-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+1WwgLj5Fipen6BlUs4m2EELeHNBMkBUojYqGg5rF+Q3eg88sPQkFcZBCUKVAmn edAZgp7M8mxSz2tgZf0l4Q== /in/edgar/work/20000908/0001015402-00-002461/0001015402-00-002461.txt : 20000922 0001015402-00-002461.hdr.sgml : 20000922 ACCESSION NUMBER: 0001015402-00-002461 CONFORMED SUBMISSION TYPE: SB-1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNET HOLLYWOOD CENTRAL INDEX KEY: 0001121886 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-1 SEC ACT: SEC FILE NUMBER: 333-45370 FILM NUMBER: 718773 BUSINESS ADDRESS: STREET 1: P O BOX 223611 CITY: CARMEL STATE: CA ZIP: 93922 BUSINESS PHONE: 8313945579 SB-1 1 0001.txt OMB APPROVAL OMB Number: 3235-0423 Expires: April 30,2003 Estimated average burden hours per response: 177.0 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INTERNET HOLLYWOOD, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 5812 77-0518310 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION IDENTIFICATION NO.) CLASSIFICATION ------------------------ 222 QUAIL RUN COURT DEL REY OAKS, CA 93940 (831) 394-5579 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ SHERYL MOULTON INTERNET HOLLYWOOD, INC. 222 QUAIL RUN COURT DEL REY OAKS, CA 93940 (831) 394-5579 (NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ COPIES OF COMMUNICATIONS TO: JAMES PHILLIP VAUGHNS, ESQ. 6114 LASALLE AVENUE, SUITE 289 OAKLAND, CA 94611 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- If this form is filed to register additional securities for an offering pursuant to Rule 462(b) 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(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 delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.[ ] CALCULATION OF REGISTRATION FEE Title of each Proposed class of securities Dollar amount maximum offering Amount of to be registered to be registered price per unit registration fee Common $5,000,000 $5.00 $1320 (1) Estimated pursuant to Rule 457 (a) under the Securities Act of 1933, as amended (the "Securities Act"), solely for purposes of calculating the registration fee. 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. Disclosure alternative used (check one): Alternative 1 [ X ]; Alternative 2 [ ] The information in this prospectus is not complete and may be changed. We 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 prohibited. Page 2 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- ----------------------------------------------------------- INITIAL PUBLIC OFFERING PROSPECTUS Subject to Completion, Dated September 6, 2000 INTERNET HOLLYWOOD , INC. 1,000,000 shares of Common Stock This is our initial public offering of Common Stock. The offering price per share is $5.00. The maximum number of shares being offered under this prospectus is 1,000,000. There is no minimum number of shares being offered under this prospectus. Proceeds from this offering will be placed in an escrow account until $500,000 is raised. The minimum investment required by each investor is 100 shares. This offering will commence upon the date of this prospectus and continue for a maximum of twenty-four months. This offering is made as a self-underwritten offering. No public market currently exists for our shares. Our shares may or may not be listed on NASDAQ or any national exchange. ----------------------------------------------------------- Investing in our stock involves significant risks. See "Risk Factors" beginning on page 7. -----------------------------------------------------------
- --------------- -------------------- ------------------------------------ ---------------- Proceeds Before Price to the public Proceeds to affiliated persons Expenses - --------------- -------------------- ------------------------------------ ---------------- Price Per Share $ 5.00 --- --- - --------------- -------------------- ------------------------------------ ---------------- Total $ 5,000,000 --- $ 5,000,000 - --------------- -------------------- ------------------------------------ ----------------
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. Page 3 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Initial Public Offering Prospectus Subject to Completion, Dated September 6, 2000 INTERNET HOLLYWOOD , INC. (Exact name of Company as set forth in Articles of Incorporation or Charter) The information contained in this form may not be complete and may be changed. These securities may not be sold until the SB-1 is filed with the Securities Exchange Commission (SEC) and filed with state security regulators and has been declared effective. Internet Hollywood, Inc., effective March 4, 2000 effected a fifteen-to-one stock split of its total shares. TYPE OF SECURITIES OFFERED: Common Stock Maximum number of securities offered: 1,000,000 Minimum number of securities offered: 100,000 Price per Security: $ 5.00 Total Proceeds: If maximum sold: $ 5,000,000 If minimum sold: $ 500,000 (For use of proceeds and Offering expenses, see Question Nos. 9 and 10) Is a commissioned selling agent selling the securities in this Offering? [x] Yes [ ] No If yes, what percent is commission of price to public? The Company has allotted up to fifteen- percent commission to the broker (and will assume that up to fifty percent of the Offering stock will be sold through a broker). Is there other compensation to selling agent (s)? [ ] Yes [x] No Is there a finder's fee or similar payment to any person? [ ] Yes [x] No (See Question No. 22) Is there an escrow of proceeds until minimum is obtained? [x] Yes [ ] No (See Question No. 26) Is this Offering limited to employees of a special group, such as employees of the Company or individuals? [ ] Yes [x] No (See Question No. 25) Is transfer of the securities restricted? [ ] Yes [x] No (See Question No. 25) INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR INVESTMENT IN ITS ENTIRETY. SEE QUESTION NO. 2 FOR THE RISK FACTORS THAT MANAGEMENT BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS OFFERING. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING. NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE. THESE SECURITIES ARE OFFERED UNDER AN EXEMPTION FROM REGISTRATION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THESE SECURITIES ARE EXEMPT FROM REGISTRATION. Page 4 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- This Company: [ ] Has never conducted operations. [x] Is in the development stage. [ ] Is currently conducting operations. [ ] Has shown a profit in the last fiscal year. [ ] Other (Specify): _______________________________________ (Check at least one, as appropriate) This Offering has been registered for offer and sale in the following states: STATE STATE FILE NO. EFFECTIVE DATE - ----- ---------------- --------------- Not Applicable. (The Company proposes to file in California and several other states.) Page 5 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 - ----------- RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 - ------------ BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 15 - ----------------------- OFFERING PRICE FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 - ---------------------- USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 - --------------- CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 - -------------- DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 35 - ------------------------- PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 - -------------------- DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. . . . . . . . . . . . . . . . . . 38 - ---------------------------------------- OFFICERS AND KEY PERSONNEL OF THE COMPANY . . . . . . . . . . . . . . . . . 39 - ----------------------------------------- DIRECTORS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 43 - ------------------------ PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 - ---------------------- MANAGEMENT RELATIONSHIPS, TRANSACTIONS. . . . . . . . . . . . . . . . . . . 46 - -------------------------------------- AND RENUMERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 - ---------------- LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 - ---------- FEDERAL TAX ASPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 - ------------------- MISCELLANEOUS FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 - --------------------- FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 - -------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF . . . . . . . . . . . . . . . . . . 62 - --------------------------------------- CERTAIN RELEVANT FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 62 - ------------------------ SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 - --------- THIS OFFERING CIRCULAR CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING THIS OFFERING, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION NOT EXPRESSLY SET FORTH IN THIS OFFERING CIRCULAR. Page 6 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- THE COMPANY 1. EXACT CORPORATE NAME: Internet Hollywood, Inc. State and date of incorporation: California, June 14, 1999 PO Box 223611 Street address of principal office: Carmel, CA 93922 Company Telephone Number: (831) 394-5579 Fiscal year: December 31 Person(s) to contact at Company with respect to Offering: Sheryl Moulton, Chief Financial Officer Telephone Number (if different from above): RISK FACTORS 2. List in the order of importance the factors which the Company considers to be the most substantial risks to an investor in this Offering in view of all facts and circumstances or which otherwise make the Offering one of high risk or speculative (i.e., those factors which constitute the greatest threat that the investment will be lost in whole or in part, or not provide an adequate return). Some of the information in this Offering Circular contains forward-looking statements within the meaning of the Securities Litigation Reform Act. These statements typically use terms such as "may," "will," "should," "expect," "anticipate," "estimate," and similar words although some forward-looking statements are expressed differently. Investors should be aware that the Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors. The Company has set forth what it believes to be primary factors which could affect such outcomes. Prospective investors should consider carefully the following "risk factors" as well as other sections of this Offering Circular which address additional factors which could cause the Company's actual results to differ from those set forth in the forward-looking statements. (1) Development Stage Company. Internet Hollywood plans to operate Internet cafes nationwide (and is considering prospects of franchising internationally). Internet Hollywood incorporated June 14, 1999 and is considered a startup company. There is minimal history of operations on which to base an evaluation of the Company's business plan, as the company is in development stage. Although the Company's management has operated and managed successful companies, there is no assurance that the projected business will be successful or profitable. Further, the Company is entering what management believes will be a stage of rapid growth. There can be no assurances that it will be able to overcome the risks associated with advancement from the development stage to full-scale commercial operations. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as the Internet cafe and retail industries. Page 7 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (2) Lack of Liquidity and Limited Trading Market. There is no public market for our common stock and a public market may or may not be available in the foreseeable future. If the Company meets the requirements of NASDAQ (Small-Caps), AMEX (Small-Caps) and/or Pacific Stock Exchange, it will make every attempt to obtain a listing. The Company may or may not be able to obtain a listing on the Pacific Stock Exchange, NASDAQ (Small-Caps) and/or AMEX (Small-Caps). Therefore, the Company cannot make any guarantees that a listing will be approved. Following this offering, if we determine that it is acceptable to the relevant securities regulators to do so, we may sign Internet Hollywood up with one or more independent companies that offer to facilitate trading of our stock by using an internet-based trading mechanism operated by them, through which persons interested in purchasing or selling shares of our stock can meet prospective trading partners. Depending on the company used, there might be a charge for your use of such a service, but neither Internet Hollywood nor any of its employees will receive any commissions or payments for this service. However, you should not consider this type of mechanism as a reliable avenue for liquidating your investment. Our long-term plan for providing liquidity to our shareholders is to develop a public market for our common stock by soliciting securities brokers to become market makers. There can be no assurance that we will be successful in soliciting market-makers. In view of the absence of an underwriter and the relatively small size of the offering, there is little likelihood that a regular trading market will develop in the near term, if at all, or that if developed it will be sustained. Accordingly, an investment in these shares should be considered highly illiquid. Prior to this Offering, there has been no public trading market for the securities. Accordingly, there can be no assurance that an active trading market will develop or, if developed, will be maintained, or that the market price of the securities will not decline below the current Offering price. Even if there is a trading market established, the shareholder's ability to sell his or her shares will depend on the existence of persons interested in buying shares. There can be no assurance that there will be buyers interested in buying the Company's stock. Therefore, an investor should consider his purchases of securities as a long-term investment. (3) No Assurance of Establishment of Passive Bulletin Board. The Company is currently considering establishing a passive "bulletin board" service on the Company's Internet Home Page to help provide a mechanism for potential buyers and sellers to contact each other without the involvement of a broker-dealer. Although the Company would establish and maintain the bulletin board, the Company would not be involved in any transactions nor would monitor such a bulletin board for compliance with regulatory requirements imposed upon buyers and sellers. No assurance that such service will be established or that any trading market will exist nor that any market that does exist will provide any meaningful liquidity or valuation. Furthermore, any future resale may require compliance with exemption provision under some states' securities laws. (4) No Assurance the Shares Will Be Sold. There is no public, organized market for the shares in this Offering. The success of this Offering will, to a considerable extent, depend upon the marketing efforts of the company management, and upon investor reaction to the Company's management, business plan and its proposed use of the proceeds. No assurance can be given that the entire Offering, or any portion hereof, will be sold. Investors also risk the inability to liquidate their investments. Further, if the entire Offering is not sold, there are no assurances that the prospective business objectives of the Company will be accomplished. Page 8 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (5) Arbitrary Offering Price: Possible Volatility of Stock Price. The pricing of this Offering has been determined by the Company and may not be indicative of the market price of the Common Stock after this Offering. The trading price of the common stock could be subject to significant fluctuation in response to variations in quarterly results of operations, announcements of new products or services by the Company or its competitors; general trends in the industry; and overall market conditions and other factors. The market for securities of early-stage, small-market capitalization companies has been highly volatile in recent years, often as a result of factors unrelated to a company's operations. In addition, the stock market in general, the NASDAQ Bulletin Board market and the market for Internet-related companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. The trading prices of many Internet-related companies stock are at or near historical highs and reflect price to earnings ratios substantially above historical levels. These broad market and industry factors may materially and adversely affect the market price of the Common Stock, regardless of the Company's operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against such companies. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, prospects, financial condition and results of operations. (6) Patents, Trademarks and Trade Secrets. The Company considers its pending trademark (Internet Hollywood), its advertising and promotional design and artwork to be of considerable value and critical to its business. The Company relies on a combination of trade secret, copyright and trademark laws, non-disclosure, non-competition and other arrangements to protect its proprietary rights. There is no assurance that patents and trade secrets as controlled by the Company will be adequate protection from competitive encroachment from existing or future companies. Failure to obtain trademark protection could have a material adverse effect upon the Company's results of operations and financial condition. In addition, despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy or obtain and use information that the Company regards as proprietary. There can be no assurance that the steps taken by the Company to protect its proprietary information will be adequate to obtain the legal protection sought or will prevent misappropriation of such information. Even if the Company successfully protects such intellectual property rights, such protection may not preclude competitors from developing confusingly similar brand names, promotional materials or developing products with qualities similar to the Company's products. The Company filed for trademark protection with the United States Patent and Trademark Office in March of 1999. In April of 1999, Hollywood Entertainment (d.b.a. "Hollywood Video") filed two subsequent trademarks for the "Internet Hollywood" name: (1) Internet Hollywood and (2) InternetHollywood.net. The United States Patent and Trademark Office (USPTO) may or may not approve Hollywood Entertainment's trademark applications. The USPTO may or may not approve our Company's trademark application. Therefore, the Company cannot make any guarantees as to the outcome of our pending "Internet Hollywood" trademark. (7) Risk of Third Party Claims of Proprietary Infringement. While the Company believes that its intellectual property does not infringe upon the proprietary rights of third parties, there can be no assurance that the Company will not receive future communications from third parties asserting that the Company's intellectual property infringes, or may infringe upon the proprietary rights of third parties. The potential for such claims will increase as the Company increases operations and enters into new geographic areas. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of management's attention, cause operation delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms economical or acceptable to the Company. In the event of a successful claim of infringement against the Company and failure or inability of the Company to license the infringed or similar proprietary information, the Company's operating results and financial condition could be adversely affected. Page 9 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (8) Sufficiency of Offering Proceeds. The Company intends to utilize all or substantially all of the net proceeds of the Offering to provide a cash reserve to be allocated to expenses which may arise in the normal course of the Company's business. The Company will require the maximum proceeds of the Offering in order to carry out its business plan and to achieve its projected growth. The Company may be required to seek additional debt and/or equity financing if there is a lack of sufficient funding from the Offering. The Company may not be able to obtain additional financing or, if available, such financing may not be available on terms favorable to the Company. In addition, if the minimum amount of proceeds is obtained from the Offering, the Company may not be able to expand its operations, will have a smaller reserve against unexpected expenses or delays in receiving revenues, and will be subject to greater risk that additional funds may be required to fund operations. The Company intends to utilize all or substantially all of the maximum net proceeds of the Offering to: (1) establish franchised Internet cafes; (2) use for working capital (3) acquire assets (namely computers and coffee equipment); (4) implement wide-scale, advertising and public relations campaigns, in print and electronic media; and (5) provide a cash reserve. The estimated maximum net proceeds of the Offering is approximately $4,640,000. Although the Company believes such an amount will be sufficient to cover management's estimate of the Company's cash requirements for at least the next 12 months under its Business Plan, no assurance can be given that, even if all shares are sold, additional funds will not be necessary. In which event the Company will be required to seek additional debt and/or equity financing. The Company may not be able to obtain additional financing or, if available, such financing may not be available on terms favorable to the Company, and will be subject to greater risk, that additional funds may be required to fund operations. (9) Need for Additional Financing. If the minimum number of securities is sold, the Company might require additional financing for our franchise operations. There can be no assurance that such financing can be obtained on terms favorable to the Company. (10) Specific Risks of the Company Business. In addition to being subject to all of the risks generally associated with the Internet cafe and retailing industries, the Company will be subject to certain factors affecting its business more particularly. The Company is subject to the potential inability to successfully prevail in a competitive market against other companies that possess far greater financial, technological and management resources. The Company is subject to the potential inability to successfully develop and/or maintain partnership relationships with caf businesses, which will reduce the revenue base from the company's proposed franchise operation. Further, demand and market acceptance for recently introduced services over the Internet are subject to a high degree of uncertainty and there exist few proven services in this industry. Each of these factors could result in materially adverse consequences in the Company's business, prospects, financial condition and results of operations. (11) Business Conditions in General. The business operations of the Company may be adversely affected by the economic and business factors to which companies dealing in the Internet cafe and retailing industries generally are subject, many of which are beyond the control of the Company, its officers and directors. The Company is dependent upon the widespread acceptance Internet cafes and the use of the Internet as an effective medium of commerce. Rapid growth Page 10 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- in the use of and interest in the Internet is a recent phenomenon, and there can be no assurance that acceptance and use will continue to develop. In addition, other risk factors may include, but are not limited to: general economic conditions; fluctuation in general business conditions and increases in operating expenses, including professional and general and administrative services; maintenance; and taxes and insurance costs that the Company may not be able to offset completely, if at all, by corresponding increases in revenues. (12) Ability to Manage Growth. The possibility of rapid growth and increased responsibilities for management personnel will challenge the Company's management, operating and financial systems and resources. To compete effectively and manage future growth, the Company will be required to continue to implement and improve its operational, financial and management information systems, procedures and controls on a timely basis and to expand, train, motivate and manage its work force. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's operations. Any failure to implement and improve the Company's operations, financial and management systems or to expand, train, motivate or manage employees could have a material adverse effect on the Company's operating results and financial condition. (13) Discretion in the Use of Proceeds. The Company's management has wide discretion in the use of proceeds of this Offering. Although the Company intends to use the proceeds to develop its business in accordance with its present plan, the nature of the plans may vary at the Company's sole discretion. (14) Competition. The Internet cafe business is fairly competitive. The Company competes primarily with small Internet cafes and secondarily with larger retail stores on the basis of price and breadth of product offerings. The Company competes with a variety of cafes and retail stores, many have substantially greater financial and marketing resources than the Company.The cafe and retail merchandising industries are highly competitive based on the type, quality and selection of the food and merchandise offered, price, service, location and other factors. Many well-established companies with greater financial, marketing and other resources and longer operating histories than the Company compete with the Company in many markets. In addition, some competitors have design and operating concepts similar to those of the Company. There can be no assurance that the Company will be able to respond to various competitive factors affecting the Internet Cafe and retail industries. The Company's targeted industries and markets are intensely competitive, particularly the Internet cafe industry, which is new and rapidly evolving. Increased competition could limit the Company opportunities in the future and/or force the Company to charge a smaller amount for its products and/or services, thereby reducing revenues. In the operation of its business, the Company assumes that the markets for its products and services will continue to grow at a moderate rate. Should these markets stagnate or decline, the markets may not desire the products and services provided by the Company, or the Company's product and service pricing may become noncompetitive, thereby drastically reducing the revenue projected by the Company. The Company routinely competes with other business and personal service organizations which possess far greater assets and overall financial strength. In the event that these larger competitors drastically decrease their pricing strategies in the marketplace, the Company may not be able to provide its services at a level that will allow it to continue to prevail in a competitive market. In the event that the Company's larger competitors increase the rate of compensation paid to management and field personnel, the Company may not be able to meet these compensation levels and could potentially lose key personnel to its competitors, which would substantially detract from its ability to operate its business. Page 11 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (15) Dependence on Certain Suppliers. It is the Company's policy not to manufacture or produce any of the goods it sells. Management believes this policy provides the most flexibility to meet customer needs, while reducing the Company's risk and its need for capital investments. However, because of this policy, the Company may experience delays in production and delivery which are beyond its control and which may result in canceled orders, reduced sales, and other events which may negatively affect income. Delays in receiving supplies may adversely affect the operating results and financial condition of the Company. (16) Dependence on Key Personnel; Need for Additional Personnel. The Company is substantially dependent on the continued services and on the performance of its senior management, and other key personnel, particularly Dean McAthie, its Chief Executive Officer and its Chief Financial Officer / Chief Operating Officer Sheryl Moulton. In recognition thereof, the Company has executed employment agreements with those individuals, which provide significant incentives to said individuals to continue employment with the Company. The Company's ability to profitably transact its business is almost wholly contingent upon its ability to hire, or otherwise engage, motivate and retain qualified personnel needed to support and expand its operations. The Company has to date successfully attracted and retained key personnel by providing substantial, performance-based financial incentives, a policy that it intends to continue. Competition to attract and retain qualified personnel may in the future require the Company to compensate such persons at higher levels than are presently contemplated, which may necessitate increases in base compensation, bonuses for existing as well as new personnel and/or the adoption of equity participation plans. (For a description of the Company's management team, see questions 29-32). (17) Liability. The Company's business involves risks of product and professional liability. However, because of the Company's relative lack of capital and limited operational status, the Company has refrained from acquiring product or professional liability insurance. In recognition of the increased incidence of litigation, fines, seizures and bankruptcies in the targeted industries in recent years, and the fact that the Company intends to initiate full-scale commercial operations after the completion of capitalization, the Company anticipates acquiring adequate levels of product and professional liability insurance. In the event that corporate liabilities arise prior to the acquisition of these insurance policies, or if any claims exceed the amounts of the Company's liability insurance coverage, if any, the Company could suffer financial losses, which could have a materially adverse effect on the Company's operations and future viability. (18) Limitation of Directors and Officers Liability. The Company's Articles of Incorporation, consistent with California law, provide a limit on the liability to the Company of individual directors and officers for certain breaches of their fiduciary duties to the Company and provide for indemnification of the Company's directors and officers to the fullest extent permitted by California law. While the law is designed to ensure that the ability of the Company's officers exercise their best business judgment in managing the Company's affairs, subject to their continuing fiduciary duties to the Company and its members, it is not unreasonably impeded by exposure to potentially high personal costs or other uncertainties of litigation. The existence of such a law may limit shareholder actions again the officers of the Company for various acts of misfeasance. (19) Voting Rights, Control of the Company. Mr. Dean McAthie, the Chief Executive Officer, Ms. Sheryl Moulton, Chief Financial Officer / Chief Operating Officer and Mr. Patrick Hennessy in total own 1,353,333 shares, or 45% (forty-five percent) of the voting Common Stock of the company, collectively. As the holders of a majority interest in the Company, McAthie, Moulton and Hennessy are collectively able to elect all of the Company's directors and control the outcome of all shareholder votes. (20) Certain Related-Party Transactions. The Company currently has no outstanding debt, nor has loaned monies to its Officers or Directors. However, the Company may from time to time allow Officers and Directors to purchase securities in the Company at an Offering price substantially less than the price paid by current investors. Each prospective investor should make an independent evaluation of the fairness of the Offering price under the circumstances. Page 12 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (21) Dilution. Investors in the Company's shares being offered will pay a price per share considerably in excess of the cash originally invested by founders. Therefore, investors risk significant dilution of their percentage ownership interest if the Company were to issue additional shareholder units. (See Item 7 of this Offering for a description of the offering price factors and the consideration for shares issued to the founders). (22) Disproportionate Capital Investment and Dilution. Management has invested approximately $5,545 (plus any costs associated with this filing - an estimated $10,000) in the Company since its inception (general operating costs, Offering filing fees, legal and accounting fees). As such, any individual investor purchasing shares hereunder will bear a disproportionate risk of loss, while control of the Company will remain in the hands of Management. (See "Management", and "Principal Shareholders"). Further, all investors hereunder will experience an immediate and substantial dilution in the net tangible book value per share of the common stock from the price per share they will have paid. (23) Determination of Offering Price. The Company has arbitrarily decided the Offering price and the Offering price does not necessarily bear any relationship to established value criteria such as net tangible assets or a multiple of earnings per share and, accordingly, should not be considered an indication of the actual value of the Company. (24) Lack of Dividends. The Company does not intend to pay dividends in the near future. All earnings will be reinvested to finance expanded operations. The Company may elect to later pay dividends, however, this will depend, among other things, upon the Company's earnings, assets and general financial condition, and upon other relevant factors. (25) Certain Federal Income Tax Consequences. Holders of the Company's securities may be subject to certain federal income tax consequences. Prospective investors are urged to consult their own tax advisors regarding the federal, state, local, foreign and other tax consequences of holding and disposing of the securities. (See "Certain Federal Income Tax Consequences"). (26) Government Regulation: Tax Basis. The Company does deduct and pay federal, state or local withholding tax, and does deduct workman's compensation and social security taxes from the compensation of its Employees. The Company believes that its Employee compensation policies are consistent with the tax laws of the State of California and the United States as described in the California and Federal Tax Codes, and the policies of the United States Internal Revenue Service and Federal Accounting Standards Board, as described in their latest policy statements. However, there is no assurance that future governmental statutes, or changes in existing laws and regulations, if any, may not significantly affect the Company's Employee compensation policies. In the event that the Company's Employee compensation policies must be amended because of its noncompliance with existing or future tax laws, the Company may be subject to significant liabilities, fines and/or penalties, or may be forced to drastically amend its Employee compensation policies, which could have a materially adverse effect on the Company's operations and future viability. (27) Government Regulation and Legal Uncertainties. The Company's business is highly regulated by federal, state and local laws and regulations. The Company must comply with extensive laws and regulations regarding matters such as advertising, promotion and marketing practices and relationships with suppliers. Page 13 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Failure on the part of the Company to comply with federal, state or local regulations could result in the loss or revocation or suspension of the Company's licenses, permits or approvals and accordingly could have a material adverse effect on the Company's business. Further, changes in federal, state and local environment regulations and other laws or regulations could affect the Company's operations or market share. (28) Potential Fluctuations in Results. The Company's operating results in the future will likely vary due to factors such as expansion expenses, fluctuations in the prices, seasonality of sales of coffee, general economic factors, trends in consumer preference, regulatory developments (including changes in tax rates), and changes in the general operating costs. (29) No Assurance of Geographic Expansion. There can be no assurance that the Company's efforts to expand operations to new regions will be successful or that such expansion can be accomplished on a profitable basis. The Company's timely and successful expansion of sales will depend on a number of factors, including competition, the continued promotion and sale of the Company's products and services, the retention of personnel, the ability to adapt management and operational systems, to accommodate increased volume, the success of advertising and promotion campaigns, and other factors, some of which are beyond the control of the Company. Furthermore, consumer tastes vary by region and can be no assurance that consumers located in new geographic regions will be receptive to Internet cafes. Expansion into each new area will likely be greater in certain areas than others due to demographic, economic and other factors. The Company's efforts to increase sales by penetrating new market areas may be limited by such factors. (30) Limited Product Line. The Company's product line includes coffee, snack food, computer service and sales. The Company's future operating results, particularly in the near term, are dependent upon the continued market acceptance of these products. A decline in the demand for any of the Company's products or services as a result of competition, changes in consumer tastes, and preferences, government regulation or other factors would have a material adverse effect on the Company's operating results and financial condition. (31) Forward-Looking Statements. When used in this document, the words "plan," "estimate," "anticipate," "believe," "intend," "expect," and other similar expressions are intended to identify in certain circumstances, forward-looking statements. Such statements are subject to a number of risks and uncertainties that could cause actual events to differ materially from those projected, including the risks described in this "Risk Factors" section. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such statements. Note: In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this Offering Circular potential investors should keep in mind other possible risks that could be important. Page 14 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- BUSINESS AND PROPERTIES 3 With respect to the business of the Company and its properties: (a) Describe in detail what business the Company does and proposes to do, including what products or goods are or will be produced or services that are or will be rendered. Internet Hollywood's goal is to become the first nationwide Internet cafe chain. The Company's business is the sale of coffee, computer and Internet services. This market consists of two primary segments - cafe and computer services. These products and services are principally marketed through the website and at our Company-owned and franchised locations. Coffee. The Company will also sell merchandise and variety of beverages and snack foods (i.e. coffee, cappuccino, mochas, juices, and cookies). Music and Movies. The Company is considering several proposals from video/music retailers to sublease space from the Company to sell movies, music and entertainment goods. This co-development project offers an excellent cross-marketing opportunity. The Company will be able to share consumerships, a technique that provides an extremely efficient and low-cost source of new inquiries and buyers. Computer Services. The Company's computer services include Internet access, video-conferencing, computer classes, trade-shows and classes. Internet Hollywood will draw in business from all types of customers including tourists and business people that want to send an email or check the latest stock quotes. Computer Reseller. Several computer companies are negotiating with the Company to provide the cafe with free computers - in lieu the Company will resell computers on a commission basis. One computer company has also agreed to provide limited technical support at no additional charge. Merchandise. Each cafe will include an integrated retail store offering premium quality merchandise (i.e. coffee mugs, shirts and miscellaneous souvenir items) displaying the Company's distinctive brands and logo designs. Merchandising provides additional off-site promotion of the Company's brands. InternetHollywood.com Website. The Company also plans to develop its website, "InternetHollywood.com," which proposes to sell goods online as well as feature information about each cafe. The Company proposes to sell advertising space to other companies to generate additional revenue. The Company's proposed advertising rates range from $55 to $5,000 per quarter. Internet Hollywood will receive steady revenue both from the franchised cafes and the website advertising. Customers will also be able to purchase souvenirs (shirts, coffee mugs, etc.) and other general merchandise from the website. Page 15 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Retail Locations. Considerable research will be devoted to the area of expansion, as the Company seeks the best way to make its merchandise and services available to more customers. The Company wants to open three prototype retail locations that can serve as models for either future expansion or franchising. The Company's business plan will focus on locations across the United States and may later consider international franchises. The Company believes its business plan is relatively "recession-proof." Should there be any fluctuations in the economy, the Company will take full advantage of purchasing existing cafes at a very low cost to the Company. This strategy will allow the Company to generate high yield income at very a low rate of investment. (b) Describe how these products or services are to be produced or rendered and how and when the Company intends to carry out its activities. If the Company plans to offer a new product(s), state the present stage of development, including whether or not a working prototype(s) is in existence. Indicate if completion of development of the product would require a material amount of the resources of the Company, and the estimated amount. If the Company is or is expected to be dependent upon one or a limited number of suppliers for essential raw materials, energy or other items, describe. Describe any major existing supply contracts. Coffee. The Company has chosen a vendor that supplies premium coffee to a major coffeehouse. While there are many vendors from which to choose, the Company has chosen to limit the majority of its coffee purchases to one or two vendors. Limiting the vendors will provide for product consistency and quality. Bakery goods will be supplied by local bakeries and patisseries. Bottled juices and water will be supplied by wholesalers. Music and Movies. The Company is considering several proposals from video/music retailers to sublease space from the Company to sell movies, music and entertainment goods. This co-development project offers an excellent cross-marketing opportunity. The Company will be able to share consumerships, a technique that provides an extremely efficient and low-cost source of new inquiries and buyers. Computer Services. The Company's computer services include Internet access, video-conferencing, computer classes and trade-shows. The Company has an agreement with a computer company to provide our computers free of charge, in lieu the Company will resell computers on a commission basis. One computer company has also agreed to provide limited technical support at no additional charge. Computer classes will be provided by agreements with universities and other educational facilities. Merchandise. The Company will continue to use the vendor that had designed our coffee mugs. Each cafe will include an integrated retail store offering premium quality merchandise (i.e. coffee mugs, shirts and miscellaneous souvenir items) displaying the Company's distinctive brands and logo designs. Merchandising provides additional off-site promotion of the Company's brands. InternetHollywood.com Website. The Company is considering several companies' proposals to redesign the website. The Company proposes to sell goods online as well as feature information about each cafe at the InternetHollywood.com website. The Company proposes to work with several advertising companies to sell advertising space to other companies to generate additional revenue. The Company's proposed advertising rates range from $55 to $5,000 per quarter. Page 16 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Internet Hollywood will receive steady revenue both from the franchised cafes and the website advertising. Customers will also be able to purchase souvenirs (shirts, coffee mugs, etc.) and other general merchandise (i.e. coffee mugs, shirts and miscellaneous souvenir items) from the website. Retail Locations. The Company proposes to franchise stores, after the Company has opened a prototype location. Franchising services will be provided by Francorp. Francorp manages the franchise programs for many large Fortune 500 companies. Considerable research will be devoted to the area of expansion, as the Company seeks the best way to make its merchandise and services available to more customers. The Company's business plan will focus on locations across the United States and may later consider international franchises. The Company believes its business plan is relatively "recession-proof." Should there be any fluctuations in the economy, the Company will take full advantage of purchasing existing cafes at a very low cost to the Company. This strategy will allow the Company to generate high yield income at very a low rate of investment. While Company-owned stores will be located in lower-overhead locations with low/no competition, the Company expects to pursue franchise and joint venture arrangements in metropolitan areas. Upon the execution of a franchise agreement, a franchisee is typically required to pay an initial franchise fee, ranging from $50,000-$100,000, which is recognized as revenue in the Company's financial statements when all the Company's pre-opening obligations in respect of the cafe are fulfilled and the franchised cafe opens. Thereafter, each franchisee is required to pay royalties based on its gross revenues from snack food, beverage and merchandise sales. Royalties typically range from 5% to 10% of food and beverage revenues and 10% to 15% of merchandise revenues. The key elements of the Company's Internet Cafe concept are as follows: Broad-based themes. The Company focuses on themes that it believes have universal appeal, such as technology and entertainment. Distinctive design features. Spectacular physical design and layout will characterize all the Company's cafes. Each cafe will prominently display a rotating collection of authentic memorabilia. Trade-Shows. The Company's cafes will be distinguished by the significant media coverage and promotion of the appearances by celebrities and hi-tech executives at each cafe's grand opening and at special events thereafter. We also plan to offer technological trade shows sponsored by computer and software manufacturers. Trade shows will allow companies to demonstrate their products to our customers at our trade show events. This is a "win-win" situation for both hi-tech companies and for our cafes. Extensive retail merchandising. Each cafe will include an integrated retail store offering premium quality merchandise (i.e. coffee mugs, shirts and miscellaneous souvenir items) displaying the Company's distinctive brands and logo designs. Merchandising provides additional off-site promotion of the Company's brands. Page 17 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Quality beverages and food. Each cafe will serve freshly prepared coffee and juice beverages designed to appeal to a variety of tastes and budgets with an emphasis on reasonably priced signature items and items of particular appeal to the local market. Quality service. In order to maintain its unique image, the Company will provide attentive and friendly service with a high ratio of service personnel to customers, and will invest heavily in the training and supervision of its service personnel. (c) Describe the industry in which the Company is selling or expects to sell its products or services and, where applicable, any recognized trends within that industry. Describe that part of the industry and the geographic area in which the business competes or will compete. Indicate whether competition is or is expected to be by price, service, or other basis. Indicate (by attached table if appropriate) the current or anticipated prices or price ranges for the Company's products or services, or the formula for determining prices, and how these prices compare with those of competitors' products or services, including a description of any variations in product or service features. Name the principal competitors that the Company has or expects to have in its area of competition. Indicate the relative size and financial and market strengths of the Company's competitors in the area of competition in which the Company is or will be operating. State why the Company believes that it can effectively compete with these and other companies in its area of competition. The Company markets its products and services to two distinct, but related markets - coffee and computer/Internet. Coffee Market. The first market consists of individuals who want a delicious cup of coffee in a lively social gathering place. Only 30% of coffee drinkers have tried specialty coffee, and once they taste specialty coffee there is no going back to ordinary, supermarket coffee. Specialty coffee is a $3 billion industry. The "baby-boom" generation is a 76 million-strong market. "Baby-boomer" consumers tend to be more sophisticated with regard to high-quality products and tend to spend more money. The Company will first target colder climate states that have higher coffee consumption rates like: Northern California, Oregon, Washington State, Montana, Colorado, North Dakota, South Dakota, and Minnesota. Once the Company becomes well-established in these regions, the Company will expand into other regions that have high coffee and juice consumption rates. The Company has several small competitors in the Internet cafe market, and many indirect competitors in the coffee market. However, none of these competitors offer the high level of quality in their products as we do. Nor do they offer the same services that we provide. The Company believes its cafes will be distinguished from those of its competitors by Internet Hollywood's exciting, high-energy environments, the active involvement of hi-tech companies, extensive displays of unique memorabilia, high-quality, great-tasting coffee and attentive service. The Company's competitors in the coffee market include: Starbucks, Gloria Jean's Coffee and a number of local competitors: Morgan's Coffee & Tea, Juice & Java, and Plumes. Our Internet cafe competitors include local cafes: DJ Cafe and Bytes Cafe. Page 18 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Computer / Internet Market. The second market consists of individuals who want convenient Internet and computer services. Management believes Internet Hollywood to be the first Internet cafe chain to combine entertainment with technology. Internet Hollywood will attract many types of consumers including: tourists that need to send an email to family back home, business people who want to conduct a video-conference, students that need Internet access for researching a term paper, senior citizens that want to take one of Internet Hollywood's many computer classes, and people that just need a place to socialize, meet new people and have a good cup of coffee. Internet Hollywood cafe will provide customers with Internet and video-conferencing service, along with gaming, music and video entertainment. We also plan to offer technological trade shows sponsored by computer and software manufacturers. Trade shows will allow companies to demonstrate their products to our customers. Internet Hollywood cafe will have the ambiance of a Hard Rock Cafe _ or Planet Hollywood _, except Internet Hollywood cafe will have both a technological and entertainment theme. Each Internet Hollywood cafe will house memorabilia that represents both technology and entertainment. The Company's competitors in the computer/Internet market include: local Internet cafes: DJ Cafe and Bytes Cafe, local computer stores: PC People, PCI Tech, and major computer stores: Office Depot, Circuit City and Staples. Retail Industry. Studies show that approximately 50% of consumers who purchase on the Internet will only buy from online stores that also have a "brick and mortar" store. Internet Hollywood will provide consumers with this option. Customers will be able to visit our website, InternetHollywood.com to buy many of the goods we sell at the cafe. Our company will act as a conduit between hi-tech companies and consumers and eventually sell a variety of electronics, computers and other goods. Page 19 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- The chart below lists the sale items that will be sold at each Internet Hollywood store (Profit percentages are based on one location. Net profits will increase as we open multiple locations and buy supplies in larger volume).
