AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 2000
REGISTRATION NO. _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALOTTAFUN, INC.
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(Exact Name of Registrant As Specified in Charter)
Delaware 39-1765590
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 N. Main Street, Suite 207, West Bend, Wisconsin 53095
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 334-4500
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Copies to:
Michael T. Cronin, Esquire
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
911 Chestnut Street
P.O. Box 1368
Clearwater, Florida 34617
(727) 461-1818
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Securities to be registered pursuant to Section 12(b) of the Act:
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
(i)
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
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 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 the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------ ------------- ------------------------------- ---------------- ----------------
Title of Each Class of Securities to Amount to Proposed Maximum Offering Price Proposed Maximum Amount of
be Registered be Registered(1) Share(1) Aggregate Offering(2) Registration Fee
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<S> <C> <C> <C> <C> <C>
Common Stock, par value $0.01 3,904,383 $.45 $1,756,972 $457
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</TABLE>
(1) The shares of common stock are being registered hereby for the account of
certain shareholders of F.N.B. Corporation. No other shares of common stock
are being registered pursuant to this offering. Pursuant to Rule 416, this
registration statement also covers such indeterminate number of additional
shares of common stock as may be issued because of future stock dividends,
stock distributions, stock splits, or similar capital readjustments.
(2) Estimated solely for the purpose of calculating the filing fee pursuant to
Rule 457(c) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THAT DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
(ii)
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SUBJECT TO COMPLETION, DATED July ___, 2000
PROSPECTUS
3,904,383 Shares
ALOTTAFUN, INC.
Common Stock
This is a resale of Alottafun, Inc. common stock by certain of our
shareholders.
The common stock is traded on the OTC Electronic Bulletin Board under
the symbol "ALFN." On July 10, 2000, the last reported sale price for the common
stock, as reported on the OTC Electronic Bulletin Board, was $.45 per share.
Investing in our common stock involves risks. See "Risk Factors"
beginning on Page ___.
Price to the public: The selling shareholders may sell the common stock
in one or more transactions through brokers in the over-the-counter market, in
private transactions, or otherwise, at current market prices. Accordingly, sales
prices will depend upon price fluctuations and the manner of sale.
Proceeds to shareholders: Proceeds to the selling shareholders will
depend upon price fluctuations and the manner of sale.
Proceeds to Alottafun: Alottafun will not receive any of the cash
proceeds from the sale of shares of common stock.
Underwriting discount: The selling shareholders may effect such
transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
brokerage commissions or similar fees in amounts which may vary from transaction
to transaction. Such brokerage commissions and charges and the legal fees, if
any, will be paid by the selling shareholders. Alottafun will bear all other
expenses in connection with registering the shares being offered, which expenses
are estimated to total approximately $30,000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is July __, 2000
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AVAILABLE INFORMATION
Alottafun is subject to informational requirements of the Securities
Exchange Act of 1934. In accordance with the 1934 Act, Alottafun files reports
and other information with the Securities and Exchange Commission. Such reports
and other information can be inspected and copies at the Public Reference Room
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-(800)-SEC-0330 for
further information on the Public Reference Room. Alottafun's Securities and
Exchange Commission filings are also available to the public at the Securities
and Exchange Commission's Internet site at http://www.sec.gov.
Alottafun has filed a registration statement for Form SB-2 under the
Securities Act of 1933, as amended, with respect to the common stock being
offered. This prospectus does not contain all the information set forth in the
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
prospectus concerning the provisions of documents are necessarily summaries of
such documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant
to the 1934 Act are hereby incorporated I this prospectus by reference:
1. Alottafun's Annual Report on Form 10-K for the year ended December 31,
1999;
2. Alottafun's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000.
All documents filed by Alottafun, pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act subsequent to the date of this prospectus and prior to
the termination of this offering, shall be deemed to be incorporated by
reference into this prospectus. Any information incorporated by reference shall
be modified or superseded by any information contained in this prospectus or in
any other document filed later with the Commission, which modifies or supersedes
such information. Any information that is modified or superseded shall become a
part of this prospectus as the information has been so modified or superseded.
We will provide without charge to each person to whom a prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the information that has been incorporated by reference in this prospectus
(excluding exhibits unless such exhibits are specifically incorporated by
reference into such documents). Please direct such requests to Michael Porter,
141 N. Main Street, Suite 207, West Bend, Wisconsin 53095, telephone number
(262) 334-4500.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended. Forward-looking
statements include the information concerning possible or assumed future results
of operations of Alottafun and its subsidiaries. Also, when we use words such as
"believes," "expects," "anticipates," or similar expressions, we are making
forward-looking statements. Prospective investors should note that many factors,
some of which are discussed elsewhere in this documents and in the exhibits,
could affect the future financial results of Alottafun and its subsidiaries and
could cause the results to differ materially from those expressed in our
forward-looking statements contained in this document or the exhibits.
These factors include the following:
o Operating, legal and regulatory risks;
o Economic, political and competitive forces affecting our
financial services business; and
o The risk that our analysis of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.
The accompanying information contained in this prospectus, as well
a in Alottafun's 1934 Act filings, identifies important additional factors that
could adversely affect actual results and performance. Prospective investors are
urged to carefully consider such factors.
All forward-looking statements attributable to Alottafun are expressly
qualified in their entirety by the foregoing cautionary statements.
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PROSPECTUS SUMMARY
General
We were originally established on August 15, 1993 as a distributor, and
marketer of collectible toys and candy products for children between the ages of
three and twelve years old. We have marketed products that include tea sets,
games, puzzles, books, plush toys, purses, ride-on cars, and unique surprise
boxes that contain gum and candy, collectible toys, trading cards, milk caps
(pogs), comic strips, tattoos, stickers, and various promotional inserts.
Alottafun has not generated sufficient revenues in the last two years to fund
its ongoing operations and has sustained substantial losses since its inception
and we do not expect to become profitable until 2001. Accumulated losses to date
are approximately $4,906,669 as of March 31, 2000, and there is substantial
doubt about our ability to continue as a going concern.
In May 1999, Alottafun joint ventured with E-Commerce Fulfillment, LLC.
which has a contract with M.W Kasch, an independent U.S. toy distributor, to
launch an e-commerce Internet portal called TOYPOP.COM. The Joint venture was
owned 33.3% by E-Commerce Fulfillment and 67.7% by Alottafun, Inc. E-Commerce
Fulfillment (ECF) was a wholly owned by Jeffrey C. Kasch, President of M.W.
Kasch Company. ECF's responsibilities and obligations included selling toy
products to the joint venture, at prices which do not exceed the prices charged
to ECF's typical customers. ECF provided its products based on regular
availability. ECF also merchandised toys on the Web site and made decisions as
to which toys to highlight as special buys, to promote, or present as a `hot'
toy. M.W. Kasch Company warehoused and provided fulfillment to ECF. The
relationship between M.W. Kasch Company and ECF was exclusive as far as ECF was
concerned, but not exclusive with regard to M.W. Kasch. M.W. Kasch was free to
sell any and all other retailers, electronic or otherwise. The role of Alottafun
was to manage marketing strategies, and to provide the electronic mediums for
the sale, customer support, and fulfillment of products that the joint venture
purchases.
The company launched a toy and related products e-commerce Internet
portal called MRABA.COM, in May, 2000. This site is directed toward providing an
overwhelming need within the Toy Industry for a b2b community devoted to
addressing more efficient dealings between manufacturers, distributors, and
retailers. The toy industry represented the fastest growing segment of online
sales during the last quarter of 1999. According to Media Metrix, an Internet
market research firm, online toy commerce is expected to generate $1.5 billion
in sales by 2003.
On February 28, 2000, M. W. Kasch gave notice to us that effective
March 28, 2000 our agreement with them was terminated. This followed the
shutdown of our TOYPOP site on February 10, 2000 at which time we sought to
remake the site into a channel in the new MRABA internet initiative. Sales of
toy products through the TOYPOP site amounted to $16,506 during the Holiday
selling season, primarily due to the lack of marketing and the limited
availability of the better selling toy products that was available through M. W.
Kasch. Insufficient working capital was available to us to exploit the selling
season opportunity presented by our opening of TOYPOP. Despite, this setback
that included M W. Kasch withdrawing from our joint venture, we are optimistic
that TOYPOP can be made a viable internet retail portal through a reorganization
and restructuring within our MRABA internet opportunity.
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THE OFFERING
Common stock offered by selling shareholders 3,904,383 shares
Common stock outstanding prior to the offering 12,114,295 shares
Common stock to be outstanding after the offering 12,114,295 shares
Nasdaq BB LISTING Market symbol.... ALFN
SUMMARY FINANCIAL INFORMATION
This summary financial information should be read in conjunction with
the section of this prospectus entitled "Plan of Operations" and our audited
financial statements and related notes included elsewhere in this prospectus.
The financial information as of March 31, 2000 is unaudited, the
financial statements for the calendar years 1999 and 1998 have been audited and
financial information has been derived from these audited financial statements.
The historical results presented in this prospectus are not necessarily
indicative of our future financial position or results of operations.
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SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
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(Unaudited)
Three Months Ended
Year Ended Decebember 31, March 31,
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<S> <C> <C> <C> <C>
1999 1998 2000 1999
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Income Statement Data
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Total Revenue $ 128,844 $ 37,429 $ (44) $ 19,460
Net loss (1,816,158) (789,620) (191,272) (472,810)
Net loss per share ($0.23) ($.31) ($0.02) ($0.08)
Shares used in per 7,771,193 2,528,155 10,040,642 5,939,802
Share Computation
At December 31, At December 31, At March 31,
-------------------------- ------------------- ------------------- ---------------------------------
1999 1998 2000 1999
Balance Sheet Data
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Total assets $ 113,435 $ 693,151 $ 440,803 $ 217,672
Working capital (558,208) 79,318 (248,925) (151,026)
Long-term debt -0- 360,489 -0- 375,234
Stockholders' Equity (452,768) (53,142) (21,040) 157,561
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in ALOTTAFUN. Our business, financial condition and results
of operations could be adversely affected by these risks. You should be able to
bear a complete loss of your investment.
The Toy Industry Is Highly Competitive.
The toy industry is highly competitive. Many of our competitors have
certain competitive advantages over us that include greater financial resources,
longer operating histories, strong name recognition; greater sales and marketing
and product development capabilities, and significant economies of scale.
In addition, the toy industry has no significant barriers to entry.
Competition is based primarily on the ability to design and develop new toys, to
procure licenses for popular characters and trademarks and to successfully
market products. Many of our prospective competitors offer similar products or
alternatives to our products. We cannot provide assurance that we will be able
to obtain adequate shelf space in retail stores to support our new or existing
products or to expand our products and product lines or that we will be able to
continue to compete effectively against our competitors.
We May Not Be Able To Manage Our Planned Rapid Growth.
We expect to grow rapidly in the future. As a result, comparing our
period-to-period operating results may not be meaningful and results of
operations from prior periods may not be indicative of future results.
Our growth strategy calls for us to exploit three areas within the toy
industry- a girls toy line; collectible toys and internet sales of toys. The
increased demand on management may necessitate the recruitment and retention by
our company of additional qualified management personnel. We cannot assure you
that we will successfully recruit and retain qualified personnel or expand and
manage our operations effectively and profitably.
In addition, implementation of our growth strategy is subject to risks
beyond our control, including competition, market acceptance of new products,
changes in economic conditions, and our ability to finance increased levels of
accounts receivable and inventory necessary to support sales growth, if any.
Accordingly, we cannot assure you that our growth strategy will be implemented
successfully.
A Few Customers May Account For A Large Portion Of Our Sales.
In the early stage of our development of new products, a few customers
may account for a large portion of sales. Except for receiving purchase orders
for our products, we do expect to have written contracts with or commitments
from any of our customers. A substantial reduction in or termination of orders
from any large customer could adversely affect our business, financial condition
and results of operations. In addition, pressure by a large customer seeking a
reduction in prices, financial incentives, a change in other terms of sale or
for our company to bear the risks and the cost of carrying inventory could also
adversely affect our business, financial condition and results of operations.
We Depend On Our Key Personnel.
Our success is largely dependent upon the experience and continued
services of Michael Porter, our President and Chief Executive Officer, and David
Bezalel, our Executive Vice President. We cannot assure you that we would be
able to find an appropriate replacement for Mr. Porter or Mr. Bezalel if the
need should arise, and any loss or interruption of Mr. Porter's or Mr. Bezalel's
services could adversely affect our business, financial condition and results of
operations.
We don't maintain key-man life insurance on Mr. Porter or Mr. Bezalel.
Should either or both die, there may be serious and adverse consequences for the
company.
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Our Business May Be Adversely Affected By Political Or Economic Developments In
China.
It is expected that all of our products will be produced by
unaffiliated manufacturers in the People's Republic of China. As a result, our
operations may be affected by many factors, including economic, political,
governmental and labor conditions in China; the possibility of expropriation,
supply disruption, currency controls and exchange fluctuations; China's
relationship with the United States; and fluctuations in the exchange rate of
the U.S. dollar against foreign currencies.
Loss Of China's "Most Favored Nation" Status.
China currently enjoys "Most Favored Nation" status under United States
tariff laws. China's Most Favored Nation status is reviewed annually by
Congress, and the renewal of this status is subject to significant political
uncertainties. The loss of China's Most Favored Nation status or the imposition
of retaliatory or protectionist trade policies, such as a substantial increase
in the duty on products we import into the United States from China, would
adversely affect our business, financial condition and results of operation.
Imposition Of Trade Restrictions.
China may be subject to retaliatory trade restrictions imposed by the
United States under various provisions of the Trade Act of 1974. In the past,
the United States has threatened the imposition of punitive 100% tariffs on
selected goods and has withdrawn this threat very shortly before sanctions were
to take effect. The imposition by the United States of trade sanctions and
subsequent actions by China would result in manufacturing and distribution
disruptions or higher costs to us which, in turn, would adversely affect our
business, financial condition and results of operations.
Political Uncertainty In Hong Kong.
We have manufacturers in Hong Kong that may not be able to timely
supply us with products should there be political turmoil and uncertainty. On
July 1, 1997, sovereignty over Hong Kong was transferred from the United Kingdom
to China. If Hong Kong's business climate were to become less favorable as a
result of the transfer of sovereignty, our business, financial condition and
results of operations could be materially and adversely affected.
Political Uncertainty In Israel.
We have manufacturers in Israel that may not be able to timely supply
us with products should there be political turmoil and uncertainty. If Israel's
business climate were to become less favorable as a result of political unrest
or terrorism, our business, financial condition and results of operations could
be materially and adversely affected.
Our Product Sales Are Subject To Seasonal And Quarterly Fluctuations.
Our product sales will be highly seasonal, with a majority of our sales
occurring between September and December, the traditional holiday season of the
Toy industry. As a result, approximately 70-75% of our shipments will occur in
the third and fourth quarters. This seasonality causes our quarterly operating
results and working capital needs to fluctuate significantly.
Our Business Is Subject To Extensive Government Regulation And To Potential
Product Liability Claims.
Our business is subject to various laws, including the Federal
Hazardous Substances Act, the Consumer Product Safety Act, the Flammable Fabrics
Act and the rules and regulations promulgated under these acts. These statutes
are administered by the Consumer Product Safety Commission, which has the
authority to exclude from the market products that are found to be hazardous and
which can require a manufacturer to repurchase these products under certain
circumstances. We cannot assure you that defects in our products will not be
alleged or found. Any such allegations or findings could result in:
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- product liability claims;
- loss of sales;
- diversion of resources;
- damage to our reputation; and
- increased warranty costs;
any of which may adversely affect our business, financial condition and results
of operations. There can be no assurance that our product liability insurance
will be sufficient to avoid or limit our loss in the event of an adverse outcome
of any product liability claim.
We Depend On Third-Party Manufacturers.
We will depend on third parties to manufacture all our products.
Although we own the tools, dies and molds used to manufacture our products, we
have limited control over the manufacturing processes themselves. As a result,
any difficulties encountered by the third-party manufacturers that result in
product defects, production delays, cost overruns or the inability to fulfill
orders on a timely basis could have a material adverse effect on our business,
financial condition and results of operations.
We do not have long-term contracts with our third-party manufacturers.
Although we believe we would be able to secure other third-party manufacturers
to produce our products as a result of our ownership of the tools, dies and
molds used in the manufacturing process, our operations would be adversely
affected if we lost our relationship with any of our current suppliers or if our
current suppliers' operations or sea or air transportation with our China-based
manufacturers were disrupted or terminated even for a relatively short period of
time. Our tools, dies and molds are located at the facilities of our third-party
manufacturers. Accordingly, significant damage to these facilities could result
in the loss of or damage to a material portion of our tools, dies and molds, in
addition to production delays while new facilities were being arranged and
replacement tools, dies and molds were being produced. We do not maintain an
inventory of sufficient size to provide protection for any significant period
against an interruption of supply, particularly if we were required to utilize
alternative sources of supply.
Although we do not purchase the raw materials used to manufacture our
products, we are potentially subject to variations in the prices we pay our
third-party manufacturers for products, depending on what they pay for their raw
materials.
The Market Price Of Our Common Stock May Be Volatile.
Market prices of the securities of toy companies are often volatile.
The market price of our common stock may be affected by many factors, including:
- fluctuations in our financial results;
- the actions of our customers and competitors
(including new product line announcements and instructions);
- new regulations affecting foreign manufacturing;
- other factors affecting the toy industry in general; and
- sales of our common stock into the public market.
In addition, the stock market periodically has experienced significant
price and volume fluctuations which may have been unrelated to the operating
performance of particular companies.
Future Sales Of Our Shares Could Adversely Affect Our Stock Price.
As of March 31, 2000, there were 11,121,104 shares of our common stock
outstanding. An additional 26,025,000 shares of our common stock are issuable
upon the conversion of our convertible preferred stock and upon the exercise of
currently exercisable warrants and options. If all these shares were issued, we
would have 37,146,104 shares of our common stock outstanding. Of this,
20,000,000 are shares that may be obtained from the conversion of the
convertible preferred stock that requires the company to first obtain sales of
$5 million and $10 million, respectively.
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Our Management Exercises Substantial Control Over Our Business.
As of May 1, 2000, our directors and executive officers beneficially
own upon conversion of stock options, in the aggregate, 6,521,407 shares of our
common stock, representing approximately 47.7% of common stock outstanding. In
addition, the Series A Preferred Stock held by Mr. Porter and Mr. Bezalel has
the right to cast 25 votes per share on all matters submitted to the vote of
other holders of Common Stock. The Series A Preferred Stock was issued to Mr.
Porter and Mr. Bezalel, the Company's founders, to assure complete and
unfettered control of the Company by its founders during its formative stages.
The issuance of the Series A Preferred Stock constitute and anti-takeover device
since the approval of any merger or acquisition of the Company will be
completely dependent upon the approval of Mr. Porter and Mr. Bezalel.
Each share of the Series A Preferred Stock is convertible into 10
shares of the Company's Common Stock at any time by the election or either Mr.
Porter or Mr. Bezalel. If either Mr. Porter or Mr. Bezalel elect to convert the
Series A Preferred Stock into Common Stock, their relative ability to control
the affairs of the Company would be reduced because upon conversion the Common
Stock, which replaces the Preferred Stock, would only have one (1) per share as
opposed to 25 votes per share.
In Our Operating History, We May Not Be Able To Successfully Manage Our Business
To Achieve Profitability.
We may not be able to grow our business as planned or ever become a
profitable business. We began the most recent phase of our commercial operations
that includes the MRABA web network in January 2000. Because of this very
limited operating history, there are no meaningful financial results which you
can use to evaluate the merits of making an investment in us. Accordingly,
investment decisions must be made based on our business prospects. Our business
prospects are subject to all the risks, expenses and uncertainties encountered
by any new venture. We also face the risks inherent in operating in the rapidly
evolving markets for Internet products and services. If we are unable to
successfully address these risks or grow our business as planned, the value of
our common stock will be diminished.
Because Our Operating Expenses And Capital Expenditures Will Outpace Our
Revenues, We Will Incur Significant Losses In The Near Term.
We expect to incur significant operating expenses and make relatively
high capital expenditures as we develop our MRABA Internet business. These
operating expenses and capital expenditures will initially outpace revenues and
result in significant losses in the near term. We may never be able to reduce
these losses. Although we have generated nominal revenues since 1993 and have
incurred an aggregate net loss of $4,906,669 during the period from our
inception to March 31, 2000.
The Report Of Our Independent Accountants Contains A Going Concern Qualification
Which States That We May Not Be Able To Continue Our Operations.
Our independent certified public accountants' report for the last
fiscal year ended December 31, 1999 contains an explanatory paragraph. This
paragraph states that our limited working capital position raises substantial
doubt about our ability to continue as a going concern.
Because Our Executive Officers Lack Significant Management Experience In The
Internet, We May Not Be Able To Effectively Manage Our Growth.
The growth of our business may place a significant strain on our
management team and we may not be able to effectively manage our growth. None of
our executive officers has significant experience in managing a internet company
or overseeing such a company's rapid growth.
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This Prospectus Contains Forward-Looking Statements. These Statements May Prove
To Be Inaccurate.
Some of the statements in this prospectus are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions that are not statements of historical fact. You can
identify these statements by the following words:
"may," "plans," "will," "expects," "should," "believes," "estimates,"
"intends" and similar expressions. We cannot guarantee our future results,
performance or achievements. Our actual results and the timing of corporate
events may differ significantly from the expectations discussed in the
forward-looking statements. You are cautioned not to place undue reliance on any
forward-looking statements.
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USE OF PROCEEDS
The Company will not receive any proceeds from this registration. All
the Selling Shareholder's will have the opportunity to sell their registered
shares after the effective date of this registration statement become effective.
DILUTION
A company's net tangible book value is equal to its total tangible
assets minus its total liabilities. A company's net tangible book value per
share is calculated by dividing its net tangible book value, by the total number
of shares of common stock outstanding. As of March 31, 2000, we had a net
tangible book value of ($24,406), or approximately ($0.002) per share of common
stock.
There is no dilution upon the registration of the shares of the Selling
Shareholders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS.
This Registration Statement contains forward-looking statements. The
words "anticipated," "believe," "expect," "plan," "intend," "seek," "estimate,"
"project," "will," "could," "may" and similar expressions are intended to
identify forward-looking statements. These statements include, among others,
information regarding future operations, future capital expenditures and future
net cash flow. Such statements reflect our current views with respect to future
events and financial performance and involve risks and uncertainties, including,
without limitation, general economic and business conditions, changes in
foreign, political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, the ability to achieve further market
penetration and additional customers, and various other matters, many of which
are beyond our control, including, without limitation, the risks described under
the caption "Business." Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove to be incorrect, actual results
may vary materially and adversely from those anticipated, believed, estimated,
or otherwise indicated. Consequently, all of the forward-looking statements made
in this Registration Statement are qualified by these cautionary statements and
there can be no assurance of the actual results or developments.
Overview
We were founded in August 1993. Until we generated significant revenues
in 1996, we were a development stage enterprise. During the development stage
period, we devoted the majority of our efforts to development of a viable
product line, testing of product concepts, developing channels of distribution,
financing and marketing. These activities were funded by investments from
stockholders and borrowings from unrelated third parties.
We have not, through the present time, been in a position to generate
sufficient revenues during our limited operating history to fund on-going
operating expenses or product development activities. As a result, we resorted
to raising capital through equity fundings and from borrowings. In June of 1998,
we acquired inventory, equipment, and goodwill of the Mother Hubbard's Creations
toy line. We have renamed the Mother Hubbard's Creations toy line Hearthside
Treasures. We have sustained significant operating losses since inception
resulting in an accumulated deficit of approximately $4,906,669 at March 31,
2000.
