<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1997
Registration No. 333-26455
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(Exact name of Small Business Issuer in its Charter)
TEXAS 8732 74-2797240
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
Organization) Classification
Code Number)
-------------------
3321 WESTLAKE DRIVE
AUSTIN, TEXAS 78746
(512) 306-8836
(Address and telephone number
of Principal Executive Offices
and Principal Place of Business)
-------------------
KATHLEEN S. SULLIVAN
3321 WESTLAKE DRIVE
AUSTIN, TEXAS 78746
(512) 306-8836
(Name, Address and Telephone Number of Agent for Service)
-------------------
COPIES TO:
WALTER EARL BISSEX, ESQ.
JEANNE G. SELZER, ESQ.
WINSTEAD SECHREST & MINICK P.C.
100 CONGRESS AVENUE
SUITE 800
AUSTIN, TEXAS 78701-4042
(512) 474-4330
-------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
GLOBAL STATISTICS CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM SB-2
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<TABLE>
ITEM REGISTRATION STATEMENT CAPTION OR LOCATION
NUMBER ITEM AND HEADING IN PROSPECTUS
- ------ --------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Page
3. Summary Information and Risk Factors . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . Outside Front Cover Page; Determination of
Offering Price
6. Dilution . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security-Holders . . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . . Outside Front Cover Page;
Plan of Distribution
9. Legal Proceedings . . . . . . . . . . . . . . Business
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . Principal Shareholders
12. Description of Securities . . . . . . . . . . Description of Securities
13. Interests of Named Experts and Counsel . . . Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . Risk Factors
15. Organization Within Last Five Years . . . . . Certain Relationships and Related
Transactions
16. Description of Business . . . . . . . . . . . Business
17. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . Plan of Operation
18. Description of Property . . . . . . . . . . . Business
19. Certain Relationships and Related Certain Transactions
Transactions . . . . . . . . . . . . . . . .
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . Not Applicable
21. Executive Compensation . . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . . Financial Statements
23. Changes in and Disagreements with Accountants
or Accounting and Financial Disclosure . . . Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 6, 1997
PROSPECTUS
400,000 Shares
GLOBAL STATISTICS CORPORATION
Common Stock
Global Statistics Corporation, a Texas corporation ("GSC" or the
"Company"), is offering up to 400,000 shares of its Common Stock, par value
$0.01 per share. Prior to this offering, there has been no public market for
the Common Stock, and there can be no assurance that such a market will develop
or, if developed, that it will be sustained.
The initial public offering price for the Common Stock will be $5.00 per
share. The initial public offering price has been arbitrarily determined by the
Company and does not necessarily bear any relationship to the Company's book
value, assets, net worth, financial condition or any other established criteria
of value. See "Determination of Offering Price." The shares will be offered
directly to the public both via the Internet through the Company's worldwide web
site at http:/www.thegamemaster.com and through advertisements and direct
solicitation of potential investors, including public and private meetings.
Clifford L. Haigler, Assistant Secretary of the Company, will conduct the
offering on behalf of the Company. Access to the Prospectus by way of the web
site will be limited to residents of states in which requirements for the
offering have been satisfied.
Persons who wish to purchase shares of Common Stock in this offering must
submit a subscription agreement, together with the required payment, to the
Company. The minimum subscription is 50 shares. See "Plan of Distribution."
The required minimum number of shares to be sold in the offering (the
"Minimum Offering") is 100,000 shares. Pending the sale of the Minimum
Offering, all proceeds of this offering will be deposited into a non-interest
bearing account (the "Escrow Account") at Brenham National Bank, Brenham, Texas.
In the event that the Minimum Offering is not sold within a period of 60 days
from the date of this Prospectus (the "Initial Offering Period") (which period
may be extended, at the Company's discretion, for up to three additional 30-day
periods), this offering will terminate and all funds will be promptly returned
to subscribers by the Company, without interest. If the Minimum Offering is
sold within the Initial Offering Period, or any extensions thereof, the offering
will continue until the Company has sold all of the 400,000 shares offered
hereby (the "Maximum Offering"), or such earlier date as the Company may close
or terminate the offering.
The Company had a total stockholders' deficit of $2,104 and $27,577 as of
December 31, 1996 and May 31, 1997, respectively. The report of the Company's
accountants included in this Prospectus notes certain conditions which raise
substantial doubt about the Company's ability to continue as a going concern.
Management of the Company estimates that the proceeds of the Minimum Offering
will be sufficient to repay outstanding indebtedness, eliminate the working
capital deficit and implement and operate its business plan for approximately
one year.
-------------------
THE COMPANY HAS A LIMITED OPERATING HISTORY. THE SECURITIES OFFERED HEREBY ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION
FROM THE PUBLIC OFFERING PRICE. THE SECURITIES OFFERED HEREBY SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE ENTIRE LOSS OF THEIR INVESTMENT.
SEE "RISK FACTORS" (BEGINNING ON PAGE 7 OF THIS PROSPECTUS) FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
-------------------
LIMITED STATE REGISTRATION: OFFERS ARE BEING MADE ONLY TO RESIDENTS OF
ARIZONA, CALIFORNIA, COLORADO, GEORGIA, ILLINOIS, MICHIGAN, NEW JERSEY, NEW
YORK, NORTH CAROLINA, OHIO, OREGON, PENNSYLVANIA, TEXAS, VIRGINIA AND
WASHINGTON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY
OTHER STATE OR OTHER JURISDICTION IN WHICH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IS UNLAWFUL.
