internet places the remaining balance due of $1,250,000 into
escrow.
The Company intends to do an equity financing raising approximately
$2.2 million
exclusive of commissions and expenses to complete the funding
obligation to DDB
and ongoing expenses necessary for the operations of Internet through
1998. DDB
has agreed to extend the escrow requirement until financing is
completed. This
equity financing will be for common shares of the Company and is
expected to be
priced at $.75 per common share and thus is not expected to be
substantially
dilutive to existing Company shareholders.
The Company has a letter of intent from Commercial Capital Corp. and
Four Seasons
Partners, Inc., a financing firm, to provide the financing in a private
placement. If the Company is unable to finance the private placement
transaction,
the Company will seek alternative financing, none of which it presently
possesses. The Company will look at additional equity financings or at
debt
financings, if such can be arranged on terms beneficial to the Company.
At the
present time, the Company has no definite financing plans other than
the letter
of intent for a private financing.
Under Phase 1, there will be development of a virtual Internet casino.
Internet
intends to engage in Internet commerce in countries other than the U.S.
completely through a foreign subsidiary, and therefore does not plan to
obtain
any federal, state or local permits. The decision to not obtain any
such federal,
state, or local permits is based upon an opinion from the law firm of
Graham,
Bright & Smith, P.C., Dallas, Texas, which stated that neither the
Company,
Internet, nor the Dominica corporation (see following paragraph) will
be required
to file or obtain any U.S. federal, state or local permits to engage in
the
activities conducted on Internet's web site. It should be noted that
the laws
in the United States are unclear as to the extent of federal, state, or
local
jurisdiction. There is a potential risk for the foreseeable future that
regulatory authorities in the United States may attempt to assert
jurisdiction
in this industry, including over US domiciled corporations who have
their off
shore operations in foreign subsidiaries. There can be no guarantee
that Internet
will be free of such attempts to assert jurisdiction. Any such attempts
to assert
jurisdiction on Internet could have a materially adverse effect on
Internet's and
the Company's operations. The successful assertion of U.S. jurisdiction
would
also have a materially adverse impact on both Internet's and the
Company's
operations. At the present time, the Company cannot assess the
likelihood that
such attempts to assert jurisdiction will occur.
Internet intends to obtain licenses to operate in countries where
Internet gaming
is regulated and legal. To date, Internet has made application for a
license to
operate a virtual casino on the island of Dominica, which is a country
in the
West Indies with a population of approximately seventy thousand
residents. None
are expected to be involved as customers of the virtual casino.
Internet expects
to be granted such license promptly, which is the primary reason for
seeking to
do business in Dominica.
The terms of the proposed license are as follows. The term of the
initial license
will be for five years. No renewal provisions are contained in the
proposed
license. The license is expected to be granted upon the payment of a
$15,000US
fee. The license would be non-exclusive, although no other licensee may
have more
favorable terms than Internet. Internet must commence operations within
one year
of the grant of the license and maintain constant operations during the
term
thereof. Any third party advertising placed on the Internet must be
approved by
the appropriate Dominica governmental authority. Internet must agree to
pay the
government of Dominica per annum 5% of the net win/loss wagered or
$25,000US,
whichever is greater. This provision is subject to audit by the
Government of
Dominica. In addition Internet must agree to hire a minimum of six
persons at a
rate of not less than $3.00 per hour to assist in the operation of the
business
in Dominica. Internet must pay all charges, costs, levies, and other
expenses in
connection with the use and access to the Internet. Any breach of the
license
must be remedied within sixty days of notice or the license is revoked.
On its
behalf, Dominica would agree to provide to Internet access under the
most
favorable terms available to international telecommunications services,
to give
Internet the right to import all of its equipment for Internet gaming
on a duty
free basis, to provide all work permits for such technical and
managerial
personnel as may be necessary to operate Internet's business, to exempt
from
income, withholding, sales and other taxes Internet's revenues and
those of its
subsidiary and to exempt from such taxes all non-resident employees of
Internet
or its subsidiary and all winnings of non-Dominican customers of
Internet.
Disputes under the license are subject to arbitration under Dominica
law. The
license, which Internet plans to obtain, is contains all of the
requirements for
Internet to operate in Dominica.
No independent market surveys have ever been conducted to determine
demand for
the Internet's products and services on Dominica. Internet plans to use
Dominica
essentially as a base for its world wide virtual casino. At the present
time,
Internet has not selected which countries it intends to target to
develop a
customer base nor has it conducted any independent market surveys to
determine
demand for the Internet's products and services elsewhere in the world.
Internet
plans to select the countries it intends to target after the Company
has
completed the private placement for Internet. Internet will retain
local counsel
for each proposed principal jurisdiction, will review the laws of each
potential
jurisdiction abroad and will select only those jurisdictions in which
it believes
that its activities will not contravene local laws. In the Company's
opinion,
such activities could be completed within six months of commencement
and could
cost approximately $50,000US, which has already been included in the
planned
budget. As of the date hereof, no advertisers have agreed to furnish
prizes or
otherwise be associated with Internet's efforts.
Internet intends, however, to exclude U.S. residents from being able to
play
commercially on its virtual casino system. Internet will use a variety
of methods
to do so, such as addresses and questionnaires. However, the primary
basis will
be origin of funds as the determinant of eligibility. In addition to
posting a
warning on the site that persons resident in the United States are not
eligible
to play on the site, Internet intends to verify origin of funds. If
the funds
originate from a banking source located in the Continental U.S. or U.S.
administered territory, the transaction will not be completed. In case
of
electronically transferred funds such as Visa or Mastercard, Internet
will check
country of origin as part of the initial funds verification. If the
source comes
back to the United States, the transaction will be denied. In cases
where funds
are transferred by wire or remitted by check, if found to be
originating in the
United States, the funds will be returned to the sender on receipt.
THIS METHOD
OF EXCLUDING U.S. RESIDENTS IS NOT WITHOUT RISK BECAUSE NO ONE CAN
OFFER COMPLETE
CERTAINTY THAT SUCH RESIDENTS SHALL BE EXCLUDED. The decision to
principally rely
upon this method of exclusion is based solely upon the Board of
Directors belief
that such is the best option available at the present time. Principal
reliance
upon this method may be subject to actions from governmental
regulators. It
should be noted again that the laws in the United States are unclear as
to the
extent of federal, state, or local jurisdiction. At this time, it is
not possible
to obtain clear and definitive legal advice as to the limits of U.S.
jurisdiction
in this matter. Therefore, the Company is taking a risk in going
forward in this
industry. There is a potential risk for the foreseeable future that
regulatory
authorities in the United States may attempt to assert jurisdiction in
this
industry, including over US domiciled corporations who have their off
shore
operations in foreign subsidiaries. There can be no guarantee that
Internet will
be free of such attempts to assert jurisdiction. Any such attempts to
assert
jurisdiction on Internet could have a materially adverse effect on
Internet's
and the Company's operations. The successful assertion of U.S.
jurisdiction would
also have a materially adverse impact on both Internet's and the
Company's
operations. At the present time, the Company cannot assess the
likelihood of such
attempts to assert jurisdiction occurring. Internet plans to
continually refine
its operations to achieve certainty that US residents will be
completely
excluded. The ultimate success of such plans cannot be determined at
this time.
Internet plans to use the most current technology available to exclude
U.S.
residents from its virtual casino.
Phase 1 will require DDB to develop a proprietary connection on the
Internet.
This will enable players to have a continuous interactive connection
with the
Server. The rapid response time and percentage decrease in inadvertent
disconnections between the User and the Server will be a deciding
factor in the
success of this Phase.
The agreement with DDB provides that Internet will own all proprietary
rights to
the software and the underlying technology.
Prior to the virtual casino site becoming operational the Company
expects to
incur the following costs.
*As previously stated, a payment to DDB in the amount of
$1,250,000 due
under the terms of the Web Site Development and Maintenance Agreement
is to be
paid into escrow for DDB to resume work on Phase 1. This amount
includes all test
service and all other associated costs. There are no other costs
involved.