DESCRIPTION INTERNET GROSS PROFIT COMPETITION GROSS PROFIT HOLLYWOOD MARGIN PRICE MARGIN PRICE --------------- ---------- ------------- ------------ ------------- Coffee $ 1.00 50% $ 1.50 66% Computer $ 500 20% $ 700 57% Computer Classes $ 25 50% $ 50 75% Video- conferencing $ 25 50% $ 35 64% Internet Banner Ads $ 500 50% $ 2,000 88% Franchise Fee $ 100,000 20% $ 500,000 84% Sublease to Video/Music Store $ 100 50% $ 100 50%
Note: Because this Offering Circular focuses primarily on details concerning the Company rather than the industry in which the Company operates or will operate, potential investors may wish to conduct their own separate investigation of the Company's industry to obtain broader insight in assessing the Company's prospects. (D) DESCRIBE SPECIFICALLY THE MARKETING STRATEGIES THE COMPANY IS EMPLOYING OR WILL EMPLOY IN PENETRATING ITS MARKET OR IN DEVELOPING A NEW MARKET. SET FORTH IN RESPONSE TO QUESTION 4 BELOW THE TIMING AND SIZE OF THE RESULTS OF THIS EFFORT, WHICH WILL BE NECESSARY IN ORDER FOR THE COMPANY TO BE PROFITABLE. INDICATE HOW AND BY WHOM ITS PRODUCTS OR SERVICES ARE OR WILL BE MARKETED (SUCH AS BY ADVERTISING, PERSONAL CONTACT BY SALES REPRESENTATIVES, ETC.), HOW ITS MARKETING STRUCTURE OPERATES OR WILL OPERATE AND THE BASIS OF ITS MARKETING APPROACH, INCLUDING ANY MARKET STUDIES. NAME ANY CUSTOMERS THAT ACCOUNT FOR, OR BASED UPON EXISTING ORDERS WILL ACCOUNT FOR, A MAJOR PORTION (20% OR MORE) OF THE COMPANY'S SALES. DESCRIBE ANY MAJOR EXISTING SALES CONTRACTS. The goals of the Company's marketing strategies are to enhance the Company's position as an industry leader and to actively communicate this position to the consumer. Some of the Company's strategies for marketing include: 1. Hiring two full time sales professionals who have direct and frequent contact with restaurants and cafes. 2. Developing incentive programs directed at franchisees. 3. Offering computer classes and trade-shows which are open to the public. Page 20 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 4. Sponsoring causes and events that fit the target demographic profiles and provide for promotional opportunities. 5. Providing a comprehensive, easy-to-use web page (www.internethollywood.com) that features free and paid services for our customers (i.e. free email, paid web hosting, etc.), information about our Company and products, Company merchandise, computer classes and special events sponsored by the Company. The Company's marketing strategy to attract new customers will include: radio and print advertising, billboards and media coverage at our grand openings, the visibility of its branded merchandise, Internet banner advertising, contest and promotional campaigns, and through word-of-mouth marketing. The Company's marketing strategy will be a three-phase marketing and advertising process: PHASE ONE - INTRODUCTION TO THE MARKET. The first phase of the campaign, which is scheduled to launch during mid-2000, focuses on introducing Internet Hollywood and developing the customer base by the thousands through a high-visibility advertising campaign conducted in targeted media (particularly through radio and print advertising). The initial campaign will offer new customers the opportunity to sample our Internet caf services free for a limited time and to visit the website for a chance to win great contest prizes. PHASE TWO - ESTABLISH INTERNAL DISTRIBUTION CHANNEL. The second phase of the campaign will be initiated after a large channel of communication with the customer base has been established. Phase II leverages the efficient distribution pipeline developed in Phase I by aggressively marketing our services to all customers. The desired result of Phase II is to simultaneously develop a significant profit center, while creating brand loyalty. This phase of the campaign is implemented through Internet communications, direct mail and radio and prints advertising. PHASE THREE - PENETRATE REGIONAL MARKETS. External marketing operations are conducted in Phase III by establishing regional sales offices in the targeted major markets, and physically entering surrounding community markets, with a sales organization comprised of Sales Managers and independent sales personnel. This phase involves marketing and selling the franchise plan to prospective franchisees in new markets. Management wants to penetrate additional markets that will further increase brand recognition and revenue. (E) STATE THE BACKLOG OF WRITTEN FIRM ORDERS FOR PRODUCTS AND/OR SERVICES AS OF A RECENT DATE (WITHIN THE LAST 90 DAYS) AND COMPARE IT WITH THE BACKLOG OF A YEAR AGO FROM THAT DATE. As of: 6/ 1 / 00 $ 0 As of: 6/ 1 / 99 $ 0 EXPLAIN THE REASON FOR SIGNIFICANT VARIATIONS BETWEEN THE TWO FIGURES, IF ANY. INDICATE WHAT TYPES AND AMOUNTS OF ORDERS ARE INCLUDED IN THE BACKLOG FIGURES. STATE THE SIZE OF TYPICAL ORDERS. IF THE COMPANY'S SALES ARE SEASONAL OR CYCLICAL, EXPLAIN. There is no variation in account receivable because we have had no sales, as of this date. Current receivables comprise of $0 in sales. Page 21 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (f) STATE THE NUMBER OF THE COMPANY'S PRESENT EMPLOYEES AND THE NUMBER OF EMPLOYEES IT ANTICIPATES IT WILL HAVE WITHIN THE NEXT 12 MONTHS. ALSO, INDICATE THE NUMBER BY TYPE OF EMPLOYEE (I.E., CLERICAL, OPERATIONS, ADMINISTRATIVE, ETC.) THE COMPANY WILL USE, WHETHER OR NOT ANY OF THEM ARE SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS, AND THE EXPIRATION DATE(S) OF ANY COLLECTIVE BARGAINING AGREEMENT(S). IF THE COMPANY'S EMPLOYEES ARE ON STRIKE, OR HAVE BEEN IN THE PAST THREE YEARS, OR ARE THREATENING TO STRIKE, DESCRIBE THE DISPUTE. INDICATE ANY SUPPLEMENTAL BENEFITS OR INCENTIVE ARRANGEMENTS THE COMPANY HAS OR WILL HAVE WITH ITS EMPLOYEES. As of this date, the Company has not employed any employees. The Company's employees will not be subject to collective bargaining agreements. The following chart represents the current and projected number of employees within the next 12 months. Later, the Company plans to offer stock option and stock incentive plans to its employees. TYPE OF PROJECTED 2000 PROJECTED 2000 EMPLOYEE CURRENT (WITH CAPITAL) (WITHOUT CAPITAL) --------------- ------- --------------- ----------------- Clerical 0 3 0 Operations 0 10 0 Sales 0 12 1 Management 3 5 3 TOTAL EMPLOYEES 3 30 4 (g) DESCRIBE GENERALLY THE PRINCIPAL PROPERTIES (SUCH AS REAL ESTATE, PLANT AND EQUIPMENT, PATENTS, ETC.) THAT THE COMPANY OWNS, INDICATING ALSO WHAT PROPERTIES IT LEASES AND A SUMMARY OF THE TERMS UNDER THOSE LEASES, INCLUDING THE AMOUNT OF PAYMENTS, EXPIRATION DATES AND THE TERMS OF ANY RENEWAL OPTIONS. INDICATE WHAT PROPERTIES THE COMPANY INTENDS TO ACQUIRE IN THE IMMEDIATE FUTURE, THE COST OF SUCH ACQUISITIONS AND THE SOURCES OF FINANCING IT EXPECTS TO USE IN OBTAINING THESE PROPERTIES, WHETHER BY PURCHASE, LEASE OR OTHERWISE. The Company has an agreement to purchase an established Internet cafe in Carmel, California once substantial funding is received. The Company proposes to open another company-owned location by Spring 2001 and franchise at least one location by mid 2001. Leased retail space will range between $1000-$2500 per month. (h) INDICATE THE EXTENT TO WHICH THE COMPANY'S OPERATIONS DEPEND OR ARE EXPECTED TO DEPEND UPON PATENTS, COPYRIGHTS, TRADE SECRETS, KNOW-HOW OR OTHER PROPRIETARY INFORMATION AND THE STEPS UNDERTAKEN TO SECURE AND PROTECT THIS INTELLECTUAL PROPERTY, INCLUDING ANY USE OF CONFIDENTIALITY AGREEMENTS, COVENANTS-NOT-TO-COMPETE AND THE LIKE. SUMMARIZE THE PRINCIPAL TERMS AND EXPIRATION DATES OF ANY SIGNIFICANT LICENSE AGREEMENTS. INDICATE THE AMOUNTS EXPENDED BY THE COMPANY FOR RESEARCH AND DEVELOPMENT DURING THE LAST FISCAL YEAR, THE AMOUNT EXPECTED TO BE SPENT THIS YEAR AND WHAT PERCENTAGE OF REVENUES RESEARCH AND DEVELOPMENT EXPENDITURES WERE FOR THE LAST FISCAL YEAR. Page 22 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- The Company owns all of its product names and has filed applications to register those names that are protectable in the United States Patent and Trademark Office. In addition, where appropriate, the Company intends to obtain copyright protection for its advertising, collateral marketing materials and artwork. The Company relies upon a combination of contractual agreements, trademark and trade secret laws to protect its proprietary rights to its processes, systems and products. Internet Hollywood will distribute its product under agreements that grant its franchisees a license to use the Company's services, and to participate in its business activities. The Company licenses its brands and trademarks to its franchisees. A typical license agreement grants the licensee the right to use on a non-exclusive basis and to sublicense certain intellectual property rights of the Company, including the Company's brand names, logos, trademarks, and service marks. These intellectual property rights may be used only in connection with the operation and promotion of a cafe, and the sale of branded merchandise, at a specified location. The agreement remains in effect for the term of the underlying franchise agreement. As franchisees are not privy to any of its proprietary information, the Company believes that the terms of said Agreements will be sufficient to protect its trade secrets during the franchise agreement period, and thereafter. In addition, Internet Hollywood attempts to protect its trade secrets through agreements with employees and consultants. Each employee of its corporate and regional management teams is bound by rigorous non-disclosure, non-compete and employee/consultant invention agreements. These agreements provide for substantial penalties, including rescission of all stock and stock options received during employment or engagement, in the event of breach. The rapid acceleration of technology and business innovation, combined with the Company's relative financial disparity to larger potential competitors, makes it particularly vulnerable to similar market entries. Although Internet Hollywood intends to protect its rights vigorously, it does not believe that current trademark and trade secret laws are a significant source of protection for its proprietary rights. Management believes that factors such as the management and technological skills of its personnel are more important in establishing and maintaining a leadership position within the industry, than are the various legal protections of its proprietary rights. Should the Company change its name, file bankruptcy or face other financial insolvencies, Ms. Sheryl Moulton will receive full title and possession of the 1999 pending trademark, "Internet Hollywood." This agreement was made between Internet Hollywood and Ms. Sheryl Moulton on March 4, 2000. In consideration, Internet Hollywood has received 2,000,000 shares of Internet Hollywood common stock from Ms. Sheryl Moulton. The Company will use the 2,000,000 shares for this Offering and for officer, franchisee and employee stock options. The Company did not engage in research and development operations during the last fiscal year, and does not anticipate engaging in these activities during the 2000 fiscal year. (i) IF THE COMPANY'S BUSINESS, PRODUCTS, OR PROPERTIES ARE SUBJECT TO MATERIAL REGULATION (INCLUDING ENVIRONMENTAL REGULATION) BY FEDERAL, STATE, OR LOCAL GOVERNMENTAL AGENCIES, INDICATE THE NATURE AND EXTENT OF REGULATION AND ITS EFFECTS OR POTENTIAL EFFECTS UPON THE COMPANY. The Company's business, services, products and properties are subject to material regulation by federal, state or local agencies. The Company must comply with extensive laws and regulations regarding such matters as state and regulatory approval and licensing requirements, trade practices, advertising, promotion and marketing practices, and relationships with distributors and related matters. Failure on the part of the Company to comply with federal, state or local regulations could result in the loss or revocation or suspension of the Company's licenses, permits or approvals and accordingly could have a material adverse effect on the Company's business. Page 23 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (j) STATE THE NAMES OF ANY SUBSIDIARIES OF THE COMPANY, THEIR BUSINESS PURPOSES AND OWNERSHIP, AND INDICATE WHICH ARE INCLUDED IN THE FINANCIAL STATEMENTS ATTACHED HERETO. IF NOT INCLUDED, OR IF INCLUDED BUT NOT CONSOLIDATED, PLEASE EXPLAIN. The Company has no subsidiaries. (k) SUMMARIZE THE MATERIAL EVENTS IN THE DEVELOPMENT OF THE COMPANY (INCLUDING ANY MATERIAL MERGERS OR ACQUISITIONS) DURING THE PAST FIVE YEARS, OR FOR WHATEVER LESSER PERIOD THE COMPANY HAS BEEN IN EXISTENCE. DISCUSS ANY PENDING OR ANTICIPATED MERGERS, ACQUISITIONS, SPIN-OFFS OR RECAPITALIZATIONS. IF THE COMPANY HAS RECENTLY UNDERGONE A STOCK SPLIT, STOCK DIVIDEND OR RECAPITALIZATION IN ANTICIPATION OF THIS OFFERING, DESCRIBE (AND ADJUST HISTORICAL PER SHARE FIGURES ELSEWHERE IN THIS OFFERING CIRCULAR ACCORDINGLY). Internet Hollywood, Inc. was organized as a corporation under the laws of the state of California on June 14, 1999. The Company has not been a party to any merger or acquisition during the last five years. In anticipation of this Offering, The Board of Directors of the Company approved a 15:1 stock split (fifteen new shares for every one old share) effective March 4, 2000. There are now 3,000,000 total company shares. On November 11, 1999, December 4, 1999, March 3, 2000, August 1, 2000, Sheryl Moulton bought back 17,900 shares (calculated on a pre-split basis) for $1655 with her personal funds from four of its officers due to a difference of opinion on the direction, long-range planning and management philosophy of the Company. The average price per share was Nine Cents (.0924) per share (calculated on a pre-split basis). On March 4, 2000 Sheryl Moulton entered into an agreement with Internet Hollywood to purchase 2,000,000 shares of Internet Hollywood stock. In exchange, Ms. Moulton will receive full title and possession of the 1999 pending trademark "Internet Hollywood" in the event the Company changes its name, files bankruptcy or faces any other financial insolvency. This transaction allowed the Company to purchase 2,000,000 shares which will be available for the Offering and for officer, franchisee and employee stock options. Page 24 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 4.(a)IF THE COMPANY WAS NOT PROFITABLE DURING ITS LAST FISCAL YEAR, LIST BELOW IN CHRONOLOGICAL ORDER THE EVENTS WHICH IN MANAGEMENT'S OPINION MUST OR SHOULD OCCUR OR THE MILESTONES WHICH IN MANAGEMENT'S OPINION THE COMPANY MUST OR SHOULD REACH IN ORDER FOR THE COMPANY TO BECOME PROFITABLE, AND INDICATE THE EXPECTED MANNER OF OCCURRENCE OR THE EXPECTED METHOD BY WHICH THE COMPANY WILL ACHIEVE THE MILESTONES. The Company has been unprofitable since 1999 and sustained a minimal $3,096 operating loss in the last fiscal year due to operational costs associated with legal fees and other general operating costs. The Company had no sales up to the time of the filing of this Offering.
EVENT OR MILESTONE EXPECTED MANNER OF DATE, OR NUMBER OF OCCURRENCE OR METHOD OF MONTHS AFTER RECEIPT OF ACHIEVEMENT PROCEEDS, WHEN SHOULD BE ACCOMPLISHED ----------------------------------------- ------------------------------ -------------------------- (1) Purchase Acquire and train adequate Concurrent with receipt of DakotaCoffeehouse.com,an management and staffing. proceeds. established Internet cafe in Develop website. Carmel, California. Hire and train: Management team, and employees. Hire Webmaster. (2) Further develop website. Final website design Days 1 through 89 Sell advertising space to completed. Develop companies and develop advertising campaign strategic alliances. (3) Direct sales team to Several strategic alliances Day 90 develop alliances with hi-tech are negotiated. First trade- companies to participate in show is offered to the public. our trade-show events. Revenues generated from ontinue aggressive sales of sales of webpage ad space. webpage ad space. (4) Launch high-visibility Create mass awareness of Day 91 advertising and public Internet Hollywood in relations campaigns in Internet cafe industry using targeted media. mass media (trade magazines, newspaper, Internet). Increase customer base in Silicon Valley to critical mass. (5) Open two Internet Sales team approach Days 91 through 360 Hollywood franchises in independent coffeehouses to Hollywood and San Francisco franchise with Internet and two out-of-state Hollywood. company-owned stores.
Page 25 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (b) State the probable consequences to the Company of delays in achieving each of the events or milestones within the above time schedule, and particularly the effect of any delays upon the Company's liquidity in view of the Company's then anticipated level of operating costs. (See Question Nos. 11 and 12)
EVENT OR MILESTONE PROBABLE CONSEQUENCES OF EFFECT OF ANY DELAYS UPON DELAY IN ACHIEVING EVENT THE COMPANY'S LIQUIDITY IN WITHIN SCHEDULE VIEW OF THEN ANTICIPATED LEVEL OF OPERATING COSTS ------------------------------ ------------------------------ -------------------------------- (1) Purchase Offering does not provide The delay in opening the cafe DakotaCoffeehouse.com, an significant funding to open could have a potential established Internet cafe in our first cafe. Unable to hire negative material effect on Carmel, California. Hire and adequate management and shareholder value and train: Management team, staffing. Delays in website liquidity. The inability to hire and employees. Hire development. adequate staff could Webmaster. significantly create delays in operations. Delays in website development could result in the inability to meet revenue projections. (2) Further develop website. Website design has not been Delay in the completion of Sell advertising space to completed. Minimal sales of the website and the inability companies and develop advertising space. No to meet sales goals could strategic alliances. strategic alliances result in the inability to meet established. revenue projections and could create a potential negative material effect on shareholder value and liquidity. (3) Direct sales team to No strategic alliances Delays in developing alliances develop alliances with hi-tech established. Minimal webpage should have little or no companies to participate in ad sales. negative impact on current our trade-show events. operations or shareholder Continue aggressive sales of value and liquidity. webpage ad space. (4) Launch high-visibility Advertising launch delayed. Delays in an advertising advertising and public launch may have material relations campaigns in impact on sales revenues, targeted media. causing potential loss of optimum market window and thereby, creating a potentially negative material effect on shareholder value and equity. (5) Open two Internet Sales team unable to Delays in establishing Hollywood franchises in negotiate franchise contracts franchised cafes may cause Hollywood and San Francisco with independent potential loss of optimum and two out-of-state coffeehouses. market window, creating Company-owned stores. potential negative material effect on shareholder value and liquidity.
Page 26 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Note: After reviewing the nature and timing of each event or milestone, potential investors should reflect upon whether achievement of each within the estimated time frame is realistic and should assess the consequences of delays or failure of achievement in making an investment decision. OFFERING PRICE FACTORS 5. WHAT WERE NET, AFTER-TAX EARNINGS FOR THE LAST FISCAL YEAR? (IF LOSSES, SHOW IN PARENTHESIS.) The after-tax earnings loss in 1999 was ($3,096). 6 IF THE COMPANY HAD PROFITS, SHOW OFFERING PRICE AS A MULTIPLE OF EARNINGS. ADJUST TO REFLECT FOR ANY STOCK SPLITS OR RECAPITALIZATIONS, AND USE CONVERSION OR EXERCISE PRICE IN LIEU OF OFFERING PRICE, IF APPLICABLE. Not applicable. 7.(a)WHAT IS THE NET TANGIBLE BOOK VALUE OF THE COMPANY? (IF DEFICIT, SHOW IN PARENTHESIS.) FOR THIS PURPOSE, NET TANGIBLE BOOK VALUE MEANS TOTAL ASSETS (EXCLUSIVE OF COPYRIGHTS, PATENTS, GOODWILL, RESEARCH AND DEVELOPMENT COSTS AND SIMILAR INTANGIBLE ITEMS) MINUS TOTAL LIABILITIES. The net tangible book value of the Company was $2,449 on December 31, 1999. IF THE NET TANGIBLE BOOK VALUE PER SHARE IS SUBSTANTIALLY LESS THAN THIS OFFERING (OR EXERCISE OR CONVERSION) PRICE PER SHARE, EXPLAIN THE REASONS FOR THE VARIATION. Internet Hollywood is in development stage. Proceeds of the Offering will be used for expansion, business development, marketing and general business purposes. Page 27 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (b) STATE THE DATES ON WHICH THE COMPANY SOLD OR OTHERWISE ISSUED SECURITIES DURING THE LAST 12 MONTHS, THE AMOUNT OF SUCH SECURITIES SOLD, THE NUMBER OF PERSONS TO WHOM THEY WERE SOLD, ANY RELATIONSHIP OF SUCH PERSONS TO THE COMPANY AT THE TIME OF SALE, THE PRICE AT WHICH THEY WERE SOLD AND, IF NOT SOLD FOR CASH, A CONCISE DESCRIPTION OF THE CONSIDERATION. (EXCLUDE BANK DEBT.) Between June 14, 1999 and October 5, 1999 he Company issued two hundred thousand 200,000 shares to five members of the Company, three of whom are also officers of the Company in lieu of cash compensation.
(Totals prior to 15:1 March 4, 2000 Stock Split) DATE SHAREHOLDER NUMBER OF CONSIDERATION RELATIONSHIP NAME SHARES (COMMON STOCK) 6/14/99 Sheryl Moulton 182,000 Stock given in CFO / Director (partially vested) lieu of cash compensation. 6/14/99 Patrick Hennessy 6,000 Stock given in Director (partially vested) lieu of cash compensation. 7/15/99 Daniel Yoshizato 4,000 Stock given in Independent lieu of cash Business compensation. Consultant 10/5/99 Donaven Newby 4,000 Stock given in Independent lieu of cash Business compensation. Consultant 10/6/99 Keith Hennessy 4,000 Stock given in Independent lieu of cash Business compensation. Consultant (Totals after 15:1 March 4, 2000 Stock Split) DATE SHAREHOLDER NUMBER OF CONSIDERATION RELATIONSHIP NAME SHARES (COMMON STOCK) 7/14/99 Dean McAthie 333,333 Stock given in CEO / Director (unvested) lieu of cash compensation.
On November 11, 1999, December 4, 1999, March 3, 2000, August 1, 2000, Sheryl Moulton bought back 17,900 shares (calculated on a pre-split basis) for $1655 with her personal funds from four of its officers due to a difference of opinion on the direction, long-range planning and management philosophy of the Company. The average price per share was Nine Cents (.0924) per share (calculated on a pre-split basis). Page 28 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- On March 4, 2000 Sheryl Moulton entered into an agreement with Internet Hollywood to purchase 2,000,000 shares of Internet Hollywood stock. In exchange, Ms. Moulton will receive full title and possession of the 1999 pending trademark "Internet Hollywood" in the event the Company changes its name, files bankruptcy or faces any other financial insolvency. This transaction allowed the Company to purchase 2,000,000 shares which will be available for the Offering and for officer, franchisee and employee stock options. 8.(a)WHAT PERCENTAGE OF THE OUTSTANDING SHARES OF THE COMPANY WILL THE INVESTORS IN THIS OFFERING HAVE? (ASSUME EXERCISE OF OUTSTANDING OPTIONS, WARRANTS OR RIGHTS AND CONVERSION OF CONVERTIBLE SECURITIES, IF THE RESPECTIVE EXERCISE OR CONVERSION PRICES ARE AT OR LESS THAN THE OFFERING PRICE. ALSO ASSUME EXERCISE OF ANY OPTIONS, WARRANTS OR RIGHTS AND CONVERSIONS OF ANY CONVERTIBLE SECURITIES OFFERED IN THIS OFFERING.) Totals after 15:1 Stock Split ---------------------------------- Total Shares in Company 3,000,000 Total Shares of Company Officers (1,000,000) -------------------------------------------------------------- Total Shares outstanding prior to Offering: 2,000,000 Total Shares available for options (1,000,000) -------------------------------------------------------------- Total Shares available in this Offering 1,000,000 If the maximum is sold: 33.33% If the minimum is sold: 3.33% (b) WHAT POST-OFFERING VALUE IS MANAGEMENT IMPLICITLY ATTRIBUTING TO THE ENTIRE COMPANY BY ESTABLISHING THE PRICE PER SECURITY SET FORTH ON THE COVER PAGE (OR EXERCISE OR CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED)? (TOTAL OUTSTANDING SHARES AFTER OFFERING TIMES OFFERING PRICE, OR EXERCISE OR CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED.) If maximum is sold: $ 15,000,000 If minimum is sold: $ 500,000 (For above purposes, assume outstanding options are exercised in determining "shares" if the exercise prices are at or less than the Offering price. All convertible securities, including outstanding convertible securities, shall be assumed converted and any options, warrants or rights in this Offering shall be assumed exercised.) *These values assume that the Company's capital structure would be changed to reflect any conversions of outstanding convertible securities and any use of outstanding securities as payment in the exercise of outstanding options, warrants or rights included in the calculation. The type and amount of convertible or other securities thus eliminated would be: Options securities. These values also assume an increase in cash in the Company by the amount of any cash payments that would be made upon cash exercise of options, warrants or rights included in the calculations. The amount of such cash would be: $50,000 (minimum) Note: After reviewing the above, potential investors should consider whether or not the Offering price (or exercise or conversion price, if applicable) for the securities is appropriate at the present stage of the Company's development. Page 29 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- USE OF PROCEEDS 9.(a) The following table sets forth the use of the proceeds from this Offering: The expenses directly relating to this Offering are estimated to be $10,000 (for SEC and state filing fees, attorney and accounting fees). The Company has allotted up to fifteen- percent commission to the broker (and will assume that up to fifty percent of the Offering stock will be sold through a broker). Thus the net proceeds to the Company will be $4,640,000 if the maximum proceeds are received. The Company intends to utilize the net proceeds of the Offering as a reserve allocable to operations, management and employee compensation, for new and existing personnel; to enhance its market presence through the development of marketing collateral and the implementation of wide-scale institutional advertising campaigns; and to enhance its basic property and equipment infrastructure, in the acquisition of new computer hardware and software utilized in the operation of the Company's business and in InternetHollywood.com. The following two tables show our usage of proceeds as a function of the percentage of proceeds received from the maximum of 100% to the minimum of 10%.
