Prospectus
Bodyguard Records.com, Inc.
(logo)
This is our initial public offering of up to 400,000 shares of our common
stock at $2.50 per share.
We will sell the shares on a direct participation basis for a period of up to
one hundred eighty days (180) days and do not intend to use a professional
underwriter or broker dealer. We will conduct the offering on a minimum-maximum
basis for a minimum of 100,000 shares and a maximum of 400,000 shares. If we do
not receive subscriptions to purchase at least 100,000 shares in nine months, we
will terminate the offering and promptly return all subscription funds to
investors. All proceeds of this offering will be promptly deposited in a
non-interest bearing escrow account until 100,000 shares are sold.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The shares offered hereby involve a high degree of risk and immediate
substantial dilution. You should carefully read and consider the "Risks Related
to Our Business," commencing on page 2 for information that should be considered
in determining whether to purchase any of the shares.
Number of Price to Proceeds
Shares Public Discount to Us
- --------------------------------------------------------------------------------
Per Share $ 2.50 $ -0- $ 2.50
Minimum 100,000 $ 2.50 $ -0- $ 200,000
Maximum 400,000 $ 2.50 $ -0- $ 950,000
The proceeds to us represents the funds we will retain after we pay our offering
costs, including filing, printing, legal, accounting, transfer agent and escrow
agent fees estimated at $50,000.
Bodyguard Records.com, Inc.
56 Colfax Avenue
Clifton, NJ 07013
(973) 574-1315
The date of this prospectus is February 11, 2002
Bodyguard Records.com, Inc.
(logo)
Table of contents
Item Page
---- ----
Summary ..................................................................... 1
Risks Related to Our Business................................................ 2
It is difficult to evaluate our business and prospects because
we do not have any operating history ............................... 2
We may be undercapitalized and unable to continue our business .............. 3
We may never earn a profit .................................................. 3
Seven of our nine artists are unknown to the record buying public
and we may have difficulty in selling their records and CD's ....... 4
If we don't sell our music, we will fail .................................... 4
The lack of advertising revenue on our website could slow our growth ........ 4
The loss of our single source for the pressing and retail distribution of
our CD's could hurt our business ................................... 5
Two of our officers may have a conflict of interest that could detract from
their ability to concentrate on our business ...................... 5
The absence of an underwriter may increase risks ............................ 5
You may lose money trying to sell your stock ................................ 5
If we don't keep our existing artists and add new ones, we will fail ........ 6
We may need to change the manner in which we conduct our business
if government regulation increases ................................ 6
Special Information Regarding Forward Looking Statements .................... 7
Use of Proceeds ............................................................. 7
Dividend Policy ............................................................. 9
Capitalization .............................................................. 9
Dilution .................................................................... 9
Management's Discussion and Analysis ........................................11
Plan of Operations ..........................................................11
Description of Our Business .................................................15
Employees ...................................................................29
Facilities ..................................................................29
Governmental Regulations ....................................................30
Management ..................................................................30
Certain Relationships and Related Transactions ..............................35
Principal Stockholders ......................................................38
Market for Our Common Stock .................................................39
Shares Eligible for Future Sale .............................................39
Description of Our Capital Stock ............................................39
Plan of Distribution ........................................................40
Legal Matters ...............................................................41
Experts .....................................................................42
Anti-takeover Effects of Delaware Law .......................................42
Transfer Agent and Registrar ................................................42
Rule 144 ....................................................................42
Rule 144(k) .................................................................43
Rule 701 ....................................................................43
Where You Can Find More Information .........................................43
Financial Statements .......................................................F-1
Dealer Prospectus Delivery Obligation
Until May 11, 2002 (90 days after the commencement of this offering), all
dealers effecting transactions in the these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters to their unsold allotments or subscriptions.
Summary
About Us
From inception on November 12, 1999, through July 2001, we were a development
stage entertainment company without an operating history. We received our first
revenue from operations in July 2001, but have yet to earn a profit. Our
objective is to utilize our recently signed artist recording agreement with
Quiet Riot, our recently acquired license rights to the Bay City Rollers and our
recently signed national distribution agreement with Navarre Corporation to sell
CD's in stores, to establish our name, and to promote and market our group of
seven new artists. We also intend to use the Internet and other emerging
technologies such as Mp3 to accomplish our goals.
Corporate Information
We were incorporated under the laws of the State of Delaware on November 12,
1999. Our principal executive offices are located at 56 Colfax Avenue, Clifton,
NJ 07015. Our telephone number at that address is (973) 574-1315. Our corporate
website is located at www.bodyguardrecords.com. We do not intend for information
found on our website to be part of this prospectus.
We applied for a Bodyguard Records.com, Inc. service mark on December 29, 2000.
We received a Notice of Publication on August 1, 2001, and received notification
of the issuance of this service mark on November 13, 2001.
This Offering
Securities offered A minimum of 100,000 and a maximum of 400,000
shares of common stock
Price per Share $2.50
Common stock outstanding 900,000 shares
prior to the offering
Common stock to be
outstanding after the
minimum offering 1,000,000 shares
Common stock to be
outstanding after the
maximum offering 1,300,000 shares
Risk Factors
An investment in the common stock of Bodyguard involves a high degree of risk.
Investors could lose their entire investment. Prospective investors should
carefully consider the following factors, along with the other information set
forth in this prospectus,
1
in evaluating Bodyguard, its business and prospects before purchasing the common
stock.
Selected Financial Data
The following summary financial data as of the two fiscal years ended
March 31, 2001 and March 31, 2000, presented below has been derived from our
audited consolidated financial statements as of those dates and for those
periods. The following summary financial data as of the six months ended
September 30, 2001, has been derived from our unaudited financial statements as
of those dates and for that period. Results for the six months ended September
30, 2001,are not necessarily indicative of results for the full year. You should
read the information set forth below in conjunction with other sections of this
prospectus, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial statements
and related notes.
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Fiscal Year Ended
September 30, March 31,
2001 -------------------
2001 2000
------ ----- -----
(Unaudited)
Statement of Operations Data:
Net sales ..................................... $183,268 $4,462 $ --
Cost of sales.................................. 35,498 -- --
Operating expenses ............................ 407,375 299,551 129,782
Net loss from operations....................... (259,605) (294,889) (129,782)
Interest expense .............................. (14,157) (6,242) --
Net loss before provision for income taxes..... (273,762) (301,131) (129,782)
Net loss....................................... (273,762) (301,481) (129,782)
Net loss per common share ..................... (.30) (.39) (.31)
Weighted average number of common
shares outstanding........................... 900,000 782,500 428,714
At At March 31,
September 30, ----------------
2001 2000 2001
----- ----- -----
(Unaudited)
BALANCE SHEET DATA:
Cash............................................... $1,146 $6,318 $6,991
Prepaid expenses................................... 3,205 -- 4,452
Total assets....................................... 56,217 6,318 11,443
Total liabilities.................................. 464,643 1,500 221,106
Accumulated deficit ............................... (912,526) (129,782) (638,763)
Shareholders' deficit ............................. (408,426) (129,782) (209,663)
Risks Related to Our Business
It is difficult to evaluate our business and prospects because we do not
have any operating history
We were formed in November 1999, signed our first recording artist in
December 1999, launched our website on January 17, 2000 and did not generate any
revenue from operations until April 2001. Our short existence, coupled with the
limited number of recording artists we have signed, the relative obscurity of
all but two of them and our lack of working capital, makes it difficult to
evaluate our current business and prospects or to accurately predict our future
revenue or results of operations. Our revenue and income potential continue to
be unproven, and our business model is evolving. Because both the Internet and
musical taste are constantly changing, especially among young people, we may
need to modify our business model to adapt
2
to these changes. Before deciding to invest in our securities, you should
evaluate the risks, uncertainties, expenses and difficulties frequently
encountered by companies such as ours seeking to break into a difficult -to-
penetrate industry segment.
Our business model is new and unproven, and we may not be able to generate
sufficient revenue to operate our business successfully
If we are to survive, we will need to start generating revenue within four
months from the closing of our offering. We expect that our principal sources of
revenue will come from:
* retail and online sales of music CD's and related merchandise; and
* online sales of digitally distributed music.
We may be undercapitalized and unable to continue our business
In the event we can only sell the minimum number of shares, we may only
be able to sustain operations for a period of four months. The continued conduct
of operations beyond four months will require us to raise additional capital.
Since any such additional financing will probably be private and involve
restricted shares as opposed to the free trading shares we are selling in this
offering, there can be little assurance that we will be successful is raising
any additional capital. In addition, if we raise additional funds through the
issuance of equity securities, our stockholders may experience dilution of their
ownership interest, and the newly-issued securities may have rights superior to
those of the shares we are selling in this offering. If we raise additional
funds by issuing debt, we may be subject to limitations on our operations,
including limitations on the payment of dividends.
Once we start to generate sustained and continuous revenue, we may be able to
supplement our revenue base from:
* sales of advertising and sponsorships; and
* marketing our database of consumer information and preferences.
However, and since we intend to provide several of our online services without
charge, it is uncertain whether a business model that relies on attracting
people to learn about, listen to and purchase CD's and related merchandise can
generate sufficient revenue from the retail sale of CD's, electronic commerce,
advertising, sales of database information and sales of, or fees for, digital
downloads of music, to become a viable business.
We may never earn a profit
As a company that has only recently commenced operations with an unproven
business model, we may continue to be unprofitable, even with the proceeds from
this offering. For the period from inception (November 12, 1999) to September
30, 2001, we had net losses of $912,525. We did not have any revenue from
operations until the second calendar quarter of 2001. As of September 30, 2001,
we had total assets of $56,217 and a shareholders' deficiency of $(408,426). We
continue to experience losses and we depend upon the
3
implementation of our business plan and the proceeds from at least the sale of
the minimum number of shares in this offering to continue our business.
We expect our losses and negative cash flow to continue for the foreseeable
future. We anticipate that our losses will increase significantly from current
levels because we plan to significantly increase our expenditures for sales and
marketing, the development and signing of new artists as well as the enhancement
of our web site. With increased expenses, we will need to generate significant
revenue to achieve profitability. Consequently, it is possible that we may never
achieve profitability, and even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
The inability to become profitable may result in our being required to file for
protection under the federal bankruptcy laws.
Seven of our nine artists are unknown to the record buying public and we may
have difficulty in selling their records and CD's
Quiet Riot and the Bay City Rollers are our only artists with any name
recognition or significant fan base. We will be heavily dependent upon the
success of their new CD's to generate interest and awareness of our label and
our seven other artists. The failure of either or both of these group's new CD
to achieve commercial success within six to 12 months of its retail release on
May 29, 2001 and September 11, 2001, respectively, will severely set back our
plans to launch the careers of our seven other new artists. There can be no
assurance that our reliance on Quiet Riot and the Bay City Rollers will not
prove to be misplaced.
If we don't sell our music, we will fail
Our financial performance will be entirely dependent upon market acceptance
of our CD's and related music merchandise, which will require substantial
marketing efforts and the expenditure of significant funds. There can be no
assurance that our marketing program, when finally developed and employed, will
ever be successful.
In order to initiate sales, we will offer music and related merchandise
that appeals to a large number of retail and online consumers, particularly
young people, ages 15-25. We will also try to create online communities that are
conducive to electronic commerce, build or license a sufficiently robust and
scalable electronic commerce platform and develop an order fulfillment
capability. Since our target market includes Internet users under the age of 18,
who have limited access to credit cards, our ability to capture retail and
online product revenue from this group may be limited. If we are not successful
in meeting these challenges, our growth will be limited and our business will be
severely and adversely affected.
The lack of advertising revenue on our website could slow our growth
There has been a recent and dramatic decline in the demand for online
advertising which traditionally has been an important source of revenue. Despite
this fact, and once we start selling music online, we intend to initiate the
sale of advertising space on our web site. However, and due to recent events, we
may not be able to attract advertisers. This would deprive us of a source of
revenue with a higher profit margin than the sale of our music and other
merchandise.
4
The loss of our single source for the pressing and retail distribution of our
CD's could hurt our business
Pursuant to our January 18, 2001, three year agreement with Navarre Corporation,
100% of the manufacturing, distribution and fulfillment of our CD's destined for
retail sale in North America will be exclusively handled by Navarre. Since we
expect that approximately 95% of our first year's CD sales will be at retail, as
opposed to digitally downloaded, we are effectively dependent upon a single
source of supply for at least three years. Our business would be significantly
disrupted if Navarre were to terminate or breach its agreement with us or if it
suffered adverse developments that affect its ability to perform under our
agreement.
Two of our officers may have a conflict of interest that could detract from
their ability to concentrate on our business
Our three executive officers and directors, two of whom are also our
principal stockholders, were, until early this year, executive officers,
directors and principal stockholders of Cream Records, Inc., a New Jersey
corporation that changed its name to Hardrive Records.com, Inc. Until November
2000, when it discontinued operations, Hardrive was a potentially competitive
Internet music company that operated out of the same offices as we do and
intended to release its music products via the Internet. Although, all three of
these men have agreed to devote their full time to our business, and disavow
that Hardrive competed with us, Messrs. Foley and Rollo nevertheless entered
into written employment agreements with Hardrive in 1999, and until November
2000 were actively pursuing Hardrive's business. Accordingly, and although
Hardrive apparently ceased business activities and sold its artists' recording
and other rights, and Mr. Rollo resigned as an officer and director in January
and Mr. Pollendine resigned as a director in February 2001, it is foreseeable
that a conflict may still arise between Messrs. Foley's and Rollo's duties to us
as officers and directors any duties they may continue to have under their
employment agreements with Hardrive. Since we will be dependent upon Messrs.
Foley and Rollo for the foreseeable future, the existence of any conflict of
interest during this period may present a distraction and may diminish our
chances to achieve profitable operations.
The absence of an underwriter may increase risks
We are conducting this offering on a direct participation basis, there will
not be a broker-dealer to perform the due diligence that is generally performed
in an underwritten offering, and which is in the nature of protection to
investors. Because we are not engaging underwriters to help us sell our shares,
we are less likely to sell the maximum number of shares we are offering. The
less shares we sell, the greater are our chances of being undercapitalized.
You may lose money trying to sell your stock
Currently, there is no public market for shares of our common stock.
Although we intend to solicit a broker dealer to apply for listing on the OTC
Bulletin Board, we may not be successful since this offering is not
underwritten. Even if our shares are eligible for listing, there is no assurance
that a market will develop, or that the price of our shares in any market will
be equal to or greater than the price per share investors pay in this offering.
In fact, the price of our shares in any market that may develop could be
significantly lower. Investors in this offering may have difficulty liquidating
their investment.
If we don't keep our existing artists and add new ones, we will fail
5
We believe that our future success depends on our ability to maintain our
existing artist agreements and to secure additional agreements with artists. Our
business would be adversely affected by any of the following:
* the failure of our two established acts to meet anticipated sales
criteria;
* the inability of at least one of our seven existing new artists to
achieve popularity;
* increased competition to maintain our existing artists relationships;
* inability to recruit new artists;
* non-renewals of our current artist agreements; and
* poor performance or negative publicity about our artists.
If we are not able to provide valuable services or incentives to artists,
or if we otherwise fail to maintain good relations with our artists, they may
lose interest in renewing their artist agreements with us or look to get out
from their agreements with us. All of our current artist contracts have a term
of one record album with a minimum of ten songs and except for Quiet Riot and
the Bay City Rollers, have granted us options for between two and four
additional record albums. If we fail to meet these obligations, we may not be
able to sign our artists to another agreement; and we may be unable to recoup
our costs to develop, operate and promote our web site and artist roster.