Our present strategy is focused on expanding our core products
including our Hearthside Treasures toy line and collectible toys; entering new
product categories, the development of the ToyPop.com interactive online toy
store and the MRABA.COM business-to-business e-Commerce portal and pursuing
strategic acquisitions.
We have taken a long-term approach to the development of our business
model. Our present strategy anticipates a systematic and cost efficient
introduction of new products by developing the marketing channels of
distribution to create substantial demand and excitement for our product
offerings. We believe this more prudent approach to development of our business
will further enhance our long-term prospects for profitable operations.
Because of the highly seasonal nature of the toy business with 80% of
its sales occurring in the fourth calendar quarter of each year and the present
timing of our advertising and marketing programs, we do not believe that we will
become profitable until the year 2001. We missed our opportunity for sales
through our Toypop Internet site in the 1999 selling season. We believe that we
are on target for profitability in 2001. Our marketing program will continue to
be developed in 2000 to prepare for the fourth quarter selling season. In
addition, the introduction of our collectible toy products at Toy Fair 2000 may
support additional sales in 2000 to help us become profitable. However, there
are no assurances that we will become profitable in 2001.
We believe that recent success in the collectible toy market,
particularly Pokeman and Beanie Babies have set the stage for a resurgence in
the collectible market, which we are specifically targeting. Combined with our
child oriented internet e-commerce site, our line of collectibles will generate
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substantial sales in relationship to the past. However, should our collectible
toy lines not be received favorably, or should we not be able to adequately
market our web-site, this will have a negative impact on our forecasts.
We will continue to incur losses until we are able to increase sales,
introduce new product lines and establish distribution capabilities sufficient
to offset ongoing operating and administrative costs.
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31, 1999
Total consolidated revenue for the three months ended March 31, 2000
was -$44 compared to $19,460 for the same period of 1999, which represents an
decrease of $19,504. There was a refund during the recent quarter ended March
31, 2000 and no sales revenues. Sales in the year ago period reflected sales of
our Hearthside product line. This product line did not obtain any sales for the
current period.
Gross profit were -$3,579 and -$12,376, respectively, for the three
month period ended March 31, 2000, as compared to the prior period ended March
31, 1999. This decrease is the result of the reduction in sales of products that
we did not have a positive margin. The year earlier period included a write-down
of obsolete inventory.
For the three months ended March 31, 2000, total selling expenses was
$13,192 as compared to $31,576 for the same period of the previous year, an
decrease of $18,384, or 58%. This decrease is the result of lower marketing
expenses because of no sales. Total general and administrative expense for the
three months ended March 31, 2000, was $221,989 as compared to $144,132 for the
same period of the previous year, an increase of $77,857, or 54%. Management
continues to prepare for a internet presence despite the closing of its TOYPOP
portal and is developing its MRABA initiative. Expenses were primarily related
to these activities as well as the development of its collectible line of toys
that will were introduced at the February ToyFair 2000 and will be sold this
selling season.
We had a loss from operations of $247,420 for the period ended March
31, 2000 as compared to a loss of $192,197 for the same prior year period. This
increase in the operating loss over that of the preceding year period primarily
reflects higher general and administrative, together with a higher depreciation
expense despite lower selling expenses. The negative gross profit lower as
compared to the year ago period. Management anticipates that as sales are
generated it will result in an improvement in future operating performance and
eventually profitable operations.
During the quarter ended March 31, 2000 we closed out our security
position that resulted in a gain of $5,344. During the year ago period, we had
realized and unrealized losses of $84,961. All securities trading activities
with our cash balance has ceased. Management has utilized money market funds for
its cash prior to its use in our operations. Interest expense was $11,220 in the
quarter ended March 31, 2000 as compared to $195,652 in the same prior year
period. This represents a $184,432 decrease in interest expense, or 94%. The
prior year included convertible debt that was subsequently retired with the
issuance of our common stock.
We obtained the benefit of an extraordinary gain on the forgiveness of
debt during the period ended March 31, 2000 in the amount of $62,024. This
resulted from settlement of accounts payable balances.
The basic loss and basic loss per share were $191,272 and $0.02 per
share respectively, for the three months ended March 31, 2000 as compared to a
basic loss and basic loss per share of $472,810 and $.08 respectively, for the
same period in 1997. This loss represents a 60% decrease over the basic loss
experienced in the year ago quarter. The loss per share for the period decreased
75% over the previous year ago period. The extraordinary gain benefited the
reduction in loss per share by $0.01 in the current period. The weighted average
shares outstanding for the quarter ended March 31, 2000 was 10,040,642 as
compared 5,939,802 for the preceding year quarter ended March 31, 1999.
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The Company has focused, in the recent quarter ended March 31, 2000, on
redeploying its internet presence within the MRABA portal that is a B2B
e-commerce business site within the toy industry. It is expected that MRABA will
be operating by the end of May 2000 and will begin to provide income to us. The
collectibles will begin generating revenues with the third quarter of this
calendar year. Management is optimistic about the benefits of its business
strategies.
Year ended December 31, 1999 compared to year ended December 31, 1998
Revenues
Total revenues for the period ended December 31, 1999 were $128,844
compared to $37,429 for the same period in 1998, which represents an increase of
$91,415 or 244%. The increase was the result of increased sales of our
Hearthside Treasures toy product lines.
Cost of Sales
Cost of sales for the year ended December 31, 1999 increased $70,126 or
245% to $98,669 from $28,543 in the same period in 1998. Cost of sales as a
percentage of sales remained the same at 77% in 1999 as compared to 1998. We
expect that improvement in gross profit margins will occur during 2000 as we
increase revenues.
Selling, General and Administrative Expenses
For the year ended December 31, 1999, total selling, general and
administrative expenses ("S, G & A") were $1,278,780 as compared to $454,127,
for the same period of 1998, an 182% increase. Within SG & A, selling expenses
amount to $204,809 for the year ended 1999 as compared to $66,886 for the prior
year, a 206% increase amounting to $137,923. General and administrative expense
amounted to $1,073,971 in 1999 as compared to $387,241 in the prior year. This
increase amounted to $686,730, or a 177% increase over the prior year. These
increases are attributed to the additional expense included legal expense of
$80,719, consulting fees of $324,855, officer salaries of $129,231 and other
wages of $72,500. Salaries, wages and consulting fees included payments using
common stock. In addition, development expenses associated with our Toypop.com
Internet site increased $235,144 during the year ended December 31, 1999. There
were no development expenses in the prior year. It is anticipated that these
expenses as a percentage of revenues will decrease in the future as our business
grows. We expect that S, G, & A expense as a percentage of sales will eventual
be in the 20-25% range.
Other Expenses
We incurred losses on the sale of securities for the year ended
December 31, 1999 in the amount of $271,686 that included unrealized losses of
$110,558 as compared to a $35,507 securities trading loss for the year ended
December 31, 1998. This increase in loss amounted to $236,179 for 1999 over
1998. We have discontinued investing in securities and presently deposit any
operating funds in money market accounts that bear no speculative risks.
Interest Expense
Interest expense decreased 14%, or $41,709 to $253,187 for the year
ended December 31, 1999 from $294,896 for 1998. This decrease is attributable to
a reduction in convertible debt because of conversion into common stock.
Net Loss
The net loss and the net loss per share before extraordinary items were
$1,844,176 and $0.24 per share respectively, for the year ended December 31,
1999, as compared to a net loss and net loss per share of $789,620 and $0.31 per
share respectively, for 1998. This loss was an increase of $1,054,556 or 134%,
over the previous year. During 1999, there was an extraordinary gain of $28,018
attributed to the forgiveness of a debt. There was no similar extraordinary item
in 1998. The net loss and the net loss per share were $1,816,176 and $0.23 per
share respectively, for the year ended December 31, 1999, as compared to a net
loss and net loss per share of $789,620 and $0.31 per share respectively, for
1998. For the year ended December 31, 1999, there were 7,771,193 shares of
common stock outstanding, on a weighted average basis, as compared to 2,528,155
shares outstanding in 1998, on the same basis. This represents a 207% increase
in shares outstanding this year as compared to the previous year.
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Calendar year 1998 compared to calendar year 1997
Revenues
Total revenues for 1998 were $ 37,429 compared to $54,963 for 1997,
which represents a decrease of $17,534, or 32%. The decrease was primarily the
result of lower sales for our Surprise Box product line. We focused our efforts
primarily on expanding into the toy industry and decreased our focus on candy
sales by doing much less promotion. There was no contribution from the Mother
Hubbard product line during 1998. The acquisition of this product line occurred
too late in the selling season to benefit operating results. The acquisition
occurred late in the second quarter and there was not enough time to
re-introduce this product line to the market.
Cost of Sales
Cost of sales for 1998 increased $522 or 0.2% to $28,543 from $28,021
in 1997. Cost of sales as a percentage of sales increased from 51% to 76% from
1997 to 1998. This increase was the result of lower margins realized on the sale
of our candy products. We expect that improvement in gross profit margins will
occur during 1999 as we increase revenues. During the year ended December 31,
1997, cost of sales included a write-down of inventory in the amount of $14,867
for obsolete products.
Selling, General and Administrative Expenses
For the year ended December 31, 1998, total selling, general and
administrative expenses ("S, G & A") were $454,127 as compared to $372,426, for
1997, a 22% increase. This increase is attributed to the additional expense from
higher compensation paid to our existing personnel, which increased by
approximately $96,000. This compensation related to a bonus paid with our common
stock. There were no other material factors that caused an increase in selling,
general and administrative expenses.
Interest Expense
Interest expense increased 280%, or $217,229 to $294,896 for 1998 from
$77,667 in 1997. This increase in interest expense is attributed to the
substantial charge for issuance of warrants at par value, a significant discount
to the then market price of the common stock, as part of the funding of $400,000
through a convertible debenture.
Loss on disposal of impaired assets
During 1997, we experienced a loss from a write-off of fixed assets
that were no longer being used in our business. These items consisted of dies,
films, molds, trademarks, and packaging design costs. These equipment assets
previously were used to generate income but they became of no further use in our
operations during 1997. These assets were disposed of in the year ended December
31, 1997 and there were no similar charges during the year.
Net Loss
The net loss and the net loss per share were $789,620 and $0.31 per
share respectively, for 1998, as compared to a net loss and net loss per share
of $495,232 and $0.26 per share respectively, for 1997. The loss was an increase
of $294,388, or 59%, over the previous year. The loss per share was about 19%
more than the previous year. In 1997, we benefited from the settlement of an
outstanding payable that resulted in a $0.02 per share extraordinary gain. For
1998, there were 2,528,155 shares of common stock outstanding, on a weighted
average basis, as compared to 1,917,013 shares outstanding in 1997, on the same
basis. This represents a 32% increase in shares outstanding in 1998 over the
previous year.
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Acquisition of Mother Hubbard Creations product line
On June 26, 1998, we purchased Mother Hubbard Creations Product Line of
toys from Vagabond Associates and Gerald Waak. This purchase included license
rights to the toy line. The consideration for this purchase was royalty payments
on sales of Mother Hubbard products of 2% for 1999, 1% for 2000 and 0.5% in 2001
with a minimum guarantee royalty of $10,000 per year. Additionally, we will pay
a 1% royalty for the exclusive use of the Mother Hubbard trademark. The Mother
Hubbard's Creations toy line has been renamed Hearthside Treasures. We have had
Mother Hubbard product sales of $109,459 through December 31, 1999. We
anticipate that the expansion of this new product line will represent a niche
for young girls that we believe has been neglected and should represent a
significant business opportunity for us.
Liquidity and Capital Resources
The Company has largely funded its operations and its product
development activities with funds provided by issuing securities and from
borrowings. During the three months ended March 31, 2000, the Company received
$560,500 as an equity investment for the issuance of 1,987,000 shares of common
stock. These funds were used for working capital purposes.
Net cash used in operating activities for the three months ended March
31, 2000 was $280,543 compared to net cash used of $173,474 for the three months
ended March 31, 1999. This increase in cash used by operating activities is
primarily due to a operating loss and a decrease in accounts payable that was
not offset as in the prior year by interest on warrants and the unrealized loss
of marketable securities that reduced the net loss.
Cash used in investing activities for the three months ended March 31,
2000 and 1999 was $62,938 and $715,561, respectively. We acquired equipment and
intangible assets of $68,282 in the three months ended March 31, 2000 as
compared to $16,066 in the prior year ago period. The major use of cash in the
year ago period was the purchase of marketable securities. We discontinued such
practices during the latter part of 1999.
Cash provided by financing activities for the three months ended March
31, 2000 was $551,089 as compared to cash used in financing activities of
$491,384 for the three months ended March 31, 1999. During the recent quarter,
the Company issued common stock with an aggregate value of $560,500 to provide
working capital and to support its' spending. In the year ago period, we
received note proceeds of $153,158 and equity investment of $367,907.
As of March 31, 2000, the Company had net working capital deficit of
$248,925. The Company's ratio of current assets to current liabilities was 0.46
at March 31, 2000. The Company is not presently profitable and continues to fund
itself from the proceeds of securities placements. Only when the Company
achieves profitability, will then be in a position to fund itself on an
operating basis.
Since our formation on August 2, 1993 and until December 31, 1999, we
have issued 9,034,104 shares of our common stock and raised $2,071,248. Some
common stock was issued for services, all of which has been appropriately valued
at the time of issuance.
During 1998, we issued $400,000 of convertible debt together with
warrants to purchase 400,000 shares at $0.01 per share. This debt allowed the
holder to convert at the lower of $1.25 or 65% of the five-day average of the
closing price of the common stock before the election to convert. All this debt
was converted into common stock during year ended December 31, 1999. These funds
were used to further develop our product line, the hiring of key personnel, and
for working capital purposes.
For the year ended December 31, 1999 we used $687,039 in cash used by
operating activities as compared to $418,719 in the year ended December 31,
1998. Investing activities for the present year included the acquisition of
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equipment in the amount of $115,441. During 1999, we has a loss from securities
transactions in the amount of $271,686. In the prior year, we had a gain of
$116,437. Financing activities for 1999 provided $668,362 that included $693,851
from the issuance of common stock. Cash decreased $405,804 for the year 1999 as
compared to an increase of $372,092 in the prior year.
For the calendar year 1998, we used $418,719 in cash used by operating
activities as compared to $236,975 in calendar year 1997. Investing activities
for 1998 included the sale and purchase of marketable securities in the amount
of $1,320,231 and $1,203,794, respectively, for net proceeds of $116,437, and
the acquisition of equipment in the amount of $34,969, thus providing $81,468 in
cash. For the prior year, investing activities used $182,488 from the purchase
of marketable securities for $440,320, the sale of such securities in the amount
of $290,840, and the acquisition of equipment in the amount of $33,008.
Financing activities for 1998 provide $709,343, the major portion of which was
the issuance of a convertible debenture in the amount of $400,489 and proceeds
from stock issuance of $221,699. For 1998, cash increased $372,092 as compared
to an increase of $39,022 in the prior year.
Historically we have not generated sufficient revenues from operations
to self-fund our capital and operating requirements. We expect that the working
capital needed to grow our business will come from fundings that will primarily
include the equity placement line for $20 million arranged with Swartz Private
Equity LLC ("Swartz") subject to certain conditions. This placement will provide
funding for the establishment and marketing for our new Internet destination web
site and the introduction of our product lines. We do not anticipate significant
funding with this investment agreement for the present selling season. We do
expect that with the commencement of fundings in the first quarter of 2000 which
will permit more extensive marketing of new products and further development and
refinement of the features of the TOYPOP website. We presently do not have any
material capital commitments other than the tools and molds for our collectible
product line. Presently, it is anticipated that molds for this product line will
cost not more than $60,000.
During the first quarter of this calendar year 2000, we issued
2,087,000 shares of our common stock as restricted securities to raise $641,500
in additional capital. We have an obligation to register these shares to provide
the investors future liquidity of their investment.
With our present business strategy, we believe we are focusing on the
key elements necessary for us to be both profitable and successful over the
long-term. We have recently adopted our present strategy with the key element of
using the Internet as a significant channel of distribution for our product
lines. We have focused on a successful implementation of this Internet
opportunity. We believe that we will arrange for all the financial resources
needed to properly execute our plan.
We do not presently have sufficient cash to operate for more than the
next 90 days. We will need capital to promote our toy products during this
year's toy selling season, to provide product availability for our Hearthside
Treasures, and to development our Internet projects. We will need this capital
to provide for our anticipated working capital needs over the next twelve
months. We are presently seeking $500,000 in equity to allow us to sustain
ourselves until we can benefit from the Swartz investment agreement. We can not
provide any assurance that we will be successful in raising such capital as such
undertakings are difficult to complete. Should our Internet endeavors become
highly successful, it will require more capital. Should this occur, the funding
availability in the Swartz placement, if available, which is a periodic equity
funding that we are not permitted to entirely draw upon at any one time, may not
be sufficient to meet these capital needs. If this is the case or the Swartz
facility is unavailable, we have negotiated provisions with Swartz to permit
additional fundings outside of our obligation to them. We are optimistic that we
will be successful in obtaining future financing from Swartz or others to meet
our needs.
Management believes that additional capital will be needed to fund its
working capital needs within this fiscal year. Funding is needed for the
continuing development of its MRABA Internet portal and to market and promote
its toy collectibles. The Company is optimistic that such funds will be
available from investment or financing sources to provide for its plan. Should
funds not be readily available, management intends to defer one or more of its
business activities to a later time when appropriate funding can be arranged.
The Company is in need of additional funding to provide for its working capital
requirements over the next six months.
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Inflation
Inflation has not proven to be a factor in our business since our
inception and is not expected to have a material impact on our business in the
foreseeable future.
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BUSINESS
OVERVIEW
We were originally established on August 15 1993 as a distributor, and
marketer of collectible toys and candy products for children between the ages of
three and twelve years old. We have marketed products that include tea sets,
games, puzzles, books, plush toys, purses, ride-on cars, and unique surprise
boxes that contain gum and candy, collectible toys, trading cards, milk caps
(pogs), comic strips, tattoos, stickers, and various promotional inserts.
Alottafun has not generated sufficient revenues in the last two years to fund
its ongoing operations and has sustained substantial losses since its inception
and we do not expect to become profitable until 2001. Accumulated losses to date
are approximately $4,715,397 as of December 31, 1999, and there is substantial
doubt about our ability to continue as a going concern.
In May 1999, Alottafun! joint ventured with E-Commerce Fulfillment,
LLC. which contracted with M.W Kasch, an independent U.S. toy distributor, to
launch an e-commerce Internet portal called TOYPOP.COM. The Joint venture was
owned 33.3% by E-Commerce Fulfillment and 67.7% by Alottafun!, Inc. E-Commerce
Fulfillment (ECF) was a wholly owned by Jeffrey C. Kasch, President of M.W.
Kasch Company. ECF's responsibilities and obligations included selling toy
products to the joint venture, at prices that did not exceed prices charged to
ECF's typical customers. ECF provided its products based on regular
availability. ECF also merchandised toys on the Web site and made decisions as
to which toys to highlight as special buys, to promote, or present as a `hot'
toy. M.W. Kasch Company warehoused and provided fulfillment to ECF. The
relationship between M.W. Kasch Company and ECF was exclusive as far as ECF was
concerned, but not exclusive with regard to M.W. Kasch. M.W. Kasch was free to
sell any and all other retailers, electronic or otherwise. Our role was to
manage marketing strategies, and to provide the electronic mediums for the sale,
customer support, and fulfillment of products that the joint venture purchases.
In October 1999, we commenced negotiations with a software developer,
MHA, to jointly develop a business-to-business site, that would allow toy
manufacturers to sell direct to retailers as a further expansion of its TOYPOP
site. We chose not to partner with MHA, and instead decided to pursue a
business-to-business strategy ourselves. At Toy Fair 2000, we announced our
strategy and began signing up both manufacturers and retailers. We announced our
business-to-business internet strategy on February 22, 2000.
On February 28, 2000, the M. W. Kasch and us agreed to terminate our
relationship and thereupon, M.W. Kasch Co. gave notice that effective March 28,
2000 our agreement with them was terminated.
On February 10, 2000 as a result of our independent pursuit of a
business-to-business strategy without MHA, who hosted the TOYPOP internet site,
MHA shut down our TOYPOP site. We intend to remake the site into a channel in
the new MRABA internet initiative. Sales of toy products through the TOYPOP site
amounted to $16,506 during the Holiday selling season, primarily due to the lack
of marketing and the limited availability of the better selling toy products
that was available through M. W. Kasch. We are optimistic that TOYPOP can be
made a viable internet retail portal through a reorganization and restructuring
within our MRABA internet opportunity.
BUSINESS STRATEGY
Without the joint venture with E-Commerce Fulfillment, we have revised
the expectation of our ability to sell toy products over the Internet. As we
develop relationships with the toy manufacturers through our MRABA initiative,
and providing that we can arrange the necessary capital, we now expect to
capture $20 million of this $1.5 billion toy electronic segment of the toy
industry by 2003. There is no assurance that we will be successful in marketing
and distributing toys through electronic commerce. If we experience any
difficulties regarding the development of our Internet site, our future business
prospects will be adversely affected.
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Our e-commerce site was originally launched on September 21, 1999. The
Web-site e-commerce development program cost about $235,144 through December 31,
1999. In comparison with other retailers of toys, our expenditures were
relatively small. Marketing expenditures included limited newspapers, radio,
magazine, and internet advertisements. Our expected marketing program was not
funded for the recent holiday selling season. Our lack of marketing resources
has had a negative impact on our sales and our ability to meet our sales
projections. Our Toypop.com site was processing orders through February 10, 2000
when it was closed.
E-commerce has had success building revenues, but has had limited
success generating profits. The enormous costs in building brand names and
promoting Internet sites have made all but a very few companies unprofitable. To
create a profitable site, the company's growth strategy is as follows:
GROWTH STRATEGY
Alottafun!'s growth strategy will focus on the development of two core
products and services that include:
Expand and develop the MRABA.COM site to help implement a business to
business interaction between retailers and manufacturers.
Develop the new product category of the MicroToy Division, where
Alottafun! is currently developing new collectible products for manufacture in
Israel. Based on European collectibles, this market is estimated at over $1
billion dollars. Market a proprietary and highly profitable line of collectible
toys and develop an Internet site with games, message boards, an auction, and
product description tied into these toys, making the toy an "electronic" toy.
THE MARKET
According to Toy Manufacturers of America, the leading toy industry
trade group, total annual retail toy sales were estimated at $27.2 billion in
1998. This represents traditional retail toy sales of $21 billion and video
games of $6.2 billion. These figures represent the retail sales of toys through
all major retail outlets such as national toy stores, discount stores,
department, drug, food and variety stores; gift and novelty shops; price clubs;
bookstores; home supply stores, mail order catalogs and online toy stores.
Toy sales through the Internet represented the fastest growing segment
of toy retail sales during the last quarter of 1998. According to Jupiter
Communications, Inc., a New York research firm, retail sales through online toy
stores is expected to generate $52 million in 1999, $555 million in 2002, and
$1.5 billion by 2003 excluding software, books and other children's categories.
THE GROWTH OF THE INTERNET
The Internet is a mass communications medium, enabling millions of
people worldwide to share information and interact with one another. This
ability to interact serves to create community among individuals with similar
interests and objectives. In August 1999, Jupiter Communications projected that
the number of Internet users in the United States will grow from 100 million in
1999 to 150 million in 2003.