1,000,000SHARES SOLD 500,000 SHARES 100,000 SHARES SOLD SOLD 100% OF THOSE 50% OF THOSE 10% OF THOSE OFFERED OFFERED OFFERED TOTAL RECEIPTS $ 5,000,000 $ 2,500,000 $ 500,000 LESS OFFERING EXPENSES: Commissions, Finders $ 250,000 $ 125,000 $ 12,500 Fees 5.00% 5.00% 2.50% Copying, Advertising $ 100,000 $ 50,000 $ 5,000 2.00% 2.00% 1.00% Legal, Accounting $ 10,000 $ 10,000 $ 10,000 0.20% 0.40% 2.00% Total Offering Expense $ 360,000 $ 185,000 $ 27,500 7.20% 7.40% 5.50% NET PROCEEDS FROM $ 4,640,000 $ 2,315,000 $ 472,500 OFFERING 92.80% 92.60% 94.50% Page 30 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- USE OF NET PROCEEDS: 1,000,000 SHARES 500,000 SHARES 100,000 SHARES SOLD SOLD SOLD 100% OF THOSE 50% OF THOSE 10% OF THOSE OFFERED OFFERED OFFERED Fixed Assets $ 2,000,000 $ 1,000,000 $ 200,000 40.00% 40.00% 40.00% Working Capital $ 1,200,000 $ 600,000 $ 120,000 24.00% 24.00% 24.00% Salaries, Benefits $ 1,440,000 $ 715,000 $ 125,000 28.80% 28.60% 25.00% TOTAL USE OF NET $ 4,640,000 $ 2,315,000 $ 445,000 PROCEEDS 92.80% 92.60% 89.00%
(b) If there is no minimum amount of proceeds that must be raised before the Company may use the proceeds of the Offering, describe the order of priority in which the proceeds set forth above in the column "If Maximum Sold" will be used. 1. Fixed Assets $2,000,000 2. Working Capital $1,200,000 3. Commissions, Finders Fees $ 250,000 4. Salaries, Benefits $1,440,000 5. Copying & Advertising $ 100,000 Note: After reviewing the portion of the Offering allocated to the payment of Offering expenses, and to the immediate payment to management and promoters of any fees, reimbursements, past salaries or similar payments, a potential investor should consider whether the remaining portion of his investment, which would be that part available for future development of the Company's business and operations, would be adequate. Page 31 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 10.(a) IF MATERIAL AMOUNTS OF FUNDS FROM SOURCES OTHER THAN THIS OFFERING ARE TO BE USED IN CONJUNCTION WITH THE PROCEEDS FROM THIS OFFERING, STATE THE AMOUNTS AND SOURCES OF SUCH OTHER FUNDS, AND WHETHER FUNDS ARE FIRM OR CONTINGENT. IF CONTINGENT, EXPLAIN. If the minimum number of shares is sold, the Company currently plans to obtain approximately $100,000 in financing from a Small Business Administration (SBA) loan to help fund the purchase of an existing caf business. If the maximum number of shares is sold, the Company should have enough funding resources for one year to open and maintain several Internet cafes. (b) IF ANY MATERIAL PART OF THE PROCEEDS IS TO BE USED TO DISCHARGE INDEBTEDNESS, DESCRIBE THE TERMS OF SUCH INDEBTEDNESS, INCLUDING INTEREST RATES. IF THE INDEBTEDNESS TO BE DISCHARGED WAS INCURRED WITHIN THE CURRENT OR PREVIOUS FISCAL YEAR, DESCRIBE THE USE OF THE PROCEEDS OF SUCH INDEBTEDNESS. No amount of the proceeds will be used to discharge indebtedness. As of August 8, 2000, the Company is debt-free. Sheryl Moulton has paid all company bills from inception through September 6, 2000; in consideration she has received company stock. (c) IF ANY MATERIAL AMOUNT OF THE PROCEEDS IS TO BE USED TO ACQUIRE ASSETS, OTHER THAN IN THE ORDINARY COURSE OF BUSINESS, BRIEFLY DESCRIBE AND STATE THE COST OF THE ASSETS AND OTHER MATERIAL TERMS OF THE ACQUISITIONS. IF THE ASSETS ARE TO BE ACQUIRED FROM OFFICERS, DIRECTORS, EMPLOYEES OR PRINCIPAL STOCKHOLDERS OF THE COMPANY OR THEIR ASSOCIATES, GIVE THE NAMES OF THE PERSONS FROM WHOM THE ASSETS ARE TO BE ACQUIRED AND SET FORTH THE COST TO THE COMPANY, THE METHOD FOLLOWED IN DETERMINING THE COST, AND ANY PROFIT TO SUCH PERSONS. It will cost between $30,000-$200,000 to purchase an existing cafe business. If the Company does not receive the maximum amount of proceeds from the Offering, the Company might be required to obtain additional funding through a Small Business Administration (SBA) loan or other lines of credit. Page 32 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- (d) IF ANY AMOUNT OF THE PROCEEDS IS TO BE USED TO REIMBURSE ANY OFFICER, DIRECTOR, EMPLOYEE OR STOCKHOLDER FOR SERVICES ALREADY RENDERED, ASSETS PREVIOUSLY TRANSFERRED, OR MONIES LOANED OR ADVANCED, OR OTHERWISE, EXPLAIN: See Section 10(b). 11. INDICATE WHETHER THE COMPANY IS HAVING OR ANTICIPATES HAVING WITHIN THE NEXT 12 MONTHS ANY CASH FLOW OR LIQUIDITY PROBLEMS AND WHETHER OR NOT IT IS IN DEFAULT OR IN BREACH OF ANY NOTE, LOAN, LEASE OR OTHER INDEBTEDNESS OR FINANCING ARRANGEMENT REQUIRING THE COMPANY TO MAKE PAYMENTS. INDICATE IF A SIGNIFICANT AMOUNT OF THE COMPANY'S TRADE PAYABLES HAVE NOT BEEN PAID WITHIN THE STATED TRADE TERM. STATE WHETHER THE COMPANY IS SUBJECT TO ANY UNSATISFIED JUDGMENTS, LIENS OR SETTLEMENT OBLIGATIONS AND THE AMOUNTS THEREOF. INDICATE THE COMPANY'S PLANS TO RESOLVE ANY SUCH PROBLEMS. There is a high possibility the Company may have cash flow problems within the next twelve months if the minimum amount of funding is raised (less than $500,000). The Company is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring the Company to make payments. The Company does not believe that it is subject to any unsatisfactory judgments, liens or settlement obligations. 12. INDICATE WHETHER PROCEEDS FROM THIS OFFERING WILL SATISFY THE COMPANY'S CASH REQUIREMENTS FOR THE NEXT 12 MONTHS, AND WHETHER IT WILL BE NECESSARY TO RAISE ADDITIONAL FUNDS. STATE THE SOURCE OF ADDITIONAL FUNDS, IF KNOWN. Management believes that the proceeds of this Offering will be sufficient to satisfy its cash requirements for the next 12 months, and that no additional funds will be required by operations. Page 33 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- CAPITALIZATION 13. INDICATE THE CAPITALIZATION OF THE COMPANY AS OF THE MOST RECENT BALANCE SHEET DATE (ADJUSTED TO REFLECT ANY SUBSEQUENT STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS OR REFINANCINGS) AND AS ADJUSTED TO REFLECT THE SALE OF THE MINIMUM AND MAXIMUM AMOUNT OF SECURITIES IN THIS OFFERING AND THE USE OF THE NET PROCEEDS THEREFROM:
DECEMBER 31, 1999 (AS ACTUAL MINIMUM IF 0 MAXIMUM IF ADJUSTED) SHARES ($0) SOLD 1,000,000 SHARES ($5,000,000) SOLD - --------------------------- -------- ----------------- ---------------- Debt: Short-Term debt $ 0 $ 0 $ 0 (average interest rate 10%) Long-Term debt $ 0 $ 100,000* $ 0 (average interest rate 10%) Total Debt $ 0 $ 100,000* $ 0 STOCKHOLDERS EQUITY (DEFICIT): Preferred stock $ 0 $ 0 $ 0 Common stock--par or $ 5,545 $ 5,545 $ 5,545 stated value Additional paid in capital $ 0 $ 0 $ 0 Retained earnings (deficit) $(3,096) $ (3,096) $ (3,096) Total stockholders equity $ 2,449 $ 2,449 $ 5,002,449 (deficit) Total Capitalization $ 2,449 $ 2,449 $ 5,002,449
* If the minimum number of shares is sold, the Company currently plans to obtain approximately $100,000 in financing from a Small Business Administration (SBA) loan to help fund the purchase of an existing cafe business. The Company will not obtain an SBA loan in the immediate future, should the maximum number of shares be sold. Page 34 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- DESCRIPTION OF SECURITIES 14. The securities being offered hereby are: [x] Common Stock [ ] Preferred or Preference Stock [ ] Notes or Debentures [ ] Units of two or more types of securities, composed of: [ ] Other: 15. These securities have: Yes No [x] [ ] Cumulative voting rights [ ] [x] Other special voting rights [ ] [x] Preemptive rights to purchase in new issues of shares [ ] [x] Preference as to dividends or interest [ ] [x] Preference upon liquidation [ ] [x] Other special rights or preferences (specify): 16. Are the securities convertible? [ ] Yes [x] No 17.(a) If securities are notes or other types of debt securities: Not applicable. (b) If notes or other types of debt securities are being offered and the Company had earnings during its last fiscal year, show the ratio of earnings to fixed charges on an actual and pro forma basis for that fiscal year. "Earnings" means pretax income from continuing operations plus fixed charges and capitalized interest. "Fixed charges" means interest (including capitalized interest), amortization of debt discount, premium and expense, preferred stock dividend requirements of majority owned subsidiary, and such portion of rental expense as can be demonstrated to be representative of the interest factor in the particular case. The pro forma ratio of earnings to fixed charges should include incremental interest expense as a result of the Offering of the notes or other debt securities. Not applicable. Note: Care should be exercised in interpreting the significance of the ratio of earnings to fixed charges as a measure of the "coverage" of debt service, as the existence of earnings does not necessarily mean that the Company's liquidity at any given time will permit payment of debt service requirements to be timely made. See Question Nos. 11 and 12. See also the Financial Statements and especially the Statement of Cash Flows. Page 35 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 18. IF SECURITIES ARE PREFERENCE OR PREFERRED STOCK: ARE UNPAID DIVIDENDS CUMULATIVE? [ ] Yes [ ] No ARE SECURITIES CALLABLE? [ ] Yes [ ] No Not applicable. Note: Attach to this Offering Circular copies or a summary of the charter, bylaw or contractual provision or document that gives rise to the rights of holders of Preferred or Preference Stock, notes or other securities being offered. 19. IF SECURITIES ARE CAPITAL STOCK OF ANY TYPE, INDICATE RESTRICTIONS ON DIVIDENDS UNDER LOAN OR OTHER FINANCING ARRANGEMENTS OR OTHERWISE: There are no restrictions on dividends under any loan or other financing arrangements at the time of the Offering described in this Offering Circular. 20. CURRENT AMOUNT OF ASSETS AVAILABLE FOR PAYMENT OF DIVIDENDS (IF DEFICIT MUST BE FIRST MADE UP, SHOW DEFICIT IN PARENTHESIS): No assets are available for payment of dividends at this time. PLAN OF DISTRIBUTION 21. THE SELLING AGENTS (THAT IS, THE PERSONS SELLING THE SECURITIES AS AGENT FOR THE COMPANY FOR A COMMISSION OR OTHER COMPENSATION) IN THIS OFFERING ARE: The Company proposes to have selling agents. Dean McAthie, Sheryl Moulton and certain other individuals are designated as selling agents. 22. DESCRIBE ANY COMPENSATION TO SELLING AGENTS OR FINDERS, INCLUDING CASH, SECURITIES, CONTRACTS OR OTHER CONSIDERATION, IN ADDITION TO THE CASH COMMISSION SET FORTH AS A PERCENT OF THE OFFERING PRICE ON THE COVER PAGE OF THIS OFFERING CIRCULAR. ALSO INDICATE WHETHER THE COMPANY WILL INDEMNIFY THE SELLING AGENTS OR FINDERS AGAINST LIABILITIES UNDER THE SECURITIES LAWS. ("FINDERS" ARE PERSONS WHO FOR COMPENSATION ACT AS INTERMEDIARIES IN OBTAINING SELLING AGENTS OR OTHERWISE MAKING INTRODUCTIONS IN FURTHERANCE OF THIS OFFERING.) While the Company believes that it will sell a significant portion of the shares without commission, the Company intends to allocate a cash sum of up to fifteen percent, (15%) of the sum of the proceeds of the Offering, if any, to such firms and/or individuals as it may engage as selling agents. The Company also reserves the right to allocate additional sums in cash or common stock, to said selling agents, if any, as non-accountable expenses allowances and incentives. The Company indemnifies the selling agents against liabilities under the securities laws. Page 36 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 23. DESCRIBE ANY MATERIAL RELATIONSHIPS BETWEEN ANY OF THE SELLING AGENTS OR FINDERS AND THE COMPANY OR ITS MANAGEMENT. Dean McAthie, Sheryl Moulton and certain other individuals are designated as selling agents. No compensation will be paid to such persons, however, if such persons have expenses incurred by them related to this Offering, those expenses will be reimbursed by the Company. Note: After reviewing the amount of compensation to the selling agents or finders for selling the securities, and the nature of any relationship between the selling agents or finders and the Company, a potential investor should assess the extent to which it may be inappropriate to rely upon any recommendation by the selling agents or finders to buy the securities. 24. IF THIS OFFERING IS NOT BEING MADE THROUGH SELLING AGENTS, THE NAMES OF PERSONS AT THE COMPANY THROUGH WHICH THIS OFFERING IS BEING MADE: Dean McAthie, Sheryl Moulton and certain other individuals as designated. No compensation will be paid to such persons, however, if such persons have expenses incurred by them related to this Offering, those expenses will be reimbursed by the Company. 25. IF THIS OFFERING IS LIMITED TO A SPECIAL GROUP, SUCH AS EMPLOYEES OF THE COMPANY, OR IS LIMITED TO A CERTAIN NUMBER OF INDIVIDUALS (AS REQUIRED TO QUALIFY UNDER SUBCHAPTER S OF THE INTERNAL REVENUE CODE) OR IS SUBJECT TO ANY OTHER LIMITATIONS, DESCRIBE THE LIMITATIONS AND ANY RESTRICTIONS ON RESALE THAT APPLY: Pursuant to Rule 144, certain Officers and Directors who own greater than ten percent (10%) of the Company, may have resale restrictions on the shares. The Offering will limit the sale of securities in California, pursuant to "Small Business Issuer" Rules 260.001 (i) and 260.140.01 (e). Sale and resale of securities must act in compliance with state and federal laws. Will the certificates bear a legend notifying holders of such restrictions? [ ] Yes [x] No 26(a)NAME, ADDRESS AND TELEPHONE NUMBER OF INDEPENDENT BANK OR SAVINGS AND LOAN ASSOCIATION OR OTHER SIMILAR DEPOSITORY INSTITUTION ACTING AS AGENT IF PROCEEDS ARE ESCROWED UNTIL MINIMUM PROCEEDS ARE RAISED: Bank of America Highway 1 and Rio Road Carmel, California, 93922 (831) 622-2947 (b) DATE AT WHICH FUNDS WILL BE RETURNED BY ESCROW AGENT IF MINIMUM PROCEEDS ARE NOT RAISED: September 6, 2001. Page 37 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Will interest on proceeds during escrow period be paid to investors? No. 27. Explain the nature of any resale restrictions on presently outstanding shares, and when those restrictions will terminate, if this can be determined: Except for certain Officers and Directors who own greater than ten percent (10%) of the Company, there are no resale restrictions on the shares. The Company is currently considering establishing a passive "bulletin board" service on the Company's Internet Home Page to help provide a mechanism for potential buyers and seller to contact each other without the necessity of the involvement of broker-dealer. No assurance can be given that such service will be established or that any trading market will exist. Furthermore, any future resale may require compliance with exemption provisions under some states' securities laws. Note: Equity investors should be aware that unless the Company is able to complete a further public Offering or the Company is able to be sold for cash or merged with a public company that their investment in the Company may be illiquid indefinitely. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS 28. If the Company has within the last five years paid dividends, made distributions upon its stock or redeemed any securities, explain how much and when: None. Page 38 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- OFFICERS AND KEY PERSONNEL OF THE COMPANY 29. Chief Executive Officer: Title: Chief Executive Officer Name: Dean McAthie Age: 43 Office Street PO Box 223611 Address: Carmel, CA 93922 Telephone No: (831) 394-5579 Names of employers, titles and dates of positions held during past five years with an indication of job responsibilities.
7/00 - Present CEO, Internet Hollywood, Inc. Responsible for all operations. 12/99-Present CEO, Dakota Coffeehouse (DakotaCoffeehouse.com) Responsible for all Internet cafe store operations. 8/98-99 Assistant General Manager, Gordon Biersch Restaurant Recruited to manage a high volume restaurant, brewery and bar With over $4.6 million in annual sales. -Increased revenues 16% over previous year. -150 employees on staff. -Created annual budgets and worked on monthly P&L statements. -Daily invoicing and coding. -Achieved goals of 23.5% MOP. Maintained 27% food cost; 20% liquor cost; 26% wine cost; and 28% total labor. -Developed supervisors to management-level and managed all work groups. -Worked on implementing new menus, new uniforms, new POS system. -Worked closely with sales manager on special events and promotions. 8/96 - 8/98 Food and Beverage Manager, Poppy Ridge Golf Course Pre-opening and opening manager of new restaurant, bar and snack bar. -Designed menu, hired kitchen and wait staff of forty employees. -Purchased all equipment in kitchen, dining room and snack bar. -Responsible for three outlets - snack bar, restaurant, and bar which generated $1.5 million in revenue the first year of operation. -Sold specialty banquets, wedding, corporate, and local / social events which contributed greatly to the success of the operation. 8/94 - 6/96 Restaurant and Bar Manager, Monterey Plaza Hotel Responsible for the Duck Club Restaurant and Lounge, special events, concerts, weekly live music, and Holiday buffets. -Increased sales in the restaurant by 20% from previous years. -Set the highest sales record in the lounge in 14 years. -Assisted in the conception and production of the successful "Concerts on the Bay" series. -Improved guest comment cards to 97% satisfaction rating.
Page 39 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Mr. McAthie has over fifteen years' experience in food and beverage management, His experience includes (but is not limited to): Department administration: payroll, inventory, employee scheduling, budgeting, reports and accounting, advertising and promotion, budget control, menu planning, wine selection, hiring, training, and supervision for up to 150 employees, remodel and renovation and opening a brand new facility. Mr. McAthie was recently appointed Chief Executive Officer of Internet Hollywood. He currently operates a very successful Internet cafe, which Internet Hollywood proposes to purchase upon funding. Mr. McAthie holds degrees in Business and Communication and Hotel and Restaurant Management. Mr. McAthie is also a Director of the Company. Education (degrees, schools, and dates): Business and Communication, University of South Dakota, 1978. AA Degree in Hotel and Restaurant Management, San Francisco City College, 1980. Also a Director of the Company? [x] Yes [ ] No Indicate amount of time to be spent on Company matters if less than full time: Full time. Page 40 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 30. Chief Operating Officer: Title: Chief Operating Officer / Chief Financial Officer Name: Sheryl Moulton Age: 29 Office Street PO Box 223611 Address: Carmel, CA 93922 Telephone No: (831) 394-5579 Name of employers, titles and dates of positions held during past five years with an indication of job responsibilities.
3/99 to Present Chief Operating Officer / Chief Financial Officer, Internet Hollywood Responsible for the operations and financial departments. -Working closely with a panel of corporate attorneys on securities, intellectual property and contractual law. -Composing and filing federal and state securities registration documents and assisting in investor relations; Drafting / filing trademark applications. -Developing business plan and financials; Researching market trends. 6/98 - 3/99 Operations Assistant, Samsung Multimedia -Supporting 2 directors, 3 managers, 20-25 engineers in Multimedia Dept. -Assisting the Patent Agent in Legal Dept. with the maintenance of patents and trademarks and creating status reports. -Reporting to Purchasing Manager and Accounting Department and assisting in purchasing, accounting and expense reporting. -Processing purchase requisitions, accounts payables, timecards for exempt and non-exempt employees and consultant contracts. -Creating multimedia presentations and advanced Access databases. -Resolving technical problems (i.e. network, printer and email problems). -Coordinating office space allocation, computer equipment, phone lines, voice mail and network connectivity for new employees. 1994-1998 Proprietor, Pacific Computer Exchange -Repairing and building personal computers and performing general network administration. -Purchasing computer hardware and software for resale. -Working on contract for Embassy Suites Hotel in Monterey and several other businesses on the Monterey Peninsula.
Ms. Moulton has served as Chief Financial Officer and Chief Operating Officer since June 1999. From 1998 to 1999, Ms. Moulton was an Operations Assistant at Samsung Information Systems America where she assisted in maintaining legal and accounting records. From 1994 to 1998, Ms. Moulton served as proprietor at Pacific Computer Exchange, a computer retail and service business. Ms. Moulton holds a bachelors degree from the University of California, Santa Cruz. Ms. Moulton is also a Director of the Company. Education (degrees, schools, and dates): Bachelors Degree, English, UCSC, Santa Cruz, California, Graduated 1994. Also a Director of the Company? [x] Yes [ ] No Indicate amount of time to be spent on Company matters if less than full time: Page 41 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 30. Chief Operating Officer: Title: Chief Operating Officer / Chief Financial Officer Name: Sheryl Moulton Age: 29 Office Street PO Box 223611 Address: Carmel, CA 93922 Telephone No: (831) 394-5579 Name of employers, titles and dates of positions held during past five years with an indication of job responsibilities.
