United States
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported)
December 9, 1997
Commission file Number 0-15435
First Entertainment, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 84-0974303
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
1999 Broadway, Suite 3135 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 382-1235
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
Item 1. Changes in Control of Registrant.
See Item 5
Item 2. Acquisition or Disposition of Assets.
See Item 5
Item 3. Bankruptcy or Receivership.
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable
Item 5. Other Events
The shareholders of the Registrant, at a special
shareholders' meeting conducted on December 5, 1997, approved an
increase in the number of authorized common shares of the Registrant to
50,000,000 shares, all with no par value, a change of domicile of the
Registrant from Colorado to Nevada, and a change of the name of the
Registrant to First Entertainment Holding Corp. The shareholders also
reelected Mr. A.B. Goldberg and Drs. Nicholas Catalano and Theodore
Jacobs to the Registrant's Board of Directors and ratified BDO Seidman ,
LLP, as the Registrant's auditors for the fiscal year ended December 31,
1997. Finally, the shareholders of the Registrant ratified and approved
the Registrant's prior acquisition of Global Internet Corporation
(Global Internet), a Delaware corporation.
Global Internet was incorporated in June 1996 for the purpose
of developing a virtual casino to provide gambling on the Internet.
Global Internet's operations will eventually be based offshore and its
attention will be focused on creating a market outside the United
States. Global Internet is in the development stage and has not yet
commenced operations.
Item 6. Resignation of Registrant's Directors.
Not Applicable
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
On May 1, 1997, Global Casino's Inc. (Global) entered into an Agreement
and Plan of Reorganization with First Entertainment, Inc. (FEI) whereby
FEI would issue 30,000 shares of Class B convertible preferred stock in
exchange for Global's 1,500,000 shares of Global Internet and a $357,000
convertible note from Global Internet. The 1,500,000 shares of Global
Internet common stock acquired from Global represents approximately
50.8% of the issued and outstanding common stock of Global Internet.
Each share of Class B convertible preferred stock is convertible into
12.5 shares of common stock of FEI. In addition, Global received
1,500,000 warrants and each warrant is exercisable at $1.25 per share
for five years.
At the time the Agreement and Plan of Reorganization was entered into,
FEI did not have enough authorized shares of common stock to allow for
the conversion of the Class B preferred to common. Accordingly, the
acquisition was contingent upon the approval of an increase in the
authorized shares by FEI shareholders.
On December 5, 1997 the shareholders of FEI approved an increase in the
authorized shares of common stock thus eliminating the contingency
regarding this acquisition. Global Internet will be accounted for as a
purchase. The following are the audited financial statement of Global
Internet Corporation and unaudited pro forma financial statements.
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 0 563 563
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) 0 $ 0 $ 0 $ 0 $ 0
Shares issued
for cash at
$.005
per share 2,985,000 2,985 11,940 0 14,925
Net loss for
the period 0 0 0 (476,897) (476,897)
- ------------------------------------------------------------------------
BALANCE,
December 31,
1996 2,985,000 2,985 11,940 (476,897) (461,972)
Net loss for
the period 0 0 0 (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 0 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 Company's 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 Company's 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 Company's 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.
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>
[CAPTION]
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 For
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.
Item 8. Change in Fiscal Year.
Not Applicable
Item 9. Sales of Equity Securities Pursuant to Regulation S
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST ENTERTAINMENT, INC.
By:______________________
A.B. Goldberg
President
Dated: December 10, 1997
