Registration Number __________
U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST ENTERTAINMENT HOLDING CORP.
--------------------------------
(Name of small business issuer in its charter)
Nevada 7900 84-0974303
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(State or jurisdiction of (Primary Standard Industrial (I.R.S.
Employer
incorporation or Classification Code Number) Identification
No.)
organization)
5495 Marion Street, Denver, Colorado 80216; (303) 382-1500
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(Address and telephone number of principal executive offices)
5495 Marion Street, Denver, Colorado 80216; (303) 382-1500
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(Address of principal place of business or intended principal place of
business)
Douglas R. Olson, 5495 Marion Street, Denver, CO 80216; (303) 382-1500
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(Name, address and telephone number of agent for service)
With a copy to:
Alan L. Talesnick, Esq.
Francis B. Barron, Esq.
Patton Boggs LLP
1660 Lincoln Street
Suite 1900
Denver, Colorado 80264
(303) 830-1776
Approximate date of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Amount Proposed Maximum Proposed Amount
each class To Be Offering Price Maximum of
of securities Registered Per Share Aggregate Registration
to be Offering Fee
registered Price
Common Stock 550,000 $.875 (1) $481,250(1) $134(1)
Common Stock 200,000 $2.00 $400,000 $111
that may be
issued upon
exercise of
Warrants(2)
Common Stock 375,000 $1.00 $375,000 $104
that may be
issued upon
exercise of
warrants(3)
Common Stock 25,000 $1.0312 $ 25,780 $7
That may be
Issued upon
Exercise of
Options(4)
Common Stock 441,650 $.875(1) $386,444(1) $107(1)
Offered
Pursuant to
Rescission
Offer(5)
TOTAL 1,591,650 $1,668,474 $463
</TABLE>
(1) The price and filing fee were determined in accordance with Rule
457 based upon the average of the high and low prices reported by the
OTC Bulletin Board on November 30, 1999, which is within five business
days prior to the date of filing of this registration statement.
(2) Warrant to purchase these are exercisable at $2.00 per shares.
(3) Warrant to purchase these are exercisable at $1.00 per shares.
(4) Options to purchase these shares are exercisable at $1.0312 per
share.
(5) The shares offered pursuant the recession offer are offered in
exchanged for shares that were issued in excess of those registered by
the Company on a pervious registration statement.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities until
the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
PROSPECTUS DATED DECEMBER 1, 1999
SUBJECT TO COMPLETION
SELLING STOCKHOLDER AND
COMPANY RESCISSION OFFER PROSPECTUS
FIRST ENTERTAINMENT HOLDING CORP.
1,591,650 Shares Of Common Stock
The shares covered by this Prospectus consist of the following:
Up to 550,000 shares of Common Stock purchased by certain selling
shareholders in private placement transactions and upon the exercise of
stock options and warrants.
Up to 600,000 shares of Common Stock that may be issued to certain
selling stockholders, when they exercise stock options and warrants
issued by the Company.
Up to 441,650 shares of Common Stock that may be issued by the
Company in a rescission offer to up to five persons who previously
received shares in transactions that were not registered.
The selling stockholders have not entered into any underwriting
arrangements. The prices for the Common Stock may be the market prices
prevailing at the time of transfer, prices related to the prevailing
market prices, or negotiated prices. Brokerage fees or commissions may
be paid by the selling stockholders in connection with sales of the
Common Stock. The Company will not receive any of the proceeds from
the sale of these shares.
The Company's Common Stock is quoted on the OTC Bulletin Board
under the symbol "FTET". On November 22, 1999, the closing price of
the Common Stock was $1.02 per share.
Investing in the Common Stock involves certain risks. See the
"RISK FACTORS" section beginning on page 4.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is December 1, 1999
PROSPECTUS SUMMARY
The following summary highlights information contained in this
prospectus. It may not be complete and may not contain all the
information that you should consider before investing in the Common
Stock. You should read this entire prospectus carefully, including the
"RISK FACTORS" section, the financial statements and the notes to the
financial statements.
The Company
We engage in, or hold controlling interests in entities that engage in
radio, live entertainment and internet related businesses. Through our
Quality Communications, Inc. subsidiary, we operate an FM radio station
in Gillette, Wyoming that plays contemporary country music. Through
our Comedy Works, Inc. subsidiary, we operate a comedy club in downtown
Denver, Colorado. We also are pursuing internet related businesses.
The Offering By
Selling Shareholders
This prospectus relates to the sale or transfer of up to 1,150,000
shares of common stock. These shares consist of the following:
Up to 550,000 shares of Common Stock purchased by certain selling
shareholders in private placement transactions and upon the exercise of
stock options and warrants.
Up to 600,000 shares of common stock that may be issued to certain
selling stockholders when they exercise stock options and warrants
issued by the Company.
The common stock may be sold at market prices or other negotiated
prices. The selling stockholders have not entered into any
underwriting arrangements for the sale of the shares. See, "SELLING
STOCKHOLDERS AND PLAN OF DISTRIBUTION".
We will not receive any proceeds from the sale of Common Stock by the
selling stockholders. If the options and warrants held by the selling
stockholders are exercised, we will use the proceeds from these
exercises for general and administrative expenses and working capital.
Rescission Offer
This prospectus also will be used by the Company to make a rescission
offer to five persons and entities who were inadvertently issued
441,650 more shares than were registered on a prior registration
statement. These shares were issued at various rates between $.20 and
$.69 per share in consideration for services provided to the Company
valued at an aggregate total of $175,205. Although exemptions from
registration of the issuance of the shares may be available, because
the issuance of these shares was not registered, the Company is
offering to exchange the previously issued shares for shares registered
under this Prospectus on a one-for-one basis. See "RESCISSION OFFER"
below.
Proposed Name Change
In November 1999, we determined to recommend to the shareholders for
their approval that the name of the Company be changed to "F2 Network
Group, Inc.". The Company anticipates that the proposed name change
will be voted upon by the shareholders at a meeting to be held in
December 1999 or January 2000.
Company Offices
Our offices are located at 5495 Marion Street, Denver, Colorado 80216,
telephone number (303) 382-1500.
RISK FACTORS
Prospective investors should carefully consider, together with the
other information herein, the following factors that affect us.
We have a history of losses and a going concern issue.
During the period from inception (January 17, 1985) to December
31, 1998, we incurred operating losses in each fiscal year. Cumulative
net losses for that period amount to approximately $16,500,000. As of
December 31, 1998, we had a stockholders' deficit of approximately
$483,000 and had an excess of current liabilities over current assets
of approximately $1,500,000. In addition, in some cases, we have been
unable to meet our obligations as they become due. The independent
certified public accountants' report on our financial statements
contain an explanatory paragraph, which, in general, indicates that we
have suffered recurring losses from operations, have a working capital
deficiency and have defaulted on a substantial portion of our debt.
These conditions raise substantial doubt about our 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, although there is no assurance that the Company will be
able to do so. In April 1999, we were successful in obtaining
financing from the First National Bank of Gillette to pay debt to a
creditor totaling $125,000, which came due on March 31, 1999. The
financial statements do not include any adjustments that might result
from the going concern uncertainties.
We have a limited public market.
Historically, there has been a limited public market for our
shares. We cannot assure 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.
We would be adversely impacted by potential future sales pursuant to
Rule 144.
At September 30, 1999, there were 11,966,646 shares issued and
outstanding. Approximately 2,922,764 shares are "restricted
securities", the transfer of which is limited under the Securities Act
of 1933, as amended (the "Act"). Under certain circumstances, these
restricted securities may become available for resale to the public
pursuant to Rule 144 promulgated under the Act. Approximately 95% of
these restricted shares have passed the date upon which they 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 one percent (1%)
of the then outstanding common stock. Rule 144(k) also permits, under
certain circumstances, the sale of shares without any quantity
limitation by a person who has not been one of our affiliates for at
least 90 days and who has satisfied a two year holding period. The
possibility of the sales under Rule 144 may adversely affect the market
price of our securities.
We may not succeed in the negotiation of rights to proprietary rights
and may suffer increased costs.
The negotiation of acquisition, financing, licensing and sub-
licensing, production, distribution and sub-distribution agreements can
be a critical factor in our business. We cannot be certain of the
success of any such negotiations. Any or all of our packaged projects
could fail to receive any commitment for financing, production or
distribution.
Even when funds are obtained to pursue a particular project, the
project may be delayed because of various events beyond our control
such as labor problems, delays in development, lack of qualified
personnel, equipment breakdowns, and other circumstances. We intend
to seek insurance in order to reduce our exposure to such risks, but
our 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 qualified substitute personnel
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 us.
The multimedia entertainment business is speculative in nature.
Profits, if any, from the businesses in which we engage are
dependent on widespread public acceptance of, and interest in, each
creative project undertaken by our various segments. Audience appeal
depends upon factors which cannot be ascertained reliably in advance
and over which we may have no control, including, among other things,
unpredictable critical review, positioning in the market and changeable
public tastes. Due to factors such as the unpredictability of audience
appeal, many of our completed projects may fail to generate sufficient
revenues to recover their costs of acquisition, development, production
and distribution. We may not recoup all or any portion of our
investment in a particular project, and cannot guarantee that any
project will yield us profits.
We depend on key employees.
Success of the Company depends on the continued active
participation of Douglas Olson, our President and Chief Operating
Officer, and Howard Stern, our Chief Executive Officer, even though
neither of them devotes 100% of his time to the Company. Our internet
business depends on the continued active participation of Michael
Marsowicz. There is no employment agreement with any of Mr. Olson, Mr.
Stern or Mr. Marsowicz, and we do not carry any "key-man" life
insurance on any of them.
We may be unable to identify, acquire or commercialize additional
technologies.
From time to time, if our resources allow, we intend to explore
the acquisition and subsequent development and commercialization of
additional technologies in the entertainment and internet fields. We
cannot predict whether we will be able to identify any additional
technologies and, even if suitable technologies are identified, that we
will have sufficient funds to commercialize any such technologies or
that any such technologies will ultimately be viable.
We cannot predict the status of our property rights.
Although we have developed, and continue to develop, our own
internet content and products, we have entered into license agreements
with respect to other internet products. We cannot guarantee that such
license rights will provide us with significant protection from
competitors. Property rights protection generally is uncertain, and
involves complex legal and factual questions. To date, there has
emerged no consistent policy regarding the breadth of claims allowed in
connection with such property rights protection. Therefore, we cannot
assure that any rights licensed to us will afford protection against
competitors with similar technologies and that we will have the
financial resources necessary to enforce our property rights.
Even though we have licenses, under the terms of our license
agreements, we generally are responsible for protecting the
intellectual property rights subject to these agreements. Challenges
may be instituted by third parties as to the validity, enforceability
and infringement of the rights. Further, the cost of the litigation to
defend any challenge to uphold the validity and enforceability and
prevent infringement of our licensed rights can be substantial. Any or
all of the above could result in our business being materially and
adversely affected. We may also be required to obtain additional
licenses from others to continue to refine, develop, and market new
products. We may not be able to obtain any such licenses on
commercially reasonable terms or at all or that the rights granted
pursuant to any licenses will be valid and enforceable.
We need additional funding to sustain our operations.
In order to continue our business plans fully, we anticipate that
we will need additional funding. We do not have a steady source of
revenue to provide funding to sustain operations. The availability of
a reliable source of revenue to sustain our operations is beyond our
control.
We could be adversely impacted by intense competition.
We compete in the areas of radio broadcasting, comedy club
operation and internet related businesses with other companies. Many
of these competitors have substantially larger financial and other
resources than us. In the internet area, companies with greater
financial resources than us have not been able to generate positive
cash flow or profits from operating internet related businesses. From
time to time, there may be competition for, and shortage of,
broadcasting talent and comedians, and internet content and qualified
computer technicians. We may therefore not be able to attract the best
available talent required to develop our businesses. This competition
and these shortages could lead to an increase in costs that could
adversely effect us. We also compete with other companies for
advertising on our radio station and internet portal. Our internet
revenues are based on the ability to attract advertisers. In addition,
the low cost of entering internet related businesses may result in
additional competition in the future.
Technology changes.
The internet related businesses in which we operate and intend to
operate are characterized by rapid and significant technological
advancements and introductions of new products and services using new
technologies. As new technologies develop, we may be placed at a
competitive disadvantage, and competitive pressures may force us to
implement those new technologies at a substantial cost. If other
companies implement new technologies before us, those companies may be
able to provide enhanced capabilities and superior quality compared
with what we are able to provide. We cannot ascertain that we will be
able to respond to these competitive pressures and implement new
technologies on a timely basis or at an acceptable cost. One or more
of the technologies that we may implement in the future may become
obsolete. If this occurs, our business, financial condition and
results of operations could be materially adversely affected. If we
are unable to utilize the most advanced commercially available
technology, our business, financial condition and results of operations
could be materially and adversely affected.
New government regulations could increase our costs.
Our current and planned businesses are subject to a variety of
federal, state and local government regulations, including regulations
concerning the licensing and operation of our radio station, concerning
sales of alcohol as they relate to our comedy club business, and
concerning internet gaming as they relate to our internet business.
Although we intend to be in compliance with applicable government laws
and regulations, we cannot predict that significant costs for
compliance will not be incurred in the future.
Our comedy club operations are subject to various regulations
concerning health and safety and the dispensing of alcohol. The
failure to comply with these regulations could lead to the closing of
the club and have a material negative impact on us. In addition, we
could be subject to lawsuits resulting from actions of patrons of the
comedy club business who become intoxicated. Although we currently
believe that we have obtained adequate insurance to protect against
these potential liabilities, we cannot predict that this will be the
case.
Our radio business is subject to regulation by the Federal
Communications Commission. Although we do not believe that compliance
with FCC regulations will be burdensome, the failure to comply with
applicable regulations could result in the loss of the radio station
license and a resulting interval adverse affect on us.
We may be unable to obtain foreign government approvals.
Because of the global reach of the internet, certain of our
proposed internet products may be subject to extensive regulation in
countries other than the United States. We may not be able to obtain
the approvals necessary to market our internet products outside of the
United States.
We could be adversely impacted by risks associated with management of
growth.
Because of our small size, we desire to grow rapidly in order to
achieve certain economies of scale. Although we cannot predict that
this rapid growth will occur, to the extent that it does occur it will
place a significant strain on our financial, technical, operational and
administrative resources. As we increase services and enlarge the
number of projects it is evaluating or in which it is participating,
there will be additional demands on our financial, technical and
administrative resources. If we fail to continue to upgrade our
technical, administrative, operating and financial control systems or
the occurrence of unexpected expansion difficulties, including the
recruitment and retention of qualified personnel, we could be adversely
effected.
Lack of diverse business operations may lead to a concentration of
risks.
We currently are involved in the radio broadcast business through
the ownership of one station in Gillette, Wyoming, in the comedy club
business through the ownership of one comedy club in Denver, Colorado,
and in the operation of an internet portal and web page development.
Although we are pursuing other business opportunities, our revenues
currently derive primarily from the one radio station and one comedy
club. This lack of diverse business operations subjects us to a
certain degree of concentration of risks. Our future success may be
dependent upon our success in operating the radio station and comedy
club, the development of the internet business, and developing other
lines of business that are profitable.
There is limited liquidity in our shares.
There may be no ready market for our shares and an investor
cannot expect to liquidate his investment regardless of the necessity
of doing so. Historically, there has been an extremely limited public
market for our shares. We cannot predict that the market will be
sustained or will expand. The prices of our shares are highly
volatile. Due to the low price of the securities, many brokerage firms
may not effect transactions and may not deal with low priced securities
as it may not be economical for them to do so. This could have an
adverse effect on developing and sustaining the market for our shares.
In addition, there is no assurance that an investor will be in a
position to borrow funds using our shares as collateral.
Penny stock regulation.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or
quoted on the Nasdaq system). If our shares are traded for less than
$5 per share, as they currently are, the shares will be subject to the
SEC's penny stock rules unless (1) our net tangible assets exceed
$5,000,000 during our first three years of continuous operations or
$2,000,000 after our first three years of continuous operations; or (2)
we have had average revenue of at least $6,000,000 for the last three
years. We do not meet these requirements. As a result, market
transactions in our shares are subject to the penny stock rules. The
penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prescribed by the SEC that
provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of
each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not
otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written
agreement to the transaction. These requirements may have the effect
of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. As long as our
shares are subject to the penny stock rules, the holders of our shares
may find it difficult to sell our shares.
No dividends with respect to our shares.
We have not paid any cash dividends with respect to our shares,
and it is unlikely that we will pay any dividends on our shares in the
foreseeable future. Earnings, if any, that we may realize will be
retained in the business for further development and expansion.
Forward-Looking Statements And Associated Risk
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding, among other items, (i) the Company's
growth strategies, (ii) the Company's products and planned products,
(iii) the need for additional financing, (iv) the need for and
uncertainty with respect to necessary regulatory clearances, (v)
commercial acceptance of certain of the Company's products and planned
products, and (vi) the Company's ability to successfully commercialize
its products and to achieve profitability in general. These forward-
looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which
are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of the
factors described in this prospectus, including the "Risk Factors"
section, including, among others, regulatory, financial, market or
general economic influences. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
statements in this Prospectus will in fact transpire or prove to basis
Prospectus will in fact accurate.
PRICE RANGE OF COMMON STOCK
Our common stock is traded in the over-the-counter market and has
been quoted on the OTC Bulletin Board since February 6, 1998, the day
after it ceased to be listed on the Nasdaq Stock Market because it did
not meet the minimum price requirements. Our trading symbol is "FTET".
The table below presents the range of high and low closing bid
prices for the common stock during each of the quarters indicated.
These quotations were obtained from brokers who make a market in the
common stock and reflect interdealer prices, without retail mark up,
mark down or commission, and may not represent actual transactions.
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Closing Bid Price
High Low
1999
First Quarter $1.31 $ .1562
Second Quarter $2.0156 $ .6406
Third Quarter $4.125 $1.2188
Fourth Quarter (through $1.34 $ .9688
October 20, 1999)
1998
First Quarter $.75 $ .25
Second Quarter $.71 $ .20
Third Quarter $.77 $ .21
Fourth Quarter $.48 $ .12
1997
First Quarter $2.22 $ .75
Second Quarter $1.47 $ .84
Third Quarter $1.25 $ .72
Fourth Quarter $ .91 $ .66
</TABLE>
On November 11, 1999, the closing sale price for the Company's
Common Stock was $.75 per share.
Number Of Stockholders Of Record
On September 30, 1999, the number of stockholders of record of the
Company was approximately 1,170.
DIVIDEND POLICY
We have not declared or paid any cash dividends on the common
stock since the Company's formation and do not presently anticipate
paying any cash dividends on the common stock in the foreseeable
future.
THE COMPANY
On December 15, 1997, First Entertainment, Inc. changed its state
of incorporation from Colorado to Nevada and changed its name to First
Entertainment Holding Corp. We were originally incorporated under the
laws of Colorado on January 17, 1985. In November 1999, we determined
to change our name to "F2 Network Group Inc.", subject to shareholder
approval, which has not yet been obtained. We anticipate that the
proposed name change will be voted upon by the shareholders at a
shareholders meeting planned for December 1999 or January 2000.
Currently, we operate or hold controlling interests in three
active and two non-operating business segments. The three active
segments are known as "Radio", "Live Entertainment" and "Internet".
The non-operating segments are known as "Film" and "Retail".
Initially, our business consisted of the production of pre-recorded
travel guides and special interest videos. In 1987, we entered the
radio broadcasting business by acquiring Quality Communications, Inc.,
a Wyoming corporation pursuant to which we operate the radio segment of
its business. In 1992, we acquired a controlling interest in First
Films, Inc. ("FFI"), a publicly held Colorado corporation, under which
our film and live entertainment operations are undertaken. In December
1996, we commenced operations of selling infomercial products in
freestanding unmanned kiosks in major retail malls including U.S.
Military bases. This segment was known as the "retail" segment. In
January 1998, we determined to discontinue the operations of the
"retail" segment as a result of lower than expected sales. In December
1997, we acquired a 50.8% interest in Global Internet Corp. Global
Internet is a development stage company whose planned business activity
was to operate an internet gaming site. The investment in Global
Internet was written off as of December 31, 1997 and as of December 31,
1998 Global Internet had not yet commenced its planned principal
operations. Since early 1999, we have been developing relationships
with internet content providers, advertisers and gaming companies in an
attempt to create an internet site with links to entertainment and
gaming content and to provide internet site development to other
parties. In addition, we have been developing its own content in order
to establish an internet portal emphasizing entertainment with links to
other web sites. The site is located at www.First Entertainment.com.
Radio
In October 1987, we entered the radio broadcasting business
through the acquisition of Quality Communications, Inc. "Quality
Communications", a Wyoming corporation. Through Quality
Communications, we operate an FM radio station, 100.7, The Fox (the
"Radio Station"), located in Gillette, Wyoming.
In November 1993, the music format of the Radio Station was
changed 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 to add an additional source of revenue for the Radio Station.
In September 1999, the Company entered into an agreement to
purchase an FM radio station (the "New Station") to be built in Lead,
South Dakota, and the Federal Communications Commission ("FCC") permits
necessary to operate the station. The $300,000 purchase price is to be
paid by delivery of $20,000 in cash and a promissory note for $280,000,
with no interest, payable over a 15-year period in monthly installments
of $1,555.56. The purchase of the New Station is to close after the
FCC grants its consent to the assignment of the permits to the Company.
At that time, the purchase price will be paid in the manner described
above and the Company will commence construction of the facilities
necessary to operate the Station. We estimate that construction and
installation of the New Station will cost approximately $200,000,
including $150,000 of equipment acquisition costs. We intend to fund
the costs related to the acquisition and construction of the New
Station primarily through equipment leasing arrangements, although
approximately $50,000 will be provided from our working capital.
Live Entertainment
FFI acquired 100 percent of the outstanding stock of Comedy Works,
Inc., a Colorado corporation, on September 13, 1990 in exchange for
200,000,000 shares of common stock. Comedy Works was incorporated in
1982 and has operated one comedy club from its Larimer Square, Denver,
Colorado location since that time. Comedy Works Larimer Square
typically has nine shows per week and has averaged over 1,500 customers
per week for the past fifteen years.
The goal of Comedy Works 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. The club is 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.
Internet Activities
Since 1997, we have attempted to engage in internet related
businesses. Through internal resources and relationships with other
entities, we developed an internet portal focusing on entertainment.
The site, www.FirstEntertainment.com, includes original content
developed by us as well as links to other sites. We are also
developing relationships with electronic commerce partners and offers
web site development services and plans to add web site hosting
capabilities. Many of the letters of intent entered into by the
Company with potential internet partners have not led to definitive
agreements and have been terminated.
Our internet related businesses are conducted through the
Company's First 2 Market, Inc. subsidiary. All That Media, Inc., which
was acquired in June 1999, was merged into First 2 Market, Inc. in June
1999. At the time it was acquired by the Company, All That Media was
a newly-formed company that specialized in intellectual property
development, internet portal development and internet advertising. We
issued an option to purchase a total of 500,000 shares of common stock
for $.75 per share until October 10, 2001 to the shareholders of All
That Media for all the outstanding stock of All That Media. Michael
Marsowicz, the President and 50 percent owner of All That Media,
received 250,000 of these options. Mr. Marsowicz subsequently was
elected to our Board of Directors in August 1999.
Also in June 1999, we acquired a start-up company named EDRON
Associates, Inc. by issuing options to its former shareholders to
purchase 300,000 shares of common stock at $1.03 per share for a period
of three years. EDRON was a start up company with little revenue and
no proprietary or intangible assets at the time of its acquisition by
us.
The following is a summary of our current internet related
business.
Internet Portal.
We established an internet portal at
"www.FirstEntertainment.com". We are attempting to develop this site
into a stand-alone internet site containing entertainment and gaming
information as well as a "portal" with links to other sites. We have
attempted to provide content on the site internally in order to avoid
the expense of obtaining content from outside sources. We believe that
the comedy club and radio station businesses provide a source for
content. Although we are not yet realizing positive cash flow from our
internet activities, we believe that we will be able to obtain positive
cash flow through advertising on our web site as well as through "click
fees" and commission arrangements with operators of other web sites
that are accessed through our web site. We are also pursuing "pay-per-
view" events utilizing entertainers in the comedy and country music
areas with which we have relationships through the operation of the
comedy club and radio station. In an attempt to increase traffic over
our web site, we have entered into advertising agreements with Yahoo to
place a banner ad and link to our web site on sites operated by Yahoo.
We paid Yahoo $136,000 for advertising through December 31, 1999.
Web Site Development And Hosting
We also offer web site development services to assist other
companies in designing and implementing a presence on the internet.
Web site development is a highly competitive business that is labor
intensive and there is no assurance that we will be able to retain
qualified personnel to assist in web site development or that we will
be able to do so at a cost that allows us to operate this business
profitably. We are also considering entering into the web hosting
business where we would operate a customer's web site on our computer
servers for a monthly fee. Although we would be required to spend
additional amounts to purchase computer servers and hire computer
maintenance personnel, we believe the revenues that may be generated by
this business would offset these costs.
Possible Internet Gaming Activities
We also are reviewing the possibility of engaging in internet
gaming activities. Currently, we offer games and links to games on our
web site. The games offered by the Company do not involve wagering,
although some sites reached through links on our site do offer
wagering. We are reviewing legal and other issues in connection with
whether to allow wagering on our web site and whether to continue
providing links to web sites that allow wagering. We will engage in
these activities or continue to offer links to sites that offer
wagering only if we determine that these activities will not violate
applicable laws.
Video
Initially, we 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. We are no
longer active in the video market, although we have attempted to sell
video footage to other companies for use in marketing and internet
sites for travel-related companies.
Retail
In December 1996, we commenced operations of our retail segment
through our subsidiary, "The Best of As Seen On TV, Inc." (ASOTV). The
segment consisted of selling the most common and most popular
infomercial products in free standing unmanned kiosks in retail outlets
throughout the United States. We opened our first four unmanned
locations in December, 1996, in Pearl Harbor, Andrews Air Force Base
and Bolling Air Force Base in Washington, D.C., and Lechmere's in
Cambridge, Massachusetts. In March 1997, we terminated our unmanned
kiosk operations when the leases to our first four locations were not
renewed. Sales volumes at the unmanned kiosk locations were not
sufficient to maintain profitable operations. We turned our efforts to
operating manned kiosks in major retail malls. Each manned kiosk was
approximately 250 square feet and sold the top 50 selling infomercial
products. Commencing August, 1997, we opened six manned kiosk
locations in six retail malls located in the Denver metropolitan area.
The sales volumes for the manned kiosks were less than projected and in
January 1998, we determined to discontinue the operations of ASOTV due
to operating losses and lack of working capital to further develop the
concept.
The result of operations of ASOTV for the years ended December 31,
1998 and 1997 are disclosed as discontinued operations.
The assets of ASOTV were written down to their estimated net
realizable value resulting in a write down of $490,000 which is
included in the accompanying statement of operations for the year ended
December 31, 1997 as part of the loss from discontinued operations.
Competition
Radio
The Radio Station competes with seven other signals available in
the area. Two of these radio signals originate from Gillette, Wyoming.
We presently enjoy the largest share of the market, based on
independent marketing surveys.
Live Entertainment
Competition is intense in the comedy and music night club
entertainment industries. On a national level, we compete 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 17 years and we believe it to be the highest
revenue-producing comedy club in the area. We believe 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 main competitors of
Comedy Works Larimer Square are individually-owned and located in
shopping centers in the suburbs, while Comedy Works is located in the
downtown Denver area.
Internet
Internet related businesses are subject to intense competition.
Companies with greater financial resources than the Company have not
been able to generate positive cash flow or profits from operating
internet related businesses. In addition, because of the large number
of competitors, there is competition for internet content and qualified
computer personnel. We may not be able to attract the best available
talent to develop our internet business, which could lead to an
increase in costs that could have a material adverse effect on our
business. We also compete with other companies for advertising on our
internet portal. Revenues generated from the internet business are
dependent upon advertising. In addition, the low cost of entering
internet related businesses may result in additional competition in the
future.