================================================================================
Price to Proceeds to
Public Company(1)
- --------------------------------------------------------------------------------
Per Share $ 5.00 $ 5.00
- --------------------------------------------------------------------------------
Total Minimum $ 500,000.00 $ 500,000.00
- --------------------------------------------------------------------------------
Total Maximum $2,000,000.00 $2,000,000.00
================================================================================
(1) Before deducting certain estimated expenses payable by the Company in the
amount of $75,000 for the Minimum Offering and $110,000 for the Maximum
Offering, and certain commissions or concessions in the amount of up to
$0.25 per share, which may be deducted from the offering price for sales
made to registered securities dealers or paid by the Company to registered
securities dealers.
-------------------
The shares are being offered by the Company subject to certain conditions.
The Company reserves the right to withdraw or cancel such offer and reject any
order, in whole or in part.
The date of this Prospectus is _______, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 relating to the Common Stock
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus concerning the provisions or contents of
any contract, agreement or any other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
DC 20549 and at the Commission's regional offices at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661.
As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
regional offices referred to above, and on the Company's Web site at
http://www.TheGameMaster.com. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements certified by independent
public accountants for each fiscal year and quarterly reports containing
unaudited consolidated financial statements for the first three quarters of each
fiscal year.
<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
The Company is engaged in the creation, design, development and operation
of an interactive entertainment site on the Internet, located at
www.TheGameMaster.com (the "Site"). Internet users may access the Site and play
games for no charge. Before playing a game on the Site, however, each user must
complete a one-time registration process that requires the user to answer a
series of lifestyle and demographic questions. The detailed data collected from
individuals who complete the registration process ("registered members" or
"members") is maintained by the Company in a proprietary database called
DeliveryMaster-TM-. The DeliveryMaster-TM- database is the foundation from
which the Company's revenues are to be generated.
Management believes that the Company's Site is the first interactive
Internet site to provide both passive and moderated game programs in which
participants can win instant prizes. The Company's moderated programs provide
television-style programming in an interactive environment that allows a large
audience to "watch" the programs, with contestants being called from the
audience. In addition to the entertainment value of watching the game as a
television-style experience, there is an incentive to participate as a result of
the possibility of winning a prize. Prizes are awarded both during and at the
conclusion of each program. The Company's primary programming design strategy
is to design interactive entertainment programming that only requires the
functions contained in the "normal" Internet browser software utilizing standard
Hyper Text Markup Language ("HTML") commands. Management estimates that this
design strategy allows 93% of the potential market of Internet users access to
the Site. To date, the Company has designed six programs utilizing proprietary
software. The initial programs are COMEONDOWN!!-TM- (audience programming
utilizing other games), SLOTS-OF-LUCK-TM- (individual play), TRIVIALMATTERS-TM-
(individual play and audience programming), TRICTRAX-TM- (individual play and
audience programming), PENNYWISE-TM- (individual play and audience programming)
and SEARCHPARTY-TM- (individual play).
The Company projects three primary sources of revenue: market research
sales, advertising sales and on-line catalog sales. From inception of the
Company in October 1996 to May 31, 1997, the Company has had only limited
advertising sales of $33,268 (all of which sales have been in the form of
contributed prizes), no catalog sales and no market research sales. The
Company's long-term objective is to become a leading provider of demographic,
lifestyle and consumer information. Initially, this goal will be accomplished by
attracting members through interactive entertainment programming on the
Internet. In the future, the Company intends to position itself for the
convergence of the computer and other media technologies, such as television,
into a central entertainment access vehicle with direct audience interaction,
applying the Company's data collection model to new communication technologies
as they emerge.
The Company offers clients two market research models and intends to
develop additional market research models in the event that the Maximum Offering
is consummated. The Company has designed an interactive survey model in the
form of a "slot machine" game that resides on the Site. Members answer survey
questions designed by the client and are rewarded with "tokens" for each
question completed. These tokens are then used by the member to "spin" the slot
machine. Slot machine winners receive prizes offered by the client. The slot
machine gathers survey results and demographic information about the members
answering the questions and adds the required information to the DeliveryMaster-
TM- database. The Company also offers an e-mail survey model that gives clients
the ability to ask questions of individuals listed in the DeliveryMaster-TM-
database through a targeted e-mail program. Clients create specific queries
that the Company e-mails to targeted demographic profiles in the existing
DeliveryMaster-TM- database.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Company provides its clients the opportunity to advertise on the
Site in connection with its entertainment programming. Advertisers may purchase
a full-page, scrollable, full color advertisement for any program, reinforced
with several banner advertisements on succeeding pages. Game prizes may also be
the client's products. Full-page advertisements may be either general or
targeted, utilizing a number of filters to identify potential customers based
upon the member's demographic and lifestyle profile.