The interactive nature of the Internet allows online merchants to
communicate effectively with one another, and with customers, and allows
advertisers to target customer bases having specific demographic characteristics
and interests. As a result, the Internet is emerging as an attractive, and in
many cases, preferred medium for the transaction of business, including
e-commerce activities. In November 1998, Forrester Research projected
business-to-business e-commerce to grow from $100 billion in 1999 to $1.3
trillion in 2003.
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INTERNET E-COMMERCE
Electronic commerce, or e-commerce, is the buying and selling of
goods and services between two parties using the Internet. The e-commerce
movement can be classified into two major segments: Business-to-Consumer
(B-to-C) e-commerce and Business-to-Business (B-to-B) e-commerce.
THE ADVENT OF BUSINESS WEB SITES
We believe that businesses have historically had to go to a number of
separate, traditional sources to obtain the products, supplies, services and
information necessary for their operations. Similarly, they have used a variety
of traditional channels, such as trade magazine, trade shows, buyer's guides,
direct mail initiatives and trade journals for the advertising and marketing of
their products and services.
Businesses are now increasingly utilizing the Internet as a valuable
tool to access customers and suppliers, to communicate with partners and to
operate more efficiently. Currently, the vast majority of business web sites
focus on the offering of one of the following three types of solutions:
- Product sites. These web sites focus primarily on the online sale
of products.
- Service referral sites. These web sites focus primarily on the
referral of business customers to services provided by other
companies.
- Business content sites. These web sites primarily offer business
customers access to a wide array of articles, information and
news services that are aimed at the business customer. These web
sites seek to generate revenues through the sale of business
information and by attracting high-volume traffic and then
leveraging this traffic into advertising revenue.
We believe that MRABA.COM will provide business customers with the
combined abilities to purchase a broad range of quality products, access a wide
variety of business-related services and research comprehensive business
information, all at a single, user-friendly web site.
THE CONCEPT OF MRABA.COM
MRABA.COM will allow companies to sell products on the internet via a
giant network of thousands of retailers. This is an opportunity to increase the
distribution base and profits of e-Commerce participants.
We will utilize experienced professionals based in New York City, who
are knowledgeable about business-to-business e-Commerce. We will create an
e-Commerce network specifically designed for manufacturers, distributors and
wholesalers which enables them to display, promote and sell all of their product
offerings with no out-of-pocket expenses involved. We will charge a 1%
transaction fee for sales that move through our MRABA.COM portal.
ESTABLISH CUSTOMER WEBSITES
We will assist companies to set up products for sale with our
e-Commerce software and rapidly establish their presences on our network. We
also include previously established company websites that want to benefit from
the business-to-business exchange within the MRABA.COM network. The entire focus
of this business-to-business portal is to showcase a company's merchandise
through a vast network of retailers. For the first time user of the internet, we
only require that they provide product pictures, descriptions and prices and we
will establish their internet presences.
MRABA.COM ADVANTAGE OVER OTHER e-COMMERCE OPTIONS
We expect to provide superior technology to showcase a company's
merchandise and provide superior customer service. These elements include:
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- Superior Technology
Superior technology provides the MRABA.COM merchant and
enables various product departments to offer merchandise with excellent product
presentations that are instantaneously published and fully integrated into the
MRABA.COM network. The result is a compelling shopping experience for the
retailer. Completed product sales through the system automatically generate
orders for fulfillment.
- Showcasing Merchandise
With very little effort, MRABA.COM's flexible design
capabilities exploits and presents product values. Quality photographs and
descriptions are the raw materials needed to create an effective online
presentation. Our internet specialists work with a company to create the initial
product offering. When this initial product selection is launched, a participant
can add, remove or modify the offering at any time using our simple
internet-based management tools that require no special installation or
training. By logging into the MRABA.COM BackOffice with a password, changes can
be made directly through the desktop web-browser (Netscape, Internet Explorer or
AOL) at any time. In addition to merchandising products in MRABA.COM's network,
a company can also get to view all transactions and orders on a real time basis.
Product pages become easily accessed through the appropriate
departments. A participant company also gains access to a variety of special
promotional options that move merchandise in ways that will benefit their
product offerings. Featured Selections and What's New are both areas that focus
retailer's attention on specific products at the head of department pages. The
Outlet Store and Auction House are other examples that present MRABA.COM
member's selections including refurbished items, production over-runs and
short-term clearance sales.
- Superior Customer Service
One of the biggest barriers to merchandising on the web is
reliable and trustworthy customer service. We make the process easy for the
participant company. We have refined and developed simple policies and
procedures that are easy to use for the consumer.
We have made selling merchandise through the Internet an easy
process for the participant company. The complexities of presenting and
marketing merchandise as well as administrating customer service are all
expeditiously and timely handled. By providing and delivering quality
merchandise, a participant company benefits within the MRABA.COM internet portal
community.
CREATING AWARENESS OF THE MRABA BRAND.
It is imperative that we create awareness of the MRABA brand in order
to attract business customers to our web site, garner advertisers for our web
pages and place MRABA in a favorable position when creating our relationships
with vendors and other fulfillment partners. We intend to conduct extensive
marketing activities, including the placement of advertisements online and in
trade journals and other print publications, in order to create and enhance
awareness of the MRABA brand. Our marketing efforts strive to present MRABA as
an enjoyable, easy-to-use Internet web site that helps businesses work more
efficiently and cost effectively. We intend to use a significant portion of the
proceeds of this offering for extensive marketing activities to build awareness
of our brand and drive traffic to our web site.
EXPANDING OUR PRODUCT OFFERINGS
We regularly seek to expand our product offering categories and the
breadth of products available in these categories through the creation of
relationships with vendors and distributors. We also will be commercially
introducing auction capabilities in the third quarter of 2000. Auctions will
allow us to increase the types of products available at MRABA.COM and provide
our business customers with opportunity to transact business directly with one
another. We believe that one of MRABA's competitive strengths will be our highly
diverse product mix, allowing us to offer low margin commodity products as well
as higher-margin specialty goods.
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THE MRABA WEB SITE
Our web site moves business-to-business transactions and other business
operations away from traditional modes to the Internet. Our web site is designed
as a community mall--a place where business customers can visit a "virtual
storefront" or product category of their choice, seek out services from
professionals, research issues important to their business and meet and
communicate with customers, suppliers, colleagues and competitors. We strive to
make our web site user friendly and to create an experience that is highly
useful, efficient, enjoyable and informative for the business customer.
PRODUCT CATEGORIES
Our business customers have access to a growing number of product
categories online. The products in these categories are sold by us. All product
fulfillment will be done through our vendors and other third parties. We believe
that there are numerous sources of products for each of our product categories.
The various product catalogs available at our web site are designed to
be visually attractive, informative and easy to use. Our online product catalogs
provide our vendors with the ability to monitor and evaluate e-commerce
activity, and provide our web site advertisers with the ability to track the
number of visitors and leads generated from a particular catalog, product
category or banner advertisement.
We currently offer business and business-related products in the
following categories: Toys, video games, software, computer hardware and office
supplies.
During 2000, we intend to expand our product offerings to include the
following additional categories: Hardware, flowers, luggage, hobbies, and
various business services.
BUSINESS CONTENT AND COMMUNITY
We believe that the creation of an active online community at our web
site and the provision of valuable business information will create loyalty
among our business customers and promote repeat visitation and web site use. We
are designing our web site to provide business customers with access to:
- information and reviews relating to products and services
offered through our web site;
- industry specific news and publications;
- chat rooms and bulletin boards, where industry specific and
general topics relevant to the community interest are
discussed;
- an events calendar, which publishes the dates, time and other
relevant information relating to events that are important to
web site users;
- a personal calendar, which is a customizable interactive
calendar that allows the business customer to schedule and
keep track of important dates, times and other information and
receive e-mail reminders;
- classified advertisements, where job listings and other
business relevant advertising may be placed and reviewed;
- yellow and white page directory services;
Business-to-Consumer e-Commerce
A typical example of Business-to-Consumer e-commerce is a customer (the
consumer) buying an item from an online retailer such as Amazon.com (the
business). It is widely expected that this kind of customer-driven e-commerce
will soon become a very significant force in retailing. According to Forrester
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Research, B-to-C electronic commerce transaction will grow from $9 billion in
1998 to$108 billion by the year 2003. This growth is due to the fact that the
Internet provides new forms of consumer products, services, marketing channels,
and distribution models. In many cases, the Internet has reconstructed the
consumer-seller relationship. A retailer can now operate 24 hours a day, 7 days
a week, and remove all geographical constraints between itself and its
consumers. Toypop.com is a business to consumer site.
Business-to-Business e-Commerce
Business-to-Business e-commerce is the buying and selling of goods and
services between companies using the Internet. Industries have conducted
business electronically over private networks for years through Electronic Data
Interchange (EDI). However, only recently have certain industries started to
adopt Internet technologies as a key component of their corporate strategy. By
utilizing the Internet, businesses now can conduct secure online transactions
and communications with business partners. The Internet and B-to-B e-commerce is
allowing businesses to reach new business partners globally, open new
distribution channels, and deliver information to field personnel and current
and potential clients. Surprising, numbers released by Forrester Research show
that the total value of B-to-B transactions have already eclipsed that of B-to-C
transactions. It was reported that B-to-B e-commerce had a value of $43 billion
in 1998 and will grow to an unbelievable $1.3 trillion in 2003.
Although there is tremendous potential for companies to benefit from
B-to-B e-commerce, implementing an Internet based e-commerce strategy is not
easy. The combination of the costs and difficulties of marketing your company on
the Internet, the lack and high costs of technical resources, and constantly
changing Internet technologies, increases the risks involved in implementing
such a strategy. The affordable and most practical, least risk solution can be
found in a new class of "intermediaries" called B-to-B Vertical Hubs or Vertical
Trade Communities. These B-to-B Hubs will provide the catalyst that propels
B-to-B e-commerce to a truly scalable level within the manufacturing and
distribution industries, as well as enabling simple connectivity between Buyer
and Seller companies. MRABA.COM is a B-to-B hub.
MRABA.COM
Throughout time, marketplaces have existed as a place where buyers and
sellers would meet together to trade. MRABA.COM is a centralized place (or
virtual community) on the Internet, where all Buyer and Seller Companies for the
toy industry (and related products) can meet and transact with each other at any
time of day or night, from any location in the world. MRABA.COM will also
include industry-specific content, domain expertise, valuable industry
information, as well as a variety of industry and community specific services.
Ultimately, MRABA.COM will become the toy industry's `one-stop business center'
on the Internet.
MRABA.COM provides users with a quick, inexpensive and scalable
solution to become e-commerce enabled. In addition, tremendous value is created
for both Buyer and Seller companies participating, as MRABA.COM offers highly
targeted content and services and caters to a specific targeted market of
companies with similar interests. In many industries, there is high degree of
buyer and supplier fragmentation which results in significant inefficiencies at
each step of the procurement process. As a result, retailers, distributors, and
manufacturers are increasingly seeking new ways to make their supply chain more
efficient. MRABA.COM provides a solution by aggregating Buyers and Sellers who
may not have otherwise found each other in a timely manner.
MRABA.COM streamlines and extends existing distribution channels
allowing suppliers to reduce their selling and marketing costs and time to
market. This results in a more efficient supply chain. Furthermore, MRABA.COM
provides Trading Partners with a single, standard buying location and Internet
technology, eliminating many of the difficulties involved in connecting trading
partners electronically. New and existing trading partners are able to
communicate and transact with each other efficiently and quicker.
The MRABA.COM vertical B-to-B hub provides full e-commerce capabilities
for Seller and Buyer Companies including online electronic catalogs, order
entry, online web auctions, tendering, private auctions, and online classifieds.
MRABA.COM will also include an industry specific online career network,
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comprehensive industry information, and industry news and events. Moreover,
MRABA.COM will provide communication services including chat, threaded
discussion forums, online presentations, and live customer service as well as
many more industry specific and community services and tools as they become
available.
The Gartner Group predicts that almost 80 percent of the Global 1000
companies will participate in Business-to-Business Vertical Hubs to some extent
by the end of 2002.
Traditionally, companies have employed a variety of traditional media
in business-to-business advertising, information delivery and communications to
identify, qualify, and facilitate commerce with customers. MRABA.COM can offer
all of this and is also introducing new possibilities and efficiencies that
never existed before. Furthermore, MRABA.COM provides a means to increase
visibility within the supply chain by allowing companies to share information
with existing and potential business partners. MRABA.COM allows companies across
both the supply chain and demand chain to lower costs, expand existing markets,
penetrate new markets, and create collaborative relationships with trading
partners. What does this all mean? MRABA.COM creates new revenue and
cost-cutting opportunities, as well as entirely new business models that will
positively affect a company's top and bottom line.
INDIVIDUAL COMPANY WEBSITES: A COSTLY STRUGGLE
To understand the value added by MRABA.COM, one must first understand
the difficulties involved when an individual company implements its own
individual B-to-B e-commerce web site. As soon as a company engages in Internet
e-commerce activities, it becomes detached from traditional "brick and mortar"
ways of conducting business and breaks all geographic barriers. However, the
deconstruction of traditional business ways will lead to many new obstacles. For
example, for the web site owner, marketing costs will increase dramatically to
ensure that the company has customers who will know about and use the Internet
site to conduct business. This new worldwide competitive landscape will force
the cost of customer acquisition to increase dramatically. Furthermore, in this
new electronic age, customers will be frustrated and will take their business
elsewhere if they cannot find their product properly positioned at a site
complete with capabilities for online decision making, purchasing, and customer
service.
Another major obstacle is that, a Seller Company with its own
individual web site essentially becomes one of millions of web sites on the
Internet and limits its chances of being discovered. What is gained in lower
costs associated with e-commerce and more specialized products and services
available through the Web, is potentially lost in time spent for a retailer
searching the entire Internet for what they are looking for. Internet portals,
such as Yahoo! Provide users with Internet search queries; however they retrieve
too many results, which are unrelated and inaccurate.
In addition, technology is constantly changing. Companies that pursue
an individual web presence and wish to benefit from these technologies will have
to constantly upgrade their systems and development staff. These types of
changes are often costly and require extensive domain expertise. By
incorporating its web presence with MRABA.COM, a company will be able to benefit
by always having the latest technologies available. Since many companies will
share the cost of the constantly changing infrastructure of the Hub, each
individual company will be able to take advantage of the technology at an
affordable price and with minimal implementation risk. In addition, an
individual company web site would never be able to offer services such as
auctions that are only truly successful in high-user traffic web sites such as
an industry-specific Hub.
Fortunately, participation in MRABA.COM is so affordable and easy to
integrate that even if a company already has a website or some type of Internet
based e-commerce solution, it can still easily participate in MRABA.COM.
THE TROUBLE WITH SELLING DIRECT: ADVANTAGES OF VERTICAL HUBS
The toy (and related products) industry is characterized by a highly
fragmented retail base, with approximately 80,000 retailers in North America,
and a large fragmented supplier base numbering around 15,000. Given the large
number of retail outlets, especially with approximately 60,000 "Mom & Pop" type
stores, it is virtually impossible for any seller company to reach all of the
retailers in this industry efficiently and in a cost-effective manner. MRABA.COM
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will facilitate the industry's move into the e-commerce era. MRABA.COM will
provide added-value for its participants. The following outlines some of the key
benefits for the marketplace Seller and Buyer companies.
FOR A MARKETPLACE SELLER COMPANY
Broader Customer Access
Many companies are limited by their inability to address new business
prospects. Geography, high costs and other such barriers make it difficult to
reach markets where potential retail customers may exist. The Internet, along
with MRABA.COM, changes this by extending corporate reach to a worldwide
audience. In addition, retailers in far-away places which have been too
expensive to market and sell to in the past, are suddenly accessible to the
Seller. The power of MRABA.COM is that it takes charge of redirecting e-business
to the masses of willing and able suppliers, customers, or partners. At the same
time, these potential customers will be able to easily find a company through
MRABA.COM.
AFFORDABLE AND QUICK WAY TO BECOME A GLOBAL PLAYER
By joining MRABA.COM, the Seller Company obtains instant access to a
worldwide audience, allowing it to enter international markets quickly and
affordably. Although the Internet promises to break global barriers, if a
company decided to develop its own web site, it would still remain one company
of millions on the Internet, making it extremely difficult to be found. As a
result, these companies must embark on solo marketing campaigns to increase
global awareness, which can be quite costly. However, when joining MRABA.COM,
the Seller Company can expose itself to international markets and immediately
profit from the MRABA.COM'S global audience, marketing efforts, and contacts.
LOWER MARKETING COSTS
Although the Internet can open new sales channels, without the use of
MRABA.COM, companies are still faced with the dilemma of how to effectively
reach its thousands of potential customers. The solution is that MRABA.COM
already has them registered and organized, instantly providing the company with
an army of purchasers. By having access to a target market in one location, a
company will dramatically lower marketing and customer acquisition costs on a
global basis. In addition, since a target market will have easy access to a
company, a company will experience wider visibility with little investment.
MRABA.COM also provides relief from escalating input costs, such as paper,
postage, and printing. Plus, in this visually-rich environment, companies can
make a virtually unlimited amount of information available to a wider audience
than possible with traditional methods. Additionally, salespeople and sales
representatives can use MRABA.COM as a sales tool saving them valuable time and
eliminating the need to pack samples, travel and educate the Buyer Companies.
They are better able to focus on making sales as opposed to the time-consuming
activities of planning and preparation.
UNLIMITED 7 x 24 OPERATIONS
Electronic commerce through MRABA.COM can be conducted 24 hours a day,
7 days a week. Companies are no longer constrained by time zones, call-center
hours, or conventional business hours. This allows Seller Companies to take
advantage of around-the-clock representation. As a result, merchandisers and
prospects can obtain information and transact with a company at any time, from
any location. MRABA.COM also eliminates the need for individual companies to
manage their own e-commerce infrastructure. The Hub offers 7x24 technical
monitoring and support as well as high-speed bandwidth. This ensures the highest
quality web architecture required for a company to have the most effective and
efficient online presence.
AN E-COMMERCE SOLUTION AT AN AFFORDABLE PRICE AND LOWER TRANSACTION COSTS
By using MRABA.COM the Seller Company is able to take advantage of the
newest Internet technologies and services available, at an affordable price.
These tools will result in increased business efficiencies and revenue streams,
as well as reduced transaction costs. By joining MRABA.COM, the Seller Company
benefits from the best of breed e-commerce technologies such as an electronic
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catalog and order processing systems, online sell- and buy-side auctions, online
negotiations, and simple connectivity tools for its trading partners. Joining
MRABA.COM is less expensive for a company than developing its own Internet
e-commerce site which would require extensive Information Technology (IT)
experience and an incredible investment in infrastructure. Often, a company's IT
staff does not have the time and Internet expertise, due to limited market
resources and a broad range of quickly evolving technologies required to build a
`stand-alone' e-commerce web site. By joining MRABA.COM, the Seller Company in
essence `rents space' or `buys a seat' in the marketplace, making it more
affordable for the company to become web and e-commerce enabled.
CREATES MORE-INFORMED TRADING PARTNERS
MRABA.COM allows Seller Companies to provide its trading partners with
up-to-date information, creating a self-service environment. The ability to
deliver all the information wanted or needed, results in educated customers,
quicker purchasing decisions, and fewer returns, saving time and money for both
the Buyer and the Seller Company.
MAKING SMALLER COMPANIES MORE COMPETITIVE
MRABA.COM allows a smaller company to become a global player and
compete with its larger counterparts. By plugging into the Hub, the smaller
company is empowered by having sophisticated e-commerce capabilities and a wider
market reach. As a result, a smaller company can become a dominant player if it
has the internal systems to support the volume of business generated.
IMPROVED EDUCATION, TRAINING AND INFORMATION
Access to information in today's economy is a key element of success.
MRABA.COM not only creates e-commerce markets but will be instrumental in
conserving the well-being of the industry which it serves. MRABA.COM provides a
wide range of industry-focused content including company news, information to
improve productivity and efficiency, as well as information on events and trends
affecting business. In addition, MRABA.COM contains an area where companies can
give presentations over the web for both employee and management training, as
well as product demonstrations to existing and potential trading partners. The
community will host discussions with important industry players who will make
presentations and answer questions. All presentations will be archived and can
be accessed at any time of day or night.
OPENING NEW DISTRIBUTION CHANNELS
MRABA.COM creates new distribution channels through its online catalog
system and auctions. Sales personnel and customers around the world can be
informed of all of the supplier's products, second-quality goods, and surplus
inventories, paving the way to more rapid clear-outs at the best possible
prices. MRABA.COM also allows Buyer companies to post tenders (or request for
proposals) for goods and services being offered by Seller Companies. In effect,
this will create a reverse auction, which can stimulate great business
opportunities for Seller Companies (as well as Buyer Companies)
E-COMMERCE MARKETING
Using the latest Internet technology, Seller Companies can present
their products directly to their target market using MRABA.COM marketing
features. Price changes, new product introductions, short-term promotions and
marketing trends of new products or promotions, can be quickly executed and
introduced to the marketplace audience faster than before. As a result,
MRABA.COM allows Seller Companies to reach the market quicker. A Seller Company
no longer has to wait for print materials to be published, and can introduce
products immediately through the electronic catalog system, auctions, electronic
product demonstrations, hub advertising services or bulk-email campaigns. As
MRABA.COM evolves, marketing and sales techniques offered by MRABA.COM will
become even more refined, and Seller Companies will have the opportunity to
develop their own particular methods of getting their potential customers'
attention.
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PRODUCT LIQUIDITY
Product liquidity is a special kind of liquidity as it results in sales
of goods that would not otherwise be sold. Some products such as seasonal
apparel and sporting equipment cannot be sold easily toward the end of a
season's buying period. MRABA.COM aggregates buyers and sellers who may not have
otherwise found each other in a timely manner. In addition, on a global basis,
in some cases the end of a season in one geographic area is the beginning of the
same season in another geographic area. In some cases, all of the revenue from
selling these products falls to the bottom line.
FOR A MARKETPLACE BUYER COMPANY
LOWER SEARCH COSTS AND ACCESS TO MORE SUPPLIERS
Without the use of MRABA.COM, buyers are often constrained to the
Vendors that they are aware of. Finding new vendors is a difficult task
requiring time and effort. Many companies trying to take advantage of the
Internet believe that they can just start searching the Internet for suppliers
in their industry. However, Internet search engines are often frustrating and
yield an overwhelming number of results that must be individually analyzed by
the user. MRABA.COM acts as a central location or marketplace for the industry,
reducing search cost and time. For example, Buyer Companies can seek out
specific products throughout a broad range of online catalogs in one simple
search. This query can span multiple supplier catalogs and include Seller
Companies from around the world. This industry focus surpasses any search system
existing on the Internet. In addition, the news, services, and tools offered by
MRABA.COM create a `one-stop' business center for the industry.
TIME SAVINGS
In addition to the time saved when searching for new vendors and
products, MRABA.COM offers other ways for buyers to save valuable time. For
example, Buyer Companies can scan and examine a Seller Company's products prior
to meeting with the salesperson. This will result in more informed buyers and
save time during the sales call. In addition, the buyer can save time by placing
orders online while browsing the online catalogs as well as facilitating the
placement of recurring orders. It also important for companies to remain abreast
of industry news, trends, and events. MRABA.COM provides an industry focus to
deliver a wealth of industry-specific content, eliminating the need to obtain
the information from multiple sources.