*Executive Salaries of $17,000 per month.
*Consulting fees of $14,000 per month
*Other general and administrative expenses such as rent,
advertising,
telephone, legal, accounting, marketing, travel and entertainment,
office
supplies and all other expenses, estimated to be approximately $9,000
per
month.
Phase 1 will be hosted in the Plano WebRANCH (an existing high
visibility web
site) for four (4) months to do BETA testing of the games. Phase I is
expected
to take five months to complete. During this time Internet will allow
players
to "gamble" with "fun money." Internet plans to promote the Web Site
to
advertisers based on the number of hits at the Web Site. During this
period,
Internet plans to conduct tournaments that will offer prizes from
advertisers
based on criteria such as highest number of points, top fifty players,
or most
wins. Because an advertiser is interested in capturing demographic
information
about the user and certain users are unwilling to enter this
information, it is
anticipated that the games will be run under two different levels in
Phase 1.
Level one will allow anybody to play for free and will not require the
user to
enter any demographic information. Level 2 will allow players to
compete in
"tournaments" and against the house. This Phase will require the user
to enter
all the appropriate demographic information. Internet will focus its
attention
on gaining a customer base in Europe and Asia and believes that by
offering this
multi-level virtual casino experience it will be able to gain a better
penetration into the marketplace.
Phase 2 will include the development of multi-player games. Under
Phase 2 it
will be possible for players to reserve a table and play against the
dealer with
their own friends. Internet's revenue for multi-player games will be a
percentage of the actual money gambled. In addition, Internet will
seek
advertising revenue by selling the demographic information obtained
from its
players or by offering advertising space on the Web Site. Internet
envisions
designing advertising space that would be similar to the shops at the
forum at
Caesar's Palace Hotel and Casino.
During this Phase, the user will be playing directly against the
dealer. The
Web Site will be very visual and will simulate as many aspects
associated with
a live casino experience as possible. Once the user is connected to
the Game
Server, the Game Server will tell the user which card, number and suit,
or
symbol to display. Based on this interplay, the user will win, lose or
draw.
Markets
Internet's marketing plan will be focused solely on international
markets for
its virtual casino. This plan will be the primary focus for Internet's
marketing
efforts during the coming fiscal year.
During the past fiscal year, Internet has focused soley on development
stage
activities. At the present time, Internet has not selected which
countries it
intends to target to develop a customer base nor has it conducted any
independent market surveys to determine demand for the Internet's
products and
services elsewhere in the world. Internet plans to select the countries
it
intends to target after the Company has completed the private placement
for
Internet.
Raw Materials
Internet plans to use no material raw materials in its operations
Customers and Competition
The principal customers of Internet are expected to be individuals from
countries outside the U.S. There are a number of companies which now or
in the
future plan to market similar competing products and services as those
of
Internet. At the present time, Internet is aware of no major competitor
in its
proposed market. Internet believes that the market is divided up among
very
small operations, none of whom have a significant share of the market
on an
individual basis.
To the extent that Internet is unable to interest consumers to accept
its
proposed products and services, Internet could have difficulty in
achieving its
goals and objectives, of ever becoming profitable, or of even
continuing as a
viable entity. Internet believes that it can develop a viable segment
of its
proposed market, although Internet has not yet started to compete. In
any case,
Internet expects competition to be intense. The market for all of
Internet's
proposed products and services probably has limited barriers to entry
for other
competing operations, so that the competitive picture could change at
any time.
Consequently, the number of competitors could be substantial, although
such is
not the case at this point.
Proprietary Information
Internet plans to use copyrighted software, trade secrets, and other
proprietary
information in connection with its proposed operations. At the present
time,
Internet, as a development stage company, owns no material proprietary
information.
Government Regulation
Internet's proposed operations are expected to involve potentially
significant
governmental oversight and regulation. In order to begin operations,
Internet's
foreign subsidiary must obtain a license from the government of
Dominica, which
is expected to exercise a continuing role in the oversight of
Internet's foreign
subsidiary's operations. Other jurisdictions may also exercise
oversight of
Internet's foreign subsidiary's operations. Internet believes that,
while such
oversight and regulation will have a significant impact on its ability
to
operate, Internet will make every effort to become adequately staffed
to deal
with this impact. The complete impact of such governmental regulation
cannot
be foreseen at this time.
Internet will otherwise also be governed by federal and state laws of
general
applicability, none of which are expected to be material to Internet's
planned
operations. Such regulation is not considered to be burdensome on
Internet or
to have a material effect on Internet's ability to operate or to make a
profit.
Otherwise, Internet is not subject to any material governmental
regulation or
approvals.
Research and Development
Internet has not made any expenditures as of the six months ended June
30, 1997
for research and development.
Environmental Compliance
Internet is not expected to be subject to any material costs for
compliance with
any environmental laws in any jurisdiction in which it proposes to
operate.
Employees
Internet has two employees. They are Anthony Kay, President, CEO and
Treasurer
and Steven E. Bright Vice-President and Secretary Internet's employees
are not
represented by any union or collective bargaining group, and there is
no history
of any labor problems, or disputes. Internet has the human resources
at present
time to fulfill it current business plan but expects to hire additional
employees in the future for expansion of its operations in the ordinary
course
of business.
Mr. Kay has served as President, CEO and Treasurer of Global since
September,
1996. From December 1978 to September 1996, Mr. Kay served as President
and CEO
of Secutron Corp. where he was successful in leading the Company from a
one man
operation to a corporation with 40 employees and annual revenues in
excess of
$5 million. Utilizing the technical training offered by IBM, including
IBM's
campus program at the University of Pennsylvania's Wharton School, he
became a
recognized expert in the design and development of software systems for
the
securities industry. In addition, he designed and built systems for the
manufacturing and distribution, oil and gas and trucking industries.
Mr. Kay is a founding member and former treasurer of the Colorado
Software
Association. Mr. Kay also founded Midrange Solutions Corporation, a
wholly owned
subsidiary of Secutron Corp., which specializes as a systems integrator
and
third party solution provider. Midrange became one of the regions
largest
resellers of IBM's equipment and has won IBM's business partner of the
year
award. Midrange was also selected by JD Edwards Company to market and
sell its
newly announced Genesis Product in a six state area.
Mr. Steven Bright has served as President and Director of Global since
its
inception until September 1996 when he resigned as President and became
Vice
President. Mr. Bright is engaged full time in the practice of law and
currently
serves as an officer, director and principal shareholder of Graham,
Bright &
Smith, P.C. in Dallas, Texas. Mr. Bright's practice emphasizes
international
law, commercial, financial and business planning. Mr. Bright attended
the
University of Texas and received his Juris Doctorate Degree Cum Laude
from
Baylor School of Law in 1975.
Internet's employees are not represented by any union or collective
bargaining
group, and there is no history of any labor problems, or disputes.
Internet has
the human resources at present to fulfill its current business plan but
expects
to hire additional employees in the future for expansion of its
operations in
the ordinary course of business.
Internet has not been subject to any bankruptcy, receivership or
similar
proceedings.
Backlog
At September 30, 1997, Internet had no backlogs.
Financial Statements, Global Internet Corporation
Enclosed are the audited financial statements of Global Internet
Corporation for the period ended December 31, 1996 and unaudited
financial statements for the period ended September 30, 1997.