The Company offers its clients the ability to sell products to its
registered members directly through its on-line catalog, called
PrizeCatalog-TM-. The PrizeCatalog-TM- may be accessed directly at
www.PrizeCatalog.com or through the Site. The products and services are
offered for sale only to the Company's registered members, and are bought by the
Company at wholesale and resold at retail or a discounted retail depending on
special promotions being run. Upon receipt of an order, the sale is fulfilled
directly by the client. PrizeCatalog-TM- serves as an on-line retailer of
products and services, without a fulfillment center (the Company will keep no
inventory). PrizeCatalog-TM- has a shopping cart system and "secure server" for
purchase of any product in the catalog. Visa, MasterCard, Digicash and
CyberCash will be accepted for payment.
The Company was incorporated under the laws of the State of Texas in
October 1996, and its principal executive offices are located at 3321 Westlake
Drive, Austin, Texas 78746. The Company's telephone number is 512/306-8836.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
Common Stock offered hereby.... A minimum of 100,000 shares and a maximum of
400,000 shares.
Offering price................. $5.00 per share
Minimum subscription........... 50 shares
Escrow......................... All subscriptions will be deposited by the
Company into the Escrow Account. If the
Minimum Offering is not sold within the
Initial Offering Period, or any extensions
thereof, all monies received will be refunded
promptly to investors without interest.
After the Initial Closing (defined below),
proceeds of additional subscriptions will
be deposited into the Escrow Account pending
Subsequent Closings (defined below). See
"Plan of Distribution."
Initial closing................ The initial closing of the offering (the
"Initial Closing") will occur upon receipt of
subscriptions acceptable to the Company
sufficient to complete the Minimum Offering.
Subsequent closings............ Sales of shares of Common Stock after the
Initial Closing ("Subsequent Closings") will
be closed from time to time up to an
aggregate of the Maximum Offering.
Common Stock to be
outstanding after the
offering(1).................... 1,000,000 shares if the Minimum Offering is
sold, and 1,300,000 shares if the Maximum
Offering is sold.
Use of proceeds................ To repay indebtedness; to hire additional
technical and administrative personnel for
the purpose of expanding and improving
programming; to hire additional sales
personnel and to finance marketing
activities; for general corporate purposes;
and, if the Maximum Offering is sold, to
finance additional research and development.
- ---------------------
(1) Excludes 35,000 shares of Common Stock issuable upon the exercise of
currently exercisable stock options. See "Management - Stock Options."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL DATA
The Company is a development stage company and has no significant revenues
or earnings from operations.
From Inception Five Months
(October 1, 1996) Ended
to May 31, 1997
December 31, 1996 (unaudited)
----------------- ------------
Summary of Loss Data:
Net Revenues $ 5,635 $ 27,633
Expenses 42,614 141,702
Net loss during development stage (36,979) (114,069)
Loss per common share (0.04) (0.13)
Operating Data:
Registered members(1) 1,928 8,764
Banner impressions per week(2) 12,522 33,415
May 31, 1997
-------------------------------------------
Actual As Adjusted(3)
---------- --------------------------
Minimum Maximum
-------- ----------
Balance Sheet Data:
Working Capital $(121,535) $356,465 $1,821,465
Total Assets $ 94,123 $450,423 $1,915,423
Total Liabilities $ 121,700 0 0
Shareholders' Equity $ (27,577) $450,423 $1,915,423
- ----------------------------
(1) Number reflects actual number as of last day of period.
(2) Number reflects actual number for the last week of the period.
(3) Adjusted to reflect the sale by the Company of the Minimum Offering and the
Maximum Offering at a public offering price of $5.00 per share, and the
application of the estimated net proceeds therefrom. See Use of Proceeds.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PRIOR TO
MAKING AN INVESTMENT IN THE COMMON STOCK OFFERED IN THIS PROSPECTUS.
RISKS INHERENT IN A START-UP COMPANY
LIMITED OPERATING HISTORY/DOUBTS AS TO GOING CONCERN. The Company is a
recently formed development stage company with no history of operations and no
significant revenues from operations or otherwise. As a result of the Company's
limited operating history and the nature of the markets in which it competes,
the Company is unable to accurately forecast its revenues. The Company
currently intends to increase its operating expenses substantially following the
offering to hire additional personnel, to fund marketing programs and possibly
to fund research and development programs. To the extent that such expenses are
not subsequently followed by increased revenues, the Company's business
condition and operating results will be materially adversely affected.
Businesses that are starting up or in their initial stages of development
present substantial business and financial risks and may suffer significant
losses from which they cannot recover. The Company will face all of the
challenges of any new business enterprise, including but not limited to
(i) developing and implementing a workable business plan; (ii) engaging the
services of qualified support personnel, consultants and management;
(iii) establishing budgets; and (iv) implementing appropriate financial controls
and internal operating policies and procedures. In addition, the Company and
its prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the new and rapidly evolving
market for Internet products and services. There can be no assurance that the
Company will be successful in addressing such risks.
The Company does not have significant cash and has not had significant
operations since the inception of its development stage. As noted in the
independent accountants opinion, there is substantial doubt about the Company's
ability to continue as a going concern without the realization of additional
adequate financing. As of May 31, 1997, the Company had an accumulated deficit
and negative shareholders equity of $151,048 and $27,577, respectively.