ACCESS TO SECONDARY AND EXCESS-SUPPLY AUCTIONS
Buyer Companies can participate in auctions where Seller Companies are
clearing excess inventories. MRABA.COM auctions provide member companies with
full coverage and the opportunity to bid on merchandise being auctioned by other
community members.
ACCESS TO A SUPPLIERS MARKET
Buyer Companies can issue a tender for specific products, which Seller
Companies can bid on. This can result in substantial savings to the Buyer
Company and additional sales opportunities to the Seller Companies.
LOWER TRANSACTION COSTS
Seller Companies already experiencing savings by using MRABA.COM may
decide to pass on additional savings to Buyer Companies, thus improving their
competitiveness in the worldwide market.
IMPROVED SUPPLY CHAIN EFFICIENCY
In large industries, buyers and sellers may incur high search costs in
trying to find each other. In addition, rapidly changing product information can
result in high information search costs. The Internet allows large and small
companies to share valuable information such as product information, delivery
schedules, forecasts, special prices and company news, thus improving the
efficiency of the supply chain. These efficiencies will result in a better flow
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of information, improved inventory management and in increased sales. It allows
for companies to make rapid product introductions, rapid inventory changes, and
rapid price changes.
The Gartner Group predicts that by 2001, 70% of distributors who
operate online will reap more then 80% of their sales through online
marketplaces.
SECURITY
For B-to-B e-commerce to thrive through MRABA.COM, businesses must feel
that the entire process is safe, both in terms of payment and confidentiality.
For this reason, the use of encryption to keep data transmissions private is a
key component of MRABA.COM. Users wishing to use the secured areas of MRABA.COM,
such as the catalog system, must first be manually validated and registered by
MRABA.COM personnel. Once registered, each user will have their own "user name"
and "password" with assigned privileges and restrictions. These privileges and
restrictions determine which company catalogs a user can or cannot see, as well
as special pre-negotiated pricing associated to specific items for that user.
This will also determine if there are special items in different catalogs that
certain users can see and that others cannot. Vendors can also choose whether
they wish to have their catalog viewed by other seller companies within
MRABA.COM. These settings are determined by each Seller Company participating in
MRABA.COM, and are inherent to their specific catalog. Similar security features
exist throughout the rest of MRABA.COM.
SUMMARY
MRABA.COM is a two-way network that mediates between Buyer and Seller
Companies and create benefits for both sides. The value created by B-to-C web
sites tends to increase only linearly by the number of consumers involved;
however, the value created a B-to-B Vertical Hub like MRABA.COM increases
exponentially as the number of participants grow. Unlike other consumer-oriented
sites, these marketplaces are designed to streamline acknowledged inefficiencies
in the supply chain processes of the given industry. Specifically, standardizing
procurement processes, outsourcing application functionality (from back-office
systems); and, leveraging the collective resources of the community to attract
users to the site. The more Buyer and Seller Companies on MRABA.COM, the more
both parties will benefit due to `Strength in Numbers', more choices, and better
access to the industry players.
BUSINESS MODEL
Revenue from MRABA.COM is derived from the following sources:
1. E-COMMERCE AND SOFTWARE SALES. Each offline retailer who joins
MRABA.COM will be offered an opportunity to purchase an
on-line e-commerce site for a monthly subscription fee of $50
- $100 per month. Every retail store needs an on-line
presence. Since MRABA.COM will aggregate the category data
from all the various manufacturers, the retailer will have the
ability to have a robust and competitive site for a very
reasonable fee.
In addition, MRABA.COM will license its software to other
non-competitive sites which wish to develop a B-2-B site.
2. SERVICES. We will build partnerships with many on-line service
providers, including banks, marketing services, insurance,
travel, etc., and we will charge referral fees. As the
retailer begins to use MRABA.COM more and more for on-line
purchases, we believe the retailer will naturally start
looking for other business services on the Internet. We
already will be adding an office supply distribution, computer
hardware and software distribution, luggage distribution, and
floral distribution, all as part of a bundle of services
available to the retailer.
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U.S. small business spending on online transactions and
purchases grew more than 1,000% during 1999, rocketing to $25
billion from 1998, according to Access Markets International
(AMI) Partners, Inc.
AMI is a consulting firm specializing in Internet, IT and
telecom market trends, with an exclusive focus on small and
medium business enterprises. Its report according to the
study, the number of small businesses transacting on the net
increased from 1.8 million in 1998 to 2.8 million in 1999,
representing an increase of 55%. The growth in the small
business market segment, which represents a significant
critical mass, is driving the future of business-to-small
business (B2SB) e-commerce. AMI projects that small business
online purchases will register $118 billion by 2001, emerging
as a critical driver of overall B2B e-commerce.
An estimated 670,000 small businesses have ventured into the
online auction arena, bidding for products and services.
Nearly 1 million small businesses plan to participated in
online auctions in 2000, representing a ground swell movement
in an emerging and potentially vast electronic marketplace due
to the sheer size and magnitude of interest. The study also
shows 1.3 million small businesses are interested in using the
Internet to collaborate or pool with other small businesses to
buy in groups to obtain better prices for products and
services.
3. TRANSACTION FEES. A primary revenue stream for MRABA.COM will
be transaction fees. We will charge 1% per transaction, but
not less than $0.25, to the suppliers.
4. ADVERTISING. We will generate advertising based revenue
streams based on the traditional cost per thousand impression
(CPM) model, or through sponsorships. We also expect to
generate advertising revenue through various opportunistic ads
on the site, such as on various category sections (action
figures, crafts, etc.), placement in search results, special
splash pages, what's new section, etc.
5. SUBSCRIPTIONS/MEMBERSHIPS. We will gradually develop
proprietary content available on a subscription only basis.
MICROTOY COLLECTIBLES DIVISION
The company's collectible toy products are based on the European
Collectible Toy market products, which have sales over $1.5 billion worldwide.
European candy companies have produced collectible toys for over twenty-five
years that consist of small toys surrounded by candy shells. The toys inside the
candy shell are well-engineered collectible models of airplanes, cars, clowns,
frogs, crocodiles, pandas and various other objects. These toys have been
collected and traded in Europe for many years and have established a substantial
secondary market (like Beanie Babies and Pokemon cards).
The company plans on releasing 88 original collectible toys this year
under the name "Pocket Ghosts". The company has designed its own version of the
European Collectible toy that conforms to U.S. product guidelines. Prior to this
new design, these collectible toys could not meet these guidelines. Alottafun!'s
design incorporates the high quality easily assembled objects within a plastic
capsule. New objects will be frequently introduced and the company will limit
the number of objects produced to stimulate the collectible aspects of the
product.
COLLECTIBLES OVERVIEW
It is an established fact that children of all ages, love to collect,
just about anything they can get their hands on. It is also a fact, that in the
US, the traditional children collectibles industry has gone through major
changes in the last few years, with a steady decline in sales of the traditional
paper collectibles such as trading cards, which currently are selling for $5-$20
per pack. Since the rise and fall of the POG, collectible product distributors
and retailers alike are on a search for the next collectible product that will
drive sales.
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In a study conducted among children 4-11, shortly after POGS were introduced,
two of the findings made were particularly insightful:
1. Children like portable collectibles. They like them better
than those that need to be kept in their room; they'd rather
show it, play with it and to carry their collectible in their
pocket.
2. Children ages 4-11, appreciate the ability to wrap their
collectible toy in their hand; it gave them a comfortable
sense of control.
Three years ago, a small 3D figurine collection named "JOJO's" was
introduced in France, with the cooperation of the TF1 TV network. Its success
was due to a thoughtful marketing approach and media support, and to combine the
newness of a 3D collectible with portability and indoor/outdoor playability.
The JOJO's went on to become a success in other European countries,
selling over 60 million twin packs in retail and an equal amount to corporate
Europe, for children product promotions. A compact disk that contained ten songs
CD and a few children related licensed products followed. A Spanish version -
somewhat less sophisticated - named GoGo's, appeared on the market and sold very
well in Spain, Germany and South American countries, and has been brought to the
United States as Crazy Bones.
The JOJO's emerged as a new collectible trend, creating a totally new
collectible category, a collectible 3D portable game/toy.
PRODUCT DESCRIPTION
The "Pocket Ghosts" are a wonderful collection of a total of 150 cute,
scary, funny, ridiculous, serious, grumpy and cheerful Ghost characters. Their
characteristics were designed to match with those found in most children, so
that children will always find a few Pocket Ghosts characters to identify with.
The story line is that the Pocket Ghosts came to Earth, from a far away
planet called "LiliGhost", where everything and everybody is smaller than a
child's pocket size. The Pocket Ghosts are about 1.5 inches tall. The Pocket
Ghosts are harmless and good natured, usually willing to help, but most likely
to have fun. Without a particular political agenda or an urgent need to save the
world from alien monsters, they are non-violent by nature and do their share to
make their way to the children hearts- boys and girls in the 4 to 12 age groups.
Pocket Ghosts, consist of 150 Ghostly characters, with a 1.5 inch
average height, of injection molded acrylic (unbreakable SUN) in a single color.
The collection will be made available in basic colors and in a variety of
transparent, glows in the dark, and glitter mixed colors. Based on the initial
88 characters in Pocket Ghosts, the variety of colors coupled with a series of
finishes (gold, silver, bone, copper) will present an opportunity for a
collection with hundreds of variations for added fun, value and collectibility.
Developed simultaneously with the Pocket Ghost figurines are the Pocket
Ghost collectible Card Game which incorporates the characters in a fun and
challenging game. There has been tremendous popularity in recent years to card
games with expandable decks. "Magic, the Gathering" was a huge success in the
mid 1990's and recently Pokemon cards have become highly collectible for boys 8
- 12 years old.
The card game will have a 50-card starter deck with booster packs
consisting of 8 cards each, which will create a total 150-card deck.
Pocket Ghosts will therefore be packaged in three forms:
1. Two Pocket Ghosts in a free standing/hanging pack along with an
index card and a collectible "Pocket Ghosts Adventures - The Game
Card" card, with an additional high tech paper surprise. 24 - 36
packs to a counter display box, each pack selling for $3.95 at
the retail point. All ghosts will be packaged in a highly
interactive plastic capsule that doubles as a construction toy.
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2. One Pocket Ghost with an 8-card booster pack of cards priced at
$3.95.
3. A 50-card starter pack of cards with 1 Pocket Ghost priced at
$9.95.
MARKET POSITIONING AND DISTRIBUTION
"Pocket Ghosts" will initially be positioned as a boys/girls
collectible, ages 4-12. Management feels that Pocket Ghosts as a collectible
line will appeal to the adult female group as well. Alottafun! plans to
gradually reposition the Pocket Ghosts, via packaging and displays, to attract
both demographics. Pocket Ghosts will sell initially through the collectible
distribution channels - hobby, comic book, trading cards and other similar
retail outlets. As their popularity grows, Pocket Ghosts will be widely
distributed to mass-market stores, toy stores and specialty shops.
MARKETING USING THE MRABA.COM Web site
Alottafun! will extensively market the Pocket Ghosts with a tie-in to
the MRABA.COM Web site. A game site will include a multi-tiered game in which
children can win prizes and points, message boards, a children's auction, as
well as product descriptions. This site will elevate the collectible toys to a
glossy "electronic" status, as the Web site will be an integral part of the
product.
PROMOTIONAL OPPORTUNITY
Corporations are actively marketing products and services specifically
targeted to children. Promotion campaigns can utilize, as an incentive, toy
products such as collectibles to both increase sales and improve market
position. In these promotion campaigns, a premium incentive in the form of a toy
or other product with child appeal are being offered for a predetermined action
such as a purchase or a response to an ad.
Designed to be safe in size, shape and overall image, "Pocket Ghosts"
offer children a unique appeal provide an opportunity for a corporation looking
at a new product category to use as a premium incentive for a promotion
campaign. The flexibility of the Pocket Ghosts can easily allow a special
subset, which can be collected to complete a series, only at the participating
outlets of a particular promotional partner. The possibilities and the potential
for sales are significant.
INTERNATIONAL SALES
Based on preliminary market tests and meetings with potential
distribution and promotional partners, management believes that in Europe, South
America and in the Pacific, the Pocket Ghosts will be well received. Management
plans on launching the collectible line, positioning it similarly to the U.S.,
initially in France, Germany, Benelux and Italy, followed by the UK, Scandinavia
and Spain and in a later stage in the Balkan countries and Turkey. The company
will launch "Pocket Ghosts" in South America in late 2000, with initial
introduction in Brazil and Argentina followed by the rest of that continent. No
plans are in place yet for the Pacific/Asia launch.
For the retail launch and for the potential promotions, management will
be partnering with local TV properties licensing agents to carry the
introduction to both the retail segment as well as to the local corporate
promotional segment. Management believes that licensing agents are most
appropriate to launch and maintain a high level of exposure for the Pocket
Ghosts in those countries.
POCKET GHOST ACCESSORIES
"Pocket Ghosts Adventures - The Card Game" - The players will have to
be proficient in their knowledge with the Pocket Ghosts legacy and
characteristics. These highly collectible cards will be given away, one to a
pack, and Alottafun! will provide the players with the ability to purchase the
game cards in special packs.
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"Pocket Ghosts Adventures - The Board Game" - will be an additional
venue for the collectors to play with the Pocket Ghosts. The board game can be
played with the collectible toys, the game cards or a combination of both. The
board will be printed in a special "Glow in the Dark" print, to allow the
players to play with their glow in the dark sub set, a board game in their
darkened room.
Pleasant Hill Elementary School Collection Box - modeled after the
Pocket Ghosts new home, this school box will raise its roof to accommodate up to
50 collected Pocket Ghosts.
Collection Pouch - will have enough room for your favorite 20 Pocket
Ghosts, it will allow a player to carry them in a convenient and fashionable
cool manner.
Pocket Ghosts - The TV Series? The Pocket Ghosts character and story
line calls for an animated TV series. Alottafun! believes that a successful
product launch and a lengthy selling period of the Pocket Ghosts will present it
with such opportunities. As preparation for such opportunities, management will
align MicroToy and the Pocket Ghosts with the pre-eminent licensing agents
worldwide.
SALES AND MARKETING COSTS
Our sales and marketing activities will be extremely important for:
- the development of our brand name,
- the creation of traffic to our web site, and
- the promotion of our business, products and services.
We will continue to incur significant expenses in connection with:
- advertising,
- promotional and public relations activities,
- merchandising,
- market research and consultancy, and
- customer database management.
PRODUCTS
Our initial product consisted of a surprise box that included quality
gum and candy, toys, trading cards, milk caps (pogs), comic strips, tattoos,
stickers, and various promotional inserts. Our initial emphasis was placed upon
gaining distribution among convenience and neighborhood stores. More recently,
we have targeted larger volume trade channels such as grocery, drug, variety,
video, mass merchandisers and specialty outlets. Our success in distributing our
Surprise Box was very limited in targeting neighborhood and convenience stores.
If we are to be successful in this effort in the future, substantially more
advertising and promotion would have to be devoted to this segment. We cannot
provide any assurance that we will be successful in this endeavor or that the
capital resources will be readily available to fund such a program. Our Internet
strategy to sell toys direct to the public could potentially conflict with the
distribution of our products though regular retail channels and could adversely
impact our sales and profitability. We also cannot provide assurances that we
will be successful in this regard.
Our packaging and graphic designs target children between the ages of
three and twelve years old. Package designs and graphics are provocative,
colorful and irreverent. The main cartoon character located on the package is
Reely, which is representative of a typical 10 year old. To develop brand
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loyalty among the higher age groups of seven to twelve years old, high quality
trading cards, milk caps and comics are added to maintain their interest.
Since the introduction of the Alottafun! Surprise Box, we have
significantly expanded our product offerings to include:
- Cooking and housekeeping sets
- Collectible toys
- Puzzles
- Books with built-in games
- Plush toys
- Purses
- Girl make-up kits
- Ride-on push cars
- Building block sets
- Models
COLLECTIBLE TOYS
Our collectible toy products are based on the European Collectible Toy
market products. European candy companies have produced collectible toys for
over twenty five years which consist of small toys surrounded by candy shells.
The toys inside the candy shell are well engineered collectible models of
airplanes, cars, clowns, frogs, crocodiles, pandas and a various other objects.
These toys have been collected and traded in Europe for many years and have
established a substantial secondary market.
We introduced 80 original collectible toys at the Toy Fair 2000
industry convention in February 2000. We have designed our own version of the
European Collectible toy that conforms to U.S. product guidelines. Prior to this
new design, collectible toys could not meet these guidelines. Our design
incorporates the high quality easily assembled objects within a plastic shell.
We will introduce new objects inside the collectible frequently and will limit
the number of objects produced to stimulate the collectable aspects of the
product. The collectible toy product is a natural extension of our Surprise Box
and will prove to be a significant product in the United States.
Our collectible toy products introduction was delayed until February
2000 because it has taken us longer than anticipated to construct the molds to
manufacture these products and secure distribution relationships. We originally
expected to launch these products at the end of 1999, however, we felt that by
delaying the launch until Toy Fair 2000 would provide for a more successful
introduction. All of the major toy distributors are present for this event which
will effectively introduce our collectible products to key distributors without
having to visit each one individually. Our limited capital resources to-date
make this introduction our most viable alternative, however, there are no
assurances that these distributors will be receptive to our collectible toy
products and that these products will be successfully introduced. We have
focused on introducing our products in the European market initially.
Our Hearthside Treasures acquisition provides high quality tea sets,
cook n' serve sets, continental cookware sets, and food sets to children between
the ages of three to five years old. This acquisition presents us with an
opportunity to expand our distribution in this growing segment of the toy
industry. These products are primarily targeted toward young girls which allow
us to further diversify our customer base.
SALES, MARKETING, AND DISTRIBUTION
We sell all of our toy products through our own in-house sales staff
and independent sales representatives. Purchasers of our products include toy
and discount retail chain stores, department stores, toy specialty stores and
wholesalers. The Alottafun! Surprise Box product is also distributed through
convenience and small specialty retail establishments. As we continue to expand
our operations, we will hire additional independent sales representatives to
handle specific classes of trade, such as video, military, mass merchandisers,
variety, toy, and other outlets.
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Our success depends on our ability to establish and increase the size
of our distribution network for our products. To facilitate growth in our
distribution network, we provide incentives to distributors by offering them
discounts on volume purchases. Except for purchase orders relating to products
on order, we do not have written agreements with our customers. Instead, we
generally sell products to our customers pursuant to letters of credit or, in
some cases, on open account with payment terms typically varying from 30 to 90
days.
We will budget approximately 5% of our net sales for advertising and
promotion of our traditional products. We will use radio and to a lesser extent
television commercials to market our products. We advertise our products in
trade and consumer magazines and other publications, market our products at
major and regional toy trade shows, conventions and exhibitions and carry on
cooperative advertising with toy retailers and other customers.
MANUFACTURING
Our own toy products are manufactured through contract manufacturers
whom we choose on the basis of quality, reliability and price. Consistent with
industry practice, the use of third-party manufacturers enables us to avoid
incurring fixed manufacturing costs. All of the manufacturing services performed
overseas for us are paid for either by letter of credit or on open account with
the manufacturers. To date, we have not experienced any material delays in the
delivery of our products; however, delivery schedules are subject to various
factors beyond our control, and any delays in the future could adversely affect
our sales. Currently, we have ongoing relationships with approximately five
manufacturers. We believe that alternative sources of supply are available,
although we cannot assure you that adequate supplies of manufactured products
can be obtained. At the present time, all of our manufactured products are sold
on the basis of letters of credit or wire transfers. We do not inventory
product. As we expand our business, we would expect to maintain a thirty-day
supply of inventory equal to our forecasted demand. These inventory levels will
be subject to inventory risk in the form of obsolescence or through purchasing
too much inventory and obtaining low product demand.
Although we do not conduct the day-to-day manufacturing of our
products, we participate in the design of the product prototype and production
tooling and molds for the products we develop or acquire, and we seek to ensure
quality control by actively reviewing the production process and testing the
products produced by our manufacturers.
We use our officers for our research and development efforts that
include travel expenses to identify manufacturers and use their participation in
toy product designs. However, our manufacturers bear a majority of the costs
associated with developing new toy products and prototypes. As a consequence of
this approach, we have no material research and development expenses.
INTELLECTUAL PROPERTY
The steps we take to protect our proprietary rights may be inadequate.
We regard our copyrights, service marks, trademarks, trade dress, trade secrets
and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. We have a trademark for "Alottafun" for toys, games and
playthings and for sales of toys, games and playthings. We have filed trademark
applications for Alottatoys.com(TM) and ToyPop.com(TM). We also have
applications for Hearthside Treasures(TM), Microtoy Magic Capsule(TM) and Pocket
Ghosts(TM). We have filed a patent application for the Pocket Ghost Capsule. We
have not received confirmation that any of these trademark or patent
applications have been accepted or that the trademarks have been granted. If
granted, these trademarks will be protected from use by others for a period of
10 years as long as our usage of these trademarks continue. There is no
assurance trademarks will be granted for these names. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which we will sell our products and services only. Furthermore,
the relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.
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COMPETITION
Competition in the toy industry is intense. Many of our competitors
have greater financial resources, stronger name recognition and larger sales,
marketing and product development departments and benefit from greater economies
of scale. These factors, among others, may enable our competitors to market
their products at lower prices or on terms more advantageous to customers than
those we could offer for our competitive products. Competition often extends to
the procurement of entertainment and product licenses, as well as to the
marketing and distribution of products and the obtaining of adequate shelf
space. Competition may result in price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse effect on our
business, financial condition and results of operations. In each of our product
lines we compete against one or both of the toy industry's two dominant
companies, Mattel, Inc. and Hasbro, Inc. We also compete with numerous smaller
domestic and foreign toy manufacturers, importers and marketers in each of our
product categories.
Our web site competes with numerous other web sites that offer any
combination of e-commerce capabilities, business content and online community
access. Our competitors vary in size and in the scope and breadth of the
services they offer. In addition to competition from several e-commerce trade
communities, we primarily encounter competition from:
Virtually all of our current and potential competitors have longer
operating histories, larger customer bases and greater brand recognition in the
business products and Internet markets. They also have significantly greater
financial, marketing, technical and other resources. These superior resources
could allow competitors to:
- devote significantly greater resources to marketing and
promotional campaigns than we can,
- adopt pricing policies that are more aggressive than ours,
- attract greater numbers of users than we can by offering services
for free,
- devote substantially more resources to the development of their
products and services than we can.
E-COMMERCE
The markets for business products and services offered through
traditional channels and Internet channels are intensely competitive. We expect
competition in these markets to increase.
There are few barriers to the business e-commerce market. The rapid
growth of the Internet in general, and online e-commerce activity specifically,
has attracted the attention of numerous companies, including business product
manufacturers and suppliers who have historically operated through traditional
channels. Competitors could enter into exclusive distribution arrangements with
our vendors and deny us access to their products. Increased competition also
could result in pricing pressures, increased marketing expenditures and loss of
market share, and could have a material adverse effect on ALOTTAFUN.
COMMUNITY SERVICES
The market for community services is highly competitive, and we expect
competition to continue to increase significantly. There are no substantial
barriers to entry in these markets. We compete with many providers of community
services, including companies that attempt, as we do, to target business
consumers. We believe that to successfully compete, our communities must be
structured around themes that are important to our users. Further, our community
functions must be easily accessible at our web site through simple mouse clicks.
Ultimately, our communities must provide users with utility. This utility can
only be provided if meaningful dialog and user interaction develops within the
communities.
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CONTENT AND INFORMATION
A large number of web sites and online services offer information
features and content, including news, stock quotes, industry specific content,
yellow pages, e-mail listings, job listing and other content and features that
are competitive with the content we plan to offer.