To the Board of Directors
Global Internet Corporation
Denver, Colorado
Independent Auditor's Report
I have audited the accompanying balance sheet of Global Internet
Corporation (
A Development Stage Company) as of December 31, 1996, and the related
statements
of operations, changes in stockholders deficiency, and cash flows for
the period
June 4, 1996 (Inception) through December 31, 1996. These financial
statements
are the responsibility of the Company's management. My responsibility
is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all
material respects, the financial position of Global Internet
Corporation (A
Development Stage Company) as of December 31, 1996, and the results of
its
operations and its cash flows for the year then ended in conformity
with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the
Company will continue as a going concern. As discussed in Note 1 to the
financial
statements, the Company has suffered losses from operations and has a
net capital
deficiency, which raise substantial doubt about its ability to continue
as a
going concern. Additionally, the Company has entered into a Web Site
and
Development and Maintenance Agreement with an unaffiliated third party
which
requires the Company to place into escrow approximately $1,250,000 to
fund the
development of the software necessary for the Company to commence its
business
plan. Should the Company be unsuccessful in obtaining the funds
necessary to
meet the escrow requirements by January 15, 1998, the Web Site
Development and
Maintenance Agreement shall terminate and the contractual relationship
between
the parties will end. Accordingly, the Company would have to explore
other
avenues of developing its business plan.
As further discussed in Note 1 to the financial statements, the
Company's business plan encompasses creating software aimed at
developing a virtual casino to provide gambling on the Internet. There
are no assurances that the Company will receive the necessary permits
and or licenses from the various federal, state, local or international
authorities that will allow the Company to commence and implement its
business plan. Management's plans regarding these matters are
described in Note 1. The financial statements do not include and
adjustments that might result from the outcome of these uncertainties.
Gerald R. Hendricks & Company, P.C.
May 21, 1997, expect for the third paragraph of
Note 6, the date of which is November 25, 1997
Westminster, Colorado
<TABLE>
<CAPTION>
GLOBAL INTERNET COPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
December 31, September 30,
1996 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 68,918 $ 1,924
- -------------------------------------------------------------------------
Total current assets 68,918 1,924
PROPERTY AND EQUIPMENT, net 607 2,358
- -------------------------------------------------------------------------
$ 69,525 $ 4,282
=========================================================================
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Convertible note-related party $ 325,000 $ 357,000
Unsecured advances - 35,300
Accounts payable-
Third party 83,648 3,456
Related party 48,849 55,946
Accrued expenses-related parties-
Salaries 68,000 221,000
Interest 6,000 31,875
- --------------------------------------------------------------------------
Total current liabilities 531,497 704,577
- --------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES - -
STOCKHOLDERS DEFICIENCY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued - -
Common stock, $.001 par value,
10,000,000 shares authorized,
2,985,000 issued and outstanding 2,985 2,985
Additional paid-in capital 11,940 11,940
Deficit accumulated during the
development stage (476,897) (715,220)
- --------------------------------------------------------------------------
(461,972) (700,295)
$ 69,525 $ 4,282
=========================================================================
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
GLOBAL INTERNET COPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Cumulative
Inception Inception
(June 4, 1996) For the Nine (June 4, 1996)
To Months Ended To
December 31, September 30, September 30,
1996 1997 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C>
INTEREST INCOME $ 1,132 $ 90 $ 1,222
OPERATING EXPENSES:
Research and development 292,507 ? 292,507
Professional fees-
Third party 860 ? 860
Related parties 96,103 38,817 134,920
Salaries
related parties 68,000 153,000 221,000
Interest related
Parties 6,000 25,875 31,875
Marketing 4,030 75 4,105
Travel and entertainment 3,983 6,022 10,005
Telephone and
communications 2,935 5,496 8,431
Deprecation ? 563 563
Other 3,611 8,565 12,176
- -----------------------------------------------------------------------
478,029 238,413 716,442
- -----------------------------------------------------------------------
NET LOSS $ (476,897) $ (238,323) $ (715,220)
========================================================================
NET LOSS PER
COMMON SHARE $ (.16) $ (.08) $ (.24)
========================================================================
WEIGHTED AVERAGE
NUMBER OF
SHARES OUTSTANDING 2,985,000 2,985,000 2,985,000
========================================================================
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
GLOBAL INTERNET COPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIENCY
Deficit
Accumulated
Additional During the
Class A Common Stock Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
BALANCE, June 4,
1996, (Inception) ? $ ? $ ? $ ? $ ?
Shares issued
for cash at
$.005 per share 2,985,000 2,985 11,940 ? 14,925
Net loss for
the period ? ? ? (476,897) (476,897)
- ------------------------------------------------------------------------------
BALANCE, December
31, 1996 2,985,000 2,985 11,940 (476,897) (461,972)
Net loss for
the period ? ? ? (238,323) (238,323)
- ------------------------------------------------------------------------------
BALANCE, September
30, 1997,
(Unaudited) 2,985,000 $ 2,985 $ 11,940 $(715,220) $(700,295)
==============================================================================
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
GLOBAL INTERNET COPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative
Inception For the Nine Inception
(June 4, 1996) Months (June 4, 1996)
To Ended To
December 31, September 30, September 30,
1996 1997 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES:
Net loss $ (476,897) $ (238,323) $ (715,220)
- -----------------------------------------------------------------------------
Adjustments to reconcile net
loss to net cash used in
operating activities-
Deprecation - 563 563
Change in liabilities-
Increase (decrease)
in accounts payable 132,497 (73,095) 59,402
Increase in accrued expenses 74,000 178,875 252,875
- ---------------------------------------------------------------------------
206,497 106,343 312,840
- ---------------------------------------------------------------------------
NET CASH USED IN OPERATING
ACTIVITIES (270,400) (131,980) (402,380)
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property
and equipment (607) (2,314) (2,921)
- ----------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (607) (2,314) (2,921)
- ----------------------------------------------------------------------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from
convertible note 325,000 32,000 357,000
Proceeds from unsecured
Advances - 35,300 35,300
Issuance of common
stock for cash 14,925 ? 14,925
- ---------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 339,925 67,300 407,225
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH 68,918 (66,994) 1,924
CASH AND CASH EQUIVALENTS,
Beginning - 68,918 -
- ---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
Ending $ 68,918 $ 1,924 $ 1,924
===========================================================================
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
[CAPTION]
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
1.Organization and Business Activity
Interim Financial Statements (Unaudited)
In the opinion of Global Internet Corporation (the Company), the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal
recurring accruals) necessary to present fairly the financial position of the
Company at September 30, 1997, and the results of its operations and changes in
cash flows for the nine months ended September 30, 1997. There were no
significant, material operations of Company from June 4, 1996 (inception)
through
September 30, 1996. The results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the full year.
The Company
The Company was incorporated in the State of Delaware on June 4, 1996. The
Company is in the development stage and development stage activities have
consisted of raising equity and debt capital and research and development
activities aimed at developing a virtual casino to provide gambling on the
Internet. Global Casinos, Inc. (Global) owns 58.6% of the Company's
outstanding common stock.
During the period ended December 31, 1996, the Company received $14,925 of
equity
financing in cash and $325,000 in debt financing from Global through the
issuance
of a 10% note, due October, 1997. In February 1997, the Company received an
additional $32,000 in debt financing from Global. (See Note 4). During the
nine
month period ended September 30, 1997, the Company received $35,300 in
unsecured
advances from First Entertainment, Inc. (First Entertainment). (See Notes
5 and 9).The Company is attempting to raise additional equity capital. As
further discussed in Note 6, the Company has entered into a Web Site
Development
and Maintenance Agreement with an unaffiliated third party which requires the
Company to place into escrow approximately $1,250,000 to fund the development
of the software necessary for the Company to commence its business plan.
Should the Company be unsuccessful in obtaining the funds necessary to meet
the escrow
requirements by January 15, 1998, the Web Site Development and Maintenance
Agreement shall terminate and the contractual relationship between the parties
will end. Accordingly, the Company would have to explore other avenues of
developing its business plan.
The Company's business plan encompasses creating software aimed at developing a
virtual casino to provide gambling on the Internet. There are no assurances
that
the Company will receive the necessary permits and or licenses from the various
federal, state, local or international authorities that will allow the Company
to commence and implement its business plan.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
There can be no assurance that the Company's business will develop as
anticipated
by management or that additional financing will be available. Management is
attempting to raise additional equity capital to meet the requirements of the
Web
Site Development and Maintenance Agreement, and to provide working capital.