In the past, we have not offered our artists options to purchase our common
stock. However, and if we become a publicly owned company as a result of this
offering, of which there can be no assurance, we may find it necessary to make
such offers in the future. In the event we become publicly owned but the market
price of our stock languishes at low levels or under performs, we may not be
able to offer artists options or other equity incentives on attractive enough
terms. If we cannot provide adequate incentives, our efforts to sign new artists
may be impaired. If we cannot maintain our current relationships with artists or
sign agreements with new artists, our user base would likely diminish and our
ability to generate revenues from electronic commerce and advertising would be
seriously harmed.
Risks Related to Our Industry
We may need to change the manner in which we conduct our business if government
regulation increases
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues such as user privacy, pricing,
taxation, content, copyrights, security, distribution, and the quality of
products and services. Several telecommunications companies have petitioned the
Federal Communications Commission to regulate Internet service providers and
online services providers in a manner similar to long distance telephone
carriers and to impose
6
access fees on these companies. Any imposition of access fees could increase the
cost of transmitting data over the Internet. In addition, the growth and
development of the market for online commerce may lead to more stringent
consumer protection laws, both in the United States and abroad, that may impose
additional burdens on us. The United States Congress has enacted Internet laws
regarding children's privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy are applicable to
the Web. Any new, or modifications to existing, laws or regulations relating to
the Web could adversely affect our business.
Prohibition and restriction of Internet content and commerce could reduce
or slow Internet use, decrease the acceptance of the Internet as a
communications and commercial medium and expose us to liability. Any of these
outcomes could have a material adverse effect on our business, results of
operations and financial condition. The growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose additional burdens on
companies conducting business over the Internet.
Special Information Regarding Forward Looking Statements
Some of the statements in this prospectus are "forward-looking statements".
These forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under "Risk Factors."
The words "believe," "expect," "anticipate," "intend" and "plan" and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update or revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect future events or developments.
Use of Proceeds
The net proceeds we will receive from the sale of the shares of common stock
offered by us will be $950,000 if all the offered shares are sold and $200,000
if only the minimum number of offered shares are sold. We have computed these
net proceeds amounts based upon a public offering price of $2.50 per share and
after deducting our estimated offering expenses of $50,000. However, and in the
event we employ the services of broker dealers as selling agents, our offering
expenses could increase up to a maximum of $180,000.
The principal purpose of this offering is to fund our business plan and to
commence operations. Accordingly, we intend to apply the net proceeds of the
offering as follows:
7
Amount of Proceeds From the Sale of
100,000 shs. 200,000 shs. 300,000 shs. 400,000 shs.
------------ ------------- ------------ ------------
Gross proceeds $ 250,000 $ 500,000 $ 750,000 $ 1,000,000
Offering expenses (50,000) (50,000) (50,000) (50,000)
----------- ----------- ----------- -----------
Net proceeds 200,000 450,000 700,000 950,000
Category of Expenditure Expenditure of Net Proceeds
- ----------------------- ---------------------------
* Web site development $ -- $ 10,000 $ 15,000 $ 20,000
* Marketing of our Web site and artists -- 115,000 225,000 295,000
* Loan repayment 60,000 125,000 185,000 210,000
* General and administrative expenses 15,000 30,000 40,000 50,000
* Officer's salaries 120,000 120,000 150,000 150,000
* Initial manufacturing of CD's and
merchandise -- 35,000 40,000 75,000
* Hiring of employees -- -- 75,000 125,000
* Working capital (overhead and
recording supplies) 5,000 15,000 20,000 25,000
-------- -------- -------- --------
Total $200,000 $450,000 $700,000 $950,000
We have verbally agreed with the four note holders of the $365,000 of our
non-convertible debt that they will collectively receive $60,000 if 100,000
shares are sold, $125,000 if 200,000 shares are sold, $185,000 if 300,000 shares
are sold, and $210,000 if all 400,000 shares are sold in this offering. One of
the note holders, who advanced us an additional $20,000 on November 14, 2001 and
$20,000 on January 3, 2002, has verbally agreed to wait for payment until the
respective six month due dates of these two notes.
The $60,000 in debt repayment if only 100,000 shares are sold represents one
half of the $20,000 loaned to us on August 17, 2000, at 12%, all $10,000 loaned
to us on July 15, 2000, at 12%, all $15,000 loaned to us on September 29, 2000,
at 12%, and all $25,000 loaned to us on May 31, 2001, at 12%. The July 15, 2000,
August 17, 2000 and September 29, 2000 loans are due on the closing date of this
offering. The term of the May 31, 2001 loan is 13 months making it due on June
30, 2002.
The additional $65,000 in debt repayment we intend to make if 200,000
shares are sold represents the $10,000 remaining one half of the unpaid balance
of the $20,000 loaned to us on August 17, 2000 at 12%, all $15,000 loaned to us
on November 6, 2000 at 12%, and due July 31, 2001, all $20,000 loaned to us on
April 5, 2001 at 12% and due May 5, 2002, and all $20,000 loaned to us on
December 1, 2000 at 12% due the sooner of June 2, 2002 or the closing of this
offering.
The additional $60,000 in debt repayment we intend to make if 300,000
shares are sold represents all $25,000 loaned to us on May 31, 2001 at 12% and
due August 2, 2002, all $20,000 loaned to us on July 10, 2001 at 13% and due
August 10, 2002, and all $15,000 loaned to us on October 16, 2001 at 13% due
February 16, 2002.
The additional $25,000 in debt repayment we intend to make if all 400,000
shares are sold represents all $15,000 loaned to us on August 6, 2001 at 12% and
all $10,000 loaned to
8
us on August 28, 2001 at 12%. The term of the August 6, 2001 and August 28, 2001
loans are 13 months making them due on September 6, 2002, and September 10,
2000, respectively.
Unless we sell all 400,000 shares, and pursuant to amendments to their
employment agreements, Messrs. Rollo and Foley have agreed that for at least 12
months they will each accept $60,000 and accrue $15,000 of their $75,000
salaries.
Pending any use, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
Capitalization
The following table sets forth our capitalization as of September 30, 2001:
* on an actual basis; and
* on an as adjusted basis to reflect our sale of the minimum number of
shares offered by this prospectus at a public offering price of $2.50 per
share, after deducting the estimated offering expenses payable by us. The
adjusted amount assumes we will be successful in selling the shares without the
use of broker dealer selling agents. If we wind up using selling agents, our
offering expenses could increase by up to a maximum of $180,000. The 900,000
issued and outstanding shares were purchased at an average price of $.12 per
share.
You should read this information together with our supplemental consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
As of September 30, 2001
Actual Adjusted for Minimum
Stockholders' (deficit) equity: ------ --------------------
common stock, $.001 par value;
20,000,000 shares authorized;
900,000 shares issued and outstanding;
1,000,000 issued and outstanding, as adjusted
for the minimum, $ 900 $ 1,000
Additional paid in capital 503,200 703,200
Accumulated deficit (912,526) (912,526)
Total stockholders' equity (deficiency) (408,326) (208,326)
Dilution
Our negative net tangible book value as of September 30, 2001 was $408,426
or approximately $(.45) per share of common stock. Negative net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the
9
number of shares of common stock outstanding at that date. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering made and the
net tangible book value per share of common stock immediately after the
completion of this offering.
After giving effect to the issuance and sale of the minimum and maximum
number of shares of common stock offered by us and after deducting the estimated
offering expenses payable by us without the use of broker dealer selling agents,
our net tangible book value as of September 30, 2001 would have been $(208,426),
or approximately $ (.21) per share if only 100,000 shares are sold, and $
541,574 or approximately $.42 per share if all 400,000 shares are sold. This
represents an immediate increase in net tangible book value of $.24 per share
minimum, or $.87 per share, maximum, to existing stockholders; and an immediate
dilution of approximately $2.29 per share minimum, or approximately $2.08 per
share maximum, to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
Minimum Maximum
* Public offering price per share ..................................... $ 2.50 $ 2.50
* Net tangible book value per share at September 30, 2001 ............. (.21) .42
* Increase in net tangible book value per share due to offering ....... .24 .63
* Dilution per share to new investors ................................. $ 2.29 $ 2.08
The following table summarizes, as of September 30, 2001, the difference between
the number of shares of common stock purchased from us, the total cash
consideration paid and the average price per share paid by existing stockholders
of common stock and by the new investors purchasing shares in this offering. The
table assumes the sale of the minimum number of shares offered in this
prospectus at an initial public offering price of $2.50 per share, and before
any deduction of estimated offering expenses.
Shares Purchased Total Consideration Average
---------------- ------------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
existing stockholders 900,000 90% $87,100 26% $.097
investors (minimum) 100,000 10% $250,000 74% $2.50
The following table summarizes, as of September 30, 2001, the difference between
the number of shares of common stock purchased from us, the total cash
consideration paid and the average price per share paid by existing stockholders
of common stock and by the new investors purchasing shares in this offering. The
table assumes the sale of the maximum number of shares offered in this
prospectus at an initial public offering price of $2.50 per share, and before
any deduction of estimated offering expenses.
10
Shares Purchased Total Consideration Average
---------------- ------------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
existing stockholders 900,000 69% $87,100 8% $ .097
investors (maximum) 400,000 31% $1,000,000 92% $2.50
Management's Discussion and Analysis
Of Financial Condition or Plan of Operation
The following discussion should be read in conjunction with our financial
statements and notes to those statements and other financial information
appearing elsewhere in this prospectus.
Plan of Operations
From inception on November 12, 1999 through July 2001, we were a development
stage entertainment company without an operating history. We received our first
revenue from operations in July 2001, but have yet to earn a profit. For the
period from our inception through December 31, 2001, we:
* Implemented a modest private offering of our common stock and borrowed
money to fund this offering and our pre-operating activities;
* Signed artist recording agreements with six artists including Quiet
Riot;
* released one artist from its artist recording agreement;
* Received license rights for four additional artists including the Bay
City Rollers;
* Developed and launched our website www.bodyguardrecords.com on January
17, 2000, which includes photos and biographical
information from all nine of our artists:
* Entered into and subsequently terminated an Internet distribution
agreement with Cyberretail.com, LLC, a non-affiliated
company, as our exclusive distributor for the fulfillment of orders
for recorded music products and artist merchandise sold via the
Internet or on an 800 number;
* Entered into a written three-year National Distribution and
Warehousing Agreement with Navarre Corporation, a non-affiliated
retail and digital distributor of music and music products;
* Developed, produced and manufactured CD's for eight of our then ten
artists, are engaged in recording a CD for an additional artist, and
pressed CDS for another artist on November 15, 2001;
11
* Arranged for three showcases in Hoboken, New Jersey where our artists
have performed live;
* Arranged a showcase for our artists to perform on March 17, 2001 at
the famous "Stone Pony" in Asbury Park, NJ. In addition we arranged
for three of our artists to showcase at the Cutting Room in New York
City on December 6, 2001;
* Entered into a preliminary distribution agreement with Mac Milli
Entertainment, Inc., a non-affiliated company for the on-line
promotion of our artists on the Mac Milli website and the
non-exclusive fulfillment of digital downloaded music orders;
* Conducted a professional lip-sync video session shoot of Naked
Underneath, Summer Snowmen, and Dennis DeCambre; and prepared a music
video for several artists, segments of which were displayed on our
website on November 15, 2001; and
* We monitored Quiet Riot's performance in Grand Slam Metal Jam, a
scheduled 40 show United States arena concert tour along with the
heavy-metal bands Poison, Warrant and Enuff Znuff, that commenced on
May 26, 2001. Due to an injury to a member of Poison, the tour
terminated in late July 2001;
* Generated limited credit card and money order revenue from Live at the
Budokan 1977, The Bay City Rollers CD which we made available on our
web site since April 16, 2001; and
* Released Live at the Budokan 1977 to retail stores through Navarre
Corporation on September 11, 2001.
For the 4 to 12 months following the sale of at least the minimum number of
shares, our principal objectives will be to:
* Secure national exposure for our recording artists; and
* Initiate and implement the sale of CD's and related merchandise with a
view towards developing cash flow.
* Secure a strategic marketing alliance with a nationally recognized
company.
In order to achieve these objectives, we believe that the specific steps
needed to make Bodyguard operational and successful will be to:
* Commence the marketing of our web site and artists
We intend to initiate this process during the first weeks following the
closing of at least 200,000 shares, and to continue for at least four months. We
intend to use approximately $25,000 of the $450,000 net proceeds from this
offering per month to:
o Place print ads in key music publications including Billboard, Teen
and CMJ New Music Report;
12
o Attempt to secure reviews and articles in music publications
including Billboard, Rolling Stone and CMJ New Music Report and in
general circulation magazines such as Teen and Seventeen;
o Attempt to secure radio airplay on CMJ Reporting college radio
stations as well as commercial radio stations throughout the United
States. We intend to supply program directors with a copy of the CD of
each of our artists as well as a press kit containing biographies of
the band members, an 8x10 glossy black and white print, a fact sheet
and copies of any articles that have been published;
o Promote the Company's web site through the inclusion of all of our
artist's names in the principal search engines, cross links with
MacMilli Entertainment, Ling Lang.com and other corporate alliances;
o Attempt to utilize Grand Slam Metal Jam, the arena concert tour in
which Quiet Riot participated, to generate purchases of "Guilty
Pleasures", Quiet Riot's first Bodyguard Records CD; and
o Attempt to utilize our web site to generate purchases of "Live at the
Budokan, 1977", the Bay City Rollers first Bodyguard Records CD.
If we are successful in selling only the minimum number of shares, we will
not have sufficient funds to commence the marketing of our web site and artists
in the manner described above. However, and If we are successful in selling more
than the minimum number of shares, or we continue to receive payments
representing gross sales less related artists' expenses from the sale of Guilty
Pleasures, Quiet Riot's first Bodyguard Records CD, or if we commence receiving
payments from the sale of Live at the Budokan 1977, the Bay City Rollers first
Bodyguard Records CD, we intend to spend between $120,000 and $295,000 on
marketing and promotion for up to eight months.
The Bay City Rollers CD, which has been available on our web site since
April 16, 2001, has generated limited credit card and money order revenue. The
CD was officially released at retail stores on September 11, 2001, and we expect
our first check from Navarre Corporation representing gross sales less related
artists' expenses approximately ninety days after that date.
In early September, 2001, we received a check dated August 23, 2001 from
Navarre Corporation representing gross sales less related artists' expenses.
These funds were utilized to place full color print ads for Matt Cheplic and
Daphne Hero in College Music Journal's New Music Weekly edition; make payments
to our graphic artist for services performed during July and August; and hired a
professional radio promotion consultant.
* Initiate the generation of cash flow from our artists other than Quiet
Riot and the Bay City Rollers.
We intend to initiate this process during the first weeks following the
closing of a minimum of 200,000 shares, and to continue for at least four
months. We intend to use an initial
13
$7,200, and an aggregate of approximately $6,950 per month of the $450,000 net
proceeds from this offering to:
o Finalize the mastering and recording of 'The Absence of
Subtlety,' the first CD by Eight Days Gone, and printing
1,000 copies by November 15, 2001, at a one-time combined
cost of $4,000;
o Schedule live presentations by Matt Cheplic, Daphne Hero,
Dennis DeCambre, Eight Days Gone, Love Saves the Day and six
of our seven new artists, at various venues in Hoboken, New
Jersey, where they will perform songs from "Don't Let Me
Lose My Mind", "Daphne Hero", "Drinking At The Bar" "The
Absence of Subtlety" and "Superstar" their respective CD's.
These presentations which commenced during October 2000,
continued through November 27, 2001 at a combined
estimated cost of $1,000;
o Utilize approximately $1,500 per month from the $450,000
proceeds from the sale of 200,000 shares to produce tee
shirts, posters and hats to sell at the venues where our
artists are performing on our website.