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 the Radio Station 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 and 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 delay the reissuance
process or result in a denial of the reissuance of the license. 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
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.
Live Entertainment
We have found that our 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 Holding Corp.
Currently, we employ two executives. We contract the accounting,
management information systems and administrative functions to a
company owned by Douglas Olson, the President and a Director of the
Company, and to other independent consultants.
Radio Station
The Radio Station employs approximately eight full-time employees
and five part-time employees. The full-time employees, 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 five full-time employees and approximately 26
part-time employees. Full-time employees are management staff and
part-time employees are waitresses, bartenders, and door personnel.
Internet
This division has eight full-time employees and one part-time
employee. This division also uses independent contractors, primarily
for web site development and maintenance and content development.
Description of Property
First Entertainment Holding Corp.
Our executive offices are located at 5495 Marion Street, Denver,
Colorado 80216. This space is provided to us by Creative Business
Services, Inc. ("CBSI") as part of the arrangement between CBSI and the
Company. See "TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES".
In August 1998, we subleased our prior executive office space in an
effort to further reduce our operating overhead. We have not been
relieved of our obligation as the primary lessee under our prior office
lease as a result of the sub-lease. The primary lease expires in
August 2002 and provides for monthly rent of $6,824.
Radio Station
We have facilities in Gillette, Wyoming that house the Radio
Station, 100.7 FM, The Fox. In April 1996, we purchased the land and
building which houses the radio station for $300,000 and the land under
which the FM tower sits for $125,000.
Live Entertainment
Comedy Works Larimer Square leases its premises under the terms of
a new 10 year lease, which expires January 31, 2008.
Lease payments in the first year of the lease term, January 1,
1998 to December 31, 1998, were the total of (i) 8% of gross sales of
alcoholic beverages, (ii) 6% of gross sales of food related products
and (iii) 4% of gross sales relating to door admission.
Lease payments for the period January 1, 1999 to December 31, 2003
are based on percentage rent as computed above but shall not be less
than 75% of the average percentage rent paid during the three year
period January 1, 1996 to December 31, 1998. Lease payments for the
period January 1, 2004 to January 31, 2008 shall not be less than 75%
of the average on percentage rent paid during the three year period
January 1, 2001 to December 31, 2003. Average annual percentage rent
paid during the period January 1, 1996 to December 31, 1998 was
$84,140.
Our internet related businesses are conducted out of offices
located at 2500 East Hallandale Beach Blvd., Suite 605, Hallandale,
Florida 33009. These offices consist of approximately 2,300 square
feet and are leased pursuant to the terms of a 36 month lease which
terminates in July 31, 2002. Monthly rent is approximately $1,872.
Legal Proceedings
We know of no litigation pending, threatened, or contemplated, or
unsatisfied judgments against the Company, or any proceedings of which
FEHC or any of our subsidiaries is a party, except as specified below.
We know of no legal actions pending or threatened, or judgment entered
against any of our officers or directors or any of the Company's
subsidiaries in their capacities as such, except as specified below.
In May 1997, David Spolter and Faige Spolter ("Spolter") filed a
lawsuit against the Company in the Superior Court of the State of
California. The plaintiffs alleged various federal and state
securities violations and sought recovery of their $75,000 investment
plus damages. On July 1, 1998 we entered into a settlement agreement
whereby the Company agreed to pay Spolter $150,000; $25,000 was paid
upon execution of the Settlement Agreement and the remaining $125,000
was payable in monthly installments of $5,000 a month until July 15,
1999 at which time all unpaid principal and interest was due and
payable. On July 15, 1999, we paid the remaining principal and
interest and the note has been paid in full.
In 1997, Sharon K. Doud filed a civil action against the Company,
A.B. Goldberg and Quality Communications. The lawsuit was filed in the
District Court for the Sixth Judicial District of Wyoming (Civil Action
No. 21289) and alleged breach of contract, fraud and misrepresentation
for failure to convert Class C Convertible Preferred Stock into 91,240
shares of common stock. In April, 1998 a settlement agreement was
reached whereby we were required to pay $6,150 in legal fees, issue a
promissory note in the principal sum of $125,000 bearing interest at
9.5% per annum due March 31, 1999 and the Class C Convertible Preferred
Shares were cancelled. The promissory note and accrued interest were
paid in full on April 2, 1999.
During 1997 and 1998, the Company, certain officers and directors
of the Company and other unrelated parties received requests for
information from the U.S. Securities and Exchange Commission ("SEC")
related to an investigation begun by the SEC during 1997 into various
matters. On August 2, 1999, the SEC filed a civil complaint against
the Company and A.B. Goldberg in the U.S. District Court in Denver,
Colorado. The SEC alleges in its complaint that the Company failed to
disclose compensation paid to Mr. Goldberg in the Company's 1995 and
1996 annual reports and in a registration statement and a proxy
statement filed by the Company in 1997. In response to this
allegation, the Company has disclosed these amounts in the "EXECUTIVE
COMPENSATION" section below. The SEC also alleges that the Company
failed to timely file certain of its periodic reports. The SEC seeks a
permanent injunction against future violations of securities laws by
the Company. On October 22, 1999, the Company entered into a consent
decree with the SEC. Without admitting or denying the allegations made
by the SEC, the Company agreed not to engage in violations of the
securities laws in the future. As a result of entering into the
consent decree, the civil complaint against the Company will be
dismissed. The SEC alleges that Mr. Goldberg received compensation of
approximately $350,000 that was not disclosed in the Company's public
filings. The SEC alleges that Mr. Goldberg attempted to conceal the
compensation by directing the payment of money and stock through his
wife, including the issuance of stock that allegedly was not approved
by the Company's Board Of Directors. The SEC also alleges that Mr.
Goldberg failed to properly disclose his securities holdings in the
Company and changes in those holdings. The SEC seeks a permanent
injunction, disgorgement, civil money penalties, and an officer and
director bar against Mr. Goldberg. Mr. Goldberg has informed the
Company that he intends to vigorously defend the claims made against
him.
Pursuant to an agreement entered into between the Company and
Balzac, Inc. in April 1997, Balzac Inc. is indebted to the Company in
the amount of $985,000, together with interest thereon. Beginning in
April 1997, this amount (which at that time was $1 million) was to be
repaid over 40 months at 8% per annum by liquidating a minimum of
25,000 shares of Common Stock of the Company per quarter up to a
maximum of one million shares held by Balzac, Inc. The Company would
be paid any portion of the sales price per share up to $1.00 and Balzac
would retain any portion of the sales price over $1.00 per share. Any
of the one million shares not sold after 40 months will become the
property of the Company. In February 1999, an involuntary bankruptcy
petition was filed against Balzac, Inc. by certain of its creditors.
The bankruptcy petition was filed in the United States Bankruptcy Court
for the Southern District of New York, Case No. 99 B 40646, under
Chapter 11 of the Bankruptcy Code. Between March and July 1999, Balzac
sold approximately 885,000 shares. The entire $2.06 million of
proceeds therefrom are being held by the Bankruptcy Court pending
resolution of the various claims for those proceeds. In August 1999,
Balzac filed an adversary proceeding with the bankruptcy court,
Adversary No. 99-2237, claiming that the Company caused damage to
Balzac by failing to register the resale of shares of common stock
underlying warrants to be issued to Balzac pursuant to agreements
between the Company and Balzac entered into in April 1997. Balzac
seeks damages of at least $3,268,356 plus interest thereon. The
Company intends to vigorously defend against these charges. In
addition, the Company filed a counterclaim against Balzac and third
party complaints against two of Balzac's executive officers and
directors and Alex Brown, Incorporated. In the counterclaim and third
party claims, the Company seeks damages from Balzac, Mr. Deutsch and
Mr. Spector for tortious interference with contract and bad faith, and
for impairing the Company's security interest in the shares held by
Balzac that were to be liquidated to pay amounts owed to the Company.
The Company also seeks damages against Alex Brown based on the
Company's allegations that Alex Brown, Incorporated interfered with
this security interest, as well as breached a trust owed to the Company
in failing to liquidate the shares of the Company owned by Balzac. The
Company and Balzac have reached a tentative agreement in principle to
settle their disputes. A definitive agreement would be required to be
entered into and it would be subject to approval by the creditors'
committee and the Bankruptcy Court. The agreement in principle
provides for the Company to receive $358,000 in cash from the proceeds
from Balzac's sale of stock and for Balzac to receive options to
purchase 200,000 shares of the Company's Common Stock at $2.00 per
share and 375,000 shares of Common stock at $1.00 per share. These
options would expire three years after issuance. The transfer of the
shares underlying these options is covered by this prospectus.
Available Information
In accordance with the requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Company files reports,
proxy statements and other information with the SEC. These reports,
proxy statements and other information can be read and copied at the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024 and at the following Regional Offices
of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, New York, New York 10048. Copies
of these materials also can be obtained at prescribed rates by writing
to the SEC, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information concerning the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330. In addition, materials filed electronically by the Company with
the SEC are available at the SEC's Internet web site at
http://www.sec.gov.
This prospectus is part of the Registration Statement on Form SB-2
(together with all amendments and exhibits, referred to as
"Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), that the Company filed with the SEC. The
Registration Statement contains information that is not included in
this prospectus.
Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete, and, in each
instance, reference is made to the copy of the particular contract or
document filed as an exhibit to the Registration Statement. Each
statement concerning a document that is filed as an exhibit is
qualified in all respects by reference to the copy of the document
filed as an exhibit. For further information with respect to the
Company, reference is made to the Registration Statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion and comparison of the financial
condition and results of operations of the Company as of and for the
year ended December 31, 1998, and as of and for the year ended December
31, 1997. Also included is a similar discussion and comparison as of
and for the nine month periods ended September 30, 1999 and September
30, 1998. These discussions should be read in conjunction with the
Company's Financial Statements, the notes related thereto, and the
other financial data included elsewhere in this prospectus.
Results of Operations
The year ended December 31, 1998 ("1998") compared with the year
ended December 31, 1997 ("1997")
The Company had a net loss from continuing operations of
approximately $752,000 in 1998 and $3.1 million in 1997.
Overall revenues decreased approximately $91,000 or 4%, from $2.3
million in 1997 to $2.2 million in 1998. Live entertainment revenues
decreased 3% from $1.39 million in 1997 to $1.35 million in 1998. The
Comedy Club has been successful in bringing in highly recognized
headliners, some of which performed special engagements during the week
when attendance is less than on weekends. Despite decreased
attendance, food sales and liquor sales have increased. However,
there has been an overall decrease in live entertainment revenue. The
decrease is attributable to admission revenues. Overall, the industry
has seen a decline in attendance at comedy clubs nationwide, although
the Denver comedy club has been able to retain attendance. With the
decrease in live entertainment sales in 1998, cost of sales has also
decreased 6% from $1.2 million in 1997 to $1.1 million in 1998. The
largest component of cost of sales, live entertainment, is labor,
including entertainers' compensation, which decreased from $655,472 in
1997 to $590,864 in 1998. All of the $65,000 decrease in labor costs
is attributable to a decrease in entertainers' compensation.
Radio sales have increased 4% from $772,000 in 1997 to $804,000
in 1998 primarily due to an increase in ad sales of $28,000 and an
increase in trade show income of $8,000. Although concert income
decreased $28,000 in 1998, radio ad-sales increased $28,000. The Radio
Station in Gillette, Wyoming is a country music format and began
promoting concerts in 1995 for up and coming country music performers.
Revenue from concerts was $28,000 in 1998 and $56,000 in 1997. The
radio station still has the largest audience share in Gillette,
Wyoming. Cost of ad-sales has increased by $25,000, or 5%, from 1997
to 1998 resulting in the primary component in the increase in revenues
of $32,000. The single largest component of cost of radio sales is
labor which was $290,000 in 1998 and $280,000 in 1997. The radio
station has been successful in increasing radio revenues without adding
additional employees. The radio station is continuing in its efforts
to manage its costs and as such has substantially reduced its operating
overhead.
Video sales in 1997 represent the sale of video distribution
rights in the U.S. for $50,000. The Company is no longer active in the
video distribution market.
Other revenue decreased from $112,000 in 1997 to $75,000 in 1998.
Other revenue consists primarily of T-shirt, coupon books, cigarette
sales and booking agent fees. Other revenues in 1997 include $62,500
from a third party paid to the Company to buy-out its office space.
The unrelated third party needed additional office space and was
willing to pay the Company an incentive to move, including the costs of
moving. In September 1998, the Company moved to new office space.
Other income in 1998 includes $47,000 in rental income from the
subleasing of office space, which commenced September 1, 1998.
Excluding the $62,500 from other revenue in 1997 and excluding the
$47,000 from other revenue in 1998, other income in 1997 was $49,800 as
compared to $28,000 in 1998.
Impairment write downs represents the write down of the Balzac
note receivable of approximately $81,400 in 1998 and $902,000 in 1997
to its estimated net realizable value of $0 and $81,340, respectively
and a write down of the Company's investment in Global Internet of
$557,899 in 1997 to its estimated net realizable value of $0.
Depreciation and amortization decreased from $141,000 in 1997 to
$104,000 in 1998. The decrease of $37,000 is primarily due to the
fact that more assets are becoming fully depreciated in 1998 than in
1997.
Management and administrative fees from affiliates decreased 6%
from $240,000 in 1997 to $225,000 in 1998. The underlying agreement,
which provides for services valued at $20,000 per month was reduced to
$14,000 per month effective September 1, 1998.
Selling, general and administrative expenses (SG&A) decreased from
$1.79 million in 1997 to $787,000 in 1998, a decrease of approximately
$1,000,000. The Company made a concerted effort to reduce SG&A during
1998 and 1997, which resulted in significant savings. There were
certain transactions which had an adverse effect on SG&A for 1998 and
1997. Legal fees were approximately $170,000 in 1997 compared to
$118,000 during 1998. Compensation and consulting fees were
approximately $361,000 for 1998 compared to $568,000 for 1997. Nasdaq
fees and shareholder expense decreased $16,000 from 1997 to 1998.
Travel and entertainment expense also decreased $20,000 between 1997
and 1998. Included in SG&A in 1997 was compensation resulting from the
issuance of stock options and warrants totaling $692,000 as compared to
$66,000 in 1998. In addition, in 1997 SG&A included a charge of
$10,000 resulting from litigation settlements, which did not occur in
1998.
Notes payable and long-term debt was $1,284,500 in 1997 and
$1,184,100 in 1998. The average outstanding balance of long-term debt
was $1,173,000 in 1997 as compared to $1,234,300 in 1998. The increase
in interest expense between 1997 and 1998 is because overall the
weighted average balance in notes payable in 1997 was less than in
1998. At December 31, 1997 the Company accrued $275,000 as the result
of a litigation settlement subsequent to year-end. These amounts did
not accrue interest during 1997. Interest on the litigation
settlements in 1998 was $15,400.
The nine months ended September 30, 1999 compared with the nine
months ended September 30, 1998
For the nine months ended September 30, 1999 the Company incurred
a loss from continuing operations of approximately $2.2 million as
compared to a loss from continuing operations of approximately $587,000
for the nine months ended September 30, 1998. The increase in the net
loss for the nine months ended September 30, 1999 as compared to
September 30, 1998 is primarily the result of compensation related to
the issuance of common stock options and an increase in common stock
issued for services, which increased approximately $1,260,000.
Overall, revenues for the nine months increased by approximately
$383,000, from $1,566,000 in 1998 to $1,949,000 in 1999. Most of the
increase is from live entertainment revenue which increased $272,000
and other income increased $69,000. The increase in live entertainment
revenues was due to increased attendance as a result of more big name
acts in the first quarter of 1999. Although big name headliners
usually draw more attendance, their cost is also substantially higher.
Big name headliners were not as available for club acts in 1998 as
compared to 1999.
The Company no longer distributes any videotapes, therefore sales
are minimal.
Radio sales is comprised of radio advertising, concert income,
trade show income and super saver advertising income. In 1998, total
radio revenue was $587,300 of which radio advertising was $509,000 or
82% of the total radio sales. In 1999, total radio revenue was
$619,000 of which radio advertising was $513,000 or 86% of the total
radio sales. Radio advertising sales increased $5,000 or 1.0% in 1999
compared to 1998. The primary reason for the overall increase in radio
revenue of approximately $32,000 in 1999 compared to 1998 was an
increase in concert income of $12,000, supersaver advertising income of
$11,000 and trade show income of $5,000.
Other income at September 30, 1999 and 1998 represents rent
income, T-shirt, coupon books and cigarette sales. The primary reason
for the increase in other income is sublease income which commenced
September, 1998. In the first nine months of 1999, sublease income was
$71,000 as compared to $6,000 for the first nine months of 1998.
Cost of sales live entertainment increased as a result of an
increase in revenues and the percent of cost of sales to sales
increased from 86% in 1998 to 91% in 1999. Although attendance
increased, the labor cost also increased, which resulted in a lower
gross profit. Labor costs, which includes entertainers salaries,
increased from $410,000 in 1998 to $591,000 in 1999. Labor costs as a
percentage of revenues was 44% in 1998 and 49% in 1999.
Cost of goods sold radio, increased approximately $26,000
comparing 1999 to 1998. The cost of sales radio as compared to radio
sales was 72% in 1999 and 71% in 1998.
The Company commenced its internet division on June 28,1999 and
for the quarter ended September 30, 1999 this division has focused on
putting together the team of internet engineers, programmers, web site
developers, content development and sales and marketing as well as
establishing strategic relationships with e-commerce partners, traffic
partners and content development.
Costs and expenses for the period ended September 30, 1999 for the
internet division totaling $348,000 are comprised of $170,000 in
advertising, $124,000 in salaries and contract labor, $14,000 in
recruiting fees and $40,000 in other operating costs.
The goal of this division is to continue to expand the multimedia
internet entertainment through the exploitation of our existing assets
in an internet model, in addition to the growth of our retail website
development, advertising, marketing, rich media development, e-commerce
and syndicated affiliate programs. In addition, we are constantly
identifying companies with compatible internet e-commerce and for rich
media development capabilities or business models that through
strategic alliances, mergers or acquisitions, could help us reach our
ultimate goal much sooner.
We have not yet completed a full analysis of the working capital
needed to develop the internet business, which will include retail
website, development, advertising and marketing, rich media
development, affiliate program development and e-commerce development,
although working capital currently is not sufficient to fund the
internet division and its needs for additional staff for the next year.
The Company has been issuing stock to internet division employees and
consultants to fund salaries, wages and consulting fees thereby
reducing the requirement for working capital. There can be no
assurances that the Company would be successful in obtaining the
working capital necessary to complete the business plan for the
internet segment and commerce profitable operations.
A substantial portion of the Company's assets are fully
depreciated and additions to property and equipment was $160,000 for
1999. In February, 1999 the comedy club completed a major remodeling
project which costs $150,000. The remodeling costs are being amortized
over the life of the lease, approximately nine years. As a result of
the depreciation associated with the remodeling costs, depreciation
expense for 1999 increased over 1998.
Management and administration fees, affiliate represents fees paid
to a related party for accounting and administrative functions which
are outsourced to the related company. Monthly fees were approximately
$21,000 a month for the period January 1,1998 through August 31,1998
and $14,000 a month for the period September 1, 1998 and through April
30,1999, $18,000 a month for the period May 1, 1999 to July 31, 1999
thereafter increasing to $22,000 a month.
General and administrative costs increased approximately $1.35
million in 1999 as compared to 1998. The increase is primarily
attributable to compensation costs of approximately $1,029,000
associated with options issued 1999 and accounted for in accordance
with SFAS 123 and APB 25. In addition, common stock issued for
services increased $230,000 comparing 1999 to 1998, an increase of 58%.
Interest expense increased 1999 over 1998 as a result of an
increase in notes payable of approximately $275,000 due to litigation
settlements in April and July, 1998 and an increase in notes payable of
150,000 in February, 1999 associated with leasehold improvements at
Comedy Works in which interest did not accrue until after the first
quarter of 1998 for the litigation settlements but were in effect for
the entire six months of 1999.
Liquidity and Capital Resources
As of September 30, 1999, the Company had a working capital
deficit of approximately $1.2 million. Despite a loss of approximately
$2.1 million, net cash used in operating activities was only $383,000
primarily due to common stock options granted and common stock issued
for services of $1.66 million. The Company has been able to issue
common stock for services thereby reducing the need for working
capital.
The Company's ability to continue as a going concern will largely
depend on its ability to extend existing debt obligations, generate
working capital through debt or equity financing and profitable
operations. Working capital deficiencies have hindered the Company's
ability to fund certain business segments. Working capital is needed to
further develop both existing lines of business and new lines of
business and the new internet line of business. The likelihood of
obtaining the necessary equity financing is uncertain at this time.
The Company has been successful for the first nine months ended
September 30, 1999 and in 1998 in financing some of its operations
through the issuance of common stock in exchange for services. In
1999, the Company issued 581,584 shares of common stock valued at
$627,200 or an average of $1.08 per share. In 1998, the Company issued
1,169,706 shares of common stock valued at $396,000 or an average of
$.34 per share. In February 1998, the Company was delisted from NASDAQ
which had adversely affected the price of the stock for most of 1998.
Of the total costs and expenses of $2.1 million in 1998 and $4.1
million in 1999, $396,000 was paid in stock in 1998 and $627,200 was
paid in stock in 1999. Stock issued as a percentage of revenue was 19%
in 1998 and 15% in 1999.
Commencing with the new lease for the Comedy Works space in
Larimer Square in Denver, Colorado, effective January 1, 1998, Comedy
Works began a significant remodeling project. The remodeling was
completed in February, 1999. The total remodeling costs were
approximately $300,000 of which $150,000 was paid by the landlord
(lessor) as tenant improvements and $150,000 was paid by Comedy Works.
The landlord (lessor) has agreed to finance the Company's portion of
the remodeling cost payable monthly at 12% per annum over 10 years.
The monthly payments are approximately $2,300.
The Company had a note payable in the amount of $88,000 which came
due in July, 1999 that was paid in full and had a note payable for
approximately $125,000 that was due October, 1999 but was extended by
the bank to October, 2000 with monthly payments of $2353.
Additionally, working capital is needed for marketing the internet
site, although the Company has not yet determined the marketing budget,
the Company currently anticipates spending $45,000 on both traditional
and internet advertising. This is in addition to $136,000 spent to
market the Company's site on sites operated by Yahoo. The Company also
purchased a radio station in Leeds, South Dakota. The Agreement,
required a $20,000 non-refundable down payment, with the remaining
$280,000 payable monthly over 15 years upon the approval of the
transfer of the license by the FCC. As of November 1, 1999 the FCC had
not yet approved the transfer. The Company estimates that it will
require approximately $150,000 to $200,000 in equipment to commence
operations which the Company expects to finance through equipment
leasing.
The Company has also increased its staff related to internet web
development, internet advertising and marketing. Commencing June 28,
1999, the monthly obligation for salaries and overhead is approximately
$45,000. First 2 Market, the internet segment subsidiary, does not yet
generate significant revenues and is not expected to be profitable
1999. In July and September, 1999, the Company entered into
marketing/advertising agreements with Yahoo totaling $136,000.
Currently, the Company has limited working capital and does not have
sufficient working capital to meet its existing debt obligations and
other working capital needs contemplated under the various definitive
agreements executed in the first quarter of 1999.
In 1999 through September 30, 1999, the Company raised $646,875 in
private placement equity financing through the sale of common and
preferred stock and the exercise of common stock options, but there can
be no assurance that the Company would be successful in raising the
additional equity financing needed as contemplated under the letters of
intent or the definitive agreements executed in 1999. In some cases,
the Company has not yet completed its due diligence procedures which
includes an analysis of the working capital needed. For those letters
of intent in which the Company is still performing due diligence and
other evaluation procedures it is not possible to estimate the working
capital needed to consummate these agreements and execute the business
plan.
A valuation allowance offsetting the Company's net deferred tax
asset has been established to reflect management's evaluation that it
is more likely than not that all of the deferred tax assets will not be
realized.
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and
software to respond to the problems posed by the fact that computer
programs traditionally have used two digits rather than four digits to
define an applicable year. As a consequence, any of the Company's
computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing interruption of
operations, including temporary to perform accounting functions and
processing credit card payment and delays in the receipt of payments
from credit card companies purchasers of oil and gas production, if
any. The Company currently is reviewing the Company's computers and
software as well as other equipment that utilizes imbedded computer
chips, such as cash registers, facsimile machines and telephone
systems. The Company believes that its review will be completed prior
to November 30,1999 although to date no systems have been determined to
be Year 2000 Non-Compliant. Substantially all of the internal
accounting function has been outsourced to a related party company.
The Company has been assured by the related party company that its
accounting software and computers, file servers and other network
systems are Year 2000 Compliant and that services should not be
interrupted.
Until the Company's Year 2000 review has been completed, the
Company has no estimate of the cost to correct any potential deficiency
in Year 2000 compliance for its computers and equipment. Upon the
completion of the Company's Year 2000 review, the Company intends to
develop a contingency plan to address potential Year 2000 problems.
Recent Accounting Pronouncements
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 130, entitled "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131, entitled
"Disclosure about Segments of Enterprise and Related Information" (SFAS
131). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive Income is defined to include certain changes in equity
but not those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that
are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement
displayed with the same prominence as other financial statements. SFAS
131 supersedes Statement of Financial Accounting Standards No. 14,
entitled "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 revises standards of the way public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments as
components of a company for which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing segment
performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. The Company adopted SFAS
130 and 131 and restated all prior periods. The adoption of SFAS 130
and 131 did not have a material effect on its results of operations for
1998 and 1997.
In February 1998, the FASB issued SFAS No. 132 "Employers'
Disclosure about Pensions and Other Postretirement Benefits", which
standardizes the disclosure requirements for pensions and other
postretirement benefits and requires additional information on changes
in the benefit obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective for years
beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not
readily available. The adoption of this statement had no impact on the
Company's financial statements.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards for
recognizing all derivative instruments including those for hedging
activities as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value. This
Statement is effective for fiscal years beginning after June 30, 1999.
The Company has not yet determined the effect of SFAS No. 133 on its
financial statements.
The FASB recently issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage Backed Securities Retained
after the Securitization of Mortgage Loans Held by Mortgage Banking
Enterprises" "SFAS No. 134". SFAS No. 134 establishes new reporting
standards for certain activities of mortgage banking enterprises that
conduct operations that are substantially similar to the primary
operations of a mortgage banking enterprise. This statement is
effective for the fiscal quarter beginning after December 15, 1998.
Management believes the adoption of this statement will have no impact
on the Company's consolidated financial statements.
MANAGEMENT
The directors and executive officers of the Company, their
respective positions and ages, and the year in which each director was
first elected, are set forth in the following table. Each director has
been elected to hold office until the next annual meeting of
stockholders and thereafter until his successor is elected and has
qualified. Additional information concerning each of these individuals
follows the table.
<TABLE>
<S> <C> <C> <C>
Name Age Position Tenure as Officer
or Director
Doug Olson 50 President,Chief February 1999 to
Operating present
Officer and Director
Howard Stern 44 Chief Executive Officer February 1999 to
And a Director present
Wende Curtis 35 Secretary February 1999 to
present
A. B. Goldberg 51 Director April 1993 to present
Michael Marsowicz 36 Director August 1999 to present
Philip Puccio 55 Director October 1999 to present
William Rubin 38 Director November 1998 to
present
</TABLE>
All of the Director's terms expire at the next annual meeting of
shareholders or when their successors have been elected and qualified.
The Officers of the Company serve at the pleasure of the Board of
Directors.