Additionally, the Company is attempting to identify and comply with the
necessary
permits and licenses necessary to develop and implement a virtual casino to
provide gambling on the Internet. 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 result if
the
Company is unable to continue as a going concern.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight line method over the estimated useful lives of five years.
Expenditures for maintenance and repairs are charged directly to the
appropriate
operating account at the time the expense is incurred. Expenditures determined
to represent additions and betterments are capitalized.
Capitalized Software Costs
Pursuant to Statement of Financial Accounting Standards No. 86, 'Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
issued by the Financial Accounting Standards Board, the Company is required to
capitalized certain software development and production costs once
technological
feasibility has been achieved; that is, when the product design and a working
model of the software have been completed and the working model and its
consistency with the product design have been confirmed by testing. The cost
of purchased software is capitalized when related to a product which has
achieved
technological feasibility or that has an alternative future use. The Company
records all costs incurred to establish the technological feasibility of
computer
software to be sold, leased or otherwise marketed as research and development
costs. For the periods ended December 31, 1996 and September 30, 1997, the
Company did not capitalized any software development costs.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
Impairment of Long-Lived Assets
Management of the Company periodically reviews the carrying value of long-lived
assets for potential impairment by comparing the carrying value of those assets
with their related, expected future net cash flows. Should the sum of the
related, expected future net cash flows be less than the carrying value,
management would determine whether an impairment loss should be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the future discounted cash flows.
Income Taxes
Deferred income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted
for the effects of changes in tax laws and rates on the date of enactment.
2. Summary of Significant Accounting Policies, continued
Net Loss Per Common Share
The net loss per common share is based on the weighed average number of common
shares outstanding during the periods, including the common stock equivalents
resulting from dilutive stock options. No common stock equivalents are
included
in the computation of net loss per share as these equivalents are antidilutive.
Stock Options
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. This new standard defines a fair value based method for
accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by
adopting the new fair value method or to continue to measure compensation using
the intrinsic value approach under Accounting Principles Board (APB) Opinion
No.
25, the former standard. If the former standard for measurement is elected,
SFAS
No. 123 requires supplemental disclosure to show the effects of using the new
measurement criteria. The Company intends to use the measurement prescribed by
APB Opinion No. 25, and accordingly, this pronouncement will not affect the
Company's financial position or results of operations.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure 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 estimates.
Fair Value of Financial Statements
The carrying amounts of financial instruments, consisting of cash and cash
equivalents, approximates fair value as of December 31, 1996 and September 30,
1997, because of the relatively short maturity of these instruments. The
carrying
value of the convertible note payable approximates fair value as of December
31,
1996 and September 30, 1997, based upon market prices for the same or similar
debt issues.
3. Property and Equipment
Property and equipment, consisting solely of office equipment, had a net book
value of $607 and $2,358 at December 31, 1996 and September 30, 1997,
respectively.
Depreciation expense for the periods ended December 31, 1996 and September 30,
1997 was $0 and $563, respectively.
4. Convertible Note
During the period ended December 31, 1996, the Company received, from time to
time, advances from Global amounting to $325,000. Subsequently in February
1997,
the Company executed a Convertible Promissory Note (the Convertible Note)
with Global. The Convertible Note bears interest at 10%, is due October 31,
1997. The Convertible Note is without collateral. Global can elect to convert
the principal and any accrued and unpaid interest into common stock of the
Company at the greater of the current market price of the Company's stock or
$.25.
In February 1997, the Company received an additional $32,000 from Global and
added this amount to the outstanding balance of the convertible note with the
same terms and conditions.
Interest expense charged to operations for the periods ended December 31, 1996
and September 30, 1997, was $6,000 and $25,875, respectively.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
5. Related Parties
During the periods ended December 31, 1996 and September 30, 1997, the Company
incurred $6,125 and $27,000, respectively, in consulting fees to an entity in
which an officer, director and stockholder is a principal.
During the periods ended December 31, 1996 and September 30, 1997, the Company
incurred legal fees to two individuals, one who is a stockholder and one who is
an officer and stockholder totaling $89,978 and $11,817, respectively.
The Company has entered into employment agreements with two individuals one who
is an officer, director and stockholder and one who is an officer and
stockholder. The employment agreement with the President and Chief Executive
Officer is for a period of ten years from September 1, 1996, and calls for
monthly payments in the amount of $10,000 until the Company achieves
profitability, at which point his compensation shall be increased to $15,000.
In the event that his salary is deferred, he is entitled to receive additional
compensation equal to 5% interest on the deferred amount. In connection with
the
execution of this agreement, this individual received 50,000 stock options to
acquire shares of the Company's common stock at an exercise price of $.25 per
share.
The other employment agreement with the Vice President and Secretary is for a
period of three years from September 1, 1996, and calls for monthly payments in
the amount of $7,000. In the event that his salary is deferred, he is entitled
to receive additional compensation equal to 5% interest on the deferred amount.
In connection with the execution of this agreement, this individual received
50,000 stock options to acquire shares of the Company's common stock at an
exercise price of $.25 per share.
The Company has not paid any amounts to these individuals pursuant to their
employment contracts. For the periods ended December 31, 1996 and September
30, 1997, the Company recorded salary expense of $68,000 and $153,000,
respectively,
and a corresponding liability totaling $68,000 and $221,000, respectively.
5. Related Parties, continued
During the nine month period ended September 30, 1997, the Company received
advances from First Entertainment amounting to $35,300. The advances are not
pursuant to any formal loan agreement, bear no interest and have no specific
repayment terms.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
6. Commitment and Contingencies
Commitment
The Company has entered into a Web Site Development and Maintenance Agreement
with an unaffiliated third party to develop a virtual Internet casino. The Web
Site Development and Maintenance Agreement was amended in November 1996 and
subsequently in March 1997.
The March 1997 amendment requires escrow payments to be made in the amount of
$1,039,840 payable as follows: $346,613 at the execution of the March 1997
amendment, $346,613 upon the commencement of work as evidenced by written
notice
from the unaffiliated third party that work has commenced; and, $346,613 at the
completion of the initial phase. If the escrow is funded after March 25, 1997
but before June 16, 1997, the cost of the initial phase will be increased 5%.
If the escrow is funded after June 16, 1997 but before September 15, 1997, the
cost of the initial phase will be increased 10%.
The Company has extended the agreement until January 15, 1998; however, in
connection with this extension, the Company was informed by the unaffiliated
third party that the total cost to develop the virtual Internet casino has
increased another 10%. Accordingly, the Company anticipates that the total
costs
to develop this software will now approximate $1,250,000. If the escrow is not
funded on or before January 15, 1998, the Web Site Development and Maintenance
Agreement shall terminate and the contractual relationship between the parties
will end.
Contingencies
Global
During 1995 and 1996, Global and certain officers and directors of Global
received requests for information from the U.S. Securities and Exchange
Commission (SEC) related to an investigation begun by the SEC during 1994
into
various matters, including certain transactions in securities by Global and one
of its officers and directors. On January 13, 1997, Global was notified that
the
SEC staff intended to recommend initiation of administrative procedures for a
Cease and Desist Order against Global and two of its former officers and
directors with violations of certain provisions of federal securities laws.
Global has engaged in negotiations with the SEC staff concerning possible
disposition of this matter. Based upon the content of these discussions,
management of Global believes that the outcome of this matter will not have a
material adverse effect on the business of Global; however, there can be no
assurance as to the final outcome of the investigation or the impact, if any,
on the operations of the Company.
GLOBAL INTERNET CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Financial data at September 30, 1997 and for the nine month
period ended September 30, 1997 is unaudited)
6. Commitment and Contingencies, continued
Contingencies, continued
Income taxes
As of September 30, 1997, the Company had not filed its federal and state
income
tax returns for the period ended December 31, 1996. The Company believes that
no taxes are due and owing because of the significant losses that the Company
has
incurred; however, there may be penalties that the Company has incurred due to
its noncompliance with federal tax laws. Management is attempting to prepare
and
file the necessary returns.