* Continue the search for strategic marketing alliances.
We intend to initiate this process during the second month following the
closing of the sale of 200,000 of shares, and to continue for at least four
months. We do not intend to specifically utilize any of the $200,000 net
proceeds from this offering per month for this purpose. Rather, we intend to
rely upon the networking skills of our three executive officers and directors.
Should we be successful in our efforts, we will ultimately expend an unknown
portion of the net proceeds from this offering on legal fees.
In the event we are successful in the sale of only the minimum number of
shares, we believe that the net proceeds of $200,000 will provide sufficient
funds to enable us to satisfy our cash requirements for at least four months.
The conduct of operations beyond this period will require either the sale of
additional shares or the commencement of cash flow.
Should we be successful in selling all 400,000 shares, we believe that the
net proceeds of $950,000 will provide sufficient funds to enable us to satisfy
our cash requirements for at least 12 months including the payment of salaries
of $60,000 and the accruals of $15,000 to Messrs. Rollo and Foley as called for
in their amended written employment agreements with Bodyguard.
Until we receive the proceeds of this offering, our activities will continue
to be limited. Without these proceeds we will not have the capital resources or
liquidity to:
* Implement our business plan;
* Commence operations through the recording, production or marketing of
any record albums; or
* Hire any additional employees.
14
Description of Our Business
History of Bodyguard
From inception on November 11, 1999, through July 2001, we were a
development stage entertainment company without an operating history. We
received our first income from operations in July 2001, but have yet to earn a
profit. Since our incorporation, we successfully launched our website
www.bodyguardrecords.com on January 17, 2000 and on the same date entered into a
Internet distribution agreement to provide for the fulfillment of orders for our
CD's and merchandise. In addition, and on December 15, 1999, January 6, 2000 and
February 1, 2000, respectively, we entered into Artist Recording Agreement with
three new artists, Naked Underneath, a Pop/Rock group, Summer Snowmen, a
Pop/Rock group; and Dennis DeCambre, a R&B/Rap artist. On September 26, 2000, we
entered into an Artist Recording Agreement with June, a new Pop/Rock group that
subsequently changed its name to Eight Days Gone; and on December 12, 2000, we
entered into an Artist Recording Agreement with Love Saves The Day, featuring
Dean Davidson, a new Pop/Rock group. On January 8, 2001, we entered into an
Artist Recording Agreement with Quiet Riot, a 1970's Hard Rock group. On
February 21, 2001, we entered into two separate licensing agreements granting us
the rights to sell CD's for the Bay City Rollers, an established Pop group; and
Matt Cheplic, a new Pop artist, Daphne Hero, a new pop group and Jake Thomas, a
new pop artist. On July 25, 2001, at the request of its lead singer, we released
Naked Underneath from its Artist Recording Agreement with us.
Overview
Our objective is to become an innovative record company. Initially, however,
we intend to act more like a traditional record company in that we will seek to
utilize our artist recording agreement with Quiet Riot, our license rights to
the Bay City Rollers and our national distribution agreement with Navarre
Corporation as a springboard to sell CD's in retail stores. Once we start to
generate cash flow, we intend to try to establish our name, and to use the
Internet and other emerging technologies such as Mp3 to successfully promote and
market our group of seven new artists. Later, we intend to allow visitors to our
web site to have access to a variety of styles of music, a database of a number
of artists, with links to the artist's homepage and biographical information. We
intend to offer visitors to our web site the opportunity to order CD's via our
mail order department, or via digital download directly to their computer from
Navarre Corporation and Mac Milli Entertainment, third party online distribution
companies, at a reasonable cost.
In addition, we intend to occasionally utilize technology that provides a
live video link to recording sessions at our studio in New York City so fans can
"sit in" on an actual recording session. We intend to post a schedule of these
sessions on our web site. When operational, our video link will incorporate
several different camera angles, so that our viewers can decide who or what
he/she would like to observe, i.e. the singer, guitarist, drummer or even the
producer at the control board.
We intend to utilize traditional and non-traditional marketing and
distribution channels, such as online services, interactive media and syndicated
radio and cable television, in order to cost effectively promote our web site
and exploit the music entertainment rights which we may develop or acquire. Our
business plan was developed by our two principal executive officers
15
and founders John Rollo and Eugene Foley. From inception through April 10, 2001,
we did not have any revenue from operations. There can be no assurance that any
or all of our business plan will be successfully implemented or that we will
continue to generate sufficient revenues from operations to meet the
requirements of our business.
Industry and Opportunity
According to Billboard Magazine, an industry trade publication, music sales
increased 6.3% in 1999, to $14.6 billion, up from $13.7 billion in 1998.
However, and as indicated in the March 4, 2000 edition of Billboard:
"In dollar terms, though, music sales increased 6.3% in 1999 to $14.6
billion from 12.2 billion last year. But this is not an entirely
accurate account of the market because the computations are based on
suggested list prices, and most product is sold at lower prices. In 1998
music sales rose 12.1% to $12.2 billion. With sales up 6.3% and units up
only 3.2%, the indication is that higher prices contributed at least three
percentage points to the dollar increase last year. Most music
manufacturers did in fact raise list and wholesale prices last year".
According to the Recording Industry Association of America, a trade group
whose members manufacture most of the music recordings produced in the United
States, sales of CD singles have increased from $6 million in annual sales in
1990, to $213 million in 1998 and from 1 million CD single units ships to 56
million units over the same period. Recording Industry Association of America's
research indicates an 11.6% increase in units shipped to direct and special
markets which include mail order operations, record clubs and non-traditional
retailers and a 7.4% increase in dollar value from these music sales between
1997 and 1998. Recording Industry Association of America estimates that sales by
mail order, record club and other non-traditional outlets account for 24.4% of
the total domestic market.
One of the latest technological innovations in the music industry has
centered on digital distribution, the downloading of compressed music files over
the Internet to a PC. Online music sales attributable to digital distribution
remains small at this time, but we believe it will be an increasing portion of
the total pre-recorded online music sales market in the near future. Forrester
Research, Inc. predicts that revenues from digital music downloads will reach
$1.1 billion in 2003, equaling approximately seven percent of total music sales.
However, Jupiter Communications estimates that revenues from digital music
downloads will reach only $30 million by 2002.
The CD continues to be the driver of growth. Unit sales of CD albums rose
10.8% last year, to 939 million units.
The vast majority of the music listening audience is comprised primarily of
two age groups: 15-24 and 25-49. For most individuals in these groups, popular
music has been, and remains, a major force in their lives. Although teenagers
and young adults purchase the majority of prerecorded music, the Recording
Industry Association of America estimates that their numbers have declined in
recent years and that the over-35 market has been increasing. This increase has
been attributed to the continuing trend by record labels to release product with
broad-based appeal that is able to attract occasional buyers. We intend to
capitalize on
16
this trend in music by developing artists that will appeal to the occasional
buyers in selected markets.
There are currently five major labels which are generally recognized to
dominate the recording industry along with their subsidiary labels: Time/Warner;
Sony; BMG; Thorn-EMI; and Universal. Although independent labels individually
represent a small percentage of the market for prerecorded music, in 1999 sales
of albums, both new and catalog, by independent labels as a group constituted
the largest percentage market share in the prerecorded music market. We believe
that new artists and new trends in music are more likely to come from an
independent label as they can more easily react and adapt to shifting consumer
tastes. Artist development and agreements
Our primary focus will be the development of new artist releases and
related artist development, encompassing modern rock, alternative and power-pop.
Our strategy is to develop and acquire a core group of independent labels to
which we will provide support services in order to maximize the opportunities
for discovering and minimize the risk associated with developing future
successful recording artists. We currently have one label, Bodyguard Records and
have developed a roster of nine artists, two who are established and seven who
are new. Our established artists are Quiet Riot, a 1970's Hard Rock group, with
whom we entered into an Artist Recording Agreement on January 8, 2001; and the
Bay City Rollers, a Pop group, which we received the license rights to market
and sell one CD and the option for a second, on February 21, 2001. Our seven new
artists are Summer Snowmen and Dennis DeCambre with whom we signed written
artist recording agreements on December 15, 1999, January 6, 2000 and February
1, 2000, respectively; and Eight Days Gone and Love Saves The Day, featuring
Dean Davidson with whom we signed written artist recording agreements on
September 26, 2000, and December 12, 2000, respectively. On February 21, 2001,
we acquired license rights to market and sell one CD and options for two to four
additional CD's for Matt Cheplic, Daphne Hero, and Jake Thomas.
On February 21, 2001, we entered into two written license agreements with
Atlantic International Capital Holdings, an affiliated Bermuda corporation. The
first agreement, which is for a term of 20 years, grants to us the exclusive
worldwide right and license to manufacture, market, promote, distribute and sell
the first compact discs, cassette tapes, records, and any other audio or
sound-carrying reproductions recorded by Matt Cheplic, Daphne Hero and Jake
Thomas. In consideration for these license rights, we agreed to pay to Atlantic
International Capital Holdings a royalty of ten (10%) percent of our gross
income for each CD we sell in any medium. The second agreement, which is for a
term of 12 years, grants to us the exclusive worldwide right and license to
manufacture, market, promote, distribute and sell the Live at the Budokan, 1977
compact discs, cassette tapes, records, and any other audio or sound-carrying
reproductions recorded by The Bay City Rollers. In consideration for these
license rights, we agreed to pay to Atlantic International Capital Holdings a
royalty of ten (10%) percent of our gross income for each CD we sell in any
medium.
As of the date of this prospectus, we:
* Completed the recording, mastering, and manufacturing of 3,000 copies
of "Superstar," the first CD from Love Saves the Day (featuring Dean
Davidson) in our New York City studios;
17
* Have completed the recording of "A.M. World", the first CD for Summer
Snowmen;
* Have completed the recording of "Drinking At The Bar", the first CD
for Dennis DeCambre;
* Have completed the recording of "Guilty Pleasures", our first CD for
Quiet Riot, in the Canoga Park, California studios of Rumbo Records.
Guilty Pleasures, which contains 11 new songs, is the first Quiet Riot
album since 1999. "Guilty Pleasures" commenced manufacturing on April
6, 2001, and was released to retail stores on May 29, 2001, pursuant
to our January 3, 2001, National Distribution and Warehouse Agreement
with Navarre Corporation;
* Manufactured 1,000 copies of "Self Composure", the first CD for Naked
Underneath on September 1, 2000 and later released this group from its
agreement with us;
* Manufactured 1,000 copies of "A.M. World" the first CD for Summer
Snowmen on March 16, 2001;
* Manufactured 1,000 copies of "Daphne Hero" the first CD for Daphne
Hero on March 16, 2001;
* Manufactured 1,000 copies of "Don't Let Me Lose My Mind" the first CD
for Matt Cheplic on March 16, 2001;
* Entered into a written agreement with Dennis DeCambre for the
extension of the September 1, 2000 production date of "Drinking At The
Bar", his first CD until April 25, 2001. We have ordered, and received
1,000 copies of this CD on April 25, 2001;
* Assisted Eight Days Gone with their initial recording session in a
Pennsylvania studio in January 2001 of "The Absence of Subtlety",
their first CD;
* Scheduled a tentative initial recording session in our New Jersey
studio for Jake Thomas. We intend to begin working with Jake Thomas in
March, 2002;
* Conducted a professional lip-sync video session shoot of Naked
Underneath, Summer Snowmen, and Dennis DeCambre; and prepared a music
video clip, segments of which are expected to be displayed on our
website in November, 2001;
* Manufactured 3,000 copies of 'Live at the Budokan, 1977,' our first CD
for The Bay City Rollers on April 9, 2001. The album began selling via
our web site on April 16, 2001, and was released to retail store
locations by Navarre Corporation on September 11, 2001;
18
* We monitored Quiet Riot's performance in Grand Slam Metal Jam, a
scheduled 40 show United States arena concert tour along with the
heavy-metal bands Poison, Warrant and Enuff Znuff, that commenced on
May 26, 2001. Due to an injury to a member of Poison, the tour
terminated in late July 2001. The original tour schedule was as
follows:
Date City
---- ----
May 26 San Antonio, Texas
May 27 Houston, Texas
May 28 Dallas, Texas
May 30 Birmingham, Alabama
May 31 Atlanta, Georgia
June 2 West Palm Beach, Florida
June 3 Tampa, Florida
June 5 Charlotte, North Carolina
June 6 Raleigh, North Carolina
June 8 Virginia Beach, Virginia
June 9 Bristow, Virginia
June 10 Hershey, Pennsylvania
June 13 Wilmington, Delaware
June 15 Hartford, Connecticut
June 16 Saratoga, New York
June 17 Darien, Connecticut
June 19 Manchester, New Hampshire
June 20 Scranton, Pennsylvania
June 27 Kansas City, Kansas
July 3 Chicago, Illinois
July 4 Detroit, Michigan
July 6 Wantaugh, New York
July 7 Boston, Massachusetts
July 8 Holmdel, New Jersey
July 19 Cleveland, Ohio
July 20 Toronto, Canada
July 21 Columbus, Ohio
July 22 Pittsburgh, Pennsylvania
July 24 Cincinnati, Ohio
July 25 Indianapolis, Indiana
July 28 St. Louis, Missouri
July 29 Nashville, Tennessee
August 7 Denver, Colorado
August 8 Salt Lake City, Utah
August 15 San Bernardino, California
August 17 Las Vegas, Nevada
August 18 San Diego, California
August 19 Los Angeles, California
19
In September, 2001, we conducted a direct marketing campaign, mailing 5,000
color postcards promoting Matt Cheplic and 5,000 promoting Daphne Hero.
Postcards were sent to consumers in each of the artist's target demographics. We
placed full-color print ads in College Music Journal's "New Music Weekly,"
promoting Quiet Riot in August, and Matt Cheplic and Daphne Hero in September
2001. We secured interviews and articles in regional publications for Quiet
Riot, Matt Cheplic, and Love Saves the Day. These articles appeared in June,
July, August, and September, 2001. Love Saves The Day was interviewed by
Philadelphia's Channel 6, an ABC affiliate station, on September 15, 2001. It
aired on that station's 6:00 News. We hired the firm Rubenstein Public Relations
(New York, NY) to publicize us and our artists via print media, radio, and TV,
as well as at music industry events.
In November, 2001, we ordered 3,000 CD's for Eight days Gone, which we
expect to receive in late December 2001.
Each of our artist agreements is for a term of one record album of a
minimum of ten songs. Except for our agreement with Quiet Riot, which does not
contain any options and our license rights to the Bay City Rollers which only
contains an option for one additional CD, all of our agreements, including the
agreements underlying our license rights, grant to us options for between two
and four additional record albums. We were required to produce one record album
for both Naked Underneath and Dennis DeCambre by September 1, 2000, subject,
however, to our sale of the minimum number of shares. As indicated above, we met
our obligation to Naked Underneath and received a written extension of our
obligation to Dennis DeCambre until April 15, 2001. CDS were then manufactured,
and we received them on April 25, 2001. Other than Quiet Riot and the Bay City
Rollers, none of our artist agreement subject us to a specific production date.
None of our artist agreements require us to pay any advances to any of our
artists. Except for our agreements with Quiet Riot, and the Bay City Rollers,
all of our agreements grant to us the exclusive right and license to sell artist
merchandise such as tee shirts, hats, posters, posters, tour books, keychains,
etc., subject to a 50% of net receipts payment to the artists. Both Quiet Riot
and the Bay City Rollers have the option of, and are presently conducting their
own sales of artists merchandise. Except for our agreements with Quiet Riot, and
the Bay City Rollers, all of our existing artists agreements, including the
agreements underlying our license rights, require us to pay a semi-annual
royalty of:
* $1.50 on the first 100,000 records sold;
* $2.00 on the next 100,000 records sold;
* $2.25 on the next 100,000 records sold;
* $2.50 for each record sold after that; and
* $3.00 for any copies sold directly to consumers at live
performances.