ADVERTISING OPPORTUNITIES
We compete with all types of online companies for advertisers. We also
compete with traditional media, including television, radio and print, for a
share of advertisers' total advertising budgets. We believe the number of
companies selling web-based advertising and the available inventory of
advertising space have increased substantially during recent periods.
We believe that the principal competitive factors in our markets are:
- brand recognition;
- ease of use;
- comprehensiveness;
- breadth and quality of products, services and content offered;
- access to customers; and
- with respect to advertisers and sponsors, the number of users,
duration and frequency of visits and user demographics.
Many of our competitors in all of our target markets have significantly
greater financial, technical, marketing and distribution resources. In addition,
providers of Internet tools and services may be acquired by, receive investments
from, or enter into other commercial relationships with larger, well-established
and well-financed companies.
MRABA.COM and TOYPOP.COM
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future as more and more
businesses develop an Internet presence. Barriers to entry are low which enable
current and new competitors to enter our market and sell competitive products
without much resistance.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to Web site and systems development than we
can. In addition, larger, well-established and well-financed entities may
acquire, invest in or form joint ventures with online competitors or children's
toy suppliers as the use of the Internet and other online services increases.
Certain of our competitors may be able to secure products from vendors
on more favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet.
Prospective competitors will be able to use the Internet as a marketing
medium to reach significant numbers of potential customers. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites and
may direct customers to other online toy, video game, software, video and music
retailers, may increase competition. If we face increased competition, our
operating results may be adversely affected.
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There are several ways we intend to differentiate ourselves from other
on-line merchandisers. First, we will sell products at significantly less than
retail prices. Secondly, our site will be much more child oriented than other
on-line toy merchandisers which will include games and other activities for
kids. Finally, we will be selling our own line of proprietary collectible toys
to children to stimulate traffic on our site. However, there is no assurance
that we will be able to successfully differentiate ourselves from our
competition. Barriers to entry are low, therefore, our competitors which include
major on-line toy merchandisers may adopt our strategies. Our inability to
differentiate ourselves from our competitors may have a material adverse effect
on our business.
With the withdrawal of M.W. Kasch Company, to supply toy products to
us, we are confronted with major uncertainty that we can make a similar
arrangement with another toy distributor or other manufacturers. If we are not
able to accomplish this, then we will change the on-line retail concept of
TOYPOP to provide only our toy products and collectibles.
We continue to intend to use a combination of off-line advertising in
magazines, television, etc. and on-line advertising with e-mail campaigns,
affiliate programs and the like. However, due to limited advertising resources,
we run the risk that we will only be able to attract a limited number of
customers to our site once again opened and thus we may have an inability to
generate significant sales.
GOVERNMENT REGULATION
We are subject to various laws and regulations relating to our
business. Few laws or regulations are currently directly applicable to access to
the Internet. However, because of the Internet's popularity and increasing use,
new laws and regulations may be adopted. These laws and regulations may cover
issues that include:
- user privacy;
- pricing;
- tax;
- content;
- copyrights;
- distribution; and
- characteristics and quality of products and services.
In addition, the growth of the Internet and e-commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.
Our ability to generate revenues from the sale of advertising on our
web site depends on demonstrating to advertisers that our web site traffic is
comprised of users that are attractive to these advertisers. Advertisers focus
their efforts on reaching particular demographic groups, which are groups of
users having common characteristics, including similar buying habits and similar
income levels, or which reside in the same geographic locations. If we are not
able to legally share information regarding our customers with potential
advertisers, our ability to generate advertising revenues will suffer. The
public is becoming increasingly concerned about issues relating to privacy on
the Internet. This increased sensitivity could result in the adoption of
stringent legislation that prevents or limits our ability to use personal and
other data about our customers.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress also is considering laws regarding Internet taxation. These
are all recent enactments, and there is uncertainty regarding their marketplace
impact. In addition, various jurisdictions already have enacted laws that are
not specifically directed to e-commerce but that could affect our business. The
applicability of many of these laws to the Internet is uncertain and could
expose us to substantial liability.
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Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could materially
adversely affect us. If we were alleged to violate federal, state or foreign,
civil or criminal law, even if we could successfully defend the claims, it could
materially adversely affect us.
We believe that our use of third-party material on our web site is
permitted under current provisions of copyright law. However, because legal
rights of certain aspects of Internet content and commerce are not clearly
settled, our ability to rely upon exemptions or defenses under copyright law is
uncertain.
Several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services.
Additionally, local telephone carriers have petitioned the Federal
Communications Commission to regulate Internet providers and online service
providers in a manner similar to long distance telephone carriers and to impose
access fees on these providers. If either of these petitions is granted, the
costs of communicating on the Internet could increase substantially. This, in
turn, could slow the growth of use of the Internet. Any legislation or
regulation of this type could materially adversely affect our business,
financial condition and operating results.
EMPLOYEES
As of June 1, 2000, we employed 8 persons, all of whom are full-time
employees, including three executive officers. Our employment reflects our
outsourcing of manufacturing and the establishment of strategic partnerships
that allows us to minimize staffing. We believe that we have good relationships
with our employees.
None of our employees belong to a labor union.
DESCRIPTION OF PROPERTY
We lease approximately 2,000 square feet of space at 141 N. Main
Street, Suite 207, West Bend, Wisconsin, 53095, which is currently used for our
principal executive offices. The lease for the offices expires on December 31,
2001. The monthly rent for the offices is approximately $900.00.
In addition to the above location, we also lease approximately 1,000
square feet of space at 225 Lafayette Street, Suite 301, New York, New York,
which is currently used for our MRABA.COM headquarters. The lease for the office
expires on December 31, 2000. The monthly rent for the office is approximately
$2,200. We also lease an office at Flughafenstrasse 5264546, Morfelden-Walldorf,
Germany. We pay no rent for the office in Germany. In Germany, we share an
office with a business partner of Mr. Bezalel, at no cost to us.
LEGAL PROCEEDINGS
There is no pending litigation case, only threatened litigation against
the company from MHA, the company's past web site host and e-commerce provider
that terminated the company's TOYPOP website and refused to provide additional
e-commerce support services. This dispute involves a claim that we failed to
timely pay for past services rendered. However, there is no executed written
contract between the parties. Also, MHA is refusing to turn over the HTML web
pages that comprise our TOYPOP web site. MHA has also asserted certain copyright
infringement and trade secret misappropriation claims. No lawsuit has been
filed, merely an exchange of letters between respective counsel. If necessary,
and if litigation is instituted, we plan to vigorously defend and assert
substantial counterclaims. The likelihood of an unfavorable outcome is
impossible to assess at this time. The maximum potential loss to us is also
impossible to assess at this time.
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MANAGEMENT
Because we are a small company, we are currently dependent on the
efforts of a limited number of management personnel. We believe that, given the
development stage of our business and the large amount of responsibility being
placed on each member of our management team, the loss of the services of any
member of this team at the present time would harm our business. Each member of
our management team supervises the operation and growth of one or more integral
parts of our business.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to each
person who is a director or an executive officer of the Company as of May 1,
2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael Porter 46 Chairman of the Board of Directors
President, Chief Executive Officer
David Bezalel 49 Chief Operating Officer, Vice President
Of Marketing and Director
Gerald Couture 54 Vice President of Finance,
Director, Secretary
Chris Powers 28 Chief Information Officer
</TABLE>
Executive officers are elected by the Board of Directors and serve
until their successors are duly elected and qualify, subject to earlier removal
by the Board of Directors. Directors are elected at the annual meeting of
shareholders to serve for their term and until their respective successors are
duly elected and qualify, or until their earlier resignation, removal from
office, or death. The remaining directors may fill any vacancy in the Board of
Directors for an unexpired term. See "Board of Directors" for a discussion of
the Directors' terms.
Business Experience of Executive Officers and Directors
Michael Porter, President and Chief Executive Officer of the Company,
founded the Company in 1993. From 1985 through 1993, Mr. Porter co-founded and
served as President and Chief Executive Officer of Everything's a $1.00, a
one-price close out variety store. During his tenure as Chief Executive Officer
operations expanded from one store to sixty stores nationally. Subsequent to
Everything's a $1.00's merger with Value Merchants, Inc., Mr. Porter served as
Executive Vice President of the international operations. Prior to his
involvement with Everything's a $1.00, Mr. Porter practiced law in the State of
Virginia. He received his B.A. in Political Science from Duke University, his
M.B.A. from the University of South Carolina Business School and his J.D. from
the University of South Carolina Law School.
David Bezalel, Executive Vice President, joined the Company in
May 1997. In 1991, he founded and currently serves as President of Ideaforce,
Inc. an international premium and incentive marketing company. Mr. Bezalel also
formed Dmooyat Character Licensing in Israel in 1992, which licenses cartoon
characters and entertainment characters. He founded and served as President of
Lev International Promoters, Inc. from 1989 through 1991. From 1990 through
1991, Mr. Bezalel also worked for General Motors. Mr. Bezalel is a graduate of
Hebrew University with a Bachelor's degree in Mass Communications and Marketing.
Gerald Couture, Vice President of Finance, began working for the
Company in March 1998. In addition to his responsibilities for the Company, Mr.
Couture maintains a financial consulting practice, as Couture & Company, Inc., a
firm founded in 1977, that specializes in providing consulting services to high
potential companies, including services relating to public offerings, mergers
and acquisitions, venture capital investing, crisis management and corporate
restructurings. Prior to his consulting career, Mr. Couture worked for several
41
<PAGE>
years as an engineer for General Electric Company in the nuclear power field and
Rohm & Haas Company in the chemical industry. He received a Bachelor of Science
in Chemical Engineering from the University of Massachusetts and an MBA in
Finance from Temple University, Philadelphia.
Chris Powers, Chief Information Officer. Previously, Mr. Powers worked
with Time Warner and Cable Vision respectively, developing and designing content
for their broadband cable modem service. He has also consulted with large
corporations in the development of their Internet presence. He has extensive
background in multimedia and interactive design, working with such clients as
Atlantic Records in the development of interactive press kits for Ellen
Degeneres and WoodStock as well as Mapinfo Corporation. More recently, Mr.
Powers played a key role in the development of a new online service called E-the
people, which had articles about it in Time Magazine and Wired. He also has a
degree from the State University in New York in Albany.
Board of Directors
The Company's Bylaws fix the size of the Board of Directors at no fewer
than one and no more than seven members, to be elected annually by a plurality
of the votes cast by the holders of Common Stock, and to serve until the next
annual meeting of stockholders and until their successors have been elected or
until their earlier resignation or removal. Currently, there are three (3)
directors who were elected on April 20, 1999.
Director Compensation
A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings except reimbursement of out-of-pocket expenses and options. Outside
directors will be reimbursed for out-of-pocket expenditures incurred in
attending or otherwise participating in meetings and may be issued stock options
for serving as a director. The Company has no other arrangements regarding
compensation for services as a director.
A person is deemed to beneficially own voting securities that can be
acquired by that person within 60 days from the date of this prospectus upon the
exercise of options. Each beneficial owner's percentage ownership is determined
by assuming that the options held by that person, but not those held by any
other person, and which are exercisable within 60 days of the date of this
prospectus have been exercised. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with respect to
all shares of common stock beneficially owned by them.
Because our president and chairman of the board, Michael Porter, and or
vice president, David Bezalel, will together continue to control ALOTTAFUN after
the offering, your ability as a stockholder to influence the management of
ALOTTAFUN will be extremely limited. Messrs Porter and Bezalel through their
beneficially ownership and the control afforded by the preferred stock issue can
cast approximately 51,431,000 votes in all shareholder matters prior to this
offering, and can similarly cast 51,431,000 votes or equivalent to 79% of the
total votes that can be cast by the common stock holders and the preferred
shareholders upon completion of this offering. They will continue to be in a
position to significantly influence any matter put to a vote of our
stockholders, including with respect to the election of our directors.
EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued by the
Company for the year ended December 30, 1999, to or for the account of the Chief
Executive Officer. No other executive officer of the Company received an annual
salary and bonus in excess of $100,000 or more during the stated period.
Accordingly, the summary compensation table does not include compensation of
other executive officers.
42
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Restricted
Other Annual Stock Options/ LTIP All Other
Name & Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
-------------------- ------- ---------- --------- --------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 75,000 -- -- -- -- -- --
Michael Porter
President, CEO 1998 89,561 -- -- -- -- -- --
1997 74,371 -- -- -- -- -- --
</TABLE>
------------------------
(1) Excludes options to acquire up to 2,500,000 shares at $.15 per
share issued to Mr. Porter in January 1999. See "Certain
Relationships and Related Transactions."
Employment and Other Agreements
In January 1999, the Company entered into written employment agreements
with Michael Porter and David Bezalel. Each employment agreement has a term of
five (5) years. Each employment agreement has annual base compensation beginning
at $75,000 annually starting May 31, 1999 and increasing $10,000 per year to
annual compensation of $115,000 for 2004.
Each executive has the right, at his election, to receive compensation
in the form of the Company's restricted common stock valued at 50% of the
closing bid price as such stock as of the date of executive's election. Each
executive is entitled to bonuses as approved by the Company's Board of Directors
and reimbursement for ordinary and necessary business expenses.
Upon execution of each agreement, each executive was granted
non-qualified stock options to purchase 2,500,000 shares of the Company's Common
Stock at an exercise price of $.15 per share. These options were immediately
exercisable, contain a cashless exercise provision, and have an exercise period
of ten (10) years. Each executive's employment agreement provides for an
automobile allowance of $800 per month.
In January 1999, the Company also entered into a written employment
agreement with Gerald Couture. This employment agreement has a term of five (5)
years and has an annual base compensation of $60,000 for 480 hours of employment
per year. As consideration for this employment agreement, Mr. Couture received
an option to purchase 500,000 shares of the Company's common stock over a
ten-year period at $0.15 per share. These options may be immediately exercisable
and contain a cash-less exercise provision.
During the term of these employment agreements, each executive agrees
not to compete in the Collectible Toy business. The agreements provide for
severance payments equal to 299% of the annual base compensation then due under
each agreement in the event there is a "change of control" of the Company, as
defined in the agreement, and the executive is subsequently terminated without
cause.
43
<PAGE>
Incentive Stock Option Plan
The Company has in effect a stock option plan, which authorizes the
grant of incentive stock options under Section 422 of the Internal Revenue Code
(the "Plan"). The Plan was adopted in January, 1999. A total of 10,000,000
shares have been reserved for issuance under the Plan. As of May 1, 2000,
5.575,000 options to purchase a total of 5,575,000 shares at $.15 a share were
issued and outstanding under the Plan.
The Plan provides that (a) the exercise price of options granted under
the Plan shall not be less than the fair market value of the shares on the date
on which the option is granted unless an employee, immediately before the grant,
owns more than 10% of the total combined voting power of all classes of stock of
the Company or any subsidiaries, whereupon the exercise price shall be at least
10% of the fair market value of the shares on the date on which the option is
granted; (b) the term of the option may not exceed ten years and may not exceed
five years if the employee owns more than 10% of the total combined voting power
of all classes of stock of the Company or any subsidiaries immediately before
the grant; (c) the shares of stock may not be disposed of for a period of two
years from the date of grant of the option and for a period of one year after
the transfer of such shares to the employee; and (d) at all time from the date
of grant of the option and ending on the date three months before the date of
the exercise, the employee shall be employed by Company, or a subsidiary of the
Company, unless employment is terminated because of disability, in which cased
such disabled employee shall be employed from date of grant to a year preceding
the date of exercise, or unless such employment is terminated due to death.
INDEMNIFICATION
Our by-laws include provisions permitted under Delaware law by which
our officers and directors are to be indemnified against various liabilities.
These provisions of the by-laws have no effect on any director's liability under
federal securities laws or the availability of equitable remedies, including
injunction or rescission, for breach of fiduciary duty. We believe that these
provisions will facilitate our ability to continue to attract and retain
qualified individuals to serve as our directors and officers.
With respect to indemnification for liabilities arising under the
Securities Act of 1933 we have been advised that in the opinion of the
Securities and Exchange Commission this type of indemnification is against
public policy as expressed in the Securities Act and is unenforceable.
44
<PAGE>
CERTAIN TRANSACTIONS
INVESTMENT AGREEMENT OVERVIEW
On June 4, 1999, we entered into an Investment Agreement with Swartz
Private Equity, LLC. ("Swartz"). The Investment Agreement entitles us to issue
and sell our common stock for up to an aggregate of $20 million from time to
time during a three-year period through June 3, 2002 subject to certain
conditions. This is also referred to as a put right. The Common Stock will be
registered for resale in a Form S-1 registration statement to be filed in the
near future. There are no provisions in this investment agreement requiring
Swartz to vote shares for or support current management in corporate governance
matters.
The terms of the Amended Investment Agreement allow Alottafun! to
deliver Put Notices to the investor, at times and amounts determined by us,
requiring the Investor to purchase the specified number of shares, subject to
maximum dollar amounts and subject to limitations based upon our trading
volumes. There is no limit on the price of the shares provided that we, in our
sole discretion, may specify a minimum price for each Put. The price of such Put
is dependent upon the closing price of our common stock. We determine when and
in what amount funding will occur. The Company's discretion to determine both
the timing of the funding and the amount of funding avoids the conditions that
exist with so-called "toxic' or death spiral convertible stock issues. The
registration statement, once prepared, will include the resale of the common
stock issuable upon exercise of the warrants. The warrants will have an exercise
price that resets based upon future market prices at fixed times outside of the
Investor's control. There are no conditions within the control of Swartz, or
which Swartz can cause to not be satisfied. There is a limit such that the
amount of a single Put cannot exceed 9.9% of our market cap, but no limit on
ownership percentage. We do not expect to benefit from this funding until the
third calendar quarter of 2000.
PUT RIGHTS
In order to invoke a put right, we must have an effective registration
statement on file with the Securities and Exchange Commission registering the
resale of the common shares which may be issued as a consequence of the
invocation of that put right. Additionally, we must give at least ten but not
more than twenty business days advance notice to Swartz of the date on which we
intend to exercise a particular put right and we must indicate the number of
shares of common stock we intend to sell to Swartz. At our option, we may also
designate a maximum dollar amount of common stock (not to exceed $2 million)
which we will sell to Swartz during the put and/or a minimum purchase price per
common share at which Swartz may purchase shares during the put. The number of
common shares sold to Swartz may not exceed 15% of the aggregate daily reported
trading volume during a period which begins on the business day immediately
following the day we invoked the put right and ends on and includes the day
which is twenty business days after the date we invoked the put right. For each
common share, Swartz will pay us the lesser of (i) the market price for such
put, minus $.10 or (ii) 91% of the market price for the put, with that
percentage determined by the market price in effect on the date we inform Swartz
of the put(see table A). Market price is defined as the closing bid price for
our common stock on Alottafun!'s principal market However, the market price may
not be less than the designated minimum per share price, if any, that we
indicated in our notice. If there were no shares traded during the applicable
Pricing Period, no shares could be Put, and there would be no need to determine
a market price for that Pricing Period.
45
<PAGE>
Table A
Examples of Swartz Common Stock Underwriting at Various Market Prices
and examples of the corresponding percentage of total shares of Swartz ownership
as of December 31, 1999.
<TABLE>
<CAPTION>
Common Stock Market Price
$.50(1) % $1.00(1) % $1.11(2) % $2.00(3) % $5.00(3) %
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars Converted
$5,000,000 12,500,000 59% 5,555,555 40% 4,950,495 37% 2,747,253 25% 1,098,901 12%
$10,000,000 25,000,000 74% 11,111,111 57% 9,900,990 54% 5,494,505 40% 2,197,802 21%
$20,000,000 50,000,000 86% 22,222,222 73% 19,801,980 70% 10,989,011 57% 4,395,604 35%
</TABLE>
(1) Conversion at market price less $.10 per share (the contracted minimum
discount to market price)
(2) Price at which conversion at market price less $.10 per share changes
to 91% of market price
(3) Conversion at 91% of market price
WARRANTS
In partial consideration of the equity line commitment, we issued and
delivered to Subscriber or its designated assignee warrants to purchase a total
of 450,000 shares of Common Stock. Swartz is the sole subscriber. Each
Commitment Warrant shall be exercisable at a price, which shall initially equal
$1.00625. Within five business days after the end of each purchase period, we
are required to issued and deliver to Swartz a warrant to purchase a number of
shares of common stock equal to 15% of the common shares issued to Swartz in the
applicable put. Each warrant will be exercisable at a price which will initially
equal 110% of the market price on the last day of the applicable purchase
period. The exercise price of the warrants resets based upon the market price at
fixed times outside of the Investor's control.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS
Swartz is not required to acquire and pay for any common shares with
respect to any particular put for which: we have announced or implemented a
stock split or combination of our stock; we have paid a common stock dividend;
we have made a distribution of our common stock or of all or any portion of our
assets between the put notice date and the date the particular put closes; or we
have consummated a major transaction (including a transaction, which constitutes
a change of control) between the advance put notice date and the date the
particular put closes.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of our Common Stock
immediately preceding such consolidation, merger, combination or
event either (i) no longer hold a majority of the shares of our
Common Stock or (ii) no longer have the ability to elect the
board of directors (a "Change of Control"); provided, however,
that if the other entity involved in such consolidation, merger,
combination or event is a publicly traded company with
"Substantially Similar Trading Characteristics" (as defined
below) as we and the holders of our Common Stock are to receive
solely Common Stock or no consideration (if we are the surviving
entity) or solely common stock of such other entity (if such
other entity is the surviving entity), such transaction shall not
be deemed to be a Major Transaction (provided the surviving
entity, if other than us, shall have agreed to assume all
obligations under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have
Substantially Similar Trading Characteristics as ours if the
average daily dollar trading volume of the common stock of such
entity is equal to or in excess of $200,000 for the 90th through
the 31st day prior to the public announcement of such
transaction;
46
<PAGE>
(ii) the sale or transfer of all or substantially all of our assets
that includes both tangible and intangible assets that allow us
to operate most profitably; or
(iii)a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such
purchase, tender or exchange offer a Change of Control shall have
occurred.
Swartz is irrevocably committed to purchase and is not entitled to make
any further investment decision with regard to the $20 million.
SHORT SALES
Swartz and its affiliates are prohibited from engaging in short sales
of our common stock unless they have received a put notice and the amount of
shares involved in a short sale does not exceed the number of shares specified
in the put notice. Swartz is allowed only to sell the number of shares that have
been put to Swartz, after the Put Date that such shares are put to Swartz. Such
a sale could be a short sale (technically defined as a "short exempt" sale). The
potential profits from short exempt sales is equal to the Investor's sales
price, whatever that may be when the Investor elects to sell a portion of the
Put Shares, less the Put Share Price (as defined in the Investment Agreement)
for those shares The potential effect on the market price is minimized due to
the fact that the amount put is limited to 15% of the trading volume over the
Pricing Period.
CANCELLATION OF PUTS
We must cancel a particular put between the date of the advance put
notice and the last day of the pricing period if we discover an undisclosed
material fact relevant to Swartz's investment decision, the registration
statement registering re-sales of the common shares becomes ineffective, or
shares are delisted from the then primary exchange. However, anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put shall
remain effective with respect to a number of Put Shares, which shall equal the
lesser of (i) 15% of the sum of the daily reported trading volume in the
outstanding Common Stock on the Company's Principal Market during each
Evaluation Day of the Truncated Pricing Period, (ii) the number of Put Shares
which, when multiplied by their respective Put Share Prices, equals the Maximum
Put Dollar Amount, and (iii) 9.9% of the total amount of the Company's Common
Stock that would be outstanding upon completion of the Put. As prerequisite to a
Put, our Common Stock shall be listed for and actively trading on the OTC
Bulletin Board, the NASDAQ Small Cap Market, the NASDAQ National Market or the
New York Stock Exchange.