3/99 to Present Chief Operating Officer / Chief Financial Officer, Internet Hollywood Responsible for the operations and financial departments. -Working closely with a panel of corporate attorneys on securities, intellectual property and contractual law. -Composing and filing federal and state securities registration documents and assisting in investor relations; Drafting / filing trademark applications. -Developing business plan and financials; Researching market trends. 6/98 - 3/99 Operations Assistant, Samsung Multimedia -Supporting 2 directors, 3 managers, 20-25 engineers in Multimedia Dept. -Assisting the Patent Agent in Legal Dept. with the maintenance of patents and trademarks and creating status reports. -Reporting to Purchasing Manager and Accounting Department and assisting in purchasing, accounting and expense reporting. -Processing purchase requisitions, accounts payables, timecards for exempt and non-exempt employees and consultant contracts. -Creating multimedia presentations and advanced Access databases. -Resolving technical problems (i.e. network, printer and email problems). -Coordinating office space allocation, computer equipment, phone lines, voice mail and network connectivity for new employees. 1994-1998 Proprietor, Pacific Computer Exchange -Repairing and building personal computers and performing general network administration. -Purchasing computer hardware and software for resale. -Working on contract for Embassy Suites Hotel in Monterey and several other businesses on the Monterey Peninsula.
Ms. Moulton has served as Chief Financial Officer and Chief Operating Officer since June 1999. From 1998 to 1999, Ms. Moulton was an Operations Assistant at Samsung Information Systems America where she assisted in maintaining legal and accounting records. From 1994 to 1998, Ms. Moulton served as proprietor at Pacific Computer Exchange, a computer retail and service business. Ms. Moulton holds a bachelors degree from the University of California, Santa Cruz. Ms. Moulton is also a Director of the Company. Education (degrees, schools, and dates): Bachelors Degree, English, UCSC, Santa Cruz, California, Graduated 1994. Also a Director of the Company? [x] Yes [ ] No Indicate amount of time to be spent on Company matters if less than full time: Page 42 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 32. Other Key Personnel: None. DIRECTORS OF THE COMPANY 33. Number of Directors: 3 If Directors are not elected annually, or are elected under a voting trust or other arrangement, explain: All Directors will be elected at a regular meeting of the Members of the Company. 34. Information concerning outside or other Directors (i.e. those not described above): Not applicable. 35(a)Have any of the Officers or Directors ever worked for or managed a company (including a separate subsidiary or division of a larger enterprise) in the same business as the Company? [x] Yes [ ] No Mr. Dean McAthie owns and operates an existing Internet caf (DakotaCoffeehouse.com) which Internet Hollywood intends to purchase upon the funding from this Offering. (b) If any of the Officers, Directors or other key personnel have ever worked for or managed a company in the same business or industry as the Company or in a related business or industry, describe what precautions, if any, (including the obtaining of releases or consents from prior employers) have been taken to preclude claims by prior employers for conversion or theft of trade secrets, know-how or other proprietary information. The company has signed an agreement (contingent on adequate funding from this Offering) to purchase Mr. McAthie's existing caf (DakotaCoffeehouse.com) at a reasonable cost to the Company. (c) If the Company has never conducted operations or is otherwise in the development stage, indicate whether any of the Officers or Directors has ever managed any other company in the startup or development stage and describe the circumstances, including relevant dates. Each of the Company's senior executives is highly experienced in the management and expansion of development stage companies. The following is a brief description of their relevant experience: Dean McAthie, Chief Executive Officer, has over fifteen years' experience in food and beverage management, His experience includes (but is not limited to): Department administration: payroll, inventory, employee scheduling, budgeting, reports and accounting, advertising and promotion, budget control, menu planning, wine selection, hiring, training, and supervision for up to 150 employees, remodel and renovation and opening a brand new facility. Page 43 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Mr. McAthie was recently appointed Chief Executive Officer of Internet Hollywood. He currently operates a very successful Internet caf (DakotaCoffeehouse.com), that Internet Hollywood proposes to purchase upon funding. Mr. McAthie holds degrees in Business and Communication and Hotel and Restaurant Management. Mr. McAthie is also a Director of the Company. Ms. Sheryl Moulton has developed a reputation as a highly experienced and charismatic leader of growth stage companies during her career. She co-founded Pacific Computer Exchange, a computer service and retail company. Her responsibilities during this period included contract negotiation with businesses and major vendors, and the development and management of marketing and distribution operations. Ms. Moulton has served as Chief Operating Officer and Chief Financial Officer since June 1999. From 1998 to 1999, Ms. Moulton served in Operations at Samsung Information Systems America where she assisted in maintaining legal and accounting records. From 1994 to 1998, Ms. Moulton served as partner at Pacific Computer Exchange, a computer retail and service business. Ms. Moulton holds a Bachelors degree from the University of California, Santa Cruz. Ms. Moulton is also a Director of the Company. (d) If any of the Company's key personnel are not employees but are consultants or other independent contractors, state the details of their engagement by the Company. Not applicable. (e) If the Company has key man life insurance policies on any of its Officers, Directors or key personnel, explain, including the names of the persons insured, the amount of insurance, whether the insurance proceeds are payable to the Company and whether there are arrangements that require the proceeds to be used to redeem securities or pay benefits to the estate of the insured person or to a surviving spouse. Not applicable. 36. If a petition under the Bankruptcy Act or any State insolvency law was filed by or against the Company or its Officers, Directors or other key personnel, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of any such persons, or any partnership in which any of such persons was general partner at or within the past five years, or any corporation or business association of which any such person was an executive officer at or within the past five years, set forth below the name of such persons, and the nature and date of such actions. Not applicable. Note: After reviewing the information concerning the background of the Company's Officers, Directors and other key personnel, potential investors should consider whether or not these persons have adequate background and experience to develop and operate this Company and to make it successful. In this regard, the experience and ability of management are often considered the most significant factors in the success of a business. Page 44 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- PRINCIPAL STOCKHOLDERS 37. Principal owners of the Company (those who beneficially own directly or indirectly 10% or more of the common and preferred stock presently outstanding) starting with the largest common stockholder. Include separately all common stock issuable upon conversion of convertible securities (identifying them by asterisk) and show average price per share as if conversion has occurred. Indicate by footnote if the price paid was for a consideration other than cash and the nature of any such consideration.
NAME OF CLASS OF AVERAGE NUMBER OF PERCENTAGE PERCENTAGE PRINCIPAL SHARES PRICE SHARES OF TOTAL OF STOCKHOLDER PER SHARE NOW HELD NUMBER OF TOTAL SHARES HELD AFTER OFFERING IF ALL SECURITIES SOLD Sheryl Moulton Common $ 5 998,500 49.9% 33% (partially unvested stock) Dean McAthie Common $ 5 333,333 16.66% 11.11% (unvested stock) Patrick Hennessy Common $ 5 21,500 1% Less than 1% (partially unvested)
Page 45 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 38. Number of shares beneficially owned by Officers and Directors as a group: Before Offering: 1,000,000 shares (33.33% of total outstanding) After Offering: a) Assuming minimum securities sold: Not applicable. b) Assuming maximum securities sold: 1,000,000 shares (33.33% of total outstanding) Totals after 15:1 Stock Split ---------------------------------- Total Shares in Company 3,000,000 Total Shares of Company Officers (1,000,000) ----------------------------------------------------------------- Total Shares outstanding prior to Offering: 2,000,000 Total Shares available for options (1,000,000) ----------------------------------------------------------------- Total Shares available in this Offering 1,000,000 MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND RENUMERATION 39.(a) If any of the Officers, Directors, key personnel or principal stockholders are related by blood or marriage, please describe. Not applicable. (b) If the Company has made loans to or is doing business with any of its Officers, Directors, key personnel or 10% stockholders, or any of their relatives (or any entity controlled directly or indirectly by any of such persons) within the last two years, or proposes to do so within the future, explain. (This includes sales or lease of goods, property or services to or from the Company, employment or stock purchase contracts, etc.) State the principal terms of any significant loans, agreements, leases, financing or other arrangements. Not applicable. The Company does not propose to make loans to its Officers, Directors, key personnel or 10% stockholders or any relatives in the near future. (c) If any of the Company's Officers, Directors, key personnel or 10% stockholders has guaranteed or cosigned any of the Company's bank debt or other obligations, including any indebtedness to be retired from the proceeds of this Offering, explain and state the amounts involved. Not applicable. Page 46 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 40(a)LIST ALL REMUNERATION BY THE COMPANY TO OFFICERS, DIRECTORS AND KEY PERSONNEL FOR THE LAST FISCAL YEAR: Not applicable. All Officers and Directors received stock in lieu of cash compensation.
OFFICER CASH OTHER Chief Executive Officer $ 0 333,333 shares Chief Financial Officer / Chief Operating Officer $ 0 998,500 shares Director $ 0 21,500 shares
On March 4, 2000 Sheryl Moulton entered into an agreement with Internet Hollywood to purchase her 2,000,000 shares of Internet Hollywood stock. In exchange, Ms. Moulton will receive full title and possession of the 1999 pending trademark "Internet Hollywood" in the event of the Company changes its name, files bankruptcy or faces any other financial insolvency. (b) IF REMUNERATION IS EXPECTED TO CHANGE OR HAS BEEN UNPAID IN PRIOR YEARS, EXPLAIN: Remuneration (salary compensation) will be paid to management upon the funding of this Offering. The Company's founders, executives and managers have only accepted common stock and no salary compensation during the Company's early stages of development. The Company's board of directors intends to provide cash compensation to management at rates which are advantageous to the Company. However, the challenges of managing a high-growth company demand highly skilled management, possessing an extremely high level of expertise, experience and energy. While Company policies preclude inordinately high levels of compensation for management, it is aware that lucrative, performance-based compensation packages must be offered, in order to attract and retain highly qualified management. As such, the Company has entered into employment agreements with its existing management personnel which provide substantial performance-based compensation, and incentives for extraordinary performance. The Company intends to continue this policy in the future, pursuant to recognized compensation guidelines.
OFFICER CASH OTHER Chief Executive Officer $150,000 333,333 option shares Chief Financial Officer / Chief Operating Officer $ 75,000 $ 75,000 bonus (for drafting and filing Initial Public Offering and other associated out-of-pocket expenses.
(c) IF ANY EMPLOYMENT AGREEMENTS EXIST OR ARE CONTEMPLATED, DESCRIBE: The Company entered into an Employment Agreement with Sheryl Moulton for the period of three years. Said agreement provides $75,000 in annual salary and a $75,000 bonus for drafting the IPO filing, and performance-based incentives, pursuant to established policies, which the Company believes to be advantageous to its shareholders. The Company entered into an Employment Agreement with Dean McAthie for a period of three years. Said agreement provides $150,000 in annual salary, bonus and options. Page 47 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- 41(a)NUMBER OF SHARES SUBJECT TO ISSUANCE UNDER PRESENTLY OUTSTANDING STOCK PURCHASE AGREEMENTS, STOCK OPTIONS, WARRANTS OR RIGHTS: 140,200 SHARES, (23.6% OF TOTAL SHARES TO BE OUTSTANDING AFTER THE COMPLETION OF THE OFFERING IF ALL SECURITIES SOLD, ASSUMING EXERCISE OF OPTIONS AND CONVERSION OF CONVERTIBLE SECURITIES). INDICATE WHICH HAVE BEEN APPROVED BY SHAREHOLDERS. STATE THE EXPIRATION DATES, EXERCISE PRICES AND OTHER BASIC TERMS FOR THESE SECURITIES: The Company will not grant options in excess of 10% of the outstanding shares for a one-year period following the qualification date of this offering.
DATE OF OPTIONEE SHARES EXERCISE PRICE EXPIRATION DATE GRANT 6/25/00 Sheryl Moulton 100,000 85% of fair market value 6/25/08 7/17/00 Dean McAthie 333,333 85% of fair market value 7/17/08
The exercise prices for any option must be at least 85% of the fair market value of the shares on the date the option was granted. (b) NUMBER OF COMMON SHARES SUBJECT TO ISSUANCE UNDER EXISTING STOCK PURCHASE OR OPTION PLANS BUT NOT YET COVERED BY OUTSTANDING PURCHASE AGREEMENTS, OPTIONS OR WARRANTS: 213,334 shares (c) DESCRIBE THE EXTENT TO WHICH FUTURE STOCK PURCHASE AGREEMENTS, STOCK OPTIONS, WARRANTS OR RIGHTS MUST BE APPROVED BY SHAREHOLDERS. Shareholder approval would be necessary only to increase the authorized number of shares, not for any specific stock purchase agreements, stock options, warrants or rights. 42. IF THE BUSINESS IS HIGHLY DEPENDENT ON THE SERVICES OF CERTAIN KEY PERSONNEL, DESCRIBE ANY ARRANGEMENTS TO ASSURE THAT THESE PERSONS WILL REMAIN WITH THE COMPANY AND NOT COMPETE UPON ANY TERMINATION: The Company entered into a Consulting Agreement with all Officers for terms of up to three years, and provides for the continued employment by the Company during this period. The agreement provides cash and performance-based compensation in an amount, and pursuant to, terms and conditions which the Company believes to be advantageous to the shareholders of the Company. Note: After reviewing the above, potential investors should consider whether or not the compensation to management and other key personnel directly or indirectly, is reasonable in view of the present stage of the Company's development. Page 48 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- LITIGATION 43. DESCRIBE ANY PAST, PENDING OR THREATENED LITIGATION OR ADMINISTRATIVE ACTION WHICH HAS HAD OR MAY HAVE A MATERIAL EFFECT UPON THE COMPANY'S BUSINESS, FINANCIAL CONDITION, OR OPERATIONS, INCLUDING ANY LITIGATION OR ACTION INVOLVING THE COMPANY'S OFFICERS, DIRECTORS OR OTHER KEY PERSONNEL. STATE THE NAMES OF THE PRINCIPAL PARTIES, THE NATURE AND CURRENT STATUS OF THE MATTERS, AND AMOUNTS INVOLVED. GIVE AN EVALUATION BY MANAGEMENT OR COUNSEL, TO THE EXTENT FEASIBLE, OF THE MERITS OF THE PROCEEDINGS OR LITIGATION AND THE POTENTIAL IMPACT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION, OR OPERATIONS. The Company filed for trademark protection with the United States Patent and Trademark Office in March of 1999. In April of 1999, Hollywood Entertainment (d.b.a. "Hollywood Video") filed two subsequent trademarks for the "Internet Hollywood" name: (1) Internet Hollywood and (2) InternetHollywood.net. The United States Patent and Trademark Office (USPTO) may or may not approve Hollywood Entertainment's trademark applications. The USPTO may or may not approve our Company's trademark application. Therefore, the Company cannot make any guarantees as to the outcome of our pending "Internet Hollywood" trademark. There are no pending or threatened legal actions or administrative actions against our Company either in the past or present. FEDERAL TAX ASPECTS 44. IF THE COMPANY IS AN S CORPORATION UNDER THE INTERNAL REVENUE CODE OF 1986, AND IT IS ANTICIPATED THAT ANY SIGNIFICANT TAX BENEFITS WILL BE AVAILABLE TO INVESTORS IN THIS OFFERING, INDICATE THE NATURE AND AMOUNT OF SUCH ANTICIPATED TAX BENEFITS AND THE MATERIAL RISKS OF THEIR DISALLOWANCE. ALSO, STATE THE NAME, ADDRESS AND TELEPHONE NUMBER OF ANY TAX ADVISOR THAT HAS PASSED UPON THESE TAX BENEFITS. ATTACH ANY OPINION OR ANY DESCRIPTION OF THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES BY THE TAX ADVISOR. Not applicable. The Corporation is not an "S" corporation. Name of Tax Advisor: Mr. David B. Tolkan, C.P.A. Address: PO Box 51819 Pacific Grove, CA 93950 Telephone No. (831) 372-8104 Note: Potential investors are encouraged to have their own personal tax consultant contact the tax advisor to review details of the tax benefits and the extent that the benefits would be available and advantageous to the particular investor. Page 49 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- MISCELLANEOUS FACTORS 45. DESCRIBE ANY OTHER MATERIAL FACTORS, EITHER ADVERSE OR FAVORABLE, THAT WILL OR COULD AFFECT THE COMPANY OR ITS BUSINESS (FOR EXAMPLE, DISCUSS ANY DEFAULTS UNDER MAJOR CONTRACTS, ANY BREACH OF BYLAW PROVISIONS, ETC.) OR WHICH ARE NECESSARY TO MAKE ANY OTHER INFORMATION IN THIS OFFERING CIRCULAR NOT MISLEADING OR INCOMPLETE. The Internet cafe market is expanding at phenomenal rates as interest in the Internet rapidly increases. If existing trends continue, analysts predict that in five years Internet cafes will become a dominating force in the "coffeehouse" industry. Internet Hollywood, Inc. proposes to dominate this rapidly-growing market and become the first nationwide Internet cafe franchise. Page 50 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS 46. Attach reviewed or audited financial statements for the last fiscal year and unaudited financial statements for any interim periods thereafter. If since the beginning of the last fiscal year the Company has acquired another business the assets or net income of which were in excess of 20% of those for the Company, show pro forma combined financial statements as if the acquisition had occurred at the beginning of the Company's last fiscal year. Attached, are the audited financial statements for the fiscal year ended December 31,1999. INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF DECEMBER 31, 1999 ASSETS CURRENT ASSETS: CASH IN BANK $ 163 DEFERRED FEDERAL TAX CREDIT (NOTE A) 405 --------- TOTAL CURRENT ASSETS 568 FIXED ASSETS: (NOTES A & C) COMPUTER EQUIPMENT $ 677 -------- TOTAL COST 677 LESS: ACCUMULATED DEPRECIATION (79) -------- TOTAL FIXED ASSETS 598 --------- OTHER ASSETS: TRADE NAME (NET OF ACCUMULATED AMORTIZATION OF $14) (NOTE A) 1,275 ORGANIZATION COSTS (NET OF ACCUMULATED AMORTIZATION OF $107) (NOTE A) 808 -------- TOTAL OTHER ASSETS 2,083 --------- TOTAL ASSETS $ 3,249 ========= LIABILITIES AND STOCKHOLDER'S EQUITY Page 51 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- LIABILITIES CURRENT LIABILITIES: ACCRUED FRANCHISE TAX (NOTE A) $ 800 ---------- TOTAL CURRENT LIABILITIES 800 ---------- TOTAL LIABILITIES 800 ---------- STOCKHOLDER'S EQUITY: (NOTE E) CAPITAL STOCK - NO PAR VALUE, 200,000 SHARES AUTHORIZED, 200,000 SHARES OUTSTANDING (NOTE F) 5,545 ACCUMULATED DEFICIT (3,096) ---------- TOTAL STOCKHOLDER'S EQUITY 2,449 ---------- TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 3,249 ========== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS Page 52 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF INCOME FOR THE PERIOD JUNE 14, 1999 (INCEPTION) TO DECEMBER 31, 1999 REVENUE: OPERATING INCOME $ - -------------- TOTAL REVENUE - -------------- OPERATING EXPENSES: ADVERTISING 173 AMORTIZATION EXPENSE 121 BANK CHARGES 40 CREDIT CARD SERVICE SET UP 169 DEPRECIATION EXPENSE (NOTES A & C) 79 DOMAIN REGISTRATION 70 DUES & PUBLICATIONS 100 ENTERTAINMENT 127 FILING FEES 145 INTERNET SERVICE - HOSTING 100 OFFICE EXPENSE 11 RENT EXPENSE 900 TELEPHONE 666 -------------- TOTAL OPERATING EXPENSES 2,701 -------------- LOSS FROM OPERATIONS (2,701) -------------- PROVISION FOR TAXES (NOTE A) 395 -------------- NET LOSS ($3,096) ============== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS Page 53 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIOD JUNE 14, 1999 (INCEPTION) TO DECEMBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES NET LOSS ($3,096) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION 79 AMORTIZATION: TRADE NAME COSTS 14 ORGANIZATIONAL COSTS 107 CHANGES IN OPERATING ASSETS AND LIABILITIES DEFERRED FEDERAL TAX CREDIT (NOTE A) (405) ACCRUED FRANCHISE TAX (NOTE A) 800 -------------- NET CASH USED BY OPERATING ACTIVITIES (2,501) -------------- CASH FLOWS FROM INVESTING ACTIVITIES PURCHASE OF COMPUTER EQUIPMENT (NOTES A & C) (677) CAPITALIZED ORGANIZATIONAL COSTS (NOTE A) (915) CAPTIALIZED TRADE MARK COSTS (NOTE A) (1,289) -------------- NET CASH USED BY INVESTING ACTIVITIES (2,881) CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES ADVANCES FROM SHAREHOLDERS 1,340 PRINCIPAL PAYMENTS TO SHAREHOLDERS (1,340) PROCEEDS FROM ISSUANCE OF COMMON STOCK (NOTE F) 5,545 -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 5,545 -------------- NET INCREASE IN CASH 163 CASH AT INCEPTION - -------------- CASH AS OF END OF PERIOD $ 162 ============== Page 54 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS FOR THE PERIOD JUNE 14, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999 DAVID TOLKAN CERTIFIED PUBLIC ACCOUNTANT 540 LIGHTHOUSE AVENUE MONTEREY, CAIFORNIA 93940 Page 55 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ----------------------------------------------------------- Business Activity: The Company's business is the sale of coffee, computer and internet services. This market consists of two primary market segments - Cafe and computer services. These products and services are principally marketed through the company's website and at company owned or franchised locations. Revenue Recognition Coffee/Snack Foods - The Company will sell merchandise and a variety of snack - ------------------- foods and coffee style beverages (coffee, cappuccino, mochas, juices and baked goods). Computer Services - The Company's computer services include, internet access, - ------------------ video conferencing, computer classes and trade shows. "Internet Hollywood" will draw it's business from all types of customers, such as tourists and business travelers that want email and internet access while away from their home base. Merchandise - Each cafe will include an integrated retail store offering premium - ----------- quality merchandise, displaying distinctive brands and logo designs. Merchandising provides an additional off site promotion of the company brands. Franchised Dealers/Joint Venture Arrangements - In metropolitan areas the - ------------------------------------------------ company plans to pursue franchises or joint venture arrangements. Upon execution of the franchise agreement, a franchisee will be required to pay an initial franchise fee ranging between $50,000 and $100,000. These fees will be recognized as income to the company upon each sale. Thereafter, the franchisee will be required to pay royalties to the company from between 5% to 10% of food and beverage sales, and 10% to 15% of merchandise sales. INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCONTING POLICIES (CONT.) Property and Equipment Property and equipment are carried at cost. Management has elected to calculate depreciation using the "Modified Accelerated Cost Recovery System (MACRS)". This is not an acceptable method for financial statements under generally accepted accounting principles. Generally accepted accounting principles requires that depreciation cost over an assets' estimated useful life using an acceptable method. The effect of this departure from generally accepted accounting principles on financial position, results of operations, and cash flows has not been determined. Expenditures for maintenance and repairs are charged to operations: major expenditures for renewal and betterments are capitalized over their useful lives. Page 56 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Amortization Deferred charges are amortized using the straight-line method over fifteen years for trademark costs and five years for organization costs. Income Taxes Current income taxes are based on the taxable income (loss) for the year, as measured by the current short year's tax returns. Deferred tax credits arise from the company's current net operating loss. Timing differences between the basis of property and equipment methods used for financial and income tax reporting purposes. The deferred tax liability/asset represents the future tax consequences of those differences. NOTE B - DEVELOPMENT STAGE OPERATIONS The Corporation was formed June 14, 1999. There is minimal history of operations on which to base an evaluation of the company's business plan as the company is in the development stage. There can be no assurances that the company will be able to overcome the risks associated with advancement from the development stage to full scale operations. The company's prospects must be considered in light of the risks, expenses INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE B - DEVELOPMENT STAGE OPERATIONS (CONT.) and difficulties frequently encountered by companies in their early stages of development. Particularly companies in new and rapidly evolving markets. NOTE C - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1999, ACCUMULATED NET CARRYING COST DEPRECIATION VALUE Computer Equipment $ 677 $ 79 $ 598 -------- ------------ ----------- Total $ 677 $ 79 $ 598 ======== ============= ============ Page 57 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- NOTE D - PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY The company has applied for trademark protection under the brand name "Internet Hollywood", in March 1999. There are no assurances that a trademark will be issued by the U.S. Patent and Trademark Office. The company considers its pending trademark, advertising and promotional design, and artwork to be of considerable value and critical to it's business recognition. Failure to obtain trademark protection could have an adverse effect upon the company's results of operations, and financial condition. The company relies on a combination of trade secrets, copyrights, and trademark laws, non disclosure and non compete agreements and other legal arrangements to protect it's proprietary rights. There is no assurance the patents and trade secrets as controlled by the company will provide adequate protection from competitive encroachment from present and future