7. Stockholders Deficiency
Preferred stock
The Company is authorized to issue 5,000,000 shares of its $.01 par value
preferred stock. The shares may be issued in such series and with such
preferences as may be determined by the Board of Directors. No preferred
shares have been issued by the Company.
Common stock
During the period ended December 31, 1996, the Company received $14,925 in cash
and issued 2,985,000 shares ($.001 per share) of its common stock.
Stock Option Plan
The Company established the 1996 Stock Option Plan (the Plan) and reserved
up to 750,000 shares to be issued pursuant to the Plan. Under the Plan, stock
option can be granted at prices not less than 100% of the fair market value of
the Companys stock at the date of grant. Options are exercisable for a period
of five years.
<TABLE>
<S> <C>
Option information is as follows:
Options outstanding, June 4, 1996 (inception) -
Granted 450,000
Options outstanding, December 31, 1996 450,000
Granted 100,000
Options outstanding, September 30, 1997 550,000
Option exercise prices $ .25
Exercisable options 550,000
Weighted average exercise price $ .25
Options available for future grant 200,000
</TABLE>
7. Stockholders Deficiency, continued
Rescinded Stock Transaction
During the period ended September 30, 1997, the Company entered into an
agreement
to sell 600,000 shares of its $.001 par value stock for $3,000, or $.005 per
share. The sale agreement was made between the Company and two entities; one
of
which is owned by the wife of the president and chief executive officer of
First
Entertainment, and the other is owned by a shareholder of First Entertainment.
The sale agreement was not approved by the Board of Directors of First
Entertainment; accordingly, the amounts received from these two entities have
been recorded as accounts payable.
8. Income Taxes
At September 30, 1997, the Company has net operating loss carryforwards, for
federal income tax purposes of approximately $715,000 expiring in 2012.
When more than a 50% change in ownership occurs, over a three year period, as
defined, the Tax Reform Act of 1986 limits the utilization of net operating
loss
(NOL) carryforwards in the year following the change in ownership. Therefore,
it is possible that the Companys utilization of its NOL carryforwards may be
partially reduced as a result of future changes in stock ownership due to the
proposed Agreement and Plan of Reorganization discussed in Note 9. No
determination has been made as of September 30, 1997 as to what implications,
if
any, there will be in net operating loss carryforwards of the Company.
9. Subsequent Event
In May 1997, Global entered into an Agreement and Plan of Reorganization with
First Entertainment whereby Global would exchange 1,500,000 (86%) shares of the
Companys commons stock that it owns and the $357,000 convertible note that
Global holds for 30,000 shares of First Entertainment Class B Convertible
Preferred Stock and 1,500,000 warrants. The warrants shall be for a period of
five years from the date of issuance and will be exercisable at $1.25 per
share.
The Agreement and Plan of Reorganization allows other stockholders of the
Company
to exchange their shares at a different exchange rate. Each share tendered by
stockholders other than Global, shall be exchanged for one warrant that is
exercisable for a five year period at $1.25 per share.
The Agreement and Plan of Reorganization is subject to the approval of the
stockholders of the Company and First Entertainment.
Managements Discussion and Analysis or Plan of Operation
The Company incurred a loss of approximately $477,000 for the period ended
December 31, 1996 whose activities consisted of raising debt and equity
financing
and research and development activities aimed at developing a virtual casino to
provide gambling on the Internet. The Company incurred a loss of $238,000 for
the
nine months ended September 31, 1997 and its activities are limited due to the
lack of working capital and consist primarily of capital raising activities.
For
the period June 4, 1996 (inception) to September 30, 1996 there were no
material operations of the Company as such a statement of operations has not
been included.
The Company had essentially no revenues, deriving interest income of $1,100
from
the investment of idle cash for 1996. Total costs and expenses for 1996 were
$478,000 of which $292,000 represented research and development costs, $97,000
in legal fees, $68,000 in accrued salaries and other general and administrative
expenses of $21,000. The Company accrues salaries of $17,000 a month for its
president and vice-president under the terms of employment agreements which
commenced September, 1996. Total costs and expenses for the nine months ended
September 30, 1997 were $238,000 of which $153,000 represents accrued salaries,
$25,000 in interest, $39,000 in related party consulting fees and $21,000 in
other general and administrative expenses. The Company has not paid any
amounts to these individuals pursuant to their employment contracts.
Of the total of $292,000 in research and development costs in 1996 , $283,000
represents payments to DDB Needham Interactive Communications to develop a
virtual internet casino. There were no research and development costs incurred
in 1997.
At December 31, 1996 the Company had a working capital deficit of $462,000 and
at September 30, 1997 the working capital deficit increased to $703,000. To
finance part of its operations in 1997 the Company received an advance from
First
Entertainment, Inc. of $35,000. The advance is unsecured and non-interest
bearing. In addition, the Company is in default on the $357,000 convertible
note
payable. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements the Company has incurred losses form operations and has a
working capital deficit. The Company has a Web Site Development and Maintenance
Agreement with an unaffiliated third party which requires the payment of
approximately $1.25 million. Further software development is on hold until
such
time as the payment is made under the Agreement. Once the monies have been
escrowed the Company expects the software to be completed 140 days after
commencement. It is imperative that the Company raise the financing required,
approximately $2.2 million, to develop the internet gaming site and to provide
working capital through the end of 1998. There can be no assurance that the
Company will be successful in raising the financing necessary. If the Company
is unsuccessful it will have to explore other avenues of developing its
business plan.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements of the
Company are based on the Consolidated Financial Statements of the Company,
adjusted to give effect of the acquisition of Global Internet Corporation
The unaudited pro forma combined balance sheet at September 30, 1997 presents
adjustments for the acquisition of Global Internet Corporation as if the
transaction had occurred on September 30, 1997.
The unaudited pro forma combined statement of operations data for the year
ended
December 31, 1996 and for the nine months ended September 30, 1997 presents
adjustments for the acquisition of Global Internet Corporation as if the
transaction had occurred on January 1, 1996.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the pro forma data.
The unaudited pro forma combined financial statements should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and the Financial Statements and Notes thereto of Global Internet
Corporation. The unaudited pro forma combined financial statements of
operations
data are not necessarily indicative of the results that would have been
reported
had such events actually occurred on the date specified, nor are they
indicative
of the Company's future results. There can be no assurance that the pending
acquisition of Global Internet Corporation will be consummated.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
Company
Company Global Pro Forma Pro
Forma
As Reported As Reported(1) Adjustments Combined
<S> <C> <C> <C> <C>
Revenues $ 2,139,451 $2,139,451
- ------------------------------------------------------------------------------
Cost of goods sold 1,617,365 1,617,365
Depreciation and
amortization 326,522 49,400(2)
375,922
Management fees, affiliate 408,000 408,000
Selling, general and
Administrative 1,394,683 472,029 1,866,712
- --------------------------------------------------------------------------------
- -
Total cost and expenses 3,746,570 472,029 4,267,999
Operating loss from
continuing operations (1,607,119 (472,029) (2,128,548)
Other Income (Expense)
Interest expense (102,791) (6,000) 6,000(3) (102,791)
Interest income 1,132 1,132
Other, net 22,961 22,961
- -----------------------------------------------------------------------------
Loss from continuing
operations before
minority interest (1,686,949) (476,897) (2,207,246)
Minority interest
in net loss
of subsidiaries 39,655 238,448(4) 278,103
- -----------------------------------------------------------------------------
Loss from continuing
Operations (1,647,294) (1,929,143)
Net Loss Per Share
Continuing Operations $(.39) $(.46)
Weighted Average Shares
Outstanding 4,168,661 4,168,661
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) Reflects the historical operating results of Global Internet Corporation as
though the acquisition had been consummated on January 1, 1996.
