As filed with the Securities and Exchange Commission on December 22, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(INITIAL STATEMENT)
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(Name of small business issuer in its charter)
NEVADA 7812 20-1257307
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1026 W El Norte Parkway, Suite 191, Escondido, California 92026
323-802-1542
(Address and telephone number of principal executive offices)
1416 N. La Brea Ave., Hollywood, California 90028
(Address of principal place of business or intended principal place of business)
Incorp Services, Inc., 3675 Pecos-McLeod, Suite 1400, Las Vegas, Nevada
(Name, address and telephone number of agent for service)
Copies of communications to:
Richard I. Anslow, Esq.
Anslow & Jaclin, LLP
195 Routes 9 South, Suite 204
Manalapan, New Jersey 07726
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ---------------------------------- ---------- --------------- -------------- ------------
Proposed Proposed
Title of each Amount to maximum Maximum Amount of
class of securities be offering aggregate registration
to be registered registered price per share offering price fee
- ---------------------------------- ---------- --------------- -------------- ------------
Common shares, par value $.001 (1) 1,000,000 $5.00 $5,000,000 $633.50
- ---------------------------------- ---------- --------------- -------------- ------------
Common shares, par value $.001 (2) 950,000 $5.00 $4,750,000 $601.83
- ---------------------------------- ---------- --------------- -------------- ------------
Common shares, par value $.001 (3) 50,000 $5.00 $250,000 $31.67
(1) Represents shares being sold to the public. The price of $5.00 per
share is being estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) of the Securities Act.
(2) Represents shares of common stock issuable in connection with the
exercise of options issued to Barr Eden Family Trust (500,000 options)
and Waldwick Investments Limited (450,000 options). The price of $5.00
per share is being estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) of the Securities Act.
(3) Represents shares of common stock owned and offered by Andrew Banks &
Associates Pty. Ltd. The price of $5.00 per share is being estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(c) of the Securities Act.
Our non-affiliate selling shareholders will sell at a fixed price per share of
$3.00 until our shares are quoted on the OTC Bulletin Board (or any other
specified market). Thereafter, such selling shareholders shall sell at
prevailing market prices or privately negotiated prices.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until this Registration
Statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED, 2004
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FRIDAY NIGHT ENTETAINMENT CORPORATION
1,000,000 SHARES OF COMMON STOCK
950,000 SHARES OF COMMON STOCK ISSUABLE IN CONNECTION WITH
EXERCISE OF OUTSTANDING OPTIONS
50,000 SHARES OF COMMON STOCK FOR A SELLING SECURITY HOLDER
Friday Night Entertainment Corporation (the "Company" "we" or "us" or "FNE"), a
Nevada Corporation, is offering, on a "best efforts" basis 1,000,000 shares of
our common stock, par value $.001, at U.S. $5.00 per share (the "Offering"). The
initial offering period will end twelve (12) months from the date listed in this
prospectus unless it is terminated earlier (the "Initial Offering Period"). This
Offering is being made on a self-underwritten basis by us through our officers
and directors. Since there is no selling commission, all proceeds from the
Offering will go to us.
In addition, our selling security holders are offering to sell 950,000 shares of
our common stock issuable in connection with the exercise of our options, and
50,000 shares of common stock.
Currently, we have not established an underwriting arrangement for the sale of
these shares. Our officers and directors will be the only persons that will
conduct the direct public offering. They intend to offer and sell the shares in
the primary offering through their business and personal contacts.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK,
AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE 7 BEFORE INVESTING IN SUCH SECURITIES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
This registration statement will be amended and completed from time to time, as
necessary.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until this Registration Statement filed with the
Securities and Exchange Commission is declared effective by the Securities and
Exchange Commission. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
The date of this prospectus is, 2004
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Table of Contents
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Page
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Prospectus Summary 5
Risk Factors 7
Use of Proceeds 11
Determination of Offering Price 13
Market for Common Equity and Related Stockholder Matters 13
Equity Compensation Plan Information 14
Dividends 14
Management's Discussion and Analysis or Plan of Operation 14
Business - Our Company 17
Description of Property 20
Legal Proceedings 20
Management Directors and Executive Officers 21
Executive Compensation 22
Principal Stockholders 24
Dilution 24
Selling Stockholders 26
Shares Eligible for Future Sale 28
Plan of Distribution 28
Certain Relationships and Related Transactions 30
Description of Securities 31
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Transfer Agent 32
Experts 32
Legal Matters 32
Financial Statements F-1
Part II.
Other Expenses of Issuance and Distribution 33
Recent Sales of Unregistered Securities 33
Exhibits 35
Undertakings 36
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PROSPECTUS SUMMARY
The following is a summary of material information which is supported in its
entirety by detailed information, including financial information and notes
thereto, contained in this prospectus. This highlighted summary is intended for
reference only. Before making any investment, you should carefully consider the
information under the heading "Risk Factors". Please note that throughout this
prospectus the words "Company", "we", "our", "us" or "FNE", refer to Friday
Night Entertainment Corporation, and not to our selling stockholders.
About Us
We were incorporated in Nevada on July 31, 2001 under the name Lunettes, Et.Al.,
Inc. We have remained inactive since incorporation. On June 10, 2004, we
acquired all of the issued and outstanding shares of Friday Night Entertainment
Pty. Ltd., an Australian company involved in producing feature films and
television programming in Australia. On June 11, 2004, we changed our name from
Lunettes, Et. Al., Inc. to Friday Night Entertainment Corporation and increased
our authorized share capital to 50,000,000 common shares and 5,000,000 preferred
shares, both par values $.001.
We are a development stage company formed for the purpose of producing feature
films in the United States. We will develop four of our scripts that we acquired
in our purchase of Friday Night Entertainment Pty Ltd., as well as future screen
plays that we acquire pursuant to option agreements with screen writers. We will
develop film products from conception to pre-production, production and
post-production stages. We also propose to identify and acquire original
materials, screenplays, novels, manuscripts, ideas, remakes, and branded
properties. We will finance some projects ourselves, and participate in the
financing of larger projects. We intend to utilize the industry contacts and
know how of our principals in achieving our business objectives.
Securities Offered By Us
The maximum amount of shares offered by us, on a "best efforts" basis is
1,000,000 common shares at $5.00 per share (or an aggregate offering price of
$5,000,000).
Up to an additional 950,000 common shares issuable upon the exercise of options
issued to Barr Eden Family Trust and Waldwick Investments Limited; and up to an
additional 50,000 shares of our common stock of Andrew Banks & Associates Pty.
Ltd. Although we are not presently qualified for public quotation, we intend to
qualify our shares for quotation on the NASD Over-the-Counter Bulletin Board
concurrently as of the effective date of this prospectus or as soon as possible
thereafter.
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Offering Period
During the Initial Offering Period, we will offer shares for a period of twelve
(12) months from the effective date of this prospectus, unless terminated
earlier, in our sole discretion. During this Initial Offering Period we will be
able to use funds immediately since the offering is on a "best efforts" basis.
No minimum amount of proceeds has been set by us and no legal requirement for a
minimum amount is in effect. Since there is no minimum, no escrow account will
be established to hold funds until a minimum amount is reached or until the
offering period is terminated.
Plan of Distribution
The offering of a maximum of 1,000,000 of our common shares, on a "best efforts"
basis, is being made on a self-underwritten basis by us through our officers and
directors who will not be paid any commission or other compensation and without
the use of securities brokers.
Currently, we have not established an underwriting arrangement for the sale of
these shares. Our officers and directors will be the only persons that will
conduct the direct public offering. They intend to offer and sell the shares in
the primary offering through their business and personal contacts. There is a
possibility that no proceeds will be raised or that if any proceeds are raised,
they may not be sufficient to cover the cost of the offering.
The estimated cost of distribution of our common shares is $130,000, or
approximately 2.6% of our planned offering. These distribution costs include
travel, presentations and administration costs involved in the offering.
Our selling securities holders may be selling up to 950,000 common shares
issuable upon the exercise of options issued to Barr Eden Family Trust and
Waldwick Investments Limited; and 50,000 common shares of Andrew Banks &
Associates Pty. Ltd. The selling shareholders can exercise their options at a
price, being a discount to 40% of market price or fifty cents, whichever is the
greater. The market price is that price quoted on a recognized stock market, or
where there is no public trading we will use the last sale price of our common
stock as the basis for a market price. Such shares of our common stock may be
sold from time to time to purchasers directly by the selling security holders.
Alternatively, the selling shareholders may from time to time offer shares to
underwriters, dealers, or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling security
holders for whom they may act as agent.
The selling security holders and any underwriters, dealers or agents that
participate in the distribution of our common stock may be deemed to be
underwriters, and any commissions or concessions received by any such
underwriters, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act. Shares may be sold from time to time by
the selling security holders in one or more transactions at a fixed offering
price, which may be changed, or at any varying prices determined at the time of
sale or at negotiated prices. We may indemnify any underwriter against specific
civil liabilities, including liabilities under the Securities Act. We will bear
all expenses of the offering of shares of our common stock by the selling
security holders other than payment that they may agree to make to underwriters.
Where there is no public trading market for our shares, we will use the last
sale price of our common stock as the basis for a market price.
Application of Proceeds
The proceeds of this offering are to be used by us for the development of the
four movie scripts which we acquired through our acquisition of Friday Night
Entertainment Pty Ltd. We also intend to use proceeds from this offering in
order to acquire an option to develop a motion picture to be called "Asphalt
Beach." The balance of the proceeds of this offering will be used to acquire
additional movie scripts pursuant to option agreements, and for general working
capital.
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RISK FACTORS
Risk Factors
The securities offered hereby are highly speculative and should be purchased
only by persons who can afford to lose their entire investment. Each prospective
investor should carefully consider the following material risk factors
associated with this Offering, as well as all other information set forth in
this prospectus.
Material risk factors have been addressed under the following major headings:
Industry Risks, Company Specific Risks and Offering Specific Risks.
1. Industry Risks
THE COMPETITIVE ENVIRONMENT OF OUR INDUSTRY WILL MAKE IT DIFFICULT FOR US TO
SOURCE QUALITY SCREENPLAYS AND REACH OUR BUSINESS PLAN OBJECTIVES
Film production requires vast amounts of upfront high risk capital for which
there is a limited supply and intense competition. The importance of a track
record of commercial success in prior productions is a principal factor. We will
operate in a competitive industry with established companies that can impact our
market share and ultimate success. We face significant competition from more
established companies. We believe our competition will include the following
listed entities: Lions Gate Entertainment Corporation, New Market Capital Group,
Palm Picture Features, and Peace Arch Entertainment Group Incorporated. We will
compete directly with the following private companies: 2929 Entertainment, Hart
Sharp Entertainment, Odd Lot Entertainment and River Road. These private
companies have been selected as direct competition given they specifically
conduct business within the independent feature film development and production
arena. All of these companies are well established with proven track records and
are successful in operating in a competitive environment.
Our competition may make it difficult for us to source quality screenplays
outside of our writer's fund by offering incentives to writers and cast members
that are difficult to match, given our limited resources. This may inhibit us
from reaching our business plan objectives and financial forecast.
MOVIE PIRACY IS A MAJOR CONCERN IN OUR INDUSTRY THAT CAN CAUSE US TO FORCE
ABANDONMENT OF PRODUCTION AND RESULT IN INCREASED PRODUCTION AND DISTRIBUTION
COSTS
Movie piracy is prevalent in our industry and can cause us to have reduced
revenues, increased production and distribution costs or force abandonment of a
production.
The growth of the internet, together with the advancement of digital technology,
has created substantial piracy problems for the movie industry. We will not be
immune from this piracy. This piracy could take many forms and could impact our
business in many ways. For instance, the piracy threat comes from within the
industry where screen writers, production companies and distributors pirate each
others ideas. In addition, the industry has to deal with consumer piracy, where
feature films contend with piracy at the distribution level and in the DVD
market. The piracy of our property could have a significant effect on the
production and distribution of our movies and could result in reduced revenues,
increased production and distribution costs or the abandonment of a production.
THE FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS CAN CAUSE US TO LOSE
ROYALTY FEES AND DECREASE REVENUES
It is imperative that we protect our intellectual property rights and the
failure to do so will have a negative impact on our business. Our business
depends on intellectual and property law to safeguard our assets. Our success in
defending our intellectual property assets and also ensuring that we do not
infringe on the intellectual property rights of others can be an expensive
process, and can also have a significant effect on our business. Our failure to
protect our intellectual property assets, or the infringement on the rights of
others could have a material effect on our company in that it could result in
the abandonment of a film production or the payment of unknown royalty fees.
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2. Company Risks
Management risk
OUR OPERATION AND FUTURE GROWTH IS HEAVILY DEPENDANT UPON OUR CEO, MR. CAMERON
LAMB, OUR PRESIDENT, MICHAEL COSTIGAN AND OTHER MANAGEMENT PERSONNEL, AND IF WE
LOSE THE SERVICES OF THESE EMPLOYEES, WE WILL BE UNABLE TO DEVELOPMENT OUR
BUSINESS.
We believe the efforts of our executive officers and other management personnel
including Mr. Lamb, our CEO, and Mr. Costigan, President, who will also be
responsible for the creative development of properties along with production
oversight, are essential to our operations and growth. The loss of either Mr.
Lamb or Mr. Costigan or others could have a material adverse effect on our
financial condition, future success, and ability to sustain operations. We do
not carry key man life insurance on any such individuals.
We previously had a six (6) month consulting agreement with Michael Costigan
that expired on November 30, 2004. We expect to enter into an employment
agreement with Mr. Costigan upon the receipt of sufficient funds to allow us to
commence production of our first feature film that has a production budget of
$2.5M. Expected terms of Mr. Costigan's employment are a base salary of $600,000
per annum with an initial term of 3 years. If we fail to raise $5,000,000 under
this offering, then we will attempt to negotiate a contract with Mr. Costigan
which will result in a lower base salary with a reduced term and possible
non-exclusivity of Mr. Costigan's services. It is unlikely that we will be able
to retain Mr. Costigan's services if we fail to raise at least $900,000. Mr.
Costigan is our President and he will be responsible for the creative
development of properties along with production oversight.
While having relevant specific industry experience, none of management team has
actual experience in operating a feature film production company.
Financing risk
WE ARE A START UP COMPANY AND FACE THE POSSIBILITY THAT WE WILL NOT BE ABLE TO
RAISE THE FUNDS SUBJECT TO THIS OFFERING.
We currently have insufficient assets to pursue our business plan and are
totally dependent on the successful outcome of this offering. In the event that
less than $900,000 is raised, management will likely defer or abandon the
business plan.
The substantial capital requirements and financial risks associated with each
individual production are significant. The failure of one feature film to
perform may significantly adversely affect our financial performance. We have a
planned output of four features per annum. Secondly, in the event that
distribution is delayed, the timing of revenue will also be delayed. Both of
these situations can cause our business to fail due to lack of cash flow.
The substantial capital requirements of funding a production combined with the
time period before revenues could result in our demise due to lack of cash flow.
If our initial planned commercial production is not successful it is unlikely
that we will survive.
Operational risks
WE HAVE NO OPERATING HISTORY WHICH CAN CAUSE US TO BE UNSUCCESSFUL IN
IDENTIFYING SCREENPLAYS AND NEVER BEING ABLE TO IMPLEMENT OUR BUSINESS PLAN
RESULTING IN OUR DEMISE
We have no operating history. Our success will depend largely upon our ability
to identify screenplays which have the potential to be successfully packaged.
Our ability to package screenplays with directors and talent will be crucial to
our success. Due to our start up nature, we do not have an existing library of
product that will provide consistent cash flow. We will depend on the success of
each of our productions to derive a consistent cash flow into the future.
8
Given we do not have an existing library of films, we will rely on the success
of our own productions to build a film library with reliable cash flow. This
will be the case until we have acquired an existing film library. Our long term
viability will depend on our ability to establish a viable film library that can
generate positive cash flows into the future. If we are unable to develop a
viable film library, we will not generate the cash flows needed to make us
viable in the medium to long term future.
OUR AUDITORS HAVE ISSUED A GOING CONCERN OPINION THAT CAUSES SUBSTANTIAL DOUBT
ABOUT OUR FUTURE
The report from our independent auditor discloses "... company has experienced
an operating loss since inception and its working capital is insufficient to
meet planned business objectives. These and other factors raise substantial
doubt as to the Company's ability to continue as a going concern." We are
totally dependent upon the successful outcome of this offering. If we are unable
to raise sufficient capital to fund the production and overhead costs associated
with our first feature film, we will likely defer or abandon our business plan.