LIMITED CAPITAL/NEED FOR ADDITIONAL CAPITAL. The Company currently has no
significant operating capital and is totally dependent upon receipt of the
proceeds of this offering to finance operations. If only the Minimum Offering
is sold, the Company intends to hire the necessary staff to expand the
availability of its scheduled audience programming, to activate three additional
programs that have already been developed, and to add additional personnel in
the areas of prize fulfillment and administration to enable it to increase sales
and marketing efforts. However, the Company would not have sufficient funds to
enable it to expand research and development, which would allow the Company to
introduce new programs and to improve the on-line catalog, as it intends to do
if the Maximum Offering is sold, and would be forced to seek additional funding
to enable it to do so. The Company has no commitments for additional cash
funding beyond the proceeds expected to be received from this offering, and
there can be no assurance that such funding will be available, or, if available,
that the terms thereof will be attractive to the Company. If the Company is
unable to complete the Minimum Offering, the Company intends to renegotiate its
existing lending arrangement and reduce its expenditures on promotion and
administration to preserve cash liquidity.
LEVERAGE. If the Company obtains additional financing in the form of
public or private debt, particularly if only the Minimum Offering is sold, the
Company may become highly leveraged and may have substantial debt service
obligations. Such leverage could present significant risks to an investor in
the Common Stock. There can be no assurance that the Company would be able to
generate sufficient cash flow to make timely payments of principal and interest
on indebtedness. In that event, the Company could default on such indebtedness,
which could result, among other things, in a foreclosure or other actions of
creditors against collateral securing such indebtedness.
LIMITED MANAGEMENT EXPERIENCE. Although Roderick E. Gilchrist, the
Company's Chief Executive Officer, and Joshua E. Buettner, the Company's Chief
Operating Officer, have substantial experience in Internet programming and
on-line
7
<PAGE>
catalog sales, the Company's management has limited experience in Internet
entertainment programming, advertising sales, market research sales or
conducting market research. Such limited experience in these areas may limit
the Company's ability to achieve its business plan. See
"Management--Management Experience in the Company's Industry."
LACK OF DEPTH OF MANAGEMENT. As compared to many other public companies,
the Company lacks a depth of managerial and technical personnel. The Company
has no full-time employees and depends entirely upon the efforts of its founders
for its operations. The Company believes that its future success depends in
large part on its ability to attract, retain and motivate highly skilled
management personnel. The Company has no plans to hire any management personnel
unless greater than the Minimum Offering is sold, and there can be no assurance
that the Company will succeed in attracting such management personnel.
CONFLICTS OF INTEREST. In October 1996, the Company entered into an
agreement (the "CyberMall Agreement") with CyberMall Corporation, Inc.
("CyberMall") to design, produce and maintain the Company's Site. CyberMall is
owned by Messrs. Gilchrist and Buettner. CyberMall has been paid $39,145 of
fees and expenses pursuant to the CyberMall Agreement through May 31, 1997. In
the event the Maximum Offering is completed, the business of the Company will
require the full time and attention of Messrs. Gilchrist and Buettner, and
consequently the CyberMall Agreement will terminate and Messrs. Gilchrist and
Buettner will become employees of the Company. In the event the Minimum
Offering is completed, CyberMall will be paid $72,000 annually for
administrative services, plus reimbursement of reimbursable expenses such as
prize shipping costs, pursuant to the CyberMall Agreement.
Up to $100,000 of the proceeds of this offering will be used to repay the
Bridge Note (as hereinafter defined) held by FSF, Inc., an affiliate of
Kathleen S. Sullivan, the Chief Financial Officer of the Company. See "Use of
Proceeds" and "Certain Transactions."
DEPENDENCE ON THE EFFORTS OF FOUNDERS. The Company currently has no
employees and, therefore, the success of the Company will depend in large
measure on the efforts and assistance of Messrs. Gilchrist and Buettner.
Messrs. Gilchrist and Buettner presently devote approximately one-third of their
business time and attention to the Company. All of the officers of the Company
currently maintain part- to full-time employment outside the Company and may not
be able to devote sufficient attention to the Company to ensure its success
until earnings justify additional time be devoted to the Company. Such outside
employment may also create conflicts of interest. There is no assurance such
conflicts could be resolved favorably for the Company; however, Texas corporate
law requires all officers and directors of the Company to act according to their
fiduciary duties to the stockholders. In the event the Maximum Offering is
closed, Messrs. Gilchrist and Buettner will become full-time employees of the
Company.
PAYMENT OF DIVIDENDS. The Company has not paid dividends on its Common
Stock to date and does not anticipate paying dividends on its Common Stock in
the foreseeable future. There is no assurance that the Company's operations
will generate net profits from which to pay cash dividends. Investors who
anticipate the need of immediate income from an investment should not purchase
the shares of Common Stock being offered hereby.
RISKS RELATED TO THE NATURE OF THE COMPANY'S BUSINESS
DEPENDENCE ON CONTINUED GROWTH IN USE OF INTERNET. The Company's future
success is substantially dependent upon continued growth in the use of the
Internet and the Web. Rapid growth in the use of and interest in the Internet
and the Web is a recent phenomenon. There can be no assurance that
communication or commerce over the Internet will become widespread. The
Internet may not prove to be a viable commercial marketplace for a number of
reasons, including potentially inadequate development of the necessary
infrastructure, such as a reliable network backbone, or timely development of
performance improvements. In addition, to the extent that the Internet
continues to experience significant growth in the number of users and level of
use, there can be no assurance that the Internet infrastructure will continue to
be able to support the demands placed upon it by such potential growth. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet activity, or due to increased governmental regulation. Changes in
or insufficient availability of telecommunications services to support the
Internet could result in slower response times and adversely affect the usage of
the Web and the Company's services. If use of the Internet does not continue to
grow, or if the Internet infrastructure does not effectively support growth that
may occur, the Company's business, results of operations and financial condition
would be materially and adversely affected.