TERMINATION OF INVESTMENT AGREEMENT
We may also terminate our right to initiate further puts or terminate
the Investment Agreement by providing Swartz with notice of such intention to
terminate; however, any such termination will not affect any other rights or
obligations we have concerning the Investment Agreement or any related
agreement.
RESTRICTIVE COVENANTS
During the term of the investment agreement and for a period of one
year thereafter, we are prohibited from certain transactions. These include the
issuance of any debt or equity securities in a private transaction which are
convertible or exercisable into shares of common stock at a price based on the
trading price of the common stock at any time after the initial issuance of such
securities or with a fixed conversion or exercise price subject to adjustment.
We are also prohibited from entering into any private equity line type
agreements similar to the investment agreement without obtaining Swartz's prior
written approval.
RIGHT OF FIRST REFUSAL
Swartz has a right of first refusal to purchase any variable priced
securities offered by us in any private transaction that closes on or prior to
six months after the termination of the investment agreement.
47
<PAGE>
SWARTZ'S RIGHT OF INDEMNIFICATION
We are obligated to indemnify Swartz (including their stockholders,
officers, directors, employees and agents) from all liability and losses
resulting from any misrepresentations or breaches we made in connection with the
investment agreement, our registration rights agreement, other related
agreements, or the registration statement.
48
<PAGE>
SUSPENSION OF THE COMPANY'S OBLIGATIONS UNDER SWARTZ AGREEMENT
On February 7, 2000, we entered into an Agreement of Waiver with
Swartz, which provides that Alottafun! may suspend and/or terminate the equity
line without accruing a semi-annual non-usage fee or termination fee provided
that Swartz retain its 450,000 commitment warrants. In addition, if we do not
reinstate the equity line and file a registration statement covering the shares
to be issued under the equity line on or before February 6, 2001, then we have
agreed to pay Swartz 220,000 shares of our common stock, with piggyback
registration rights, or $200,000 at Swartz' option. All other terms of the
Investment Agreement remain unchanged. :
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information with respect to the
beneficial ownership known to Company of shares of Company Common Stock owned as
of May 1, 2000 beneficially by (i) each person who beneficially owns more than
5% of the outstanding Company Common Stock, (ii) each director of the Company,
(iii) the Officers of the Company, and (iv) directors and executive officers of
the Company as a group:
Name of Beneficial Amount and Nature
Owner (3) of Beneficial Percent of Class(2)
Ownership Common(5) Preferred
(1) (6)
Common Preferred
------------------ ------------------ ------------------ --------- ----------
Michael Porter(4)(7) 3,431,407 1,000,000 30.9 50
David Bezalel (7) 2,500,000 1,000,000 22.5 50
Gerald Couture(8) 590,000 -- 5.3 --
------------------ ------------------ --------- ----------
All directors and
executive officers 6,521,407 2,000,000 58.7 100
as a group (3 persons)
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on approximately 11,121,104 shares of Company Common Stock
outstanding as of May 1, 2000 plus, as to each person listed, that portion
of the unissued shares of Company Common Stock subject to outstanding
options which may be exercised by such person, and as to all directors and
executive officers as a group, unissued shares of Company Common Stock as
to which the members of such group have the right to acquire beneficial
ownership upon the exercise of stock options within the next 60 days.
(3) The address of each individual is in care of the Company.
(4) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act.
(5) Excludes 10,000,000 shares reserved for issuance under the Company's
Stock Option Plan. See "Executive Compensation - Stock Option Plan".
(6) Each share of Preferred Stock has the power to cast twenty- five (25) votes
per share on any matters submitted for vote or action by Common Stock
holders. Each share of Preferred Stock is convertible into 10 shares of
Common Stock. Accordingly, Mr. Porter and Mr. Bezalel control the
management and affairs of the Company. See "Certain Relationships and
Related Transactions" and "Description of Securities".
(7) Includes options to acquire 2,500,000 share of Common Stock at $.15 per
share. See "Executive Compensation - Employment Agreements".
(8) Includes options to acquire 500,000 share of Common Stock at $.15 per
share. See "Executive Compensation - Employment Agreements".
POTENTIAL CONFLICTS OF INTEREST
It is our policy that future transactions with affiliates, if any, will
be on terms no less favorable to us than we could have obtained from third-party
businesses.
49
<PAGE>
SELLING SHARHOLDERS
Except as otherwise indicated, the following table sets forth certain
information regarding the beneficial ownership of our common stock as of June
30, 2000 by the shareholders of the Company who are offering securities pursuant
to this prospectus. Beneficial ownership includes shares for which an
individual, directly or indirectly, has or shares, voting or investment power or
both. All of the listed persons have sole voting and investment power over the
shares listed opposite their names unless otherwise indicated in the notes
below. None of the Selling Shareholders has been an officer, or held any other
material relationship with Alottafun or its affiliates or predecessors within
the last three years. We will receive no proceeds from the sale of these shares.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Name Number of Shares Offered % of Shares Outstanding
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Think Innovative Media (2) 30,000 0.0025
Delta Flex (1) 50,000 0.0041
Joseph Tranchito (1) 100,000 0.0083
Ying Hu (1) 4,000 0.0003
Chuen Lee (1) 10,000 0.0008
Sudapen Palanchai (1) 1,000 0.0001
Albert Woon (1) 4,000 0.0003
Yulia Hundjaja (1) 4,000 0.0003
Michael Hung (1) 1,000 0.0001
James Ward (2) 10,000 0.0008
Dave Conant (2) 3,000 0.0002
Tim Brown (2) 700 0.0001
Yigal Manusewitz F.Trust (1) 89,600 0.0074
Kash Pashakhan (2) 350,000 0.0289
News USA (2) 100,000 0.0083
DLM Enterprise (1) 200,000 0.0165
Craig Kaufman (2) 20,000 0.0017
Paul Clemente (2) 28,350 0.0023
Gerald Gallichio (2) 25,000 0.0021
Michele Carew (2) 103,400 0.0085
Evermore Entertainment (2) 150,000 0.0124
Pirooz Kamali (1) 60,000 0.0050
Vivien Shane (1) 140,000 0.0116
Kim Aretowicz (2) 50,000 0.0041
Sal Rafeail (1) 542,000 0.0447
Arthur Frawley (3) 100,000 0.0083
Jacob Perl (1) 150,000 0.0124
Hovie Forman (1) 40,000 0.0033
John Chianello (1) 10,000 0.0008
Tamer Youssef (1) 40,000 0.0033
Peter Lulgjuraj (1) 100,000 0.0083
I.R. International Consul. (2) 212,000 0.0175
Iken Communications (2) 18,000 0.0015
Jeff Hull (1) 300,000 0.0248
Norman Sugarman (1) 30,000 0.0025
James Hohrine (1) 25,000 0.0021
Renee Winkler (2) 40,000 0.0033
Giosappo's Corporation (2) 25,000 0.0021
Scott Moore (1) & (2) 180,000 0.0149
Cake E Tours (2) 200,000 0.0165
Joseph Lobosco (1) 33,333 0.0028
Eric Goldstein (2) 125,000 0.0103
Bruce Lipshutz (2) 100,000 0.0083
Herman Heinlein (2) 100,000 0.0083
-------------------------------------------------------------------------------------------------------------
Total: 3,904,383
-------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
(1) Represents shares sold by the Company between July, 1999 and June 30, 200
at prices ranging from $.25 to $.50.
---- ----
(2) Represents shares issued in exchange for services.
(3) Shares issued in connection with purchase of Faction, Inc.
51
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.01 par value per share, and 5,000,000 shares of preferred stock, $.0001
par value per share. Upon consummation of this offering, there will be
11,121,104 shares of common stock and 2,000,000 shares of preferred stock
outstanding.
COMMON STOCK
The authorized capital stock consists of 50,000,000 shares of common
stock, $.01 par value ("Common Stock"), and 5,000,000 of preferred stock, $.0001
par value ("Preferred Stock"), issuable in series. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our Certificate of Incorporation and Bylaws, which
are included as exhibits to this registration statement and by the provisions of
applicable Delaware law.
As of June 30, 2000, there were 12,114,295 shares of Common Stock
outstanding, held of record by approximately 200 stockholders. In addition, as
of June 30 2000, there were 5,575,000 shares of Common Stock subject to
outstanding options.
The holders of Common Stock are entitled to one vote per share for the
selection of directors and all other purposes and do not have cumulative voting
rights. However, Mr. Porter and Mr. Bezalel, through their holdings of the
voting Preferred Stock, control the affairs of the Company, including the
election of directors. The holders of Common Stock are entitled to receive
dividends when, as, and if declared by the Board of Directors, and in the event
of the liquidation by the Company, to receive pro-rata, all assets remaining
after payment of debts and expenses and liquidation of the preferred stock.
Holders of the Common Stock do not have any pre-emptive or other rights to
subscribe for or purchase additional shares of capital stock, no conversion
rights, redemption, or sinking-fund provisions. In the event of dissolution,
whether voluntary or involuntary, of the Company, each share of the Common Stock
is entitled to share ratably in the assets available for distribution to holders
of the equity securities after satisfaction of all liabilities. All the
outstanding shares of Common Stock are fully paid and non-assessable.
The transfer agent for the Company is Manhattan Transfer Registrar
Company of Lake Ronkonkoma, New York.
PREFERRED STOCK
The Board of Directors of the Company (without further action by the
shareholders), has the option to issue from time to time authorized un-issued
shares of Preferred Stock and determine the terms, limitations, residual rights,
and preferences of such shares. The Company has the authority to issue up to
5,000,000 shares of Preferred Stock pursuant to action by its Board of
Directors. As of the date of this registration statement, the Company has
outstanding 2,000,000 shares of Series A Preferred Stock. One million of these
shares are held by Mr. Porter and the other one million are held by Mr. Bezalel.
Each share of the Series A Preferred Stock has the right to cast 25 votes per
share on each and any matter on which the Common Stock is entitled to vote.
Accordingly, Mr. Porter and Mr. Bezalel are able to control the affairs and
operations of the Company including, but not limited to, election of directors,
sale of assets or other business opportunities. The Series A Preferred Stock has
no dividend rights, redemption provisions, sinking fund provisions or preemptive
rights. However, the Series A Preferred Stock holders have the right to convert
each share of Series A Preferred Stock into ten (10) shares of the Company's
Common Stock based upon the following targets. Each one-half (1/2) share of
Series A Preferred Stock is convertible into five (5) shares of Common Stock at
such time as the Corporation generates $5,000,000 of annual revenues in any
twelve month period. Each remaining one half (1/2) share of Series A Preferred
Stock is convertible into an additional five (5) shares of Common Stock at such
time as the Corporation generates $10,000,000 in annual revenues in any twelve
month period.
52
<PAGE>
In the future, the Board of Directors of the Company has the authority
to issue additional shares of Preferred Stock in series with rights,
designations and preferences as determined by the Board of Directors. When any
shares of Preferred Stock are issued, certain rights of the holders of Preferred
Stock may affect the rights of the holders of Common Stock. The authority of the
Board of Directors to issue shares of Preferred Stock with characteristics which
it determines (such as preferential voting, conversion, redemption and
liquidation rights) may have a deterrent effect on persons who might wish to
take a takeover bid to purchase shares of the Company at a price, which might be
attractive to its shareholders. However, the Board of Directors must fulfill its
fiduciary obligation of the Company and its shareholders in evaluating an
takeover bid.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides that no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
Delaware law. The Company's Bylaws provide that the Company shall indemnify to
the full extent authorized by law each of its directors and officers against
expenses incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of the corporation.
Insofar as indemnification for liabilities may be invoked to disclaim
liability for damages arising under the Securities Act of 1933, as amended, or
the Securities Act of 1934, (collectively, the "Acts") as amended, it is the
position of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Acts and are therefore, unenforceable.
DELAWARE ANTI-TAKEOVER LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
Provisions of Delaware law and our Certificate of Incorporation and
Bylaws could make more difficult our acquisition by a third party and the
removal of our incumbent officers and directors. These provisions, summarized
below, are expected to discourage coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of the Company
to first negotiate with us. We believe that the benefits of increased protection
of our ability to negotiate with proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation could result in an improvement of their
terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless:
- the Board of Directors approved the transaction in which such
stockholder became an interested stockholder prior to the date
the interested stockholder attained such status;
- upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, he or she
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding
shares owned by persons who are directors and also officers;
or
- on or subsequent to such date the business combination is
approved by the Board of Directors and authorized at an annual
or special meeting of stockholders.
A "business combination" generally includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of the
corporation's voting stock.
53
<PAGE>
DIVIDENDS
The Company has not paid any cash dividends on its common or preferred
stock and does not anticipate paying any such cash dividends in the foreseeable
future. Earnings, if any, will be retained to finance future growth. The Company
may issue shares of its common stock and preferred stock in private or public
offerings to obtain financing, capital or to acquire other businesses that can
improve the performance and growth of the Company. Issuance and or sales of
substantial amounts of common stock could adversely affect prevailing market
prices in the common stock of the Company.
TRANFER AGENT
The transfer agent for the Company is Manhattan Transfer Registrar
Company of Lake Ronkonkoma, New York.
54
<PAGE>
MARKET VALUE
Our Common Stock is listed and traded on NASDAQ OTC Bulletin Board
under the symbol ALFN. The transfer agent and registrar for the Common Stock.
The following table sets forth for the periods indicated the high and low sale
prices for shares of the Common Stock as reported on the OTC. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
<TABLE>
<CAPTION>
Sales Price (1)
---------------
High Low
---- ---
<S> <C> <C>
1997
Fourth Quarter 5 1/8 1 5/16
Third Quarter 5 1 7/8
1998
Fourth Quarter 1 1/2 5/32
Third Quarter 2 1/16 7/8
Second Quarter 2 5/8 9/16
First Quarter 3 1
1999
First Quarter 3 1/4 1/8
Second Quarter 1 3/4 13/16
Third Quarter 1 3/4 5/8
Four Quarter
2000
First Quarter 1 3/16 17/32
</TABLE>
(1) Our Common Stock began trading on approximately March 11, 1997. There is no
trading market for our warrants.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had outstanding
12,114,295 shares of its Common Stock. Of this amount, 3,904,383 shares of
Common Stock are being registered on behalf of the Selling Shareholders. Of
these shares, the 3,904,383 shares of Common Stock sold in this offering will be
freely tradable without restriction or limitation under the Securities Act,
except for any shares purchased by "Affiliates" or persons acting as
"Underwriters" as these terms are defined under the Securities Act.
The 8,210,012 shares of Common Stock held by existing shareholders are
"Restricted" within the meaning of Rule 144 adopted under the Securities Act
(the "Restricted Shares"), and may not be sold unless they are registered under
the Securities Act or sold pursuant to an exemption from registration, such as
the exemptions provided by Rule 144 and Rule 701 promulgated under the
Securities Act. The Restricted Shares were issued and sold by the Company in
private transactions in reliance upon exemptions from registration under the
Securities Act and may only be sold in accordance with the provisions of Rule
144 or Rule 701 of the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:
(1) 1% of the then-outstanding shares of common stock; and
(2) the average weekly trading volume in the common stock during
the four calendar weeks immediately preceding the date on
which the notice of such sale on Form 144 is filed with the
Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions relating to notice
and manner of sale and the availability of current public information about us.
In addition, a person (or persons whose shares are aggregated) who has not been
an affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. While the foregoing discussion
is intended to summarize the material provisions of Rule 144, it may not
describe all of the applicable provisions of Rule 144, and, accordingly, you are
encouraged to consult the full text of that Rule.
In addition, our employees, directors, officers, advisors or
consultants who were issued shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the date of this prospectus.
The possibility of future sales by existing stockholders under Rule 144
or otherwise may, in the future, have a depressive effect on the market price of
the Common Stock, and such sales, if substantial might also adversely affect the
Company's ability to raise additional capital. See "Description of Securities"
and "Underwriting."
56
<PAGE>
PLAN OF DISTRIBUTION
Alottafun is registering the shares on behalf of the selling
shareholders. Selling shareholders include donees and pledgees selling shares
received from a named selling shareholder after the date of this prospectus. All
costs, expenses and fees in connection with the registration of the shares
offered by this prospectus will be borne by Alottafun. Brokerage commissions and
similar selling expenses, if any, attributable to the sale of shares will be
borne by the selling shareholders.
Sales of shares may be effected by selling shareholders from time to
time in one or more types of transactions (which may include block transactions)
on Nasdaq, in the over-the-counter market, in negotiated transactions, through
put or call options transactions relating to the shares, through short sales of
shares, or a combination of such methods of sale, at market prices prevailing at
the time of sale, or at negotiated prices.
Such transactions may or may not involve brokers or dealers.
The selling shareholders have advised Alottafun that they have not
entered into any agreements, understandings or arrangements with any
underwriters or brokers-dealers regarding the sale of their securities. In
addition, there is not an underwriter or coordinating broker acting in
connection with the proposed sale of shares by the selling shareholders.
The selling shareholders may effect such transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling shareholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both. The compensation paid as to a particular
broker-dealer might be in excess of customary commissions.
The selling shareholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be underwriters within the meaning of
Section 2(11) of the Securities Act. And, any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
Because selling shareholders may be deemed to be underwriters within
the meaning of Section 2(11) of the Securities Act, the selling shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
Alottafun has informed the selling shareholders that the anti-manipulative
provisions of Regulation M promulgated under the Exchange Act may apply to their
sales in the market.
Upon Alottafun being notified by a selling shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act.
The supplement shall disclose (1) the name of each such selling shareholder and
of the participating broker-dealer(s), (2) the number of shares involved, (3)
the price at which such shares were sold, (4) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (5) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and (6) other facts material
to the transaction. In addition, upon Alottafun being notified by a selling
shareholder that a donee or pledgee intends to sell more than 500 shares, a
supplement to this prospectus will be filed.
57
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We will continue to file annual, quarterly and special reports, proxy
statements and other information with the SEC. Our SEC filings will be available
to the public over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. These documents are also
available at the public reference rooms at the SEC's regional offices in New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms.
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933 with the SEC. This prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all of the information included in the registration statement. For further
information about us and our common stock, you may refer to the registration
statement and its exhibits and schedules. You can review and copy these
documents at the public reference facilities maintained by the SEC or on the
SEC's web site as described above.
This prospectus may contain summaries of contracts or other documents.
If you would like complete information about a contract or other document, you
should read the copy filed as an exhibit to the registration statement.
LEGAL MATTERS
Legal matters in connection with this offering are being passed upon by
the law firm of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. Michael T.
Cronin, a partner in this law firm, currently owns 32,500 shares and has agreed
to accept an additional 25,000 shares for legal services performed in connection
with this registration statement.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by Pender Newkirk and Company,
independent certified public accountants, to the extent and for the period set
forth in their report appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report, given upon the
authority of Pender Newkirk and Company, as experts in auditing and accounting.
This report contains an explanatory paragraph indicating substantial doubt about
our ability to continue as a going concern.
58
<PAGE>
Alottafun!, Inc.
Financial Statements
Years Ended December 31, 1999 and 1998
Contents
Independent Auditors' Report on Financial Statements.......................F-1
Financial Statements:
Balance Sheet..........................................................F-2
Statements of Operations...............................................F-3
Statements of Changes in Stockholders' Deficit...................F-4 - F-5
Statements of Cash Flows.........................................F-6 - F-7
Notes to Financial Statements...................................F-8 - F-19
Index to Stub Period..................................................F-20
<PAGE>
Independent Auditors' Report
Board of Directors
Alottafun!, Inc.
West Bend, Wisconsin
We have audited the accompanying balance sheet of Alottafun!, Inc., hereinafter
referred to as the Company, as of December 31, 1999 and the related statements
of operations, changes in stockholders' deficit, and cash flows for the years
ended December 31, 1999 and 1998. These financial statements are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Note 2 to
the financial statements, the Company has sustained substantial losses since
inception that total approximately $4,700,000 and has used cash in operations of
approximately $687,000 and $418,700 for the years ended December 31, 1999 and
1998. respectively. The Company also has a negative working capital of $558,000
at December 31, 1999, negative tangible net worth of approximately $455,000 at
December 31, 1999, and is currently in default on approximately $81,000 of notes
payables. Additionally, the Company has not had significant revenues over the
past two years. These issues raise substantial doubt about the Company's ability
to continue as a going concern. Realization of the Company's assets is dependent
upon the Company's ability to raise additional capital, as well as generate
revenues sufficient to result in future profitable operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Certified Public Accountants
Tampa, Florida
March 31, 2000
F-1
<PAGE>
Alottafun!, Inc.
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash $ 5,310
Accounts receivable 2,685
---------------
Total current assets 7,995
Property and equipment, net of accumulated depreciation 102,397
Other assets, trademark, net of accumulated amortization 3,043
---------------
$ 113,435
===============
Liabilities and Stockholders' Deficit Current liabilities:
Current maturities of long-term debt $ 132,691
Accounts payable 325,128
Accrued expenses 108,384
---------------
Total current liabilities 566,203
Stockholders' deficit:
Preferred stock; par value of $.0001 per share; 5,000,000
shares authorized; 2,000,000 shares issued and outstanding 200
Common stock; par value of $.01 per share; 50,000,000
shares authorized; 9,034,104 shares issued and
outstanding 90,341
Additional paid-in capital 4,750,988
Accumulated deficit (4,715,397)
---------------
126,132
Deferred financing costs (455,400)
Stock subscription receivable (123,500)
Total stockholders' deficit (452,768)
$ 113,435
===============
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-2
<PAGE>
Alottafun!, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Sales, net of allowance and discounts $ 128,844 $ 37,429
Cost of sales 98,669 28,543
----------------------------------
Gross profit 30,175 8,886
----------------------------------
Operating expenses:
Selling 204,809 66,886
General and administrative 1,073,971 387,241
Depreciation and amortization 51,801 13,976
----------------------------------
1,330,581 468,103
----------------------------------
Loss from operations (1,300,406) (459,217)
----------------------------------
Other expenses:
Net realized loss on sale of securities, trading (161,128) (35,507)
Net unrealized loss on trading securities (110,558)
Interest expense (253,187) (294,896)
Other expense (18,897)
----------------------------------
Total other expenses (543,770) (330,403)
----------------------------------
Net loss before extraordinary gain (1,844,176) (789,620)
Extraordinary gain on forgiveness of debt 28,018
----------------------------------
Net loss $ (1,816,158) $ (789,620)
==================================
Loss per common share:
Loss before extraordinary gain $(.24) $(.31)
Extraordinary gain .01
----------------------------------
Net loss per common share $(.23) $(.31)
==================================
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-3
<PAGE>
Alottafun!, Inc.