Production risk
OUR SCRIPTS HAVE NOT BEEN EVALUATED BY DISINTERESTED PARTIES FOR COMMERCIAL
VIABILITY, AND THERE IS NO ASSURANCE THAT THE SCRIPTS WILL BE COMMERCIALLY
VIABLE.
A great deal of our independent film success will come from the audience
reaction on the Festival Markets and from press and industry reviews.
Unfavorable reviews could have a material effect on the success of our films and
the demise of our business. Unfavorable reviews of our films will have a
negative effect on us and can lead to our demise.
The failure of a distributor or third party financier to source our films will
result in no development investment for a lengthy period and place us in a
negative light to the market place. In the event that a distributor or third
party financier cannot be sourced to partner or offload production costs on
larger feature films at a desirable time, we may be in a position that we have
no return on our development investment for a lengthy period. This may also
result in (1) the production being of a lower budget, often resulting in a lower
quality director and/or talent which would typically result in lower revenues,
or (2) we would be forced to postpone production until a third party is found.
In this case, postponing would result in us not having a return on our
development investment.
Film production is inherently a high risk business where even well financed and
experienced producers often fail to make a profit on individual productions.
3. Offering specific risks
SINCE THIS OFFERING IS BEING SELF UNDERWRITTEN, NO DUE DILIGENCE HAS BEEN
UNDERTAKEN BY A THIRD PARTY SELLING THIS OFFERING
This offering is being self-underwritten by our officers and directors, and
potential investors should give careful consideration to all aspects of this
offering before any investment is made. In the absence of an underwriter, no due
diligence examination has been performed in conjunction with this offering such
as would have been performed in an underwritten offering.
No independent due diligence has been performed by any third party.
OUR PRESENT OFFICERS AND DIRECTORS CONTROL US AND SOLELY MAKE COMPANY DECISIONS
Our present officers and directors, own 65.7% of our common shares (and 100% of
1,000,000 Series "A" preferred shares, each carrying 50 votes) before the
registration and the issuance of additional shares from this Offering. This
controlling interest was acquired at a cost substantially below the offering
price. Specifically, the aggregate amount paid for the interest acquired by
Cameron Lamb, Michael Costigan and Mark Pearson was $4,500 or $.001 per share.
9
Accordingly, purchasers of the shares offered will bear most of the risk of
loss, although, our control will be maintained by the existing stock owners by
virtue of their percentage of stock ownership.
WE WILL BE A PENNY STOCK WHICH RESULTS IN NUMEROUS SEC RULES AND REGULATIONS
Trading in our securities is subject to the "penny stock" rules. The SEC has
adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules require that any broker-dealer who recommends
our securities to persons other than prior customers and accredited investors,
must, prior to the sale, make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to execute the
transaction. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated with trading
in the penny stock market. In addition, broker-dealers must disclose commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities they offer. The additional burdens imposed upon
broker- dealers by such requirements may discourage broker-dealers from
effecting transactions in our securities, which could severely limit their
market price and liquidity of our securities. Broker- dealers who sell penny
stocks to certain types of investors are required to comply with the
Commission's regulations concerning the transfer of penny stocks. These
regulations require broker- dealers to: make a suitability determination prior
to selling a penny stock to the purchaser, receive the purchaser's written
consent to the transaction and provide certain written disclosures to the
purchaser. These requirements may restrict the ability of broker-dealers to sell
our common stock and may affect your ability to resell our common stock
THERE IS NO MINIMUM OFFERING AND THEREFORE YOUR INVESTMENT MAY BE USED EVEN
THOUGH SUCH INVESTMENT WILL NOT SATISFY OUR USE OF PROCEEDS FOR ANY PROJECT
The directors have not specified a minimum offering amount and there in no
escrow account in operation. As detailed elsewhere in this document the
company's current assets are insufficient to pursue the business plan and it is
entirely dependant on the outcome of this raising. Because there is no escrow
account and no minimum offering amount, investors could be in a position where
they have invested in the Company, but the Company is unable to fulfill its
objectives or proceed with its operations due to a lack of interest in this
offering. If this were to occur, the Company might be forced to curtail or
abandon its operations with a loss to investors who purchase stock under this
prospectus.
SALES BY SELLING SECURITIES HOLDERS BELOW THE $5.00 OFFERING PRICE MAY CAUSE OUR
STOCK PRICE TO FALL AND DECREASE DEMAND IN THE PRIMARY OFFERING WHICH MAY
DECREASE THE VALUE OF YOUR INVESTMENT.
The selling security holder offering will run concurrently with our primary
offering. All of our stock owned by the selling security holders is being
registered in this registration statement. The selling shareholders stock that
is offered in this prospectus will be acquired by the selling shareholders at a
price that is a discount of 40% to the market price, or $0.50, whichever is the
greater. The selling security holders may sell some or all of their shares
immediately after they are registered. In the event that the selling security
holders sell some or all of their shares, which could occur while we are still
selling shares directly to investors in this offering, trading prices for the
shares could fall below the offering price of the shares, particularly given the
fact that the selling security holders can acquire stock at a discount of up to
40% of market price. In such event we may be unable to sell all of the shares to
investors, which would negatively impact the offering. As a result, our plan of
operations may suffer from inadequate working capital.
THE SALE OF OPTIONS AND EXERCISE OF EXISITING OPTIONS WILL CAUSE DILUTION TO
YOUR INVESTMENT
We currently have issued 950,000 options. Each option provides the option holder
the right to purchase one share of our common stock at the greater of: (1) a 40%
discount from the average closing bid price of our common stock on a public
exchange during the 10 trading days immediately prior to the exercise of the
option or (2) $0.50 per share. The options can be exercised at any time until
December 31, 2005.
10
In future months, it is possible that we may enter into arrangements whereby
options are issued in lieu of payment for certain expenses. Management would
like to highlight the risk of potential dilution to investors on the eventual
exercise of these options.
OUR SHARES ARE NOT CURRENTLY PUBLICLY TRADED AND THERE IS A POSSIBILITY THAT WE
WILL NOT OBTAINING A QUOTATION ON THE OTC BULLETIN BOARD CAUSING YOUR SHARES TO
NEVER HAVE A PUBLIC TRADING MARKET
There is currently no trading market for our shares. We intend to apply for a
quotation on the Over the Counter Bulletin Board (OTCBB) concurrently with the
filing of this offering. It is unlikely that our trading market will develop in
the near term, or that if developed, it will be sustained. In the event the
regular public trading market does not develop, any investment in our stock
would be highly illiquid.
You may not be able to liquidate your investments since there is no assurance
that a public market will develop for our common stock or that our common stock
will ever be approved for trading on a recognized stock exchange or quotation
medium.
USE OF PROCEEDS
The net proceeds to us from this Offering, after deducting estimated offering
expenses of $130,000, are estimated to be approximately $4,870,000 assuming the
Maximum Offering is sold. We will not receive any proceeds from the sale of
shares by the selling security holders. We expect to use such net proceeds as
follows:
- ------------------------------------------------- ----------- ----------
Approximate use of application proceeds Approx. % of net
$ amount proceeds
- ------------------------------------------------- ----------- ----------
Purchase of movie options 2 950,000 19.5%
Production of Asphalt Beach 2,500,000 51.3%
Development of current scripts 500,000 10.3%
Working Capital and general corporate purpose 1 920,000 18.9%
----------- ----------
Total 4,870,000 100.0%
- ------------------------------------------------- ----------- ----------
- --------------------
(1) Represents amounts to be used for working capital and general corporate
purposes, including rent expense, corporate overhead including salaries,
administration and ongoing professional fees.
(2) Purchase of movie options: We expect that we will use $950,000 of the net
proceeds to acquire options for the rights to, and for the development of
feature film properties. The number of properties ultimately considered will
depend on the amount of capital raised under this offering. Properties currently
being considered by us include:
A NORMAL LIFE
An original romantic comedy about a successful young, married woman in New York
City who has a chance meeting which changes her entire life in the space of 24
hours. In the vein of Sliding Doors or Run Lola Run, the film will be directed
by Henry Pincus (MTV's The Sausage Factory, XX) from his own screenplay.
(SAINT) PETER
A comedy about faith; what happens when an 11 year old boy wakes up to discover
the whole world thinks his derelict older brother is a saint? His family and
world is turned upside down, and he puts together his own `family' now that his
own has gone crazy. Josh Klausner (The Fifth Floor) will direct, from his
original screenplay.
THE GOOD LIFE
This is a poignant drama and love story about an outsider in a rural town who
meets a mysterious stranger at the local movie house, and whose life is changed
forever. Steve Berra will direct from his own screenplay. The movie has A list
cast already attached.
Due to the competitive nature of the industry these properties will not be
available indefinitely. It is important to realize there is an abundance of
material available for development with new material becoming available on a
very regular basis. If we are unable to secure these specific properties due to
cash flow or timing constraints we are confident we will be able to acquire
comparable material under similar terms.
11
Development of current scripts: We have allocated $500,000 to develop our four
existing scripts. The development required on each of these scripts will include
further script editing, refinement, casting and preparation of production
budgets for each property.
Production of Asphalt Beach: Asphalt Beach is currently not under option to us .
However, we do have a first look arrangement that allows FNE to sign an option
agreement in conjunction with proceeding to production on the successful raising
of funds. Based on an independently prepared production budget we anticipate
that $2,500,000 will be the maximum level of funds required to acquire, develop
and complete production of Asphalt Beach. This expenditure will bring Asphalt
Beach to the finished product stage, ready for sales and distribution. We would
not be expecting to incur any additional costs in relation to this production as
we intend entering into a distribution agreement that would require the
distributor to incur all promotion and distribution costs.
The foregoing represents our best estimate of our allocation of the net proceeds
of the Maximum Offering based upon the current state of our business development
and management estimates of current industry conditions. We anticipate, although
there can be no assurance that the net proceeds from the Maximum Offering will
only allow us to sustain our operations for a period of approximately twelve
(12) months. Upon completion of the Maximum Offering, we believe we will have
sufficient financing to operate our business for approximately twelve (12)
months. The net proceeds may be reallocated among the categories set forth above
or otherwise depending upon the state of our business operations and other
factors, many of which are beyond our control. See "Risk Factors."
In the event that we fail to raise the maximum proceeds under this offering we
set out below a schedule that details two alternate scenarios based on less than
the maximum offering being received. A key element to remain viable will be for
us to partner with a financier on the production of Asphalt Beach. The
production of Asphalt Beach has the highest priority, followed by the optioning
and development of additional scripts.
- ---------------------------------------- ----------- ---------- ---------- ----------
Approximate use of application proceeds Approx. % of net Approx. % of net
$ amount proceeds $ amount proceeds
- ---------------------------------------- ----------- ---------- ---------- ----------
Purchase of movie options 100,000 3.3% 50,000 5.6%
Production of Asphalt Beach 1,500,000 49.6% 500,000 55.6%
Development of current scripts 500,000 16.5% 200,000 22.2%
Working Capital and general corporate 925,000 30.6% 150,000 16.6%
purpose ---------- ----- ------- -----
Total 3,025,000 100.0% 900,000 100.0%
- ---------------------------------------- ----------- ---------- ---------- ----------
Offering proceeds of $3,025,000 will allow FNE to participate in the Asphalt
Beach production at a diluted position of 60%, while still allowing FNE to
acquire and develop up to five additional screenplays.
Offering proceeds of $900,000 will allow for FNE to participate in a minimal
equity position within Asphalt Beach, while having resources to acquire one to
two screenplays with $100,000 being allocated to the development of each.
Working capital requirements would only allow for one employee to manage the
investment in Asphalt Beach and develop properties until revenues are realized
from the Asphalt Beach investment.
In each scenario our primary priority is Asphalt Beach, followed by the
optioning of screenplays. Optioning of screenplays is crucial to have products
in development that will later provide revenue.
We have estimated the budget required for both the optioning of screenplays and
development of properties on standard market rates.
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DETERMINATION OF OFFERING PRICE
The initial public offering price of the shares of our common stock has been
determined arbitrarily by us and does not necessarily bear any relationship to
our book value, assets, past operating results, financial condition or any other
established criteria of value. Although our common stock is not listed on a
public exchange, we will be filing to obtain a quotation on the OTC Bulletin
Board concurrently with the filing of this prospectus. However, there is no
assurance that our common stock, once it becomes publicly quoted or listed, will
trade at market prices in excess of the initial public offering price as prices
for the common stock in any public market, which may develop, will be determined
by the market and may be influenced by many factors, including the depth and
liquidity of the market for the common stock, investor perception of us, and
general economic and market conditions.
The book value of our common shares, pre and post offering is detailed below:
June 30, Sept 30, Post Offer Post Offer
2004 (1) 2004 (2) Proceeds $2.5m (3) Proceeds $5m (4)
Net assets 367,468 341,145 2,711,145 5,211,145
Shares on issue 6,265,000 6,345,000 6,845,000 7,345,000
Net assets per share $0.059 $0.054 $0.396 $0.709
1. Reflects the Company's position at June 30, 2004, after the merge with
Friday Night Entertainment Pty Ltd whereby the Company issued 4,500,000
common shares on June 10, 2004 for an effective consideration of $0.08 per
share, and the issue of 230,000 common shares for cash of $0.50 per share
between June 20, and June 29, 2004.
2. Reflects the Company's position at September 30, 2004, after the issue of
80,000 common shares at an issue price of $0.50 per share.
3. Reflects the Company's position, based on September 30, 2004, interim
financial statements, after allowing for a minimum subscription of this
offering of 500,000 common shares at a price of $5.00 per share, and after
deducting offering costs of $130,000.
4. Reflects the Company's position, based on September 30, 2004, interim
financial statements, after allowing for a maximum subscription of this
offering of 1,000,000 common shares at a price of $5.00 per share, and
after deducting offering costs of $130,000.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is not currently traded on any recognized stock exchange. There
is no current public trading market for our shares of common stock. After this
Registration Statement becomes effective, we intend to apply for a quotation on
the OTC Bulletin Board. While we intend to take needed action to obtain a
quotation of our common shares on the NASD OTCBB, there is no assurance that we
will obtain such quotation even though there are no quantitative or qualitative
requirements. As of December 21, 2004, based on our transfer agent records, we
had shareholders holding 6,395,000 shares of our common stock.
13
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 21, 2004, with
with respect to compensation plans under which our equity securities are
authorized for issuance:
(a) (b) (c)
-------------------- -------------------- -------------------
Number of securities
remaining available
Number of securities for future issuance
to be issued upon Weighted-average under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
-------------------- -------------------- -------------------
Equity compensation
plans approved by
security holders None
Equity compensation
plans not approved
by security holders None
Total None
DIVIDENDS
We have never paid a cash dividend on our common stock. It is our present policy
to retain earnings, if any, to finance the development and growth of our
business. Accordingly, we do not anticipate that cash dividends will be paid
until our earnings and financial condition justify such dividends. There can be
no assurance that we can achieve such earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
Friday Night Entertainment Corporation (formerly Lunettes, Et Al, Inc.) was
incorporated in July 2001 and remained dormant until the acquisition in June
2004 of Friday Night Entertainment Pty Ltd., an Australian corporation involved
in the development and production of movies.
Operations
In May 2004, Friday Night Entertainment Pty Ltd.(the Australian subsidiary)
acquired the rights (100% ownership) to four movie scripts from Clam
Entertainment Pty Ltd, a corporation controlled by our director, Cameron Lamb,
in exchange for 100% of the share capital of Friday Night Entertainment Pty
Ltd.(Australian Corporation). Clam Entertainment Pty Ltd acquired all rights and
title to the four movie scripts from Banksia Entertainment Pty Ltd., an
Australian corporation controlled by Cameron Lamb's family by way of gift. Clam
Entertainment then contributed the scripts to Friday Night Entertainment Pty
Ltd. for stock. Friday Night Entertainment Pty Ltd. exchanged its stock for
shares in Friday Night Entertainment Corporation. For the purpose of this
transaction the film scripts were valued at $347,600, being the original cost of
the scripts to Banksia. The scripts were written and developed by Banksia
between January 1997 and December 1999.
The costs of development of the four film scripts specifically include
historical labor costs, related payroll taxes, and statutory benefits of a staff
of five individuals including an executive producer, creative/program director,
producer/researcher, and two staff writers. Each film script required
approximately the same amount of time for creation by the staff. The activities
undertaken by the staff for the creation of each of the four film scripts
included initial creation of storyline, storyline and character discussions,
story events and character analysis discussions, re-writes of storyline and
character debate, editing of storyline with detailed notation, research, and
final summarization.