(2) Reflects the amortization of the goodwill on a straight line basis over ten
years.
(3) Consolidation elimination entry to eliminate related party interest income
with related party interest expense.
(4) Reflects minority interest in net loss of Global Internet Corporation.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
Company Global Pro Forma Pro Forma
As Reported As Reported Adjustments Combined
<S> <C> <C> <C> <C>
Assets
Current assets $ 427,574 $ 1,924 $357,000(1) $ 429,498
- ------------------------------------------------------------------------------
(357,000)(2)
Property and
equipment, net 616,372 2,358 618,730
License, net of
Amortization 783,033 783,033
Note receivable,
noncurrent 900,000 900,000
Goodwill, net 521,313 32,000(1) 864,639
- ------------------------------------------------------------------------------
(388,970)(1)
700,296(3)
Total assets $3,248,292 $ 4,282 $ 3,595,900
===============================================================================
Liabilities and
Stockholders Equity
Current portion of
long term debt $ 818,767 357,000 (357,000)(2) $ 818,767
Other current
Liabilities 517,911 347,577 865,488
- -----------------------------------------------------------------------------
Total current
Liabilities 1,336,678 704,577 1,684,255
- -----------------------------------------------------------------------------
Long term debt 199,791 199,791
- ------------------------------------------------------------------------------
Minority interest 199,428 199,428
- -------------------------------------------------------------------------------
Preferred stock 161 30 (1) 191
Common stock 49,412 2,985 (2,984)(3) 49,413
Additional paid
in capital 14,027,505 11,940 (11,940)(3) 14,027,505
Accumulated deficit (12,564,683) (715,220) 715,220 (3) (12,564,683)
- ------------------------------------------------------------------------------
Stockholders'
equity (deficit) 1,512,395 (700,295) 1,512,426
- ------------------------------------------------------------------------------
Total Liabilities
and Stockholders'
Equity $3,248,292 $ 4,282 $ 3,595,900
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) Reflects the issuance of 30,000 shares of the Company's convertible
preferred
stock to acquire 1,500,000 shares of Global Internet Corporation and a
convertible note receivable from Global Casinos Inc. on September 30, 1997.
(2) Consolidation elimination entry to eliminate the convertible note
receivable against the convertible note payable.
(3) Consolidation elimination entry to eliminate the stockholders equity of
Global Internet Corporation (the acquiree) and to record the excess of purchase
price over net assets acquired as goodwill.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997
Company
Company Global Pro Forma Pro Forma
As Reported As Reported(1) Adjustments Combined
<S> <C> <C> <C> <C>
Revenues $ 1,784,502 $1,273,354
- -------------------------------------------------------------------------------
Cost of goods sold 1,462,510 1,462,510
Depreciation and
amortization 180,967 563 25,750(2) 207,280
Selling, general and
Administrative 870,182 211,975 1,082,157
- ------------------------------------------------------------------------------
Total cost and
Expenses 2,513,659 212,538 2,751,947
- -------------------------------------------------------------------------------
Operating loss from
continuing operations ( 729,157) (212,538) (1,478,593)
Other Income (Expense)
Interest expense (70,590) (25,875) 25,875(3) (70,590)
Interest income 90 90
Other, net 1,059 1,059
- -------------------------------------------------------------------------------
Loss before minority
Interest (798,688) (238,323) (1,548,034)
Minority interest in
Net Loss 63,712 118,684(4) 182,396
- ------------------------------------------------------------------------------
Net Loss $(734,976) $(238,323) $(1,365,638)
==============================================================================
Net Loss Per Share $(.13)
$(.23)
Weighted Average Shares
Outstanding 5,818,474 5,818,474
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) Reflects the historical operating results of Global Internet Corporation as
though the acquisition had been consummated on January 1, 1996.
(2) Reflects the amortization of the goodwill on a straight line basis over ten
years.
(3) Consolidation elimination entry to eliminate related party interest income
with related party interest expense.
(4) Reflects minority interest in net loss of Global Internet Corporation.
Closing of the Transaction.
This agreement was entered into on May 3, 1997, and the convertible
preferred stock was issued to Global Casinos Inc. (Subject to
ratification and approval of the Companys shareholders)with the
approval of the Boards of Directors of both the Company and Internet.
The Board of the Company has submitted this transaction to the
shareholders of the Company for ratification and approval of the
completed transaction.
DETERMINATION OF OFFERING PRICE
The public price of the Shares are based upon the trading price of the Common
Shares as determined by the market from time to time. All sales of Shares will
at the then-current market bid price. Except that the Shares are being sold at
the trading price, such price, or prices, as the case may be, otherwise bears
no
relationship to the Company's assets, book value, net worth, earnings, actual
results of operations or any other established investment criteria. Further,
except to the extent of the historical trading price of the Common Shares, the
sale prices of the Shares should not be considered an indication of the actual
or potential value of the Company's securities See "RISK FACTORS" and
"DESCRIPTION OF SECURITIES."
SELLING SHAREHOLDERS
The following Selling Shareholders are registering their shares for sale to the
public in connection with this distribution:
<TABLE>
Name Relationship to Company Amount of Securities
Prior to Offering
<S> <C> <C>
Creative Business
Services, Inc. Consultant 120,000(2)
Charles Bonniwell Shareholder 30,000(2)
Frank D"Alessio Shareholder 150,000(2)
Michael Payne Shareholder 120,000(2)
Monty R. Lamirato, PC Consultant 25,000(2)
Cindy Jones Officer 20,000(1)
Michael Berry Employee 15,000(2)
Wende Curtis Employee 15,000(2)
Nicholas Catalano Director 10,000(1)
David Wagner Attorney 20,000(2)
Steven Goodman Consultant 15,000(2)
Image Producers Consultant 20,000(2)
Palmer, Guest and
Esses, P.C. Consultant 10,000(2)
Isaacson, Rosenbaum,
Woods and Levy, P.C. Consultant 15,000(2)
</TABLE>
(1)These individuals have the right, by ownership or option, to the
number of
shares indicated and are affiliates, as that term is used under Rule
405 the
Securities Act of 1933, as amended. As a result, their shares are
control
securities which must be sold pursuant to a reoffer prospectus and are
otherwise
subject to the limitations of Rule 144(e). That is, each person may not
reoffer
or resell, whether individually or acting in concert with other
persons, more
than one percent of the issued and outstanding shares of the Company in
any
consecutive three month period. At the present time, one percent would
equal
approximately 62,000 shares.
(2)Each individual plans to sell all shares owned by such person which
can be
sold pursuant to this Form S-3 Registration Statement.
PLAN OF DISTRIBUTION
The Selling Shareholders are offering their Shares at the then-current
market bid
price of the Shares for the period of the effectiveness of this
Prospectus for
sale on a "best efforts basis," to the public. Broker-dealers may be
utilized by
the Selling Shareholders to sell some or all of the Shares and, if so,
will be
paid the ordinary and customary commissions for such sales. At the
present time,
there are no firm arrangements with any broker-dealers for sales of the
Shares.
See "DESCRIPTION OF SECURITIES" and "SELLING SHAREHOLDERS."
The Selling Shareholders intend to sell all of their Shares registered
hereunder
and will immediately utilize the proceeds of the offering as and when
raised and
regardless of how many Shares are ultimately sold. The Company will
receive no
proceeds whatsoever from the sale of the Shares.
Securities To Be Outstanding After The Offering
As of the date of this Prospectus, 6,176,504 Shares of the Company's
$.008 par
value Common Stock were issued and outstanding, along with a total of
10,689
shares of Class A Preferred Stock, 23,867 shares of Class B Preferred
Stock and
a 125,000 shares of Class C Preferred Stock. The Selling Shareholders
are selling
previously issued Shares. Therefore, upon the sale of the maximum
number of
Shares in of this Offering, the same number of Shares will be
outstanding.