Statements of Changes in Stockholders' Deficit
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- -------------------------
$.0001 $.01
Shares Par Shares Par
Issued Value Issued Value
---------------------- -------------------------
<S> <C> <C>
Balance, December 31, 1997 2,128,343 $ 21,283
Acquisition of treasury stock
Issuance of common stock for
services 237,700 2,377
Conversion of debt to equity
by creditors 27,500 275
Issuance of common stock for cash 730,900 7,309
Intrinsic value of convertible feature
of debentures with detachable
warrants
Issuance of common stock for
conversion of debentures 269,590 2,696
Exercise of detachable warrants 411,000 4,110
Conversion of mandatorily
redeemable equity instruments 3,000 30
Net loss for year
-------------------------
Balance, December 31, 1998 3,808,033 38,080
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Additional Stock Deferred
Paid-In Accumulated Treasury Subscription Financing
Capital Deficit Stock Receivable Costs Total
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,980,405 $ (2,109,619) $ (61,133) $ (169,064)
(6,755) (6,755)
152,078 154,455
44,725 45,000
220,798 228,107
440,949 440,949
37,304 40,000
(4,110)
3,756 3,786
(789,620) (789,620)
-------------------------------------------------------------------------------------------------------------------
2,875,905 (2,899,239) (67,888) (53,142)
</TABLE>
F-4
<PAGE>
Alottafun!, Inc.
Statements of Changes in Stockholders' Deficit
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- -------------------------
$.0001 $.01
Shares Par Shares Par
Issued Value Issued Value
--------------------- -------------------------
<S> <C> <C> <C> <C>
Stock issued for subscription and debt 249,007 2,490
Issuance of common stock for services 621,700 6,217
Issuance of preferred stock for services 2,000,000 $ 200
Issuance of common stock for cash 1,100,100 11,002
Issuance of common stock from
conversion of debentures and interest 3,250,621 32,506
Conversion of mandatorily redeemable
equity instruments 4,643 46
Intrinsic value of conversion feature on
detachable warrants
Retirement of treasury stock
Net loss for year
------------------------------------------------------------
Balance, December 31, 1999 2,000,000 $ 200 9,034,104 $ 90,341
============================================================
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Additional Stock Deferred
Paid-In Accumulated Treasury Subscription Financing
Capital Deficit Stock Receivable Costs Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
146,111 $ (123,500) 25,101
307,288 313,505
200
682,849 693,851
328,655 361,161
22,668 22,714
455,400 $ (455,400)
(67,888) 67,888
(1,816,158) (1,816,158)
-------------------------------------------------------------------------------------------------------------------
$ 4,750,988 $ (4,715,397) $ 0 $ (123,500) $ (455,400) $ (452,768)
===================================================================================================================
</TABLE>
F-5
<PAGE>
Alottafun!, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Operating activities
Net loss $ (1,816,158) $ (789,620)
------------------------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 51,801 13,976
Loss on sale of marketable securities 161,128 35,507
Unrealized loss on marketable securities 110,558
Interest on conversion of convertible debentures 192,043 223,529
Interest on warrants 25,377
Preferred stock issued for services 200
Common stock issued for services 313,505 154,455
Loss on disposal of assets 20,626
(Increase) decrease in:
Accounts receivable (2,685)
Inventory 4,914 8,086
Other assets 3,204 (1,013)
Deposits 19,450 (19,250)
Increase (decrease) in:
Accounts payable 226,007 (96,218)
Accrued expenses 28,368 26,452
------------------------------
Total adjustments 1,129,119 370,901
------------------------------
Net cash used by operating activities (687,039) (418,719)
------------------------------
Investing activities
Acquisition of equipment and intangible assets (115,441) (34,969)
Proceeds from sale of marketable securities 6,466,046 1,320,231
Purchase of marketable securities (6,737,732) (1,203,794)
------------------------------
Net cash (used) provided by investing activities (387,127) 81,468
------------------------------
Financing activities
Proceeds from collection of stock subscription 126,213
Proceeds from common stock and related paid-in capital 693,851 221,699
Purchase of treasury stock (6,755)
Principal reductions of long-term debt (25,489) (27,688)
Issuance of convertible debentures 400,489
Reduction in mandatorily redeemable equity instruments (4,615)
------------------------------
Net cash provided by financing activities 668,362 709,343
------------------------------
Net (decrease) increase in cash (405,804) 372,092
Cash at beginning of year 411,114 39,022
------------------------------
Cash at end of year $ 5,310 $ 411,114
==============================
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-6
<PAGE>
Alottafun!, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information
and noncash financing activities
Cash paid during the year for interest $ 30,494 $ 14,821
==============================
</TABLE>
During the year ended December 31, 1998, the Company exchanged 27,500 shares
of common stock as payment on $45,000 of notes payable.
In addition, the Company reclassified 3,000 shares of the mandatorily
redeemable equity instruments to common stock. This was done as payment
against the outstanding payable of $3,786.
The Company issued approximately $400,000 in convertible debentures in 1998
that were convertible into common stock. The Company recorded interest of
approximately $223,500 to reflect the intrinsic value of the conversion
feature of these debentures. In December 1998, $40,000 of the debentures
were converted into 269,590 shares of common stock. During December 31,
1999, $361,161 of the balance of the debentures was converted into 3,250,621
shares of common stock.
In connection with the convertible debentures, the Company issued detachable
stock warrants to acquire 411,000 shares of common stock valued at $217,420,
which was recorded as other intangible assets. The Company used the
Black-Scholes pricing model to value these warrants. These debentures were
converted in December 1999 and the intangible asset fully amortized.
During 1999, the Company issued 249,007 shares of common stock for
satisfaction of a note payable totaling $25,101 and a stock subscription
totaling $123,500 to a stockholder of the Company.
The Company reclassified the remaining 4,643 shares of the mandatorily
redeemable equity to common stock.
In connection with the equity line commitment, the Company issued warrants
to purchase 700,000 shares of common stock. The Company used the
Black-Scholes pricing model to value the options, which were valued at
$455,400. This intrinsic value has been recorded as capital in excess of par
value.
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-7
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
1. Background Information
Alottafun!, Inc. (the "Company") was incorporated in the state of Wisconsin on
August 2, 1993, and effectively re-incorporated in the state of Delaware on
September 17, 1998 by merging the Wisconsin corporation into a newly created
Delaware corporation. The Company headquarters is located in West Bend,
Wisconsin.
Initially, the Company operated as an assembler of toy and candy packages. Its
customers were retailers and distributors located primarily throughout the
mid-eastern United States.
In 1997, the Company ceased its assembly operations and changed its focus to
distribution of toys and candy packages. Starting in late 1998, the Company
again shifted its focus, this time towards becoming a toy manufacturer and
marketer with a more extensive toy line. Included in this line are tea and cook
sets, housekeeping toys, games and puzzles, purses, and ride on cars. The
Company plans to distribute the product line through toy retailers and over the
Internet.
During 1999, the Company increased the number of authorized common shares of
stock to 50,000,000.
2. Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has sustained
substantial losses since inception that total approximately $4,700,000 and has
used cash in operations of approximately $687,000 and $419,000 for the years
ended December 31, 1999 and 1998, respectively. The Company has a negative
working capital of $558,000 at December 31, 1999 and has negative tangible net
worth of approximately $455,000 at December 31, 1999. In addition, as further
explained in Note 5 to the financial statements, the Company is currently in
default on approximately $81,000 of notes payable. The Company also has no
significant revenues. Presently, the Company's ability to develop a product and
transition to attaining profitable operations is dependent upon obtaining
adequate financing and achieving a level of sales adequate to support the
Company's cost structure. These factors raise substantial doubt about the
Company's ability to continue as a going concern. These financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
Read independent auditors' report.
F-8
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
3. Significant Accounting Policies
The significant accounting policies followed are:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company extends credit to its various customers based on the
customer's ability to pay. Based on management's review of accounts
receivable, no allowance for doubtful accounts is considered necessary.
Property and equipment are stated at cost. Additions and improvements to
property and equipment are capitalized. Maintenance and repairs are
expensed as incurred. When property is retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets ranging from 5 to 7 years.
Selling costs related to the issuance of debentures have been
capitalized and are being amortized over the life of the debentures
using the interest method. Amortization for the years ended December 31,
1999 and 1998 amounted to $32,390 and $549, respectively.
The Company records revenue and related profit when the product is
shipped to the customer.
The Company accounts for marketable securities in accordance with
Financial Accounting Standards Board (FASB) Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification on its investments
in marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Management has classified its
marketable securities as "trading securities." Trading securities are
bought and held principally for the purpose of selling them in the near
term. Unrealized holding gains and losses are deemed temporary and are
included in earnings. The cost of the marketable securities is based on
the specific identification method. Interest and dividends on equity
securities are included in investment income. The Company had marketable
securities with a fair market value of $100 at December 31, 1999.
Read independent auditors' report.
F-9
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
3. Significant Accounting Policies (continued)
The costs of the trademark acquired are being amortized using the
straight-line method over the estimated useful life of five years. The
useful life of the trademark is evaluated annually and adjusted, if
necessary.
FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15,
1995. This statement provides that expense equal to the fair value of
all stock-based awards on the date of the grant be recognized over the
vesting period. Alternatively, this statement allows entities to
continue to apply the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," whereby
compensation expense is recorded on the date the options are granted to
employees equal to the excess of the market price of the underlying
stock over the exercise price. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
disclosure of the provisions of FASB No. 123.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities
and their respective income tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
The Company follows FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of these assets may not be recoverable. In
performing the review for recoverability, the Company estimates the
future cash flows are expected to result from the use of the assets and
their eventual disposition.
Read independent auditors' report.
F-10
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
3. Significant Accounting Policies (continued)
The Company issues stock in lieu of cash for certain transactions.
Generally, the fair value of the stock, based on comparable cash
purchases, is used to value the transactions.
Offering costs associated with the sale of stock are capitalized and
offset against the proceeds of the offering or expensed if the offering
is unsuccessful.
The Company issued approximately $400,000 in convertible debentures in
1998. These debentures are convertible into common stock. The Company
has recorded interest totaling $223,529 to reflect the intrinsic value
of the beneficial conversion feature of these debentures. The
convertible debentures are convertible at any time over a five-year
period. During 1999, these debentures were converted into common stock.
In connection with the convertible debentures, the Company issued
detachable stock warrants to acquire 411,000 shares of common stock
valued at $217,420, which was recorded as other intangibles. The Company
used the Black-Scholes pricing model to value these warrants. The value
of these warrants was being amortized over the five-year life of the
convertible debentures. The conversion of the debentures into stock
accelerated the amortization of the warrants, which amounted to $192,043
for the year ended December 31, 1999.
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding
for the period. Common stock equivalents are not considered because
their effect would be anti-dilutive.
Advertising costs are charged to operations when incurred and amounted
to $96,298 and $1,321 for the years ended December 31, 1999 and 1998,
respectively.
Read independent auditors' report.
F-11
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
4. Property and Equipment
Property and equipment consist of:
Office equipment $ 26,439
Warehouse equipment, dies, files, and molds 107,420
-----------
133,859
Less accumulated depreciation 31,462
-----------
$ 102,397
===========
5. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of:
<TABLE>
<S> <C>
Revolving note payable to bank (loan limited to lesser of $100,000 or
$30,000, plus 50.0% of accounts receivable); interest at 2.0% over
the bank's base rate; interest payable monthly; outstanding principal
payable via lockbox collection of accounts receivable; collateralized
by a selective business security agreement and
personal guarantees; due on demand $ 30,000
Note payable to Private Industry Council of Milwaukee County, Inc.;
interest at 18.0%; unsecured; payments of $8,750 each were required
on July 5, 1996, October 5, 1996,
and April 5, 1997; in default 70,000
Note payable, unsecured; payable in monthly
installments of $903, including principal
and interest at 18.0% per annum; in default 11,043
Note payable, unsecured; interest at 10.0% per
annum; due on demand 21,648
-----------
132,691
Less current maturities 132,691
-----------
$ 0
===========
</TABLE>
Read independent auditors' report.
F-12
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
6. Stock
The Company issued $400,000 in convertible debentures in December 1998. The
debentures paid interest at two percent per annum and matured on December 8,
2003. The debentures were convertible into shares of common stock at the option
of the holder and could be converted at any time commencing on the issue date.
The conversion price for each debenture at the date of conversion is the lessor
of $1.25 or 65 percent of the average closing bid price for the five trading
days immediately preceding the conversion date. If the closing price is less
than or equal to $.10 per share, the Company, at its sole option, may allow the
holder to proceed with the conversion or may redeem the unconverted amount of
debentures at 154 percent of such unconverted amount, plus any accrued and
unpaid interest. The stock was trading at $.53 per share on the date of
issuance. The Company has recorded interest of approximately $223,500 in 1998 to
reflect the intrinsic value of the conversion feature of these debentures.
During 1999, the debentures were converted into 3,250,621 shares of common
stock.
In association with the convertible debentures listed above, the Company issued
detachable stock warrants to acquire 411,000 shares of common stock. The
warrants entitle the holders to purchase common stock at $.001 per share at any
time prior to December 31, 2003. The Company used the Black-Scholes pricing
model to value the warrants. Based on this pricing model, the value of the
warrants is $217,519, which was amortized over the five-year life of the
convertible debentures; however, the conversion of debentures to stock
accelerated this amortization. The Company has amortized $25,377 of the
intrinsic value during the year ended December 31, 1998. During the year ended
December 31, 1999, these warrants were exercised and the balance of the
intangible asset of $192,043 was expensed as interest.
On June 4, 1999, the Company entered into an investment agreement with Swartz
Private Equity, LLC ("Swartz"). The investment agreement entitles the Company to
issue and sell common stock for up to an aggregate of $20 million from time to
time during a three-year period through June 3, 2002. This is also referred to
as a put right. In order to invoke a put right, the Company must file a
registration statement with the Securities and Exchange Commission, registering
the resale of the common shares.
Read independent auditors' report.
F-13
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
6. Stock (continued)
On each put right, the Company must indicate the number of shares of common
stock or maximum dollar amount of common stock (not to exceed $2 million) that
it will sell to Swartz. The number of common shares sold may not exceed 15
percent of the aggregate daily reported trading volume for 20 business days
after the date of the put right. Swartz will pay the Company either the lesser
of the market price minus $.10 or 91 percent of the market price.
In partial consideration of the equity line commitment, the Company issued to
Swartz, or its designee, warrants to purchase 450,000 shares of common stock.
Each warrant is exercisable at $1.00625. These warrants were valued at $292,757
using the Black-Scholes pricing model and recorded as deferred financing costs
in the financial statements. Following each purchase of common stock, the
Company is obligated to issue to Swartz, a warrant to purchase shares of common
stock equal to 15 percent of the common shares issued in each put right. Each
warrant is to be exercisable at a price equal to 110 percent of the market
price. In addition, the Company issued warrants to acquire up to 250,000 shares
of common stock at an exercise price of $1.00625 to Dunwoody Brokerage Services,
Inc., an affiliate of Swartz. These warrants were valued at $162,643 and are
also recorded as deferred financing costs in the financial statements. No shares
of the Company's common stock have been issued under this agreement as of
December 31, 1999.
The Company has authority to issue up to 5,000,00 shares of preferred stock
pursuant to action by the board of directors. In February 1999, the Company
entered into an agreement with two stockholders/directors that granted them
1,000,000 shares each of Series A voting preferred stock. These shares were
issued for nominal consideration and were valued at $.0001 par value. Each share
of the Series A preferred stock has the right to cast 25 votes per share on each
and any matter that the common stock is entitled to vote. Accordingly, the two
stockholders/directors are able to control the affairs and operations of the
Company including, but not limited to, election of directors, sale of assets, or
other business opportunities. The Series A preferred stock has no dividend
rights, redemption provisions, sinking fund provisions, or preemptive rights.
However, Series A preferred stockholders have the right to convert each share of
the Series A preferred stock into common stock based on the Company attaining
specified annual revenue limits.
In January 1999, the Company initiated a stock option plan for employees of the
Company. A total of 10,000,000 shares have been reserved for issuance under the
plan. Approximately 5,500,000 options to purchase a total of 5,500,000 shares of
stock were granted to executives of the Company as part of their employment
agreements.
Read independent auditors' report.
F-14
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
6. Stock (continued)
The Company grants options and warrants to purchase shares of the Company's
common stock to individuals under various agreements. The following is a summary
of stock option and warrant activity during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Options Warrants
--------------------------------- -------------------------------
Number Weighted Average Number Weighted Average
of Shares Exercise Price of Shares Exercise Price
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
December 31, 1997 0 $ .00 0 $ .00
---------------------------------------------------------------
Granted in 1998 0 .00 411,000 .001
Exercised in 1998 0 .00 (411,000) (.001)
-----------------------------------------------------------------
Outstanding at
December 31, 1998 0 .00 0 .00
Granted in 1999 5,500,000 .15 700,000 1.01
Exercised in 1999 0 .00 0 .00
---------------------------------------------------------------
Outstanding at
December 31, 1999 5,500,000 $ .15 700,000 $1.01
===============================================================
</TABLE>
The following table summarizes the status of outstanding options and warrants at
December 31, 1999:
Weighted Average
Exercise Number Remaining
Price of Shares Contractual Life
---------------------------------------------------------------------
$ 0.15 5,500,000 9.08
$ 1.01 700,000 4.50
--------------
6,200,00
==============
As of December 31, 1999, all of the above were exercisable, the options expire
10 years after the date granted, and the warrants expire five years after the
date of grant.
Read independent auditors' report.
F-15
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
6. Stock (continued)
FASB No. 123 requires disclosure of pro forma net income as if the fair value
based methods had been applied in measuring compensation costs for common stock
options and warrants granted. Pro forma net income and net income per common
share are as follows for the year ended December 31, 1999:
As reported:
Net loss $ (1,816,158)
==============
Basic loss per common share $ (.23)
==============
Pro forma:
Net loss $ (2,606,658)
==============
Basic loss per common share $ (.34)
==============
The weighted average fair value of the options and warrants at their grant date
during year ended December 31, 1999 was $.20. The estimated fair value of each
option granted is calculated using the Black-Scholes option pricing model. The
following summarizes the weighted average of the assumptions used in the model:
Risk-free interest rate 5.072%
Expected years until exercise 8.23 Years
Expected dividend yield --
During 1998, the Company issued 1,060,100 shares of stock. The checks issued for
these shares were returned for lack of sufficient funds and all stock
certificates were cancelled subsequent to year-end. These shares are not
included in the common stock outstanding since the Company did not have
constructive receipt of the money paid for those shares.
7. Operating Leases and Related Party Transactions
The Company is obligated under various month-to-month operating leases for the
rental of space and related equipment. For 1999 and 1998, total rent amounted to
$11,960 and $6,600, respectively.
The Company has use of offices in Hong Kong, Germany, and New York. The space in
Hong Kong is provided by one of the Company's suppliers free of charge. The
space in New York and Germany is provided by a stockholder at no cost.
The above amounts are not necessarily indicative of the amounts that would have
been incurred had comparable transactions been entered into with independent
parties.
Read independent auditors' report.
F-16
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
8. Income Taxes
The Company has incurred significant operating losses since its inception and,
therefore, no tax liabilities have been incurred for the years presented. These
operating losses give rise to a deferred tax asset at December 31, 1999 and are
as follows:
Deferred tax assets $ 1,634,000
Allowance (1,634,000)
-------------
$ 0
=============
The difference between the provision for income taxes and the amounts obtained
by applying the statutory U.S. federal income tax rate to the net loss before
income taxes is as follows:
1999 1998
-----------------------
Tax benefit at statutory rate $(691,300) $ (300,100)
Extraordinary gain on forgiveness of debt 10,600
Valuation allowance on net operating loss 680,700 300,100
-----------------------
Tax expense $ 0 $ 0
=======================
The Company has available at December 31, 1999 approximately $4.3 million of
unused operating loss carryforwards that may be applied against future taxable
income, which would reduce taxes payable by approximately $1.6 million in the
future. These operating loss carryforwards expire beginning in 2008. Due to the
Company's history of operating losses, management has established a valuation
allowance in the full amount of the deferred tax assets arising from these
losses because management believes it is more likely than not that the Company
will not generate sufficient taxable income within the appropriate period to
offset these operating loss carryforwards. Income tax benefits resulting from
the utilization of these carryforwards will be recognized in the periods in
which they are realized for federal and state tax purposes.
9. Extraordinary Gain
During 1999, several creditors accepted partial payments on balances due to each
of them as payments in full. The net differences between amounts accepted as
full payments and the vendors outstanding balances as of the date of acceptance
are shown in the accompanying financial statements as extraordinary gain of
$28,018.
Read independent auditors' report.
F-17
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
10. Earnings Per Share
The following data shows the amounts used in computing earnings per share:
1999 1998
----------------------------
Net loss $ (1,816,158) $ (789,620)
================================
Weighted average number
of common shares
used in basic EPS 7,771,193 2,528,155
================================
11. Commitments
The Company entered into an agreement to purchase the rights to a line of toys
on June 26, 1998. In consideration of these rights, the Company will pay a
royalty on all sales equal to two percent in 1999, one percent in 2000, and .05
percent in 2001, with a minimum guarantee royalty of $10,000 per year.
12. Employment Agreements
In January 1999, the Company entered into employment agreements with two
stockholders of the Company. Each employment agreement has a term of five years
and has an annual base compensation beginning at $75,000 annually for the
12-month period ending May 31, 2000. The agreements increase $10,000 per year to
an annual compensation of $115,000 for the 12-month period ending May 31, 2004.
Each executive has the right, at his election, to receive compensation in the
form of the Company's restricted common stock valued at 50 percent of the
closing bid price as of the date of the executive election. In addition, upon
execution of the employment agreements, each executive was granted non-qualified
stock options to purchase 2,500,000 shares of the Company's common stock at an
exercise price of $.15 per share, which was the fair value at the date of the
grant. These options are immediately exercisable and have an exercise period of
10 years.
Additionally, in January 1999, the Company entered into an employment agreement
with its chief financial officer. This employment agreement has a term of five
years. The annual compensation is $60,000 for 480 hours of service. As
consideration for this employment agreement, the chief financial officer
received an option to purchase 500,000 shares of the Company's common stock over
a 10-year period at $.15 per share, which was the fair value at the date of the
grant. These options may be immediately exercisable.
Read independent auditors' report.
F-18
<PAGE>
Alottafun!, Inc.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
12. Employment Agreements (continued)
Each of the above employment agreements has a non-compete clause. The agreements
also generally provide for severance payments equal to 299 percent of the annual
base compensation then due under each agreement in the event of termination
without cause.
13. Joint Venture Agreement
In May 1999, the Company joint ventured with E-Commerce Fulfillment, LLC (ECF),
which has established a contract with M.W. Kasch, an independent U.S. toy
distributor, to launch an e-commerce internet portal called TOYPOP.COM. The
joint venture is owned 33.3 percent by ECF and 67.7 percent by the Company. ECF
is wholly owned by Jeffrey C. Kasch, President of M.W. Kasch Company. ECF's
responsibilities and obligations include selling toy products to the joint
venture at prices that do not exceed the prices charged to ECF's typical
customers. ECF will provide its products based on regular availability. ECF will
also merchandise the toys on a website and make decisions as to what toys to
highlight as special buys, promote, or present as a "hot" toy. M.W. Kasch
Company will warehouse and provide fulfillment to ECF on an ongoing basis. The
relationship between M.W. Kasch Company and ECF is exclusive as far as ECF is
concerned, but not exclusive with regard to M.W. Kasch. M.W. Kasch is free to
sell any and all other retailers, electronic or otherwise.
Subsequent to December 31, 1999, M.W. Kasch Company, on behalf of ECF,
terminated its interest in the joint venture.
14. Contingencies
The Company's past website host and e-commerce provider has terminated the
Company's website and refused to provide additional e-commerce support services.