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Additional disclosure on the valuation of the scripts is included in the
detailed notes to the financial statements. A brief summary of the four scripts
is as follows:
Shocked: A Black Comedy
Two computer geeks from polar opposite backgrounds (she's mega rich and
chronically ill; he's mega broke and ignored) fall in love. She discovers
jealousy, he discovers confidence and then she dies, leaving all her wealth to
him... and a little extra! Her "life force" is trapped in the computer and has
no trouble tracking him through the city's power lines and reeking havoc where
ever he goes. A love story, with a techno-twist, that explores the power and
perversities of human interaction.
Deadly Connections: Suspense Thriller
What happens when a woman whose career in the force has revolved around solving
other people's crisis, is suddenly faced with a nightmare she could never have
imagined. She is the lead Negotiator, has talked down hundreds of captive
situations and contributed to their lengthy imprisonment... but is proud of the
fact she has never had to draw her gun! All this changes when her teenage
daughter is kidnapped and she gets a taste of what being the victim is really
like. Her whole reality is distorted... she can't negotiate... she's too close
to the situation... but for the first time she knows she could kill.
Backpackers: Mystery Thriller
A Los Angeles lawyer's daughter has disappeared. The unbelievably endless
expanse of nothing, known as the Australian Outback, is the suspected crime
scene. A relentless psycho who targets Backpackers is the bad guy. A local
detective teams up with a private investigator from the US and the hunt is on.
Will they find her in time?
Last Chance Cafe: Suspense Thriller
The Last Chance Cafe is the last chance for everything before you hit the
endless and barren miles of the desert. There's a tight community that live
around the cafe and they are naturally suspicious of Nadine, the new girl in
town... and they should be. Nadine sees this as her "Last Chance" and hopes that
death doesn't follow her to this desolate spot.
In June 2004, Friday Night Entertainment Corporation acquired all of the share
capital of Friday Night Entertainment Pty Ltd. in exchange for 4,500,000 common
shares and 1,000,000 preferred Series "A" shares of the Company. This resulted
in the shareholders of Friday Night Entertainment Pty Ltd. Acquiring 75% of the
issued and outstanding common share capital and 100% of the preferred series "A"
capital of the Company.
Auditors' Substantial Doubt
The company's auditors have issued a going concern opinion based upon their
auditing procedures. The company's auditors have indicated that the company has
sustained an operating loss since inception. In addition, the auditors note that
the working capital of the company is not sufficient to meet its planned
business objectives and that the company's continuation as a going concern is
uncertain and dependant on successfully bringing its scripts to market,
achieving future profitable operations and obtaining additional sources of
financing to sustain its operations, the outcome of which cannot be predicted at
this time. The auditors indicate that in the event the company cannot obtain the
necessary funds, it will be necessary to delay, curtail or cancel the further
development of its products and services. They note that although the business
plan indicates profitable operation in the coming year, these profits are
contingent upon completing the production of movie scripts and developing a
writer's fund in order to provide the company with a cashflow to sustain
operations. Management of the Company concludes that in the event the Company
cannot obtain the necessary funds, it will be necessary to delay, curtail or
cancel the further development of the company's operations.
15
Financial Results
In May 2004, Friday Night Entertainment Pty Ltd. acquired the rights to four
movie scripts from Cameron Lamb in a transaction valued at $347,600. The
Company's objective is to further develop and produce these scripts over the
next twelve months. Since incorporation in May 2004 through June 30, 2004, the
Company had no income. During this period, the company incurred expenditures of
$104,064. The expenditures were incurred in start-up costs associated with
commencing operations. In this regard, the Company incurred $9,887 in legal and
accounting expenses, $20,000 under the consulting agreement with Mr. Costigan,
$21,899 in salaries and wages, $24,905 in relocation costs associated with
moving the operations to the U.S., and $27, 373 in general administration costs.
Between July 1, 2004, to September 30, 2004, the company has had no income.
During this period the company incurred expenses of $66,323. The expenditures
were incurred in start-up costs associated with commencing operations. In this
regard, the Company incurred $59,868 under the consulting agreement with Mr.
Costigan and $6,455 in general administration costs. Costs associated with this
offering of $23,800 have been incurred and treated as deferred costs to be
offset against the offering proceeds when received.
As detailed under "Use of Proceeds" we have included a schedule which provides a
scale of potential operations under varying levels of offering proceeds being
received. Our operations are scalable to the extent we finance the entire
production internally, introduce third party financiers to participate at
varying levels or simply undertake development of the property for sale to a
studio. Our overhead cost and personnel structure is very lean with the result
that revenues will not fund unproductive salaries.
Based on our anticipated production schedule of four feature films per year, we
envision the need to raise additional capital during the calendar year 2005 to
fund later productions. The amount and timing of the second offering will depend
on the success of this initial offering, and the scale of activity subsequently
undertaken. Our current plans assume that FNE will finance all independent
movies internally.
Our revenue model and forward projections further detail that the Company will
be able to derive sufficient revenues and generate sufficient cash flows to
continue as a going concern. We note that our forward projections are based on
certain assumptions and beliefs currently held by management. If, however,
conditions change or should any one or more of the identified risks or
uncertainties materialize or should any underlying assumptions prove incorrect,
actual results may vary materially from those described as anticipated or
planned.
FNE has made significant inroads in providing the infrastructure necessary to
commence production of its movies. It is also well placed to begin soliciting
promising new scripts. As a result of Mr. Costigan's background of supervising
over 20 feature films while at Columbia Pictures, FNE is well positioned to draw
on the required infrastructure such as producers, crews and studio facilities.
Our relationship is such that we can access the required infrastructure at
privileged, or at worst, competitive market rates.
Currently we have concluded a production budget for Asphalt Beach and have
specific actors attached to the feature film. We are positioning the property
ready for production. As detailed previously we have access to the following
scripts in addition to the four we already own: A Normal Life, (Saint) Peter,
and The Good Life.
NOTE PLANS FOR THE NEXT TWELVE MONTHS
1. Immediate Priorities:
Financing:
We acquired our principal assets, being intangible movie scripts in exchange for
share capital of the corporation. Additional working capital requirements were
funded through the sale of common shares pursuant to exemptions from the
registration requirements under the Securities Act of 1933, as amended.
We will initially require $5,500,000 in order to meet our movie production
targets. This funding is expected to be achieved through a combination of
private placements and the sale of common stock through a public offering.
$500,000 has already been raised through private placement, $5,000,000 is now
being offered.
Office Setup:
FNE will sign lease agreement at the Jim Henson Company:
1416 North La Brea Avenue
Hollywood, CA 90028
United States of America
16
FNE will rollout office structure, inclusive all operational, administrative and
financial systems. We anticipate office costs will be in the range of $15,000 to
$40,000 depending on the scale of operation ultimately undertaken.
Production:
Asphalt Beach is scheduled to begin production as soon as practical following
funds becoming available. Asphalt Beach has currently reached the final stage of
development, has cast attached and budgets finalized for specific locations.
Asphalt Beach has a production budget of $2,500,000. Production on Asphalt Beach
cannot commence until additional funding becomes available.
Secure relationships with Writers:
FNE shall create a Writers Fund over the first 18 months of operation. During
this period we aim to contract five writers who will each generate two original
screenplays each year. Each script will be under option to FNE for a period of
18 months, with low renewal costs. FNE will maintain the rights to each script
as Executive Producers in perpetuity. We have allocated a budget in year 1 of
$125,000 to the writer's fund.
Distribution/Marketing:
FNE will look to the traditional film markets and festivals as the main platform
to present our product to distributors. FNE will need to retain a foreign sales
representative to sell our products at the major markets to maximize
distribution throughout international territories. FNE will also work in
collaboration with an industry publicist to further build the profile of our
films during the sales period. Sales representation costs will form part of the
production budget for each film.
2. Lower Priorities:
Titles and branded entertainment:
FNE will actively seek to acquire established international titles (television,
family properties, comic book, literary, sequel opportunities and music) and
properties to develop for motion pictures, which will also have merchandising
appeal. Seeking to acquire titles and branded entertainment will be an ongoing
exercise that will be conducted in conjunction with the output from our writer's
fund. We have commenced confidential discussions in relation to the optioning of
titles, further negotiations have been deferred until further funding becomes
available.
Libraries:
FNE's objective is to create a new and original media library organically
through production of feature films and secondly through the acquisition of
existing libraries. To date FNE has not had any discussions with any parties
regarding the acquisition of libraries.
BUSINESS - OUR COMPANY
Background
We were incorporated in Nevada on July 31, 2001, under the name Lunettes, Et.
Al., Inc. We have remained inactive since incorporation. On June 10, 2004, we
acquired all of the issued and outstanding shares of Friday Night Entertainment
Pty. Ltd., an Australian company involved in producing feature films and
television programming in Australia. It became our wholly owned subsidiary. In
exchange, we issued an aggregate of 4,500,000 of our common shares and 1,000,000
of our Series "A" Preferred Shares to the shareholders of Friday Night
Entertainment Pty. Ltd.
On June 11, 2004, we changed our name from Lunettes, Et. Al., Inc. to Friday
Night Entertainment Corporation and increased our authorized share capital to
50,000,000 common shares and 5,000,000 preferred shares, both par value $.001.
Industry Overview
The Motion Picture industry is a $9.5 billion industry, primarily made up of
large Studios who act as distributors and many smaller Production Houses, who
facilitate the development and production of content. Together the industry
released 473 feature films in 2003.
Historically the major Hollywood studios have comprised of Warner Brothers,
Universal Pictures, 20th Century Fox, MGM, Paramount Pictures, Walt Disney and
Sony Pictures Entertainment.
Over recent years the industry has seen a shift towards greater acceptance and
expanding interest in small, independent art house films, which have generated
incredible competition between specialized distributors in several major
territories. This shift has occurred at the same time that all but one of the
major Hollywood studios were acquired by global, vertically integrated
corporations. These organizations are constantly looking for product and films
for their distribution pipelines. They are looking to source this content in a
way that involves the studios incurring less debt and a reduced exposure to
development risk. This trend has opened the way for professional independent
production companies such as FNE.
17
The four primary distribution markets of feature-length dramatically films, for
both domestic and international territories are: Theatrical, Home Video,
Pay/Cable Television and Free-to-air Television
Theatrical exhibition is the traditional market for motion pictures, however
only comprises of 17.8% of the total gross revenues of a feature films
seven-year life cycle.
The home video market, inclusive of the DVD market, comprises a total 46.7% of
revenue. This market is expected to grow due to the uptake of DVD's continuing
to grow with consumers. Typically distribution to this market is within four to
six months after the initial theatrical release.
Both Pay and Cable television rights are generally licensed for broadcast six to
nine months after initial domestic theatrical release. This is followed by the
subsequent release of to free-to-air television networks 12 - 15 months after
initial theatrical release.
Management team
FNE is lead by a committed team, who currently hold 65.7% of the equity and
three board positions. Cameron Lamb, Michael Costigan and Mark Pearson represent
significant complementary skills and business experience. The Management team is
highly motivated, experienced and well qualified. FNE's founders have a combined
total of 35 years of direct experience in media, production, general management,
finance and operations.
Business objective
FNE's objective is to create a new and original media library with "A list"
talent in a more cost effective structure than under the traditional Hollywood
studio paradigm. It is this media library that will provide FNE with a
consistent revenue stream in perpetuity. FNE will be able to capitalize on the
availability of quality material and talent at the initial stage, incurring low
start up costs in exchange for significantly higher returns on productions which
it will sell back to studios, third party financiers, and distributors. Our
library will be created from two platforms: (1) a literary library of
screenplays that have been internally generated from our "Writers Fund" and (2)
actual feature films that we have produced. FNE plans to further expand our
library through the acquisition of existing libraries that have a strategic fit.
Business overview
We will identify and acquire projects for development and production of motion
pictures. We will exploit original materials, screenplays, novels, manuscripts,
ideas, remakes, and branded properties. By exploiting contacts in the
entertainment industry, we will package projects and screenplays with quality
directors and star talent. We will be drawing on the industry relationships of
our principals on a day-to-day basis. Mr. Costigan has developed relationships
through his production experience on both the studio and independent production
sides of the motion picture industry. Cameron Lamb has relationships through his
experience in the media sector and television production arena. Mark Pearson
will assist us in structuring any financing required by us and in managing the
day-to-day financial aspects of our various production projects.
Production Criteria
FNE will operate within the following key areas of production.
o Writer's Fund (Original Material): FNE shall create a Writers Fund. Five
writers each year will be contracted to generate two original screenplays
during their term. Each script will be under option to FNE for a period of
18 months, with the option to renew. FNE will maintain the rights to each
script as Executive Producers in perpetuity.
o Development Fund : A development fund will be established to option and
develop properties primarily into screenplays. FNE will also option
screenplays or other source material for packaging with directors and/or
star casting. This fund will allow FNE to maximize the value of a property
and take it to the stage where the most advantageous deal can be
negotiated.
o Independent Movies: FNE will attempt to wholly finance movies with a budget
up to $2m. These movies will exploit emerging talent for projects with
niche market appeal. FNE's production of independent movies will allow it
to retain all ancillary rights (e.g. DVD, music soundtracks, foreign sales
and merchandising)
o Low Budget Features: FNE will produce movies with budgets up to $6m. These
movies will be packaged with star directors and talent. Financing will
either be:
a) Solely FNE
b) In partnership with third party financiers/investors and foreign pre
sales.
c) A combination of the above.
18
o Studio Pictures: FNE will have two formulas for studio pictures with
budgets greater than $6m:
a) FNE will finance development through the script stage and then lay off
all further costs to the studio or third party financier (we will
designate a fund for such development). The third party financier will
assume all production costs as well as all further print and
advertising costs, including marketing and promotion.
b) For larger budget studio pictures, or where rights and/or scripts
exceed $500,000, FNE will sell properties to studios without incurring
development costs. In such cases, we will function solely as a
producer, participating in production and ancillary fees, however with
different back end definitions.
o Titles and Branded Entertainment: FNE will actively seek to acquire
established international titles (television remakes, family properties,
comic book, literary, sequel opportunities and music) and properties to
develop for motion picture release. Titles will further be selected for
their merchandising appeal consistent with FNE's strategy of securing
annuity type income streams. We will not be in a position to commence this
activity until funds from the offering become available.
Production cycle
Typically the production cycle can be broken down into four major phases:
1. Development - Optioning material, rewrites, attaching directors and lead
cast. There is no typical time frame associated with this step.
2. Preproduction - This phase includes budgets, casting, storyboards, wardrobe
and permits. A four to six week time frame typically applies.
3. Production - This phase is the actual filming of the feature. A six to
eight week time frame typically applies.
4. Postproduction - Editing and attaching musical scores. This final phase
generally takes four to six weeks.
Costs are incurred at all stages of the production process. Under GAAP all costs
directly associated with the production are treated as deferred costs. These
deferred production costs are expensed against revenue streams at the time
revenues are earned.
Our intention is to fund the production of feature films internally. If,
however, we receive less than the maximum under the offering, we would need to
consider third party financing. Under this scenario we would need to complete
development of the property before we could approach such financiers. We
anticipate costs of approximately $100,000 per property would need to be
incurred to reach this stage.
Sales and Distribution
FNE will look to the traditional film markets and festivals as the main platform
to present our product to distributors. We will be working to a production
schedule focused on participation in the most appropriate venue for selling each
individual feature film. Further, by consistently scheduling our production
output around specific market dates, we will be able to increase control over
our cash flow. FNE will retain a foreign sales representative to sell our
products at the major markets and maximize distribution throughout international
territories. FNE will also work in collaboration with an industry publicist to
further build the profile of our films during the sales period. Sales
representation costs will form part of the production budget for each film.
Festivals will be the marketplace for both foreign and domestic sales. These
festivals and markets include: Sundance Film Festival, The Berlin International
Film Festival, Festival'de Cannes General Delegate, Toronto International Film
Festival Group (TIFFG) and the American Film Market (AFM).
Revenue cycle
We aim to market our films at the major film festivals as noted above. The
majority of revenues will be realized at the time a distributor is signed.
Depending on our participation in the film we will be able to negotiate a share
of ancillary rights that allow for ongoing participation in all future revenue
generated by the film. Future revenues will include DVD/Video, cable and TV
programming. The level of financial participation will affect our ability to
negotiate. The greater the participation, the greater will be our participation
in these revenue streams.