The following sets forth background information concerning the
above Directors and Executive Officers:
Douglas Olson has served as President of the Company since August
1999, as Chief Operating Officer since November 1999, and as a Director
of the Company since February 1999. Mr. Olson previously served as the
President and a Director of the Company from March 1993 to February
1995 and as Chief Executive officer from August 1999 until November
1999. Since February 1995, Mr. Olson has been the President and owner
of Creative Business Services, Inc. ("CBSI"), which provides accounting
and management information services. The Company outsources its
accounting function to CBSI.
Wende Curtis has served as the Secretary of the Company since
February 1999. Since June 1993, Ms. Curtis also has served as the
President and General Manager of the Company's Comedy Works, Inc.
subsidiary. Ms. Curtis received a B.A. degree from Colorado State
University, Fort Collins, Colorado, in 1987.
Abraham "A.B." Goldberg has served as a Director of the Company
since April 1998. From February 1995 until August 1999, he served as
President and Chief Executive Officer of the Company. Mr. Goldberg
previously served as a producer of First Films and as Executive
Producer and Financial Consultant since January 1987. Mr. Goldberg
served as President of Harvard Financial Group, an independent
investment consulting firm, from November 1976 through April 1982.
Since April 1982, Mr. Goldberg has consulted with a variety of
businesses, including First Films. Mr. Goldberg earned a Bachelor's
Degree in Finance from the University of Colorado, Boulder, Colorado in
1969 and attended the University of Denver College of Law. Mr.
Goldberg was elected President and Chief Executive Officer in February
1995.
Howard Stern has served as a Director of the Company since
February 1999 and as Chief Executive Officer since November 1999. He
has been in the life insurance business since his junior year in
college at the University of Pittsburgh in 1975. A Bronze, Silver and
Gold Award winner with Northwestern Mutual, Howard became a provisional
applicant to the Million Dollar Round Table at the age of 21. He
became a Life and Qualifying Member in 1994 and has consistently
qualified for the Top of the Table for the last five years.
In July 1993, Mr. Stern joined The New York Life Insurance Company
where he was extremely active in product development. As a charter
member of New York Life's Chairman's Cabinet, his awards and
accomplishments included the Professional Experienced Agent Award in
1993 & 1995, New York Life's Agent of the Year in 1995 & 1997, the
Seymour Smoller Distinguished Service Award in 1996, and the Fort
Lauderdale Individual Life Leader in 1994, 1995, 1997 and 1998.
Mr. Stern achieved the position of Council Vice President in 1997,
finishing second among all New York Life agents nationally, and in 1998
became Council President. Mr. Stern was a 1998 faculty member of NYLIC
University's "Leader For Life" Program.
On October 8, 1998, Mr. Stern ended his relationship with the New
York Life Insurance Company and signed a Career Agent's contract with
MassMutual Life Insurance Company.
Mr. Stern has served as a consultant to several life insurance
companies, both domestically and abroad, on the development of Variable
Products marketing and training, and has been a featured speaker at
industry functions. He is a member of the Advanced Association of Life
Underwriters (AALU), National Association of Life Underwriters (NALU),
Broward County Life Underwriters, and a member of the American Society
of CLUs, (BCLUA).
Mr. Stern is a panel member of the National Association of
Securities Dealers (NASD) Arbitration Board. He currently is licensed
in 20 states for the sale of Life Insurance and Variable Products. He
is an approved "CE" Instructor in 48 states and in 1998 taught 8
classes nationally for the American College.
William "Bill" Rubin has been a commercial loan officer for
Enterprise Social Investment Corporation since 1992, and has served as
a vice president with various financial institutions. Mr. Rubin's
responsibilities included underwriting and originating construction and
real estate current employment loans, workout and restructuring of real
estate loans, and management of loan portfolios in excess of $150
million. Mr. Rubin earned a BBA in Finance and Accounting from
Southern Methodist University in 1983. Mr. Rubin serves as a director
for Assets Management.
Michael Marsowicz has served as Chief Technology Officer of the
Company since July 1999 and as a Director of the Company since August
1999. During 1998 and 1999, Mr. Marsowicz served as Chief Technology
Officer for Maxnet, Inc., Virtual Financial Holdings, and the
Presentation Network, all of which were involved in the technology
industry. From 1995 until 1998, Mr. Marsowicz was the Chief Technology
Officer of Net Health Care. Mr. Marsowicz previously served in
technical support positions at New York Life from 1993 until 1995.
Philip Puccio has served as a Director of the Company since
September 1999. Mr. Puccio also serves as President and Chief
Executive Officer of Coleman and Company Securities, Inc., where his
responsibilities include complete management of that firm and all its
personnel. Mr. Puccio has been engaged in the securities industry for
over 30 years. From 1975 until 1985, Mr. Puccio served a Director and
Executive Vice President at Drexel, Burnham, Lambert and Company. From
1985 until 1989, Mr. Puccio served as Managing Director of World Wide
Sales and Equity Trading for Dillon, Read and Co. From 1989 until
1991, Mr. Puccio served as Managing Director and Senior Vice President
of World Wide Sales and Trading for Prudential Securities, Inc. In
1991, Mr. Puccio retired from active management and became a consultant
to brokerage firms that required expertise in developing trading and
sales divisions. Mr. Puccio retired from the securities industry in
1994 and devoted himself to managing personal and outside capital until
accepting his current position with Coleman and Company Securities,
Inc. in early 1998.
No family relationship exists between or among any of the persons
named above. None of the Company's Directors are directors of any
other company that has a class of equity securities registered under,
or required to file reports pursuant to, Section 15(d) of the
Securities Act of 1933 or Section 12 of the Securities Exchange Act of
1934, or any company registered as an investment company under the
Investment Company Act of 1940. There are no arrangements or
understandings between any of the named directors or officers and any
other persons pursuant to which any director or officer was selected or
nominated as a director or officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth in summary form the compensation
received during each of the Company's last three completed years by the
former Chief Executive Officer of the Company. No other executive
officer's compensation exceeded $100,000 during the year ended December
31, 1998 (the "Named Executive Officers"). The figures in the following
table are for fiscal years ended December 31, 1998, 1997, and 1996:
<TABLE>
Summary Compensation Tables
<S> <C> <C> <C> <C>
Name and Fiscal Salary Bonus Other Annual
Principal Position Year ($) ($)(1) Compensation
($)(2)
Abraham Goldberg 1998 $14,500 -0- -0-
Former Chairman of 1997 $24,000 -0- $47,500(7)
The Board, former 1996 $24,000 -0- $72,000(7)
President, former
Chief Executive
Officer, and a
Director(6)
Long Term Compensation
Awards Payouts
<C> <C> <C> <C> <C>
Name and Restricted Securities LTIP All Other
Principal Postion Stock Underlying Payouts Compen-
Award(s) Options/SA ($)(4) sation
($) Rs (#)(3) ($)(5)
Abraham B. Goldberg -0- -0- -0- -0-
(6)Former Chairman $76,500(8) -0- -0- $47,550
of the Board, -0- -0- -0- $84,000
former President,
former Chief
Executive Officer,
And a director
</TABLE>
(1) The dollar value of bonus (cash and non-cash) paid during the
year indicated.
(2) Consists of compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits, securities or
property.
(3) The sum of the number of shares of Common Stock to be received
upon the exercise of all stock options granted.
(4) The Company does not have in effect any plan that is intended to
serve as incentive for performance to occur over a period longer than
one fiscal year.
(5) The amounts shown in this column represent amounts that are
alleged by the SEC to be compensation for Mr. Goldberg in the lawsuit
described in the "LEGAL PROCEEDINGS" section of this Prospectus. The
amounts alleged by the SEC to constitute compensation include the
following: (a) a total of $148,300 alleged to have been paid by CBSI
to Munchkintown, a company owned by Mr. Goldberg's wife, including
approximately $30,000 alleged to have been paid in 1995, approximately
$72,000 alleged to have been paid in 1996, and approximately $46,300
alleged to have been paid in 1997, and (b) payments alleged to have
been made by Michael Payne to Mr. Goldberg through Munchkintown of
$42,300 in May 1995 and $21,671 made in July 1995. Other amounts
alleged to have been paid to Mr. Goldberg in the SEC complaint are
included under the headings "Other Annual Compensation" and "Restricted
Stock Awards" and are described in footnotes (7) and (8), respectively,
below. In addition to the amounts shown in the above table, the SEC
alleged in its complaint that the Company failed to disclose as
compensation total payments of $73,971.25 from Michael Payne to Mr.
Goldberg through Munchkintown in 1995 and a payment of $1,500 to Mr.
Goldberg through Munchkintown by Foremont, Inc. in 1995.
(6) Mr. Goldberg resigned from his positions as President, Chief
Executive Officer and Chairman Of The Board on August 9, 1999. At that
time, Douglas Olson was elected President and Chief Executive Officer
and Howard Stern was elected as Chairman Of The Board.
(7) Includes payments to Mr. Goldberg's wife and an entity owned by
Mr. Goldberg's wife in the amount of $5,500 for 1997 and $12,000 for
1996. See below, "TRANSACTIONS BETWEEN THE COMPANY AND RELATED
PARTIES".
(8) Consists of the value of common stock transferred to NMG, LLC,
which is owned by Mr. Goldberg's wife. See below "TRANSACTIONS BETWEEN
THE COMPANY AND RELATED PARTIES".
From time to time, the Company has granted shares of its common
stock as additional compensation to its officers and key employees for
their services, as determined by the Company's Board of Directors.
During 1998 and 1997, no shares were granted to officers or key
employees.
As of December 31, 1998, the Company had no group life, health,
hospitalization, medical reimbursement or relocation plans in effect
which discriminate, in scope, terms, or operation, in favor of officers
or directors of the Company and that are not generally available to all
salaried employees. Further, the Company has no pension plans or plans
or agreements which provide compensation in the event of termination of
employment or change in control of the Company.
Employee Retirement Plans, Long-Term Incentive Plans, and Pension Plans
Other than the Company's stock option plans, the Company has no
employee retirement plan, pension plan, or long-term incentive plan to
serve as incentive for performance to occur over a period longer than one
fiscal year.
Compensation of Directors
During the year ended December 31, 1998, no compensation was paid
to directors of the Company. The Company reimburses Directors for out-
of-pocket expenses incurred by them in connection with Company
business.
Employment Contracts And Termination Of Employment And Change-In-
Control Arrangements
The Company does not have any written employment contracts with
respect to any of its officers or other employees. The Company has no
compensatory plan or arrangement that results or will result from the
resignation, retirement, or any other termination of an executive
officer's employment with the Company or from a change-in-control of
the Company or a change in an executive officer's responsibilities
following a change-in-control.
Option Grants
On March 11, 1999, the Company issued options to the Company's
directors and certain consultants to purchase 1,000,000 shares of
common stock at $.21 per share until March 11, 2002, which vested
immediately. In addition, contingent options for a total of 950,000
shares were issued to the Company's directors if an internet gaming
licensing agreement was executed with Starnet Communications and a
definitive software licensing agreement with Global Games Holdings.
These agreements were subsequently executed. Options earned from the
March 11, 1999 issuance are as follows: A.B. Goldberg 1,000,000, Doug
Olson 250,000, Howard Stern 250,000, and Bill Rubin 250,000. On
September 14, 1999, the Board of Directors determined to reduce the
number of shares that may be purchased pursuant to these options granted
to the Company's directors by 875,000. Mr. Goldberg opposed this
resolution of the Board. Mr. Goldberg's counsel has stated that it is
Mr. Goldberg's position that the Company does not have the right to
cancel options previously issued to Mr. Goldberg and that Mr. Goldberg
does not intend to relinquish those options. On November 17, 1999, the
Board clarified its option cancellation of September 14, 1999 based on
the fact that both of the agreements for which the cancelled options
had been granted either had been or would be cancelled without having
resulted in any business for the Company. Mr. Goldberg's counsel also
objected to and denied the effectiveness of this action. In October
1999, a committee of the Board, based on information not available to
the Board in March 1999, cancelled the remainder of the options granted
to Mr. Goldberg in March 1999. See "TRANSACTIONS BETWEEN THE COMPANY
AND RELATED PARTIES".
At the meeting of the Board of Directors held on March 18, 1999,
the Board approved the issuance of options to purchase common stock for
each of the Company's Directors, as well as a consultant to the
Company. The options are exercisable at a price of $.53 per share
until March 18, 2002. Options to purchase an aggregate of 1,200,000
shares were issued. The options are contingent upon the Company's
common stock trading at a price of at least $1 per share on December
31, 1999. In September 1999, the of Directors determined to cancel all
these options. Mr. Goldberg opposed this resolution of the Board. Mr.
Goldberg's counsel has stated that it is Mr. Goldberg's position that
the Company does not have the right to cancel options previously issued
to Mr. Goldberg and that Mr. Goldberg does not intend to relinquish
those options.
In May 1999, the Company granted options to purchase 750,000
shares to each of the Company's Directors. 250,000 of these options
become exercisable on each of January 1, 2000, 2001 and 2002 if the
recipient continues to be a director on those respective dates. These
options are exercisable at a price of $1.34 per share until January 1,
2005. In July, 1999, the Board agreed that the 250,000 options issued
to Mr. Goldberg that were to become exercisable on January 1, 2000
would become exercisable immediately. In October 1999, the Board,
based on information that was not available in July 1999, determined
that the options to purchase 250,000 shares that were allowed to vest
in July 1999 should not have been allowed to vest. These options are
no longer treated by the Company as vested. Mr. Goldberg's counsel has
stated that it is Mr. Goldberg's position that the Company does not
have the right to cancel the vesting of these options and that Mr.
Goldberg does not intend to relinquish these options.
BENEFICIAL OWNERS OF SECURITIES
The following table sets forth certain information regarding
ownership of the Common Stock of the Company as of October 22, 1999
by: (i) each person known by the Company to be the beneficial owner of
more than 5 percent of the outstanding common stock of the Company;
(ii) each director of the Company; and (iii) all executive officers and
directors of the Company as a group.
<TABLE>
<S> <C> <C>
Name and Address Beneficial Percent
of Beneficial Owner Ownership (1) of Class
A. B. Goldberg 1,174,338(2)(3) 9.0%
2805 East Long Court
Littleton, CO 80121
Doug Olson 833,386 (3)(4) 6.8%
5495 Marion Street
Denver, CO 80216
Howard Stern 266,550 (3) 2.2%
500 Corporate Drive
Suite 200
Ft. Lauderdale, FL 33334-3603
William Rubin 250,000 (3) 2.0%
313 East Fort Ave.
Baltimore, MD 21230
Wende Curtis 15,250 *
5495 Marion Street
Denver, CO 80216
Michael Marsowicz 250,435 (5) 2.0%
2500 E. Hallandale Beach Blvd.
Hallandale, FL 33009
Philip C. Puccio 500,000 (6) 4.0%
c/o Coleman and Company Securities, Inc.
575 Lexington Avenue
New York, NY 10022
Officers and Directors 2,675,000 (2)(3)(4(5)(6)) 22.8%
as a Group (5 persons)
Creative Business 20,000 (3)(4) *
Services, Inc.
5495 Marion Street
Denver, CO 80216
Global Casinos, Inc. 1,500,000 (7) 11.1%
5373 N. Union Blvd., Suite 100
Colorado Springs, CO 80918
Balzac, Inc.
1107 Broadway
Suite 1510
New York, NY 10010 575,100(8) 4.6%
<CAPTION>
*Less than one percent.
</CAPTION>
</TABLE>
(1) "Beneficial Ownership" is defined in the regulations promulgated
by the U.S. Securities and Exchange Commission as having or sharing,
directly or indirectly (i) voting power, which includes the power to
vote or to direct the voting, or (ii) investment power, which includes
the power to dispose or to direct the disposition, of shares of the
common stock of an issuer. The definition of beneficial ownership
includes shares underlying options or warrants to purchase common
stock, or other securities convertible into common stock, that
currently are exercisable or convertible or that will become
exercisable or convertible within 60 days. Unless otherwise indicated,
the beneficial owner has sole voting and investment power.
(2) Includes shares owned by Nannette Goldberg, the wife of A. B.
Goldberg, and shares owned by his mother and his two children. A.B.
Goldberg is a director of the Company. Also includes options to
purchase 900,000 shares for $.21 per share until March 11, 2002that the
Board Of Directors has cancelled but that Mr. Goldberg asserts are
still exercisable. See "EXECUTIVE COMPENSATION?Option Grants"and
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES". All Forms 4
and 5 required to be filed for Changes in Beneficial Ownership and
Annual Statement of Beneficial Ownership have not been filed by this
director.
(3) Includes options to purchase 250,000 shares for $1.34 per share
until January 1, 2005 that will become exercisable on January 1, 2000
if the named person continues to be a director on that date,
See"EXECUTIVE COMPENSATION - Option Grants" and "TRANSACTIONS BETWEEN
THE COMPANY AND RELATED PARTIES".
(4) Includes shares personally owned by Doug Olson, President, Chief
Executive Officer and a director of the Company, and shares owned of
record by Creative Business Services, Inc. ("CBSI"). Mr. Olson is the
President and sole shareholder of CBSI. These shares and options are
included twice in the table. They are listed as being held
beneficially by both CBSI and by Mr. Olson. Also includes currently
exercisable options held by Mr. Olson to purchase 25,000 shares for
$.21 per share until March 11, 2002.
(5) Includes currently exercisable options to purchase 75,000 shares
for $.75 per share until October 10, 2001.
(6) Consists of 500,000 shares underlying options to purchase
Common Stock for $.875 per share until July 7, 2004. Phillip C.
Puccio, a Director of the Company, is the President of Coleman and
Company Securities, Inc. These options were issued to Coleman and
Company Securities, Inc. as consideration for investment banking
services provided to the Company.
(7) Consists of currently exercisable warrants to purchase 250,000
shares of Common Stock at $1.00 per shares.
(8) Includes 375,000 shares underlying warrants to purchase common
stock for $1.00 per share for three years. Also includes an additional
200,000 shares underlying warrants to purchase common stock for $2.00
per share for three years. These warrants are to be issued pursuant to
a tentative settlement agreement with Balzac as described above under
"THE COMPANY-Legal Proceedings."
Compliance with Section 16
Forms 4 and 5 required to be filed for Changes in Beneficial
Ownership and Annual Statement of Beneficial Ownership have not been
timely filed by A.B. Goldberg, a director of the Company, and by those
directors who resigned in August 1998.
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Commencing April 1995, the Company contracted out substantially
all administrative, management and accounting functions of the Company
to Creative Business Services, Inc. ("CBSI"). CBSI is wholly-owned by
Douglas R. Olson, the President and a Director of the Company. Monthly
fees for such services were $21,000 for the period January 1, 1997
through August 31, 1998, and thereafter the fees were reduced to
$14,000 per month through July 1999. Commencing August 1999, the fees
were increased to $21,000 per month due to the Company's increased
activities. These are paid in cash or shares of Common Stock based on
market prices. Total annual fees paid by cash and by the issuance of
common stock for 1998 and 1997 were $225,000 and $252,000,
respectively, with the 1997 figure consisted of 329,000 shares of
Common Stock and no cash and the 1998 figure consisted of 339,766
shares and $37,526 in cash.
In July 1997, the Company acquired 100,000 shares of common stock
of ASOTV from NMG, LLC, an entity owned by the wife of A.B. Goldberg, a
director and former president of the Company's, in exchange for 100,000
shares of Common Stock of the Company. The 100,000 shares of the
Company's Common Stock were used by Mr. Goldberg and his wife to settle
a lawsuit against them and other defendants, including Mr. Goldberg's
mother. The value of the Common Stock issued to NMG, LLC of $50,000
has been classified as officer compensation in the accompanying
consolidated statements of operations included in the "FINANCIAL
STATEMENTS" section of this Prospectus.
Consulting fees were paid to the wife of A.B. Goldberg for the
year ended December 31, 1997 in the amount of $5,500. The amounts paid
to the wife of A.B. Goldberg have been classified under officer
compensation in the consolidated statements of operations included in
the "FINANCIAL STATEMENTS" section of this Prospectus and in the
Summary Compensation Table included in the "EXECUTIVE COMPENSATION"
section of this Prospectus.
The Company's internet related businesses are conducted through
the Company's First 2 Market, Inc. subsidiary. All That Media, Inc.,
which was acquired by the Company in June 1999, was merged into First 2
Market, Inc. in June 1999. At the time it was acquired by the Company,
All That Media was a newly-formed company that specialized in
intellectual property development, internet portal development and
internet advertising. The Company issued an option to purchase a total
of 500,000 shares of the Company's common stock for $.75 per share
until October 10, 2001 to the shareholders of All That Media for all
the outstanding stock of All That Media. Michael Marsowicz, the
President and 50 percent owner of All That Media, received 250,000 of
these options. Mr. Marsowicz subsequently was elected to the Company's
Board of Directors in September 1999.
On July 7, 1999, the Company entered into an agreement with
Coleman and Company Securities, Inc. ("Coleman") pursuant to which
Coleman agreed to act as the Company's exclusive investment advisor,
exclusive private placement agent and exclusive investment banker.
This agreement has a term of 12 months. As compensation, the Company
agreed to pay Coleman a total of $40,000 and to issue Coleman options
to purchase 500,000 shares of common stock at a purchase price of $.875
per share at any time during the five-year period commencing on July 7,
1999. The Company granted Coleman registration rights concerning the
transfer of the shares of common stock that may be issued upon the
exercise of these warrants. The Company also agreed to pay Coleman an
amount equal to 10% of the funds raised by Coleman, a three percent
non-accountable expense allowance with respect to those funds, and
placement agent warrants with an exercise price no more favorable than
that given to investors in any private placement transaction in which
Coleman participates equal to 10 percent of the amount of equity raised
by Coleman. In addition, if the Company enters into a merger
acquisition or sale transaction with the party introduced by Coleman,
the Company agrees to pay Coleman five percent of the first $2,000,000
of value of that transaction, four percent of the following $2,000,000
of value, three percent of the following $2,000,000 of value, two
percent of the following $2,000,000 of value, and one percent of the
balance of the value of the transaction. The Company also agreed to
pay Coleman an amount equal to 10 percent of the amount raised by the
Company from financing sources introduced by Coleman to the Company if
those amounts are raised within 24 months after the introduction. The
Company granted Coleman a right of first refusal to undertake any
financing on behalf of Company within the term of the agreement. In
September 1999, subsequent to entering into the agreement with Coleman,
the Company elected Philip C. Puccio as a Director of the Company. Mr.
Puccio is the President and Chief Executive Officer of Coleman.
On October 7, 1999, the Company's Board Of Directors established a
Related Parties Transactions Committee primarily for the purpose of
dealing with issues between the Company and Mr. A.B. Goldberg. Mr.
Goldberg is a director of the Company. From February 1995 until August
9, 1999, Mr. Goldberg was the Chief Executive Officer of the Company.
The Related Parties Transactions Committee consists of four directors
of the Company.
The Related Parties Transactions Committee held a meeting on
October 7, 1999 and determined, among other matters, that all
outstanding stock options previously granted by the Company to Mr.
Goldberg are null and void and/or cancelled. As indicated under
"EXECUTIVE COMPENSATION-Option Grants", the Company previously
cancelled, on a pro rata basis, certain stock options previously
granted to Mr. Goldberg and the other directors of the Company (the
"Prior Cancellations"). At that time, Mr. Goldberg's counsel informed
the Company that Mr. Goldberg does not intend to relinquish those stock
options even though the other directors all indicated their intent to
do so. The Company anticipates that Mr. Goldberg may elect to litigate
with the Company concerning the Prior Cancellations as well as the
stock options cancelled by the Related Parties Transactions Committee.
DESCRIPTION OF SECURITIES
The authorized stock of the Company consists of 50,000,000
authorized shares of Common Stock, par value $.008 per share,
11,966,646 shares of which were outstanding as of September 30, 1999;
and 5,000,000 authorized shares of Preferred Stock, $0.001 par value,
consisting of 1,500,000 shares of Class A Preferred Stock; 1,000,000
shares of Class B Preferred Stock; and 1,000,000 shares of Class C
Preferred Stock. A total of 10,689 Class A Preferred Stock, no Class B
Preferred Stock, and no Class C Preferred Stock were issued and
outstanding as of July 31, 1999.
There are no preemptive rights with respect to any of the capital
stock of the Company.
Common Stock
Each share of Common Stock is entitled to one vote, either in
person or by proxy, on all matters that may be voted upon by the owners
thereof at a meeting of the shareholders, including the election of
directors. The holders of Common Stock (i) have equal, ratable rights
to dividends from funds legally available therefor, when, as and if
declared by the Board of Directors of the Company; (ii) are entitled to
share ratably in all of the assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution
or winding up of the affairs of the Company; (iii) do not have
preemptive or redemption provisions applicable thereto; and (iv) are
entitled to one noncumulative vote per share on all matters on which
shareholders may vote at all meetings of shareholders.
All shares of Common Stock issued and outstanding are, and those
offered by this Prospectus, when issued, will be fully paid and
nonassessable, with no personal liability attaching to the ownership
thereof.
Preferred Stock
A total of 1,500,000 shares of the Company's $0.001 per share
Preferred Stock has been designated Class "A" 7% Cumulative, Non-
Participating, Convertible Preferred Stock. The Class A Stock has a 7%
dividend and the Company was required to redeem the 10,689 outstanding
shares of Class A Stock on November 18, 1996 at a price of $1.00 per
share. The Company has not yet redeemed the Class A Stock and the
holders have not made a demand for redemption. The Class A Stock is
convertible into common shares of the Company at the rate of two shares
of Common Stock for every share of Class A Stock. The rights of Class
A preferred stock are superior to all other Preferred Stock.
A total of 1,000,000 shares of the Company's Preferred Stock has
been designated Class "B 6% Cumulative dividend, payable quarterly if
and when declared, and is redeemable by the Company at face value and
convertible into common shares of the Company at the option of the
holder. The rights of Class B preferred stock are subordinate to Class
A Preferred Stock.
A total of 1,000,000 shares of the Company's Preferred Stock has
been designated Class "C" Convertible non-dividend Preferred Stock.
The Class C Preferred Stock is convertible into common stock of the
Company at a conversion price per share of Class C preferred stock
equal to the average previous thirty day bid price of the Common Stock
on the date of conversion. The rights of Class C preferred stock are
subordinate to Class A and Class B Preferred Stock.
Transfer Agent and Registrar
The transfer agent for the Company's Common Stock is American
Securities Transfer and Trust, Incorporated, 12039 West Alameda
Parkway, Suite Z-2, Lakewood, Colorado 80228. The telephone number is
(303) 986-5400. The Company serves as transfer agent for its Preferred
Shares.
INACTIVE TRADING OF THE COMMON STOCK
Although the Company's Common Stock is publicly held, there
historically has not been an active trading market for the Common
Stock. See "RISK FACTORS - Inactive Trading Of The Common Stock;
Possible Volatility Of Stock Price".
To the extent that there is trading in the Company's Common Stock,
of which there is no assurance, the Common Stock trades in the over-
the-counter market and is quoted on the OTC Bulletin Board. It is not
quoted on the Nasdaq stock market system or any exchange. The closing
sale price for the Common Stock on October 26, 1999 was $1.02. It
should be assumed that even with this OTC Bulletin Board price quote,
there is an extremely limited trading market - and very little
liquidity - for the Company's Common Stock.
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
This prospectus concerns the transfer by the selling stockholders
of up to 1,150,000 shares of Common Stock. These shares consist of the
following:
Up to 550,000 shares of Common Stock purchased by certain of the
selling shareholders in private placement transactions and upon the
exercise of stock options and warrants.
Up to 600,000 shares of Common Stock that may be issued to
certain selling stockholders when they exercise stock options and
warrants issued by the Company.
The selling stockholders may transfer their Common Stock at the
prices that they are able to obtain in the market or in negotiated
transactions. The Company will not receive any proceeds from the
transfer of the Common Stock by the selling stockholders.