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<PAGE>
COMPETITION ON THE INTERNET. The market for Internet products and services
is highly competitive and competition is expected to continue to increase
significantly. Management estimates that there are currently over 800,000 Web
sites on the Internet. The cost of creating an Internet Web site is relatively
low, thus increasing the likelihood that competition for impressions on the
Internet will become even more intense, and that the Internet will become even
more cluttered with sites, making the Company's Site difficult to find.
ABILITY TO ATTRACT PAID ADVERTISERS. Because the Company expects to derive
a substantial portion of its revenues from advertising, the future success of
the Company is highly dependent on the development of the Internet as an
advertising medium. Most of the Company's advertising customers will have only
limited experience with the Web as an advertising medium, have not allocated a
significant portion of their advertising budget for Web-based advertising, and
may not find such advertising to be effective for promoting their products and
services relative to traditional print and broadcast media. No standards have
yet been widely accepted for the measurement of the effectiveness of Web-based
advertising, and there can be no assurance that such standards will develop
significantly to support Web-based advertising as a significant advertising
medium. The Internet industry is young and has few proven products and
services. Moreover, critical issues concerning the commercial use of the
Internet (including security, reliability, cost, ease of use and access, quality
of service and acceptance of advertising) remain unresolved and may negatively
affect the growth of Internet use or the attractiveness of Internet advertising.
If widespread commercial use of the Internet does not develop as an effective
and measurable means for advertising, the Company's business, results of
operations and financial condition will be materially and adversely affected.
The Company's ability to generate advertising revenues will not only
depend on advertisers' acceptance of the Internet as an attractive and
sustainable medium, but also on the Company's ability to generate a large base
of registered members and to provide member demographics that will be attractive
to advertisers. The Company's ability to provide timely, accurate and pertinent
data to potential advertisers will depend on its ability to collect high quality
data through player registrations. If player receptivity to the Company's
registration process is low or if the Company for any reason cannot rely on the
integrity of the data it receives, the Company will not be able to provide high
quality, useful data to potential advertisers.
There is intense competition in the sale of advertising on the Internet.
Competition among current and future providers of Web-based advertising, as well
as competition with other traditional media for advertising placements, could
result in significant price competition and reductions in advertising revenues.
COMPETITION AMONG MARKET RESEARCH PROVIDERS. Overall, the
technology-focused market research industry is highly competitive. The Company
will compete directly with significant providers of (i) analyst-based,
technology-focused market research (such as Intelliquest, Gartner Group, Inc.,
META Group, Inc. and Forrester Research, Inc.); (ii) survey-based, general
market research (such as A. C. Nielsen Company, NFO Research, Inc., Information
Resources, Inc. and The NPD Group, Inc.); and (iii) analyst-based general
business consulting. Although only a few of these competitors have to date
offered survey-based, technology-focused market research that competes directly
with the Company's products and services, many of these competitors have
substantially greater financial, information gathering and marketing resources
than the Company and could decide to increase their resource commitments to the
Company's market. Moreover, each of these companies currently competes
indirectly, if not directly, for funds available within aggregate industry-wide
market research budgets. There are few barriers to entry into the Company's
market, and increased competition could adversely affect the Company's operating
results. There can be no assurance that the Company will be able to compete
successfully against existing or new competitors.
ABILITY TO ATTRACT PLAYERS AND REGISTERED MEMBERS. The Company's future
success depends upon its ability to deliver original and entertaining
programming in order to attract members with demographic characteristics
valuable to the Company's customers. Since October 1996 when operations began,
membership has been built to approximately 10,500 at July 15, 1997. Management
of the Company believes that it will need to obtain at least 25,000 members in
order to have sufficient advertising and market revenue to operate the Site
successfully. Management believes that this level of membership will be
attainable with the Minimum Offering. With new registered members currently
being added at the rate of 40 to 60 per day without marketing the Site, the
Company estimates that it may be able to reach this level of membership within
one year after closing the Minimum Offering. There can be no assurance that the
Company's programming will be attractive to a sufficient number of users to
generate market research and advertising revenues. There also can be no
assurance that the Company will be able to anticipate, monitor and successfully
respond to rapidly changing consumer tastes and preferences so as to attract a
sufficient number of users to its Site. Internet users can freely navigate and
instantly switch among a large number of
9
<PAGE>
Internet sites, making it difficult for the Company to distinguish its Site
and attract users. If the Company is unable to develop programming that
allows it to attract, retain and expand a loyal base of registered members,
the Company will be unable to generate revenues, and its business, financial
condition and operating results will be materially adversely affected.