Use of Proceeds
The Selling Shareholders will utilize any and all of proceeds of this
Offering
which are not paid for commissions to licensed broker-dealers. The
Company will
receive no portion whatsoever of the proceeds of this Offering.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 6,250,000 shares of Common Stock,
par value
$.008 per share. Immediately prior to this Offering, 6,176,504 shares
of Common
Stock were outstanding. The holders of Common Stock have one vote per
share on
all matters (including election of Directors) without provision for
cumulative
voting. Thus, holders of more than 50% of the shares voting for the
election of
directors can elect all of the directors, if they choose to do so. The
Common
Stock is not redeemable and has no conversion or preemptive rights.
The Common Stock currently outstanding is validly issued, fully paid
and non-
assessable. In the event of liquidation of the Company, the holders of
Common
Stock will share equally in any balance of the Company's assets
available for
distribution to them after satisfaction of creditors and the holders of
the
Company's senior securities. The Company may pay dividends, in cash or
in
securities or other property when and as declared by the Board of
Directors from
funds legally available therefor, but has paid no cash dividends on its
Common
Stock.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$0.001
par value. As of the date of this Prospectus, 10,689 shares of Class A
Preferred
Stock, 23,867 Share of Class B Preferred Stock and 125,000 shares of
Class C
Preferred Stock are issued and outstanding.
Generally , the Preferred Stock may be issued in series from time to
time with
such designation, rights, preferences and limitations as the Board of
Directors
of the Company may determine by resolution. The rights, preferences
and
limitations of separate series of Preferred Stock may differ with
respect to such
matters as may be determined by the Board of Directors, including,
without
limitation, the rate of dividends, method and nature of payment of
dividends,
terms of redemption, amounts payable on liquidation, sinking fund
provisions (if
any), conversion rights (if any), and voting rights. The potential
exists,
therefore, that preferred stock might be issued which would grant
dividend
preferences and liquidation preferences to preferred shareholders over
common
shareholders. Unless the nature of a particular transaction and
applicable
statutes require such approval, the Board of Directors has the
authority to issue
these shares without shareholder approval. The issuance of Preferred
Stock may
have the affect of delaying or preventing a change in control of the
Company
without any further action by shareholders. Except as disclosed
herein, there
are no present plans to issue any such shares.
A total of 3,000,000 shares have been classified as Class A Preferred
Stock. This
Stock has annual cumulative dividends of 7% per annum, was redeemable
by the
Company not later than November 18, 1996, and is convertible into
common shares
on a four-for-one basis. This Stock also carries a liquidation
preference
superior to all other equity of the Company.
A total of 1,000,000 shares have been classified as Class B Preferred
Stock. This
Stock has annual cumulative dividends of 6% per annum, if and when
declared, is
redeemable by the Company into common shares at a rate of $12.00 per
share.
A total of 1,000,000 shares have been classified as Class C Preferred
Stock. This
Stock has no dividend provision, is convertible by the Company into
common
shares at a conversion price of Class C Preferred Stock equal to the
average
previous thirty day bid price of the Common Shares on the date of
conversion.
Dividend Policy
The Company has never declared nor paid dividends on its Common Stock.
At the
present time, the Company has an accumulated deficit which precludes it
from
paying dividends. Nevertheless, it is the present intention of the
Company not
to pay dividends in the foreseeable future; but rather to retain its
earnings,
if any, to finance its growth, and to increase its capital base.
LEGAL MATTERS
David Wagner & Associates, P.C., Englewood, Colorado, Attorneys at Law,
has
rendered its opinion that the Shares offered pursuant to this
Prospectus will,
when issued as described in this Prospectus, be duly authorized,
validly issued,
fully paid and non-assessable shares of the Company.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American
Securities
Transfer, Incorporated, 988 Quail Street, Suite 101, Lakewood, Colorado
80215.
The telephone number is (303) 234-5300.
ANNUAL REPORTS
The Company furnishes to Shareholders, after the close of each fiscal
year, an
annual report which contains financial statements examined by
independent public
accountants. In addition, the Company furnishes to Shareholders
unaudited
quarterly reports.
EXPERTS
The financial statements of the Company incorporated by reference into
this
Prospectus have been audited by BDO Seidman, LLP, independent certified
public
accountants, to the extent and for the periods set forth in their
report, which
contains an explanatory paragraph regarding the Company's ability to
continue as
a going concern, incorporated herein by reference, and are incorporated
herein
in reliance upon such report, given upon the authority of said firm as
experts
in auditng and accounting.
The financial statements of Global Internet Corporation have been
audited by
Gerald R. Hendricks & Company, P.C., an independent certified public
accountant,
to the extent and for the periods set forth in their report, which
contains an
explanatory paragraph regarding Globals ability to continue as a going
concern,
are included herein, given upon the authority of said firm as experts
in auditing
and accounting.
No dealer, salesman or other person is
authorized to give any information or to
make any representation other than those
contained in this Prospectus, and if given
or made such information or representation
must not be relied upon as having been
authorized by the Company. This Prospectus
does not constitute an offer to sell any
security other than the securities offered
by this Prospectus or an offer to sell or a
solicitation of an offer to buy the
securities in any jurisdiction to any
person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus
nor any sale hereunder shall under any
circumstance create any implication that
there has been no change in the affairs of
the Company since the date hereof. Any
material change to the offer will be
reflected by an amendment or supplement to
the Registration Statement, of which this
Prospectus is a part.
TABLE OF CONTENTS
Item Page
AVAILABLE INFORMATION
INCORPORATION BY
REFERENCE
THE COMPANY
RISK FACTORS
BUSINESS
DETERMINATION OF
OFFERING PRICE
SELLING SHAREHOLDERS
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
LEGAL MATTERS
TRANSFER AGENT
ANNUAL REPORTS
Until February 28, 1998 (90 days after the date of this Prospectus),
all dealers
effecting transactions in the securities offered hereby, whether or not
participating in this distribution, may be required to deliver a
current
Prospectus. This is in addition to the obligation of dealers to
deliver a
current Prospectus when acting as underwriters and with respect to
their unsold
allotments or subscriptions.
FIRST ENTERTAINMENT, INC.
PROSPECTUS
December 1, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Other expenses in connection with the registration of the securities hereunder
which will be paid by the Company will be substantially as follows:
Amount Payable
Item by Company
S.E.C. Registration Fees $ 180.00
Accounting Fees and Expenses $ 2,000.00*
State Securities Laws (Blue Sky)
Fees and Expenses $ 1,000.00*
Printing and Engraving $ 1,000.00*
Legal Fees $ 3,000.00*
Miscellaneous $ 820.00*
TOTAL $ 8,000.00
*Represents an estimate for the purpose of this filing.
Item 15. Indemnification of Directors and Officers.
The Company's Articles of Incorporation authorize the Board of Directors, on
behalf of the Company and without shareholder action, to exercise all of the
Company's powers of indemnification to the maximum extent permitted under the
applicable statute. Title 7 of the Colorado Revised Statutes, 1986 Replacement
Volume ("CRS"), as amended, permits the Company to indemnify its directors,
officers, employees, fiduciaries, and agents as follows:
Section 7-109-102 of CRS permits a corporation to indemnify such persons for
reasonable expenses in defending against liability incurred in any legal
proceeding if:
(a) The person conducted himself or herself in good faith;
(b) The person reasonably believed:
(1) In the case of conduct in an official capacity with the corporation,
that his or her conduct was in the corporation's best interests; and
(2) In all other cases, that his or her conduct was at least not opposed
to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no reasonable cause
to believe that his or her conduct was unlawful.
A corporation may not indemnify such person under this Section 7-109-102 of CRS:
(a) In connection with a proceeding by or in the right of the corporation in
which such person was adjudged liable to the corporation; or
(b) In connection with any other proceeding charging that such person derived
an improper benefit, whether or not involving action in an official capacity,
in
which proceeding such person was adjudged liable on the basis that he or she
derived an improper personal benefit.