It is anticipated that the selling stockholders will offer the
Common Stock in direct sales to private persons and in open market
transactions. The selling stockholders may offer the shares to or
through registered broker-dealers who will be paid standard commissions
or discounts or other compensation by the selling stockholders. The
selling stockholders also may pledge as collateral for loans the Common
Stock to be issued upon conversion of those securities. This
prospectus may be used by the lender who receives the pledge of those
securities to sell shares of Common Stock if a loan is not repaid. The
selling stockholders have informed the Company that they have not
entered into any underwriting arrangement or other agreements with
brokers to transfer any or all of the Common Stock offered under this
prospectus.
The following table sets forth the name of each selling
stockholder, the number of shares of Common Stock held by the selling
stockholders before this offering (including shares issuable upon
exercise of optional), the number of shares of Common Stock to be sold
by the selling stockholders, and the number of shares owned by the
selling stockholders after this offering. For additional information
concerning the beneficial ownership of shares by certain of the selling
stockholders, see "BENFICIAL OWNERS OF SECURITIES".
<TABLE>
<C> <C> <C> <C>
Number Of
Shares Of
Common Stock Number Of Number Of
Owned Before Shares to be Shares Owned
Name Offering(1) Offered(2) After Offering
Neil Berman 320,000 300,000 20,000
Balzac, Inc. 575,100(3) 575,000(3) 100
Jeff Trilling 75,000 75,000 -0-
Greg Welch 75,000 75,000 -0-
James Wexler 100,000 100,000 -0-
John Raybin 25,000(4) 25,000(4) -0-
TOTALS 1,145,100 1,150,000 20,100
</TABLE>
(1) The number of shares owned before the offering includes all
shares underlying options, even if not currently exercisable.
(2) The number of shares of Common Stock to be sold assumes that the
selling stockholders sell all the shares of Common Stock being
registered.
(3) Includes 375,000 shares underlying warrants to purchase Common
Stock for $1.00 per share for three years. Also includes an additional
200,000 shares that underlie warrants to purchase common stock for $2.00
per share for the next three years. These warrants are to be issued
pursuant to a tentive settlement agreement with Balzac as decribed above
under "THE COMPANY- Legal Proceedings.
(4) Consists of 25,000 shares underlying options to purchase Common
Stock for $1.0312 per share until October 14, 2009.
RESCISSION OFFER
This Prospectus also concerns the Company's offer of rescission to
five persons (the "Rescission Offerees") who were inadvertently issued
shares in excess of those registered on a prior registration statement
on Form S-8.
Reason. In December 1997, the Company registered the issuance of
up to 500,000 shares of common stock to employees and consultants.
This registration was accomplished by filing a registration statement
on Form S-8 with the SEC. Through clerical errors and oversight, the
Company inadvertently issued 441,650 more shares (the "Overage Shares")
than were registered on that Form S-8. These shares were issued to the
Rescission Offerees at various rates from $.20 to $.69 per share in
consideration of services provided to the Company in the total amount
of $175,205. Although the Company believes that exemptions from
registration may be available with respect to the issuance of these
shares, the Company is offering to rescind the issuance of the Overage
Shares in an attempt to limit potential liability for sales of
unregistered securities. The Company is offering to issue shares
registered under the registration statement of which this Prospectus is
a part in exchange, on a one-for-one basis, for the shares previously
issued improperly.
Remedies. Potential remedies available to the Rescission Offerees
against the Company include claims for amounts by which they were
damaged as a result of the receipt of securities that were not
registered and seeking rescission of the sale of unregistered
securities to them. Each of these potential remedies involves making
the Rescission Offeree financially whole so that the Rescission
Offerees have not been damaged as a result of the receipt of
unregistered securities. There is no assurance that the Rescission
Offer will insulate the Company from exposure to any such remedies.
There also is no assurance that the SEC or state securities authorities
will not pursue fines or penalties from the Company.
Duration. The rescission offer will be open for a period of 30
days after delivery of this Prospectus and the form of release to each
Rescission Offeree.
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
Pursuant to Delaware law, the Company's Board of Directors has the
power to indemnify officers and directors, present and former, for
expenses incurred by them in connection with any proceeding they are
involved in by reason of their being or having been an officer or
director of the Company. The person being indemnified must have acted
in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company. The Company's Bylaws
grant this indemnification to the Company's officers and directors.
Insofar as indemnification for liability arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
Patton Boggs LLP, Denver, Colorado, acted as counsel for the
Company in connection with this offering, including the validity of the
issuance of the securities offered hereby.
EXPERTS
The audited financial statements of the Company appearing in this
Prospectus have been examined by Gordon, Hughes & Banks, LLP,
independent certified public accountants, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such
report and upon the authority of said firm as experts in accounting and
auditing.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act Of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. All statements
other than statements of historical fact included in this Prospectus,
including without limitation the statements under "PROSPECTUS SUMMARY",
"RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", and "BUSINESS AND PROPERTIES"
regarding the Company's financial position, business strategy, plans
and objectives of management of the Company for future operations and
capital expenditures, are forward-looking statements. Although the
Company believes that the expectations reflected in the forward-looking
statements and the assumptions upon which the forward-looking
statements are based are reasonable, it can give no assurance that such
expectations will prove to have been correct.
Additional statements concerning important factors that could
cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in the "RISK
FACTORS" section and elsewhere in this Prospectus. All written and
oral forward-looking statements attributable to the Company or persons
acting on its behalf subsequent to the date of this Prospectus are
expressly qualified in their entirety by the Cautionary Statements.
FINANCIAL INFORMATION
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountant
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for each of the years ended
December 31, 1998 and 1997
Consolidated Statements of Stockholders' (Deficit) for each of
the years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 1999
(Unaudited)
Consolidated Statements of Operations (Unaudited)
For the six months ended June 30, 1999 and 1998
Consolidated Statement of Shareholders' (Deficit)
For the nine months ended September 30,1999 (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited)
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
First Entertainment Holding Corp.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of
First Entertainment Holding Corp. and Subsidiaries as of December
31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' (deficit) and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of First Entertainment Holding Corp. and Subsidiaries as of
December 31, 1998 and 1997 and the results of operations and cash
flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
As discussed in Notes A and E to the consolidated financial
statements, the Company has suffered recurring losses from
operations, has a working capital deficiency of approximately $1.5
million and is in default on a substantial portion of its debt. The
Company has limited cash to pay for operations. In addition,
substantial amounts of debt become due in 1999 and there is no
assurance that the Company will have the cash to pay the debts when
they become due, or alternatively, to raise additional equity
funding or to successfully restructure the debts, both of which have
happened in the past. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are discussed in Note
A. The consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
As discussed in Note C to the financial statements, an error
resulting in the understatement of general and administrative
expenses and net loss of $258,000 for the year ended December 31,
1997 was discovered by the Company in 1999. Accordingly, an
adjustment has been made to general and administrative expense for
1997 and to capital in excess of par and retained deficit as of
December 31, 1998 and 1997.
Gordon, Hughes & Banks, LLP
March 17,1999, except for Note C as to which
The date is June 11, 1999
Englewood, Colorado
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
</CAPTION>
December 31, 1998 and 1997
1998 1997
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 109,450 $ 18,049
Trade accounts receivable, net
allowance for doubtful accounts of
$2,500 and $3,885, respectively 101,568 97,271
Note receivable, other 20,335
Note receivable officer 15,010 25,524
Stock subscription, receivable 25,000
Inventories 14,732 23,377
Prepaids and other current 28,508 22,127
- ----------------------------------------------------------------------
269,268 231,683
- ----------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 709,325 760,593
Building and leasehold improvements 532,257 532,257
Land 125,000 125,000
- ----------------------------------------------------------------------
1,366,582 1,417,850
Less accumulated depreciation
and amortization 845,810 874,067
- ----------------------------------------------------------------------
520,772 543,783
- ----------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated amortization
of $545,697 and $482,980, respectively 725,684 788,401
Note receivable 61,105
Other 4,126 3,760
- ----------------------------------------------------------------------
729,810 853,266
- ----------------------------------------------------------------------
TOTAL ASSETS $ 1,519,850 $1,628,732
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
</CAPTION>
December 31, 1998 and 1997
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 188,920 $ 172,575
Accrued liabilities 142,458 168,902
Accrued interest 430,107 394,340
Notes payable and current
portion of long-term debt 993,384 850,376
Notes payable, related parties 3,000 3,000
Net liabilities of discontinued operations 57,305 53,051
- -----------------------------------------------------------------------
1,815,174 1,642,244
- -----------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 187,699 431,120
- -----------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class A preferred stock, 1,500,000
shares authorized, 10,689 shares issued
and outstanding, liquidation value $15,000 10 10
Class B preferred stock, 1,000,000 shares
authorized, 13,040 and 91,147 shares
issued and outstanding 13 91
Class C preferred stock, 1,000,000
shares authorized no shares issued
and outstanding
Common stock, $.008 par value; authorized
50,000,000 shares; 9,610,170 and 6,412,304
shares issued and outstanding 76,882 51,299
Capital in excess of par value 15,924,086 15,205,897
Accumulated (deficit) (16,484,014)(15,701,929)
- -----------------------------------------------------------------------
(483,023) (444,632)
- -----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $1,519,850 $ 1,628,732
=======================================================================
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S <C> <C>
REVENUE
Live entertainment $ 1,353,667 $ 1,389,533
Radio 804,004 771,992
Video 213 50,239
Other 75,049 112,327
- -----------------------------------------------------------------------
2,232,933 2,324,091
- -----------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales, live entertainment 1,135,734 1,211,509
Cost of sales, radio 551,502 526,215
Cost of products sold, video 44 13,239
Impairment write downs 81,340 1,460,018
Depreciation and amortization 104,160 141,176
Management and administrative fees, affiliate 224,850 240,000
Selling, general and administrative 786,730 1,790,049
- -----------------------------------------------------------------------
2,884,360 5,382,206
- -----------------------------------------------------------------------
OPERATING (LOSS) FROM CONTINUING
OPERATIONS (651,427) (3,058,115)
- -----------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (104,725) (95,333)
Other, net 4,211 1,206
- ----------------------------------------------------------------------
(100,514) (94,127)
- -----------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (751,941) (3,152,242)
MINORITY INTEREST IN NET (LOSS) OF SUBSIDIARY 11,473
- ----------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATIONS (751,941) (3,140,769)
- -----------------------------------------------------------------------
DISCONTINUED OPERATIONS
(Loss) from discontinued operations,
including provision for operating losses
during phaseout period (30,144) (731,453)
- -----------------------------------------------------------------------
NET (LOSS) $ (782,085) $(3,872,222)
=======================================================================
NET (LOSS) PER COMMON SHARE, CONTINUING
OPERATIONS BASIC AND DILUTED $ (.10) $ (.52)
=======================================================================
NET INCOME (LOSS) PER COMMON SHARE,
DISCONTINUED OPERATIONS $ - $ (.12)
=======================================================================
NET (LOSS) PER COMMON SHARE,
Basic and Diluted $ (.10) $ (.64)
=======================================================================
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING BASIC AND DILUTED 7,967,926 6,026,318
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1998 and 1997
</CAPTION>
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares
Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
JANUARY 1, 1997 10,689 $ 10 0 $ 0 125,000 $125
Preferred stock
issued for:
Cash, net of
offering costs 47,067 47
Cancellation of
treasury stock
Cancellation of
preferred stock
in connection with
litigation settlement (125,000)(125)
Common stock
issued for:
Consulting services
Exercise of stock
options
Accrued Bonuses
Accounts Payable
Business acquisition 44,080 44
Common stock options and
Warrants
Amortization of deferred
compensation
Net loss
- -----------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 10,689 $ 10 91,147 $ 91 0 $0
Preferred Stock
issued for:
Cash 16,000 16
Common stock
issued for:
Cash, net of
offering costs
Consulting services
Accounts
Life insurance
premiums
Conversion from
preferred stock (95,387) (95)
Business acquisition
Exercise of warrant
Common stock
options and
Warrants issued
Net (loss)
- -----------------------------------------------------------------------
- -
BALANCES
DECEMBER 31,
1998 10,689 $10 11,760 $12 0 $ 0
=======================================================================
Common Stock Capital In Accumulated
Shares Amount Excess of (Deficit)
Par Value
<S> <C> <C> <C> <C>
BALANCES,
JANUARY 1,
1997 5,292,238 $ 42,338 $13,460,958 $(11,829,707)
Preferred stock
issued for:
Cash, net of
offering costs 262,703
Cancellation of
treasury stock (221,534) (1,772) (483,052)
Cancellation of
preferred stock
in connection
with litigation
settlement (124,875)
Common stock
issued for:
Consulting
Services 751,600 6,013 670,202
Exercise of stock
Options 150,000 1,200 73,800
Accrued Bonuses 420,000 3,360 254,240
Accounts Payable 20,000 160 13,040
Business acquisition 386,856
Common stock
options and
Warrants issued 692,025
Amortization
of deferred
compensation
Net loss (3,872,222)
- -----------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 6,412,304 $ 51,299 15,205,897 ($15,701,929)
Preferred Stock
issued for:
Cash 44,984
Common stock
issued for:
Cash, net of
offering costs 771,667 6,173 162,127
Consulting
Services 986 016 7,888 352,855
Accounts payable 83,750 670 49,493
Life insurance
Premiums 130,000 1,040 37,960
Conversion from
preferred
stock 1,176,333 9,411 (9,316)
Business
acquisition 50,000 400 13,100
Exercise of
Warrant 100 1 99
Common stock
options and
Warrants issued 66,888
Net (loss) (782,285)
- -----------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 9,610,170 $76,882 $15,924,087 ($16,484,014)
=======================================================================
Deferred Treasury Total
Compensation Stock
<S> <C> <C> <C>
BALANCES,
JANUARY 1,
1997 $ (45,807) $ (484,824) 1,143,093
Preferred stock
issued for:
Cash, net of
offering costs 262,750
Cancellation of
treasury stock 484,824
Cancellation of
preferred stock
in connection
with litigation
settlement (125,000)
Common stock
issued for:
Consulting
Services 676,215
Exercise of stock
Options 75,000
Accrued Bonuses 257,600
Accounts Payable 13,200
Business acquisition 386,900
Common stock
options and
Warrants issued 692,025
Amortization
of deferred
compensation 45,807 45,807
Net loss (3,614,222)
- -----------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 0 $ 0 ($444,632)
Preferred Stock
issued for:
Acquisition
of property 45,000
Common stock
issued for:
Cash, net of
offering costs 168,300
Consulting
Services 360,743
Accounts payable 50,163
Life insurance
Premiums 39,000
Conversion from
Preferred
stock 0
Business
acquisition 13,500
Exercise of
Warrant 100
Common stock
options and
Warrants issued 66,888
Net (loss) (782,085)
- -----------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 0 0 ($483,023)
=======================================================================
=
<CAPTION>
"See accompanying report of independent certified public accountants
and
notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (782,085) $(3,872,222)
Adjustments to reconcile net
(loss) to net cash used in operations
Depreciation and amortization 104,160 141,176
Impairment write downs 81,340 1,460,018
Assets write downs included in
discontinued operations 445,596
Litigation settlement 150,000
Loss on disposition of property and equipment 9,322
Issuance of stock for services and common
stock options and warrants, net 466,631 1,368,240
Amortization of deferred compensation 45,807
Minority interest in net loss of subsidiary (11,473)
Changes in operating assets and liabilities:
Receivables 31,317 (6,742)
Inventories 8,645 366
Other assets (6,747) (7,711)
Accounts payable 66,408 40,207
Accrued liabilities 22,823 (48,305)
Cash provided by discontinued operations 4,354
- ----------------------------------------------------------------------
NET CASH, PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,168 (295,043)
- ----------------------------------------------------------------------
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENTHOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
INVESTING ACTIVITIES
Capital expenditures (27,754) (20,620)
Advances to related parties (10,000)
Cash used in discontinued operations (41,786)
- -----------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (27,754) (72,406)
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on debt (100,413) (51,380)
Proceeds from issuance of stock
of subsidiary 50,000
Proceeds from issuance of common and
preferred stock, net 213,400 337,750
- ----------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 112,987 336,370
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 91,401 (31,079)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 18,049 49,128
- ---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 109,450 $ 18,049
=====================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 68,135 $ 25,798
=====================================================================
Income taxes paid $ 0 $ 0
=====================================================================
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Accounts payable and accrued expenses
converted into common stock $ 50,163 $ 270,800
=======================================================================
Issuance of preferred stock
for acquisitions $ 13,500 $ 386,900
=======================================================================
Note Payable issued in exchange for
preferred stock $ 0 $ 125,000
=======================================================================
Common stock and options and warrants
issued for services $ 427,631 $ 1,368,240
=======================================================================
Common stock issued for life
insurance premiums $ 39,000 $ 0
=======================================================================
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A NATURE OF BUSINESS AND GOING CONCERN
On December 15, 1997, First Entertainment, Inc. changed its state of
incorporation from Colorado to Nevada and changed its name to First
Entertainment Holding Corp. (the "Company" or "FEHC"). The change
was effected by a merger of First Entertainment, Inc. into First
Entertainment Holding Corp, a newly formed Nevada Corporation. Upon
completion of the merger, the Colorado Corporation ceased to exist.
The transaction was accounted for on a basis similar to a pooling of
interests with no change in the historical financial statements of
the Company. The newly formed Corporation had no operations prior to
the merger.
The Company was originally incorporated as a Colorado corporation on
January 17, 1985. The Company and its subsidiaries are involved in
entertainment through several media; its live entertainment segment
owns and operates a comedy club in Denver, Colorado and its radio
station, 100.7 "The Fox", operates in Gillette, Wyoming. In January
1998, the Company determined to discontinue the operations of its
retail segment.
During the period from inception (January 17, 1985) to December 31,
1998, the Company has incurred cumulative net losses of approximately
$16 million and, as of December 31, 1998, had an excess of current
liabilities over current assets of approximately $1.5 million and is
in default on approximately $386,000 notes payable. The Company has a
note payable due March 31, 1999 in the amount of $125,000. Although
the Company does not have the funds to pay this note it has received a
verbal commitment from the First National Bank of Gillette to provide
the financing to pay off the note. . The Company also has a note
payable due July 31, 1999 in the amount of $66,000 and unless the
terms are extended or the Company raises sufficient funding to pay the
note when it comes due, the Company may default on the note. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company is dependent upon obtaining
additional financing, and/or extending its existing debt obligations,
and/or obtaining additional equity capital and ultimately achieving
profitable operations. The Company has no arrangements in place for
such equity or debt financing and no assurance can be given that such
financing will be available at all or on terms acceptable to the
Company. Any additional equity or debt financing may involve
substantial dilution to the interests of the Company's shareholders as
well as warrants and options holders. If the Company is unable to
obtain sufficient funds to satisfy its cash requirements, it may be
forced to curtail operations, dispose of assets or seek extended
payment terms from its vendors. The accompanying consolidated
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Management's plans with regard to the Company's ability to continue as
a going concern include continued raising of equity financing in the
U.S. and/or international markets, restructuring of its debt
obligations and undertaking mergers or acquisitions to improve market
share or operational synergies and improving efficiency of operations.
There are no assurances that any of these events will occur or that
the Company's plan will be successful.
The Company does not have sufficient revenues to generate income from
operations; therefore, it is necessary for the Company to increase
revenues either by expansion or by acquisition or significantly reduce
its operating costs. The Company has been able to issue stock for
management and accounting services, thereby reducing the need for cash
to pay for operating expenses. If the Company would be unable to
issue stock for services, because there would be no liquidity for the
stock, this would have a severe impact upon the Company and its
ability to operate. The value of services paid by issuance of stock
was approximately $400,000 in 1998 and $676,000 in 1997. Net cash
provided by operations was $6,168 in 1998 and, unless operations
become more profitable, the Company most likely will not have
sufficient cash for use in operations through December 31, 1999.
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expense during the reporting periods. Actual
results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market
value (first-in, first-out basis). Inventories are comprised of
liquor supplies.
Property and Equipment
Production equipment, furniture and other
equipment are recorded at cost and depreciated using straight-line and
declining balance methods over the estimated useful lives of the
assets, ranging from three to fifteen years.
Leasehold improvements are recorded at cost and are amortized on a
straight-line basis over their estimated useful lives, but not in
excess of the lease term.
The cost and related accumulated depreciation and amortization of
assets sold or retired are removed from the appropriate asset and
accumulated depreciation and amortization accounts and the resulting
gain or loss is reflected in operations.
Maintenance and repairs are charged to operations as incurred and
expenditures for major improvements are capitalized.
License, Goodwill and Intangibles
Broadcast licenses, goodwill and
intangibles, recorded at cost, are amortized on a straight-line basis
over a period of 10 to 20 years.
Periodically the Company reviews the recoverability of its intangible
assets based on estimated undiscounted future cash flows from
operating activities compared with the carrying value of the
intangible assets. Should the aggregate future cash flows be less
than the carrying value, a write-down would be required measured by
the difference between the discounted future cash flow and the
carrying value of the intangible assets under SFAS No. 121.
Long Lived Assets
Long lived assets and identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
expected undiscounted future cash flow from the use of the assets and
its eventual disposition is less than the carrying amount of the
assets, an impairment loss is recognized and measured using the
asset's fair value or discounted cash flows.
Revenue Recognition.
Broadcast and ad fees are recorded as revenue
when the broadcast or ad is aired. Live Entertainment revenues are
recognized at the time of the performance, generally nightly. Retail
sales are recognized at the time the merchandise is sold and are net
of returns.
Net Loss Per Share
As of December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per
Share" (SFAS No. 128). This pronouncement provides a different method
of calculating earnings per share than was used in accordance with
Accounting Board Opinion (APB No. 15), "Earnings per Share". SFAS No.
128 provides for the calculation of "Basic" and "Dilutive" earnings
per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the entity. For all
prior periods, weighted average and per share information has been
restated in accordance with SFAS No. 128. The adoption of SFAS No.
128 did not effect earnings per share calculations for the year ended
December 31, 1997. For the years ended December 31, 1998 and 1997,
total stock options and stock warrants of 2,699,900 and 2,409,375 were
not included in the computation of diluted earnings per shares because
their effect was anti-dilutive, therefore basic and fully diluted
earnings per share are the same.
Concentration of Risk
Financial instruments which potentially expose
the Company to concentration of credit risk consist primarily of cash
equivalents and accounts receivable with the Company's various
customers. The Company establishes an allowance for doubtful accounts
based on factors surrounding the credit risk of specific customers,
historical trends and other information.
The Company maintains all cash in bank deposit accounts, which at
times may exceed federally insured limits. The Company has not
experienced losses in such accounts.
Reclassifications
Certain balances in the 1997 consolidated
financial statements have been reclassified in order to conform to the
1998 presentation. The reclassifications had no effect on financial
condition or results of operations.
Income Taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"). Temporary
differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years.
Deferred Compensation
Deferred compensation results from granting
stock options at option prices less than the fair market value of the
stock on the date of grant, under agreements with terms extending
beyond one year. Deferred compensation is initially charged to
stockholders' equity and amortized to expense over the term of the
related agreement.
Cash Equivalents
The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or
less to be cash equivalents.
Financial Instruments
The following methods and assumptions were
used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value;
Accounts Receivable, Accounts Payable and Accrued Liabilities
Fair values of accounts receivable, accounts payable, and accrued
liabilities are assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair value or they are receivable or
payable on demand.
Notes Payable
These notes substantially bear interest at a
floating rate of interest based upon the lending institutions' prime
lending rate. Accordingly, the fair value approximates their reported
carrying amount at December 31, 1998 and 1997.
Mortgage Notes
Estimated based upon current market borrowing
rates for loans with similar terms and maturities.
The estimated fair values of the Company's financial instruments
for continuing operations are as follows:
December 31, 1998 December 31, 1997
Financial Liabilities Carrying Fair Carrying Fair
Notes Payable Amount Value Amount Value
and Mortgage Notes $1,181,083 $1,181,083 $1,281,496 $1,281,496
Stock Option and Award Plans
The Company applies APB Opinion 25,
"Accounting for Stock Issued to Employees", and related
Interpretations in accounting for all stock option plans. Following
the guidance of APB Opinion 25, compensation cost has been
recognized for stock options issued to employees as the excess of
the market price of the underlying common stock on the date of the
grant over the exercise price of the Company's stock options on the
date of the grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires
the Company to provide pro forma information regarding net income as
if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed
in SFAS No. 123. To provide the required pro forma information, the
Company estimates the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing model.
Recent Accounting Pronouncements:
- ---------------------------------
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" is effective for financial statements with
fiscal years beginning after December 15, 1997. Earlier application
is permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted SFAS No.
130 for 1998 and it did not have a material effect on its financial
position or result of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" is
effective for financial statements with fiscal years beginning after
December 15, 1997. The new standard requires that public business
enterprises report certain information about operating segments in
complete sets of financial statements of interim and annual periods
issued to shareholders. It also requires that public business
enterprises report certain information about their products and
services, geographic areas in which they operate and their major
customers. The Company has adopted SFAS NO. 131 in 1998; but it did
not have a material effect on its results of operation for 1998 and
1997.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" is
effective for financial statements with fiscal years beginning after
December 31, 1997. Earlier application is permitted. The new
standard revise employers' disclosures about pension and other post
retirement benefit plans but do not change the measurement or
recognition of those plans. SFAS No. 132 standardizes the
disclosure requirements for pensions and other post retirement
benefits to the extent practicable, requires additional information
on changes in the benefit obligations and fair values of the plan
assets that will facilitate financial analysis, and eliminates
certain disclosures previously required but no longer useful. The
Company adopted SFAS No. 132 in 1998 and it did not have a material
impact on its results of operation.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established
standards for recognizing all derivative instruments including those
for hedging activities as either assets or liabilities in the
statement of financial position and measuring those instruments at
fair value. This Statement is effective for fiscal years beginning
after June 30, 1999. The Company has not yet determined the effect
of SFAS No. 133 on its financial statements.
The FASB recently issued Statement of Financial Accounting Standards
No. 134. "Accounting for Mortgage Backed Securities Retained after
the Securitization of Mortgage Loans Held by Mortgage Banking
Enterprises." (SFAS No. 134) SFAS No. 134 establishes new
reporting standards for certain activities of mortgage banking
enterprises that conduct operations that are substantially similar
to the primary operations of mortgage banking enterprises. This
statement is effective for the fiscal quarter beginning after
December 15, 1998. Management believes the adoption of this
statement will have no impact on the Company's consolidated
financial statements.
NOTE C RESTATEMENT OF FIANCIAL INFORMATION
- -------------------------------------------
The Company has restated its consolidated financial statements for
the year ended December 31, 1997. This action was taken as a result
of the Company identifying that it had not accounted for stock
warrants issued to Global Casinos in May 1997. The 1997
consolidated financial statements have been restated to account for
warrants issued to Global Casinos in accordance with SFAS 123
resulting in compensation expense of $258,000. All material
adjustments necessary to correct the financial statements have been
recorded. The impact of this adjustment on the Company's
consolidated financial results as originally reported is summarized
below:
<TABLE>
1997
----
As Reported As Restated
----------- -----------
<S> <C> <C>
Revenues $ 2,324,091 $ 2,324,091
- ----------------------------------------------------------------
Costs and Expense 5,124,206 5,382,206
Operating Loss from
Continuing Operations (2,800,115) (3,058,115)
- -----------------------------------------------------------------
Net Loss $(3,614,222) $(3,872,222)
- -----------------------------------------------------------------
Net Loss Per Share, continuing
operations, Basic and Diluted $(.48) $ (.52)
=================================================================
Net Loss Per Share, Basic and
Diluted $ (.60) $ (.64)
=================================================================
Accumulated Deficit at
End of Year $(15,443,928) $ (15,701,929)
=================================================================
Stockholders' Deficit, at
End of Year $(444,632) $(444,632)
=================================================================
</TABLE>
NOTE D ACQUISITIONS
- --------------------
Power Media
- -----------
In July, 1996, the Company issued 770,000 shares of its restricted
common stock, valued at $408,100, in exchange for 18,000 of the
25,000 then issued and outstanding shares of Power Media
Communications International, Inc. (Power Media), or 72% ownership.