All royalty payments are to be made net after deduction for:
* returned or defective copies;
20
* our recording studio time calculated at $50.00 per hour, except
with respect to Summer Snowmen;
* manufacturing and design costs;
* 50% of the costs of any video or television promotional
commercial; and
* any promotional appearance costs and expenses.
Our artist agreement with Quiet Riot is for a term of 18 months subject to
a single six month extension on mutual consent. We do not have any options for
additional albums, nor do we have any artist merchandise rights except upon the
request of the artist and the payment of 50% of any net receipts. The agreement
requires us to provide the artist with a mastering budget of $1,000, a graphic
art and design budget of $1,500 and a photography budget of $1,000.
The agreement also requires us to pay royalties to Quiet Riot after we recoup
certain expenses incurred by us in the recording and manufacturing of their CD.
Accordingly, and after our recoupment of expenses, the following royalties will
ultimately become due to Quiet Riot if and when a sufficient number of copies of
"Guilty Pleasures" are sold by Navarre Corporation, our North American
distributor:
* 40% of our gross income for each CD sold at retail outlets;
* 50% of our gross income for each CD sold via mail order;
* 50% of our gross income for each CD sold via Internet digital
download;
* 50% of our gross income for each DVD or other audio/visual unit
sold;
* 50% of our gross income for each CD sold via foreign license
agreements; and
* 40% of any cash advance we receive in a foreign license
agreement.
Our as yet unexercised license rights to the Bay City Rollers' Live at the
Budokan CD is for a term of 12 years. We have one option for a single additional
album comprised of new music. We must exercise this option within six months and
21 days from April 15, 2001 by paying a $125,000 advance. In the event we
produce the new CD, our $125,000 advance is recoupable out of royalties,
otherwise it is non-refundable. We do not have any artist merchandise rights.
Our Live at the Budokan license requires us to pay the following royalties to
the Bay City Rollers:
* 35% of our gross income for each CD sold at retail outlets in
North America;
* 35% of our gross income for each CD sold via mail order in North
America;
* 35% of our gross income for each CD sold via Internet digital
download in North America;
21
* 35% of our gross income for each DVD or other audio/visual unit
sold in North America;
* 15% of our gross income for each CD sold in any manner outside of
North America;
* 0% of any cash advance we receive in a foreign license agreement
until we recoup $125,000; and 50% of any foreign cash advances
after that.
All royalty payments in all of our contracts and license rights are to be
made net after deduction for:
* returned or defective copies;
* recording studio costs generated at our studios;
* manufacturing and design costs;
* 50% of the costs of any video or television promotional
commercial;
* any promotional appearance costs and expenses; and
* California airfare, production related travel expenses and Rumbo
Records recording costs incurred by John Rollo for Quiet Riot's
new CD.
Initially we intend to recruit additional new and emerging artists from the
alternative rock/pop genres. We may also purchase outright or license a finished
single or album by an artist in these or other genres. Once another new or
emerging artist is selected, we intend to enter into an agreement with the
artist similar to our artists agreements to either produce "demonstration"
recordings to permit us to determine the commercial viability of a new artist or
record one or two singles or an album for commercial release with options to
record additional albums, at our discretion, at an agreed upon recording budget
per recording or album. We intend that the recording agreement will fix
royalties and possibly advances to the artist for each album produced under the
agreement. In accordance with industry custom, any advances for albums after the
initial release would be likely to be based on a percentage of the artist's net
royalties from prior albums, less the recording budget. Should one of our new
performing artists achieve significant sales for his, her or its most
recently-released album, it is likely that we would renegotiate that artist's
agreement, granting a higher royalty rate in return for the artist's agreement
to an extension of the recording contact for additional albums.
It is possible that in addition to Quiet Riot and the Bay City Rollers, we
will be able to sign an established artist to a recording contract, although we
are not currently seeking to enter into a recording contract with or acquire
rights to any established artists. We classify any artist that was at one time
signed by a major record company and which has a solid fan base as an
established artist. There can be no assurance, however, that any such contract
could be consummated. In the event that an established artist enters into a
recording contract with us, our operating expenses would most likely be higher
than those currently contemplated. This could result in an exhaustion of our
financing earlier than anticipated, unless offset or exceeded by increased sales
of the established artist's products.
22
If we redevelop Quiet Riot or the Bay City Rollers into a commercially
successful recording artist, or develop any other commercially successful
recording artist, there can be no assurance that we will be able to maintain our
relationships with such artists even if we have entered into exclusive recording
contracts with them. Furthermore, recording artists occasionally request
releases from their exclusive recording agreement. Among the reasons that may
cause an artist to engage in so-called "label jumping" are expectations of
greater income, advances or promotional support by a competing label. There can
be no assurance that Quiet Riot or any given artist developed by us will not
determine to request a release from its, his or her agreement with us. Because
of the highly personal and creative nature of the artist's contractual
obligations to us, it is not feasible to force an unwilling artist to perform
the terms of its, his or her contract with us. If we do release a "label
jumping" artist from its, his or her contract, we may be able to obtain an
"override royalty" as consideration for the release. Override royalties are
customarily paid by the released artist's new recording company and are based on
a percentage of the suggested retail selling price or wholesale price, depending
on the particular label in question, subject to certain deductions. Such
royalties are payable with respect to a negotiated number of the artist's albums
after release from its, his or her existing contract.
We will seek to contract with our new artists on an exclusive basis for
the marketing of their recordings in return for a percentage royalty on the
retail selling price of the recording. We will generally seek to obtain rights
on a worldwide basis. Whenever possible, we intend to utilize our artists
agreements as a typical agreement format providing for the number of albums to
be delivered but without advances against royalties being paid upon delivery of
each album or upon signing of the contract. Provisions in contracts with
established artists vary considerably and may, for example, require us to
release a fixed number of albums and/or contain an option exercisable by us
covering more than one album. We will seek to obtain rights to exploit product
delivered by the artists for the life of the product's copyright. Under the
contracts, advances are normally recoupable against royalties payable to the
artist. We will seek to recoup a portion of certain marketing and tour support
costs, if any, against artist royalties.
Our Internet web site
Initially, the principal focus of our web site is to:
* inform consumers about our artists, their schedule and special
events;
* provide interviews, photos and chats with our artists;
* offer music samples and video footage of our artists;
* to offer consumers the option of ordering CD's and other related
merchandise; and
* provide consumers with details of how to enter contests we
periodically intend to conduct.
On November 12, 2000, we entered into a written preliminary distribution
agreement with Mac Milli Entertainment, Inc., a non-affiliated third party
online distribution company to provide
23
non-exclusive digital downloaded distribution of our CD's to our customers who
are not interested in receiving a hard copy via UPS or similar package delivery
service. In light of the April 9, 2001, termination of our agreement with
Cyberretail, Navarre Corporation and Mac Milli Entertainment, Inc. will be our
sole sources for digital downloading of our CD's.
Manufacturing and distribution
We currently neither have nor intend to develop or acquire record
manufacturing or distribution capabilities of our own. Rather, we intend to
enter into distribution or licensing arrangements with third parties. Towards
this end, and on January 18, 2001, we entered into a written National
Distribution and Warehousing Agreement with Navarre Corporation, a
non-affiliated Minnesota corporation. Pursuant to the agreement, we appointed
Navarre as the exclusive retail distributor of all of our musical recordings we
elect to submit to Navarre and non-exclusive digitally downloaded distributor
for a term of three years and automatic and successive annual extensions,
subject to a 90 day cancellation prior to the expiration of the initial or
renewal term. In consideration, Navarre agreed to pay us a designated base price
for each CD sold during the term of the agreement.
After an initial 90 day waiting period, Navarre's payments of any base
prices due us will be paid weekly together with a weekly summary report, and
after deduction of 25% return reserve. The agreement also grants us the right to
participate in discount programs offered by Navarre to rack jobbers, military
bases and others. In early September, 2001, we received our first payment of
$47,208 from Navarre Corporation representing gross sales less related artists'
expenses from Quiet Riot's first album with us.
On January 18, 2001, we also entered into a written Manufacturing Agreement
and separate Financing Agreement with Navarre that supplements our National
Distribution and Warehousing Agreement. These agreements are in connection with
a manufacturing service that Navarre developed for the labels that it
distributes on a national basis. Pursuant to these agreements, we furnish a
duplication master, film for CD imprinting, all artwork design and all printed
materials to Navarre. Navarre then sub-contracts the manufacture of our CD's and
affords us 75 days to pay for our CD's from the date of shipment, either from
orders received or if insufficient orders are received, in cash. We believe that
the manufacturing costs, which are specified in the agreement, are equal or
better than we could have negotiated for on our own. On the same date, we
entered into a separate Manufacturing Agreement with Navarre that covers the
production of what the industry refers to as "One Sheets", the two sided, four
color promotional material that generally accompanies a CD when sold to
resellers. Pursuant to this agreement, Navarre agrees to produce our One Sheets
on the same terms as our CD's.
On January 17, 2000, we entered into an Internet Distribution Agreement
with Cyberretail.com, LLC, a non-affiliated company, as our exclusive agent for
the fulfillment of any and all orders for our recorded music products ordered
via the Internet or on an 800 number for a term of two years. Our agreement,
which excluded digitally downloaded music, required us to pay a commission of a
designated percentage of the retail price of any of our products sold by
Cyberretail. On April 9, 2001, we terminated this agreement and intend to rely
upon Navarre Corporation and Mac Milli Entertainment, Inc. as the sole sources
for digital downloading of our CD's.
24
Historically, the strategy of the major labels has been to control
distribution channels. Nevertheless, the market shares of independent
distributors, rack jobbers or independent contractors that manage music
department of department stores such as K-Mart and Wal-Mart, mail order
companies, touch-tone 800 number sales, Internet sales, and television sales
have all increased. We believe that this growth, fueled by the development of
the Internet and other ongoing changes in the marketplace, will continue.
Another trend is the consolidation of retail outlets into large retail chains,
however, specialized distributors can be utilized to sell prerecorded music
products to large retail chains. Because of our small size, we may not be able
to take advantage of traditional distribution channels, such as specialized
distributors. However, we expect to be able to take advantage of interactive,
in-home marketing through the Internet, telephone, satellite relays, or other
evolving technologies that we believe will have a significant effect on
distribution in the future. However, there is little agreement as to precisely
what this effect will be. We believe that control and ownership of the creative
products will be a key factor in the new market where distribution can be
accomplished more quickly and inexpensively.
Typical distribution for an independent label such as ours is through
either a major label-owned branch system or through independent distributors.
The major label-owned distribution companies offer national distribution,
consistent market visibility, accounts receivable and collection administration.
Independent distributors offer similar services, but normally on a much smaller
scale.
Copyrights and intellectual property
Our prerecorded music business, like that of other companies involved in
prerecorded music, will primarily rest on ownership or control and exploitation
of musical works and sound recordings. Our music entertainment products are
expected to be protected under applicable domestic and international copyright
laws.
Although circumstances vary from case to case, rights and royalties
relating to a particular recording typically operate as follows: When a
recording is made, copyright in that recording vests either in the recording
artists and/or their production companies and is licensed to the recording
company or in the record company itself, depending on the terms of the agreement
between them. Similarly, when a musical composition is written, copyright in the
composition vests either in the writer and is licensed to a third-party music
publishing company, or in a third-party music publishing company or in a
publishing company owned and controlled by the artist. A public performance of a
record will result in money being paid to the writer and publisher. The rights
to reproduce songs on sound carriers i.e., phonograph records, are obtained by
record companies or publishers from the writer or the publishing company
entitled to license such compositions. The manufacture and sale of a sound
carrier results in mechanical royalties being payable by the record company to
the publisher of the composition, who then remits a portion of such royalties to
the writer or writers of the composition at previously agreed or statutory rate
for the use of the composition and by the record company to the recording
artists for the manufacture and distribution of the recording. We intend to
operate in an industry in which revenues are adversely affected by the
unauthorized reproduction of recordings for commercial sale, commonly referred
to as "piracy," and by home taping for personal use.
25
Potential publishing revenues may be derived from our ownership interest in
musical compositions, written in whole or in part by our recording artists or by
writers who are signed exclusively to us. We intend to secure a partial
ownership position in the copyright to compositions written by our recording
artists or signed writers where such rights are available and have not been
previously sold or assigned. Performance rights in any compositions owned by us
will be enforced under agreements we intend to enter into with performing rights
organizations such as the American Society of Composers, Authors, and
Publishers, Broadcast Music, Inc. and SESAC, Inc., which licenses the public
performance of a composition to commercial users of music such as radio and
television broadcasters, restaurants, retailers, etc., and disburse collected
fees based upon the frequency and type of public performances they identify.
Generally, revenues from publishing are generated in the form of:
* mechanical royalties, paid by the record company to the publisher
for the mechanical duplication of a particular copyrighted
composition, as distinct from the copying of the artist's
performance of that composition;
* performance royalties, collected and paid by performing rights
entities such as ASCAP and BMI for the actual public performance
of the composition as represented by radio airplay, Musak, or as
a theme or jingle broadcast in synchronization with a visual
image via television;
* sub-publishing revenues derived from copyright earnings outside
of the United States and Canada from our collection agents
located outside of the United States and Canada; and
* licensing fees derived from printed sheet music, uses in
synchronization with images as in video or film scores, computer
games and other software applications, and any other use
involving the composition.
Typically, music publishing agreements with songwriters are "exclusive,"
permitting us ownership of the copyrights in all compositions created by the
songwriter, in whole or in part, during the term of the agreement usually in
exchange for the payment of an advance to the songwriter and, after the
recoupment of such advance, the payment of royalties on sales of sound carriers
embodying any such compositions. In some cases, we may seek to acquire a catalog
of compositions previously created by a songwriter or group of songwriters as a
music publishing asset. The can be no assurance, however, that we will be
successful in entering into agreements with any songwriters or acquiring any
catalogs or that any agreements entered into will result in any revenue to us.
We intend to engage in licensing activities involving both the acquisition
of rights to certain master recordings and the licensing and the granting of
rights to third parties in the master recordings and compositions we may
acquire.
On December 29, 2000, we filed an application for the service mark
Bodyguard Records.com, Inc. with the United States Patent and Trademark Office.
We received a Notice of Publication on August 1, 2001, and received notification
of the issuance of this service mark on November 13, 2001.
26
Competition
We compete with providers of prerecorded music and related products both
through traditional retail channels and over the Internet. Our current and
anticipated competitors include:
* Atlantic Recording Group;
* Universal Music Group;
* RCA Records;
* Arista Records;
* Rounder Records; and
* Matador Records.
In addition, there are many companies that provide Web sites and online
destinations targeted to the digital downloading of music as well as to the
record industry in general. All of these companies compete with us for visitor
traffic, advertising dollars and electronic commerce partners. The market for
Internet content companies in the record industry is new and rapidly evolving.
Competition for visitors, advertisers and electronic commerce partners is
intense and is expected to increase significantly in the future because there
are no substantial barriers to entry in our market. Increased competition could
result in:
* lower advertising rates;
* price reductions and lower profit margins;
* loss of visitors;
* reduced page views; or
* loss of market share.
Any one of these could materially and adversely affect our business, financial
condition and results of operations. In addition, our ability to compete
successfully depends on many factors. These factors include:
* the quality of the content provided by us and our competitors;
* how easy our respective services are to use;
* sales and marketing efforts; and
* the performance of our technology.