19
Based on our anticipated production cycle and the scheduled timing of the film
festivals, the time period between commencing production of the film and
realizing revenues could be as long as seven months. The company will be
required to fund cash flow for this period.
Overhead structure
Our overheads structure can be broken down into three major categories:
Corporate expenses, Writers and Development costs, and Employee costs.
Corporate expenses
This category includes allowances for compliance costs (including accountancy,
legal, audit and stock exchange fees) and typical day to day running expenses
(including travel, utilities, insurances and office rental). Overhead costs will
be expensed as incurred.
Costs associated with our writer's fund
During our first 18 months we will be contracting 5 writers annually to produce
2 original screenplays per year. For the purpose of our revenue model all
expenses associated with the writers fund have been expensed as incurred. None
of these expenses have been capitalized or deferred as allowed under GAAP for
material that will be developed further. This conservative treatment of these
costs has been adopted to reflect the uncertainty regarding the marketability of
the material developed.
The level of overheads ultimately incurred by the company is dependant on the
scale of operations subsequently undertaken. As stated elsewhere in this
document the level of offering proceeds will determine the scale of operations.
Employees
As of December 21, 2004, we have 3 employees, Cameron Lamb (Director), Mark
Pearson (Director) and Nicholas Banks (Production Assistant). We have never had
a work stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good. We expect
to retain personnel in the following roles, once pre-production of our first
project has begun: Michael Costigan - Director and President and a Senior
Production Assistant. We will retain such other personnel as may be required
from time to time for each production project and to match the operational
requirements of the business.
DESCRIPTION OF PROPERTY
We do not currently own or lease any property. We currently use office space
located at The Jim Henson Company, 1416 La Brea, Los Angeles CA 90028. These
facilities are currently leased by our Officer and Director, Mr. Michael
Costigan's company Corduroy Films. We do not pay Corduroy Films any rent for
these facilities. We intend to transfer the rights and obligations under the
lease on these offices from the name of Corduroy Films to Friday Night
Entertainment Corporation as soon as practical following the raising of
sufficient funds. Due to the nature of the current arrangement with the Jim
Henson Company, we do not anticipate any costs will be incurred in the transfer
process.
Annual rental on office space will be $45,000; a security deposit of $7,500 by
way of cash or guarantee will be required. The current lease is under a month to
month arrangement. During our initial twelve months of operation, FNE will only
enter into short term lease periods not exceeding six months.
LEGAL PROCEEDINGS
Neither our parent company, our subsidiary, nor any of their properties, is a
party to any pending legal proceeding. We are not aware of any contemplated
proceeding by a governmental authority. Also, we do not believe that any
director, officer, affiliate, any owner of record or beneficially of more than
five percent of the outstanding common stock, or security holder, is a party to
any proceeding in which he or she is a party adverse to us, or has a material
interest adverse to us.
20
MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our executive officers and
directors
Name Age Position
- ---- --- --------
Cameron Lamb 26 Chief Executive Officer and Chairman of the Board
of Directors
Michael Costigan 36 President and Director
Mark Pearson 37 Chief Accounting Officer, Director and Secretary
Cameron has a vast array of experience in the media industry from operations to
management. Cameron began work with the Nine Network of Australia (specifically
Channel Nine South Australia) on a part time basis from the age of 15, for a
period of 3 years working 18 hours per week between 1993 to 1995, followed by a
full time position during 1996. During this time he made the transition from
sound technician to field camera operator within the news room, gaining
significant experience in all aspects of the industry including production.
Cameron went on to successfully meet the requirements of a Business
Communication degree majoring in Marketing and Advertising, during which time he
further honed his skills serving as head studio camera operator for one year.
This was followed by the role of floor manager of the studio for the live daily
5:30pm news service for Channel Nine Queensland's Gold Coast on a part time,
five day a week basis.
During 1999, Cameron held a management position at Audience Development
Australia Pty Ltd., a television research company, that functioned within a
monopolistic environment. Audience Development Australia conducts specific
quantitative and qualitative research for high-end television programming. While
there, Cameron facilitated the reporting of research to clients. Specifically,
he evaluated concepts at the development stage through the assistance of
audience research. This time, aiding in the development of his intuitive insight
into the audience, in conjunction with program tastes and commerciality.
Cameron's next position was for four years with Banksia Entertainment Pty Ltd,
an entertainment company. During his employment from 2000 through 2002, Cameron
was the lead in a start-up Above-the-Line advertising agency by the name of Oil
Pty Ltd, whose largest clients were in the media arena (specifically Publishing
& Broadcasting Ltd). Oil had 12 employees during Cameron's time at the company
with revenues of $1.4M. He also played a key role in Banksia Productions Pty
Ltd. Banksia Productions is a leading producer of children's Television in
Australia who distribute their product to the international market. Through the
course of 2002 and 2003 , he played an integral role in setting up an Australian
alliance between an international group, Media Review International Pty Ltd. MRI
watermarks and reports everything that airs on broadcast television within
Australia. MRI is internationally partnered with Teletrax Limited based in the
United Kingdom, whose parent company is Media Link Inc which is a NASDAQ listed
company. MRI is also partnered with the Dutch based Philips Electronics who have
supplied the technology. The businesses clients include media buyers, music
publishers, government statutory bodies, feature film producers, and television
producers. During this period Cameron was also involved in business development
for Banksia Entertainment, specifically focusing on activities in television and
radio broadcasting, along with services to the media and entertainment industry.
Cameron has demonstrated experience in the management of Media and Production
businesses. Such experience will prove to be essential given the start-up nature
of FNE. His experience will also be valuable to the ongoing management of
development and production efforts and day-to-day negotiations with the major
motion picture distributors.
Michael Costigan is our President and Director. He is a graduate of Brown
University, and was cited by Hollywood Reporter's "Next Generation" issue.
Michael is presently in post production on the feature film Brokeback Mountain,
which stars Heath Ledger (A Knight's Tale, Monsters Ball), Jake Gyllenhaal (Day
After Tomorrow), and is being directed by Ang Lee (Crouching Tiger, Hidden
Dragon, Sense and Sensibility, The Ice Storm). It is a love story based on Annie
Proulx's (The Shipping News) short story. The screenplay is by Larry McMurtry &
Diana Ossana, who wrote classic, best-selling novels and films including Hud,
Last Picture Show, Lonesome Dove, and Terms of Endearment. Mr. Costigan renders
contractual non-exclusive duties during the post production of Brokeback
Mountain to Focus Features, primarily entailing viewing the screening of various
cuts of the film. The film will be completed by February 2005, relieving Mr.
Costigan from any further contractual agreements to the film and the studio
Focus Features. The film will be released by Focus Features, with an expected
Fall 2005 release.
21
Previously, Michael spent nine years at Columbia Pictures, four years of which
he was Executive Vice President of Production, and for three years was Vice
President, Production. During that time he acquired, developed, and supervised
all aspects of production for films including "Charlie's Angels", "Snatch", "The
People Versus Larry Flynt", "Cruel Intentions", "To Die For", "Gattaca", "Bottle
Rocket", "The Tailor of Panama", "The Craft", and "Stuart Little".
Michael also acquired the screenplay for "Fifty First Dates", which was released
in 2004 and starred Adam Sandler and Drew Barrymore. He also acquired and
developed "About Schmidt", which Alexander Payne wrote and directed, and starred
Jack Nicholson, which was released in 2002.
Mark Pearson is our Chief Accounting Officer, Director and Secretary. Mark is a
seasoned finance professional with over 17 years of financial, management and
operational experience.
Between 1989 to 1996 Mark worked with Ernst & Young in Sydney Australia. Mark
achieved the level of Senior Manager; his portfolio of clients provided him with
considerable exposure to audit, taxation, due diligence, and strategic business
planning issues.
Mark subsequently accepted a position as the General Manager of Finance for
Wideline Pty Limited, a medium sized manufacturing operation located near Sydney
- - Australia. Between 1996 and 2000, Mark gained considerable commercial
experience at an executive level. Mark's key responsibilities included cash flow
management, systems development and implementation and all statutory compliance
matters. Additionally, during this period Mark undertook extensive postgraduate
studies in the areas of management, finance, and law.
Between 2001 to 2004 (until October 22, 2004), Mark was employed by Cordukes
Limited, an ASX listed public company. Mark served as Chief Financial Officer
and Company Secretary and was responsible for all financial, administrative, and
compliance matters. His key responsibilities included liaison with the ASX and
investors, cash flow management, treasury operations, business
planning/forecasting, and the financial evaluation of business alternatives.
Mark's combination of commercial, operational, and academic qualifications will
enable him to provide Friday Night Entertainment with astute financial advice.
EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation, on an annualized basis for the 2004 and 2005 calendar years, for
our Chief Executive Officer and for each of our other executive officers (the
"Named Executive Officers") whose compensation on an annualized basis is
anticipated to exceed $100,000 during calendar year 2005.
SUMMARY COMPENSATION TABLE - 2004
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Name and Fiscal Annual Stock Underlaying Restricted Securities Compensation
position Year Salary Bonus Compensation Options/awards All other
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Cameron Lamb 2004 45,000 0 0 0 0 0
CEO/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Michael Costigan 2004 120,000 0 0 0 0 0
President/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Mark Pearson 2004 10,000 0 0 0 0 0
CFO/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
The salaries for fiscal 2004 will have been paid or accrued as at December 31,
2004. The amount for Mr. Costigan was paid under the consulting agreement
details of which are disclosed elsewhere in this document.
22
SUMMARY COMPENSATION TABLE - 2005
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Name and Fiscal Annual Stock Underlaying Restricted Securities Compensation
position Year Salary Bonus Compensation Options/awards All other
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Cameron Lamb 2005 350,000 0 0 0 0 0
CEO/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Michael Costigan 2005 600,000 0 0 0 0 0
President/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
Mark Pearson 2005 250,000 0 0 0 0 0
CFO/Director
- --------------------- ------- --------- ------- -------------- ---------------- ------------ --------------
The executive compensation shown for fiscal 2005 assumes that the maximum
proceeds under the offering are received and that the second raising is also
successful in facilitating a full production schedule. Should the level of
capital raised be less than the maximum, the resulting levels of executive
compensation will be reduced accordingly so as not to adversely impact on the
ongoing viability of the company.
Compensation of Directors
Our directors will not receive compensation for services provided as a member of
our Board of Directors or any committee thereof, but directors may be reimbursed
for certain expenses in connection with attendance at Board and committee
meetings.
Executive Compensation
We presently have not negotiated any employment agreements with our management
personnel to retain their services, but we will enter into service contracts
with our three officers as soon as funding is secured.
STOCK OPTIONS
To date, we have not granted any stock options to directors and officers. The
following table sets forth information with respect to stock options granted to
the Named Executive Officers during fiscal years 2003 and 2004:
OPTION GRANTS IN FISCAL 2003 AND 2004
(INDIVIDUAL GRANTS)(1)
NUMBER OF % OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL PRICE ATE
2003 AND 2004
-------------
None
23
PRINCIPAL STOCKHOLDERS
To the knowledge of our directors and executive officers, the following are the
only persons beneficially owning, directly or indirectly, or exercising control
or direction over more than 5% of voting rights attached to the shares of our
common stock both prior to the Offering and after giving effect to the Offering
and the exercise of the options being registered in this Registration Statement:
----------- Prior to the Offering ----------- ------------------ After the Offering ------------------
- --------------------- --------- ------------- ----------- ------------- --------------- --------------- ------------ ---------------
Holders Common % of Common Number of % of Common Shares % of Common Number of % of Preferred
Shares Shares (Non Preferred Preferred Shares (Non Preferred Shares (Non
Diluted/Fully Shares(3) Shares (Non Diluted/Fully Shares (3) Diluted/Fully
Diluted) Diluted/Fully Diluted) Diluted)
Diluted) (1) (1)
- --------------------- --------- ------------- ----------- ------------- --------------- --------------- ------------ ---------------
Cameron Lamb (2) 1,785,000 27.9% 425,000 42.5% 1,785,000 21.4% 425,000 42.5%
- --------------------- --------- ------------- ----------- ------------- --------------- --------------- ------------ ---------------
Michael Costigan (2) 1,785,000 27.9% 425,000 42.5% 1,785,000 21.4% 425,000 42.5%
- --------------------- --------- ------------- ----------- ------------- --------------- --------------- ------------ ---------------
Mark Pearson (2) 630,000 9.85% 150,000 15.0% 630,000 7.5% 150,000 15.0%
- --------------------- --------- ------------- ----------- ------------- --------------- --------------- ------------ ---------------
1. Assuming the Maximum Offering is fully subscribed for and all of the
outstanding Options are exercised.
2. Includes common shares held indirectly by the directors as follows:
Cameron Lamb's shares are held by Charlotte and Jackson, Inc.; Michael
Costigan's shares are held by Corduroy Films Inc.; and Mark Pearson's
shares are held by MJP Holdings, Inc. .
3. Each preferred share carries 50 votes per share in annual and special
meetings.
On a non-diluted/fully diluted basis. "Fully diluted" means that all outstanding
options and other convertible securities have been exercised. Messrs. Lamb,
Costigan and Pearson also hold 1,000,000 Series "A" preferred shares as follows:
425,000,425,000 and 150,000, respectively, which are not included for
calculation purposes since there are no exercise rights for such shares. Each
Series A preferred share carries 50 votes in general and special meetings.
DILUTION
After giving effect to the sale of 1,000,000 shares of our common stock (less
estimated expenses of this offering), our pro forma net tangible book value
attributable to the holders of the shares of our common stock at September 30,
2004 was $0.71 per share, representing an immediate increase in net tangible
book value of approximately $0.65 per share to the existing stockholders and an
immediate dilution of $4.29 per share to the new investors.
Furthermore, after giving effect to the sale of 1,000,000 shares of our common
stock to the new investors in this offering, such investors will hold 13.6 % of
our outstanding shares of common stock and will have contributed 93% of the
consideration.
24
A table detailing the dilutionary effect of principal stock holders has been
provided under "Principal Stockholders".
Fully Diluted Share Capital
The following table sets forth our issued and outstanding share capital, on both
a non-diluted and a fully-diluted basis under various scenarios after the
Offering.
Amount raised under offering $900,000 $2,000,000
------------------------------------ ------------------------------------
Post Offering Post Offering
Common warrants/ % voting Common warrants/ % voting
Shares options stock Shares options stock
---------- ---------- ---------- ---------- ---------- ----------
Current shareholders 6,395,000 950,000 97% 6,395,000 950,000 94%
Purchase under the offering 180,000 -- 3% 400,000 -- 6%
---------- ---------- ---------- ----------
6,575,000 950,000 6,795,000 950,000
Fully diluted 7,525,000 100% 7,745,000 100%
Net book value/common share $ 0.169 $ 0.325
Price per common share $5.00 $5.00
Dilution for new shareholders $4.83 $4.67
Amount raised under offering $3,000,000 $5,000,000
------------------------------------ ------------------------------------
Post Offering Post Offering
Common warrants/ % voting Common warrants/ % voting
Shares options stock Shares options stock
---------- ---------- ---------- ---------- ---------- ----------
Current shareholders 6,395,000 950,000 91% 6,395,000 950,000 86%
Purchase under the offering 600,000 -- 9% 1,000,000 -- 14%
---------- ---------- ---------- ----------
6,995,000 950,000 7,395,000 950,000
Fully diluted 7,945,000 100% 8,345,000 100%
Net book value/common share $ 0.459 $ 0.705
Price per common share $5.00 $5.00
Dilution for new shareholders $4.54 $4.29
25
SELLING STOCKHOLDERS
Of the 2,000,000 of our common shares to be covered by this prospectus, a
maximum of 1,000,000 shares are being offered by us and the remaining 1,000,000
are being offered by our option security holders (950,000) and a shareholder
(50,000). The 950,000 shares are issuable upon exercise of options held by
Waldwick Investments Limited (450,000 options) and Barr Eden Family Trust
(500,000 options). The 50,000 shares are held by Andrew Banks & Associates Pty.
Ltd. None of the selling stockholders are broker-dealers or affiliates of broker
- -dealers.
The following table sets forth the name of each selling security holder, the
number of shares of common stock beneficially owned by the selling security
holders as of December 21, 2004, and the number of shares being offered by each
selling security holder.