Power Media was a substantially dormant company that had developed
the concept of selling infomercial products in kiosks primarily
located in retail malls.
The acquisition of Power Media in 1996 was accounted for as a
purchase and the purchase price in excess of net assets acquired
was allocated to goodwill. Amortization of goodwill was computed
on a straight-line basis over 10 years until its write-off in 1997.
In November 1996, a new entity was formed called "The Best Of As
Seen on TV", Inc. ("ASOTV") for the purpose of acquiring all of
the issued and outstanding common stock of Power Media and to
provide original incorporators with ownership in ASOTV. The
original incorporators of ASOTV were issued 464,000 shares of ASOTV
for par value ($.001 per share), which included 220,800 shares
issued to NMG, LLC, an entity owned by the wife of the president of
the Company. ASOTV then issued 1,010,000 shares of common stock to
the Company for their 18,000 shares of Power Media and issued
325,600 shares to an unrelated party for the remaining 7,000 shares
of Power Media and $150,000. In November 1996, ASOTV sold 100,000
shares of its common stock for $50,000. In July 1997, the Company
issued 100,000 shares of its common stock in exchange for 100,000
shares of ASOTV owned by NMG, LLC. As a result of the above
transactions, ASOTV owned 100% of Power Media and the Company owned
approximately 58% of ASOTV as of December 31, 1998 and 1997.
In March 1997, the Company terminated its unmanned kiosk
operations, which it started in November 1996, when the leases to
its first four locations were not renewed. Sales volumes at the
unmanned kiosk locations were not sufficient for profitable
operations. The Company turned its efforts to operating manned
kiosks in major retail malls. Each kiosk was approximately 250
square feet and sold the top 50 selling infomercial products.
Commencing August 1997, the Company opened six manned kiosk
locations in six retail malls located in the Denver metropolitan
area. The sales volumes for the manned kiosks were less than
projected and the operations were terminated January 31, 1998.
Although the Company believes the concept is viable, it currently
does not have the working capital necessary to further develop the
concept. The results of operations of ASOTV for the years ended
December 31, 1998 and 1997 are disclosed as discontinued
operations.
Global Internet Corp
- --------------------
On May 1, 1997, the Company entered into an agreement with Global
Casino, Inc. (Global Casino) to acquire 1,500,000 shares of common
stock of Global Internet Corp. ("Global Internet") owned by Global
Casino and a $375,000 note receivable from Global Internet owed to
Global Casino in exchange for 30,000 shares of FEHC Class B
Convertible Preferred Stock (Class B Stock). The 1,500,000 shares
of common stock represents 50.3% of the issued and outstanding
common stock of Global Internet. Each share of Class B stock is
convertible into 12.5 shares of FEHC restricted common stock.
Global Casino also received warrants to purchase 1,500,000 shares
of the Company's common stock at $1 per share. The warrant expires
May 1, 2002. At the time FEHC entered into the Agreement, FEHC did
not have a sufficient number of authorized but unissued shares of
common stock to allow for the conversion of the preferred stock to
common stock nor for the exercise of the warrants.
In addition, the acquisition of Global Internet required the
approval of the shareholders of FEHC. On December 5, 1997 the
shareholders of FEHC approved (i) the increase in the authorized
shares of FEHC common stock and (ii) the acquisition of Global
Internet Corp. For accounting purposes control of Global Internet
did not change until December 5, 1997. December 5, 1997 is
considered the acquisition date. The acquisition has been
accounted for as a purchase and the excess of purchase price over
net assets acquired was allocated to goodwill. The operations of
Global Internet from December 5, 1997 have been consolidated with
those of the Company.
In June 1997, FEHC also issued 14,080 of Class B convertible
preferred stock to two officers of Global Internet, in exchange for
$176,000 accrued but unpaid compensation. Global Internet owed the
two officers compensation under the terms of long term employment
agreements. For accounting purposes, the Class B convertible
preferred shares issued were recorded on December 5, 1997, the date
the shareholders of FEHC approved an increase in the authorized
shares of common stock.
Global Internet was in the process of developing a virtual internet
casino and had a Web Site Development and Maintenance Agreement
(Development Agreement) with Electronic Data Systems (EDS) and DDB
Needham to develop the web site for approximately $1,200,000, of
which $300,000 had been expended to date on the web site
development. FEHC was unable to obtain the financing needed to
complete the web site development and the Development Agreement was
terminated.
The ability of the Company to obtain the necessary financing to
commence operations of a virtual internet casino is uncertain and
as such the Company's investment in Global Internet was determined
by management to be impaired. Included in the accompanying
consolidated statements of operations for the year ended December
31, 1997 is an impairment write-off of approximately $558,000
representing the Company's investment in Global Internet.
NOTE E DISCONTINUED OPERATIONS
- -------------------------------
In January 1998, the Company determined to discontinue the
operations of ASOTV due to losses and lack of working capital to
further develop the concept. Accordingly, the assets of ASOTV were
written down to their estimated net realizable value resulting in a
write down of $490,000 included in the accompanying statement of
operations for the year ended December 31, 1997.
Revenues from discontinued operations were $54,300 and $174,800 for
1998 and 1997, respectively.
Summarized balance sheet data for the discontinued operations as of
December 31, 1998 and 1997 is as follows:
<TABLE>
<S> <C> <C>
1998 1997
ASSETS
Cash $ 1,246 $ 9,289
Accounts receivable 6,983
Inventory 66,482
Other 100
-----------------------------------------------------------------
Total current assets 1,246 82,854
Goodwill
Property, plant and equipment, net 8,673
-----------------------------------------------------------------
Total Assets 1,246 91,527
-----------------------------------------------------------------
LIABILITIES
Current liabilities 58,551 144,578
-----------------------------------------------------------------
Total Liabilities 58,551 144,578
-----------------------------------------------------------------
Minority Interest 0 0
-----------------------------------------------------------------
Net assets (liabilities)
of discontinued operations $ (57,305) $ (53,051)
======================================================================
</TABLE>
The Company is in default under the terms of approximately $386,000
of its debt obligations for non-payment. Substantially all of the
Company's assets are pledged as collateral to one or more
obligations. Notes that are not in compliance are classified as
current liabilities. Notes payable and long term debt is summarized
as follows:
<TABLE>
<S> <C> <C>
December 31,
-----------
1998 1997
---- ----
Notes payable, First National
Bank Gillette (1) $ 380,483 $ 422,152
Note payable to the
State of Wyoming(2) 300,000 300,000
Notes payable, litigation (7) 231,501 275,000
Mortgage note payable(3) 139,947 144,665
Note payable, creditor(5) 19,224 19,224
Various notes payable individuals
and companies(6) 56,685 66,572
-------------------------------------------------------------------
1,181,083 1,281,496
Less current portion 993,384 850,376
-------------------------------------------------------------------
Long-term debt $ 187,699 $ 431,120
======================================================================
</TABLE>
Future maturities of debt as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 993,384
2000 5,726
2001 56,484
2002 5,020
2003 5,120
Thereafter 115,349
-------
Total $1,181,083
==========
</TABLE>
(1) The Notes payable to First National Bank of Gillette are
renewed annually in November. Currently the notes bear
interest at 9% per annum and require monthly principal and
interest of $6,500. The notes are collateralized by
substantially all the assets of the radio station in Gillette,
Wyoming except for the real estate.
(2) In February 1989, the Company borrowed $300,000 from the
State of Wyoming for the purpose of purchasing equipment,
inventory and to provide working capital necessary to
establish a video duplicating facility. As of December 31,
1998, the Company had not yet established an operating
duplicating facility and was in violation of several of the
compliance requirements of this note. Although the note, by
its original terms, was not due until March 1, 1999, the State
of Wyoming deemed the note to be currently due as a result of
the violations of the compliance requirements. The note, with
default interest at 16.5 percent, is due in daily installments
of $150, and is collateralized by the Company's master tape
library. No principal and interest payments have been made
nor has the State of Wyoming demanded payment on the note.
(3) Note payable, trust; interest at 9.5%; monthly principal and
interest of $1,500; final payment due October 2012;
collateralized by real property.
(4) Note payable to mortgage company; interest at 8.015% per
annum; monthly principal and interest payments of $403 for 59
months with a balloon payment of $52,300 due May 15, 2000;
collateralized by real estate.
(5) Note payable to a trade creditor dated October 21, 1993;
interest at 10 percent; due on May 1, 1996; collateralized by
the Company's master tape inventory and subordinated to
previously filed liens.
(6) Various notes payable in default; due to various individuals
and companies with interest rates ranging from 10 to 21 percent
per annum.
(7) Notes payable due to two individuals in connection with
litigation settlements subsequent to December 31, 1997. The
first note for $125,000 bears interest at 9.5% per annum and is
due March 31, 1999 and are secured by two parcels of land in
Gillette, Wyoming on which the Company's radio station
operations are located. The second note for $150,000 bears
interest at 10% per annum and is payable in installments of
$25,000 for the first month and $5,000 per month thereafter
until July 15, 1999 at which time all unpaid principal and
interest are due. This note is secured by the stock of FEHC
wholly owned subsidiary, Quality Communications, Inc, which
operates the Company's radio station.
The weighted average interest rate on short-term borrowings was
13.49 for 1998 and 1997, respectively.
NOTE G SHOCKHOLDERS' DEFICIT
- ------------------------------
On December 15, 1997 First Entertainment, Inc. (FEI) (a Colorado
Corporation) was merged into First Entertainment Holding Corp.
(FEHC) (a Nevada Corporation) following a special shareholders
meeting on December 5, 1997 in which the shareholders approved a
name change and a change in the state of incorporation from
Colorado to Nevada. As a result of the merger, all of the issued
and outstanding shares of FEI were exchanged for the same amount of
shares of FEHC. FEHC is the surviving corporation and, effective
with the merger, FEI ceased to exist. FEHC has authorized capital
stock consisting of 50,000,000 shares of common stock, $.008 par
value and 5,000,000 shares of preferred stock, $.001 par value.
The Board of Directors has the authority to issue preferred shares
in series and determine the rights and preferences of each series.
A total of 1,500,000 shares of preferred stock have been designated
as Class A, 7% cumulative, non-participating convertible preferred
stock, and had a mandatory redemption on November 18, 1996. As of
December 31, 1998 the holders of the Class A Preferred Stock have
not demanded redemption.
Liquidation preference is approximately $15,000. Each class A
share may be converted into two shares of common stock. The Class
A Preferred Stock has not been redeemed as of December 31, 1998.
A total of 1,000,000 shares of preferred stock has been designated
as Class B, 6% cumulative dividend, paid quarterly, if and when
declared, redeemable by the Corporation at face value and each
share of class B is convertible into 12.5 shares of common stock.
The rights of the Class B shares shall be subordinate to Class A
shares.
A total of 1,000,000 shares of preferred stock has been designated
as Class C, non-dividend and each share is convertible into common
stock at a conversion price equal to the average 30 day bid price
of the common stock on the date of conversion. The rights of the
Class C shares shall be subordinate to Class A and Class B shares.
In connection with the acquisition of Global Internet Corporation,
the Company entered into an agreement with two officers of Global
Internet on June 16, 1997 whereby the Company issued 14,080 shares
of Class B convertible preferred stock in exchange for $176,000 of
debt owed to the two officers by Global Internet.
In 1997, the Company issued 751,600 shares of common stock for
consulting and other services valued at $676,215 (includes $252,000
in services from related parties) or an average of $.90 per share.
In 1997, the Company also issued 440,000 shares of common stock in
settlement of accrued bonuses to consultants and employees and
accounts payable totaling $270,800. Stock bonuses accrued for
related parties were $168,000.
In 1997, the Company sold 47,067 shares of Class B Convertible
Preferred Stock for $262,750, which was net of offering costs of
$39,750. The Company also issued 150,000 shares of common stock
upon exercise of common stock options receiving proceeds of
$75,000.
In 1997, the Company cancelled 221,534 shares of common stock held
as treasury of which 144,409 represented shares returned to the
Company in connection with a litigation settlement with Image
Marketing Group; 50,000 represented the cancellation of common
stock held by a bank as collateral on a note payable and 27,125
represented shares previously held by First Films, Inc.
In 1998, the Company sold 16,000 shares of Class B Convertible
Preferred Stock and 771,667 shares of common stock for $213,300
which is net of offering costs.
In 1998, the Company issued 1,116,016 shares of common stock for
consulting and other services valued at $399,743 (includes $225,000
in services from related parties) or an average of $.36 per share.
Common Stock Options In June 1994, the Company adopted a Non-
Qualified Stock Option Plan, under which the Company's Board of
Directors are authorized to issue options to purchase up to 62,500
shares of the Company's common stock to qualified employees, officers
and directors of the Company. The option price may be changed at the
discretion of the Board of Directors. No options have been issued
under this plan. During 1998 and 1997, the Company has also issued
other non-qualified stock options to non-employees under terms and at
prices deemed appropriate by the Board of Directors.
The following is a summary of the number of shares under option:
<TABLE>
Weighted
Average
Non-Qualifying Exercise Expiration
Stock Options Price Dates
<S> <C> <C> <C>
Balance, January 1, 1997 95,000 $ 3.49
Granted 400,000 .79 1999-2002
Exercised (100,000) .50
Expired/Rescinded (285,625) 2.39
- ---------------------------------------------------------------------
Balance, December 31, 1997 109,375 $ 2.91 1998-2002
- ---------------------------------------------------------------------
Granted 300,000 $ .40 1999
Exercised
Expired (9,375) 3.49
- ---------------------------------------------------------------------
Balance December 31, 1998 400,000 $ .5175 1999-2002
=======================================================================
</TABLE>
The following table summarized information about stock options
outstanding and exercisable as of December 31, 1998:
<TABLE>
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding & Contractual Exercise
From To Exercisable Life in Years Price
- -------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ .40 $ .40 300,000 0.50 $ .40
$ .50 $1.25 100,000 2.50 $ .87
--------------------------------------
400,000 1.00 $.5175
====================================================================
</TABLE>
Options issued to non-employees in 1998 and 1997 resulted in
compensation expense of $66,888 and $78,617 respectively, under
SFAS 123.
NOTE H COMMON STOCK WARRANTS
- ----------------------------
In connection with a settlement agreement between the Company and
Balzac, Inc, a warrant was issued to Balzac to purchase 500,000
shares of the Company's common stock at $1.00 per share.
The warrant, issued at fair market value, is exercisable for a
period of five years and expires April, 2002.The issuance of these
warrants to Balzac resulted in compensation expense of $315,453 in
1997 under SFAS 123. In 1998, Balzac exercised their option to
purchase 100 shares of common stock.
In connection with the private sale of Class B convertible
preferred stock, the Company granted to the Underwriter a warrant
to purchase 300,000 shares of the Company's common stock at $1.00
per share. The warrant, issued at fair market value, is for
consideration of future consulting services and expires July 1999.
The issuance of these warrants to the Underwriter resulted in
compensation expense of $33,434 in 1997 under SFAS 123.
In connection with the acquisition of Global Internet on May 1,
1997 Global Casino's was issued warrants to purchase 1,500,000
shares of common stock of the Company for $1.00 per share. The
warrants expire on May 1, 2002.
In addition, the two officers of Global Internet have the option,
for a period of five years, to exchange any or all of their
600,000 shares of common stock of Global Internet into FEHC common
stock at a rate of one share of FEHC for four shares of Global
Internet. In addition, for each share exchanged the officers of
Global Internet will receive one warrant to purchase one share of
FEHC common stock at $1.25 a share.
The Company has elected to continue with the accounting treatment
for stock options and warrants issued to employees under APB 25,
which is an intrinsic value-based method, and has adopted SFAS
123, which is a fair-value based method of accounting for stock
options. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option-pricing model
with the following weighted average assumptions, dividend yield of
0%, expected volatility of .1%, risk free interest rate of 6%, and
expected lives of 5 years for the stock award. No options were
issued to employees in 1998. Had compensation costs been
determined based on the fair value at the grant date for stock
option and stock warrant grants to employees consistent with the
method of SFAS No. 123, the Company's net loss from continuing
operations and net loss per share from continuing operations would
have increased as indicated below for the year ended December 31,
1997.
<TABLE>
<S> <C>
Net (loss) from continuing operations,
as reported ($2,882,769)
Net (loss) from continuing operations,
pro-forma ($2,898,513)
Net (loss) per share, continuing
operations basic and diluted, as reported ($.48)
Net (loss) per share, continuing
operations basic and diluted, pro-forma ($.48)
</TABLE>
NOTE I INCOME TAXES
- ---------------------
The tax effects of temporary differences and carryforward amounts
that give rise to significant portions of the deferred tax assets
and deferred tax liabilities as of December 31, 1998 and 1997 are:
<TABLE>
<S> <C> <C>
Deferred tax assets: 1998 1997
---- ----
Net operating loss carryforwards $6,009,000 $5,554,000
Property, equipment, other
assets, net (8,000) (6,000)
Litigation settlement 102,000
Discontinued operations (15,000) (181,000)
Other 24,000 88,000
--------------------------------------------------------------
Total gross deferred tax assets 6,010,000 5,557,000
Less valuation allowance (6,010,000) (5,557,000)
---------------------------------------------------------------
Net deferred tax assets $ 0 $ 0
=================================================================
</TABLE>
A valuation allowance has been recorded equal to the net deferred tax
asset, as management was not able to determine if it is more likely
than not that the deferred tax assets will be realized.
The valuation allowance increased $541,000 in 1998 and $1,157,000
in 1997.
The following summary reconciles the income taxes at the statutory
rate of 37% in 1998 and 1997 with the actual taxes:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Benefit computed at the statutory
rate-continuing operations $ (232,000) $ (1,068,000)
Discontinued operations (7,000) (89,000)
Valuation allowance 239,000 1,157,000
------------------------------------------------------------------
Provision for income taxes $ 0 $ 0
==================================================================
</TABLE>
As of December 31, 1998, net operating loss carryforwards were
approximately $16 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates through 2018.
NOTE J RELATED PARTY TRANSACTIONS
- ----------------------------------
The Company contracts out substantial administrative, management
and accounting functions to a company wholly owned by the former
president and a current director of the Company. Monthly fees for
such services were $21,000 for the period January 1, 1997 through
August 31, 1998, thereafter the fees were reduced to $14,000.
Total annual fees paid by cash and by the issuance of common stock
for 1998 and 1997 were $225,000 and $252,000 each year,
respectively.
In July 1997, the Company acquired 100,000 shares of common stock
of ASOTV from NMG, LLC, an entity owned by the wife of the
president, in exchange for 100,000 shares of common stock of the
Company. The value of the common stock issued to NMG, LLC,
$50,000, has been classified as officer compensation in the
accompanying consolidated statements of operations.
Consulting fees were paid to the wife of the President for the year
ended December 31, 1997 in the amount of $5,500. The amounts paid
to the wife of the President have been classified as officer
compensation in the accompanying consolidated statement of
operations.
In 1997 and 1998, the President was advanced approximately $25,000
which is being repaid in monthly installment of approximately
$1,000.
NOTE K COMMITMENTS
- --------------------
Lease Commitments The Company has long-term operating lease
agreements for office space, building and certain equipment. Future
minimum lease payments required under long-term leases in effect at
December 31, 1998 are as follows:
<TABLE>
Minimum Rent SubleaseRent Net
<C> <C> <C> <C>
1999 $165,109 $81,888 $83,221
2000 153,541 81,888 71,653
2001 147,414 81,888 65,526
2002 115,769 54,592 61,177
2003 63,105 63,105
Thereafter 257,679 257,679
</TABLE>
Rent expense for continuing operations was $191,795 and $176,765 in
1998 and 1997. Rent expense for discontinued operations was $7,449
in 1998 and $77,365 in 1997.
Commencing September 1998 the Company subleased its executive space
under the terms of a four-year sublease. The Company has not been
relieved of its primary obligation due under the original lease
with the lessor. Monthly payments due under the lease are $6,394.
The sublease calls for payments of $6,824 per month for 48 months
commencing September 1, 1998. Both the primary lease and the
sublease expire August 2002.
In January 1997 the Company completed its expansion of the comedy
club which included significant leasehold improvements. The lessor
agreed to finance the leasehold improvement totaling $150,000. The
$150,000 note payable bear interest at 12% and is due in 108
monthly installments of $2,278 commencing February 1, 1999.
NOTE L LITIGATION
- -------------------
FEHC knows of no litigation pending, threatened, or contemplated,
or unsatisfied judgments against it, or any proceedings of which
FEHC or any of its subsidiaries is a party, except as specified
below. FEHC 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 May 1997, David Spolter and Faige Spolter (Spolter) filed a
lawsuit against FEHC in the Superior Court of the State of
California. The plaintiffs alleged various federal and state
securities violations and sought recovery of their $75,000
investment plus damages. On July 1, 1998, Spolter and FEHC entered
into a settlement agreement whereby FEHC agreed to pay Spolter
$150,000. $25,000 was paid upon execution of the Settlement
Agreement and the remaining $125,000 shall be payable in monthly
installments of $5,000 a month until July 15, 1999 at which time
all unpaid principal and interest shall become due and payable.
The note bears interest of 10% per annum. FEHC agreed to pledge
all of its stock of its wholly owned subsidiary, Quality
Communications, Inc. and to provide security interest in all assets
of Quality Communications, Inc. In the event of default, the
amount due shall be $180,000 plus interest at 10% from June 1,
1998, less amounts previously paid. Any unpaid amounts shall be
due and payable upon sale of the radio station in Gillette,
Wyoming.
In 1997, Sharon K. Doud filed a civil action against FEHC, AB
Goldberg and Quality Communications for breach of contract, fraud
and misrepresentation for failure to convert Class C Convertible
Preferred Stock into 91,240 shares of common stock. In April 1998,
a settlement agreement was reached between FEHC and Sharon Doud
whereby FEHC was required to pay $6,150 in legal fees, issue a
promissory note in the principal sum of $125,000 bearing interest
at 9.5% per annum due March 31, 1999 and cancel the Class C
Convertible Preferred Shares.
During 1997 and 1998, the Company, certain officers and directors
of the Company and other unrelated parties received requests for
information from the U.S. Securities and Exchange Commission
("SEC") related to an investigation begun by the SEC during 1997
into various matters. The Company has since been notified by the
Central Regional Office of the SEC that it plans to recommend to
the Commission that an enforcement action be instituted against the
Company, its president and a former director for failure to make
required filings and failure to report certain information required
by the securities laws. The Company believes it has made all
required filings to date and believes it has disclosed all
information required by the securities laws. There can be no
assurance as to the final outcome of the investigation or the
impact, if any, on the operations of the Company.
NOTE M FOURTH QUARTER ADJUSTMENTS
During the fourth quarters of 1998 and 1997, the Company recorded
the following year-end adjustments, which it believes are material
to the results of that quarter:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Write-down of assets, including
goodwill of discontinued
operations of ASOTV to net
realizable value $ 490,000
Impairment write down of Balzac
note receivable $ 81,000 $ 902,000
Impairment write down of Global
Casino's investment $ 558,000
Compensation for issuance of
common stock options and warrants $ 692,025
</TABLE>
NOTE N SETTLEMENTS AND RESCISSIONS
- ----------------------------------
Balzac, Inc.
- ------------
In April 1996, the Company acquired certain assets from Balzac,
Inc., ("Balzac") a private company, which manufactures and
distributes toys, including a product line of toy balls. The
assets and rights acquired consisted of an exclusive license for
Australia, inventory of Balzac toys and various other rights.
During 1996, a dispute arose between the Company and Balzac and
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.
In April 1997, Balzac and the Company entered into an agreement
whereby Balzac would buy back the Australian Licensing Agreement
for $800,000 and would 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 was to be
repaid over forty months at 8% per annum. The $1,000,000 was to be
repaid to the Company through the sale, by Balzac, of 1,000,000 of
the Company's shares of common stock owned by Balzac.
The ability of Balzac to sell all 1,000,000 shares held by Balzac
at a price of $1.00 to repay its obligation was determined by
management to be unlikely. As of December 31, 1997 the note
receivable from Balzac was determined to be impaired and was
written down to its net realizable value of $81,344 resulting in an
impairment loss of $902,018. As of December 31, 1998 the note
receivable was determined to be further impaired and was written
down to its net realizable value of $42,000 resulting in a loss of
$39,340. Subsequent to year-end Balzac informed the Company that
it had filed Chapter 11 Bankruptcy proceedings. Management
determined the note receivable was unlikely to be collected and the
remaining $42,000 was written off as of December 31, 1998.
NOTE O OTHER BUSINESS DEVELOPMENTS
- ----------------------------------
On September 15, 1998, the Company entered into a definitive
agreement with SportsNet, Inc. (SNI) The effective date of the
Agreement will be ten days after the following two events have
occurred; (i) SNI has completed a financing of not less than
$1,000,000 and (ii) the Company has entered into a contract with a
credit card processor for participants in the Games satisfactory to
both the Company and SNI. The Agreement, if and when it becomes
effective, will continue in effect as long as the Company has a
valid internet gaming license issued by the Commonwealth of
Dominica or will terminate upon revocation of such license by the
Commonwealth of Dominica.
As of March 19, 1999, SNI had not completed a financing of
$1,000,000 and the Company terminated the definitive agreement
NOTE P SUBSEQUENT EVENTS
- ------------------------
In March, 1999 the Board of Directors authorized the issuance of
options to the president, each member of the Board of Directors and
a consultant to purchase up to 3,050,000 shares of common stock at
prices ranging from $.21 per share to $.53 per share. The exercise
price is equal to the closing bid price for the Company's common
stock on the date of the grant. The exercise of options for
1,200,000 shares is contingent on the closing bid price of the
Company's common stock of at lease $1.00 on the last trading day
for 1999. The exercise of options for 1,000,000 shares is
contingent upon the execution of definitive agreements with two
prospective companies that the Company is currently negotiating
with. If definitive agreements are not executed by December 31,
1999 the options for 1,000,000 shares expire.
On March 17, 1999 the Company signed a letter of intent with Global
Games Corp. (Global Games) for the licensing of Global Games'
sports book software and related technology. Under the terms of
the agreement Global Games will receive a percentage of the net
gaming revenue for the licensing of its software of the Company.
Consummation of this transaction is subject to the completion to a
definitive agreement and approval by the Board of Directors of both
companies. Under the letter of intent, Global Games will provide
all technical service and support. The gaming site will be
operated from the Commonwealth of Dominica and will be accessible
on a play for fun basis from North America. The Company is unable
to predict if or when the agreement will be signed and the
transaction will be consummated.
On March 20, 1999, the Company signed a letter of intent with EMNet
Corp ("EMNet") to form a joint venture and create a significant
Internet based website business for "Comedy" products based around
the affiliation and content derived from a circuit of the leading
comedy clubs in America. Revenue streams would be generated
through providing Internet marketing services to member clubs,
producing regular sponsored live exclusive programming on the
Internet and develop a pay-per-view model, and through the sale of
comedy CD's and direct downloads, associated merchandise and
admissions to live performances at member clubs. The closing of
this transaction will be subject to negotiating a definitive
agreement, approval by the Board of Directors of both companies,
completion of a detailed business plan, completion of the required
agreements with America On Line ("AOL") and the signing of a
minimum of 5 member clubs.