Many of our competitors and potential new competitors have:
27
* longer operating histories;
* greater name recognition in some markets;
* larger customer bases; and
* significantly greater financial, technical and marketing
resources.
These competitors may also be able to:
* undertake more extensive marketing campaigns for their brands and
services;
* adopt more aggressive advertising pricing policies;
* use superior technology platforms to deliver their products and
services; and
* make more attractive offers to potential employees, distribution
partners, commerce companies, advertisers and third-party content
providers.
Our competitors may develop content that is better than ours or that
achieves greater market acceptance. It is also possible that new competitors may
emerge and acquire significant market share. This could have a material and
adverse effect on our business, financial condition and results of operations.
We also compete with the major labels and independent labels for advertisers
and advertising revenue. If advertisers perceive the Internet or our network to
be a limited or an ineffective advertising medium, they may be reluctant to
devote a portion of their advertising budget to Internet advertising or to
advertising on our website.
We may have to compete with Hardrive Records.com, Inc., a privately owned
Internet music company for which John Rollo, Eugene Foley and Kenneth
Pollendine, our three executive officers and directors, once served as executive
officers, directors and principal stockholders. Until November 2000, when
Hardrive Records ceased doing business and sold its artists' recording and other
rights, Hardrive Records operated out of the same offices as we do. John Rollo
resigned as an executive officer and director of Hardrive Records on January 5,
2001, and Kenneth Pollendine resigned as a director of Hardrive Records on
February 8, 2001. However, John Rollo and Eugene Foley are still parties to
written employment agreements they entered into with Hardrive Records, which may
compete with the written employment agreements they entered into with Bodyguard
Records. As a result of this situation, and until the affairs of Hardrive are
settled, we may find we have to compete with Hardrive for the time and attention
of John Rollo and Eugene Foley. This would put us in a position of almost having
to compete with ourself. The existence of these conflicts of interest during
this period may present a distraction and may diminish our chances to achieve
profitable operations. Mr. Foley has advised us he intends to resign as an
executive officer and director of Hardrive as soon as its affairs are settled.
Both Messrs. Rollo and Foley deny that any conflict of interest exists with
Hardrive. In addition, Mr. Rollo denies that he has any continuing
responsibility to Hardrive Records under his employment agreement which he
contends ended when he resigned.
28
Environmental matters
We are not aware of any environmental liability relating to our facilities
or operations that would have a material adverse affect on us, our business,
assets or results of operations.
Employees
As of September 30, 2001, our only employees were John Rollo, Gene Foley,
and Kenneth Pollendine, our executive officers and directors. Messrs. Rollo and
Foley are each devoting 100% their full time to our affairs, while Mr.
Pollendine is only devoting 25% of his time to our affairs. Richard A. Iamunno,
our 'outside' director, is only devoting such percentage of his time to our
affairs as is required to attend board of directors meetings and to consult with
our management when so requested. Upon the sale of at least the minimum number
of shares, of which there can be no assurance, both Messrs. Rollo and Foley have
agreed to continue to devote their full time to our business and affairs, and
Mr. Pollendine has agreed to devote 85% of his time to our business and affairs.
In addition, in the event either we are successful in selling all of the
offered shares or are successful in the sale of such number of CD's that we
reach positive cash flow, we intend to employ additional executive and/or
administrative personnel including a full time chief financial officer or
controller with industry experience. In the interim, we intend to employ such
part time or temporary clerical and bookkeeping help as we deem necessary. We
may also employ independent consultants and advisors. We consider our relations
with our employees to be good.
Facilities
Until August 31, 2001, we maintained our principal executive offices and studio
at 138 Fulton Street, New York, New York 10038 where approximately 2,000 square
feet of space was subleased from a non-affiliated landlord under a four year
written sublease that expired on August 31, 2001 at monthly rentals starting at
$1,800 and increasing to $2,024. Our rent was $2,000 per month. The sublease was
assigned to us by Rollo Entertainment, Corp., a Delaware corporation controlled
by and under common control of John Rollo our president, chief operating officer
and a director. Our sublease, which was personally guaranteed by our president,
John Rollo, required us to pay all utility costs and does not provide for an
option to renew. Our Fulton Street lease expired on August 31, 2001.
On July 11, 2001, we entered into a written one year lease agreement with a
non-affiliated landlord for the use of approximately 1,500 square feet of space
at 56 Colfax Avenue, Clifton, New Jersey 07015. Our lease commences on August 1,
2001, terminates on July 31, 2002 and grants us the right to renew each year at
increased rental payments. We agreed to pay annual rentals of $11,400 ($950 per
month) for the first year, $12,000 for the first years' extension, $14,400 for
the second year's extension, $15,000 for the third and an increase of $600 per
year for each year thereafter. Our new space is adequate for our needs and we
are using it to approximately 75% of its capacity. In late July 2001, we moved
all of the recording equipment from our New York City recording studio to
Clifton, New Jersey.
29
Governmental Regulations
Legislatures and government agencies have adopted and are considering
adopting laws and regulations regarding the collection and use of personal
information obtained from individuals when accessing web sites. For example,
Congress recently enacted the Children's Online Privacy Protection Act, which
restricts the ability of Internet companies to collect information from children
under the age of 13 without their parents' consent. In addition, the Federal
Trade Commission and state and local authorities have been investigating
Internet companies regarding their use of personal information. Our privacy
programs may not conform with laws or regulations that are adopted. In addition,
these legislative and regulatory initiatives may adversely affect our ability to
collect demographic and personal information from users, which could have an
adverse effect on our ability to provide advertisers with demographic
information.
34
Management
Directors and executive officers
The following table sets forth the executive officers, directors and key
employees of Bodyguard, their ages and the positions held by them:
Name Age Position
- ---- --- --------
Gene Foley 33 chief executive officer and director
John Rollo 47 president, chief operating officer
and director
Kenneth Pollendine 53 chief financial officer, secretary and
director
Richard A. Iamunno 43 director
Except for the fact that John Rollo and Kenneth Pollendine are first cousins, no
family relationship exists between any of these four men.
Business experience
John Rollo has been our president, chief operating officer and a director since
our inception in November 1999. Simultaneously, and from February 1998 to
January 5, 2001, Mr. Rollo also served as president and a director of Cream
Records, Inc., a New Jersey corporation that changed its name to Hardrive
Records.com, Inc., and which intended to sell records over the Internet.
Simultaneously and since 1996, Mr. Rollo has served as president of Rollo
Entertainment Corp., a Delaware corporation which provides and supervises music
recording services, offers artist development and career guidance, and
administers independent A&R (artist & repertoire). Before that and since 1982,
Mr. Rollo has been a self employed music industry consultant, engaged in the
creative development and technical production of musical recordings. In this
capacity, he has been the recipient of Grammy awards for engineering and mixing
of Jimmy Cliff's "Cliffhanger", and a second Grammy award for producing Joe
Cocker's contribution in "The Bodyguard" motion picture soundtrack CD for Arista
Records. Additionally, Mr. Rollo has earned Recording Industry Association of
America and/or Ampex Golden Reel awards for his involvement with the following
music productions:
30
Artist Album Award Contribution
- ------ ----- ----- ------------
Joe Cocker The Gold and Engineer
Bodyguard Multi-Platin and
Soundtrack um Producer
Jimmy Cliff Cliff Hanger Gold and Engineer,
Platinum Producer
and Mixer
The Kinks Phobia Gold Engineer
35
The Kinks State of Gold and Engineer
Confusion Platinum
The Kinks Give The Gold and Engineer
People Platinum, and Mixer
What They Ampex
Want Golden
Reel
The Kinks One For Gold and Engineer
The Road Platinum, and Mixer
Ampex
Golden
Reel
The Kinks Low Budget Gold and Engineer
Platinum, and Mixer
Ampex
Golden
Reel
The Kinks Superman Gold and Engineer
Platinum and Mixer
Joe Cocker Unchain My Gold and Engineer
Heart Platinum and Mixer
Joe Cocker One Night Gold and Engineer
of Sin Platinum and Mixer
Eric Clapton Knocking Gold and Engineer
On Platinum and Mixer
Heaven's
Door
Leslie All Washed Gold and Engineer
McKeown Up Platinum, and Mixer
Ampex
Golden
Reel
Kool & The Fresh Gold and Remixed
Gang Platinum
The Sweet Sweet Gold and Engineer
Fanny Platinum
Adams
Bonnie Secret Gold Producer
Tyler Dreams and and
Forbidden Engineer
Fire
The Recording Industry Association of America is the generally recognized and
accepted industry association for sales certification purposes. Ampex Golden
Reel Awards are presented to recording studios, producers and engineers who
participate in an album that was recorded on Ampex reel to reel tape, and
reaches the "gold" milestone of 500,000 units sold. Mr. Rollo has signed many
new artists to major labels both in England and the United States. Once signed,
Mr. Rollo worked with the artists in order to develop songs, produce recordings
and overseeing progress through the various creative phases leading up to and
including final contract negotiations. In addition to these Grammy award
winners, Mr. Rollo has been engaged as producer and/or engineer with the
following recognized recording artists: Joe Cocker, Jimmy Cliff; Southside
Johnny & the Asbury Jukes, Phoebe Snow, Bonnie Tyler, Paul Young, The Kinks,
Eric Clapton, George Benson, Kool & the Gang, O'Jays, Stevie Nicks and Gang of
Four.
31
In addition to Mr. Rollo's independent activities, he has acted as chief
engineer and record producer for the House of Music, then located in West
Orange, New Jersey, from 1985-1990.
Gene Foley has been our chief executive officer and a director since our
inception in November 1999. Simultaneously, and from February 1998 to November
2000, Dr. Foley also served as chief executive officer and a director of Cream
Records, Inc., that changed its name to Hardrive Records.com, Inc., and which
intended to sell records over the Internet. Before that since 1988 Dr. Foley has
served as the president of Foley Entertainment, a privately owned music industry
consulting firm in New Jersey which was incorporated in 1994 under the name
Foley Entertainment, Inc. Dr. Foley received a bachelor of arts degree in
political science from Kean University, Union, New Jersey, in 1991. In 1993, Dr.
Foley received a masters degree in political science from Pacific Western
University, New Orleans, LA. In 1994, Dr. Foley received a doctor of philosophy
degree in political science from the same university. In 1994, Dr. Foley
received a Juris doctor degree in law from Kensington University, Glendale, CA.
Dr. Foley's book "How To Make It In Music In Six Months...and Eighteen Years"
was co-written with Steve Parry, a former Columbia Records' recording artist.
Dr. Foley's clients have earned one Grammy award and four Recording Industry
Association of America gold record awards and one platinum award. Dr. Foley has
contributed to music related features on NBC, MTV, VH-1, PBS, Fox and in Forbes
magazine. His clients have been involved in projects in various capacities with
numerous major labels including Columbia, RCA, Atlantic, Warner Bros., EMI,
Polygram, Capitol, Arista, Elektra, A&M, Epic, Geffen and Sony.
Kenneth Pollendine, has been our chief financial officer, secretary and a
director since our inception in November 1999. Simultaneously, and from February
1998 to November 2000, Mr. Pollendine also served as chief financial officer,
secretary and a director of Cream Records, Inc., a New Jersey corporation that
changed its name to Hardrive Records.com, Inc., and which intended to sell
records over the Internet. Before that since 1994, Mr. Pollendine was a private
entertainment and music consultant in London, UK, providing short term freelance
services to a variety of artists and companies. Before that and since 1986, Mr.
Pollendine was employed by Oracle Corporation, a multinational manufacturer and
distributor of computer software, in increasingly responsible positions
including general manager and chief executive officer of Oracle's Southern
England operations. Mr. Pollendine received a bachelor of arts degree in
mathematics from Open University, London, UK in 1979.
Richard A. Iamunno, has been a director of our company since March 29, 2001.
Simultaneously, and since 1994, Mr. Iamunno has been a director of Atlantic
International Capital Holdings, a Bermuda based financial services Company with
offices in both Florida and Bermuda, and its president since 2001.
Simultaneously, and from 1995 to 2000, Mr. Iamunno served as the president and
chief executive officer of Online Gaming Systems, Ltd., a publicly owned
interactive gaming company headquartered in Las Vegas, Nevada, with offices in
South Florida, Sydney, Australia and Johannesburg, South Africa. Before that
from 1988 to 1994, Mr. Iamunno was the president, of Ameristar International,
Inc., a New York based financial services company. From 1984 to 1988, Mr.
Iamunno was employed by the Information Services division of Western Union
Corporation as a Senior Director, where he managed and directed the marketing
department for all on-line based information service products. From 1981
to-1984, Mr. Iamunno was employed as a Marketing Manger by Dun & Bradstreet
corporation. Mr. Iamunno attended Drake University, Des Moines, Iowa, from 1976
to 1979.
32
Director compensation
For the first full year following the successful conclusion of this
offering, no director will receive any compensation for his service as a member
of the board of directors. However, and in the event Mr. Pollendine's attendance
is required in the United States, or Mr. Iamunno's attendance is required in New
York, we will reimburse them for their respective expenses in connection with
the attendance at board meetings up to a maximum of $1,000.
We currently do not provide compensation for special assignments of the board of
directors. We may in the future grant options to our directors to purchase
shares of common stock.
Executive compensation
The following table sets forth the compensation awarded to, earned by, set
aside, paid to or accrued during the period from inception through March 31,
2001, for on behalf of our three executive officers and directors or any other
person for services rendered in any or all capacities on our behalf:
annual compensation long-term compensation
awards payouts
- ------------------------- ----------- --------------- ----------- ---------------- ------------ ---------------- ---------- --------
fiscal
year restricted
name and principal ended other stock securities all
position March annual awards underlying ltip other
31 salary (1) bonus compen- options/ pay compen
sation (2) sar's outs -sation
- ------------------------- ----------- --------------- ----------- ---------------- ------------ ---------------- ---------- --------
John Rollo
president and coo 2000 $28,750 - $28,479
2001 75,000 - 58,774
- ------------------------- ----------- --------------- ----------- ---------------- ------------ ---------------- ---------- --------
Eugene Foley 2000 $28,750 - $28,479
2001 75,000 - 58,774
chief executive officer
- ------------------------- ----------- --------------- ----------- ---------------- ------------ ---------------- ---------- --------
Kenneth Pollendine
chief financial officer
2000 - - - - - - -
2001 - - - - - - -
- ------------------------- ----------- --------------- ----------- ---------------- ------------ ---------------- ---------- --------
(1) Pursuant to our written employment agreements with John Rollo and
Eugene Foley, as amended, and as described below under the caption "Employment
Agreements", all salary and wages were waived until the closing date of this
offering. However, and in accordance with Topic 1B of The Staff Accounting
Bulletins, the reasonable cost of doing business has been recorded with the
intention that Messrs Rollo and Foley were donating their salaries. Accordingly,
an expense was recorded with an corresponding credit to paid in capital as
donated capital. See Note 6 to Notes to Financial Statements.
33
(2) Represents funds that were advanced and reimbursed for the
development and expenses incurred on behalf of Bodyguard Records and our roster
of artists; and for promotional, marketing and related services and expenses.
Our verbal agreements included the understanding that the payment of
compensation for services and the advancement and reimbursement of expenses
would cease upon the closing of this offering.