Shares of Common Percent of Common Shares of Common Number of Shares Percent
Name of Selling Stock Owned Prior Shares Owned Prior Stock to be sold in owned after of shares owned
Stockholder to the offering to the offering the offering (2) the offering () after offering
- ------------------------------- --------------- --------------- ------------------- -------------- --------------
Barr Eden Family Trust(4) 475,000 (2) 7.4% 500,000 (2) 475,000 5.7%
- ------------------------------- --------------- --------------- ------------------- -------------- --------------
Waldwick Investments Ltd.(5)(7) 475,000 (3) 7.4% 450,000 (3) 475,000 5.7%
- ------------------------------- --------------- --------------- ------------------- -------------- --------------
Andrew Banks & Assoc.Pty.Ltd.(6) 50,000 0.8% 50,000 0 0.0%
- ------------------------------- --------------- --------------- ------------------- -------------- --------------
26
1. Assumes all of the shares of common stock offered in this prospectus
are sold and no other shares of common stock are sold during the
offering period. The percentage of shares is based on shares issued
and outstanding as of November 9, 2004.
2. Barr Eden Family Trust also owns 500,000 options which convert into
500,000 shares of our common stock. Such options are being registered
in this prospectus and are not included in the amount of shares owned
prior to the offering. Barr acquired the options from Fort Street
Equity, Inc. for $10,000 under a stock option purchase agreement.
3. Waldwick Investments Limited also owns 450,000 options which convert
into 450,000 shares of our common stock. Such options are being
registered in this prospectus and are not included in the amount of
shares owned prior to the offering.
4. Barr Eden Family Trust is controlled by Robert McLean.
5. Waldwick Investments Limited is controlled by Kevin Murray.
6. Andrew Banks Pty Ltd is controlled by Andrew Banks. Andrew Banks Pty
Ltd acquired its shares through the exercise of 50,000 options
purchased from Waldwick Investments, Limited. The options were
purchased for $125,000, and the options were converted into common
shares on payment of $25,000 to us.
7. Waldwick Investments Limited is the holder of a note payable by us in
the amount of $125,000. The note bears interest at 4% per annum and is
repayable by October 30, 2009.
Our non-affiliate selling shareholders will sell at a fixed price per share
until our shares are quoted on the OTC Bulletin Board (or any other specified
market). Thereafter, such selling shareholders shall sell at prevailing market
prices or privately negotiated prices.
27
SHARES ELIGIBLE FOR FUTURE SALE
As of December 21, 2004, there are no shares of Common Stock currently issued
and outstanding which are freely tradable without restrictions under the
Securities Act. In general, under Rule 144 as currently in effect, any of our
affiliates and any person (or persons whose sales are aggregated) who has
beneficially owned his or her restricted shares for at least one year, is
entitled to sell in the open market within any three-month period a number of
shares of common stock that does not exceed the greater of (i) 1% of our then
outstanding shares of common stock, or (ii) the average weekly trading volume in
our common stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain limitations on manner of sale, notice
requirements, and the availability of current public information about us. Our
non-affiliates who have held their restricted shares for two years are entitled
to all their shares under Rule 144 without regard to any of the above
limitations, provided they have not been affiliates for the three months
preceding such sale. Shares held by shareholders who were promoters or
affiliates of the blank check company even after a merger with us, may not be
sold in reliance on Rule 144. We are not quoted on the OTC Bulletin Board.
Following this offering, no predictions can be made of the effect, if any, of
future public sales of restricted securities or the availability of restricted
securities for sale in the public market. Moreover, we cannot predict the number
of shares of our common stock that may be sold in the future pursuant to Rule
144 because such sales will depend on, among other factors, the market price of
our common stock and the individual circumstances of the holders thereof. The
availability for sale of substantial amounts of our common stock under rule 144
could adversely affect prevailing market prices for our securities.
PLAN OF DISTRIBUTION
The offering of a maximum of 1,000,000 of our common shares is being made on a
self- underwritten basis by us through our officers and directors who will not
be paid any commission or other compensation and without the use of securities
brokers. There is no minimum amount that is required to be raised in this
offering prior to our use of the offering proceeds. Therefore, there will be no
escrow account established for this offering.
Investors in this offering must complete a subscription agreement that is
attached to this document as an exhibit. The subscription agreement must be
completed in its entirety and signed and delivered to us at our corporate
offices.
Currently, we have not established an underwriting arrangement for the sale of
these shares. Our officers and directors will be the only persons that will
conduct the direct public offering. They intend to offer and sell the shares in
the primary offering through their business and personal contacts. There is a
possibility that no proceeds will be raised or that if any proceeds are raised,
they may not be sufficient to cover the cost of the offering.
Our officers and directors are the only persons that plan to sell our shares of
common stock. None of them are registered broker-dealers. They intend to claim
reliance on Exchange Act Rule 3a4-1 which provides an exemption from the
broker-dealer registration requirements of the Exchange Act for persons
associated with an issuer. Specifically, each of them (i) at the time of sale,
will not be subject to a statutory disqualification as that term is defined in
section 3(a)39 of the Securities Act; (ii) will not be compensated in connection
with his participation in the offering by payment of commissions or other
remuneration; at the time of participation in the sale of shares, he will not be
an associated person of a broker or a dealer; (iv) pursuant to Rule
3a4-1(a)(4)(ii), each of them will meet all of the following requirements: at
the end of the offering, they will perform substantial duties for us, other than
in connection with transactions in securities; each of them was not a broker or
dealer, or an associated person of a broker or dealer within the last 12 months;
and each of them has not participated in, or does not intend to participate in,
selling an offering of securities for any issuer more than once every 12 months
other than in reliance on paragraph(a)(4)(i) or (iii) of Rule 3a4-1.
The selling security holder offering will run concurrently with the primary
offering. The selling security holders may sell some or all of their shares
immediately after they are registered. There is no restriction on the selling
security holders to address the negative effect on the price of your shares due
to the concurrent primary and secondary offering. In the event that the selling
28
security holders sell some or all of their shares, which could occur while we
are still selling shares directly to investors in this offering, trading prices
for the shares could fall below the offering price of the shares. In such event,
we may be unable to sell all of the shares to investors, which would negatively
impact the offering. As a result, our planned operations may suffer from
inadequate working capital.
The selling option holders shares may be sold or distributed from time to time
by the selling stockholders or by pledges, donees or transferees of, or
successors in interest to, the selling stockholders, directly to one or more
purchasers (including pledgees) or through brokers, dealers, or underwriters who
may act solely as agents or may acquire shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
distribution of the shares may be effected in one or more of the following
methods:
o ordinary brokers transactions, which may include long or short sales,
o transactions involving cross or block trades on any securities or market
where our common stock is trading,
o purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this prospectus, "at the
market" to or through market makers, or into an existing market for the
common stock,
o in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
o through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or
o any combination of the foregoing, or by any other legally available means.
In addition, the selling stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales, if short sales were permitted, of
shares in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the shares, which shares may be resold thereafter pursuant to
this prospectus. A "short sale" is defined as a sale of a security that the
seller does not own or has not contracted for at the time of sale, and that the
seller must borrow to make delivery.
Brokers, dealers, underwriters, or agents participating in the distribution of
the shares may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The selling stockholders and any broker-dealers acting
in connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act of 1933,
and any commissions received by them and any profit realized by them on the
resale of shares as principals may be deemed underwriting compensation under the
Securities Act of 1933. Neither the selling stockholders nor we can presently
estimate the amount of such compensation. We know of no existing arrangements
between the selling stockholders and any other stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the shares.
We will not receive any proceeds from the sale of the shares of the selling
security holders pursuant to this prospectus. We have agreed to bear the
expenses of the registration of the shares, including legal and accounting fees.
Such expenses are estimated to be approximately $130,000.
We have informed the selling stockholders that certain anti-manipulative rules
contained in Regulation M under the Securities Exchange Act of 1934 may apply to
their sales in the market and have furnished the selling stockholders with a
copy of such rules and have informed them of the need for delivery of copies of
this prospectus. The selling stockholders may also use Rule 144 under the
Securities Act of 1933 to sell the shares if they meet the criteria and conform
to the requirements of such rule.
29
Notwithstanding the above, our non-affiliate selling shareholders will sell at a
fixed price per share until our shares are quoted on the OTC Bulletin Board (or
any other specified market). Thereafter, such selling shareholders shall sell at
prevailing market prices or privately negotiated prices.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 11, 2004, we issued 4,500,000 shares of our common stock and issued
1,000,000 shares of our restricted Series "A" preferred shares, to Clam
Entertainment Pty Ltd., a corporation controlled by Cameron Lamb, our officer
and director, in consideration for all of the issued and outstanding stock of
Friday Night Entertainment Pty Ltd. The issuance was valued at $.06 per share or
$347,600 in the aggregate. Clam Entertainment Pty Ltd acquired all rights and
title to the four movie scripts from Banksia Entertainment Pty Ltd, an
Australian corporation controlled by Cameron Lamb's family for a consideration
equal to the scripts original cost of $347,600. The scripts were written and
developed by Banksia between January 1997 and December 1999. The costs incurred
by Banksia in developing the scripts included salaries, research expenses and
overhead recovery costs. Clam Entertainment Pty Ltd, which is a non trading
holding company. Clam Entertainment Pty Ltd then transferred to our directors
and officers, Messrs. Lamb, Costigan and Pearson, 1,785,000 ,1,785,000 and
630,000 common shares and 425,000, 425,000 and 150,000 preferred series "A"
shares, respectively.
Clam Entertainment Pty Ltd. is an Australian private company that is 100% owned
by the Cameron John Lamb Trust.
On June 1, 2004, we entered into a Consulting Agreement with Corduroy Films,
Inc., a company owned by Michael Costigan, our President and director. The
Consulting Agreement provides that Mr. Costigan will provide advisory and
consulting services to the Company for a term of six (6) months, in exchange for
compensation in the amount of $20,000 per month. The Consulting Agreement
expired on 30 November 2004. The company has not yet entered into an employment
agreement with Mr Costigan but intends to do so following funds becoming
available under this offering.
Waldwick Investments Limited, a company owned by Mr. Kevin Murray owned 7.4% of
our common stock prior to the acquisition of Friday Night Entertainment Pty.
Ltd. and also holds 450,000 options.
Between June 22, 2004, and July 31, 2004, we issued a total of 310,000 common
shares at a price of $0.50 per share to two corporations controlled by family
members of Cameron Lamb. Specifically, we issued 230,000 shares to Banksia
Entertainment Pty Ltd., a company controlled by John William Lamb, Cameron
Lamb's father. In addition, we issued 80,000 shares to Stuff & Bits `n Pieces
Pty Ltd., a company controlled by Stewart Lamb, Cameron Lamb's brother. We
believe that the shares where issued at a fair price as would have been made
with any interested unaffiliated parties.
The terms of all of the transactions entered into with the above related parties
are the same as we would have negotiated with an outside party in an arms length
transaction.
DESCRIPTION OF SECURITIES
The following is a description of the material terms our capital stock and
certain provisions of our certificate of incorporation and by-laws, copies of
which have been incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part. The following discussion is
qualified in its entirety by reference to such exhibits.
Common Stock
We are presently authorized to issue 50,000,000 shares of $.001 par value common
stock. At December 21, 2004, we had 6,395,000 shares of common stock
outstanding. The holders of our common stock are entitled to equal dividends and
distributions when, as, and if declared by the Board of Directors from funds
legally available therefore. No holder of any shares of common stock has a
preemptive right to subscribe for any of our securities, nor are any common
shares subject to redemption or convertible into other of our securities, except
for outstanding options described above. Upon liquidation, dissolution or
winding up, and after payment of creditors and preferred stockholders, if any,
the assets will be divided pro-rata on a share-for-share basis among the holders
of the shares of common stock. All shares of common stock now outstanding are
30
fully paid, validly issued and non- assessable. Each share of common stock is
entitled to one vote with respect to the election of any director or any other
matter upon which shareholders are required or permitted to vote. Holders of our
common stock do not have cumulative voting rights, so the holders of more than
50% of the combined shares voting for the election of directors may elect all of
the directors if they choose to do so, and, in that event, the holders of the
remaining shares will not be able to elect any members to the Board of
Directors.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of $.001 par value preferred
stock. At December 21, 2004, we have issued 1,000,000 series "A" preferred
shares as follows: Cameron Lamb - 425,000; Michael Costigan - 425,000 and Mark
Pearson - 150,000. Each of the preferred shares carry no dividend rights, no
liquidation rights, no pre-emptive rights, no exercise rights and no redemption
rights but carry 50 votes in general and special meetings. The remaining
4,000,000 preferred shares have not been issued. Under our Certificate of
Incorporation, the Board of Directors will have the power, without further
action by the holders of the common stock, to designate the relative rights and
preferences of the preferred stock, and to issue the preferred stock in one or
more series as designated by the Board of Directors. The designation of rights
and preferences could include preferences as to liquidation, redemption and
exercise rights, voting rights, dividends or other preferences, any of which may
be dilutive of the interest of the holders of the common stock or the preferred
stock of any other series. The issuance of preferred stock may have the effect
of delaying or preventing a change in control of our company without further
shareholder action and may adversely affect the rights and powers, including
voting rights, of the holders of common stock. In certain circumstances, the
issuance of preferred stock could depress the market price of the common stock.
Options
On May 24, 2004, we issued a total of 1,000,000 options. 500,000 options each to
Waldwick Investments, Limited and Fort Street Equity, Inc. for a total
consideration of $10,000 or $0.01 per option. The stock was issued to Waldwick
Investments, Limited and Fort Street Equity, Inc. prior to our transaction with
Friday Night Entertainment Pty Ltd. There is no relationship between those
entities and our officers and directors. Each option provides the option holder
the right to purchase one share of our common stock at the greater of : (1) a
40% discount from the average closing bid price of our common stock on a public
exchange during the 10 trading days immediately prior to the exercise of the
option or (2) $.50 per share. The options can be exercised at any time until
December 31, 2005. On October 30, 2004, Fort Street Equity Inc. sold all of its
options to Barr Eden Trust. On November 1, 2004, Waldwick Investments Limited
sold 50,000 options to Andrew Banks & Associates Pty. Ltd. Immediately after
such sale, Andrew Banks & Associates Pty. Ltd. exercised the 50,000 options at a
price of $0.50 and received 50,000 shares of our common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Previous Independent Auditors
We initially engaged SF Partnership, LLP ("SF Partnership") as our independent
auditors. The Registration Statement on Form SB-2 submitted to the SEC on August
17, 2004, contained audited financial statements for the fiscal periods ended
December 31, 2003, and 2002, and the report of SF Partnership as our independent
auditors dated July 15, 2004.
The report of SF Partnership on the financial statements for the periods ended
December 31, 2003, and 2002, contained a qualification related to our ability to
continue as a going concern.
For the fiscal periods ended December 31, 2003, and 2002, and any subsequent
interim periods preceding the dismissal of SF Partnership, there were no
disagreements with SF Partnership on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the satisfaction of SF Partnership,
would have caused them to make reference in their report on the financial
statement for such periods; and there were no reportable events.
31
Upon review of the initial Registration Statement on Form SB-2, the SEC
interpreted Article 2 to Regulation S-X to require that the audit report on the
financial statements of a domestic registrant be rendered ordinarily by an
auditor licensed in the United States. SF Partnership was not licensed in the
United States.
As such, in order to proceed with the finalization of the Registration Statement
on Form SB-2, effective October 25, 2004, we dismissed SF Partnership as our
independent auditors. The decision to change independent auditors was
recommended and approved by our board of directors.
We have provided SF Partnership with a copy of these disclosures. Attached as
Exhibit 16 to this Form SB-2 is a copy of SF Partnership's letter stating its
agreement with such statements.
Current Independent Auditors
We engaged Davis Accounting Group P.C. ("Davis Accounting") to act as our
independent auditors, effective October 25, 2004. During our two most recent
fiscal years and any subsequent interim period prior to engaging Davis
Accounting, we have not consulted Davis Accounting regarding either: (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and Davis Accounting did not provide either a written
report or oral advice to us that Davis Accounting concluded was an important
factor considered by us in reaching a decision as to the accounting, auditing or
financial reporting issues; or (ii) any matter that was either the subject of a
disagreement or a reportable event. Davis has not provided due diligence
services in connection with proposed and/or consummated investment transactions
by us.
For the period ended June 30, 2004, our present auditor, Davis Accounting Group
P.C. has issued a going concern opinion.
TRANSFER AGENT
The Transfer Agent and Registrar for our common stock is Brookhill Stock
Transfer, 1192 Draper Parkway, #511, Draper, UT 84020-9095. Its telephone number
is (801) 619-0889.