This dispute involves a claim that the Company has failed to timely pay for past
services rendered. However, there is no executed written contract between the
parties. Also, the website provider is refusing to turn over the HTML web pages
that comprise the Company's website and has asserted certain copyright
infringement and trade secret misappropriation claims. No lawsuit has been
filed. If necessary, and litigation is instituted, the Company plans to
vigorously defend and assert substantial counterclaims. Management of the
Company and its legal counsel indicate that the likelihood of an unfavorable
outcome, as well as the maximum potential loss, if any, is impossible to assess
at this time.
Read independent auditors' report.
F-19
ALOTTAFUN!, INC.
Index
Page
Part I - Financial Information ----
Item 1. Financial Statements
Balance Sheet -
March 31, 2000................................................ F-21
Statements of Operations -
Three months ended March 31, 2000 and 1999.................... F-22
Statements of Changes in Stockholders' Deficit -
Three months ended March 31, 2000............................. F-23
Statements of Cash Flows -
Three months ended March 31, 2000 and 1999.................... F-24
Notes to Financial Statements..............................F-25 - F-26
F-20
<PAGE>
<TABLE>
<CAPTION>
Alottafun!, Inc.
Balance Sheet
March 31, 2000
(unaudited)
<S> <C>
Assets
Current assets:
Cash $ 212,918
---------------------
Property and equipment, net of accumulated depreciation 162,019
Other assets:
Acquisition deposits 62,500
Other assets, trademark, net of accumulated amortization 3,366
---------------------
65,966
---------------------
$ 440,803
=====================
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt 123,280
Accounts payable 211,451
Accrued expenses 127,112
---------------------
Total current liabilities 461,843
---------------------
Stockholders' deficit:
Preferred stock; par value of $.0001; 5,000,000 shares
authorized; 2,000,000 shares issued and outstanding. 200
Common stock; par value of $.01 per share; 50,000,000 shares
authorized; 11,121,104 shares issued and outstanding. 111,211
Additional paid-in capital 5,353,118
Accumulated deficit (4,906,669)
---------------------
557,860
Deferred offering costs (455,400)
Stock subscription receivable (123,500)
---------------------
Total stockholders' deficit (21,040)
---------------------
$ 440,803
=====================
</TABLE>
Read Certified Public Accountants Review Report.
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
Alottafun!, Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------
2000 1999
------------------------------------------
<S> <C> <C>
Sales, net of allowance and discounts $ (44) $ 19,460
Cost of sales 3,535 31,836
------------------------------------------
Gross profit (3,579) (12,376)
------------------------------------------
Operating expenses:
Selling 13,192 31,576
General and administrative 221,989 144,132
Depreciation and amortization 8,660 4,113
------------------------------------------
243,841 179,821
------------------------------------------
Loss from operations (247,420) (192,197)
------------------------------------------
Other expenses:
Net realized gain (loss) on sale of securities, trading 5,344 (6,346)
Unrealized (loss) on securities, trading - (78,615)
Interest expense (11,220) (195,652)
------------------------------------------
Total other expenses (5,876) (280,613)
------------------------------------------
Net loss before extraordinary gain (253,296) (472,810)
Extraordinary gain on forgiveness of debt 62,024 -
Net loss $ (191,272) $ (472,810)
==========================================
Loss per common share:
Loss before extraordinary gain (0.03) (0.08)
Extraordinary gain 0.01 -
------------------------------------------
Net loss per common share $ (0.02) $ (0.08)
==========================================
</TABLE>
Read Certified Public Accountants Review Report.
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
Alottafun!, Inc.
Statements of Changes in Stockholders' Deficit
(unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------------------------------- Additional
Shares $.01 Par Shares $.0001 Par Paid-in
Issued Value Issued Value Capital
---------- ---------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 9,034,104 $ 90,341 2,000,000 $ 200 $ 4,750,988
Issuance of common stock for cash
net of offering costs of $527,250 1,987,000 19,870 - - 540,630
Issuance of stock for deposit on acquisition 100,000 1,000 - - 61,500
Net loss for the three months ended March 31, 2000 - - - - -
========== ========== ========== ========= ==========
Balance, March 31, 2000 11,121,104 $ 111,211 2,000,000 $ 200 $ 5,353,118
========== ========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Stock
Accumulated Deferred Subscription
Deficit Offering Costs Receivable Total
------------ ----------------------------------------
<S> <C> <C> <C>
$ (4,715,397) $ (455,400) $ (123,500) $ (452,768)
- - - 560,500
- - - 62,500
(191,272) - - (191,272)
============ ============== ========= ===========
$ (4,906,669) $ (455,400) $ (123,500) $ (21,040)
============ ============== ========= ===========
</TABLE>
Read Certified Public Accountants Review Report.
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
Alottafun!, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
2000 1999
----------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (191,272) $ (472,810)
----------------------------------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 8,660 4,113
Write-off of obsolete inventory - 16,389
Loss (gain) on marketable securities (5,344) 6,346
Unrealized loss on marketable securities - 78,615
Interest on warrants - 192,043
Common stock issued for services - 30,000
(Increase) decrease in:
Accounts receivable 2,685 -
Inventory - (17,168)
Other assets (321) (11,687)
Deposits - 19,450
Increase (decrease) in:
Accounts payable (113,679) 2,130
Accrued expenses 18,728 (20,895)
----------------------------------------
Total adjustments (89,271) 299,336
----------------------------------------
Net cash used by operating activities (280,543) (173,474)
----------------------------------------
Investing activities
Acquisition of equipment and intangible assets (68,282) (16,066)
Proceeds from sale of marketable securities 5,344 -
Purchase of marketable securities - (699,495)
----------------------------------------
Net cash provided (used) by investing activities (62,938) (715,561)
----------------------------------------
Financing activities
Proceeds from issuance of note payable - 153,158
Proceeds from sale of common stock 560,500 367,907
Principal reductions of long-term debt (9,411) (29,681)
----------------------------------------
Net cash provided by financing activities 551,089 491,384
----------------------------------------
Net increase in cash 207,608 (397,651)
Cash at beginning of period 5,310 411,114
----------------------------------------
Cash at end of period $ 212,918 $ 13,463
========================================
Supplemental disclosures of cash flow information
and noncash financing activities
Cash paid during the period for interest $ 11,197 $ 2,628
</TABLE>
In February, 2000 the Company issued 100,000 shares of restricted common stock
to Faction, Inc. as an acquisition deposit. These shares were valued at the fair
market value at the date of issuance which totaled $62,500. This transaction is
accounted for as a non cash transaction in the statement of cash flows.
During the three month period ended March 31, 2000, the Company issued 1,987,000
shares of restricted common stock. The Company raised $560,500 which was net of
$527,250 of offering costs. These offering costs include $87,000 of cash and
572,000 shares of Alottafun! Restricted stock valued at a total fair market
value of $440,250. The issuance of these shares were treated as offering costs
and are recorded as non cash transactions in the statement of cash flows.
Read Certified Public Accountants Review Report.
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
ALLOTAFUN!, INC.
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited financial statements, which are for interim periods,
do not include all disclosures provided in the annual financial statements.
These unaudited financial statements should be read in conjunction with the
financial statements and the footnotes thereto contained in the Audited
Financial Statements for the year ended December 31, 1999 and 1998 of
Alottafun!, Inc. (the "Company").
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the three month periods ended March 31, 2000 and 1999 are not necessarily
indicative of the results to be expected for the full year.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has sustained
substantial losses since inception that total approximately $4,900,000 and has
used cash in operations of approximately $281,000 and $173,000 for the three
month periods ended March 31, 2000 and 1999, respectively. The Company has a
negative working capital of $248,925 at March 31, 2000 and has negative tangible
net worth of approximately $24,000 at March 31, 2000. In addition, the Company
is currently in default on approximately $81,000 of notes payable. Additionally,
the Company has not had significant revenues over the past two years. These
issues indicate that the Company may be unable to continue as a going concern.
Realization of the Company's assets is dependent upon the Company's ability to
raise additional capital, as well as generate revenues sufficient to result in
future profitable operations. The accompanying financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue as a going concern.
Note 2 - Per share calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the periods ended March 31, 2000 and 1999. The
weighted average shares outstanding for the three month period ended March 31,
2000 was 10,040,642 as compared to 5,939,802 for the three months ended March
31, 1999.
Note 3 - Equity Transactions
Please refer to Audited Financial Statements consisting of the Company's balance
sheet as of December 31, 1999, and related statements of operations, changes in
stockholders' equity, and cash flows ended December 31, 1999, as audited by
Pender, Newkirk & Company, Certified Public Accountant.
During the three month period ended March 31, 2000, the Company issued an
aggregate of 1,987,000 shares of restricted common stock. The Company raised
$560,500 that was net of $527,250 of offering costs. These offering costs
included $87,000 of cash and 572,000 shares of Alottafun! Restricted stock
valued at a total fair market value of $440,250. The issuance of these shares
was treated as offering costs. The Company relied upon Section 4(2) of the
Securities Act of 1933 for the issuance of these securities.
In February 2000, the Company issued 100,000 shares of restricted common stock
as a deposit on the acquisition of Faction, Inc. Faction, Inc. is an Internet
software development company located in New York, NY. This acquisition is
expected to be completed in May 2000 pending the resolution of specific terms in
the stock purchase agreement. The shares issued for the deposit were valued at
the fair market value at the date of issuance that totaled $62,500. The Company
relied upon Section 4(2) of the Securities Act of 1933 for the issuance of these
securities.
Note 4 - Contingencies
The Company's past website host and e-commerce provider has terminated the
Company's website and refused to provide additional e-commerce support services.
This dispute involves a claim that the Company has failed to timely pay for past
services rendered. However, there is no executed written contract between the
parties. Also, the website provider is refusing to turn over the HTML web pages
that comprise the Company's website and has asserted certain copyright
infringement and trade secret misappropriation claims. No lawsuit has been
filed. If necessary, and litigation is instituted, the Company plans to
vigorously defend and assert substantial counterclaims.
F-25
<PAGE>
ALOTTAFUN!, INC.
Notes to Financial Statements
(Continued)
Management of the Company and its legal counsel indicate that the likelihood of
an unfavorable outcome, as well as the maximum potential loss, if any, is
remote. Therefore, the Company has written off the $60,000 payable to the past
Web site provider as an extraordinary gain.
F-26
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................
Summary Financial Information................
Risk Factors.................................
Forward-Looking Information..................
Use of Proceeds..............................
Dilution.....................................
Selected Financial Data......................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....................
Business.....................................
Management...................................
Security Ownership of Certain
Beneficial Owners and Management.............
Selling and Principal Shareholders...........
Certain Transactions.........................
Description of Securities....................
Shares Eligible for Future Sale..............
Plan of Distribution.........................
Legal Matters................................
Experts......................................
Financial Statements.........................
Until _______, 2000, all dealers that effect transaction in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions
ALOTTAFUN, INC.
----------------
PROSPECTUS
----------------
----------------
July __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table sets forth the expenses, other than the
underwriting discounts and commissions, paid or payable by the Registrant in
connection with the distribution of the securities being registered. All amounts
are estimates except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
Securities and Exchange Commission registration fee........ $ 457
Accounting fees and expenses............................... $10,000
Legal fees and expenses.................................... $25,000
Printing and engraving expenses............................ $ 2,500
Blue Sky fees and expenses (including legal fees).......... $ 2,500
TOTAL.............................................. $30,457
=======
Item 14. Indemnification of Directors and Officers.
-----------------------------------------
Limitation of Liability and Indemnification matters
The Registrant's certificate of incorporation limits the
liability of the Registrant's directors to the maximum extent permitted by
Delaware law. Delaware law provides that a director of a corporation will not be
personally liable for monetary damages for breach of that individual's fiduciary
duties as a director except for liability for (1) a breach of the director's
duty of loyalty to the corporation or its stockholders, (2) any act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of the law, (3) unlawful payments of dividends or unlawful stock repurchases or
redemptions, or (4) any transaction from which the director derived an improper
personal benefit.
This limitation of liability does not apply to liabilities
arising under federal securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees and
individuals, against attorneys' fees and other expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person was or is a party or is threatened to be made a
party by reason of such person being or having been a director, officer,
employee or agent of the corporation. The Delaware General Corporation Law
provides that this is not exclusive of other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
The Registrant's certificate of incorporation and bylaws
provide that the Registrant is required to indemnify its directors and officers
to the maximum extent permitted by law. The Registrant's bylaws also require the
Registrant to advance expenses incurred by an officer or director in connection
with the defense of any action or proceeding arising out of that party's status
or service as a director or officer of the Registrant or as a director, officer,
employee benefit plan or other enterprise, if serving as such at the
Registrant's request. The Registrant's bylaws also permit the Registrant to
secure insurance on behalf of any director or officer for any liability arising
out of his or her actions in a representative capacity.
II-1
<PAGE>
The Registrant intends to enter into indemnification
agreements with its directors and some of its officers containing provisions
that (1) indemnify, to the maximum extent permitted by Florida law, those
directors and officers against liabilities that may arise by reason of their
status or service as directors or officers except liabilities arising from
willful misconduct of a culpable nature, (2) to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified, and (3) to obtain directors' and officers' liability insurance if
maintained for other directors or officers.
The Registrant's predecessor limited liability company had
liability insurance for its management committee members and officers and the
Registrant intends to obtain directors' and officers' liability insurance for
its directors and officers.
Reference is also made to the Underwriting Agreement to be
filed as Exhibit 3(g) to the Registration Statement for information concerning
the underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
---------------------------------------
The following information describes sales of unregistered
securities by the Registrant since June 30, 1998.
-------------
Recent Sales of Unregistered Securities
For the 12 months ended, December 31, 1998, we raised approximately
$222,000 through the sale of 849,694 shares of our Common Stock to approximately
26 unaffiliated investors. For the period commencing January 1st through May 1st
1999, we sold an additional 941,979 shares of Common Stock, which raised
approximately $321,511. As of May 1, 1999, warrants to acquire 700,000 shares of
our Common Stock at $1.00625 are outstanding. We relied upon Rule 504 of
Regulation D and Section 4(2) for the issuance of these securities.
In December, 1998, we entered into a $300,000 Convertible Debenture
Agreement with Lampton, Inc. and a $100,000 Convertible Debenture Agreement with
GEM Management Limited. These debentures provided for a conversion at 65% of the
average closing bid price for the 5 trading days prior to conversion. All
$400,000 of the convertible debentures held by GEM Management Limited and
Lampton, Inc. were converted into a total of 3,931,211 shares of our Common
Stock at an average conversion price of $.10. In connection with these
debentures, we issued warrants to acquire approximately 411,000 shares of our
Common Stock at an exercise price of $0.001. We relied upon Rule 504 of
Regulation D and Section 4(2) for the issuance of these securities.
In connection with the execution of their employment agreements in
January, 1999, Mr. Porter and Mr. Bezalel were each granted options to acquire
up to 2,500,000 shares of the Common Stock at an exercise price of $.15 per
share. In addition, Mr. Couture was granted an option to acquire 500,000 shares
of the Common Stock also at an exercise price of $.15. We relied upon Section
4(2) for the issuance of these securities. See "Executive Compensation -
Employment Agreements".
In April, 1999, Mr. Porter agreed to transfer 325,000 shares of
Alottafun! Common Stock he owns to an unaffiliated party as part of an agreement
to satisfy obligations of Alottafun! he personally assumed in 1996. The resale
of these shares in satisfaction of this indebtedness pursuant to Rule 144 may
have an adverse effect on the market price of our Common Stock.
In January, 1999, we issued an aggregate of 90,000 shares of our
restricted Common Stock to Couture & Company in connection with consulting
services. We relied upon Section 4(2) for the issuance of these securities. See
"Certain Relationships and Related Transactions".
We issued 7,500 shares of our Common Stock to outside general corporate
counsel in 1997 as partial payment for fees. We have also agreed to issue
approximately 20,000 additional shares for services in connection with this Form
10-SB. We relied upon Section 4(2) for the issuance of these securities.
II-2
<PAGE>
In June, 1999, we issued warrants to acquire 450,000 shares of our
Common Stock at an exercise price of $1.00625 to Swartz Private Equity LLC.
These warrants contain certain registration rights, anti-dilution and cashless
exercise conversion provisions. We relied upon Section 4(2) for the issuance of
these securities. In addition, in June, 1999, we issued warrants to acquire up
to 250,000 shares of our Common Stock at an exercise price of $1.00625 to
Dunwoody Brokerage Services, Inc., an affiliate of Swartz Private Equity LLC. We
relied upon Section 492) for the issuance of these securities.
We have 10,000,000 of our Common Stock reserved for issue under our
Stock Option Plan.
In February 1999, Mr.Porter and Mr. Bezalel entered into a stockholders
agreement with Alottafun! in connection with issuance of 1,000,000 shares each
to Mr. Porter and Mr. Bezalel of Series A Voting Preferred Stock. These shares
were issued for nominal consideration. We relied upon Section 4(2) for the
issuance of these securities. See "Description of Securities - Preferred Stock".
In addition, we have issued 3,904,383 shares of Common Stock to certain
of our stockholders for the period of July 1, 1999 through July 2000, which are
being registered hereunder as set forth in the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Name Number of Shares Offered % of Shares Outstanding
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Think Innovative Media (2) 30,000 0.0025
Delta Flex (1) 50,000 0.0041
Joseph Tranchito (1) 100,000 0.0083
Ying Hu (1) 4,000 0.0003
Chuen Lee (1) 10,000 0.0008
Sudapen Palanchai (1) 1,000 0.0001
Albert Woon (1) 4,000 0.0003
Yulia Hundjaja (1) 4,000 0.0003
Michael Hung (1) 1,000 0.0001
James Ward (2) 10,000 0.0008
Dave Conant (2) 3,000 0.0002
Tim Brown (2) 700 0.0001
Yigal Manusewitz F.Trust (1) 89,600 0.0074
Kash Pashakhan (2) 350,000 0.0289
News USA (2) 100,000 0.0083
DLM Enterprise (1) 200,000 0.0165
Craig Kaufman (2) 20,000 0.0017
Paul Clemente (2) 28,350 0.0023
Gerald Gallichio (2) 25,000 0.0021
Michele Carew (2) 103,400 0.0085
Evermore Entertainment (2) 150,000 0.0124
Pirooz Kamali (1) 60,000 0.0050
Vivien Shane (1) 140,000 0.0116
Kim Aretowicz (2) 50,000 0.0041
Sal Rafeail (1) 542,000 0.0447
Arthur Frawley (3) 100,000 0.0083
Jacob Perl (1) 150,000 0.0124
Hovie Forman (1) 40,000 0.0033
John Chianello (1) 10,000 0.0008
Tamer Youssef (1) 40,000 0.0033
Peter Lulgjuraj (1) 100,000 0.0083
I.R. International Consul. (2) 212,000 0.0175
Iken Communications (2) 18,000 0.0015
Jeff Hull (1) 300,000 0.0248
Norman Sugarman (1) 30,000 0.0025
James Hohrine (1) 25,000 0.0021
Renee Winkler (2) 40,000 0.0033
Giosappo's Corporation (2) 25,000 0.0021
Scott Moore (1) & (2) 180,000 0.0149
Cake E Tours (2) 200,000 0.0165
Joseph Lobosco (1) 33,333 0.0028
Eric Goldstein (2) 125,000 0.0103
Bruce Lipshutz (2) 100,000 0.0083
Herman Heinlein (2) 100,000 0.0083
-------------------------------------------------------------------------------------------------------------
Total: 3,904,383
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares sold by the Company between July, 1999 and June 30, 200
at prices ranging from $.25 to $.50.
---- ----
(2) Represents shares issued in exchange for services.
(3) Shares issued in connection with purchase of Faction, Inc.
II-3
<PAGE>
For all such transactions, the Company relied upon Sections 4(2) and
3(b) of the Securities Act of 1933 as an exemption available from the
registration requirements of Section 5 of the Securities Act of 1933 for
transactions by an issuer not involving a public offering. Each person receiving
options or shares represented that such person was acquiring interest for
investment purposes only.
Item 16. Exhibits and Financial Statement Schedule.
-----------------------------------------
(a) The following documents are filed as part of this report:
(1)(2) CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES. A list of the Consolidated Financial
Statements filed as part of this Report is set forth in Item
8 and appears at Page F-1 of this Report; which list is
incorporated herein by reference. The Financial Statement
Schedules and the Report of Independent Auditors as to
Schedules follow the Exhibits.
(b) (3) EXHIBITS.
II-4
<PAGE>
All of the items below are incorporated by reference to the
Registrant's General Form 10SB and amendments for Registration of Securities as
previously filed.
EXHIBITS AND SEC REFERENCE NUMBERS
<TABLE>
<CAPTION>
Number Title of Document
------ -----------------
<S> <C> <C>
2(a) Certificate of Incorporation (2)
2(b) Plan of Merger (2)
2(c) Agreement and Plan of Merger (2)
2(d) Certificate of Merger (2)
2(e) Amendment to Certificate of Incorporation to Increase Authorized Shares (2)
2(f) ByLaws (2)
3(a) Amended and Restated Certificate of Designation, Preferences and Rights of
Preferred Stock(2)
3(b) Convertible Debenture Agreement by and between Alottafun! and Lampton, Inc. and GEM
Management Limited dated December 8, 1998 (2)
3(c) 2% Convertible Debenture (2)
3(d) Warrant to Purchase Common Stock (2)
3(e) Escrow Agreement (2)
3(f) Preferred Shareholder Agreement (2)
3(g) Form of Subscription Agreement for Selling Shareholders (1)
5.1 Legal Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. (1)
6(a) Agreement by and between Michael Porter and Brian Henke (2)
6(b) Employment Contract with Michael Porter dated 1/22/99 (2)
6(c) Employment Contract with David Bezalel dated 1/22/99 (2)
6(d) Employment Contract with Gerald Couture dated 1/22/99 (2)
6(e) Amended Investment Agreement by and between Alottafun! and Swartz Private Equity, LLC
dated June 3, 1999 (2)
6(f) Amended Registration Rights Agreement by and between Alottafun! and Swartz Private Equity,
LLC dated June 3, 1999 (2)
6(g) Stock Option Plan of Alottafun! dated May 1999 (3)
6(h) Joint Venture Agreement by and between Alottafun! and E-Commerce Fulfillment, L.L.C. dated May 17, 1999 (3)
6(i) Agreement of Waiver dated February 7, 2000 between Alottafun and Swartz Private Equity, LLC (1)
23.1 Consent of Pender, Newkirk & Company (1)
</TABLE>
(1) Filed herewith.
(2) Filed as exhibits to Form 10-SB filed on June 9, 1999.
(3) Filed as exhibits to Form 10-SB/A filed on September 21, 1999.
(4) Filed as exhibits to Form 10-SB/A filed on November 2, 1999.
(c) Reports on Form 8-K
Item 17. Undertakings.
------------
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing, specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company 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 Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
The undersigned registrant hereby further undertakes that:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filled by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Form SB-2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in West
Bend, Wisconsin, on this 11th day of July, 2000.
ALOTTAFUN, INC.
By: /s/ Michael Porter
----------------------
Michael Porter
Chief Executive Officer,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons, in
the capacities indicated, on the dates stated.
Signature Capacity Date
--------- -------- ----
/s/ Michael Porter Chairman of the Board July 11, 2000
------------------ Chief Executive Officer,
President
Michael Porter
/s/ David Bezalel Chief Operating Officer, July 11, 2000
----------------- Vice President and Director
David Bezalel
/s/ Gerald Couture Director July 11, 2000
Gerald Couture
II-7
<PAGE>
LEGEND TO BE INSERTED ALONG LEFT-HAND SIDE OF COVER PAGE OF PROSPECTUS:
The information in this prospectus is not complete and may be changed.
Alottafun, Inc. may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