NOTE Q SEGMENT INFORMATION
- -----------------------------
Financial information by industry segments for the years ended
December 31, 1998 and 1997 is summarized as follows:
<TABLE>
Live
Radio Video Entertainment
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $ 804,004 $ 213 $1,353,667
Revenue affiliated
Operating income (loss),
continuing operations 173,883 169 231,442
Total assets 1,240,090 960,980 444,095
Depreciation and
Amortization 78,619 6,597
Capital expenditures 3,705 24,049
Interest Expense 50,417 23,771 4,316
FOR THE YEAR ENDED
DECEMBER 31, 1997
Revenue unaffiliated $771,992 $ 50,239 $ 1,389,533
Revenue affiliated
Operating income (loss),
continuing operations 104,000 (31,732) 193,471
Identifiable assets 1,317,535 0 337,063
Depreciation and
Amortization 87,100 35,525 4,105
Capital expenditures 10,144 0 5,224
Interest Expense 54,577 33,206 4,625
Other
Segments Elimations Consolidated
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $ 75,049 $2,232,933
Revenue affiliated 175,956 (175,956)
Operating income (loss),
continuing operations (1,056,761) (651,427)
Total assets 1,193,262(1,357,597) 1,519,850
Depreciation and
Amortization 18,944 104,160
Capital expenditures 27,754
Interest Expense 26,221 104,725
FOR THE YEAR ENDED
DECEMBER 31, 1997
Revenue unaffiliated $112,327 0 $2,324,091
Revenue affiliated 175,956 (175,956)
Operating income (loss),
continuing operations (3,323,854) (3,058,115)
Identifiable assets 1,318,719 (1,344,585) 1,628,732
Depreciation and
Amortization 14,446 141,176
Capital expenditures 5,252 20,620
Interest Expense 3,394 95,333
</TABLE>
Other segments represent the operations of the parent company,
which is primarily responsible for incurring general and
administrative expenses. Identifiable assets are essentially
investments in subsidiaries, which are eliminated in
consolidation.
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
</CAPTION>
September 30,
1999
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 232,453
Accounts receivable trade, net
of allowance 127,827
Note receivable, officer 10,710
Prepaid salaries 46,635
Inventories 18,299
Other current assets 24,529
- ---------------------------------------------------------------------
460,453
- ---------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 758,467
Building and leasehold improvement 682,257
Land 125,000
- ----------------------------------------------------------------------
1,565,724
Less accumulated depreciation 901,589
- ---------------------------------------------------------------------
664,135
- ---------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated
Amortization 657,994
Licensing fees99,500
Other 24,984
- --------------------------------------------------------------------
782,478
- --------------------------------------------------------------------
TOTAL ASSETS $ 1,907,066
====================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Unaudited)
</CAPTION>
September 30,
1999
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit):
CURRENT LIABILITIES
Accounts payable $ 137,327
Accrued liabilities 172,746
Accrued interest 440,883
Notes Payable and current portion
of long-term debt 866,541
Notes payable, related parties 3,000
Net liabilities of discontinued operations 55,934
- --------------------------------------------------------------------
Total current liabilities 1,676,341
- --------------------------------------------------------------------
LONG TERM DEBT, NET OF CURRENT PORTION 320,909
- --------------------------------------------------------------------
MINORITY INTEREST -
- --------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class A preferred stock, 10,689 shares
issued and outstanding 11
Class B preferred stock 0 and 11,760
shares issued and outstanding 0
Class C preferred stock no shares issued 0
Common stock, $.008 par value; authorized
50,000,000 shares;
11,966,646 and 9,610,170 shares issued 95,855
Capital in excess of par value 20,079,506
Accumulated (deficit) (18,670,875)
Deferred compensation (1,594,680)
- ---------------------------------------------------------------------
(90,184)
- ---------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) $ 1,907,066
====================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended
September 30, September 30,
1999 1998
<S> <C> <C>
REVENUE:
Live Entertainment $ 1,213,826 $ 941,682
Radio 619,508 587,305
Internet 9,072 -
Video - 213
Other 106,529 37,161
- -----------------------------------------------------------------------
1,948,935 1,566,361
- -----------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales - live
Entertainment 1,111,519 813,937
Cost of sales - radio 444,147 417,861
Cost of sales- internet 347,214 -
Cost of products sold - video 45
Impairment writedowns 15,000 -
Depreciation and amortization 92,441 74,897
Management and
administrative fees, Affilates 116,000 182,000
Selling, general and
Administrative 1,897,709 550,870
- -----------------------------------------------------------------------
4,050,400 2,078,950
- -----------------------------------------------------------------------
OPERATING LOSS FROM CONTINUING
OPERATIONS (2,101,465) (512,589)
OTHER INCOME (EXPENSE)
Interest expense (89,319) (55,079)
Other 3,923 1,059
- -----------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS,
BEFORE MINORITY INTEREST (2,186,861) (566,720)
MINORITY INTEREST IN NET LOSS
OF AFFILIATES
- -----------------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS (2,186,861) (566,720)
DISCONTINUED OPERATIONS
Income (Loss) from
discontinued operations (20,756)
- -----------------------------------------------------------------------
NET INCOME (LOSS) $(2,186,861) $(587,476)
=======================================================================
PER SHARE DATA: Basic and Diluted
Net Income (loss) per share,
continuing operations,
Basic and Diluted (.21) $ (.08)
Net Income (loss) per share,
discontinued operations * *
Net Income (loss) per
common share,
Basic and Diluted (.21) $ (.08)
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 10,654,619 7,566,412
=======================================================================
<CAPTION>
* Less than $.01 per share
"See accompanying notes to consolidated financial statements"
</CAPTION>
</TABLE>
[CAPTION]
<TABLE>
FIRST ENTERTAINMENT HOLDING CORP.AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Nine Months Ended September 30,1999 (Unaudited)
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCES, 10,689 $10 11,760 $12 0 $0
JANUARY 1,1999
Common stock issued
For:
Conversion from (11,760) (12)
Preferred stock
Consulting services
Cash, net of offering
Costs
Exercise of stock
Options
Account Payable
Common stock options
And warrants issued
Amortization of
Deferred compen-
sation
Net (loss)
------------------------------------------------------
BALANCES
September 30,1999
(UNAUDITED) 10,689 $10 0 $0 0 $0
=======================================================
Capital In
Common Stock Excess of Accumulated
Shares Amount Par Value (Deficit)
<S> <C> <C> <C> <C>
BALANCES, 9,610,170 $76,882 $15,924,087 ($16,484,014)
JANUARY 1,1999
Common stock issued
For:
Conversion from
Preferred stock 147,000 1,176 (1,164)
Consulting services 581,584 4,414 775,299
Cash, net of offering
Costs 50,000 400 29,600
Exercise of stock
Options 1,312,500 10,500 636,375
Account Payable 310,392 2,483 91,856
Common stock options
And warrants issued 2,623,453
Amortization of
Deferred compen-
sation
Net (loss) (2,186,861)
------------------------------------------------------
BALANCES
September 30,1999
(UNAUDITED) 11,966,646 $95,855 $20,079,506 ($18,670,875)
=======================================================
Deferred Treasury
Compensation Stock Total
<S> <C> <C> <C>
BALANCES, $0 $0 ($483,023)
JANUARY 1,1999
Common stock issued
For:
Conversion from
Preferred stock 0
Consulting services 779,713
Cash, net offering
Costs 30,000
Exercise of stock
Options 646,875
Account Payable 148,695
Common stock options
And warrants issued (2,623,453) 0
Amortization of
Deferred compen-
sation 1,028,773 1,028,773
Net (loss) (2,186,861)
------------------------------------------------------
BALANCES
September 30,1999
(UNAUDITED) ($1,594,680) $0 ($90,184)
=======================================================
<CAPTION>
"See accompanying reports of independent certified public accountants
and notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
</CAPTION>
For the nine months For the nine
months
ended September 30, ended September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (2,186,861) $ (587,476)
Adjustments to reconcile net
income (loss) to net cash
from operations
Depreciation and
Amortization 92,441 74,897
Impairment writedowns 15,000 39,340
Common stock issued
for services 627,225 396,566
Common stock options 1,028,773 66,888
Loss on disposal of property 7,714
Changes in operating assets
and liabilities
(Increase) decrease in
Receivables (21,959) 10,927
Inventories (3,567) 9,777
Other current assets 3,979 (7,650)
Other assets (20,858) 2,983
Increase (decrease) in
Accounts payable 42,746 (93,532)
Accrued liabilities 41,064 (7,168)
Cash provided by
discontinued operations (1,371) 38,714
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: (383,388) (48,020)
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - net (49,142) (8,658)
Investments and other 22,381
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (26,761) (8,658)
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (143,723) (75,187)
Proceeds from issuance of common stock - 25,000
Proceeds from issuance of common stock
and preferred stock 676,875 213,400
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 533,152 163,213
- -------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ 123,003 $ 106,535
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 109,450 18,049
- -------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 232,453 $ 124,584
===================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
Supplemental Schedule of Noncash
Investing and Financing Activities 1999 1998
<S> <C> <C>
Accounts payable converted to common stock $ 94,339 $ 50,163
===================================================================
Accounts payable issued for Web site
Development $ 90,000
====================================================================
Note payable issued for Leasehold
Improvements $ 150,000
===================================================================
Common stock issued for services $ 627,225 $ 396,566
===================================================================
Common stock options issued
for services $ 1,028,773 $ 66,888
===================================================================
Common stock issued for life
insurance premiums $ - $ 30,000
===================================================================
Issuance of preferred stock for
License 13,500
===================================================================
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies:
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The accompanying financial information is Unaudited but
includes all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary to present fairly
the information set forth. The consolidated financial statements
should be read in conjunction with the notes to the consolidated
financial statements which are included in the Annual Report on Form
10-KSB of the Company for the fiscal year ended December 31, 1998.
The results for the interim period are not necessarily indicative of
results to be expected for the fiscal year of the Company ending
December 31, 1999. The Company believes that the three month and
nine month report filed on Form 10-QSB is representative of its
financial position and its results of operations aand changes in
cash flows forthe periods ended September 30, 1999 and 1998.
In June 1999, the Company amended and refiled its Form 10KSB for the
year ended December 31, 1998 restating certain amounts in 1998 and
1997 due to an accounting error discovered in 1997. This Form 10-
QSB includes the restated balances from December 31, 1998. The
restatement did not impact the net loss for the three months or nine
months ended September 30, 1999.
New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" is effective for financial statements with
fiscal years beginning after December 15, 1997. Earlier application
is permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted SFAS No.
130 for 1998 and it did not have a material effect on its financial
position or result of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" is
effective for financial statements with fiscal years beginning after
December 15, 1997. The new standard requires that public business
enterprises report certain information about operating segments in
complete sets of financial statements of interim and annual periods
issued to shareholders. It also requires that public business
enterprises report certain information about their products and
services, geographic areas in which they operate and their major
customers. The Company has adopted SFAS No. 131 in 1998; but, it
did not have a material effect on its results of operation for 1998
and 1997.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" is
effective for financial statements with fiscal years beginning after
December 31, 1997. Earlier application is permitted. The new
standard revises employers' disclosures about pension and other post
retirement benefit plans but does not change the measurement or
recognition of those plans. SFAS No. 132 standardizes the
disclosure requirements for pensions and other post retirement
benefits to the extent practicable, requires additional information
on changes in the benefit obligations and fair values of the plan
assets that will facilitate financial analysis, and eliminates
certain disclosures previously required but no longer useful. The
Company adopted SFAS No. 132 in 1998 and it did not have a material
impact on its results of operation.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established
standards for recognizing all derivative instruments including those
for hedging activities as either assets or liabilities in the
statement of financial position and measuring those instruments at
fair value. This Statement is effective for fiscal years beginning
after June 30, 1999. The Company has not yet determined the effect
of SFAS No. 133 on its financial statements.
The FASB recently issued Statement of Financial Accounting Standards
No. 134. "Accounting for Mortgage Backed Securities Retained after
the Securitization of Mortgage Loans Held by Mortgage Banking
Enterprises." (SFAS No. 134) SFAS No. 134 establishes new reporting
standards for certain activities of mortgage banking enterprises
that conduct operations that are substantially similar to the
primary operations of mortgage banking enterprises. This statement
is effective for the fiscal quarter beginning after December 15,
1998. Management believes the adoption of this statement will have
no impact on the Company's consolidated financial statements.
"YEAR 2000 PROBLEM". The Company is aware of the issues associated
with the programming code in existing computer systems as the
millenium(Year 2000) approaches. The "Year 2000" problem is
pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize properly
date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company has
determined to purchase new accounting software which is Year 2000
compatible and has evaluated all other computer and computer related
systems to ensure they will operate beyond December 31, 1999. The
new software will be in place by December 31, 1999 and will cost
less than $10,000.
2. Impairment Writedowns
Balzac, Inc.
In April 1996, the Company acquired certain assets of Balzac, Inc.
("Balzac") a private company which manufactures and distributes
toys,
including a product line of toy balls. The assets and rights
acquired consisted of: an exclusive license for Australia, inventory
of Balzac toys and various other rights.
During 1996, a dispute arose between the Company and Balzac and
Balzac asserted a violation of the Purchase 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% annum. The $1,000,000 was to be
repaid to the Company through sale, by Balzac, of 1,000,000 shares
of the Company's common stock owned by Balzac.
The ability of Balzac to sell all 1,000,000 shares held by Balzac at
a
price of $1.00 to repay its obligation was determined by management
to be unlikely. As of December 31, 1997 the note receivable from
Balzac was determined to be impaired and was written down to its net
realizable value of $81,344 resulting in an impairment loss of
$902,018. As of December 31, 1998 the note receivable was
determined to be further impaired and was written down to its net
realizable value of $42,000 resulting in a loss of $39,340.
Subsequent to December 31, 1998 the Company was informed by Balzac
that it had filed Chapter 11 Bankruptcy proceedings. Management
determined the note receivable was unlikely to be collected and the
remaining $42,000 was written off as of December 31, 1998.
Pursuant to a Bankruptcy Court Order dated April 13, 1999 Balzac
sold 885,000 shares of the Company's common stock between May, 1999
and July, 1999 receiving proceeds of approximately $2,056,000. The
shares sold by Balzac pursuant to the Court Order are the shares
subject to the April, 1997 Agreement between Balzac and the Company.
As of July 19,1999 Balzac is still in possession of 90,1000 shares
of the Company's common stock and warrants to purchase 500,000
shares of common stock at $1.00 per share.
Pursuant to the Bankruptcy Court Order, the proceeds from the sales
of the common stock is held in escrow subject to a later
determination by the Bankruptcy Court as to the respective extent,
priority and validity of claims to the proceeds. The Company
believes that it is a secured creditor and has secured rights to the
proceedings from the sale of the common stock. The ultimate
disposition of the Company's claim will depend on the outcome of
bankruptcy proceeds, which is uncertain at this time.
3. Stockholders Equity
In November, 1999 the Board of Directors approved the name change of
the Company to F2 Network Group, Inc. The name change is subject to
shareholder approval.
During the nine months ending September 30, 1999, the Company issued
846,976 shares of common stock for consulting services and employee
compensation valued at approximately $673,861 of which $94,339 was
for prior accrued services and $41,508 was for prepaid services. In
addition, the Company sold 50,000 shares restricted common stock in
a private placement offering resulting in net proceeds of $30,000
and received $646,875 from the exercise of 1,312,500 common stock
options.
In March, 1999 the Board of Directors authorized the issuance of
options to the president, each member of the Board of Directors and
a consultant to purchase up to 3,050,000 shares of common stock at
prices ranging from $.21 per share to $.53 per share. The exercise
price was equal to the closing bid price for the Company's common
stock on the date of the grant. The exercise of options for
1,200,000 shares was contingent on the closing bid price of the
Company's common stock of at least $1.00 on the last trading day for
1999 and the exercise of options for 950,000 shares was contingent
upon the execution of two separate definitive agreements by December
31, 1999. In September 1999, the Board of Directors determined to
cancel 2,075,000 options issued in March, 1999. Mr. Goldberg, a
director, opposed this resolution by the Board. Mr. Goldberg's
counsel has stated that it is Mr. Goldberg's, position that the
Company does not have the right to cancel options previously issued
to Mr. Goldberg and that Mr. Goldberg does not intend to relinquish
those options. Of the total 2,075,000 options cancelled,
1,000,000 were issued to Mr. Goldberg.
In May 1999, the Board of Directors authorized the issuance of stock
options to each Board of Director as Director compensation. Each
Director has options to purchase 250,000 shares of common stock at
$1.34 on January 1, 2000, January 1, 2001 and January 1, 2002. For
the options to vest each current Director must be a Director on the
anniversary dates noted above. In August 1999, a new director was
elected to the Board of Directors and he was granted options to
purchase 250,000 shares of common stock at $1.89 per share on
January 1, 2000, 2001 and 2002.
The Company has elected to continue with the accounting treatment
for stock options and warrants issued to employees under APB 25
which is an intrinsic value-based method, and has adopted SFAS 123,
which is a fair value based method of accounting for stock options.
For the period ended September 30, 199 the Company recognized
compensation of $1,028,773 for options granted during that period
that were accounted for in accordance with SFAS 123 and APB 25 and
deferred compensation of $1,594,680 for option compensation
attributable to future periods.
4. Income Taxes
The tax effects of temporary differences and carryforward amounts
that give rise to significant portions of the deferred tax assets
and deferred tax liabilities as of December 31, 1998 and 1997 are:
<TABLE>
Deferred tax assets: 1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 6,009,000 $ 5,466,000
Property and Equipment (8,000) (6,000)
Litigation Settlement 102,000
Discontinued operations (15,000) 181,000
Other 24,000 88,000
- --------------------------------------------------------------------
Total gross deferred tax assets 6,010,000 5,469,000
Less valuation allowance (6,010,000) (5,469,000)
- --------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment
- --------------------------------------------------------------------
Net deferred taxes $ -0- $ -0-
====================================================================
A valuation allowance has been established to reflect management's
evaluation that it is more likely than not that all of the deferred
tax assets will not be realized.
The valuation allowance increased $541,000 in 1998 and $1,069,000 in
1997.
As of December 31, 1998, net operating loss carryforwards were
approximately $16 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates though 2018.
5. Other Business Developments
EMNet Corp.
On March 20, 1999, the Company signed a letter of intent with EMNet
Corp ("EMNet") to form a joint venture and create a significant
Internet based website business for "Comedy" products based around
the affiliation and content derived from a circuit of the leading
comedy clubs in America. Revenue streams would be generated through
providing Internet marketing services to member clubs, producing
regular sponsored live exclusive programming on the Internet and
develop a pay-per-view model, and through the saale of comedy CD's
and directdownloads, associated merchandise and admissions to live
performances at member clubs.
Under the terms of the letter of intent EMNet would be responsible
for supplying all necessary internet requirements including but not
limited to i) building and maintaining the "Comedy" website, ii)
providing an account executive to drive the business online, run the
AOL advertising and promotion and live entertainment programming,
iii) develop and implement the online advertising and iv) provide
all necessary technology requirements.
The Company would be responsible for supplying all necessary content
for the website which shall include but not be limited to i)
providing a minimum of five member comedy clubs as members
sufficient to provide critical mass, ii) a high profile comic to
host the site as spokesperson, iii) a series of live events which
could be broadcast on Internet radio or video cast and iv) supply
comedy news and other content.
The closing of this transaction will be subject to negotiating a
definitive agreement by May 31, 1999 and commencing business by June
30, 1999, approval by the Board of Directors of both companies,
completion of a detailed business plan, completion of the required
agreements with America On Line ("AOL") and the signing of a minimum
of 5 member clubs. The Company is unable to predict if or when the
agreement will be signed and the transaction will be consummated.
As of the date of this filing the parties hhave not been able to
come toterms of a definitive agreement and it seems unlikely that
they will.
Softec Systems Caribbean, Inc,
On March 23, 1999 a wholly owned subsidiary of the Company,
Kensington Investments, Inc., entered into an agreement with Softec
Systems Caribbean Inc, (Softec) a wholly owned subsidiary of Starnet
Communications International Inc., to license its internet casino
software to the Company.
The Company will be supplied with a customized, full service
Internet gaming system, including virtual casino games, a sportsbook
with real-time odds feed from Las Vegas and Europe, and simulated
horse and dog racing. The Company's customers will be able to place
wagers via a secure, on line financial transaction system. Softec
will supply all hardware, software, that is Year 2000 complaint, and
an appropriate connection to the Internet with sufficient bandwidth
to properly operate the licensed software.
The Agreement commenced March 30, 1999 upon payment of $10,000 by
the Company. The Company is required to pay Softec a one time set
up fee of $100,000, of which $10,000 was paid upon signing of the
Agreement, $10,000 is due May 30, 1999 and $10,000 is due for eight
consecutive months commending August 30, 1999. The Company shall
pay Softec a licensing fee ranging from 25% of net monthly revenue
to 12.5 % of net monthly revenue but not less than $25,000 a month.
The Company has not made the payment required on May 30,1999.
The Agreement shall be in effect for one year and shall be
automatically renewed indefinitely with additional one year terms
unless the Company gives written notice of termination at least 45
days prior to the end of any one year period.
The Company is responsible for obtaining and maintaining all
necessary licenses, as required by the Antigua Free Trading Zone,
Antigua, West Indies, for all the operations of an Internet Casino
and an Internet Sportsbook operation. As of October 15 Company's
subsidiary has not yet been issued its internet gaming license from
Antigua, West Indies, which is required to commence wagering on its
internet site.
Since the Company has not received a favorable opinion from outside
legal counsel regard internet gaming the Company has decided to
terminate this licensing agreement.
Global Games-Bingo
On August 2, 1999 the Company entered into a limited use software
license agreement whereby the Company would be permitted to use the
software to allow Bingo to be played for free on the internet.
Revenues generated from advertising on the Bingo for free web site
would be split whereby the Company would receive 75% and Global
Games Corp would receive 25%. In addition, the Company would issue
10,000 shares for consulting fees related to software set-up and
installation. The code required to run the software has not been
transferred to the Company as such the Company is unable to complete
the transaction.
ET&T
On May 3, 1999 the Company entered into a joint venture agreement
with eConnect and Electronic Transaction Technologies (ET&T) to
bring to market its patented ATM smart card devices for electronic
e-commerce transactions, taking internet transactions from credit to
cash.
The name of the joint venture is Intragate.com and the sole purpose
shall be to develop and exploit the e-commerce cash transfer
technology and to arrange for necessary financing.
In accordance with the joint venture agreement each joint venture
partner shall contribute a best efforts financing commitment for up
to
50% of the costs to develop, produce, and exploit the technology
which is estimated to be $200,000. In addition, ET&T will
contribute its rights, title and interest in and to the technology.
The joint venture net profits and losses shall be allocated 50% to
each joint venture partner.
The Company was granted a non-exclusive license to use the ET&T
technology for e-connect sites that the Company owns, operates or
licenses and all fees associated with the non-exclusive license
shall be waived.
As part of the Agreement the Company granted an option to ET&T to
purchase 500,00 shares of the Company's common stock at $.83 per
share and ET&T has granted an option to the Company to purchase
500,00 shares of ET&T at $.63 per share. Both options shall expire
on December 31, 2000.
As of the date of this filing the joint venture has had no activity
in either development, exploitation or fund raising activities.
Uproar Entertainment
On May 5, 1999 the Company entered into an agreement with Uproar
Entertainment (Uproar) for the production and maintenance of a web
site and the sale of Uproar products on the web site.
The Company shall design and construct, at its own expense, a web
site and provide hosting and marketing for the site and will offer
Uproars products for sale. Uproar will be responsible for
fulfilling and shipping all sales order generated through the web
site. The Company will pay $8.00 per CD and $6.00 per cassette
ordered to Uproar. The Company will receive all proceeds from the
sale of products on the web site and remit to Uproar on a monthly
basis the cost of products sold. The agreement shall be for a
period of five years and is renewable by mutual consent of both
parties.
All That Media
On May 10, 1999 the Company entered into an agreement with a newly
formed rich media development company called "All That Media" to
acquire a controlling interest in that All That Media by issuing a
option to its shareholders that allow the former shareholders to
purchase 500,000 shares of common stock of the Company at $.75 per
share. The option to acquire All That Media was exercisable
commencing January 1, 2000 and will expire April 30, 2000. In
June, 1999 the Company exercised its option to acquire "All That
Media". The consideration for the acquisition was the option given
to its shareholders for 500,000 shares of the Company's common stock
at $.75 per share. The options expire on October 10, 2001. The
value of the options pursuant to FAS 123 was $355,000 which has been
recorded as compensation in the accompanying statement of operations
as "All That Media" was a start-up company with no revenue,
proprietary rights or any other assets for which the acquisition
costs could be attributable to pursuant to APB 16.
All That Media was a company that specialized in rich media
development, internet portal development and internet advertising.
The Company had contracted with the principals of All That Media for
web site development, internet portal development and internet
advertising for the various new internet businesses the Company
intended to commence.
In June 1999, the Company acquired a start-up retail website
development company called EDRON Associates by issuing options to
its former shareholders to purchase 300,000 shares of common stock
of the Company at $1.03. The options are exercisable for a period
of two years. EDRON was a start-up company with little revenue, but
significant relationships with local ISP's for hosting and site
development.
Concurrent with the acquisition of EDRON the Company formed a new
entity called First 2 Market, Inc. and both EDRON and All That Media
were merged into First 2 Market. The value of the options to
acquire EDRON pursuant to FAS 123 was $152,400 of which $114,300 has
been recorded as compensation in the accompanying statement of
operations and $38,100 has been recorded as deferred compensation in
the accompanying balance sheet. EDRON was a start-up company with
little revenue and no proprietary or intangible assets for which the
acquisition costs could be attributable to pursuant to APB 16.
Poker Races Joint Venture
On May 16, 1999 the Company signed a letter of intent with Poker
Races (a partnership) to form a joint venture. The closing of this
transaction is subject to completion of due diligence procedures,
negotiation and execution of a definitive joint venture agreement
and approval of the transaction by the Board of Directors of the
Company and the partners of Poker Races.
In accordance with the letter of intent, the Company would be
obligated to provide a prominent link on the Company's home page
linked to a URL designated by Poker Races. The Company will promote
and advertise Poker Races throughout the Company's portal and
related sites. Poker Races would be obligated to provide all
software to play Poker Races and track all financial transactions.
All profits and expenses shall be allocated 25% to the Company and
75% to Poker Races.
As of the date of this filing the letter of intent had terminated.
Air Travel E-Commerce
On May 24, 1999 the Company entered into an agreement with Air
Travel Discounts, Inc. (ATD) to provide the business of selling
travel over the internet.
Per the terms of the Agreement, ATD will include content and
products, the domain name, airdisc.com, and would fulfill and
process all orders generated through the web site. The Company
would provide banner advertising from its internet site promoting
ATD. Commissions earned from fulfillment originated from the
Company's sites will be allocated 75% to ATD and 25% to the Company.
As of the date of this filing ATD has not provided the content and
products as required by the Agreement, as such the agreement is not
in effect.
Healthnet International
On May 18, 1999 the Company entered into a letter of intent with
Healthnet International, Inc. (Healthnet) to provide health related
products over the internet.
Under the terms of the letter of intent, Healthnet would be
responsible for a health related e-commerce site, pricing and
commissions for all health related products. The Company would
provide space on the Company Go2Market web page, and banner
advertising on the Company's web pages.
Consummation of this transaction is subject to a number of
conditions including completion of due diligence procedures,
completion of a definitive agreement, completion of a web site by
Healthnet and approval of the transaction by the Board of Directors
of both companies.
As of the date of this filing the letter of intent had expired.
Fighting Bull
On June 14, 1999 the Company and Fighting Bull Technologies, LLC
(FTB) entered into a letter of intent whereby FTB would license 3D
software to create a virtual internet community. The Company would
test and market the 3-D technology.
Consummation of this transaction is subject to a number of
conditions consisting of completion of the development of the 3-D
technology, completion of a definitive agreement, completion of a
licensing agreement and approval by the Board of Directors of both
Companies.
In August, 1999 the letter of intent expired and the parties have
not moved forward to negotiate a definitive agreement.
E-Commerce Partners
In May and June, 1999 the Company signed agreements with various e-
commerce partners whereby the Company would provide a link from its
web site to the e-commerce partners web site. The Company would
also provide space on its Go2Market web page that would represent
banner advertising for the e-commerce partner. The Company would
retain a portion of the revenues from the orders fulfilled by the e-
commerce partners from traffic originating from the Company's web
site. All e-commerce partner agreements are for a period of one
year.