EXPERTS
The financial statements included in this prospectus have been audited by Davis
Accounting Group P.C., independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to our
recurring losses from operations which raise substantial doubt about our ability
to continue as a going concern), and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of our common shares offered will be passed upon for us by Anslow &
Jaclin, LLP, Manalapan, New Jersey 07726.
32
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (MAY 5, 2004)
THROUGH SEPTEMBER 30, 2004
Interim Financial Statements-
Balance Sheets as of September 30, 2004 (unaudited) and
June 30, 2004 (audited)................................................F-2
Statements of Operations and Comprehensive (Loss) For the
Three Months Ended September 30, 2004 (unaudited), and Cumulative
From Inception (May 5, 2004) Through September 30, 2004 (unaudited)....F-3
Statements of Cash Flows For the Three Months Ended
September 30, 2004 (unaudited) and Cumulative From Inception
(May 5, 2004) Through June 30, 2004 (unaudited)........................F-4
Notes to Interim Financial Statements (unaudited).........................F-5
F-1
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (NOTE 2)
September 30, June 30,
2004 2004
------------- -------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Prepaid expenses and other assets $ -- $ 19,868
------------- -------------
Total current assets -- 19,868
------------- -------------
Other Assets:
Entertainment products in development 347,600 347,600
Deferred offering costs 23,800 --
------------- -------------
Total other assets 371,400 347,600
------------- -------------
Total Assets $ 371,400 $ 367,468
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable - Related party $ 6,455 $ --
Accrued liabilities 23,800 --
------------- -------------
Total current liabilities 30,255 --
------------- -------------
Total liabilities 30,255 --
------------- -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, par value $.001 per share; 4,000,000 shares
undesignated; no shares issued or outstanding -- --
Series A Preferred Stock, par value $.001 per share;
designated 1,000,000 shares; issued and
outstanding 1,000,000 shares 1,000 1,000
Common Stock, par value $.001 per share;
authorized 50,000,000 shares; issued and
outstanding 6,345,000 shares as of September 30, 2004,
and 6,265,000 shares as of June 30, 2004 6,345 6,265
Additional paid-in capital 505,255 465,335
Accumulated other comprehensive (loss) (1,068) (1,068)
(Deficit) accumulated during the development stage (170,387) (104,064)
------------- -------------
Total stockholders' equity 341,145 367,468
------------- -------------
Total Liabilities and Stockholders' Equity $ 371,400 $ 367,468
============= =============
The accompanying notes to financial statements are
an integral part of these balance sheets.
F-2
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) (NOTE 2)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004,
AND CUMULATIVE FROM INCEPTION (MAY 5, 2004)
THROUGH SEPTEMBER 30, 2004
Three Months
Ended Cumulative
September 30, From
2004 Inception
------------- -------------
(Unaudited) (Unaudited)
Revenues: $ -- $ --
------------- -------------
Total revenues -- --
------------- -------------
Expenses:
General and administrative 66,323 170,387
------------- -------------
Total general and administrative expenses 66,323 170,387
------------- -------------
(Loss) from Operations (66,323) (170,387)
Other Income (Expense) -- --
Provision for income taxes -- --
------------- -------------
Net (Loss) (66,323) (170,387)
------------- -------------
Comprehensive (Loss):
Australian currency translation -- (1,068)
------------- -------------
Total Comprehensive (Loss) $ (66,323) $ (171,455)
============= =============
(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted $ (0.010) $ (0.033)
============= =============
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted 6,318,913 5,135,201
============= =============
The accompanying notes to financial statements are
an integral part of these statements.
F-3
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004,
AND CUMULATIVE FROM INCEPTION (MAY 5, 2004)
THROUGH SEPTEMBER 30, 2004
Three Months
Ended Cumulative
September 30, From
2004 Inception
------------- -------------
(Unaudited) (Unaudited)
Operating Activities:
Net (loss) $ (66,323) $ (170,387)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Changes in net assets and liabilities-
Prepaid expenses and other assets 19,868 --
Accounts payable - Related party 6,455 6,455
Accrued liabilities 23,800 23,800
Other assets (23,800) (23,800)
------------- -------------
Net Cash (Used in) Operating Activities (40,000) (163,932)
------------- -------------
Financing Activities:
Proceeds from issuance of stock options -- 10,000
Proceeds from sale of common stock 40,000 155,000
------------- -------------
Net Cash Provided by Financing Activities 40,000 165,000
------------- -------------
Effect of Exchange Rate Changes on Cash -- (1,068)
------------- -------------
Net Increase (Decrease) in Cash -- --
Cash - Beginning of Period -- --
------------- -------------
Cash - End of Period $ -- $ --
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ --
============= =============
Income taxes $ -- $ --
============= =============
During the period the Company acquired entertainment products in development
in the amount of $347,600 for the issuance of 1,000,000 shares of Series A
Preferred stock and 4,500,000 shares of Common stock, respectively.
The accompanying notes to financial statements are
an integral part of these statements.
F-4
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
(1) Summary of Significant Accounting Policies
Basis of Presentation and Organization
Friday Night Entertainment Corporation ("FNE" or the "Company") is a Nevada
corporation in the development stage of producing motion picture films for
theatrical release and distribution. The accompanying financial statements of
FNE were prepared from the accounts of the Company under the accrual basis of
accounting in United States dollars. In addition, the accompanying financial
statements reflect the completion of a reverse merger between Friday Night
Entertainment Corporation and Friday Night Entertainment (Australia) Pty Ltd.
("FNE Australia"), which was effected on June 10, 2004.
Prior to the completion of the reverse merger, FNE (formerly Lunettes, Et Al,
Inc.) was a dormant corporation with no assets or operations (essentially since
its incorporation date of July 31, 2001).
FNE Australia was organized as an Australian private company on May 5, 2004, and
subsequently acquired four film scripts at historical cost from a company owned
by an officer and director of the Company in exchange for common stock in June
2004. FNE Australia also began operations on May 5, 2004, and prior to September
30, 2004, aside from the acquisition of the four film scripts described above,
incurred deferred offering costs, and operating costs and expenses related to
its organization as an entity, accounting and tax preparation fees, consulting
fees, officer's salary, travel, relocation, and other general and administrative
expenses.
Given that FNE Australia is considered to have acquired FNE by a reverse merger
through an Exchange Agreement (see Note 4) and currently has voting control of
FNE, the accompanying financial statements present the financial position as of
September 30, 2004, and the operations for the three month period ended
September 30, 2004, and from the inception date (May 5, 2004) through September
30, 2004, of FNE Australia under the name of FNE. The reverse merger has been
recorded as a recapitalization of the Company, with the net assets of FNE
Australia and the Company brought forward at their historical bases. The costs
associated with the reverse merger have been expensed as incurred.
Unaudited Interim Financial Statements
The accompanying interim financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions per Item 310(b) of
Regulation S-B. Such interim financial statements are unaudited. Accordingly,
they do not include all of the information and footnote disclosures required by
accounting principles generally accepted in the United States for complete
financial statements. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those results. In the opinion of management, all adjustments considered
necessary for the fair presentation of interim financial data have been
included. Operating results for the three months ended September 30, 2004, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
F-5
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all highly liquid debt instruments purchased with a maturity
of three months or less to be cash and cash equivalents.
Revenue Recognition
The Company is in the development stage and has yet to realize any revenues.
However, the Company is in the business of producing motion picture films for
theatrical release and distribution. As such, it will realize revenues from the
theatrical distribution of motion pictures when such motion pictures are
exhibited under variable fee arrangements, or when all terms of specific
licensing and distribution agreements have been met.
Film Production and Development Costs
The Company accounts for motion picture film production and development costs
under Statement of Position 00-2, Accounting by Producers or Distributors of
Films. The Company capitalizes and amortizes film production and development
costs using the individual film forecast method. Film production and development
costs are amortized to expense in the proportion that the exhibition revenues
recognized during the year bear to management's estimate of the total revenues
expected over the life of the production.
If film scripts under development have not been set for production within three
years, the costs associated with such items are written off to expense.
When an event or change in circumstances indicates that the unamortized cost of
a film production exceeds the net recoverable amount, the carrying value of the
production is written down to its net recoverable value. The fair value of each
film production is determined by management on a title-by-title basis using
future revenue estimates and a discounted cash flow approach.
F-6
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
Deferred Offering Costs
The Company defers as other assets the direct, incremental costs of raising
capital until such time as the offering is completed, at which time the costs
are charged against the capital raised. Should the offering be terminated, the
costs are charged to operations during the period in which the offering is
terminated. As of September 30, 2004, deferred offering costs amounted to
$23,800.
Impairment of Long-lived Assets
The Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives at each balance sheet date. The Company records an
impairment or change in useful life whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or the useful life has
changed.
Loss Per Common Share
Basic loss per share is computed by dividing the net loss attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Fully diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.
Comprehensive Income (Loss)
The Company presents comprehensive income (loss) in accordance with SFAS No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 states that all items
that are required to be recognized under accounting standards as components of
comprehensive income (loss) be reported in the financial statements. For the
period cumulative from inception (May 5, 2004) through September 30, 2004, the
only components of comprehensive (loss) are the net (loss) for the period, and
the foreign currency translation adjustment.
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax asset and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
F-7
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon potential likelihood of
realizing the deferred tax asset and taking into consideration the Company's
current financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
year of the change in estimate.
Foreign Currency Translation
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation. The Company's functional currency is the
Australian dollar. All assets and liabilities are translated into United States
dollars using the current exchange rate. Revenues and expenses are translated
using the average exchange rates prevailing throughout the year. Translation
adjustments are included in other comprehensive income or loss for the period.
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of September 30, 2004, the Company did not have any financial
instruments requiring the estimate of fair value.
Stock-Based Compensation
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation, and FASB Emerging Issues Task Force, or EITF, Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services. Under the fair
value method, all transactions in which goods or services are the consideration
received for the issuance of equity instruments shall be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
F-8
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
The Company also uses the fair value method to account for compensation costs
for employee stock awards. Under the fair value method, compensation costs for
employee stock awards is recognized as the excess, if any, of the deemed fair
value for financial reporting purposes of the Company's common stock on the date
of grant over the amount an employee must pay to acquire the stock. Compensation
cost is amortized over the vesting period using an accelerated graded method in
accordance with SFAS Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.
Concentration of Credit Risk
The Company has adopted SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk ("SFAS 105"). Under SFAS 105, the Company is
required to disclose any significant off-balance sheet risks and credit risk
concentrations. As of September 30, 2004, the Company did not have any material
off-balance sheet risks or credit concentrations.
Year End of the Company
The operations of the Company commenced on May 5, 2004. As such, the initial
fiscal year end shall be December 31, 2004, and for all annual periods
thereafter.
Estimates
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States. 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 as of September 30, 2004, and expenses for the three month period
ended September 30, 2004, and the period from inception (May 5, 2004) through
September 30, 2004. Actual results could differ from those estimates made by
management.
(2) Development Stage Activities and Going Concern
The Company is a motion picture film development and distribution company in the
development stage. As of September 30, 2004, the Company had completed
organization and reverse merger transactions, the acquisition of four motion
picture scripts from an officer and director, the formation of a management
team, commenced capital formation activities, and performed other activities
related to initial operations. Management of the Company is pursuing various
sources of equity financing, and intends to raise approximately $5.0 million
through a best efforts self-underwritten public offering of its common stock.
The public offering and sale of common stock by officers and directors of the
Company will be conducted subsequent to the filing and approval of a
Registration Statement on Form SB-2 with the Securities and Exchange Commission
("SEC"). The proceeds from the public offering will be used by the Company for
the development and production of the four movie scripts provided by FNE
Australia in the reverse merger. The Company also intends to use proceeds from
the public offering in order to acquire an option to develop a motion picture to
be called "Asphalt Beach," acquire additional motion picture film scripts, and
provide working capital for its operations.
F-9
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
While management of the Company believes that the Company will be successful in
its capital formation and operating activities, there can be no assurance that
the Company will be able to raise $5.0 million in equity capital through its
planned filing with the SEC and related activities, or be successful in the
production, development or distribution of motion pictures that will generate
sufficient revenues to sustain the operations of the Company.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern. The Company has
incurred an operating loss since inception, and the working capital of the
Company raised through September 30, 2004, has been insufficient to meet its
planned business objectives and sustain operations. These and other factors
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
(3) Entertainment Products in Development
Entertainment products in development is comprised of four film scripts that
were acquired from a company owned by an officer and director of the Company at
their historical cost of development of $347,600 (allocated evenly to each film
script at a cost of $86,900 consisting of payroll costs of $75,565 and related
payroll taxes and benefits of $11,335), in exchange for common shares of FNE
Australia.
The four film scripts were initially developed by Banksia Entertainment Pty
Ltd., a related party (see Note 7), and subsequently acquired by gift by the
company owned by an officer and director of FNE as explained above. The scripts
are in the development stage and are expected to be in production within the
next two years.
The costs of development of the four film scripts specifically include
historical labor costs, related payroll taxes, and statutory benefits of a staff
of five individuals including an executive producer, creative/program director,
producer/researcher, and two staff writers. Each film script required
approximately the same amount of time for creation by the staff. The activities
undertaken by the staff for the creation of each of the four film scripts
included initial creation of storyline, storyline and character discussions,
story events and character analysis discussions, re-writes of storyline and
character debate, editing of storyline with detailed notation, research, and
final summarization.
F-10
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
(4) Common Stock Transactions
Increase in Authorized Capital
On June 1, 2004, the Company amended its Articles of Incorporation to increase
the number of authorized common shares to 50,000,000, and to create 5,000,000
preferred shares. Each class of stock carries a par value of $0.001 per share.
The rights of the preferred shares are to be determined at the discretion of the
directors.
Designation of Preferred Shares
On June 2, 2004, the Board of Directors of the Company designated 1,000,000
shares of the Company's authorized stock as Series A preferred shares. The
Series "A" preferred shares are non-participating, but carry fifty (50) votes
per share at a general meeting of the stockholders. The remaining 4,000,000
preferred shares have not yet been designated.
Stock Exchange Agreement
On June 10, 2004, the Company entered into a definitive Share Exchange Agreement
(the "Exchange Agreement") with FNE Australia whereby the Company acquired all
of the issued and outstanding stock of FNE Australia in exchange for 4,500,000
shares of common stock and 1,000,000 shares of Series A preferred stock of the
Company. The shares of Series A preferred stock are non-participating, but each
share is entitled to fifty (50) votes in a general meeting of the stockholders.
As a result of the Exchange Agreement, FNE Australia controls the Company, and
has been deemed to have effected a reverse merger for financial reporting
purposes.
Issuances of Stock for Cash
On June 22, 2004, the Company issued 150,000 shares of its common stock for
$75,000 in cash to Banksia Entertainment Pty Ltd., a related party (see Note 7).
On June 29, 2004, the Company issued 80,000 shares of its common stock for
$40,000 in cash to Stuff & Bits `n Pieces Pty Ltd., a related party (see Note
7).
On July 31, 2004, the Company issued 80,000 shares of common stock for $40,000
in cash to Banksia Entertainment Pty Ltd., a related party (see Note 7).
F-11
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
(5) Stock Options
On May 04, 2004, the Company issued 1,000,000 stock options (500,000 options to
each party) to Fort Street Equity, an unrelated party, and Waldwick Investments
Limited, a stockholder of the Company (see Note 10), for the purchase of common
stock of the Company, with each option having the right to purchase one common
share at the greater of the market price less a discount of 40%, or $0.50. The
options issued to the two parties vested immediately and expire on December 31,
2005, and were issued for $10,000 in cash ($5,000 from each party). On October
30, 2004, Fort Street Equity sold all of its options to Barr Eden Family Trust,
an unrelated party. Waldwick Investments Limited subsequently sold 50,000 of its
options to purchase common stock to Andrew Banks & Associates Pty Ltd., an
unrelated party, and loaned the proceeds from the sale of the options to the
Company under the terms of a promissory note (see Note 10).