During the fiscal years ended March 31, 2000 and 2001, Messrs Rollo and
Foley each waived $28,479 and $75,000, respectively, representing salaries
donated from inception through March 31, 2001. Messrs. Rollo and Foley have
further agreed to accrue $15,000 or 20% of their $75,000 first year's annual
salary under certain circumstances. Accordingly, and if and when we close on the
minimum number of shares of our common stock, we intend to commence paying
salaries to John Rollo and Gene Foley of $60,000 under their employment
agreements and accruing $15,000 for the first year. We also intend to commence
paying a salary of $60,000 to Kenneth Pollendine for the first full year
following such closing. We have no written employment agreement with Mr.
Pollendine, and have not paid him any salary or other compensation.
For financial statement purposes through September 30, 2001, we have reflected
all executive compensation under our employment agreements with Messrs. Rollo
and Foley as donated salaries offset to additonal paid in capital.
Employment agreements
On December 1, 1999 Messrs. Rollo and Foley each entered into three year written
employment agreements with us which were amended on June 7, 2000, June 1, 2001,
December 17, 2001 and January 25, 2002. Under these employment agreements, as
amended, both men have agreed to waive any and all right they may have had to
receive any form of compensation from us, including advances and reimbursements,
or any compensation which may have accrued under their original agreements until
the closing date of this offering. In addition, both men have agreed to defer
the commencement of their employment agreements with us until the closing date
of this offering. Finally, both men further agreed to accept salaries of $75,000
for the first year subject to a cost of living adjustment in each of the two
following years, together with customary health benefits, three weeks vacation
and accountable expense reimbursement provisions. However, and in the event we
sell only the minimum number of shares, both Messrs. Rollo and Foley have agreed
to accept $60,000 as their first years salary and to accrue the remaining
$15,000 or 20% of their $75,000 salary until the earlier of the raising of
additional capital or the generation of positive cash flow. In the event we are
unable to raise additional capital or generate of positive cash within 24
months, our obligation to pay Messrs. Rollo and Foley their first years accrued
salary shall automatically lapse. In addition, and subject to the sale of at
least the minimum number of shares, we have agreed to pay Messrs. Rollo and
Foley each a bonus if and when any of our artists reach certain levels of net CD
sales under our artist agreements. All bonuses will be cumulative and payable
within 30 days after confirmation of CD sales as follows:
No. of Cd's Sold Cash Bonus
--------------------------------------------
100,000 $ 10,000
250,000 25,000
500,000 50,000
1,000,000 100,000
34
As an example, if our artists were to sell 1,500,000 CD's, we would be
required to pay a bonus of $185,000, i.e., $10,000 + $25,000 + $50,000 +
$100,000, each to John Rollo and Eugene Foley.
Option grants in last fiscal year
On February 4, 2000 we adopted a 2000 long term incentive plan where an
aggregate of 150,000 shares were reserved for issuance under this plan. Our plan
is administered by the board of directors as a means of attracting and retaining
key employees and compensating non-employee directors, consultants and others
who perform services on our behalf. Under our plan, our board of directors may,
from time to time, grant:
o Qualified stock options;
o non-qualified stock options;
o stock units;
o restricted stock; and
o stock appreciation rights
to purchase common shares to officers, directors, employees and consultants who
render services to us. Awards under our plan are granted at a reasonable price
as determined by a committee of our board of directors that ultimately will
consist of at least two "disinterested" directors, except that the exercise
price of incentive stock options to persons who, at the date of grant, own stock
possessing more than ten percent of the combined voting power of our outstanding
stock, may not be less than one hundred ten percent of the fair market value of
our common stock. Until our board of directors is expanded to include two
outside directors, awards will be approved by the entire board of directors.
We have not granted any options to purchase our common stock under the Plan and
no option grants are currently contemplated.
Certain Relationships and Related Transactions
On December 6, 1999, we issued an aggregate of 200,000 shares to Rollo
Entertainment, Corp., a Delaware corporation controlled by and under common
control of John Rollo, our President, and a director and principal stockholder.
We valued the 200,000 shares at $50, which represented the fair market value of
the stock at the time of issuance. In addition, Mr. Rollo has provided the
following:
o Rollo Entertainment's granting to us the two year right and
license to utilize its New York City recording studio and
equipment with a maximum fair market value of $600,000, which
represents an hourly rate of $150 and a maximum use of 35 hours
per week. From inception through June 30, 2001, the equipment and
studio was used for approximately 916 hours. Based upon the
number of hours used at a fair market rate, the services provided
by Rollo Entertainment to us represented an aggregate of
$137,336. The value of these donated services were offset to
additional paid in capital.
o Rollo Entertainment assigned its sublease agreement to us.
35
Rollo Entertainment is 100% controlled by John Rollo, a principal
shareholder, director and officer of Bodyguard Records. Despite the terms of our
sublease with Rollo Entertainment, We paid the non-affilaited landlord at 138
Fulton Street in New York City an aggregate of $2,000 per month for rent, or an
aggregate of $22,000. From July 2000, to August 31, 2001, we were the only
tenant utilizing the space at 138 Fulton Street in New York City. The material
terms of the sublease were as follows:
Remaining term: Until August 31, 2001;
Rent: Started at $1946 and escalated to $2024 by the end of the term;
Additional Costs: Bodyguard paid $400 per month for electricity and
maintenance fees; and maintaining liability insurance on the premises.
Our sublease with Rollo Entertainment and Rollo Entertainment's master lease
with the landlord at 138 Fulton Street in New York City expired on August 31,
2001.
On December 6, 1999, we issued an aggregate of 200,000 shares to Gene
Foley, our chief executive officer, a director and a principal stockholder. We
valued the 200,000 shares at $50, since the shares were issued in consideration
for Mr. Foley's contribution to us of an aggregate of $50 in cash.
On January 21, 2000, we issued an aggregate of 190,000 shares to three
non-affiliated individuals in consideration for an aggregate of $25,000 in cash
in order to launch our website and to commence this offering. Each of these
individuals agreed not to publicly sell any of their shares of our stock for 24
months. Later, and on various dates between February, 2000 and June, 2000, we
sold an aggregate of 310,000 shares for $.20 per share to a group of six
accredited investors In a private placement in order to raise $62,000 to
finalize the construction of our website, to conduct this offering and commence
operations. On various dates between July 15, 2000 and March 15, 2001, we
borrowed an aggregate of $185,000 from two accredited persons in order to stay
in business until we can conduct this offering. The $80,000 we borrowed between
July 15, 2000 and December 1, 2000, was pursuant to five separate short term
loan agreements at 12%. On February 1, 2001, we entered into an agreement
extended the due date of three of these loans, aggregating $40,000, until the
earlier of July 31, 2001, or the closing date of this offering. The $105,000 we
borrowed between January 4, 2001 and March 15, 2001, was pursuant to five
separate 13 month convertible loan agreements at 9% that grant the same
individual holder the right to convert the loans into an aggregate of 105,000
shares at $1.00 per share at any time after the termination of this offering but
before the respective due dates of the loans. On April 24, 2001, we borrowed an
aggregate of $100,000 from an accredited investor pursuant to a 13 month loan
agreement. We are using this money as working capital until we can conduct this
offering. On April 5, 2001, July 3, 2001, August 6, 2001 and August 28, 2001, we
borrowed an aggregate of $70,000 from one accredited individual. These loans are
each for a term of 13 months at 11% per annum with interest and principal due in
one lump sum on the respective due dates. On May 30, 2001, July 10, 2001 and
August 10, 2001, we borrowed an aggregate of $75,000 from one entity. These
loans are for a term of 13 months at 12% per annum with interest and principal
due in one lump sum on the respective due dates. On November 14, 2001 and
January 3, 2002 one of the note holders, who had previously loaned us money,
loaned us an additional $20,000 on November 14, 2001, and $20,000 on January 3,
2002. In addition, this note holder verbally agreed to wait for payment until
the respective six month due dates of these two notes.
36
Our sublease at 138 Fulton Street, was personally guaranteed by our
president, John Rollo, was assigned to us by Rollo Entertainment, Corp., a
Delaware corporation controlled by and under common control of John Rollo. As
previously stated, this sublease expired on August 31, 2001.
On February 21, 2001, we entered into a 20 year licensing agreement with
Atlantic International Capital Holdings, a Bermuda corporation controlled by or
under common control of Richard Iamunno, who thereafter became a director of
Bodyguard on March 29, 2001. No money was paid to Atlantic International Capital
Holdings before, on or after the execution of this agreement. The licensing
agreement covers our worldwide right to utilize the names, artwork negatives,
likenesses or biographies of the artists and the master recordings of three of
our new artists, Matt Cheplic, Daphne Hero and Jake Thomas for virtually all
commercial and promotional purposes. Under the licensing agreement, we agreed to
pay AICH a royalty of ten percent (10%) of Bodyguard's net-after-recoupment
income for each record or CD manufactured and sold at retail outlets or via
digital distribution and featuring the three artists covered by the licensing
agreement. Our recoupable expenses include all recording studio time, mastering
services, compact disc and DVD manufacturing costs, engineering fees, graphic
design, photography, publicist fees, print advertising, session musician costs,
advances, salary or financial compensation of any kind, food, fuel and
accommodation expenses during promotional appearances and touring; and fifty
percent of the cost of a any promotional video and cable television commercial,
that we elect to film. On February 21, 2001, we also entered into a 12 year
licensing agreement with Atlantic International Capital Holdings. No money was
paid to Atlantic International Capital Holdings before, on or after the
execution of this agreement. This licensing agreement covers our worldwide right
to utilize: (i)multitrack tape or two-track stereo master tape either mixed from
or recorded from the original multitrack tape comprising the master recordings
of the music comprising the Live at the Budakon, 1977 commercial sound recording
by the Bay City Rollers; (ii) all right, title and interest in and to the artist
recording agreement with Webnet International, Inc., LLC, a Delaware limited
liability company providing the services of the Bay City Rollers underlying and
giving rise to the master recording, including the single option for an
additional master recording; and (iii) the rights and responsibilities
pertaining to the master recording under a certain joint venture agreement dated
December 10, 1999 with Exploration, Inc., a non-affiliated Utah corporation, for
virtually all commercial and promotional purposes. Under the licensing
agreement, we agreed to pay AICH a royalty of ten percent (10%) of Bodyguard's
net-after-recoupment income for each record or CD manufactured and sold at
retail outlets or via digital distribution and featuring the Live at the
Budakon, 1977 commercial sound recording by Bay City Rollers and covered by the
licensing agreement. Our recoupable expenses include all recording studio time,
mastering services, compact disc and DVD manufacturing costs, engineering fees,
graphic design, photography, publicist fees, print advertising, session musician
costs, advances, salary or financial compensation of any kind, food, fuel and
accommodation expenses during promotional appearances and touring; and fifty
percent of the cost of a any promotional video and cable television commercial,
that we elect to film.
Between April 2000, and September 30, 2001, and pursuant to two agreements
that initially were verbal and which, on January 25, 2002, were subsequently
confirmed in writing as amendments to their employment Agreements, we advanced
an aggregate of $174,506 to: (i) Rollo Entertainment Corp., a Delaware
corporation of which John Rollo, an executive officer, director and principal
stockholder of Bodyguard Records is the sole officer, director and stockholder;
and (ii) Foley Entertainment, Inc., a New Jersey corporation of which Eugene
37
Foley, an executive officer, director and principal stockholder of Bodyguard
Records, is the sole officer, director and stockholder. The funds were advanced
and reimbursed to the two entities for the development and expenses incurred on
behalf of Bodyguard Records and our roster of artists; and for promotional,
marketing and related services and reimburseable expenses. Our verbal agreements
included the understanding that the payment of compensation for services and the
advancement and reimbursement of expenses would cease upon the closing of this
offering. As previously indicated, and during the fiscal year ended March 31,
2001, we advanced an aggregate of $58,774 each to Rollo Entertainment Corp. and
Foley Entertainment, Inc. During the fiscal year ended March 31, 2000, we
advanced an aggregate of $28,479 each to Rollo Entertainment Corp. and Foley
Entertainment, Inc.
Principal Stockholders
The following table sets forth information with respect to beneficial
ownership of our common stock, as of December 31, 2001 and as adjusted to
reflect the sale of common stock offered by us in this offering for:
* each person known by us to beneficially own more than 5% of our
common stock;
* each executive officer named in the summary compensation table;
* each of our directors; and
* all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for Messrs.
Rollo and Foley is c/o Bodyguard Records, Inc., 56 Colfax Avenue, Clifton, New
Jersey 07015. The address for Ellen Rosenberg is PO Box 1223, Long Beach, New
York 11561. Except as indicated by footnote, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. The number of shares of common stock outstanding used in calculating the
percentage for each listed person assumes that all shares offered by this
prospectus are sold. Percentage of beneficial ownership is based on 900,000
shares of common stock outstanding as of August 31, 2001, and 1,300,000 shares
of common stock outstanding after completion of this offering if all offered
shares are sold.
Shares Beneficially Owned Shares Beneficially
Prior to Offering Owned After Offering
----------------- --------------------
Minimum Maximum
Name of Beneficial Owner Number Percent Number Percent Number Percent
- ------------------------ --------------------- --------------- ---------------
Rollo Entertainment, Corp. 200,000 22% 200,000 20% 200,000 15%
Gene Foley 200,000 22 200,000 20 200,000 15
Ellen Rosenberg 150,000 17 150,000 15 150,000 11.5
All directors and executive
officers as a group (4 persons) 400,000 44% 400,000 40% 400,000 30%
John Rollo is the sole beneficial owner of the shares owned by Rollo
Entertainment, Corp.
38
Market for Our Common Stock
There is currently, no public market for our common stock. At a future date and
if we meet the requirements, we will undertake to have our common stock listed
on the OTC Bulletin Board maintained by members of the National Association of
Securities Dealers, Inc.
Shares Eligible for Future Sale
As of December 31, 2001, we had an aggregate of 900,000 shares of our common
stock outstanding. All of these shares are "restricted securities" as such term
is defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rules 144 promulgated under the
Securities Act of 1933 or another exemption from registration.
In general, under Rule 144 as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year is entitled
to sell, within any three month period a number of shares that does not exceed
the greater of one percent of the then outstanding shares of our common stock or
the average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of such sales is filed, subject to
various restrictions. In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell those shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliates. As of
December 31, 2001, 655,000 shares were eligible for sale under Rule 144.
However, an aggregate of 190,000 of our outstanding shares were issued to
investors in our January 2000 bridge financing who agreed to voluntarily
restrict the public sale of such shares for a period of 24 months.
Description of Our Capital Stock
General
Our certificate of incorporation authorizes the issuance of up to
20,000,000 shares of common stock, par value $.001 per share, and 2,000,000
shares of preferred stock, par value $.01 per share, the rights and preferences
of which may be established from time to time by our board of directors. As of
December 31, 2001, we had nine stockholders of record.
Common stock
Under our certificate of incorporation, holders of our common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders, including the election of directors. They do not have
cumulative voting rights. Subject to preferences that may be applicable to any
then-outstanding preferred stock, holders of our common stock are entitled to
receive ratably dividends, if any, as may be declared by the board of directors
out of legally available funds. In case of a liquidation, dissolution or winding
up of Bodyguard, the holders of our common stock will be entitled to share
ratably in the net assets legally available for distribution to shareholders
after payment of all of our liabilities and any preferred stock then
outstanding. Holders of our common stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to our
39
common stock. The rights, preferences and privileges of holders of our common
stock are subject to the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future.
Preferred stock
Under our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue from time to
time, shares of preferred stock in one or more series. The board of directors
may fix the number of shares, designations, preferences, powers and other
special rights of the preferred stock. The preferences, powers, rights and
restrictions of different series of preferred stock may differ. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of our common stock or affect adversely the rights and
powers, including voting rights, of the holders of our common stock. The
issuance may also have the effect of delaying, deferring or preventing a change
in control of our company. We currently have no shares of preferred stock
outstanding.