Unless limited by the Articles of Incorporation, and there are not such
limitations with respect to the Company, Section 7-109-103 of CRS requires that
the corporation shall indemnify such a person against reasonable expenses who
was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which the person was a party because of his status with the corporation.
Under Section 7-109-104 of CRS, the corporation may pay reasonable fees in
advance of final disposition of the proceeding if:
(a) Such person furnishes to the corporation a written affirmation of the such
person's good faith belief that he or she has met the Standard of Conduct
described in Section 7-109-102 of CRS;
(b) Such person furnishes the corporation a written undertaking, executed
personally or on person's behalf, to repay the advance if it is ultimately
determined that he or she did not meet the Standard of Conduct in Section 7-109-
102 of CRS; and
(c) A determination is made that the facts then known to those making the
determination would not preclude indemnification.
Under Section 7-109-106 of CRS, a corporation may not indemnify such person,
including advanced payments, unless authorized in the specific case after a
determination has been made that indemnification of such person is permissible
in the circumstances because he met the Standard of Conduct under Section 7-109-
102 of CRS and such person has made the specific affirmation and undertaking
required under the statute. The required determinations are to be made by a
majority vote of a quorum of the Board of Directors, utilizing only directors
who
are not parties to the proceeding. If a quorum cannot be obtained, the
determination can be made by a majority vote of a committee of the Board, which
consists of at least two directors who are not parties to the proceeding. If
neither a quorum of the Board nor a committee of the Board can be established,
then the determination can be made either by the Shareholders or by independent
legal counsel selected by majority vote of the Board of Directors.
The corporation is required by Section 7-109-110 of CRS to notify the
shareholders in writing of any indemnification of a director with or before
notice of the next shareholders' meeting.
Under Section 7-109-105 of CRS, such person may apply to any court of competent
jurisdiction for a determination that such person is entitled under the statute
to be indemnified from reasonable expenses.
Under Section 7-107(1)(c) of CRS, a corporation may also indemnify and advance
expenses to an officer, employee, fiduciary, or agent who is not a director to
a greater extent than the foregoing indemnification provisions, if not
inconsistent with public policy, and if provided for in the corporation's
bylaw,
general or specific action of the Board of Directors, or shareholders, or
contract.
Section 7-109-108 of CRS permits the corporation to purchase and maintain
insurance to pay for any indemnification of reasonable expenses as discussed
herein.
The indemnification discussed herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under the Articles of
Incorporation, any Bylaw, agreement, vote of shareholders, or disinterested
directors, or otherwise, and any procedure provided for by any of the
foregoing,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
heirs, executors, and administrators of such a person.
Insofar as indemnification for liabilities under the Securities Act of 1933 may
be permitted to directors, officers, and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against
such liabilities (other than the payment by the Registrant of expense incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being
registered, the Registrant will, unless in the opinion of its counsel the
matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Item 16. Exhibits.
The following is a complete list of Exhibits as part of the Registration
Statement. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601(a) of Regulation S-K, which are incorporated herein:
Exhibit No.
5.0 Opinion of Issuer's Counsel re: Legality
24.1 Consent of Issuer's Counsel
24.2 Consent of Independent Public Accountant- BDO Seidman, LLP
24.3 Consent of Independent Public Accountant-Gerald R. Hendricks & Company,
P.C.
Item 17. Undertakings.
A. To Deliver Certificates.
The undersigned registrant hereby undertakes to provide certificates in such
denominations and registered in such names to permit prompt delivery to each
purchaser.
B. Indemnification
Insofar as indemnification for liabilities under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
C. Rule 415 Offering.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10 (a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change
in the formation set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bonafide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Offering.
D. Incorporation of Subsequent Exchange Act Documents.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act
of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
E. Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered
with the prospectus, to each person to whom the prospectus is sent or given,
the
latest annual report to security holders that is incorporated by reference in
the
prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation S-X
are
not set forth in the prospectus, to deliver, or cause to be delivered to each
person to whom the prospectus is sent or given, the latest quarterly report
that
is specifically incorporated by reference in the prospectus to provide such
interim financial information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-3 and has duly caused this Registration
Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Denver, State of Colorado on the 1st day of December, 1997.
FIRST ENTERTAINMENT, INC.
By/s/ A.B. Goldberg
A.B. Goldberg
Principal Executive and Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
A MAJORITY OF THE BOARD OF DIRECTORS
Dated: 12/_1_/97 By/s/ A.B. Goldberg
A.B. Goldberg
Director
Dated: 12/_1_/97 By/s/ Thedore Jacobs
Theodore Jacobs
Director
Dated: 12/_1_/97 By/s/ Nicholas Catalano
Nicholas Catalano
Director
Exhibits
Exhibit No.
5.0 Opinion of Issuer's Counsel re: Legality
24.1 Consent of Issuer's Counsel
24.2 Consent of Independent Public Accountant
24.3 Consent of Independent Public Accountant
Exhibit 5.0
Opinion of Issuer's Counsel re: Legality
DAVID WAGNER & ASSOCIATES, P.C.
Attorneys and Counselors at Law
8400 East Prentice Avenue
Penthouse Suite
Englewood, Colorado 80111
Telephone (303) 793-0304
Facsimile (303) 771-4562
December 1, 1997
Board of Directors
First Entertainment, Inc.
1999 Broadway
Suite #3135
Denver, CO 80202
Gentlemen:
We have acted as counsel to First Entertainment, Inc. (the "Company") in
connection with the preparation and filing of a Amendment No. 1 Registration
Statement on Form S-3 (the "Registration Statement") covering registration
under
the Securities Act 1933, as amended, of the subject shares of the Company's
common stock, $.008 par value per share (the "Shares").
Based upon the foregoing, and assuming that Shares will be issued as set forth
in the Registration Statement, at a time when effective, and that there will be
full compliance with all applicable securities laws involved under the
Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and
the
rules and regulations promulgated pursuant to said Acts, and in those states
in
which the Shares may be sold, we are of the opinion that, upon issuance of the
Shares according the Registration Statement and receipt of the consideration to
be paid for the Shares, the Shares will be duly authorized, validly issued,
fully
paid and nonassessable shares of Common Stock of the Company. This opinion
does
not cover any matters related to any re-offer or re-sale of the Shares by the
beneficiary thereof, once issued as described in the Registration Statement.
This opinion is not to be used, circulated, quoted or otherwise referred to for
any other purpose without our prior written consent. This opinion is based on
our knowledge of the law and facts as of the date hereof. We assume no duty to
communicate with the Company in respect to any matter which comes to our
attention hereafter.
Very truly yours,
DAVID WAGNER & ASSOCIATES, P.C.
Exhibit 24.1
Consent of Issuer's Counsel
DAVID WAGNER & ASSOCIATES, P.C.
December 1, 1997
We consent to the use of this opinion as an exhibit to the Registration
Statement
and to the reference to our firm in the prospectus which is made a part of the
Registration Statement.
Very truly yours,
DAVID WAGNER & ASSOCIATES, P.C.
Exhibit No. 24.2
Consent of Independent Public Accountant
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
First Entertainment, Inc.
Denver, Colorado
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 3,
1997, which report contains an explanatory paragraph relative to a going
concern
uncertainty, relating to the consolidated financial statements of First
Entertainment, Inc. appearing the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Denver, Colorado
December 1, 1997
Exhibit No. 24.3
Consent of Independent Public Accountant
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
First Entertainment, Inc.
Denver, Colorado
I hereby consent to the incorporation by reference in the Prospectus
constituting
a part of this Registration Statement of my report dated May 21, 1997, except
for
the third paragraph of Note 6, the date of which is November 25, 1997, which
report contains an explanatory paragraph relative to the Company's ability to
continue in existence as a going concern, relating to the financial statements
of Global Internet Corporation for the period June 4, 1996 (inception) through
December 31, 1996.
I also consent to the reference to me under the caption Experts in the
Prospectus.
Gerald R. Hendricks & Company, P.C.
Westminster, Colorado
November 28, 1997