(6) Income Taxes
The provisions (benefits) for income taxes for the three months ended September
30, 2004, and cumulative from inception (May 5, 2004) through September 30,
2004, were as follows (using a 34 percent effective Federal income tax rate):
Three Months
Ended Cumulative
September 30, from
2004 Inception
-------------- --------------
Current Tax Provision:
Federal-
Taxable income $ -- $ --
-------------- --------------
Total current tax provision $ -- $ --
============== ==============
Deferred Tax Provision:
Federal-
Loss carryforwards 22,550 57,932
Change in valuation allowance (22,550) (57,932)
-------------- --------------
Total deferred tax provision $ -- $ --
============== ==============
F-12
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
The Company had deferred income tax assets as of September 30, 2004, as follows:
Loss carryforwards $ 57,932
Less - Valuation allowance (57,932)
--------
Total net deferred tax assets $ --
========
As of September 30, 2004, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $170,400 that may be offset
against future taxable income. Current tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change
in ownership occurs or a change in the nature of the business. Therefore, the
amount available to offset future taxable income may be limited. No tax benefit
has been reported in the financial statements for the realization of loss
carryforwards as the Company believes there is high probability that the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carry forwards are offset by a valuation allowance of the same amount.
(7) Related Party Transactions
In May 2004, the Company paid to a former officer and director $10,000 for
consulting services rendered.
In June 2004, a company owned by an officer and director of the Company
transferred four film scripts in exchange for common shares of FNE Australia. In
accordance with Staff Accounting Bulletin Topic 5G, Transfers of Nonmonetary
Assets by Promoters or Shareholders, this non-monetary exchange transaction was
recorded at the stockholder's historical cost basis, determined under accounting
principles generally accepted in the United States, in the amount of $347,600
(see Note 3).
On June 22, 2004, the Company issued 150,000 shares of its common stock for
$75,000 in cash to Banksia Entertainment Pty Ltd. ("Banksia"). In addition, on
July 31, 2004, the Company also issued an additional 80,000 shares of common
stock for $40,000 in cash to Banksia. This entity is an Australian private
company controlled by Mr. John William Lamb, the father of an officer and
director of the Company.
On June 29, 2004, the Company issued 80,000 shares of its common stock for
$40,000 in cash to Stuff & Bits `n Pieces Pty Ltd. This entity is an Australian
private company controlled by Mr. Stewart Lamb, the brother of an officer and
director of the Company.
F-13
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
(8) Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 ("FIN 46"). The FASB
issued a revised FIN 46 in December 2003, which modified and clarified various
aspects of the original interpretations. A Variable Interest Entity ("VIE") is
created when (i) the equity investment at risk is not sufficient to permit the
entity to finance its activities without additional subordinated financial
support from other parties or (ii) equity holders either (a) lack direct or
indirect ability to make decisions about the entity, (b) are not obligated to
absorb expected losses of the entity or (c) do not have the right to receive
expected residual returns of the entity if they occur. If an entity is deemed to
be a VIE, pursuant to FIN 46, an enterprise that absorbs a majority of the
expected losses of the VIE is considered the primary beneficiary and must
consolidate the VIE. For VIE's created before January 31, 2003, FIN 46 was
deferred to the end of the first interim or annual period ending after March 15,
2004. The adoption of FIN 46 did not have a material impact on the financial
position or results of operations of the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments With Characteristics of Both
Liabilities and Equity, ("SFAS 150"). This standard requires issuers to classify
as liabilities the following three types of freestanding financial instruments:
(1) mandatory redeemable financial instruments, (2) obligations to repurchase
the issuer's equity shares by transferring assets; and (3) certain obligations
to issue a variable number of shares. The Company adopted SFAS 150 in May 2004.
The adoption of SFAS 150 did not have a material impact on the financial
position or results of operations of the Company.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"),
Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104's primary purpose is to rescind the accounting guidance
contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of EITF 00-21. The Company adopted the
provisions of SAB 104, and it did not have a material impact on the financial
position or results of operations of the Company.
(9) Commitments and Contingencies
In June 2004, FNE entered into a consulting contract with an officer and
director of the Company to provide financial services through November 30, 2004,
for $20,000 per month. As of September 30, 2004, $80,000 had been paid to the
officer and director of the Company, representing payment for services for four
months. As of December 10, 2004, the officer and director had been paid $120,000
under the consulting contract.
F-14
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
(10) Subsequent Events
On October 31, 2004, the Company borrowed $125,000 from Waldwick Investments
Limited, a stockholder of the Company, under the terms of a promissory note (see
Note 5). The promissory note carries an interest rate of four (4) percent per
annum, and all interest and principal are due and payable to Waldwick
Investments Limited on October 31, 2009.
On November 3, 2004, Andrew Banks & Associates Pty Ltd. exercised 50,000 options
to purchase a like number of shares of common stock of the Company (acquired
from Waldwick Investments Limited (see Note 5)) for $25,000 in cash.
F-15
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (MAY 5, 2004)
THROUGH JUNE 30, 2004
Report of Independent Auditors..............................................F-17
Financial Statements-
Balance Sheet as of June 30, 2004........................................F-18
Statement of Operations and Comprehensive (Loss) From Inception
(May 5, 2004) Through June 30, 2004...................................F-19
Statement of Stockholders' Equity From Inception (May 5, 2004) Through
June 30, 2004 ........................................................F-20
Statement of Cash Flows From Inception (May 5, 2004) Through
June 30, 2004 ........................................................F-21
Notes to Financial Statements ...........................................F-22
F-16
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Friday Night Entertainment Corporation:
We have audited the accompanying balance sheet of Friday Night Entertainment
Corporation, a Nevada corporation in the development stage, as of June 30, 2004,
and the related statements of operations and comprehensive (loss), stockholders'
equity, and cash flows for the period from inception (May 5, 2004) through June
30, 2004. 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 audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides 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 Friday Night Entertainment
Corporation as of June 30, 2004, and the results of its operations and its cash
flows for the period from inception (May 5, 2004) through June 30, 2004, in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage, is conducting its
capital formation activities, has experienced an operating loss since inception,
and its working capital is insufficient to meet planned business objectives.
These and other factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these matters are also
described in Note 2 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
/s/ Davis Accounting Group P.C.
Cedar City, Utah
November 9, 2004
F-17
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (NOTE 2)
AS OF JUNE 30, 2004
ASSETS
------
2004
----------
Current Assets:
Prepaid expenses and other assets $ 19,868
----------
Total current assets 19,868
----------
Other Assets:
Entertainment products in development 347,600
----------
Total other assets 347,600
----------
Total Assets $ 367,468
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
----------
Current Liabilities:
Other current liabilities $ --
----------
Total current liabilities --
----------
Total liabilities --
----------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, par value $.001 per share; 4,000,000 shares
undesignated; no shares issued or outstanding --
Series A Preferred Stock, par value $.001 per share;
designated 1,000,000 shares; issued and
outstanding 1,000,000 shares 1,000
Common Stock, par value $.001 per share;
authorized 50,000,000 shares; issued and
outstanding 6,265,000 shares 6,265
Additional paid-in capital 465,335
Accumulated other comprehensive (loss) (1,068)
(Deficit) accumulated during the development stage (104,064)
----------
Total stockholders' equity 367,468
----------
Total Liabilities and Stockholders' Equity $ 367,468
==========
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-18
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) (NOTE 2)
FOR THE PERIOD FROM INCEPTION (MAY 5, 2004)
THROUGH JUNE 30, 2004
Cumulative
From
2004 Inception
----------- -----------
Revenues:
Revenues $ -- $ --
----------- -----------
Total revenues
----------- -----------
Expenses:
General and administrative 104,064 104,064
----------- -----------
Total general and administrative expenses 104,064 104,064
----------- -----------
(Loss) from Operations (104,064) (104,064)
Other Income (Expense) -- --
Provision for income taxes -- --
----------- -----------
Net (Loss) (104,064) (104,064)
-----------
Comprehensive (Loss):
Australian currency translation (1,068) (1,068)
----------- -----------
Total Comprehensive (Loss) $ (105,132) $ (105,132)
=========== ===========
(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted $ (0.032) $ (0.032)
=========== ===========
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted 3,224,649 3,224,649
=========== ===========
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-19
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (NOTE 2)
FOR THE PERIOD FROM INCEPTION (MAY 5, 2004)
THROUGH JUNE 30, 2004
Accumulated
Series A Accumulated (Deficit)
Preferred Stock Common Stock Additional Other During the
-------------------- -------------------- Paid-in Comprehensive Development
Description Shares Amount Shares Amount Capital (Loss) Stage Totals
- ------------------------------- --------- -------- --------- -------- --------- ------------- ----------- ---------
Balance - May 5, 2004 -- $ -- 1,535,000 $ 1,535 $ (1,535) $ -- $ -- $ --
Preferred and common stock
issued for reverse merger
with FNE Australia 1,000,000 1,000 4,500,000 4,500 342,100 -- -- 347,600
Common stock issued for cash -- -- 230,000 230 114,770 -- -- 115,000
Stock options issued for cash -- -- -- -- 10,000 -- -- 10,000
Australian currency translation -- -- -- -- -- (1,068) -- (1,068)
Net (loss) for the period -- -- -- -- -- -- (104,064) (104,064)
--------- -------- --------- -------- --------- ------------- ----------- ---------
Balance - June 30, 2004 1,000,000 $ 1,000 6,265,000 $ 6,265 $ 465,335 $ (1,068) $ (104,064) $ 367,468
========= ======== ========= ======== ========= ============= =========== =========
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-20
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (NOTE 2)
FOR THE PERIOD FROM INCEPTION (MAY 5, 2004)
THROUGH JUNE 30, 2004
Cumulative
From
2004 Inception
----------- -----------
Operating Activities:
Net (loss) $ (104,064) $ (104,064)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Changes in net assets and liabilities-
Prepaid expenses and other assets (19,868) (19,868)
----------- -----------
Net Cash (Used in) Operating Activities (123,932) (123,932)
----------- -----------
Financing Activities:
Proceeds from issuance of stock options 10,000 10,000
Proceeds from sale of common stock 115,000 115,000
----------- -----------
Net Cash Provided by Financing Activities 125,000 125,000
----------- -----------
Effect of Exchange Rate Changes on Cash (1,068) (1,068)
----------- -----------
Net Increase (Decrease) in Cash -- --
Cash - Beginning of Period -- --
----------- -----------
Cash - End of Period $ -- $ --
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
During the period the Company acquired entertainment products in development
in the amount of $347,600 for the issuance of 1,000,000 shares of Series A
Preferred stock and 4,500,000 shares of Common stock, respectively.
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-21
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(1) Summary of Significant Accounting Policies
Basis of Presentation and Organization
Friday Night Entertainment Corporation ("FNE" or the "Company") is a Nevada
corporation in the development stage of producing motion picture films for
theatrical release and distribution. The accompanying financial statements of
FNE were prepared from the accounts of the Company under the accrual basis of
accounting in United States dollars. In addition, the accompanying financial
statements reflect the completion of a reverse merger between Friday Night
Entertainment Corporation and Friday Night Entertainment (Australia) Pty Ltd.
("FNE Australia"), which was effected on June 10, 2004.
Prior to the completion of the reverse merger, FNE (formerly Lunettes, Et Al,
Inc.) was a dormant corporation with no assets or operations (essentially since
its incorporation date of July 31, 2001).
FNE Australia was organized as an Australian private company on May 5, 2004, and
subsequently acquired four film scripts at historical cost from a company owned
by an officer and director of the Company in exchange for common stock in June
2004. FNE Australia also began operations on May 5, 2004, and prior to June 30,
2004, aside from the acquisition of the four film scripts described above,
incurred operating costs and expenses related to its organization as an entity,
accounting and tax preparation fees, consulting fees, officer's salary, travel,
relocation, and other general and administrative expenses.
Given that FNE Australia is considered to have acquired FNE by a reverse merger
through an Exchange Agreement (see Note 4) and currently has voting control of
FNE, the accompanying financial statements present the financial position as of
June 30, 2004, and the operations for the period from the inception date (May 5,
2004) through June 30, 2004 of FNE Australia under the name of FNE. The reverse
merger has been recorded as a recapitalization of the Company, with the net
assets of FNE Australia and the Company brought forward at their historical
bases. The costs associated with the reverse merger have been expensed as
incurred.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all highly liquid debt instruments purchased with a maturity
of three months or less to be cash and cash equivalents.
F-22
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Revenue Recognition
The Company is in the development stage and has yet to realize any revenues.
However, the Company is in the business of producing motion picture films for
theatrical release and distribution. As such, it will realize revenues from the
theatrical distribution of motion pictures when such motion pictures are
exhibited under variable fee arrangements, or when all terms of specific
licensing and distribution agreements have been met.
Film Production and Development Costs
The Company accounts for motion picture film production and development costs
under Statement of Position 00-2, Accounting by Producers or Distributors of
Films. The Company capitalizes and amortizes film production and development
costs using the individual film forecast method. Film production and development
costs are amortized to expense in the proportion that the exhibition revenues
recognized during the year bear to management's estimate of the total revenues
expected over the life of the production.
If film scripts under development have not been set for production within three
years, the costs associated with such items are written off to expense.
When an event or change in circumstances indicates that the unamortized cost of
a film production exceeds the net recoverable amount, the carrying value of the
production is written down to its net recoverable value. The fair value of each
film production is determined by management on a title-by-title basis using
future revenue estimates and a discounted cash flow approach.
Impairment of Long-lived Assets
The Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives at each balance sheet date. The Company records an
impairment or change in useful life whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or the useful life has
changed.
Loss Per Common Share
Basic loss per share is computed by dividing the net loss attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Fully diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.
F-23
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Comprehensive Income (Loss)
The Company presents comprehensive income (loss) in accordance with SFAS No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 states that all items
that are required to be recognized under accounting standards as components of
comprehensive income (loss) be reported in the financial statements. For the
period ended June 30, 2004, the only components of comprehensive (loss) are the
net (loss) for the period, and the foreign currency translation adjustment.
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax asset and liabilities
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.
The Company maintains a valuation allowance with respect to deferred tax assets.
The Company establishes a valuation allowance based upon potential likelihood of
realizing the deferred tax asset and taking into consideration the Company's
current financial position and results of operations for the current period.
Future realization of the deferred tax benefit depends on the existence of
sufficient taxable income within the carryforward period under the Federal tax
laws.
Changes in circumstances, such as the Company generating taxable income, could
cause a change in judgment about the realizability of the related deferred tax
asset. Any change in the valuation allowance will be included in income in the
year of the change in estimate.
Foreign Currency Translation
The Company accounts for foreign currency translation pursuant to SFAS No. 52,
Foreign Currency Translation. The Company's functional currency is the
Australian dollar. All assets and liabilities are translated into United States
dollars using the current exchange rate. Revenues and expenses are translated
using the average exchange rates prevailing throughout the year. Translation
adjustments are included in other comprehensive income or loss for the period.
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of June 30, 2004, the Company did not have any financial
instruments requiring the estimate of fair value.
F-24
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Stock-Based Compensation
The Company uses the fair value method to account for non-employee stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation, and FASB Emerging Issues Task Force, or EITF, Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services. Under the fair
value method, all transactions in which goods or services are the consideration
received for the issuance of equity instruments shall be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
The Company also uses the fair value method to account for compensation costs
for employee stock awards. Under the fair value method, compensation costs for
employee stock awards is recognized as the excess, if any, of the deemed fair
value for financial reporting purposes of the Company's common stock on the date
of grant over the amount an employee must pay to acquire the stock. Compensation
cost is amortized over the vesting period using an accelerated graded method in
accordance with SFAS Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.
Concentration of Credit Risk
The Company has adopted SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk ("SFAS 105"). Under SFAS 105, the Company is
required to disclose any significant off-balance sheet risks and credit risk
concentrations. As of June 30, 2004, the Company did not have any material
off-balance sheet risks or credit concentrations.
Year End of the Company
The operations of the Company commenced on May 5, 2004. As such, the initial
fiscal year end shall be December 31, 2004, and for all annual periods
thereafter.
Estimates
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States. 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 as of June 30, 2004, and expenses for the period from inception (May
5, 2004) through the period then ended. Actual results could differ from those
estimates made by management.
F-25
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(2) Development Stage Activities and Going Concern
The Company is a motion picture film development and distribution company in the
development stage. As of June 30, 2004, the Company had completed organization
and reverse merger transactions, the acquisition of four motion picture scripts
from an officer and director, the formation of a management team, and other
activities related to capital formation and initial operations. Management of
the Company is pursuing various sources of equity financing, and plans to raise
approximately $5.0 million through a best efforts self-underwritten public
offering of its common stock. The public offering and sale of common stock by
officers and directors of the Company will be conducted subsequent to the filing
and approval of a Registration Statement on Form SB-2 with the Securities and
Exchange Commission ("SEC"). The proceeds from the public offering will be used
by the Company for the development and production of the four movie scripts
provided by FNE Australia in the reverse merger. The Company also intends to use
proceeds from the public offering in order to acquire an option to develop a
motion picture to be called "Asphalt Beach," acquire additional motion picture
film scripts, and provide working capital for its operations.