The market for computer and television entertainment-related products and
the consumers utilizing them is highly competitive. The Company expects to
encounter intense competition in the computer-game and television entertainment
field, competing with companies that have been in existence for a longer period
than the Company and have significantly greater financial, marketing, personnel
and other resources than the Company. In addition, it is likely that
competition for computer-game and television entertainment products will become
even more intense with the expansion of game-related programs developed and
marketed by such companies as Sony, Nintendo and SEGA. There can be no
assurance that the development of the Company's Site will successfully attract a
sufficient number of players and registered members to adequately provide for
the Company's financial requirements. Failure to attract a sufficient number of
players and registered members would have a material adverse effect on the
Company's business, results of operations and financial conditions.
ENHANCEMENT OF SITE AND DEVELOPMENT OF NEW PRODUCTS. To remain
competitive, the Company must continue to enhance and improve the functionality
and features of the Site, as well as other branded media properties that may be
developed. There can be no assurance that the Company will be able to
successfully achieve these goals. If only the Minimum Offering is completed,
relatively few resources will be budgeted for research and development of new
programs or enhancement of existing programs.
Certain key elements of the Company's business strategy are the development
and introduction of new programs and improved technology for its database.
There can be no assurance that the Company will be successful in developing or
introducing such products or that such products will achieve market acceptance
or enhance the Company's brand name recognition. Furthermore, enhancements of
or improvements to the Company's Site or database may contain undetected errors
that require significant design modifications, resulting in a loss of customer
confidence. Any failure of the Company to effectively develop and introduce
these products, or failure of such products to achieve market acceptance, could
adversely affect the Company's business, results of operations and financial
conditions.
TECHNOLOGICAL CHANGE. The market for Internet products and services is
characterized by rapid technological developments, evolving industry standards
and customer demands, and frequent new product introductions and enhancements.
These market characteristics are exacerbated by the emerging nature of this
market and the fact that many companies are expected to introduce new Internet
products and services in the near future. The Company's future success will
depend in significant part on its ability to continually improve the
performance, features and reliability of its Site and database in response to
both evolving demands of the marketplace and competitive product offerings, and
there can be no assurance that the Company will be successful in doing so.
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES. A key element of the
Company's strategy is to generate a high volume of registered members and
impressions. Accordingly, the performance of the Company's programs and
database technology is critical to the Company's reputation, its ability to
attract advertisers and to achieve market acceptance of these products. Any
system failure that causes interruption or an increase in response time of the
Company's products could result in less traffic to the Company's Site and, if
sustained or repeated, could reduce the attractiveness of the Company's products
to customers and players. The Company does not carry business interruption
insurance to compensate the Company for losses that may occur. An increase in
the volume of players and impressions could strain the Company's capacity, which
could lead to slower response time or system failures, and adversely affect the
number of impressions received by advertising and thus the Company's advertising
revenues. In addition, as the number of Web users increases, there can be no
assurance that the Company's products, media properties and infrastructure will
be able to scale accordingly.
ONLINE ORDER RISK. A key element of the Company's strategy is to expand
and develop the online catalog of the products of the Company's advertisers.
Online purchasing of goods and services by consumers is in an early stage of
development and has been hindered to date by, among other things, a lack of
widely accepted secure payment mechanisms. Failure to produce significant
catalog sale revenues could have a material adverse effect on the Company.
GOVERNMENT REGULATION. There are strict federal and state laws regulating
prize fulfillment, free giveaways and sweepstakes. Failure by the Company to
comply with such laws could have a material adverse impact on the Company. In
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<PAGE>
addition, a number of legislative initiatives exist domestically and abroad that
seek to regulate the electronic collection of data about persons. An increasing
number of court cases have been brought seeking damages and injunctive relief
for actions allegedly violating so-called "rights of privacy." The law in this
area, both statutory and case law, is highly unsettled. No assurance can be
given, therefore, that the Company will be allowed to continue to pursue
existing or proposed products and services. The Company is not aware of the
availability of any commercial insurance covering the risk of right to privacy
actions. The personal information of registered members is not linked to the
demographic information and is used by the Company only for prize fulfillment
and tax reporting purposes. The Company believes that this limitation on the
use of data minimizes the risk of invasion of a member's privacy.
New laws and regulations could be adopted covering issues such as privacy,
copyright infringement, obscene or indecent communications and the pricing,
characteristics and quality of Internet products and services. Application to
the Internet of existing laws and regulations governing issues such as property
ownership, libel and personal privacy is also subject to substantial
uncertainty. Application of any such laws and regulations could dampen the
growth of the Internet generally and decrease the acceptance of the Internet as
an advertising medium, and could have a material adverse effect on the Company's
business, financial condition or operating results.
Except as described above, the Company is not currently subject to direct
regulation by any governmental agency in the United States, other than
regulations applicable to businesses generally, and there are currently few laws
or regulations directly applicable to access to or commerce on the Internet. As
a result of the increasing popularity and use of the Internet, however, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. The adoption of any such laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products and increase the Company's cost
of doing business or otherwise have an adverse effect on the Company's business,
results of operations and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's
operating results may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside the Company's control. These
factors include the level of usage of the Internet, demand for Internet
advertising, seasonal trends in both Internet usage and advertising placements,
the advertising budgets of advertisers, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or its
competitors, pricing changes in the industry, technical difficulties, general
economic conditions and economic conditions specific to the Internet and online
media. Due to all of the foregoing factors, in some future quarter the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected.