companies. "Hollywood Entertainment, Inc. (dba Hollywood Video) has filed two subsequent trademarks for the rights to use "Internet Hollywood" name. The United States Patent and Trademark Office may or may not approve the trademark application ahead of this company. INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE E - STOCKHOLDER'S EQUITY - --------------------------------- At December 31, 1999, stockholder's equity consisted of the following: Common stock - no stated value per share: Authorized, issued and outstanding 200,000 shares $ 5,545 Accumulated Deficit (3,093) ---------- Total $ 2,449 ========== NOTE F - COMMON STOCK - ------------------------- Between the company's inception (June 14, 1999) and October 5, 1999 the company issued two hundred thousand shares of stock to the five original founders. This equates to .0277 cents per share for those shares outstanding. The Articles of Incorporation states that the original issuance of stock be at no par value. Page 58 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- NOTE G - SUBSEQUENT EVENTS - ------------------------------ On March 4, 2000, Sheryl Moulton entered into an agreement with the company to trade 134,000 shares of the company's stock in exchange for full title and possession of the pending trademark "Internet Hollywood". This was done to protect the trademark in the event of possible company insolvency. In anticipation of the company's public offering, the company's Board of Directors have authorized a 15:1 stock split on the original 200,000 shares issued. The effect of the split on the outstanding is to make each outstanding share equivalent to fifteen shares of the same stock class. The stock split will become effective upon submission of the Certificate of Amendment of Articles of Incorporation, dated July 9, 2000. The company is in the process of preparing the Securities and Exchange Commission's "Regulation A - Disclosure Document" to offer 1,000,000 shares (one million) to the general public at $5 per share. The maximum stock offering will be $5,000,000 (five million dollars). INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE H - RELATED PARTY TRANSACTIONS The company's Chief Financial Officer/Chief Operating Officer, Sheryl Moulton, currently holds 91% of the company's outstanding stock. Ms. Moulton also holds a majority stake in another company named "Internet Video". NOTE I - CONTINGENCIES - GOING CONCERN These statements are presented on the basis that the company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. As shown in the accompanying financial statements, the company incurred a net operating loss of $ 3,096 for the period June 14, 1999 through December 31, 1999. The company's current liabilities exceed current assets by $ 232. The corporation is a development stage company that plans a public stock offering to fund future growth and expansion. The company's continued existence depends on its ability obtain financing either through stock offerings or bank financing. Page 59 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- (Document is copied) [David B. Tolkan Certified Public Accountant Letterhead] To the Board of Directors and Stockholders of Internet Hollywood, Inc. I have audited the accompanying balance sheet of Internet Hollywood, Inc. (a Development Stage Company) as of December 31, 1999, and related statements of income, retained earnings, and cash flows for the period June 14, 1999 (inception) through December 31, 1999. These financial statements are the responsibility of the Company's management. My responsibility is to express and opinion on these financial statements based on our audit. I have conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that our audit provides a reasonable basis for our opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Internet Hollywood, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the period June 14, 1999 (inception) through December 31, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net operating loss of $3,096 during the period June 14, 1999 (inception) through December 31, 1999. As described more fully in Note I to the financial statements the Company's current liabilities exceed current assets by $232. The Company's continued existence depends on its ability to obtain financing either through stock offerings or bank financing. /s/ David B. Tolkan Monterey, California July 13, 2000 Page 60 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS The Company does hereby agree to provide to investors in this Offering for five years (or such longer period as required by law) hereafter annual financial reports containing a balance sheet as of the end of the Company's fiscal year and a statement of income for said fiscal year, all prepared in accordance with generally accepted accounting principles and accompanied by an independent accountant's report. If the Company has more than 100 security holders at the end of the fiscal year, the financial statements shall be audited. Page 61 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS 47. IF THE COMPANY'S FINANCIAL STATEMENTS SHOW LOSSES FROM OPERATIONS, EXPLAIN THE CAUSES UNDERLYING THESE LOSSES AND WHAT STEPS THE COMPANY HAS TAKEN OR IS TAKING TO ADDRESS THESE CAUSES. The Company incurred minimal losses of $3,096. This loss included normal business expenses (legal fees, utilities, office rent, bank fees, etc.). 48. DESCRIBE ANY TRENDS IN THE COMPANY'S HISTORICAL OPERATING RESULTS. INDICATE ANY CHANGES NOW OCCURRING IN THE UNDERLYING ECONOMICS OF THE INDUSTRY OR THE COMPANY'S BUSINESS WHICH, IN THE OPINION OF MANAGEMENT, WILL HAVE A SIGNIFICANT IMPACT (EITHER FAVORABLE OR ADVERSE) UPON THE COMPANY'S RESULTS OF OPERATIONS WITHIN THE NEXT 12 MONTHS, AND GIVE A ROUGH ESTIMATE OF THE PROBABLE EXTENT OF THE IMPACT, IF POSSIBLE. While the Company had no revenue for 1999, management expects substantial growth with the funding from this Offering. Funding will provide for asset acquisition, working capital, marketing and personnel. Substantial investment will be needed in order to maintain growth in a fast-growing Internet cafe market. Research on coffeehouses and Internet cafes competitors suggest net profit projections for company-owned and franchised locations will range at a minimum of 10-30%. The Company's business plan will focus on locations across the United States and may later consider international franchises. The Company believes its business plan is relatively "recession-proof." Should there be any fluctuations in the economy, the Company will take full advantage of purchasing existing cafes at a very low cost to the Company. This strategy will allow the Company to generate high yield income at very a low rate of investment. 49. IF THE COMPANY SELLS A PRODUCT OR PRODUCTS AND HAS HAD SIGNIFICANT SALES DURING ITS LAST FISCAL YEAR, STATE THE EXISTING GROSS MARGIN (NET SALES LESS COST OF SUCH SALES AS PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) AS A PERCENTAGE OF SALES FOR THE LAST FISCAL YEAR: ___0___%. What is the anticipated gross margin for next year of operations? Approximately _______68_________%. If this is expected to change, explain. Also, if reasonably current gross margin figures are available for the industry, indicate these figures and the source or sources from which they are obtained. 50. FOREIGN SALES AS A PERCENT OF TOTAL SALES FOR LAST FISCAL YEAR: ___0__%. DOMESTIC GOVERNMENT SALES AS A PERCENT OF TOTAL DOMESTIC SALES FOR LAST FISCAL YEAR: ___0__%. EXPLAIN THE NATURE OF THESE SALES, INCLUDING ANY ANTICIPATED CHANGES: Not applicable. Page 62 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- SIGNATURES A majority of the Directors and the Chief Executive and Financial Officers of the Company shall sign this Offering Circular on behalf of the Company and by so doing thereby certify that each has made diligent efforts to verify the material accuracy and completeness of the information herein contained. By signing this Offering Circular, the Chief Executive and Chief Financial Officers agree to make themselves, the Company's books and records, copies of any contract, lease or other document referred to in the Offering Circular, or any other material contract or lease (including stock options and employee benefit plans), except any proprietary or confidential portions thereof, and a set of the exhibits to this Offering Circular, available to each investor prior to the time of investment, and to respond to questions and otherwise confirm the information contained herein prior to the making of any investment by such investor. The Chief Financial Officer signing this form is hereby certifying that the financial statements submitted fairly state the Company's financial position and results of operations, or receipts and disbursements, as of the dates and period(s) indicated, all in accordance with generally accepted accounting principles consistently applied (except as stated in the notes thereto) and (with respect to year-end figures) including all adjustments necessary for fair presentation under the circumstances. OFFICERS: By: /s/ Dean McAthie By: /s/ Sheryl Moulton ------------------- --------------------- DEAN MCATHIE SHERYL MOULTON Chief Executive Officer Chief Operating Officer and Chief Financial Officer DIRECTORS: By: /s/ Dean McAthie By: /s/ Sheryl Moulton ------------------ ---------------------- DEAN MCATHIE SHERYL MOULTON Chief Executive Officer Chief Operating Officer and Chief Financial Officer By: /s/ Patrick Hennessy ---------------------------------- PATRICK HENNESSY Director Page 63 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- PART I - NARRATIVE INFORMATION REQUIRED IN PROSPECTUS ITEM 1. INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF PROSPECTUS DESCRIPTION OF INSIDE FRONT COVER PAGE GRAPHICS The graphics on the inside front cover page consist of one photograph headed by a solid field with inset text heading, which solid field heading and photograph are located in the top of two thirds of the page. The photograph (without solid field heading) measures approximately 7.675 inch (width) by 5.25 inch (length). The solid field heading measures approximately 7.675 inch (width) by 1.875 inch (length) (based on an 8.5 inch by 11 inch page). The entire graphic is centered from side-to-side. The text in the solid field heading reads "INTERNET HOLLYWOOD." Below the text heading are the three logos from left to right as follows: The photograph is a store-deep perspective showing general store layout and product displays. DESCRIPTION OF INSIDE BACK COVER PAGE GRAPHICS The back cover page graphics consist of three graphics which measure approximately 3.125 inch (width) by 2.75 inch (length) (based on an 8.5 inch by 11 inch page) vertically aligned to the center of the page. Page 64 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- ITEM 2. SIGNIFICANT PARTIES List the full names and business and residential addresses, as applicable, for the following persons: (1) the issuer's directors; 1. Mr. Dean McAthie PO Box 223611 Carmel, CA 93922 2. Ms. Sheryl Ann Moulton PO Box 223611 Carmel, CA 93922 3. Mr. Patrick Hennessy PO Box 223611 Carmel, CA 93922 (2) the issuer's officers; 1. Mr. Dean McAthie PO Box 223611 Carmel, CA 93922 2. Ms. Sheryl Ann Moulton PO Box 223611 Carmel, CA 93922 3. Mr. Patrick Hennessy PO Box 223611 Carmel, CA 93922 (3) the issuer's general partners; Not applicable. (4) record owners of 5 percent or more of any class of the issuer's equity nsecurities; 1. Mr. Dean McAthie PO Box 223611 Carmel, CA 93922 2. Ms. Sheryl Ann Moulton PO Box 223611 Carmel, CA 93922 Page 65 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- beneficial owners of 5 percent or more of any class of the issuer's equity securities; 1. Mr. Dean McAthie PO Box 223611 Carmel, CA 93922 2. Ms. Sheryl Ann Moulton PO Box 223611 Carmel, CA 93922 (6) promoters of the issuer; 1. Mr. Dean McAthie PO Box 223611 Carmel, CA 93922 2. Ms. Sheryl Ann Moulton PO Box 223611 Carmel, CA 93922 (7) affiliates of the issuer; Not applicable. (8) counsel to the issuer with respect to the proposed offering; Mr. James Phillip Vaughns, Esq. 6114 LaSalle Avenue, Suite 289 Oakland, CA 94611 (9) each underwriter with respect to the proposed offering; Not applicable. (10) the underwriter's directors; Not applicable. (11) the underwriter's officers; Not applicable. (12) the underwriter's general partners; Not applicable. (13) counsel to the underwriter. Not applicable. Page 66 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- ITEM 3. RELATIONSHIP WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT Not applicable. ITEM 4. SELLING SECURITY HOLDERS No part of the proposed offering involves the resale of securities by affiliates or existing shareholders of Internet Hollywood. ITEM 5. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. We have no changes or disagreement with our Accountants. ITEM 6. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Pursuant to the Registration Rights Agreement between the Company and the Selling Stockholders, the Company has agreed to indemnify its officers, directors, employees, agents and representatives and any person who controls such Selling Stockholder against any losses, claims, damages, liabilities or reasonable out-of- pocket expenses arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, except, among other things, to the extent that such liabilities arise out of or are based upon and in conformity with any information furnished in writing to the Company by each respective Selling Stockholder expressly for use in the Registration Statement or an amendment or supplement thereto. In addition, each Selling Stockholder, acting severally and not jointly, under the Registration Rights Agreement has agreed to indemnify the Company and its officers, directors, employees, agents and representatives and any person who controls the Company against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses arising out of or based upon and in conformity with written information furnished by such Selling Stockholder expressly for use in the Registration Statement or an amendment or supplement thereto. However, the foregoing indemnity shall not apply to amounts paid in settlement of any such liability if the settlement is effected without the consent of such Selling Stockholder. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer 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. Page 67 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF DECEMBER 31, 1999 ASSETS CURRENT ASSETS: CASH IN BANK $ 163 DEFERRED FEDERAL TAX CREDIT (NOTE A) 405 --------- TOTAL CURRENT ASSETS 568 FIXED ASSETS: (NOTES A & C) COMPUTER EQUIPMENT $ 677 -------- TOTAL COST 677 LESS: ACCUMULATED DEPRECIATION (79) --------- TOTAL FIXED ASSETS 598 --------- OTHER ASSETS: TRADE NAME (NET OF ACCUMULATED AMORTIZATION OF $14) (NOTE A) 1,275 ORGANIZATION COSTS (NET OF ACCUMULATED AMORTIZATION OF $107) (NOTE A) 808 -------- TOTAL OTHER ASSETS 2,083 --------- TOTAL ASSETS $ 3,249 ========= LIABILITIES AND STOCKHOLDER'S EQUITY Page 68 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- LIABILITIES CURRENT LIABILITIES: ACCRUED FRANCHISE TAX (NOTE A) $ 800 ----------- TOTAL CURRENT LIABILITIES 800 ----------- TOTAL LIABILITIES 800 ----------- STOCKHOLDER'S EQUITY: (NOTE E) CAPITAL STOCK - NO PAR VALUE, 200,000 SHARES AUTHORIZED, 200,000 SHARES OUTSTANDING (NOTE F) 5,545 ACCUMULATED DEFICIT (3,096) ----------- TOTAL STOCKHOLDER'S EQUITY 2,449 ----------- TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 3,249 =========== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS Page 69 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF INCOME FOR THE PERIOD JUNE 14, 1999 (INCEPTION) TO DECEMBER 31, 1999 REVENUE: OPERATING INCOME $ - -------------- TOTAL REVENUE - -------------- OPERATING EXPENSES: ADVERTISING 173 AMORTIZATION EXPENSE 121 BANK CHARGES 40 CREDIT CARD SERVICE SET UP 169 DEPRECIATION EXPENSE (NOTES A & C) 79 DOMAIN REGISTRATION 70 DUES & PUBLICATIONS 100 ENTERTAINMENT 127 FILING FEES 145 INTERNET SERVICE - HOSTING 100 OFFICE EXPENSE 11 RENT EXPENSE 900 TELEPHONE 666 -------------- TOTAL OPERATING EXPENSES 2,701 -------------- LOSS FROM OPERATIONS (2,701) -------------- PROVISION FOR TAXES (NOTE A) 395 -------------- NET LOSS ($3,096) -------------- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS Page 70 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIOD JUNE 14, 1999 (INCEPTION) TO DECEMBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES NET LOSS ($3,096) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION 79 AMORTIZATION: TRADE NAME COSTS 14 ORGANIZATIONAL COSTS 107 CHANGES IN OPERATING ASSETS AND LIABILITIES DEFERRED FEDERAL TAX CREDIT (NOTE A) (405) ACCRUED FRANCHISE TAX (NOTE A) 800 --------------- NET CASH USED BY OPERATING ACTIVITIES (2,501) --------------- CASH FLOWS FROM INVESTING ACTIVITIES PURCHASE OF COMPUTER EQUIPMENT (NOTES A & C) (677) CAPITALIZED ORGANIZATIONAL COSTS (NOTE A) (915) CAPTIALIZED TRADE MARK COSTS (NOTE A) (1,289) --------------- NET CASH USED BY INVESTING ACTIVITIES (2,881) CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES ADVANCES FROM SHAREHOLDERS 1,340 PRINCIPAL PAYMENTS TO SHAREHOLDERS (1,340) PROCEEDS FROM ISSUANCE OF COMMON STOCK (NOTE F) 5,545 --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 5,545 --------------- NET INCREASE IN CASH 163 CASH AT INCEPTION - --------------- CASH AS OF END OF PERIOD $ 162 =============== Page 71 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS FOR THE PERIOD JUNE 14, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999 DAVID TOLKAN CERTIFIED PUBLIC ACCOUNTANT 540 LIGHTHOUSE AVENUE MONTEREY, CAIFORNIA 93940 Page 72 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ----------------------------------------------------------- Business Activity: The Company's business is the sale of coffee, computer and internet services. This market consists of two primary market segments - Cafe and computer services. These products and services are principally marketed through the company's website and at company owned or franchised locations. Revenue Recognition Coffee/Snack Foods - The Company will sell merchandise and a variety of snack - ------------------- foods and coffee style beverages (coffee, cappuccino, mochas, juices and baked goods). Computer Services - The Company's computer services include, internet access, - ------------------ video conferencing, computer classes and trade shows. "Internet Hollywood" will draw it's business from all types of customers, such as tourists and business travelers that want email and internet access while away from their home base. Merchandise - Each cafe will include an integrated retail store offering premium - ----------- quality merchandise, displaying distinctive brands and logo designs. Merchandising provides an additional off site promotion of the company brands. Franchised Dealers/Joint Venture Arrangements - In metropolitan areas the - ------------------------------------------------ company plans to pursue franchises or joint venture arrangements. Upon execution of the franchise agreement, a franchisee will be required to pay an initial franchise fee ranging between $50,000 and $100,000. These fees will be recognized as income to the company upon each sale. Thereafter, the franchisee will be required to pay royalties to the company from between 5% to 10% of food and beverage sales, and 10% to 15% of merchandise sales. INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCONTING POLICIES (CONT.) Property and Equipment Property and equipment are carried at cost. Management has elected to calculate depreciation using the "Modified Accelerated Cost Recovery System (MACRS)". This is not an acceptable method for financial statements under generally accepted accounting principles. Generally accepted accounting principles requires that depreciation cost over an assets' estimated useful life using an acceptable method. The effect of this departure from generally accepted accounting principles on financial position, results of operations, and cash flows has not been determined. Expenditures for maintenance and repairs are charged to operations: major expenditures for renewal and betterments are capitalized over their useful lives. Page 73 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- Amortization Deferred charges are amortized using the straight-line method over fifteen years for trademark costs and five years for organization costs. Income Taxes Current income taxes are based on the taxable income (loss) for the year, as measured by the current short year's tax returns. Deferred tax credits arise from the company's current net operating loss. Timing differences between the basis of property and equipment methods used for financial and income tax reporting purposes. The deferred tax liability/asset represents the future tax consequences of those differences. NOTE B - DEVELOPMENT STAGE OPERATIONS The Corporation was formed June 14, 1999. There is minimal history of operations on which to base an evaluation of the company's business plan as the company is in the development stage. There can be no assurances that the company will be able to overcome the risks associated with advancement from the development stage to full scale operations. The company's prospects must be considered in light of the risks, expenses INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE B - DEVELOPMENT STAGE OPERATIONS (CONT.) and difficulties frequently encountered by companies in their early stages of development. Particularly companies in new and rapidly evolving markets. NOTE C - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1999, ACCUMULATED NET CARRYING COST DEPRECIATION VALUE Computer Equipment $ 677 $ 79 $ 598 -------- ------------ ----------- Total $ 677 $ 79 $ 598 ======== ============= ============ Page 74 of 115 INTERNET HOLLYWOOD, INC - -SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- NOTE D - PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY The company has applied for trademark protection under the brand name "Internet Hollywood", in March 1999. There are no assurances that a trademark will be issued by the U.S. Patent and Trademark Office. The company considers its pending trademark, advertising and promotional design, and artwork to be of considerable value and critical to it's business recognition. Failure to obtain trademark protection could have an adverse effect upon the company's results of operations, and financial condition. The company relies on a combination of trade secrets, copyrights, and trademark laws, non disclosure and non compete agreements and other legal arrangements to protect it's proprietary rights. There is no assurance the patents and trade secrets as controlled by the company will provide adequate protection from competitive encroachment from present and future companies. "Hollywood Entertainment, Inc. (dba Hollywood Video) has filed two subsequent trademarks for the rights to use "Internet Hollywood" name. The United States Patent and Trademark Office may or may not approve the trademark application ahead of this company. INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE E - STOCKHOLDER'S EQUITY - --------------------------------- At December 31, 1999, stockholder's equity consisted of the following: Common stock - no stated value per share: Authorized, issued and outstanding 200,000 shares $ 5,545 Accumulated Deficit (3,093) ---------- Total $ 2,449 ========== NOTE F - COMMON STOCK - ------------------------- Between the company's inception (June 14, 1999) and October 5, 1999 the company issued two hundred thousand shares of stock to the five original founders. This equates to .0277 cents per share for those shares outstanding. The Articles of Incorporation states that the original issuance of stock be at no par value. Page 75 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- NOTE G - SUBSEQUENT EVENTS - ------------------------------ On March 4, 2000, Sheryl Moulton entered into an agreement with the company to trade 134,000 shares of the company's stock in exchange for full title and possession of the pending trademark "Internet Hollywood". This was done to protect the trademark in the event of possible company insolvency. In anticipation of the company's public offering, the company's Board of Directors have authorized a 15:1 stock split on the original 200,000 shares issued. The effect of the split on the outstanding is to make each outstanding share equivalent to fifteen shares of the same stock class. The stock split will become effective upon submission of the Certificate of Amendment of Articles of Incorporation, dated July 9, 2000. The company is in the process of preparing the Securities and Exchange Commission's "Regulation A - Disclosure Document" to offer 1,000,000 shares (one million) to the general public at $5 per share. The maximum stock offering will be $5,000,000 (five million dollars). INTERNET HOLLYWOOD, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - -------------------------------- NOTE H - RELATED PARTY TRANSACTIONS - ---------------------------------------- The company's Chief Financial Officer/Chief Operating Officer, Sheryl Moulton, currently holds 91% of the company's outstanding stock. Ms. Moulton also holds a majority stake in another company named "Internet Video". NOTE I - CONTINGENCIES - GOING CONCERN - -------------------------------------------- These statements are presented on the basis that the company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. As shown in the accompanying financial statements, the company incurred a net operating loss of $ 3,096 for the period June 14, 1999 through December 31, 1999. The company's current liabilities exceed current assets by $ 232. The corporation is a development stage company that plans a public stock offering to fund future growth and expansion. The company's continued existence depends on its ability obtain financing either through stock offerings or bank financing. Page 76 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- (Document is copied) [David B. Tolkan Certified Public Accountant Letterhead] To the Board of Directors and Stockholders of Internet Hollywood, Inc. I have audited the accompanying balance sheet of Internet Hollywood, Inc. (a Development Stage Company) as of December 31, 1999, and related statements of income, retained earnings, and cash flows for the period June 14, 1999 (inception) through December 31, 1999. These financial statements are the responsibility of the Company's management. My responsibility is to express and opinion on these financial statements based on our audit. I have conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that our audit provides a reasonable basis for our opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Internet Hollywood, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the period June 14, 1999 (inception) through December 31, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net operating loss of $3,096 during the period June 14, 1999 (inception) through December 31, 1999. As described more fully in Note I to the financial statements the Company's current liabilities exceed current assets by $232. The Company's continued existence depends on its ability to obtain financing either through stock offerings or bank financing. /s/ David B. Tolkan Monterey, California July 13, 2000 Page 77 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- INTERNET HOLLYWOOD, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS Page 78 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 1. Indemnification of Directors and Officers The Articles of Incorporation of the Company provide that the Company shall indemnify any person who incurs expense by reason of such person acting as an officer, director, employee or agent of the Company, and that this indemnification is mandatory in all cases in which indemnification is permitted by law. ITEM 2. Other Expenses of Issuance and Distribution The Company's expenses in connection with the Offering are set forth below. All of these amounts are estimates. SEC registration fee $1,320 Legal fees and expenses $10,000 Accounting fees and expenses $5,000 Printing $5,000 Escrow agent fees $500 ______________________ _________ Total $ 21,820 We will bear all the expenses shown above. Page 79 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- ITEM 3. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that the undertakings set forth in clauses (i) and (ii) above shall not apply if the information required to be included in a post-effective amendment by these clauses is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in this registration statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 1. The undersigned registrant hereby undertakes, that, for purposes of determining any liability under the Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 2. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Page 80 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- (4) To The undersigned registrant hereby undertakes that: (a) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. ITEM 4. Unregistered Securities Issued or Sold Within One Year a. As to any unregistered securities issued by the issuer or any of its predecessors or affiliated issuers within one year prior to the filing of this Form 1-A, state: 1. the name of such issuer; Internet Hollywood, Inc. 2. the title and amount of securities issued; Common Stock, 200,000 shares (3,000,000 shares after 15:1 stock split) 3. the aggregate offering price or other consideration for which they were issued and basis for computing the amount thereof; $5,000,000 (1,000,000 shares at $5 each) Page 81 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 4. the names and identities of the persons to whom the securities were issued. - ---------------- ----------- ------------------------------- SHAREHOLDER NUMBER OF RELATIONSHIP NAME SHARES (COMMON STOCK) - ---------------- ----------- ------------------------------- Sheryl Moulton 182,000 CFO / Director (partially vested) - ---------------- ----------- ------------------------------- Patrick Hennessy 6,000 Director (partially vested) - ---------------- ----------- ------------------------------- Daniel Yoshizato 4,000 Independent Business Consultant - ---------------- ----------- ------------------------------- Donaven Newby 4,000 Independent Business Consultant - ---------------- ----------- ------------------------------- Keith Hennessy 4,000 Independent Business Consultant - ---------------- ----------- ------------------------------- (Totals after 15:1 March 4, 2000 Stock Split) - ---------------- ----------- ------------------------------- SHAREHOLDER NUMBER OF RELATIONSHIP NAME SHARES (COMMON STOCK) - ---------------- ----------- ------------------------------- Dean McAthie 333,333 CEO / Director (unvested) - ---------------- ----------- ------------------------------- Page 82 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- b. As to any unregistered securities of the issuer or any of its predecessors or affiliated issuers which were sold within one year prior to the filing of this Form 1-A by or for the account of any person who at the time was a director, officer, promoter or principal security holder of the issuer of such securities, or was an underwriter of any securities of such issuer, furnish the information specified in subsections (1) through (4) of paragraph (a). On November 11, 1999, December 4, 1999, March 3, 2000, August 1, 2000, Sheryl Moulton bought back 17,900 shares (calculated on a pre-split basis) for $1655 with her personal funds from four of its officers due to a difference of opinion on the direction, long-range planning and management philosophy of the Company. c. Indicate the section of the Securities Act or Commission rule or regulation relied upon for exemption from the registration requirements of such Act and state briefly the facts relied upon for such exemption. The above-mentioned was private-held common stock sold pursuant to Rules 505/506 (Private Placement). The following lists sales of our common stock during the past year that were not registered under the Securities Act. None of these sales involved the use of or payments to an underwriter. In all instances in which we issued shares under the exemption from the registration requirements of the Securities Act under Section 4(2) of the Securities Act, all purchasers had access to the type of information found in a registration statement and all purchasers were sophisticated investors or directors of Internet Hollywood. On November 11, 1999, December 4, 1999, March 3, 2000, August 1, 2000, Sheryl Moulton bought back 17,900 shares (calculated on a pre-split basis) for $1655 with her personal funds from four of its officers due to a difference of opinion on the direction, long-range planning and management philosophy of the Company. The average price per share was Nine Cents (.0924) per share (calculated on a pre-split basis). These transactions are exempt from the registration requirements of the Securities Act under Section 4(2) of the Securities Act. On March 4, 2000 Sheryl Moulton entered into an agreement with Internet Hollywood to purchase 2,000,000 shares of Internet Hollywood stock. In exchange, Ms. Moulton will receive full title and possession of the 1999 pending trademark "Internet Hollywood" in the event the Company changes its name, files bankruptcy or faces any other financial insolvency. This transaction allowed the Company to purchase 2,000,000 shares which will be available for the Offering and for officer, franchisee and employee stock options. This transaction is exempt from the registration requirements of the Securities Act under Section 4(2) of the Securities Act. Page 83 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- ITEM 5. Index to Exhibits Page 84 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- PART III --- EXHIBITS ITEM DOCUMENT PAGE - ---- ------------------------------------------------------------ -------- 1. UNDERWRITING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 86 - --------------------------- 2. CHARTER AND BY-LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . 87 - ------------------------- 3. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS . . . . . . . . . . 101 - -------------------------------------------------------- 4. SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .103 - --------------------------- 5. VOTING TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 105 - ---------------------------- 6. MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . .106 - ----------------------- 7. MATERIAL FOREIGN PATENTS . . . . . . . . . . . . . . . . . . . . . . . 107 - ------------------------------ 8. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, . . . . . . . . . . .108 - ------------------------------------------------------- LIQUIDATION, OR SUCCESSION . . . . . . . . . . . . . . . . . . . . . . . . 108 - ---------------------------- 9. ESCROW AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 - ---------------------- 10. CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 - ------------- 11. OPINION RE LEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . 111 - -------------------------- 12. ADDITIONAL EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . .112 - ------------------------- 12.1 SALES MATERIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 - --------------------- 12.2 "TEST THE WATER" MATERIAL . . . . . . . . . . . . . . . . . . . . . 113 - ---------------------------------- 12.3 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS . . . . . . . . . . .114 - ------------------------------------------------------- 12.4 MISCELLANEOUS DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . .114 - ------------------------------- Application of Rule 262 . . . . . . . . . . . . . . . . . . . . . . . . . 114 - -------------------------- Affiliate Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 - ---------------- Jurisdictions in Which Securities Are to be Offered . . . . . . . . . 114 - ---------------------------------------------------------- Marketing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . .114 - ----------------------- Other Present or Proposed Offerings . . . . . . . . . . . . . . . . . . .115 - --------------------------------------- Relationship with Issuer of Experts Named in Offering Statement . . . . . . .115 - --------------------------------------------------------------- Use of a Solicitation of Interest Document . . . . . . . . . . . . . . 115 - ------------------------------------------------ Page 85 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 1. UNDERWRITING AGREEMENT Not applicable. Currently, the Company has no existing underwriting agreements and is self-underwritten. Page 86 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 2. CHARTER AND BY-LAWS (Document is copied) ARTICLES OF INCORPORATION OF INTERNET HOLLYWOOD, INC. ONE: The name of this corporation is Internet Hollywood, Inc. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: The name and address in this state of the corporation's initial agent for service of process is: Sheryl Moulton 209 Hacienda Carmel, CA 93923. FOUR: This corporation is authorized to issue only one class of shares of stock which shall be designated common stock. The total number of shares it is authorized to issue is 200,000 shares. FIVE: The names and addresses of the persons who are appointed to act as the initial directors of this corporation are: Name Address Sheryl Moulton 209 Hacienda Carmel, CA 93923 ------------------- ---------------------------------------- Patrick Hennessy 861 McClellan St. Monterey, CA 93940 ------------------- ---------------------------------------- SIX: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. SEVEN: The corporation is authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law. IN WITNESS WHEREOF, the undersigned, being all the persons named above as the initial directors, have executed these Articles of Incorporation. Dated: June 14, 1999 --------------- /s/ Patrick Hennessy - ------------------------------- Patrick Hennessy /s/ Sheryl Moulton - ------------------------------- Sheryl Moulton Page 87 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- The undersigned, being all the persons named above as the initial directors, declare that they are the persons who executed the foregoing Articles of Incorporation, which execution is their act and deed. Dated: June 14, 1999 /s/ Patrick Hennessy - --------------------------------- Patrick Hennessy /s/ Sheryl Moulton - --------------------------------- Sheryl Moulton Page 88 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- (Document is copied) BYLAWS OF INTERNET HOLLYWOOD, INC. ARTICLE I OFFICES SECTION 1. PRINCIPAL EXECUTIVE OFFICE The location of the principal executive office of the corporation shall be fixed by the board of directors. It may be located at any place within or outside the state of California. The secretary of this corporation shall keep the original or a copy of these bylaws, as amended to date, at the principal executive office of the corporation if this office is located in California. If this office is located outside California, the bylaws shall be kept at the principal business office of the corporation within California. The officers of this corporation shall cause the corporation to file an annual statement with the Secretary of State of California as required by Section 1502 of the California Corporations Code specifying the street address of the corporation's principal executive office. SECTION 2. OTHER OFFICES The corporation may also have offices at such other places as the board of directors may from time to time designate, or as the business of the corporation may require. ARTICLE II SHAREHOLDERS' MEETINGS SECTION 1. PLACE OF MEETINGS All meetings of the shareholders shall be held at the principal executive office of the corporation or at such other place as may be determined by the board of directors. SECTION 2. ANNUAL MEETINGS The annual meeting of the shareholders shall be held each year on September 1, 1999 at 11:00am PST, at which time the shareholders shall elect a board of directors and transact any other proper business. If this date falls on a legal holiday, then the meeting shall be held on the following business day at the same hour. SECTION 3. SPECIAL MEETINGS Page 89 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- Special meetings of the shareholders may be called by the board of directors, the chairperson of the board of directors, the president, or by one or more shareholders holding at least 10 percent of the voting power of the corporation. SECTION 4. NOTICES OF MEETINGS Notices of meetings, annual or special, shall be given in writing to shareholders entitled to vote at the meeting by the secretary or an assistant secretary or, if there be no such officer, or in the case of his or her neglect or refusal, by any director or shareholder. Such notices shall be given either personally or by first-class mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the stock transfer books of the corporation or given by the shareholder to the corporation for the purpose of notice. Notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice shall state the place, date, and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and that no other business may be transacted, or (2) in the case of an annual meeting, those matters which the board at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of Section 6 of this Article, any proper matter may be presented at the annual meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of the nominees which, at the time of the notice, the board of directors intends to present for election. Notice of any adjourned meeting need not be given unless a meeting is adjourned for forty-five (45) days or more from the date set for the original meeting. SECTION 5. WAIVER OF NOTICE The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present, whether in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers or consents shall be filed with the corporate records or made part of the minutes of the meeting. Neither the business to be transacted at the meeting, nor the purpose of any annual or special meeting of shareholders need be specified in any written waiver of notice, except as provided in Section 6 of this Article. SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENTS Except as provided below, any shareholder approval at a meeting, with respect to the following proposals, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting, or in any written waiver of notice: a. Approval of a contract or other transaction between the corporation and one or more of its directors or between the corporation and any corporation, firm, or association in which one or more of the directors has a material financial interest, pursuant to Section 310 of the California Corporations Code; b. Amendment of the Articles of Incorporation after any shares have been issued pursuant to Section 902 of the California Corporations Code; c. Approval of the principal terms of a reorganization pursuant to Section 1201 of the California Corporations Code; Page 90 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- d. Election to voluntarily wind up and dissolve the corporation pursuant to Section 1900 of the California Corporations Code; e. Approval of a plan of distribution of shares as part of the winding up of the corporation pursuant to Section 2007 of the California Corporations Code. Approval of the above proposals at a meeting shall be valid with or without such notice, if it is by the unanimous approval of those entitled to vote at the meeting. SECTION 7. ACTION WITHOUT MEETING Any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent, in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholders' approval, with respect to any one of the following proposals, without a meeting, by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval: a. Approval of a contract or other transaction between the corporation and one or more of its directors or another corporation, firm or association in which one or more of its directors has a material financial interest, pursuant to Section 310 of the California Corporations Code; b. To indemnify an agent of the corporation pursuant to Section 317 of the California Corporations Code; c. To approve the principal terms of a reorganization, pursuant to Section 1201 of the California Corporations Code; or d. Approval of a plan of distribution as part of the winding up of the corporation pursuant to Section 2007 of the California Corporations Code. Prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than a unanimous written consent to those shareholders entitled to vote who have not consented in writing. Notwithstanding any of the foregoing provisions of this section, and except as provided in Article III, Section 4 of these bylaws, directors may not be elected by written consent except by the unanimous written consent of all shares entitled to vote for the election of directors. A written consent may be revoked by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not be revoked thereafter. Such revocation is effective upon its receipt by the secretary of the corporation. SECTION 8. QUORUM AND SHAREHOLDER ACTION A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is present, the affirmative vote of the majority of shareholders represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number is required by law and except as provided in the following paragraphs of this section. Page 91 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the with-drawal of enough shareholders to leave less than a quorum, if any action is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted except as provided in the foregoing provisions of this section. SECTION 9. VOTING Only shareholders of record on the record date fixed for voting purposes by the board of directors pursuant to Article VIII, Section 3 of these bylaws, or, if there be no such date fixed, on the record dates given below, shall be entitled to vote at a meeting. If no record date is fixed: a. The record date for determining shareholders entitled to notice of, or to vote, at a meeting of shareholders, shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. b. The record date for determining the shareholders entitled to give consent to corporate actions in writing without a meeting, when no prior action by the board is necessary, shall be the day on which the first written consent is given. c. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Every shareholder entitled to vote shall be entitled to one vote for each share held, except as otherwise provided by law, by the Articles of Incorporation or by other provisions of these bylaws. Except with respect to elections of directors, any shareholder entitled to vote may vote part of his or her shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal. If a shareholder fails to specify the number of shares he or she is affirmatively voting, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares the shareholder is entitled to vote. At each election of directors, shareholders shall not be entitled to cumulate votes unless the candidates' names have been placed in nomination before the commencement of the voting and a shareholder has given notice at the meeting, and before the voting has begun, of his or her intention to cumulate votes. If any shareholder has given such notice, then all shareholders entitled to vote may cumulate their votes by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of his or her shares or by distributing such votes on the same principle among any num-ber of candidates as he or she thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. Votes cast against a candidate or which are withheld shall have no effect. Upon the demand of any shareholder made before the voting begins, the election of directors shall be by ballot rather than by voice vote. SECTION 10. PROXIES Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares by filing a proxy with the secretary of the corporation. For purposes of these bylaws, a "proxy" means a written authorization signed or an electronic transmission authorized by a shareholder or the shareholder's attorney in fact giving another person or Page 92 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- persons power to vote with respect to the shares of the shareholder. "Signed" for the purpose of these bylaws means the placing of the shareholder's name or other authorization on the proxy (whether by manual signature, typewriting, telegraphic, or electronic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A proxy may be transmitted by an oral telephonic transmission if it is submitted with information from which it may be determined that the proxy was authorized by the shareholder, or his or her attorney in fact. A proxy shall not be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall continue in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the California Corporations Code. ARTICLE III DIRECTORS SECTION 1. POWERS Subject to any limitations in the Articles of Incorporation and to the provisions of the California Corporations Code, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by, or under the direction of, the board of directors. SECTION 2. NUMBER The authorized number of directors shall be three (3). After issuance of shares, this bylaw may only be amended by approval of a majority of the outstanding shares entitled to vote; provided, moreover, that a bylaw reducing the fixed number of directors to a number less than five (5) cannot be adopted unless in accordance with the additional requirements of Article IX of these bylaws. SECTION 3. ELECTION AND TENURE OF OFFICE The directors shall be elected at the annual meeting of the shareholders and hold office until the next annual meeting and until their successors have been elected and qualified. SECTION 4. VACANCIES A vacancy on the board of directors shall exist in the case of death, resignation, or removal of any director or in case the authorized number of directors is increased, or in case the shareholders fail to elect the full authorized number of directors at any annual or special meeting of the shareholders at which any director is elected. The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. Except for a vacancy created by the removal of a director, vacancies on the board of directors may be filled by approval of the board or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with this Article of these bylaws, or (3) a sole remaining director. Vacancies occurring on the board by reason of the removal of directors may be filled only by approval of the shareholders. Each director so elected shall hold office until the next annual meeting of the shareholders and until his or her successor has been elected and qualified. Page 93 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- The shareholders may elect a director at any time to fill a vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by the removal of a director requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the chairperson of the board of directors, the president, the secretary or to the board of directors unless the notice specifies a later time for the effectiveness of the resignation. If the resignation is effective at a later time, a successor may be elected to take office when the resignation becomes effective. Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term in office. SECTION 5. REMOVAL Any or all of the directors may be removed without cause if the removal is approved by a majority of the outstanding shares entitled to vote, subject to the provisions of Section 303 of the California Corporations Code. Except as provided in Sections 302, 303 and 304 of the California Corporations Code, a director may not be removed prior to the expiration of the director's term of office. The Superior Court of the proper county may, on the suit of shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from re-election any director so removed for a period prescribed by the court. The corporation shall be made a party to such action. SECTION 6. PLACE OF MEETINGS Meetings of the board of directors shall be held at any place, within or without the State of California, which has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation or as may be designated from time to time by resolution of the board of directors. Meetings of the board may be held through use of conference telephone or similar communications equipment, as long as all directors participating in the meeting can hear one another. SECTION 7. ANNUAL, REGULAR AND SPECIAL DIRECTORS' MEETINGS An annual meeting of the board of directors shall be held without notice immediately after and at the same place as the annual meeting of the shareholders. Other regular meetings of the board of directors shall be held at such times and places as may be fixed from time to time by the board of directors. Call and notice of these regular meetings shall not be required. Special meetings of the board of directors may be called by the chairperson of the board, the president, vice president, secretary, or any two directors. Special meetings of the board of directors shall be held upon four (4) days' notice by mail, or forty-eight (48) hours' notice delivered personally or by telephone or telegraph. A notice or waiver of notice need not specify the purpose of any special meeting of the board of directors. Page 94 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- If any meeting is adjourned for more than 24 hours, notice of the adjournment to another time or place shall be given before the time of the resumed meeting to all directors who were not present at the time of adjournment of the original meeting. SECTION 8. QUORUM AND BOARD ACTION A quorum for all meetings of the board of directors shall consist of three (3) of the authorized number of directors until changed by amendment to this article of these bylaws. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board, subject to the provisions of Section 310 (relating to the approval of contracts and transactions in which a director has a material financial interest); the provisions of Section 311 (designation of committees); and Section 317(e) (indemnification of directors) of the California Corporations Code. A meeting at which a quorum is initially present may continue to transact business not-with-standing the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. A majority of the directors present at a meeting may adjourn any meeting to another time and place, whether or not a quorum is present at the meeting. SECTION 9. WAIVER OF NOTICE The transactions of any meeting of the board, however called and noticed or wherever held, are as valid as though undertaken at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Waivers of notice or consents need not specify the purpose of the meeting. SECTION 10. ACTION WITHOUT MEETING Any action required or permitted to be taken by the board may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same force and effect as a unanimous vote of the directors. SECTION 11. COMPENSATION No salary shall be paid directors, as such, for their services but, by resolution, the board of directors may allow a reasonable fixed sum and expenses to be paid for attendance at regular or special meetings. Nothing contained herein shall prevent a director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attendance at meetings. ARTICLE IV OFFICERS SECTION 1. OFFICERS Page 95 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- The officers of the corporation shall be a president, a vice president, a secretary, and a treasurer who shall be the chief financial officer of the corporation. The corporation also may have such other officers with such titles and duties as shall be determined by the board of directors. Any number of offices may be held by the same person. SECTION 2. ELECTION All officers of the corporation shall be chosen by, and serve at the pleasure of, the board of directors. SECTION 3. REMOVAL AND RESIGNATION An officer may be removed at any time, either with or without cause, by the board. An officer may resign at any time upon written notice to the corporation given to the board, the president, or the secretary of the corporation. Any such resignation shall take effect at the date of receipt of such notice or at any other time specified therein. The removal or resignation of an officer shall be without prejudice to the rights, if any, of the officer or the corporation under any contract of employment to which the officer is a party. SECTION 4. PRESIDENT The president shall be the chief executive officer and general manager of the corpo-ration and shall, subject to the direction and control of the board of directors, have general supervision, direction, and control of the business and affairs of the corporation. He or she shall preside at all meetings of the shareholders and directors and be an ex-officio member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may from time to time be prescribed by the board of directors or these bylaws. SECTION 5. VICE PRESIDENT In the absence or disability of the president, the vice presidents, in order of their rank as fixed by the board of directors (or if not ranked, the vice president designated by the board) shall perform all the duties of the president and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. Each vice president shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors or these bylaws. SECTION 6. SECRETARY The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, a book of minutes of all meetings of directors and shareholders. The minutes shall state the time and place of holding of all meetings; whether regular or special, and if special, how called or authorized; the notice thereof given or the waivers of notice received; the names of those present at directors' meetings; the number of shares present or represented at shareholders' meetings; and an account of the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, or at the office of the corporation's transfer agent, a share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation. Page 96 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, the original or a copy of the bylaws of the corporation, as amended or otherwise altered to date, certified by him or her. The secretary shall give, or cause to be given, notice of all meetings of shareholders and directors required to be given by law or by the provisions of these bylaws. The secretary shall have charge of the seal of the corporation and have such other powers and perform such other duties as may from time to time be prescribed by the board or these bylaws. In the absence or disability of the secretary, the assistant secretaries if any, in order of their rank as fixed by the board of directors (or if not ranked, the assistant secretary designated by the board of directors), shall have all the powers of, and be subject to all the restrictions upon, the secretary. The assistant secretaries, if any, shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors or these bylaws. SECTION 7. TREASURER The treasurer shall be the chief financial officer of the corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation. The treasurer shall deposit monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He or she shall disburse the funds of the corporation in payment of the just demands against the corporation as authorized by the board of directors; shall render to the president and directors, whenever they request it, an account of all his or her transactions as treasurer and of the financial condition of the corporation; and shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors or the bylaws. In the absence or disability of the treasurer, the assistant treasurers, if any, in order of their rank as fixed by the board of directors (or if not ranked, the assistant treasurer designated by the board of directors), shall perform all the duties of the treasurer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the treasurer. The assistant treasurers, if any, shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors or these bylaws. SECTION 8. COMPENSATION The officers of this corporation shall receive such compensation for their services as may be fixed by resolution of the board of directors. ARTICLE V EXECUTIVE COMMITTEES SECTION 1 The board may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: Page 97 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- a. The approval of any action for which the approval of the shareholders or approval of the outstanding shares is also required. b. The filling of vacancies on the board or in any committee. c. The fixing of compensation of the directors for serving on the board or on any committee. d. The amendment or repeal of bylaws or the adoption of new bylaws. e. The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. f. A distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board. g. The appointment of other committees of the board or the members thereof. ARTICLE VI CORPORATE RECORDS AND REPORTS SECTION 1. INSPECTION BY SHAREHOLDERS The share register shall be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. Such inspection and copying under this section may be made in person or by agent or attorney. The accounting books and records of the corporation and the minutes of proceedings of the shareholders and the board and committees of the board shall be open to inspection upon the written demand of the corporation by any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for any proper purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Shareholders shall also have the right to inspect the original or copy of these bylaws, as amended to date and kept at the corporation's principal executive office, at all reasonable times during business hours. SECTION 2. INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind and to inspect the physical properties of the corporation, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney. The right of inspection includes the right to copy and make extracts. SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS Page 98 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. SECTION 4. WAIVER OF ANNUAL REPORT The annual report to shareholders, described in Section 1501 of the California Corporations Code is hereby expressly waived, as long as this corporation has less than 100 holders of record of its shares. This waiver shall be subject to any provision of law, including Section 1501(c) of the California Corporations Code, allowing shareholders to request the corporation to furnish financial statements. SECTION 5. CONTRACTS, ETC. The board of directors, except as otherwise provided in the bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the board of directors, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract, or to pledge its credit, or to render it liable for any purpose or to any amount. ARTICLE VII INDEMNIFICATION AND INSURANCE OF CORPORATE AGENTS SECTION 1. INDEMNIFICATION The directors and officers of the corporation shall be indemnified by the corporation to the fullest extent not prohibited by the California Corporations Code. SECTION 2. INSURANCE The corporation shall have the power to purchase and maintain insurance on behalf of any agent (as defined in Section 317 of the California Corporations Code) against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such, whether or not the corporation would have the power to indemnify the agent against such liability under the provisions of Section 317 of the California Corporations Code. ARTICLE VIII SHARES SECTION 1. CERTIFICATES The corporation shall issue certificates for its shares when fully paid. Certificates of stock shall be issued in numerical order, and shall state the name of the recordholder of the shares represented thereby; the number, designation, if any, and the class or series of shares represented thereby; and contain any statement or summary required by any applicable provision of the California Corporations Code. Every certificate for shares shall be signed in the name of the corporation by 1) the chairperson or vice chairperson of the board or the president or a vice president and 2) by the treasurer or the secretary or an assistant secretary. Page 99 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- SECTION 2. TRANSFER OF SHARES Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, it shall be the duty of the secretary of the corporation to issue a new certificate to the person entitled thereto, to cancel the old certificate, and to record the transaction upon the share register of the corporation. SECTION 3. RECORD DATE The board of directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive payment of any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. ARTICLE IX AMENDMENT OF BYLAWS SECTION 1. BY SHAREHOLDERS Bylaws may be adopted, amended or repealed by the affirmative vote or by the written consent of holders of a majority of the outstanding shares of the corporation entitled to vote. However, a bylaw amendment which reduces the fixed number of directors to a number less than five (5) shall not be effective if the votes cast against the amendment or the shares not consenting to its adoption are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. SECTION 2. BY DIRECTORS Subject to the right of shareholders to adopt, amend or repeal bylaws, the directors may adopt, amend or repeal any bylaw, except that a bylaw amendment changing the authorized number of directors may be adopted by the board of directors only if prior to the issuance of shares. CERTIFICATE This is to certify that the foregoing is a true and correct copy of the Bylaws of the corporation named in the title thereto and that such Bylaws were duly adopted by the board of directors of the corporation on the date set forth below. Dated: July 27, 1999 /s/ Patrick Hennessy ------------------------------------------------ Patrick Hennessy, Vice President/Secretary /s/ Sheryl Moulton ------------------------------------------------ Sheryl Moulton, President /s/ Daniel Yoshizato ------------------------------------------------ Daniel Yoshizato, Vice President Page 100 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 3. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Form of Common Stock Certificate INTERNET HOLLYWOOD, INC. LOGO NUMBER SHARES _______ THIS CERTIFICATE IS TRANSFERABLE SEE THE REVERSE FOR A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE CORPORATION'S SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA - -------------------------------------------------------------------------------- This certifies that CUSIP 983905 10 0 is the registered owner of - -------------------------------------------------------------------------------- FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITH PAR VALUE OF $5.00, OF INTERNET HOLLYWOOD, INC. Transferable on the share register of the Corporation, in person or by duly authorized Attorney, upon surrender of this Certificate properly endorsed or assigned. This Certificate is not valid until countersigned by the transfer agent and Registered by the registrar. WITNESS the facsimile seal of Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ __________________________ /s/ ___________________________ SECRETARY PRESIDENT INTERNET HOLLYWOOD, INC. SEAL GOES HERE - -------------------------------------------------------------------------------- Page 101 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- Form of Common Stock Certificate (Continued) INTERNET HOLLYWOOD, INC. A full statement of the rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes of shares of the Corporation, including the Common Stock, ownership of which is represented by this certificate, and the Preferred Stock, and upon the respective holders thereof, may be obtained by any shareholder upon request and without charge from the Secretary of the Corporation, at the principal office of the Corporation. The Board of Directors has the authority to fix the number of shares of any series of Preferred Stock, to determine the designation of such series and to determine or alter the rights, preferences, privileges and restrictions upon any wholly unissued series of Preferred Stock. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM--as tenants in common UNIF GIT MIN ACT--Custodian TEN ENT--as tenants by the entireties (Cust) (Minor) JT TEN--as joint tenants with right under Uniform Gifts to Minors Act of survivorship and not as (State) tenants in common Additional abbreviations may also be used though not in the above list. For Value Received,_______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _________________________________________________ _________________________________________________ PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) __________________________________________________________________ __________________________________________________________________ Shares of the Common Stock represented by the within certificate, and do hereby irrevocably constitute and appoint __________________________________________________________________ Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises. Dated ___________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Page 102 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 4. SUBSCRIPTION AGREEMENT INTERNET HOLLYWOOD, INC. SUBSCRIPTION AGREEMENT Instructions: Please read the attached offering (prospectus), discuss same with your attorney and, if you determine to make the investment, complete three copies of this subscription agreement. You are to retain one copy and provide two copies to the issuer. This subscription agreement cannot be accepted unless all of the information is provided. NAME:___________________________________________________________ DATE:___________________________________________________________ ADDRESS:________________________________________________________ HOME PHONE:______________________ OFFICE:_____________________ PHONE:_____________________ AGE:____________ SOCIAL SECURITY NUMBER:____________________ OCCUPATION: ________________________________ Subject to acceptance by you, in writing, the undersigned hereby offers to subscribe to: ___________________SHARES of COMMON STOCK, for a total consideration of $__________________. (# of shares times $5.00) The undersigned each warrants that he/she is over the age of 21, able to read and understand the English language, and a bona fide resident of the State of California. Each of the undersigned further warrants that he/she has read and understood the attached prospectus, that he/she is purchasing the securities for his/her own account and not with a view towards resale to others, and that no portion thereof is for the account of another. The undersigned further warrants that his/her financial security will in no way be jeopardized should he/she lose his/her entire investment. The undersigned heard about this investment as follows: ________________________________________________________________________________ _____________________________________________________ The undersigned has the following business or personal relationships with the promoters of this venture (indicate names, length of time and nature of relationship; if none, so indicate): __________________________________________________________________ __________________________________________________________________ Attached find my check to the order of INTERNET HOLLYWOOD, INC., in the sum of $________________. The agreements and representation herein are made by each person signing this agreement, if more than one. USE IF SINGLE OWNERSHIP: _________________________________________________________ (Signature) Page 103 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- _________________________________________________________ (Print Full Name) IF JOINT OWNERSHIP WITH RIGHT OF SURVIVORSHIP: _____________________________ and _________________________________ (Signature) (Signature) _____________________________ and _________________________________ (Print Full Name) (Print Full Name) _____________________________ and _________________________________ (Print address) (Print address) Accepted: Receipt acknowledged of Check For: $___________________________________________________________ _________________________________ __________________ (Signature) (Date) Page 104 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 5. VOTING TRUST AGREEMENT Not applicable. Currently, the Company has no Voting Trust Agreements. Page 105 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 6. MATERIAL CONTRACTS Not applicable. Currently, the Company has no material contracts. Page 106 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 7. MATERIAL FOREIGN PATENTS Not applicable. Currently, the Company has no material foreign patents. Page 107 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 8. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION, OR SUCCESSION Not applicable. Currently, the Company has no plans for acquisitions, reorganization, arrangement, liquidation, or succession. Page 108 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 9. ESCROW AGREEMENTS The Company has an escrow agreement with Bank of America. Should the Company Not receive the minimum amount of funding ($500,000), funds will be made available to investors September 6, 2001. Interest will not be paid to investors. Page 109 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 10. CONSENTS (Document is copied) [David B. Tolkan Certified Public Accountant Letterhead] To the Board of Directors and Stockholders of Internet Hollywood, Inc. I have audited the accompanying balance sheet of Internet Hollywood, Inc. (a Development Stage Company) as of December 31, 1999, and related statements of income, retained earnings, and cash flows for the period June 14, 1999 (inception) through December 31, 1999. These financial statements are the responsibility of the Company's management. My responsibility is to express and opinion on these financial statements based on our audit. I have conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that our audit provides a reasonable basis for our opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Internet Hollywood, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the period June 14, 1999 (inception) through December 31, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net operating loss of $3,096 during the period June 14, 1999 (inception) through December 31, 1999. As described more fully in Note I to the financial statements the Company's current liabilities exceed current assets by $232. The Company's continued existence depends on its ability to obtain financing either through stock offerings or bank financing. /s/ David B. Tolkan Monterey, California July 13, 2000 Page 110 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 11. OPINION RE LEGALITY (Document is copied) [James Phillip Vaughns, ESQ. Letterhead] July 27, 2000 Internet Hollywood, Inc. 604 Villa Centre Way San Jose, CA 95128 Ladies and Gentlemen, I have acted as counsel for Internet Hollywood, Inc., a California corporation, in connection with the proposed Initial Public Offering. I have examined such corporate records as have been provided to me by Sheryl Moulton, Chief Operating Officer/Chief Financial Officer, and Board of Directors member of Internet Hollywood, Inc. Such records include the original Articles of Incorporation, the Certificate of Amendment, the Minutes of the First Meeting of the Board of Directors, a draft Regulation A Disclosure Document (dated May 23, 2000), and such other documents relevant and germane to the shares of Internet Hollywood, Inc. Common stock to be issued in connection with the Initial Public Offering. Moreover, I have reviewed such matters of law as I have deemed necessary for this opinion. Based on the foregoing, I am of the opinion that, under the laws of the State of California, pursuant to which Internet Hollywood, Inc is incorporated, after the Registration Statement becomes effective and upon the issuance of the shares of Common Stock in accordance with the Initial Public Offering, such shares of Common Stock will be duly authorized, validly issued, fully paid, and non-assessable. I consent to the filing of this opinion as an exhibit to the Registration Statement. Sincerely, /s/ James Phillip Vaughns JAMES PHILLIP VAUGHNS Attorney at Law Page 111 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 12. ADDITIONAL EXHIBITS 12.1 SALES MATERIAL INTERNET HOLLYWOOD, INC. NEW ISSUE 1,000,000 SHARES COMMON STOCK PRICE: $5.00 PER SHARE MINIMUM PURCHASE: 100 SHARES ($500) Or you may download our Prospectus by visiting our website www.internethollywood.com ------------------------- All of the 1,000,000 shares of Common Stock (the "Shares") hereby Offered are being sold directly by Internet Hollywood, Inc. (Internet Hollywood" or the "Company"). NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED AND NONE WILL BE ACCEPTED. NO SALES OF THE SECURITIES WILL BE MADE OR COMMITMENT TO PURCHASE ACCEPTED UNTIL DELIVERY OF A PROSPECTUS THAT INCLUDES COMPLETE INFORMATION ABOUT THE ISSUER AND THE OFFERING. AN INDICATION OF INTEREST MADE BY A PROSPECTIVE INVESTOR INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. THIS OFFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE FEDERAL AND STATE SECURITIES LAWS. NO SALE MAY BE MADE UNTIL THE OFFERING STATEMENT IS QUALIFIED BY THE SEC AND REGISTERED IN THIS STATE. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK; THEREFORE, THE OFFERING PRICE HAS BEEN DETERMINED BY THE COMPANY. Page 112 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 12.2 "TEST THE WATER" MATERIAL The Company proposes to feature the "tombstone" listed in Exhibit 12.1 in the following media: The Wall Street Journal - -------------------------- The Company Website: www.internethollywood.com ------------------------- EBay.com Yahoo.com CNet Radio KWAV Radio The Herald (Monterey County, CA Newspaper) - ----------- The Coast Weekly (Monterey County, CA Newspaper) - ------------------ San Jose Mercury News (Silicon Valley Newspaper) - ------------------------ 12.3 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS Sheryl Moulton has elected to represent the Company as Agent for Service of Process. Page 113 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- 12.4 MISCELLANEOUS DISCLOSURE Application of Rule 262 a. State whether any of the persons identified in response to Item I are subject to any of the disqualification provisions set forth in Rule 262. No. Not applicable. b. If any such person is subject to these provisions, provide a full description including pertinent names, dates and other details, as well as whether or not an application has been made pursuant to Rule 262 for a waiver of such disqualification and whether or not such application has been granted or denied. Not applicable. Affiliate Sales If any part of the proposed offering involves the resale of securities by affiliates of the issuer, confirm that the following description does not apply to the issuer. The issuer has not had a net income from operations of the character in which the issuer intends to engage for at least one of its last two fiscal years. Not applicable. Jurisdictions in Which Securities Are to be Offered a. List the jurisdiction in which the securities are to be offered by underwriters, dealers or salespersons. The Company proposes to sell securities in California and in other states (this is pending approval in those respective states). b. List the jurisdictions in which the securities are to be offered other than by underwriters, dealers or salesmen and state the method by which such securities are to be offered. The Company proposes to sell securities in California and in other states (this is pending approval in those respective states). The Company proposes to use some of the following marketing venues: Internet, Radio, Newspaper and other media venues. Marketing Arrangements a. Briefly describe any arrangement known to the issuer or to any person named in response to Item 1 above or to any selling securityholder in the offering covered by this Form 1-A for any of the following purposes: 1. To limit or restrict the sale of other securities of the same class as those to be offered for the period of distribution; Page 114 of 115 INTERNET HOLLYWOOD, INC. - SB-1 - Registration Statement - -------------------------------------------------------------------------------- Pursuant to Rule 144, certain Officers and Directors who own greater than ten percent (10%) of the Company, may have resale restrictions on the shares. The Offering will limit the sale of securities in California, pursuant to "Small Business Issuer" Rules 260.001 (i) and 260.140.01 (e). Sale and resale of securities must act in compliance with state and federal laws. 2. To stabilize the market for any of the securities to be offered; Not applicable. 3. For withholding commissions, or otherwise to hold each underwriter or dealer responsible for the distribution of its participation. Not applicable. b. Identify any underwriter that intends to confirm sales to any accounts over which it exercises discretionary authority and include an estimate of the amount of securities so intended to be confirmed. Not applicable. Other Present or Proposed Offerings State whether or not the issuer or any of its affiliates is currently offering or contemplating the offering of any securities in addition to those covered by this Form 1-A. If so, describe fully the present or proposed offering. The issuer is not offering or contemplating the offering of any securities in addition to those covered by this Form 1-A. Relationship with Issuer of Experts Named in Offering Statement If any expert named in the offering statement as having prepared or certified any part thereof was employed for such purpose on a contingent basis or, at the time of such preparation or certification or at any time thereafter, had a material interest in the issuer or any of its parents or subsidiaries or was connected with the issuer or any of its subsidiaries as a promoter, underwriter, voting trustee, director, officer or employee furnish a brief statement of the nature of such contingent basis, interest or connection. Not applicable. Use of a Solicitation of Interest Document Indicate whether or not a publication authorized by Rule 254 was used prior to the filing of this notification. If so, indicate the date(s) of publication and of the last communication with prospective purchasers. Not applicable. Page 115 of 115 -----END PRIVACY-ENHANCED MESSAGE-----