While management of the Company believes that the Company will be successful in
its capital formation and operating activities, there can be no assurance that
the Company will be able to raise $5.0 million in equity capital through its
planned filing with the SEC and related activities, or be successful in the
production, development or distribution of motion pictures that will generate
sufficient revenues to sustain the operations of the Company.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern. The Company has
incurred an operating loss since inception, and the working capital of the
Company is insufficient to meet its planned business objectives. These and other
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
(3) Entertainment Products in Development
Entertainment products in development is comprised of four film scripts that
were acquired from a company owned by an officer and director of the Company at
their historical cost of development of $347,600 (allocated evenly to each film
script at a cost of $86,900 consisting of payroll costs of $75,565 and related
payroll taxes and benefits of $11,335), in exchange for common shares of FNE
Australia.
F-26
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
The four film scripts were initially developed by Banksia Entertainment Pty
Ltd., a related party (see Note 7), and subsequently acquired by gift by the
company owned by an officer and director of FNE as explained above. The scripts
are in the development stage and are expected to be in production within the
next two years.
The costs of development of the four film scripts specifically include
historical labor costs, related payroll taxes, and statutory benefits of a staff
of five individuals including an executive producer, creative/program director,
producer/researcher, and two staff writers. Each film script required
approximately the same amount of time for creation by the staff. The activities
undertaken by the staff for the creation of each of the four film scripts
included initial creation of storyline, storyline and character discussions,
story events and character analysis discussions, re-writes of storyline and
character debate, editing of storyline with detailed notation, research and
final summarization.
(4) Common Stock Transactions
Increase in Authorized Capital
On June 1, 2004, the Company amended its Articles of Incorporation to increase
the number of authorized common shares to 50,000,000, and to create 5,000,000
preferred shares. Each class of stock carries a par value of $0.001 per share.
The rights of the preferred shares are to be determined at the discretion of the
directors.
Designation of Preferred Shares
On June 2, 2004, the Board of Directors of the Company designated 1,000,000
shares of the Company's authorized stock as Series A preferred shares. The
Series "A" preferred shares are non-participating, but carry fifty (50) votes
per share at a general meeting of the stockholders. The remaining 4,000,000
preferred shares have not yet been designated.
Stock Exchange Agreement
On June 10, 2004, the Company entered into a definitive Share Exchange Agreement
(the "Exchange Agreement") with FNE Australia whereby the Company acquired all
of the issued and outstanding stock of FNE Australia in exchange for 4,500,000
shares of common stock and 1,000,000 shares of Series A preferred stock of the
Company. The shares of Series A preferred stock are non-participating, but each
share is entitled to fifty (50) votes in a general meeting of the stockholders.
As a result of the Exchange Agreement, FNE Australia controls 75 percent of the
Company, and has been deemed to have effected a reverse merger for financial
reporting purposes.
F-27
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Issuances of Stock for Cash
On June 22, 2004, the Company issued 150,000 shares of its common stock for
$75,000 in cash to Banksia Entertainment Pty Ltd., a related party (see Note 7).
On June 29, 2004, the Company issued 80,000 shares of its common stock for
$40,000 in cash to Stuff & Bits `n Pieces Pty Ltd., a related party (see Note
7).
(5) Stock Options
On May 24, 2004, the Company issued 1,000,000 stock options (500,000 options to
each party) to Fort Street Equity and Waldwick Investments Limited, a
stockholder of the Company (see Note 10), for the purchase of common stock of
the Company, with each option having the right to purchase one common share at
the greater of the market price less a discount of 40%, or $0.50. The options
issued to the two parties vested immediately and expire on December 31, 2005,
and were issued for $10,000 in cash ($5,000 from each party). On October 30,
2004, Fort Street Equity sold all of its options to Barr Eden Family Trust, an
unrelated party. Waldwick Investments Limited subsequently sold 50,000 of its
options to purchase common stock to Andrew Banks & Associates Pty Ltd., an
unrelated party, and loaned the proceeds from the sale of the options to the
Company under the terms of a promissory note (see Note 10).
(6) Income Taxes
The provision (benefit) for income taxes for the period ended June 30, 2004, was
as follows (using a 34 percent effective Federal income tax rate):
[The remainder of this page intentionally left blank.]
F-28
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Current Tax Provision:
Federal-
Taxable income $ --
--------
Total current tax provision $ --
========
Deferred Tax Provision:
Federal-
Loss carryforwards 35,382
Change in valuation allowance (35,382)
--------
Total deferred tax provision $ --
========
The Company had deferred income tax assets as of June 30, 2004, as follows:
Loss carryforwards $ 35,382
Less - Valuation allowance (35,382)
--------
Total net deferred tax assets $ --
========
As of June 30, 2004, the Company had net operating loss carry forwards for
income tax reporting purposes of approximately $104,000 that may be offset
against future taxable income. Current tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change
in ownership occurs or a change in the nature of the business. Therefore, the
amount available to offset future taxable income may be limited. No tax benefit
has been reported in the financial statements for the realization of loss
carryforwards as the Company believes there is high probability that the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carry forwards are offset by a valuation allowance of the same amount.
(7) Related Party Transactions
In May 2004, the Company paid to a former officer and director $10,000 for
consulting services rendered.
In June 2004, a company owned by an officer and director of the Company
transferred four film scripts in exchange for common shares of FNE Australia. In
accordance with Staff Accounting Bulletin Topic 5G, Transfers of Nonmonetary
Assets by Promoters or Shareholders, this non-monetary exchange transaction was
recorded at the stockholder's historical cost basis, determined under accounting
principles generally accepted in the United States, in the amount of $347,600
(see Note 3).
F-29
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
On June 22, 2004, the Company issued 150,000 shares of its common stock for
$75,000 in cash to Banksia Entertainment Pty Ltd. ("Banksia"). In addition, on
July 31, 2004, the Company also issued an additional 80,000 shares of common
stock for $40,000 in cash to Banksia. This entity is an Australian private
company controlled by Mr. John William Lamb, the father of an officer and
director of the Company.
On June 29, 2004, the Company issued 80,000 shares of its common stock for
$40,000 in cash to Stuff & Bits `n Pieces Pty Ltd. This entity is an Australian
private company controlled by Mr. Stewart Lamb, the brother of an officer and
director of the Company.
(8) Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 ("FIN 46"). The FASB
issued a revised FIN 46 in December 2003, which modified and clarified various
aspects of the original interpretations. A Variable Interest Entity ("VIE") is
created when (i) the equity investment at risk is not sufficient to permit the
entity to finance its activities without additional subordinated financial
support from other parties or (ii) equity holders either (a) lack direct or
indirect ability to make decisions about the entity, (b) are not obligated to
absorb expected losses of the entity or (c) do not have the right to receive
expected residual returns of the entity if they occur. If an entity is deemed to
be a VIE, pursuant to FIN 46, an enterprise that absorbs a majority of the
expected losses of the VIE is considered the primary beneficiary and must
consolidate the VIE. For VIE's created before January 31, 2003, FIN 46 was
deferred to the end of the first interim or annual period ending after March 15,
2004. The adoption of FIN 46 did not have a material impact on the financial
position or results of operations of the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments With Characteristics of Both
Liabilities and Equity, ("SFAS 150"). This standard requires issuers to classify
as liabilities the following three types of freestanding financial instruments:
(1) mandatory redeemable financial instruments, (2) obligations to repurchase
the issuer's equity shares by transferring assets; and (3) certain obligations
to issue a variable number of shares. The Company adopted SFAS 150 in May 2004.
The adoption of SFAS 150 did not have a material impact on the financial
position or results of operations of the Company.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"),
Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial
Statements. SAB 104's primary purpose is to rescind the accounting guidance
contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of EITF 00-21. The Company adopted the
provisions of SAB 104, and it did not have a material impact on the financial
position or results of operations of the Company.
F-30
FRIDAY NIGHT ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(9) Commitments and Contingencies
In June 2004, FNE entered into a consulting contract with an officer and
director of the Company to provide financial services through November 30, 2004,
for $20,000 per month. As of June 30, 2004, $40,000 had been paid to the officer
and director of the Company, representing payment for services for the months of
June and July 2004. The portion of the payment representing services for June
2004 is presented as a component of other general and administrative expenses in
the accompanying statement of operations and comprehensive (loss). The remaining
amount is presented as prepaid expenses and other assets, net of the effects of
foreign currency translation, in the accompanying balance sheet. As of November
9, 2004, the officer and director had been paid $120,000 under the consulting
contract.
(10) Subsequent Events
On July 31, 2004, the Company issued 80,000 shares of common stock for $40,000
in cash to Banksia Entertainment Pty Ltd. - a related party (see Note 7).
On October 31, 2004, the Company borrowed $125,000 from Waldwick Investments
Limited, a stockholder of the Company, under the terms of a promissory note (see
Note 5). The promissory note carries an interest rate of four (4) percent per
annum, and all interest and principal are due and payable to Waldwick
Investments Limited on October 31, 2009.
F-31
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our Certificate of Incorporation and By-laws provide that we shall indemnify to
the fullest extent permitted by Nevada law any person whom we may indemnify
thereunder, including our directors, officers, employees and agents. Such
indemnification (other than as ordered by a court) shall be made by us only upon
a determination that indemnification is proper in the circumstances because the
individual met the applicable standard of conduct i.e., such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to our
best interest. Advances for such indemnification may be made pending such
determination. Such determination shall be made by a majority vote of a quorum
consisting of disinterested directors, by independent legal counsel, or by the
stockholders. In addition, our Certificate of Incorporation provides for the
elimination, to the extent permitted by Nevada, of personal liability of our
directors and our stockholders for monetary damages for breach of fiduciary duty
as directors.
We have agreed to indemnify each of our directors and certain officers against
certain liabilities, including liabilities under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer, or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the issuance and
distribution of the securities being registered hereby. All such expenses will
be borne by the registrant; none shall be borne by any selling stockholders.
Securities and Exchange
Commission registration fee $ 1,267
Legal fees and expenses (1) 40,000
Accounting fees and expenses (1) 25,000
Presentations, Travel (1) 30,000
Administration (1) 10,000
Miscellaneous and Printing fees (1) 23,733
--------
Total (1) $130,000
========
- ----------------------------------
1 Estimated
Item 26. Recent Sales of Unregistered Securities.
On May 24, 2004, we issued a total of 1,000,000 options, 500,000 each to
Waldwick Investments Limited and Fort Street Equity, Inc. Each option provides
the option holder the right to purchase one hare of our common stock at the
greater of: (1) a 40% discount from the average closing bid price of our common
stock on a public exchange during the 10 trading days immediately prior to the
exercise of the option or (2) $.50 per share. The options can be exercised at
any time until December 31, 2005. On November 1, 2004, Waldwick Investments
Limited sold 50,000 options to Andrew Banks & Associates Pty. Ltd. Immediately
after such sale; Andrew Banks & Associates Pty. Ltd. exercised the 50,000
options at a price of $0.50 and received 50,000 shares of our common stock. On
October 30, 2004 Fort Street Equity Inc sold all of its options to Barr Eden
Trust
33
On June 10, 2004, we issued 4,500,000 shares of our common stock and issued
1,000,000 shares of our restricted Series "A" preferred shares, to Clam
Entertainment Pty Ltd., a corporation controlled by Cameron Lamb, our officer
and director, in consideration for all of the issued and outstanding stock of
Friday Night Entertainment Pty Ltd. The issuance was valued at $.06 per share or
$347,600 in the aggregate. Our shares were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. No
commissions were paid for the issuance of such shares. All of the above
issuances of shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of such shares by us did
not involve a public offering. Both entities were sophisticated investors and
had access to information normally provided in a prospectus regarding us. The
offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering, and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, both entities had the necessary investment intent as required by
Section 4(2) since they agreed to and received a share certificate bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transaction.
On June 22, 2004, we issued 150,000 common shares to Banksia Entertainment Pty
Ltd. in consideration for payment of $75,000. The issuance was valued at $.50
per share or $75,000 in the aggregate. Our shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. No commissions were paid for the issuance of such shares. All of the above
issuances of shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of such shares by us did
not involve a public offering. Both entities were sophisticated investors and
had access to information normally provided in a prospectus regarding us. The
offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering, and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, both entities had the necessary investment intent as required by
Section 4(2) since they agreed to and received a share certificate bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transaction.
On June 29, 2004, we issued 80,000 common shares to Stuff and Bits n' Pieces Pty
Ltd. in consideration for payment of $40,000. The issuance was valued at $.50
per share or $40,000 in the aggregate. Our shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. No commissions were paid for the issuance of such shares. All of the above
issuances of shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of such shares by us did
not involve a public offering. Both entities were sophisticated investors and
had access to information normally provided in a prospectus regarding us. The
offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering, and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, both entities had the necessary investment intent as required by
Section 4(2) since they agreed to and received a share certificate bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transaction.
On July 31, 2004, we issued 80,000 common shares to Banksia Entertainment Pty
Ltd. In consideration for payment of $40,000. The issuance was valued at $.50
per share or $40,000 in the aggregate. Our shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. No commissions were paid for the issuance of such shares. All of the above
issuances of shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of such shares by us did
34
not involve a public offering. Both entities were sophisticated investors and
had access to information normally provided in a prospectus regarding us. The
offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering, and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, both entities had the necessary investment intent as required by
Section 4(2) since they agreed to and received a share certificate bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transaction.
On November 3, 2004, we issued 50,000 common shares to Andrew Banks & Associates
Pty Ltd. in consideration for payment of $25,000. The issuance was valued at
$.50 per share or $25,000 in the aggregate. Our shares were issued in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act of 1933. No commissions were paid for the issuance of such shares. All of
the above issuances of shares of our common stock qualified for exemption under
Section 4(2) of the Securities Act of 1933 since the issuance of such shares by
we did not involve a public offering. Both entities were sophisticated investors
and had access to information normally provided in a prospectus regarding us.
The offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering, and number of shares offered. We did not undertake an
offering in which we sold a high number of shares to a high number of investors.
In addition, both entities had the necessary investment intent as required by
Section 4(2) since they agreed to and received a share certificate bearing a
legend stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transaction.
Item 27. Exhibits.
3.1 Certificate of Incorporation and Amendments (1)
3.2 Bylaws (1)
5.1 Opinion and Consent of Anslow & Jaclin, LLP
10.1 Exchange Agreement dated June 10, 2004 between us and Friday Night
Entertainment Pty Ltd. (1)
10.2 Stock Option Agreement dated May 24, 2004 between us and Waldwick
Investments Limited (1)
10.3 Stock Option Agreement dated May 24, 2004 between us and Fort Street
Equity, Inc. (1)
10.4 Agreement between Barr Eden Family Trust and Fort Street Equity, Inc.
10.5 Consulting Agreement with Michael Costigan
10.6 Subscription Agreement
16.1 SF Partnership, LLP Letter on Change in Certifying Accountant
21.1 Subsidiaries (1)
23.1 Consent of Davis Accounting Group P.C., independent auditors.
24.1 Power of Attorney (included on signature page of Registration Statement)
(1) Filed with the original SB-2 filing on August 17, 2004 (SEC File No.
333-118305)
35
Item 28. Undertakings.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the Securities Act
of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii)Include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(B) Undertaking Required by Regulation S-B, Item 512(e).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or controlling persons pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel that the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(C) Undertaking Required by Regulation S-B, Item 512(f)
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 21st day of December , 2004.
FRIDAY NIGHT ENTERTAINMENT CORPORATION
BY: /s/ CAMERON LAMB
--------------------------
CAMERON LAMB
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
The undersigned directors and officers of Friday Night Entertainment Corporation
hereby constitute and appoint Cameron Lamb, with full power to act without the
other and with full power of substitution and re-substitution, our true and
lawful attorney-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this registration statement under the
Securities Act of 1933 and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
and hereby ratify and confirm each and every act and thing that such
attorney-in-fact, or his substitute, shall lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Cameron Lamb Chief Executive Officer December 21, 2004
- ----------------------- and Chairman of the Board
of Directors
/s/ Michael Costigan President and Director December 21, 2004
- -----------------------
/s/ Mark Pearson Chief Accounting Officer December 21, 2004
- ----------------------- and Director
37