TRADEMARKS AND PROPRIETARY RIGHTS. The Company has not registered any of
its unique intellectual property, including all of its technologies, programs
and tradenames. The Company relies on a combination of copyright, trademark and
trade secret laws and third-party non-disclosure agreements to protect its
intellectual property. There can be no assurance, however, that the steps taken
by the Company to date to protect its intellectual property will be adequate to
prevent misappropriation of such rights or that third parties will not
independently develop functionally equivalent or superior systems, software or
procedures. Use or infringement of the Company's intellectual property by
others could have an adverse effect on the Company's business, results of
operations and financial condition. See "Business -Intellectual Property."
RISKS RELATED TO THE OFFERING
BEST EFFORTS OFFERING/NO FIRM COMMITMENT. The Common Stock offered hereby
is offered by the Company on a "best efforts" basis. There is no underwriter
and no firm commitment from anyone to purchase any of the shares offered. No
assurance can be given that any or all of the shares will be sold.
UNCERTAIN PUBLIC MARKET FOR SHARES/SHARES NOT LISTED. At present, the
Company's Common Stock is not traded publicly. There is no assurance that a
trading market will develop, or, if developed, that it will be sustained. The
Company will not list the shares on any exchange or on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") because it will not
be able to meet the financial criteria for any such listing. Therefore, any
investment in the Common Stock will be very illiquid. The Company does intend
to post a list of potential buyers and sellers on the Company's
11
<PAGE>
Site and to implement a matching system on its Site for potential buyers and
sellers of the Common Stock; however, there can be no assurance that these
efforts will create a viable market for the Common Stock. A purchaser of
shares of Common Stock may find it difficult to resell such shares should he
or she desire to do so. Furthermore, the shares are not marginable and it is
unlikely that a lending institution would accept the Company's Common Stock
as collateral for a loan.
ARBITRARY OFFERING PRICE. The offering price of the Common Stock has been
arbitrarily determined by the Company. There is not necessarily any
relationship between the offering price of the Common Stock and the Company's
book value, assets, earnings, net worth or other economic or recognized criteria
of future value of the Company's Common Stock. In determining the offering
price, the Company considered, among other things, valuations of comparable
Internet early-stage companies, the Company's limited operating history, its
limited financial resources, its growth and profit potential and the risk of
investing in the Company.
VOLATILITY OF STOCK PRICE. If a public market develops for the Common
Stock, many factors will influence the market prices. The Common Stock will be
subject to significant fluctuation in response to variations in operating
results of the Company, investor perceptions of the Company, supply and demand,
interest rates, general economic conditions and those specific to the industry,
developments with regard to the Company's activities, future financial condition
and management.
BROAD DISCRETION AS TO USE OF PROCEEDS. The Company's management will have
wide discretion as to the exact allocation and priority and timing of the
allocation of funds raised in the offering. The allocation of the proceeds of
the offering may vary significantly depending upon numerous factors, including
the success that the Company has marketing its services. Accordingly,
management will have broad discretion with respect to the expenditure of the net
proceeds of the offering. Investors purchasing the Common Stock offered hereby
will be entrusting their funds to the Company's management, upon whose judgment
the subscribers must depend. See "Use of Proceeds."
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this offering may find it more difficult to sell their
securities.
BENEFITS TO PRESENT STOCKHOLDERS/DISPROPORTIONATE RISKS. Collectively, the
existing shareholders of the Company own 900,000 shares of the Company's
currently outstanding Common Stock, which was issued for consideration of $0.01
per share. If the Minimum Offering is sold, upon completion of the offering,
present stockholders will own 90% of the then outstanding Common Stock, and
investors in the offering will own the remaining 10%, for which they will have
paid $500,000. If the Maximum Offering is sold, upon completion of the offering
present stockholders will own 69.2% of the then outstanding Common Stock, and
investors in the offering will own the remaining 30.8%, for which they will have
paid $2,000,000. Thus, investors in the offering will contribute to the capital
of the Company a disproportionately greater percentage than the ownership they
receive.
DILUTION. The currently outstanding Common Stock was issued for
consideration of $0.01 per share, substantially less than the $5.00 per share to
be paid by investors in the offering. Investors who purchase the shares of
Common Stock sold in this offering will experience immediate substantial
dilution in the book value of the Common Stock that they acquire of $4.69 per
share (or 94%) if the Minimum Offering is sold, and of $3.64 per share (or 73%)
if the Maximum Offering is sold, which amounts represent the respective
differences between the net tangible book per share of the Common Stock after
the offering and the initial public offering price of $5.00 per share. See
"Dilution."
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<PAGE>
POTENTIAL ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK. The
Company is authorized to issue up to 8,000,000 shares of Common Stock, of
which no more than 1,300,000 shares will be issued and outstanding upon
completion of this offering. To the extent of such authorization, the Board
of Directors of the Company will have the ability, without seeking
shareholder approval, to issue additional shares of Common Stock in the
future for such consideration as the Board of Directors may consider
sufficient. The issuance of additional Common Stock in the future will
reduce the proportionate ownership and voting power of the Common Stock
offered hereby. The Company is also authorized to issue up to 2,000,000
shares of preferred stock, the rights and preferences of which may be
designated in series by the Board of Directors. To the extent of such
authorization, such designations may be made without shareholder approval.
