PROSPECTUS
FIRST ENTERTAINMENT, INC.
A maximum of 560,000 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
August 8, 1997, the closing bid price of the Company's Common Stock was $1.31
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 August 25, 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., Washington,
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 and June 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.
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., 1380 Lawrence
Street, Suite 1400, Denver, Colorado 80204, Attention: Secretary (telephone
number (303) 592-1235).
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 August 1, 1997, there were 6,076,413 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 kiosk 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 Company's 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 lawsuit 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 is 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. Due to the contingencies involved, the
Company is unable to predict if or when the transaction will be consummated.
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 is estimated to be $26
million consisting of debt and equity financing. Consummation of the
acquisition is 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 has 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 that Internet will become a
subsidiary of the Company. If the transaction is completed, the former
shareholders of Internet would thereby 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 have been
exchanged for approximately 30,000 share of Class B Convertible Preferred
stock of the Company that is convertible into 375,000 common shares.
The present exchange will give the Company effective control of
Internet, and the current shareholders of Internet will be 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 the Class B preferred shares into common shares, the Company must obtain
the approval of the shareholders to increase its authorized common share 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.
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 1990. It will be up for
renewal again on October 1, 1997. 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 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.
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.
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)
</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 60,000 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.
(3)
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, 6,076,413 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 and a total of 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, 6,076,413 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 and a total of 125,000 shares of Class C Preferred Stock are
issued and outstanding. In addition, the Company has authorized a Class B
Preferred Stock, although at the date of this Prospectus, no shares have been
issued or are 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 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 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
AVAILABLE INFORMATION
INCORPORATION BY
REFERENCE
THE COMPANY
RISK FACTORS
BUSINESS
ACQUISITIONS AND MERGERS
DETERMINATION OF
OFFERING PRICE
SELLING SHAREHOLDERS
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
LEGAL MATTERS
TRANSFER AGENT
ANNUAL REPORTS
EXPERTS
Until November 24, 1997 (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
August 25, 1997