Plan of Distribution
As of the date of this prospectus, the shares we intend to offer have not
been registered for sale under the securities laws of any state. We intend to
register or qualify the offered shares on a self underwritten basis, in the
States of New Jersey, New York, Pennsylvania, Florida, California and Delaware
to qualified investors and outside the U.S. The offering is self underwritten by
Bodyguard Records, which is offering the shares directly to investors through
John Rollo and Gene Foley, two of our officers and directors, who will offer the
shares by prospectus and sales literature filed with the SEC, to friends, former
business associates and contacts in and outside of the music business who have
indicated an interest in Bodyguard Records. The offering is a self underwritten
offering, which means that it does not involve the participation of an
underwriter or broker.
If you want to buy our stock, complete the subscirption agreement we are
sending you with this prospectus, and send your check made payable to
"Continental Stock Transfer as Escrow Agent for Bodyguard Records.com". The term
of our escrow including where you should send your check are set forth in the
subscription agreement.
Messrs. Rollo and Foley intend to offer our shares directly to investors
without registration as a broker-dealer under the Securities Exchange Act of
1934 by virtue of Rule 3a4-1 of that Act based upon the following:
o They are not subject to any statutory disqualification at the time of
their participation;
o They will not be compensated in connection with their participation by
the payment of a commission or other remuneration either directly or
indirectly on transactions in securities;
o They are not and will not be at the time of his participation an
associate person of a broker or dealer;
40
o Each of them primarily performs, and intend to continue to perform at
the end of the offering, substantial duties for and on behalf of our
company otherwise then in connection with transactions and securities;
o Neither of them was a broker or dealer, or an associated person of a
broker or dealer, within the preceding twelve (12) months; and
o Each of them will restrict their participation to the following
activities:
o Preparing any written communication or delivering any communication
through the mails or other means that does not involve oral
solicitation of a potential purchaser;
o Responding to inquiries of potential purchasers in communication
initiated by the potential purchasers, provided, however, that the
content of responses are limited to information contained in a
registration statement filed under the Securities Act or other
offering document; and
o Performing ministerial and clerical work involved in effecting any
transaction.
We do not intend to allow any of our officers or directors to purchase
shares in this offering. Were any officer or director to disregard our policy,
none of the shares that they purchased would count towards satisfying our
100,000 minimum share purchase requirement.
However, we are reserving the right to use broker dealers in this offering.
In the event that the services of these selling agents are used, we will pay a
10% commission on all such sales, and will also pay non-accountable selling
expenses up to a maximum of 3%. Any selling agents may be deemed to be statutory
underwriters within the meaning of the Securities Act. No selling agent has
agreed to underwrite this offering on a "firm commitment", "best efforts" or any
other basis. We may allocate a specific number of shares to any or each selling
agent for sale. However, such allocations may be reduced or revoked at any time
during the offering, and no selling agent is obligated to purchase or sell any
minimum number of shares. In the event we make an arrangement with a broker
dealer after the effectiveness of this offering, we will file a post-effective
amendment to the registration statement identifying the broker dealer and
disclosing all relevant information concerning our relationship with the broker
dealer.
Under the Securities Exchange Act of 1934 and the regulations thereunder,
any person engaged in a distribution of the shares of our common stock offered
by this prospectus may not simultaneously engage in market making activities
with respect to our common stock during the applicable cooling off periods prior
to the commencement of such distribution.
Legal Matters
The validity of the common stock covered by this registration statement will be
passed upon for Bodyguard by Lester Yudenfriend, Esq.
41
Experts
The audited financial statements included in the registration statement on Form
SB-2 have been audited by Sobel and Co., LLC, independent certified public
accountants, to the extent and for the periods set forth in their report, and
are included in reliance upon the authority of this firm as experts in auditing
and accounting.
Anti-takeover Effects of Delaware Law and
Our Certificate of Incorporation
The provision of our certificate of incorporation, which is summarized in
the following paragraph, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider it its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified board of directors
Our board of directors may be divided into classes of directors serving
staggered terms. Upon expiration of the term of a class of directors, the
directors in that class may be elected for an additional term at the annual
meeting of stockholders in the year in which their term expires. In addition,
our board of directors may be removed only for cause and only by the affirmative
vote of holders of not less than 51% of our outstanding capital stock entitled
to vote generally in the election of directors. These provisions, when coupled
with the provision of our certificate of incorporation authorizing the board of
directors to fill vacant directorships, may delay a stockholder from removing
incumbent directors and simultaneously gaining control of the board of directors
by filling the vacancies created by such removal with its own nominees.
Transfer Agent
The transfer agent for our common stock is Jersey Transfer & Trust Co., 201
Bloomfield Avenue, P.O. Box 36, Verona, New Jersey 07044.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
* 1% of the number of shares of common stock then outstanding,
which will equal approximately 9,000 shares immediately prior to
this offering; or
* the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
42
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted,
"144(k) shares" may be sold at any time.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares in reliance on Rule 144, but without compliance with some
of the restrictions, including the holding period, contained in Rule 144.
Where You Can Find More Information
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For further
information with respect to Bodyguard and the common stock, reference is made to
the registration statement and the attached exhibits and schedules.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in our files in the Commission's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., 20549. You can request copies of these documents upon payment
of a duplicating fee, by writing to the Commission. Please call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our Commission filings, including the registration statement,
will also be available to you on the Commission's Internet site which is
http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
43
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
BODYGUARD RECORDS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
BODYGUARD RECORDS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2001 AND 2000
CONTENTS
PAGE
Independent Auditors' Report........................................... F-1
Financial Statements:
Balance Sheet...................................................... F-2
Statements of Operations........................................... F-3
Statements of Stockholders' Equity................................. F-4
Statements of Cash Flows........................................... F-5
Notes to Financial Statements......................................F-6 - F-10
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Bodyguard Records.com, Inc.
New York, New York
We have audited the accompanying balance sheet of Bodyguard Records.com, Inc. (a
development stage company) as of March 31, 2001 and 2000 and the related
statements of operations, stockholders' deficiency, and cash flows for the
fiscal years ended March 31, 2001 and 2000 and for the period November 12, 1999
(date of inception) to March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bodyguard Records.com, Inc. (a
development stage company) as of March 31, 2001 and 2000 and the results of its
operations and cash flows for the fiscal years ended March 31, 2001 and 2000 and
for the period from November 12, 1999 (date of inception) to March 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has incurred losses from inception and has
significant negative working capital and net worth. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are described in Note 10. These
financial statements do not include an adjustment that might result from the
outcome of this uncertainty.
/s/ Sobel & Co., LLC
Certified Public Accountants
Livingston, NJ
September 5, 2001
F-1
BODYGUARD RECORDS.COM
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2001
===============================================================================
ASSETS
CURRENT ASSETS:
Cash $ 6,991
Prepaid expense 4,452
---------
---------
Total Current Assets 11,443
---------
$ 11,443
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 185,000
Accounts payable 36,106
---------
---------
Total Current Liabilities $ 221,106
---------
Notes payable - net of current portion --
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, none issued and outstanding --
Common stock, $0.001 par value, 20,000,000
shares authorized, 900,000 issued and outstanding 900
Additional paid-in capital 428,200
Deficit accumulated during the development stage (638,763)
---------
---------
Total Stockholders' Deficiency (209,663)
---------
$ 11,443
=========
===============================================================================
The accompanying notes are an integral part of these financial statements.
F-2
BODYGUARD RECORDS.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
====================================================================================================================================
INCEPTION FROM
FOR THE FISCAL YEAR ENDED NOVEMBER 12,
MARCH 31, 1999 TO
2001 2000 MARCH 31, 2001
--------------------------------------------------------
NET SALES $ 4,662 $ - $ 4,662
--------------------------------------------------------
OPERATING EXPENSES:
Officer's compensation 150,000 57,500 207,500
Equipment lease expense 40,000 94,550 134,550
Rent 24,000 4,000 28,000
Insurance 3,261 871 4,132
Artist expenses 118,263 22,284 140,547
Promotion expense 50,200 - 50,200
Production expense 1,177 - 1,177
Office supplies 1,006 656 1,662
Advertising 6,450 2,065 8,515
Studio supplies 3,377 - 3,377
Professional fees 34,300 - 34,300
Travel 5,823 - 5,823
Telephone 5,102 - 5,102
Auto expense 610 - 610
Entertainment 3,828 - 3,828
Trademarks and copyrights 500 - 500
Website design - 4,500 4,500
Bank charges 296 49 345
Repairs and maintenance 692 - 692
Penalties and fines 150 - 150
Miscellaneous expenses 516 807 1,323
--------------------------------------------------------
Total Operating Expenses 449,551 187,282 636,833
--------------------------------------------------------
NET LOSS FROM OPERATIONS (444,889) (187,282) (632,171)
INTEREST EXPENSE (6,242) - (6,242)
--------------------------------------------------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (451,131) (187,282) (638,413)
PROVISION FOR INCOME TAXES (350) - (350)
--------------------------------------------------------
NET LOSS $ (451,481) $ (187,282) $ (638,763)
========================================================
NET LOSS PER COMMON SHARE $ (0.58) $ (0.44) $ (1.05)
========================================================
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING 782,500 428,714 605,607
========================================================
====================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
BODYGUARD RECORDS.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
PERIOD FROM NOVEMBER 12, 1999 (DATE OF INCEPTION) TO
MARCH 31, 2001
============================================================================================================================
SHARES OF
PREFERRED COMMON COMMON
STOCK STOCK ISSUED STOCK
---------------------------------------------------
Stock issued in exchange for cash and
as compensation to officers 400,000 $ 400
Stock issued in exchange for cash - 190,000 190
Stock issued in exchange for cash - 75,000 75
Additional capital contribution for use of
equipment lease - - -
Additional capital contribution in exchange for
officer's compensation - - -
Net loss for the period of November 12, 1999 to March 31, 2000 - - -
--------------------------------------------------
Balance at March 31, 2000 665,000 $ 665
Stock issue in exchange for cash - 235,000 235
Additional capital contributed for use of
equipment lease - - -
Additional capital contribution in exchange for
officer's compensation - - -
Net loss for fiscal year end March 31, 2001 - - -
--------------------------------------------------
Balance at March 31, 2001 - 900,000 $ 900
==================================================
=====================================================
ACCUMULATED
DEFICIT
DURING THE TOTAL
ADDITIONAL DEVELOPMENT STOCKHOLDERS'
PAID-IN CAPITAL STAGE DEFICIENCY
-----------------------------------------------------
Stock issued in exchange for cash and
as compensation to officers $ (300) $ - $ 100
Stock issued in exchange for cash 24,810 - 25,000
Stock issued in exchange for cash 14,925 - 15,000
Additional capital contribution for use of
equipment lease 94,500 - 94,500
Additional capital contribution in exchange for
officer's compensation 57,500 - 57,500
Net loss for the period of November 12, 1999 to March 31, 2000 - (187,282) (187,282)
---------------------------------------------------
Balance at March 31, 2000 $ 191,435 $ (187,282) $ (52,682)
Stock issue in exchange for cash 46,765 - 47,000
Additional capital contributed for use of
equipment lease 40,000 - 40,000
Additional capital contribution in exchange for
officer's compensation 150,000 - 150,000
Net loss for fiscal year end March 31, 2001 - (451,481) (451,481)
---------------------------------------------------
Balance at March 31, 2001 $ 428,200 $ (638,763) $ (267,163)
===================================================
=============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
BODYGUARD RECORDS.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
========================================================================================================================
INCEPTION FROM
FOR THE FISCAL YEAR ENDED NOVEMBER 12,
MARCH 31, 1999 TO
2001 2000 MARCH 31, 2001
-------------------------------------------------------
CASH FLOW PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
--------------------
Net loss $(451,481) $(187,282) $ (638,763)
Adjustments to reconcile net loss to net
cash used for operating activities:
Stock issued for use equipment lease 40,000 94,550 134,550
Additional capital contributed in exchange
for officers' compensation 150,000 57,500 207,500
Changes in certain assets and liabilities
(Increase) decrease in:
Prepaid expenses (4,452) - (4,452)
Increase (decrease) in:
Accounts payable 34,606 1,500 36,106
-------------------------------------------------------
Net Cash Used for Operating Activities (231,327) (33,732) (265,059)
-------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 47,000 40,050 87,050
Proceeds from loans payable 185,000 - 185,000
-------------------------------------------------------
Net Cash Provided by Financing Activities 232,000 40,050 272,050
-------------------------------------------------------
INCREASE IN CASH 673 6,318 6,991
CASH AND CASH EQUIVALENTS:
Beginning of period 6,318 - -
-------------------------------------------------------
End of period $ 6,991 $ 6,318 $ 6,991
=======================================================
========================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-5
BODYGUARD RECORDS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION:
- --------------------------------------------------------------------------------
Bodyguard Records.com, Inc. (the "Company") was incorporated in the State of
Delaware on November 12, 1999. The Company is a development stage company which
will utilize the Internet and other emerging technologies to promote and market
signed recording artists. In addition, the Company intends to utilize technology
that will allow a live video link to recording sessions at the Company's music
studio. The Company also intends to produce and distribute prerecorded music
products of their recording artists and use their website to recruit and develop
new recording artists.
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
BASIS OF ACCOUNTING:
The Company's policy is to prepare its financial statements on the accrual basis
of accounting.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ADVERTISING:
Advertising costs are expensed as incurred.
LICENSOR ACCOUNTING:
The Company accounts for revenues, artist compensation costs and cost of record
masters in accordance with the Financial Accounting Standards Board Statement
No. 50 (SFAS 50), Financial Reporting in the Record and Music Industry. Under
SFAS 50, the Company expenses license expenses, artist compensation costs and
the cost of record masters unless there is reasonable certainty of its useful
life.
REVENUE RECOGNITION:
The Company recognizes revenue at the time the recordings are shipped from the
distributor.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist primarily of cash at banks and highly liquid
investments with maturities of three months or less.
INVENTORIES:
Inventories, which consist primarily of compact discs are valued at lower of
cost or market.
FEDERAL INCOME TAXES:
The Financial Accounting Standards Board issued Statement No. 109, "Accounting
for Income Taxes" (SFAS 109), which provides for the recognition of deferred tax
assets, net of an applicable valuation allowance, related to net operating loss
carryforwards and certain temporary differences.
LOSS PER SHARE:
Basic net loss per share was computed based on the weighted average number of
shares of common stock outstanding during the period.
STOCK OPTION PLANS:
The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Under
APB 25, the Company recognizes no compensation expense related to employee stock
options, as no options are granted at a price below fair market value.
================================================================================
F-6
BODYGUARD RECORDS.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
NOTE 3 - DEVELOPMENT STAGE COMPANY:
- --------------------------------------------------------------------------------
The Company is a development stage company as defined in Financial Accounting
Standards Board Statement No. 7. It has yet to commence full-scale operations
and no significant revenues have been generated. Management believes the
Company's future success is dependent upon the initial public offering (Note 13)
and the proceeds thereof in order to provide the working capital in order to
continue with management's intentions.
- --------------------------------------------------------------------------------
NOTE 4 - INCOME TAXES:
- --------------------------------------------------------------------------------
The Company's total deferred tax liabilities, deferred tax assets and valuation
allowance consists of the following at March 31, 2001:
Total deferred tax liabilities $ -
Total deferred tax assets 172,000
Total valuation allowance (172,000)
----------
$ -
===========
The tax effects that give rise to the deferred tax assets consist of net
operating losses.