Coleman and Company Securities, Inc.
On July 7, 1999 the Company signed an agreement with Coleman and
Company Securities, Inc. to act as the Company's exclusive
investment advisor, exclusive private placement agent and investment
banker for a period of one year.
As compensation for these services Coleman would receive a
commission of 13% for any public or private placement financing and
a warrant to purchase 500,000 shares of the Company's common stock
at $.875 per share. The warrants are exercisable for a period of
five years and would have certain registration rights for a period
of two years. In addition, Coleman would earn a fee in connection
with a merger, acquisition or sale of the Company.
First 2 Interviews
On July 7, 1999 the Company entered into an agreement with Krutchie,
Inc. whereby Krutchie would provide a minimum of 2 edited celebrity
interviews for the Company's web site on a weekly basis. The
agreement is for a period of two years. As compensation, Krutchie
will receive options to purchase 100,000 shares of common stock at
$1.63. The option is exercisable for a period of two years and will
carry piggy-back registration rights for a period of six months from
the date of the agreement.
E-Commerce Web-Site Development
In July 1999 the Company signed an agreement with Smith-Gardner, a
developer of e-commerce software to build web sites for Smith-
Gardner clients that license their e-commerce software. Smith-
Gardner has subsequently decided to produce these websites
themselves.
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers that effect transactions in these
securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
FIRST ENTERTAINMENT HOLDING CORP.
1,591,650 Shares of Common Stock
TABLE OF CONTENTS
PROSPECTUS SUMMARY
RISK FACTORS
PRICE RANGE OF COMMON STOCK
DIVIDEND POLICY
THE COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENTS
EXCUTIVE COMPENSATION
BENEFICIAL OWNERS OF SECURITIES
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES
DESCRIPTION OF SECURITIES
INACTIVE TRADING OF THE
COMMON STOCK
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
RESCISSION OFFER
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION
LEGAL MATTERS
EXPERTS
DISCLOSURE REGUARDING FORWARD-
LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS
FINANCIAL INFORMATION
SELLING STOCKHOLDER
AND COMPANY RESCISSION OFFER
PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers.
Section 78.7502(3) of the Nevada General Corporation Law (the
"Nevada Code") provides for mandatory indemnification by a corporation of
expenses, including attorneys' fees, incurred by a director or officer in
connection with any proceeding brought by reason of his position as a
director or officer, so long as he was successful, on the merits or
otherwise, in defense of a proceeding.
In addition, Section 78.7502(1) of the Nevada Code permits a
corporation to indemnify a person who is party to a proceeding or
threatened proceeding, other than an action by or in the right of the
corporation (a "Derivative Action"), because of his status as a director,
officer, employee or agent of a corporation if "he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful."
In a Derivative Action or threatened Derivative Action, Section
78.7502(2) of the Nevada Code permits indemnification if the person acted
in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation. However, no
indemnification is allowed if the person is ultimately adjudged to be
liable to the corporation unless a court of competent jurisdiction rules
that, in view of the facts and circumstances of the case, the person is
fairly and reasonably entitled to indemnification.
The Company's articles of incorporation provide that directors and
officers shall be indemnified to the full extent permitted by the Nevada
Code. The Company's bylaws provide that no director or officer shall be
liable to the Company for his acts or omissions resulting in a loss to
the Company, except in cases where the act or omission resulted from his
willful misconduct, willful neglect or gross negligence. The bylaws also
provide that the Company may purchase and maintain liability insurance on
behalf of any director, officer, employee or agent regardless of whether
he may be indemnified pursuant to other provisions of the bylaws.
Item 25. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in
connection with the registration of the securities being offered. The
Selling Security Holders will not pay any of the following expenses.
</TABLE>
<TABLE>
<C> <C>
Registration and filing fee $ 463
Printing(1) $ 5,000
Accounting fees and expenses(1) $ 2,500
Legal fees and expenses(1) $ 10,000
Miscellaneous(1) $ 1,037
Total(1) $ 19,000
(1) Estimated
Item 26. Recent Sales Of Unregistered Securities.
The Company completed the offering of 47,067 shares of its Class B
Convertible Preferred Stock in September 1997 to a limited number of
persons pursuant to exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act") and/or
Rule 506 of Regulation D under the Securities Act. The Company
received aggregate proceeds of $262,750 in this offering.
The Company issued options to purchase 150,000 shares of Common
Stock in December 1996 and January 1997 to two persons pursuant to an
exemption from registration in accordance with Section 4(2) of the
Securities Act. The Company received proceeds of $75,000 in this
offering.
The Company issued 16,000 shares of Class B Convertible Preferred
Stock to one person in June 1998 pursuant to an exemption from
registration under Section 4(2) of the Securities Act. The Company
received proceeds of $45,000 in this transaction.
The Company completed an offering of 771,667 shares of Common
Stock to a limited number of offerees in September 1998 pursuant to an
exemption from registration pursuant to Section 4(2) of the Securities
Act and/or Rule 506 of Regulation D under the Securities Act. The
Company received proceeds of $168,300 in this offering.
The Company completed an offering of 280,000 shares of Common
Stock to a limited number of offerees in August 1999 pursuant to an
exemption from registration in accordance with Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D under the Securities
Act. The Company received total proceeds of $220,000 in this offering.
At various times during 1999, the Company issued a total of
1,082,500 shares of Common Stock to a limited number of persons upon
the exercise of stock options previously granted to those persons. The
issuance of these shares and the previous grant of the options were
made pursuant to exemptions from registration under Section 4(2) of the
Securities Act. The Company received total proceeds of $448,215 in
these transactions from the exercise of the options.
Item 27. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
</TABLE>
<TABLE>
<C> <C>
Number Description
3.1 Articles Of Incorporation (A)
3.3 Bylaws (A)
5.1 Opinion of Patton Boggs LLP concerning the legality of the
securities being registered
10.1 Form of Agreement between the Company and the shareholders
of All That Media, Inc.
10.2 Agreement dated July 7, 1999 between the Company and
Coleman and Company Securities, Inc.
10.3 Form of Agreement between the Company and Yahoo, Inc.
10.4 Asset Purchase Agreement Inc. dated September 21, 1999
between W3, Inc. (a subsidiary of the Company) and Brian M.
Encke.
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit
5.1)
23.2 Consent of Gordon, Hughes & Banks, LLP
24.1 Power of Attorney (included in Part II of Registration
Statement)
</TABLE>
(A) A complete copy of the Company's Articles of Incorporation as
currently in effect and all amendments thereto was filed as Exhibit
89.3.1 to the Registrant' Form 10-K for the fiscal year ended December
31, 1989, and a complete copy of the Company's Bylaws as currently in
effect was filed as Exhibit 86-3(c) to the Company's Registration
Statement on Form S-18 (Registration No. 33-9163-D) and are
incorporated herein by reference thereto.
Item 28. Undertakings.
1. The Company hereby undertakes:
(a) to file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in Registration Statement (or the most recent post-
effective amendment thereof); and
(3) to include any additional or changed material information on the
plan of distribution.
(b) That for determining liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof;
(c) To file a post-effective amendment to remove from
registration any of the securities being registered which remain unsold
at the end of the offering.
3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the option of the
Securities And Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or a controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or a controlling person in
connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2
and authorized this Registration Statement to be signed on its behalf
by the undersigned, in the City of Denver, State of Colorado, on
FIRST ENTERTAINMENT HOLDING CORP.
Dated: December 1, 1999 By: /s/Douglas R. Olson
Douglas R. Olson
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors of the Registrant, by virtue of their signatures appearing
below to this Registration Statement hereby constitute and appoint
Douglas R. Olson or Howard Stern, and each or either of them, with full
power of substitution, as attorney-in-fact in their names, place and
stead to execute any and all amendments to this Registration Statement
in the capacities set forth opposite their name and hereby ratify all
that said attorney-in-fact and each of them or his substitutes may do
by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
the Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
Dated: December 1, 1999
A.B. Goldberg
Director
Dated: December 1, 1999 /s/Michael Marsowicz
Michael Marsowicz
Director
Dated: December 1, 1999 /s/Douglas R. Olson
Douglas R.Olson
President, Principal Executive
Officer, Principal Financial Officer, and
Director
Dated: December 1, 1999 /s/Philip C. Puccio
Philip C.Puccio
Director
Dated: December 1 , 1999 /s/William Rubin
William Rubin
Director
Dated: December 1, 1999 /s/Howard Stern
Howard Stern
Director
EXHIBIT INDEX
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
<TABLE>
<C> <C>
Number Description
3.1 Articles Of Incorporation (A)
3.3 Bylaws (A)
5.1 Opinion of Patton Boggs LLP concerning the legality of the
securities being registered
10.1 Form of Agreement between the Company and the shareholders
of All That Media, Inc.
10.2 Agreement dated July 7, 1999 between the Company and
Coleman and Company Securities, Inc.
10.3 Form of Agreement between the Company and Yahoo, Inc.
10.4 Asset Purchase Agreement Inc. dated September 21, 1999
between W3, Inc. (a subsidiary of the Company) and Brian M.
Encke.
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit
5.1)
23.2 Consent of Gordon, Hughes & Banks, LLP
24.1 Power of Attorney (included in Part II of Registration
Statement)
(A) A complete copy of the Company's Articles of Incorporation as
currently in effect and all amendments thereto was filed as Exhibit
89.3.1 to the Registrant' Form 10-K for the fiscal year ended December
31, 1989, and a complete copy of the Company's Bylaws as currently in
effect was filed as Exhibit 86-3(c) to the Company's Registration
Statement on Form S-18 (Registration No. 33-9163-D) and are
incorporated herein by reference thereto.
EXHIBIT 5.1
Patton Boggs LLP
1660 Lincoln Street
Suite 1900
Denver, Colorado 80264
(303) 830-1776
November 30, 1999
First Entertainment Holding Corp.
5495 Marion Street
Denver, CO 80216
Gentlemen and Ladies:
We have acted as counsel for First Entertainment Holding Corp., a
Nevada corporation (the "Company"), in connection with preparation of
the Company's Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933, as amended, concerning
registration of the transfer of 1,884,935 shares of the Company's $.008
par value common stock (the "Common Stock") by certain stockholders of
the Company (the "Selling Stockholders"). These shares consist of (1)
575,000 shares of Common Stock issued by the Company to Selling
Stockholders in private placement transactions pursuant to exemptions
from federal and state registration requirements, (2) 868,285 shares
issuable upon the exercise of options and warrants to purchase Common
Stock, and (3) 441,650 shares of Common Stock that may be issued in a
rescission offer (the "Rescission Offer") to five persons who
previously received shares in transactions that were not registered.
We have examined the Certificate Of Incorporation and the Bylaws
of the Company and the record of the Company's corporate proceedings
concerning the registration described above. In addition, we have
examined such other certificates, agreements, documents and papers, and
we have made such other inquiries and investigations of law as we have
deemed appropriate and necessary in order to express the opinion set
forth in this letter. In our examinations, we have assumed the
genuineness of all signatures, the authenticity of all documents
submitted to us as originals, photostatic, or conformed copies and the
authenticity of the originals of all such latter documents. In
addition, as to certain matters we have relied upon certificates and
advice from various state authorities and public officials, and we have
assumed the accuracy of the material and the factual matters contained
herein.
Subject to the foregoing and on the basis of the aforementioned
examinations and investigations, it is our opinion that the shares of
Common Stock being transferred by the Selling Stockholders as described
in the Registration Statement have been legally issued and are fully
paid and non-assessable and that the shares to be issued upon the
exercise of the options and warrants and pursuant to the Rescission
Offer, if any, will have been legally issued, and will constitute fully
paid and non-assessable shares of the Company's Common Stock.
We hereby consent (a) to be named in the Registration Statement
and in the prospectus that constitutes a part of the Registration
Statement as acting as counsel in connection with the offering,
including with respect to the issuance of securities offered in the
offering; and (b) to the filing of this opinion as an exhibit to the
Registration Statement.
This opinion is to be used solely for the purpose of the
registration of the Common Stock and may not be used for any other
purpose.
Very truly yours,
/s/ PATTON BOGGS LLP
PATTON BOGGS LLP
PB: ALT/FBB
EXHIBIT 10.1
AGREEMENT
THIS AGREEMENT, consisting of three (3) pages, is made and entered
this _____ day of June, 1999, by and between All That Media, Inc., a
Florida corporation ("All That Media"), and First Entertainment.Com, a
Nevada corporation ("FTET").
WHEREAS, All That Media, by and through its principals, Michael
Marsowicz ("Marsowicz") and Robert Fuchs ("Fuchs"), provides creative,
marketing, promotion, and public relations services and materials, and
desires to provide such services and materials to FTET for a fee; and
WHEREAS, FTET desires to engage All That Media to provide such
services and materials on the terms and conditions hereinafter stated
and desires to purchase all shares, rights, and interests in All That
Media, Inc., a Florida Corporation;
NOW, THEREFORE, in consideration of their mutual promises made
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree
as follows:
1. All That Media will provide services and materials to or for FTET
in connection with the construction, development, operation, promotion,
and marketing of FTET's Portal and its Interactive Website, or as FTET
and All That Media may otherwise agree in writing.
2. FTET agrees that on or before December 26, 1999, FTET will transfer
to or authorize the issuance of 250,000 options of common stock with a
strike price of $.75. These shares shall carry a legend endorsement
restricting their sale under Rule 144. The 250,000 options represent
consideration for 100% of all stock in All That Media.
3. All services and materials of any nature to be provided by All That
Media to or for FTET shall be approved in advance, orally or in
writing, by an authorized representative of FTET. Any service or
material of any nature provided or obtained by All That Media for FTET
which will result in a charge to FTET in excess of $500.00 shall
require prior approval by FTET.
4. All services and materials reasonably required by All That Media
for its services to or for FTET hereunder, and which All That Media
does not maintain or provide in-house, shall be billed directly to FTET
at the net rate to All That Media from the vendor(s), when and as such
services and materials are provided.
5. On the 15th day of May, June, and July 1999, FTET shall fund a
service and material cost retainer, in Shares of S-8 Stock of FTET
equal to the sum of $5,000.00, payable to the principals of All That
Media, Marsowicz and Fuchs, to whom FTET shall deliver the Certificates
for the said Shares of Stock of FTET. All That Media and FTET shall
establish a normal billing cycle, and all charges incurred by FTET for
Services and materials provided by All That Media shall be charged
against the retainer balance at the time of billing. If and when the
retainer balance is exhausted, FTET shall be liable to pay the said
principals of All That Media, in S-8 stock of FTET, for the outstanding
balance due, when and as All That Media normally bills FTET.
6. Although letterhead, copies, drafts, reports paste-ups, and other
such documents with the name of FTET are the property of FTET, it is
understood and agreed that any resulting, underlying creative and
technical products, processes and systems developed by All That Media
for FTET hereunder shall be, and remain, the property of All That
Media.
7. This Agreement commences as of the date hereof, and continues until
terminated by either Party upon thirty (30) days written notice to the
other Party. In the event and at the time that FTET becomes the sole
shareholder of all of the issued and outstanding shares of the Common
Stock of All That Media, this Agreement shall be null and void.
8. All That Media may not assign any of its rights or delegate any of
its duties hereunder without the prior written consent of FTET.
9. This Agreement shall bind and inure to the benefit of the Parties
hereto and their respective heirs, successors and assigns.
10. This Agreement supercedes all prior agreements, written or oral,
by and between the Parties hereto relating to the subject matter of
this Agreement. This Agreement may not be modified, amended or
discharged, in whole or in part, except by an agreement in writing
signed by the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement, by and through their authorized undersigned representatives,
the day and year first above-written.
FIRST ENTERTAINMENT.COM ALL THAT MEDIA, INC.
By:__________________________________By:____________________________
Title: Title:
EXHIBIT 10.2
July 7, 1999
First Entertainment Holding Corp.
7887 East Belleview Avenue
Suite 1100
Englewood, Colorado 80111
ATTN: Mr. A.B. Goldberg, President/CEO
Dear Mr. Goldberg:
This letter sets forth the Agreement by and among First
Entertainment Holding Corp. and its subsidiaries and its affiliates
("FTET") (the "Company") and Coleman and Company Securities, Inc. and
its affiliates ("Coleman") with respect to the engagement of Coleman to
act as the Company's exclusive investment advisor, exclusive private
placement agent and exclusive investment banker.
In connection with its engagement hereunder, this letter Agreement
shall serve as Coleman's intention to utilize its best efforts to
effect the following:
1. Attempt to introduce the Company and act as a liaison to the
financial community.
2. Attempt to raise capital for the Company through a "best
efforts" Regulation D Private Placement Offering of securities in a
debt or equity structure to fulfill the Company's overall business
plan, including but not limited to funding of possible acquisition
candidates.
3. Introduce to the Company possible merger & acquisition
candidates.
4. Evaluate the Company's possible merger & acquisition candidates.
5. Review the business and operation of the Company and its
historical and projected financial condition.
6. Assist the Company in listing its public shares on larger
exchanges.
7. Provide such other investment banking and advisory services to
the Company as requested, throughout the term of this Agreement.
8. Assist in the efficient dissemination of the Company's
information to the investment community.
9. Follow the Company through stock research analysis.
Notwithstanding the foregoing, the intent herein described shall
not obligate Coleman to effect any public or private financing
for the Company. Any such obligation shall be conditioned in its
entirety upon the execution and delivery by Coleman of an Agency
or Underwriting Agreement satisfactory to Coleman.
Term of Engagement. Coleman and Company will act as the exclusive
placement agent, exclusive investment advisor and exclusive investment
banker for a period of twelve (12) months from the date of the
execution of this engagement agreement.
Compensation.
1. As compensation for being an advisor to FTET, Coleman will
receive from the Company, upon execution of this Agreement a non-
refundable retainer of Ten thousand dollars ($10,000.00) to be paid
directly to Coleman from the Company and then an additional non-
refundable retainer of five thousand dollars ($5,000.00) every thirty
(30) days from the date of the effective date of this Agreement for a
period of six (6) months. Coleman will receive, within 30 days from
the effective date of this Agreement, a warrant (the "Warrant") with a
cashless exercise feature that permits Coleman to acquire 500,000
shares of FTET's common stock at a purchase price of $.875 per share at
any time during the five (5) year period commencing on the effective
date of this Agreement.
2a. Coleman shall be entitled, 90 days after the execution of
this Agreement, to "piggy back" registration rights for a period of two
(2) years from the date of this Agreement, pursuant to which the
Company agrees to register the shares underlying the FTET Warrants
detailed herein, on any registration statement filed by FTET. The
Company shall send to Coleman all of Coleman's warrants aforementioned
above within thirty (30) days of effective date of this Agreement,
together with a "piggy back" registration rights agreement therefor.
All of the common stock issuable upon exercise of the Warrants of
Coleman's total common stock compensation will be proportionately
adjusted for stock splits, stock dividends and reclassifications.
These same warrants discussed above, will have anti-dilution protection
against the issuance of additional stock (with the exception of stock
issued for employee stock option plans) up until the effectiveness of
the registration statement covering the shares of the common stock
issuable from Coleman's Warrants.
2b. Coleman shall be entitled to one demand registration
right on Form S-3 or other suitable form with respect to all shares of
the Company's common stock issuable upon exercise of the Warrants.
Such demand registration rights shall obligate the Company to file a
registration statement for such shares upon written notice from
Coleman, within 30 days after the 12th month of the effective date of
this Agreement if such common stock and the shares underlying the
warrants detailed herein have not already been registered, at Coleman's
expense.
3. The Company agrees to pay to Coleman at each full or
incremental closing of any public or private placement financing
undertaken by the Company during the term of this Agreement (i) a cash
Transaction Fee in the amount of 10% of the amount raised by Coleman,
(ii) a 3% non-accountable expense allowance, and (iii) placement agent
warrants, whose terms are subject to negotiation but in any event, at
an exercise price no more favorable as given to the investors in such
transaction, equal to 10% of the ownership given to any equity raised.
All funds shall be deposited in an escrow account to be designated by
Coleman, and released to the Company at the same time as payment of the
above stated fees and expenses are made to Coleman. Coleman retains
the right to sub-engage other placement agents and to pay, from
Coleman's compensation, any finder's fees.
M/A In the event that the Company enters into a merger,
acquisition, or sale transaction, with a party, who has not already
entered into merger and acquisition discussions with FTET prior to
Coleman's introduction, and is introduced by Coleman, Coleman shall be
entitled to receive a fee in the same form of consideration on the same
terms over the same period (i.e. if Coleman's introduction results in a
cash transaction, then Coleman will be compensated in cash; if
Coleman's introduction results in a stock transaction, then Coleman
will be compensated in stock) equal to the following formula:
5% of the first $2 Million;
4% of the following $2 Million;
3% of the following $2 Million;
2% of the following $2 Million;
and 1% of the balance of the value of the transaction
Access to Premises. In connection with the performance of
services hereunder, the Company shall make its facilities, management
and employees available to Coleman and its representatives, during
normal working hours, and shall be responsive to any and all reasonable
requests for information made by Coleman, with reasonable notice and
with confidentiality. In performing its services hereunder, Coleman
shall be entitled to rely upon and assume, without independent
verification, the accuracy and completeness of all information that is
available from public sources and of all information that has been
furnished to it by the Company and shall have no obligation to verify
the accuracy or completeness of any such information or to conduct any
appraisal of any assets.
Future Financing. If the Company were to receive any further
capital within twenty four months from the closing of any financing
from sources introduced by Coleman or Coleman affiliates during the
term of this Agreement, the Company will pay to Coleman a cash fee of
10% of the amount raised at the closing of any such financing. The
Company hereby grants to Coleman a right of first refusal on any
financing undertaken or to be undertaken within the term of this
Agreement.
Expenses. The Company hereby agrees to pay all actual documented
costs and expenses incurred by Coleman in connection with its
obligations and duties hereunder, including but not limited to travel,
telephone, mailing and expenses of Coleman's counsel. These expenses
incurred may add up to Two Thousand Dollars ($2,000.00) per month.
Anything over this amount shall be agreed to in writing.
Indemnification. The Company agrees to indemnify Coleman and
certain other entities and persons and Coleman agrees to indemnify the
Company as set forth in Schedule I.
Disclosure. a) The Company recognizes and confirms that Coleman
in acting pursuant to this engagement will be using information in
reports and other information provided by others, including, without
limitation, information provided by or on behalf of the Company, and
that Coleman does not assume responsibility for and may rely, without
independent verification, on the accuracy and completeness of any such
reports and information. The Company hereby warrants that all of its
public filings, including but not limited to, reports filed under the
Securities Exchange Act of 1934 as amended, and any other information
relating to the Company which has been publicly disseminated or
delivered to Coleman, will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained therein, in the light of the circumstances under
which they were made, not misleading. The Company agrees to provide
Coleman with (i) prompt notice of any material development affecting
the Company; (ii) copies of any financial reports as soon as reasonably
and financial condition of the Company as coleman may from time to time
reasonably request provided that such information is maintained by
Coleman pursuant to a confidentiality Agreement.
b) The Company agrees that any information or advise rendered
by Coleman or its representatives in connection with this engagement is
for the confidential use of the Company only and, except as otherwise
required by law, The Company has not and will not permit any third
party to disclose or otherwise refer to such advice or information in
any manner without Coleman's prior written consent, unless such
information becomes part of the public domain through no fault of the
Company.
c) Coleman agrees that any information, plans or data
regarding FTET and its activities is for the confidential use of
Coleman only and, except as otherwise required by law or otherwise in
the public domain, Coleman will not permit any third party to disclose
or otherwise permit any third party to disclose or otherwise refer to,
use or act upon such information, plans or data without FTET's prior
written consent.
Termination. Any termination of this Agreement by the Company
shall not affect or limit (i) the rights of Coleman or any other
indemnified person (as defined in schedule I hereto) to receive
indemnification, (ii) rights to receive fees accrued prior to such
termination, including but not limited to, the Warrant to acquire
500,000 shares of FTET's common stock.
Miscellaneous. a) The Company has not taken, and will not take,
any action, directly or indirectly, that would prevent the Company from
utilizing any form of Registration Statement under the Securities Act
of 1933 as amended or that would limit the availability of any federal
or state exemption from Registration.
b) Coleman may, at its own expense, place announcements or
advertisements in financial newspapers and journals describing its
services hereunder, provided that the same shall comply with securities
laws and shall be approved by the Company prior to dissemination.
Governing Law. This Agreement (a) shall be governed by and
construed in accordance with the laws of the State of New York and the
Parties agree that any dispute, claim or controversy relating to or
arising out of this Agreement or the performance of its terms shall be
resolved by arbitration before the American Arbitration Association and
shall be conducted in the County and State of New York, regardless of
the laws that might otherwise govern under applicable principles of
conflicts of law thereof, (b) incorporates the entire understanding of
the parties with respect to the subject matter hereof and supersedes
all previous agreements should they exist hereto, (c) may not be
amended or modified except in writing executed by the Company and
Coleman and (d) shall be binding upon or inure to the benefit of the
Company, Coleman, and other indemnified Parties and their respective
successors and assigns.
If you are in agreement with the foregoing, please execute the
enclosed counterpart of this letter in the space below provided for
that purpose and deliver it to the undersigned, whereupon the terms
hereof shall become a binding agreement between us.
The investment banking staff of Coleman and Company and its
affiliates look forward to working with you on this Agreement.
Very truly yours,
/s/Philip Puccio
Coleman & Co. Securities, Inc.
Philip Puccio
President/CEO
AGREED TO AND ACCEPTED
THIS 8th DAY OF July, 1999
/s/A.B. Goldberg
By: A.B. Goldberg, President/CEO
First Entertainment Holding Corp.
Schedule I
The Company (the "Company") referred to in the attached agreement
(the "Agreement") agrees to indemnify and hold harmless Coleman and
Company Securities Inc. ("Coleman") and its affiliates, and the
respective directors, officers, agents and employees of Coleman and its
affiliates and each other entity or person, if any, controlling Coleman
or any of its affiliates within the meaning of Section 15 of the
Securities Act of 1933, as amended, (Coleman and each such entity or
person being referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities (or actions in respect
thereof) relating to or arising out of activities performed pursuant to
the Agreement, the transactions contemplated thereby or Coleman's role
in connection therewith, and will reimburse Coleman and any other
Indemnified Person for all expenses (including, without limitation,
fees and disbursements of counsel) incurred by Coleman or any such
other Indemnified Person in connection with investigating, preparing or
defending any such action or claim, whether or not in connection with
pending or threatened litigation to which Coleman (or any other
Indemnified Person) is a party, in each case, as such expenses are
incurred or paid. The Company will not, however, be responsible for
any such losses, claims, damages, liabilities or expenses of any
Indemnified Person that are determined by final judgment of a court of
competent jurisdiction to have resulted primarily from actions taken or
omitted to be taken by such Indemnified Person in bad faith,
intentional misconduct, or from such Indemnified Person's gross
negligence. The Company also agrees that no Indemnified Person shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company for or in connection with the Agreement, any
transactions contemplated thereby or Coleman's role in connection
therewith, expect for any such liability for losses, claims, damages
liabilities or expenses incurred by the Company that are determined by
final judgment of a court of competent jurisdiction to have resulted
primarily from actions taken or omitted to be taken by such Indemnified
Person in bad faith, intentional misconduct, or from such Indemnified
Person's gross negligence.
Upon receipt by an Indemnified Person of actual notice of a
claim, action or proceeding against such Indemnified Person in respect
of which indemnity may be sought hereunder, such Indemnified Person
shall promptly notify the Company after any action is commenced by way
of service with a summons or other legal process (giving information as
to the nature and basis of the claim) against such Indemnified Person.
In any event, failure so to notify the Company shall not relieve the
Company from any liability that the Company may have on account of this
indemnity or otherwise, except to the extent the Company shall have
been materially prejudiced by such failure. The Company will, if
requested by an Indemnified Person, assume the defense of any
litigation or proceeding in respect of which indemnity may be sought
hereunder, including the employment of counsel reasonably satisfactory
to Coleman and the payment of the fees and expenses of such counsel, in
which event, except as provided below, the Company shall not be liable
for the fees and expenses of any other counsel retained by any
Indemnified Person in connection with such litigation or proceeding.