- --------------------------------------------------------------------------------
NOTE 5 - NOTES PAYABLE:
- --------------------------------------------------------------------------------
At March 31, 2001, the Company entered into the following loan agreements:
Five separate loan agreements with an individual shareholder, interest rate
at 9% and 12% with principal and interest due through March 2, 2002 or the
date of the initial public offering (Note 13)
$ 80,000
Four separate loan agreements with an individual shareholder convertible into common stock at $1.00 per
share, interest at 9.00% with principal and interest due through March 16, 2002 or the date of the
initial public offering (Note 13) 85,000
Loan agreement with unrelated accredited investor, interest at 12.00%, principal and interest due
January 16, 2001 or the date of the initial public offering (Note 13) 20,000
-----------------
Total 185,000
Less: Current maturities (185,000)
-----------------
Long-Term Portion of Notes Payable $ -
=================
As stated in Note 13, from April 25, 2001 through August 10, 2001, the Company
borrowed an additional $175,000 from a shareholder and two accredited investors
with interest rates ranging from 10% to 12% with principal and interest payable
through September 10, 2002.
As stated in Note 13, management has verbally agreed with the various investors
above to extend the due date of the outstanding notes to correspond with the
minimum shares sold related to the initial public offering.
================================================================================
F-7
BODYGUARD RECORDS.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
On December 1, 1999, the Company entered into two executive employment
agreements with the President and Chief Executive Officer for a period of three
years. Thereafter, the agreement shall be renewed upon the mutual agreement of
the executive and Company. The terms of the agreement state a base compensation
of $75,000 for the first year increasing to $150,000 per year with 10% cost of
living increases for each year thereafter and includes clauses for vacation,
sick leave, insurance coverage and expense reimbursement. The agreements also
state that bonuses and stock options will be issued once certain performance
levels are attained. These agreements have been amended to forego any
compensation until the maximum shares available for sale as part of the initial
public offering have been sold (Note 13). While the officers of the Company
elected to forego any compensation, officer's compensation expense is reported
with an offset to paid-in capital for donated services.
The Company has four artist recording agreements with acts to commercially
produce and release an initial record. Each agreement has the option to release
future records if the Company desires. The Company will pay the artists
royalties after the recoupment of expenses paid on behalf of the artists,
starting at $1.50 per record sold and increasing to $3.00 per record sold based
on where the sale takes place and volume milestones.
On February 21, 2001, the company entered into two licensing agreements covering
four existing artists. The agreements give the Company non-exclusive rights for
a 20-year period to manufacture, advertise, sell, lease, license records as well
as use the name and photographs of the artists covered. In addition to the
artists' royalties under the artists agreements, the Company will pay the
licensor a 10% royalty fee on the gross income for each record, video tape or
DVD manufactured and sold featuring the artists covered by the agreement. As
stated in Note 10, the licensor's President is a member of Bodyguard
Records.com's Board of Directors. At March 31, 2001, there was no activity
related to these agreements.
On January 8, 2001, the Company entered into a recording agreement with an
artist group for one recording of ten songs over an eighteen month period from
the time of delivery of artwork and masters. The Company is to pay royalties of
40% of gross income of all retail sales and 50% of gross income of all mail
order sales. At March 31, 2001, there was no activity related to this agreement.
On January 18, 2001, the Company entered into a collective manufacturing,
warehousing, distribution and financing agreement for the artists under the
Bodyguard Records.com label. The Company incurred an up-front administrative fee
of $5,000 and is charged for actual materials used in the manufacturing,
warehousing, and distribution process, plus a 7% chargeback fee on all activity.
At March 31, 2001, there was no activity related to these agreements.
The Company has entered into a verbal agreement with an organization that is
providing services relating to the IPO discussed in Note 13. A fee of $10,000
will be paid to this organization contingent on the approval of the IPO.
================================================================================
F-8
BODYGUARD RECORDS.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
NOTE 7 - WEBSITE AGREEMENT:
- --------------------------------------------------------------------------------
On March 26, 2001, Bodyguard Records.com entered into a one-year agreement with
a company to create, host, build and maintain the Bodyguard internet website for
an annual fee of $2,400.
- --------------------------------------------------------------------------------
NOTE 8 - LEASE AND SUB-LEASE AGREEMENT:
- --------------------------------------------------------------------------------
The Company has entered a one year, eight month sub-lease rental agreement with
an entity controlled by a majority shareholder (Note 8) to rent office and
studio space for $2,000 per month. Rent expense for the year through March 31,
2001 and 2000 was $24,000, respectively.
As stated in Note 13, the Company entered into a year rental agreement to rent
office and studio space for $950 per month commencing August 1, 2001.
At March 31, 2001 future minimum payments on the lease are as follows:
2002 $ 7,600
2003 3,800
----------------
$11,400
================
- --------------------------------------------------------------------------------
NOTE 9 - OPERATING LEASE:
- --------------------------------------------------------------------------------
On December 8, 1999, the Company entered into a two year operating lease
agreement with an entity controlled by a majority shareholder for the use of
recording and studio equipment in exchange for equity. The contract states that
the Company can use the equipment for a maximum of thirty-five hours per week
with a maximum fair lease value of $600,000. During the period ended March 31,
2001 and 2000, the Company incurred $40,000 and $94,550 of equipment lease
expense, respectively.
- --------------------------------------------------------------------------------
NOTE 10 - GOING CONCERN:
- --------------------------------------------------------------------------------
As shown in the accompanying financial statements, the Company has suffered
losses from inception and at March 31, 2001, current and total liabilities
exceeded current and total assets by $209,663. These factors raise substantial
doubt about the Company's ability to continue as a going concern. As stated in
Note 13, the Company is seeking an infusion of capital from an initial public
offering.
================================================================================
F-9
BODYGUARD RECORDS.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
As noted in Note 6, in January 2000, the Company entered a one year, eight month
sub-lease rental agreement with an entity controlled by a majority shareholder
to rent office and studio space for $2,000 per month.
In addition, as noted in Note 7, in December 2000, the Company entered into a
two year operating lease agreement with an entity controlled by a majority
shareholder to lease recording and studio equipment.
The Company has entered into verbal agreements with two companies controlled by
the executive officers and majority shareholders of the company to provide
services to promote and market the company's existing artists and the company's
label. Amounts paid, including reimbursable expenses, to these companies for the
fiscal year ended March 31, 2001 was $117,548.
The Company has entered into two licensing agreements covering four artists with
a company who President is also a member of the Board of Directors of Bodyguard
Records.com. (see Note 6)
- --------------------------------------------------------------------------------
NOTE 12 - STOCK OPTION PLAN:
- --------------------------------------------------------------------------------
Under terms of the Company's incentive stock option plans, officers, employees
and certain vendors may be granted options to purchase the Company's common
stock at no less than 100% of the market price on the date the option is
granted. Options generally vest once a specified performance criteria is met or
over a period of time ranging from one to three years.
At March 31, 2001, there were no options granted or outstanding.
- --------------------------------------------------------------------------------
NOTE 13 - SUBSEQUENT EVENTS:
- --------------------------------------------------------------------------------
The Company is currently in the process of completing a registration statement
on Form SB-2 for filing with The Securities and Exchange Commission. The
registration statement proposed to register a minimum of 100,000 and a maximum
of 400,000 shares of common stock at $2.50 per share, or a maximum of
$1,000,000. The use of the proceeds will be for marketing, purchase of
equipment, website designs and working capital. As stated in Note 5, management
has verbally agreed with investors to extend repayment terms of all the notes
outstanding to the time at which the minimum shares are sold in respect to the
initial public offering stated above.
On July 11, 2001, the Company entered into a lease agreement for rental space
for an initial term of one year beginning August 1, 2001 with annual renewal
options. Rent expense is $950 per month.
From April 25, 2001 through August 10, 2001, the Company borrowed $175,000 with
interest rates ranging from 10% to 12% with principal and interest payable
through September 10, 2002.
================================================================================
F-10
BODYGUARD RECORDS.COM, INC.
BALANCE SHEETS (UNAUDITED)
===============================================================================================================
September 30,
2001 2000
-----------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 1,146 $ 16,696
Accounts receivable 28,025 -
Inventory 18,949 -
Prepaid expenses 3,205 -
-----------------------------------
Total Current Assets 51,325 16,696
-----------------------------------
FIXED ASSETS 4,792 -
-----------------------------------
OTHER ASSETS:
Security deposit 100 -
Deferred tax asset - -
-----------------------------------
Total Other Assets 100 -
-----------------------------------
$ 56,217 $ 16,696
===================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of note payable $ 415,000 $ 45,000
Accounts payable and accrued expenses 49,643 1,500
-----------------------------------
Total Current Liabilities 464,643 46,500
-----------------------------------
Notes payable, net of current portion - -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, none issued and outstanding - -
Common stock, $0.001 par value, 20,000,000
shares authorized, 900,000 issued and outstanding 900 900
Additional paid-in capital 503,200 313,200
Accumulated deficit/deficit accumulated
during the development stage (912,526) (343,904)
-----------------------------------
Total Stockholders' Deficiency (408,426) (29,804)
-----------------------------------
$ 56,217 $ 16,696
===================================
F-11
BODYGUARD RECORDS.COM, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
===========================================================================================
For the Three
Months Ended September 30,
2001 2000
--------------------------------
NET SALES $ 28,423 $ -
COST OF SALES 11,187 -
--------------------------------
GROSS PROFIT 17,236 -
OPERATING EXPENSES:
Officer's compensation 37,500 37,500
Discounts 2,015 -
Foreign currency exchange 178 -
Printing 1,974 -
Shipping 196 -
Equipment lease expense 373 -
Rent 4,750 6,000
Insurance 1,272 -
Artist expenses 31,020 6,192
Promotion expenses 27,733 -
Production expense 16,095 3,365
Office supplies 570 7,000
Advertising 24,283 3,187
Studio supplies 7,517 5,837
Professional fees 5,000 5,000
Travel 3,028 3,200
Telephone 3,497 615
Public relations 12,000 -
Entertainment 1,391 -
Marketing 26,293 -
Business set up - 2,627
Utilities 253 -
Patents and trademarks 375 -
Website design 590 -
Bank charges 10 11
Miscellaneous expenses 378 323
--------------------------------
Total Operating Expenses 208,291 80,858
OPERATING LOSS (191,055) (80,858)
--------------------------------
OTHER EXPENSE:
Interest expense (7,000) -
--------------------------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (198,055) (80,858)
PROVISION FOR INCOME TAXES - (350)
--------------------------------
NET LOSS (198,055) $ (81,208)
================================
NET LOSS PER COMMON SHARE (0.22) $ (0.10)
================================
WEIGHTED AVERAGE NUMBER
COMMON SHARES OUTSTANDING 900,000 782,500
================================
F-12
BODYGUARD RECORDS.COM, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
=======================================================================================
For the Six
Months Ended September 30,
2001 2000
------------------------------
NET SALES $ 183,268 $ 4,212
COST OF SALES 35,498 -
------------------------------
GROSS PROFIT 147,770 4,212
OPERATING EXPENSES:
Officer's compensation 75,000 75,000
Office salaries - 7,000
Discounts 2,015 -
Foreign currency exchange 178 -
Printing 1,974 -
Shipping 196 -
Equipment lease expense 373 27,836
Rent 10,750 12,000
Insurance 2,245 872
Artist expenses 71,340 11,532
Promotion expenses 87,774 -
Production expense 16,095 3,365
Office supplies 1,235 -
Advertising 40,762 4,275
Studio supplies 7,517 5,837
Professional fees 27,631 5,000
Travel 8,961 3,200
Telephone 6,180 1,755
Auto expense 597 -
Public relations 12,000 -
Entertainment 2,074 -
Marketing 26,293 -
Business set up - 2,627
Utilities 253 -
Patents and trademarks 375 -
Repairs and maintenance 689 -
Website design 2,385 -
Bank charges 2,059 19
Miscellaneous expenses 424 166
------------------------------
Total Operating Expenses 407,375 160,484
OPERATING LOSS (259,605) (156,272)
------------------------------
OTHER EXPENSE:
Interest expense (14,157) -
------------------------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (273,762) (156,272)
PROVISION FOR INCOME TAXES - (350)
------------------------------
NET LOSS $ (273,762) $ (156,622)
==============================
NET LOSS PER COMMON SHARE $ (0.30) $ (0.20)
==============================
WEIGHTED AVERAGE NUMBER
COMMON SHARES OUTSTANDING 900,000 782,500
==============================
F-13
BODYGUARD RECORDS.COM, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
============================================================================================================================
For the Three Months
Ended September 30,
2001 2000
-------------------------------------
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
--------------------
Net loss $ (198,055) $ (81,208)
Adjustments to reconcile net loss to net cash
used for operating activities:
Additional paid-in capital in exchange for
officer's salaries 37,500 37,500
Changes in certain assets and liabilities:
(Increase) decrease in:
Accounts receivable, net 50,505 -
Inventories 9,578 -
Security deposits - -
Prepaid expenses - -
Increase (decrease) in:
Accounts payable and accrued expenses 14,273 -
-------------------------------------
---------------------
Net Cash Used for Operating Activities (86,199) (43,708)
-------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets - -
FINANCING ACTIVITIES:
--------------------
Proceeds from the issuance of common stock - 11,162
Proceeds received on notes payable 85,000 45,000
-------------------------------------
Net Cash Provided by Financing Activities 85,000 56,162
NET (DECREASE)/INCREASE IN CASH (1,199) 12,454
CASH:
Beginning of period 2,345 4,242
-------------------------------------
End of period $ 1,146 $ 16,696
=====================================
F-14
BODYGUARD RECORDS.COM, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
==============================================================================================
For the Six Months
Ended September 30,
2001 2000
-------------------------------
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
--------------------
Net loss $(273,762) $(156,622)
Adjustments to reconcile net loss to net cash
used for operating activities:
Additional paid-in capital in exchange for
officer's salaries 75,000 75,000
Changes in certain assets and liabilities:
(Increase) decrease in:
Accounts receivable, net (28,025) -
Inventories (18,949) -
Security deposits (100) -
Prepaid expenses 1,247 -
Increase (decrease) in:
Accounts payable and accrued expenses 13,536 -
-------------------------------
----------------
Net Cash Used for Operating Activities (231,053) (81,622)
-------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (4,792) -
FINANCING ACTIVITIES:
--------------------
Proceeds from the issuance of common stock - 47,000
Proceeds received on notes payable 230,000 45,000
-------------------------------
Net Cash Provided by Financing Activities 230,000 92,000
NET (DECREASE)/INCREASE IN CASH (5,845) 10,378
CASH:
Beginning of period 6,991 6,318
-------------------------------
End of period $ 1,146 $ 16,696
===============================
F-15
BODYGUARD RECORDS.COM, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2001
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION:
- --------------------------------------------------------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and item 310(b) of Regulation SB. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. For further information, refer to the
financial statements and footnotes thereto included in the Company's Form SB-2
(for the fiscal year ended March 31, 2001 as filed with the Securities and
Exchange Commission.
- --------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN:
- --------------------------------------------------------------------------------
As shown in the accompanying financial statements, the Company has a history if
significant operating losses and as of September 30, 2001, current liabilities
exceed current assets by $413,317 and total liabilities exceed total assets by
$408,425.
These factors, as well as the uncertain conditions the Company faces regarding
the delinquency of accounts payable and loans payable, raise substantial doubt
about the Company's ability to continue as a going concern.
- --------------------------------------------------------------------------------
NOTE 3 - DEVELOPMENT STAGE COMPANY:
- --------------------------------------------------------------------------------
During the period July 1, 2001 through September 30, 2001, the Company began
operations and started generating revenues. At such time, the Company ceased to
be a development stage company. The financial statements reflect this change.
F-16
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
[THIS PAGE IS INTENTIONALLY LEFT BLANK]