In any such litigation or proceeding the defense of which the Company
shall have so assumed, any Indemnified Person shall have the right to
participate in such litigation or proceeding and to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Company and such
Indemnified Person shall have mutually agreed in writing to the
retention of such counsel or (ii) the named parties to any such
litigation or proceeding (including any impeded parties) include the
Company and such Indemnified Person and representation of both parties
by the same counsel would in the opinion of counsel to such Indemnified
Person, be inappropriate due to actual or potential differing interests
between the Company and such Indemnified Person. The Company shall not
be liable for any settlement of any litigation or proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to
indemnify the Indemnified Person from and against any loss or liability
by reason of such settlement or judgment. If the Company assumes the
defense of any litigation or proceeding, the Company will not settle
such litigation or proceeding without Coleman's written consent, which
shall not be unreasonably withheld.
If for any reason the foregoing indemnification is unavailable to
an Indemnified Person or insufficient to hold it harmless, the Company
shall contribute to the amount paid or payable by the Indemnified
Person as a result of such loss, claim, damage or liability in
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Indemnified Person on the other
hand. Notwithstanding the foregoing, under no circumstances shall any
Indemnified Person's aggregate contribution to any losses, claims,
damages and expenses with respect to which contribution is available
hereunder exceed the amount of fees actually received hereunder.
The provisions contained in this Schedule I shall remain operating
and in full force and effect regardless of the expiration of any
termination of the Agreement.
EXHIBIT 10.3
YAHOO! ADVERTISING INSERTION ORDER
http://www.yahoo.com
</TABLE>
<TABLE>
<S> <C> <C>
Order # Sales Contact
Customer Order Phone
Revision Email
Date Fax
Advertiser Agency
Campaign Address
Url
Address
Contact Contact
Phone Phone
Fax Fax
Email Email
Start Date End Date
Contract Length Bill to
Total Impressions Total Amount
Order Totals:
Net Cost:
Terms Pending Credit Approval
Billing Monthly
</TABLE>
MATERIALS: Banners: Banner requirements are posted at
http://www.yahoo.com/docs/advertising.
DELIVERY: All materials and any changes must be delivered at
least 4 business days in advance to the email address specified
for your region at http://www/yahoo.com/docs/advertising.
A Yahoo! insertion order number and flight dates must be
referenced in all correspondence. Yahoo! will not issue any
credit or makegood due to late or incorrectly submitted banners
and/or late or incomplete information.
TERMS AND CONDITIONS: The insertion order is subject to the
terms and conditions ("Standard Terms") attached hereto as
Exhibit A of this Insertion Order, and such Standard Terms are
made a part of this insertion order by reference. The signatory
of this Insertion Order represents that he has read and agrees to
such Standard Terms.
This Insertion order is valid for three (3) business days from
the date of this order. This agreement is non-cancelable.
Authorized By: _______________________ Phone:_________________
Date:_______________________
Production Contact: Phone:
Email:
Please return to Yahoo Sales Operations Dept
Fax #408-616-3751
YAHOO! INC. SANTA CLARA (PC)
3400 Central Expressway
Suite 201
SANTA CLARA, CA 95051
<TABLE>
<C> <C> <C> <C> <C> <C>
Line # Line Type Start Date End date Page Views Amount
1.
2.
Total for network property:
Total Impressions Total
Amount
Order Total:
Net Cost:
Comments:
YAHOO! Advertising Insertion Order
http://www.yahoo.com
</TABLE>
Standard Terms and Conditions for Yahoo! Advertising
The following terms and conditions (the "Standard Terms") shall
be deemed to be incorporated into the attached insertion
order(the "Insertion Order"):
1. Terms of Payment. Advertiser must submit completed credit
application to determine terms of payment. If no credit
application is submitted or the request for credit is denied by
Yahoo! Inc. ("Yahoo")in its sole discretion, the Insertion Order
must be paid in advance of the advertisement start date. Major
credit cards (VISA, M/C and American Express) are accepted. If
Yahoo approves credit, Advertiser will be invoiced on the first
day of the contract period set forth on the Insertion Order and
payment shall be made to Yahoo within thirty (30) days from the
date of invoice("Due Date"). Amounts paid after the Due Date
shall bear interest at the rate of one percent (1%) per month (or
the highest rate permitted by law, if less). In the event
Advertiser fails to make timely payment, Advertiser will be
responsible for all reasonable expenses (including attorneys'
fees) incurred by Yahoo in collecting such amounts. Yahoo
reserves the right to suspend performance of its obligations
hereunder (or under any other agreement with Advertiser) in the
event Advertiser fails to make timely payment hereunder or under
any other agreement with Yahoo.
2. Positioning. Except as otherwise expressly provided in the
Insertion Order, positioning of advertisements within the Yahoo
properties or on any page is at the sole discretion of Yahoo.
Yahoo may, at its sole discretion, remove from the insertion
order (and substitute with similar inventory) any keyword or
category page that it believes to be a trademark, trade name,
company name, product name or brand name belonging to or claimed
by a third party.
3. Usage Statistics. Unless specified in the Insertion Order,
Yahoo makes no guarantees with respect to usage statistics or
levels of impressions for any advertisement. Advertiser
acknowledges that delivery statistics provided by Yahoo are the
official, definitive measurements of Yahoo's performance on any
delivery obligations provided in the Insertion Order. The
processes and technology used to generate such statistics have
been certified and audited by an independent agency. No other
measurements or usage statistics (including those of Advertiser
or a third party ad server) shall be accepted by Yahoo or have
bearing on the Insertion Order.
3. Renewal. Except as expressly set forth in the Insertion Order,
any renewal of the Insertion Order and acceptance of any
additional advertising order shall be at Yahoo's sole discretion.
Pricing for any renewal period is subject to change by Yahoo from
time to time.
4. No Assignment or Resale of Ad Space. Advertiser may not
resell, assign or transfer any of its rights hereunder, and any
attempt to resell, assign or transfer such rights shall result in
immediate termination of this contract, without liability to
Yahoo.
5. Limitation of Liability. In the event (i) Yahoo fails to
publish an advertisement in accordance with the schedule provided
in the Insertion Order, (ii) Yahoo fails to deliver the number of
total page views specified in the Insertion Order (if any) by the
end of the specified period, or (iii) of any other failure,
technical or otherwise, of such advertisement to appear as
provided in the Insertion Order, the sole liability of Yahoo to
Advertiser shall be limited to, at Yahoo's sole discretion, a pro
rata refund of the advertising fee representing undelivered page
views, placement of the advertisement at a later time in a
comparable position, or extension of the term of the Insertion
Order until total page views are delivered. In no event shall
Yahoo be responsible for any consequential, special, punitive or
other damages, including, without limitation, lost revenue or
profits, in any way arising out of or related to the Insertion
Order/Standard Terms or publication) of the advertisement, even
if Yahoo has been advised of the possibility of such damages.
Without limiting the foregoing, Yahoo shall have no liability for
any failure or delay resulting from any governmental action,
fire, flood, insurrection, earthquake, power failure, riot,
explosion, embargo, strikes whether legal or illegal, labor or
material shortage, transportation interruption of any kind, work
slowdown or any other condition beyond the control of Yahoo
affecting production or delivery in any manner.
6. Advertisers Representations; Indemnification. Advertisements
are accepted upon the representation that Advertiser has the
right to publish the contents of the advertisement without
infringing the rights of any third party and without violating
any law. In consideration of such publication, Advertiser
agrees, at its own expense, to indemnify, defend and hold
harmless Yahoo, and its employees, representatives, agents and
affiliates, against any and all expenses and losses of any kind
(including reasonable attorneys' fees and costs) incurred by
Yahoo in connection with any claims, administrative proceedings
or criminal investigations of any kind arising out of publication
of the advertisement and/or any material of Advertiser to which
users can link through the advertisement (including without
limitation, any claim of trademark or copyright infringement,
defamation, breach of confidentiality, privacy violation, false
or deceptive) advertising or sales practices.
7. Provision of Advertising Materials. Advertiser will provide
all materials for the advertisement in accordance with Yahoo's
policies in effect from time to time, including (without
limitation) the manner of transmission to Yahoo and the lead-time
prior to publication of the advertisement. Yahoo shall not be
required to publish any advertisement that is not received in
accordance with such policies and reserves the right to charge
Advertiser, at the rate specified in the Insertion Order, for
inventory held by Yahoo pending receipt of acceptable materials
from Advertiser which are past due. Advertiser hereby grants to
Yahoo a non-exclusive, worldwide, fully paid license to use,
reproduce and display the advertisement (and the contents,
trademarks and brand features contained therein) in accordance
herewith.
8. Right to Reject Advertisement. All contents of advertisements
are subject to Yahoo's approval. Yahoo reserves the right to
reject or cancel any advertisement, insertion order, URL link,
space reservation or position commitment, at any time, for any
reason whatsoever (including belief by Yahoo that placement of
advertisement, URL link, etc., may subject Yahoo to criminal or
civil liability).
9. Cancellations. Except as otherwise provided in the Insertion
Order, the Insertion Order is non-cancelable by Advertiser.
10. Construction. No conditions other than those set forth in the
Insertion Order or these Standard Terms shall be binding on Yahoo
unless expressly agreed to in writing by Yahoo. In the event of
any inconsistency between the Insertion Order and the Standard
Terms, the Standard Terms shall control.
11. Miscellaneous. These Standard Terms, together with the
Insertion Order, (i) shall be governed by and construed in
accordance with, the laws of the State of California, without
giving effect to principles of conflicts of law; (ii) may be
amended only by a written agreement executed by an authorized
representative of each party; and (iii) constitute the complete
and entire expression of the agreement between the parties, and
shall supersede any and all other agreements, whether written or
oral, between the parties. Advertiser shall make no public
announcement regarding the existence or content of the Insertion
Order without Yahoo's written approval, which may be withheld at
Yahoo's sole discretion. Both parties consent to the
jurisdiction of the courts of the State of California with
respect to any legal proceeding arising in connection with the
Insertion Order/Standard Terms.
EXHIBIT 10.4
ASSET PURCHASE AGRREMENT
This Asset Purchase Agreement (the "Agreement") dated as of
September 21,1999,by and between Brain M. Encke ("Seller") and W3, Inc.
("Buyer"), a Wyoming Corporation.
RECITALS:
1. Seller is the permittee of FM radio Station Channel 232C
(94.3 Mhz), Lead, South Dakota, and holds the authorization
issued by the Federal Communications Commission (the "FCC") for
the operation of the station.
2. Buyer desires to acquire some of the assets of the
Seller, and Seller is willing to convey such assets to the Buyer,
subject to the terms and conditions set forth in this Agreement.
3. The purchase and sale contemplated herein is subject to
the approval by the FCC.
NOW THEREFORE, in consideration of the mutual covenants
contained herein, Seller and Buyer hereby agree as follows:
ARTICLE I
TERMINOLOGY
1.1. Act. The Communications Act of 1934, as amended.
1.2 Closing Date. The date determined as the Closing
Date as provided in
Section 7.1
1.3 FCC. Federal Communication Commission.
1.4 FCC Licenses. The authorizations of the FCC for the
operations of the Station as listed in Schedule 2.1(a).
1.5 FCC Order. An order or decisions of the FCC granting
its consent to the assignment of the FCC Licenses to Buyer.
1.6 Final Action. An action of the FCC that has not been
reversed, stayed, enjoined, set aside, annulled or suspended,
with respect to which no timely petition for reconsideration or
administrative or judicial appeal or sua sponte action of the
FCC with comparable effect is pending and as to which the time
for filing any such petition or appeal (administrative or
judicial) or for the taking of any such sua sponte action of the
FCC has expired.
1.7 Station. FM radio station Channel 232C (94.3 Mhz),
Lead, South Dakota.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets. On the terms and conditions here
set forth, at the Closing, Seller shall sell, assign, transfer,
and convey to Buyer, and Buyer shall purchase and acquire from
Seller, the assets described below, free and clear of all liens
(expect as herein expressly permitted).
(a) FCC Licenses. All FCC permits necessary to
operate the Station as set forth in Schedule 2.1(a).
2.2 Excluded Assets. The following are expressly excluded
from the Station assets to be purchased and sold:
(a) Cash on hand as of the Closing Date;
(b) Deposit accounts as of the Closing Date;
(c) All other assets not specifically included in
Schedule 2.1.
2.3 No Assumption of Liabilities. Buyer shall assume no
liabilities or obligations of Seller, including, without
limitation, accounts payable, debts, liabilities, and other
obligations , whether pursuant to a contract or otherwise, except
as otherwise specifically provided in this Agreement.
2.4 Purchase Price and Terms of Payment. The purchase
price (the "Purchase Price") to be paid by Buyer to Seller shall
be (THREE HUNDRED THOUSAND DOLLARS) ($300,000) payable as
follows:
(a) TWENTY THOUSAND DOLLARS ($20,000) in cash, as
earnest money, to be paid simultaneously with the execution of
this Asset Purchase Agreement pursuant to an Escrow Agreement in
the form attached as Schedule 2.4(a). The Buyer shall be
entitled to all accrued interest earned on the earnest money
until the Closing Date, except on the default of Buyer in which
event Seller shall be entitled to the earnest money and interest
earned thereon as liquidated damages. In the event said earnest
money deposit is not timely made, Seller may at his option
terminate this Agreement.
(b) TWO HOUNDRED AND EIGHTY THOUSAND DOLLARS ($280,000)
Promissory Note in the form attached as Schedule 2.4(b) delivered
on the Closing Date and payable in monthly installments of
$1,555.56.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Seller has made and makes no representations
inducement, affirmation, or warranty whatsoever with regard to
the Station. Seller represents FCC approved construction Permit
is transferable and valid until January 20, 2001.
3.2 Buyers represents and warrants to Seller as follows;
(a) Organization, Standing and Authority. Buyer is a
duly organized, validly existing, and in good standing under the
laws of the State of Wyoming. Buyer has all requisite power and
authority to execute and deliver this Agreement and the documents
contemplated hereby, and to perform and comply with all of the
terms, covenants, and conditions to be performed and complied
with by Buyer hereunder and thereunder.
(b) Authorization and Binding Obligation. The
execution, delivery and performance of the Agreement by Buyer
have been duly authorized by all necessary action on the part of
Buyer. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid, and binding obligations
of Buyer, enforceable against Buyer in accordance with its terms
except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar
laws in effect from time to time affecting creditors' fights
generally, or by principles governing the availability of
equitable remedies.
(c) Absence of Conflicting Agreement. The execution,
delivery, and performance of this Agreement and the documents
contemplated hereby (with, or without the giving of notice, the
lapse of time , or both): (i)does not require the consent of any
third party;(ii)will not conflict with the governing documents of
Buyer;(iii) will not conflict with, result in a breach of, or
constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of, any
material agreement, instrument, licenses or permit to which Buyer
is a party or by which Buyer may be bound.
(d) FCC Qualification. Buyer has no knowledge of any
facts which would, under present law (including the
Communications Act of 1934, as amended) and present rules,
regulations and practices of the FCC, disqualify buyer as an
assignee of the licenses, permits and authorizations listed on
Schedule 2.1(a) hereto. Buyer further represents and warrants
that it is financially qualified to meet all terms, conditions
and undertakings contemplated by this Agreement.
Article IV
OTHER COVENANTS
4.1 Governmental Consents Seller and Buyer shall file
with the FCC within five (5) business days after the execution of
this Agreement such application and other documents in the name
of Seller and Buyer, as appropriate, as may be necessary or
advisable to obtain the FCC Order. Seller and Buyer shall take
all commercially reasonable steps necessary to prosecute such
filings with diligence and shall diligently oppose any objections
to, appeals from or petitions to reconsider such approval of the
FCC, to the end that the FCC Order and a Final Action with
respect thereto may be obtained as soon as practicable. Seller
shall not knowingly take, nor knowingly permit the Seller to
take, and Buyer covenants that neither Buyer nor any shareholder,
officer or director of Buyer shall knowingly take, any action
that such party knows or has reason to know would materially and
adversely affect or materially delay issuance of the FCC Order or
materially and adversely affect or materially delay its becoming
a Final Action unless such action is requested or required by the
FCC or its staff. Should Buyer or Seller become aware of any
facts not disclosed which could reasonably be expected to
materially and adversely affect or materially delay issuance of
the FCC Order or delay its becoming a Final Action, such party
shall promptly notify the other party thereof in writing.
4.2 Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto will use
its reasonable efforts to take all action and to do all things
necessary, proper or advisable to satisfy any condition to the
parties' obligations hereunder in its power to satisfy and to
consummate and make effective as soon as practicable the
transactions contemplated by this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF BUYER TO CLOSE
Buyer's obligation to close the transaction contemplated by
this Agreement is subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, unless waived
by Buyer in writing:
5.1 Performance of Agreement. Seller shall have
preformed in all material respects all of its obligations
required by this Agreement to be performed or complied with by it
prior to or upon the Closing Date.
5.2 FCC and Other Consents.
(a) The FCC Order shall have been issued by the
FCC and shall have become a Final Action under the rules of the
FCC and applicable law without a material adverse condition
affecting Buyer.
(b) Conditions which the FCC Order or any order,
ruling or decree of any judicial or administrative body relating
thereto or in connection therewith specifies and requires to be
satisfied prior to transfer of control of the Station to Buyer
shall have been satisfied.
5.3 Delivery of Closing Documents. Seller shall have
delivered or caused to be delivered to Buyer on the Closing Date
each of the documents required to be delivered pursuant to
Section 7.2.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE SELLER TO CLOSE
The obligation of Seller to close the transaction
contemplated by this Agreement is subject to the satisfaction, on
or prior to the Closing Date, or each of the following
conditions, unless waived by Seller in writing:
6.1 Accuracy of Representations. The representations of
Buyer contained in this Agreement shall be complete and correct
in all material respects on the date hereof and at the Closing
Date with the same effect as though made at such time, except for
changes that are not materially adverse to Seller.
6.2 Performance of Agreements. Buyer shall have
performed in all material respects all of its covenants,
agreements and obligations required by this Agreement or
referenced by this Agreement to be performed or complied with by
it prior to or upon the Closing Date.
6.3 FCC and Other Consents.
(a) The FCC Order shall have been issued by the FCC
and shall have become a Final Action under the rules of the FCC
and applicable law without a material adverse condition affecting
Seller.
(b) Conditions which the FCC Order or any order,
ruling or decree of any judicial or administrative body relating
thereto or in connection therewith specifies and requires to be
satisfied prior to transfer of control of the Station to Buyer
shall have been satisfied.
6.4 No Adverse Proceeding. No suit, action or
governmental proceeding shall be pending against, and no order,
decree or judgement of any court, agency or other governmental
authority shall have been rendered against, Seller that would
make it unlawful for Seller to consummate the transaction
contemplated by this Agreement in accordance with the terms
hereof.
ARTICLE VII
CLOSING
7.1 Time and Place.
(a) The Closing shall take place a Gammon & Grange,
P.C., 8280 Greensboro Drive, 7th Floor, McLean, VA 22102-3807, or
a mutually agreed location on the date (the "Closing Date") that
is the latter of :
i. The fifth business day after the FCC
Order becomes a Final Action, or
ii. The date as soon as practicable
following satisfaction or waiver of the conditions precedent
hereunder to Closing.
7.2 Seller's Performance. At the Closing hereunder the
Seller will:
(a) License Assignments. Deliver to Buyer
assignments of the construction permit and authorizations
transferring the same to Buyer in customary form and substance;
(b) Bill of Sale. Deliver to Buyer a bill of sale
and all other appropriate documents and instruments in a form and
substance reasonably acceptable to counsel for Buyer assigning
good and marketable title to the assets to be sold, free and
clear of any liens.
(c) Additional Documents. Deliver to Buyer such
other documents as counsel for Buyer may reasonably request for
the purpose of consummating the transactions described herein.
7.3 Deliveries to Seller by Buyer. At the Closing, Buyer
shall deliver or cause to be delivered to Seller the following,
in each case in form and substance reasonable satisfactory to
Seller;
(a) TWENTY THOUSAND DOLLARS ($20,000) by wire
transfer or cashier's check. The earnest money paid into escrow
at the time of execution of the Asset Purchase Agreement shall
be credited toward the amount due at Closing.
(b) Promissory Note. An executed Promissory Note
in the form as attached Schedule 2.4(b).
(c) Additional Documents. Deliver to Seller such
other documents as may reasonable by requested.
(d) Pledge and Security Agreement. Pledge and
Security Agreement in the form as attached Schedule 7.3(d)
(e) Certificate. Certificate of the President of
Buyer that all necessary corporate actions and approvals by
Buyer have been obtained to enter into and consummate this
Agreement and that all warranties and representations of Buyer
are true as of the date of Closing.
ARTICLE VIII
TERMINATION; LIQUIDATED DAMAGES
8.1 Termination This Agreement may be terminated any time
prior to the Closing Date (except as otherwise provided below):
(a) With the mutual consent of Buyer and Seller;
(b) By either party, if by March 1, 2000, the
Closing is not consummated;
(c) By Seller, if there has been a material
misrepresentation or breach of warranty by buyer, a material
breach of Buyer's covenants, or a failure by Buyer to perform
its obligations hereunder and the same has not been cured within
thirty (30) days after notice thereof. In the event of any
termination pursuant to this Section 8.1(c), written notice
setting forth the reasons therefore shall be given by Seller to
Buyer;
(d) By Buyer if there has been a material breach of
covenants or failure to perform Seller's obligations hereunder
and the same has not been cured within thirty (30) days after
notice thereof. In the event of any termination pursuant to
this Sections 8.1(d), written notice setting forth the reasons
therefore shall be given by Buyer to Seller;
(e) Notwithstanding anything herein to the contrary,
the right to terminate this Agreement under paragraphs (b), (c),
or (d) of this Section 8.1 shall not be available to any party
if such party is in breach of any covenant or of its obligations
under this Agreement or has been the cause of, or resulted in,
the failure of the Closing to occur on or before such date.
8.2 Effect of Termination. In the event of the
termination of this Agreement by Seller pursuant to Section 8.1
(c) hereof, the Escrow Deposit and any interest earned thereon
shall be paid to Seller as liquidated damages. In the event of
the termination of this Agreement for any reason other than as
provided in the preceding sentence, the Escrow Deposit shall be
returned to Buyer, together with any and all interest earned
thereon. In the event that the Closing takes place, the Escrow
Deposit shall be paid to Seller as a portion of the Purchase
Price in accordance with Section 2.3. Any interest earned shall
be paid to Buyer. Seller and Buyer shall deliver to the Escrow
Agent joint written instructions directing the Escrow Agent to
pay the Escrow Deposit in accordance with this Section 8.2.
ARTICLE IX
CONTROL OF STATION
Between the date of this Agreement and the Closing Date,
Seller shall control and supervise the Station or the conduct of its
business, all of which shall remain the sole responsibility and under
the control of Seller. Seller may take any and all action necessary to
protect and preserve the construction permit, including filing
engineering amendments and construction of the Station.
ARTICLE X
10.1 Further Actions. From time to time before, at and
after the Closing, each party, at its expense and without
further consideration, will execute and deliver such documents
to the other party as the other party may reasonably request in
order to more effectively consummate the transactions
contemplated hereby.
10.2 Payment of Expenses.
(a) Any fees assessed by the FCC in connection with
the filing contemplated by this Agreement or consummation of the
transaction contemplated hereby shall be paid 50 percent by
Buyer and 50 percent by Seller.
(b) All state or local sales or use, stamp or
transfer, grant and other similar taxes payable in connection
with consummation of the transactions contemplated hereby shall
be paid by the party primarily liable under applicable law to pay
such tax.
(c) Except as otherwise expressly provided in this
Agreement, each of the parties shall bear its own expenses,
including the fees of any attorneys and accountants engaged by
such party, in connection with this Agreement and the
consummation of the transaction contemplated herein.
10.3 Notices All notices, demands or other communications
given hereunder shall be in writing and shall be sufficiently
given if delivered by courier (including overnight delivery
service) or sent by registered or certified mail, first class,
postage prepaid, or by facsimile addressed as follows:
If to Seller: Mr. Brian M. Encke
433 Driftwood Avenue, #4
Estes Park, CO 80517
FAX: (970) 586-9561
With a copy to : A. Wray Fitch III
Gammon & Grange, P.C.
8280 Greensboro Drive, 7th Floor
McLean, VA 22102
FAX: (703) 761-5023
If to Buyer W3, Inc.
5495 Marion Street
Denver, CO 80216
FAX: (303) 292-1128
With a copy to Francis Baron, Esq.
Patton Boggs
1660 Lincoln Street, Suite 1900
Denver, CO 80264
FAX: (303) 894-9239
Richard J. Hayes, Jr., Esq.
8404 Lee's Ridge Road
Warrenton, VA 20186
FAX: (202) 478-0048
or such other address with respect to any party hereto as such
party may from time to time notify (as provided above) to the
other party hereto. Any such notice, demand or communication
shall be deemed to have been given if personally delivered or
otherwise sent as provided above, on the date received.
10.4 Entire Agreement. This Agreement, the Schedules and
Exhibits hereto, and the other Documents constitute the entire
agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede any prior
negotiations, agreements, understandings or arrangements between
the parties hereto with respect to the subject matter hereof.
10.5 Binding Effect; Benefits. Except as otherwise
provided herein, this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
successors or assigns. Except to the extent specified herein,
nothing in this Agreement, express or implied, shall confer on
any person other than the parties hereto and their respective
successors or assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.6 Governing Law. This Agreement shall in all respects
be governed by and construed in accordance with the laws of the
State of Wyoming including all matters of construction, validity
and performance, without regard to its principles of conflicts of
laws.
10.7 Amendment and Waivers. No term or provision of this
Agreement may be amended, waived, discharged or terminated orally
but only by an instrument in writing signed by the party against
whom the enforcement of such amendment, waiver, discharge or
termination is sought. Any waiver shall be effective only in
accordance with is express terms and conditions.
10.8 Severability. Any provision of this Agreement which
is unenforceable in any jurisdictions shall, as to such
jurisdiction, be ineffective to the extent of such
unenforceability without invalidating the remaining provisions
hereof, any such unenforceability in any jurisdiction shall not
invalidating or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the
parties hereto hereby waive any provision of law now or hereafter
in effect which renders any provision hereof unenforceable in any
respect.
10.9 Headings. The captions in this Agreement are for
convenience of reference only and shall not define or limit any
of the terms or provision hereof.
10.10 Counterparts. This Agreement may be executed in any
number of counterparts, and by either party on separate
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.11 Attorneys' Fees. If either Seller or Buyer brings
suit against the other in connection with this Agreement, the
prevailing party shall be entitled to receive from the other
party reasonable attorneys' fees and other costs and expenses
incurred by such party in connection with such suit regardless of
whether such suit is prosecuted to judgment. As used herein,
"prevailing party" shall mean in the case of a claimant , one who
is successful in obtaining substantially all of the relief
sought, and in the case of a defendant or respondent, one who is
successful in denying substantially all of the relief sought by
the claimant.
10.12 Assignment. The rights and interest of Buyer may not
be assigned to any entity without the prior express written
consent of Seller.
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed as of the date first written
above.
SELLER:
BRIAN M. ENCKE
By: /s/Brian M Encke
_________________ _____________________
Attest
BUYER:
W3, INC.
By: /s/Doug R. Olson
__________________ _____________________
Attest
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement on Form SB-2 of
First Entertainment Holding Corp. of our report dated March 17,1999,
except for Note C as to which the date is June 11, 1999, relating to
the financial statements of First Entertainment Holding Corp. appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ GORDON, HUGHES & BANKS, LLP
GORDON, HUGHES & BANKS, LLP
Denver, Colorado
November 12, 1999