The Board of Directors has not designated any series or issued any shares of
preferred stock. The designation and issuance of series of preferred stock
in the future would create additional securities which would have dividend
and liquidation preferences over the Common Stock offered hereby and might
have voting or conversion rights which could adversely affect the voting
power of the Common Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE. All of the 900,000 shares of Common
Stock currently outstanding were offered and sold by the Company in private
transactions in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly, all
of such shares are "restricted securities" as defined by Rule 144 under the
Securities Act and cannot be resold without registration except in reliance
on Rule 144 or another applicable exemption from registration. In general,
under Rule 144 as currently in effect a person (or persons whose shares are
required to be aggregated), including any affiliates of the Company, who
beneficially owns restricted shares for a period of at least one year is
entitled to sell within any three month period shares equal in number to the
greater of (i) one percent of the then outstanding shares of Common Stock
(13,000 shares if the Maximum Offering is sold) or (ii) the average weekly
trading volume of the same class of shares during the four calendar weeks
preceding the filing of the required notice of sale with the Commission. The
seller must also comply with the notice and manner of sale requirements of
Rule 144, and there must be current public information available about the
Company. In addition, any person (or persons whose shares are required to be
aggregated) who is not, at the time of sale, nor during the preceding three
months, an affiliate of the Company, and who has beneficially owned
restricted shares for at least two years, can sell such shares without regard
to notice, manner of sale, public information or the volume limitations
described above. Shares of Common Stock will first become eligible for resale
under Rule 144 in October 1998, assuming the other requirements of Rule 144
are met.
As of the date of this Prospectus, options to purchase 35,000 shares of
the Company's Common Stock are outstanding. See "Management--Stock Options."
No prediction can be made as to the effect, if any, that future sales of the
Common Stock issuable upon exercise of these options, future sales of the
above described outstanding Common Stock, or the availability of such Common
Stock for sale, will have on the market price prevailing from time to time.
Sales of substantial amounts of such Common Stock in the public market, or
the perception that such sales could occur, could adversely affect the then
prevailing market price.
Certain states in which the Common Stock offered hereby has been
qualified for sale under applicable securities or Blue Sky laws have
required, as a condition of such qualification, that the shares of Common
Stock held by promoters and greater than 5% shareholders be held in escrow
for a period of time, with shares eligible to be released from escrow upon
the achievement of certain earnings measures or the passage of time.
Accordingly, 85% of the 900,000 shares currently outstanding, an aggregate of
765,000 shares, will be deposited in escrow. See "Shares Eligible for Future
Sale."
LIMITED LIABILITY OF OFFICERS AND DIRECTORS. The Company's Articles of
Incorporation provide that to the fullest extent permitted by Texas law, no
director shall be personally liable to the Company or its shareholders for
monetary damages for acts or omissions that occur in the directors' capacity
as directors, except for acts or omissions for (i) a breach of the duty of
loyalty to the Company or its shareholders; (ii) a bad faith breach of a
director's duty to the Company, intentional misconduct, or a knowing
violation of the law; or (iii) transactions from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office. Under the Texas Business
Corporations Act (the "TBCA") this provision of the Articles of Incorporation
relieves the Company's directors from personal liability to the Company or
its shareholders for monetary damages for breach of fiduciary duty as a
director, except for liability arising from a judgment or other final
adjudication establishing (i) any breach of the director's duty of loyalty;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or (iii) transactions in which the
director received an improper benefit. In addition, subject to the same
provisions set forth above, the Company's
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Bylaws provide that persons employed by or agents of the Company may be
indemnified to the same extent as directors of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy 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 offered, 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 of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
DETERMINATION OF OFFERING PRICE
The offering price of the Common Stock offered hereby has been
arbitrarily determined by the Company, and should not be viewed as an
indication of the actual value of the Company. There is not necessarily any
relationship between the offering price of the Common Stock and the Company's
book value, assets, earnings, net worth or other economic or recognized
criteria of future value of the Company's shares. In determining the
offering price, the Company considered, among other things, valuations of
comparable Internet early-stage companies, the Company's limited operating
history, its limited financial resources, its growth and profit potential and
the risk of investing in the Company. Each prospective investor should make
an independent evaluation of the fairness of such price. See "Plan of
Distribution."
LIMITED STATE REGISTRATION
Only residents of those states in which the Common Stock offered hereby
has been qualified for sale under applicable securities or Blue Sky laws may
purchase shares in this offering. Each potential investor will be required
to execute a subscription agreement which, among other things, requires the
potential investor to certify his or her state of residence. A potential
investor who is a resident of a state other than a state in which the Common
Stock offered hereby has been qualified for sale may request that the Company
register the shares in the state in which such investor resides, however, the
Company is under no obligation to do so and may refuse any such request.
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby (after
offering expenses, but not considering any selling commissions or concessions
that may be paid by the Company) are estimated to range from $425,000 if the
Minimum Offering is sold to $1,890,000 if the Maximum Offering is sold. The
Company intends to use the net proceeds of this offering as set forth below.
See "Plan of Operation."
<TABLE>
APPROXIMATE APPROXIMATE
MINIMUM PERCENTAGE OF MAXIMUM PERCENTAGE OF
OFFERING NET PROCEEDS OFFERING NET PROCEEDS
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Repayment of bridge financing(1) $100,000 23.5% $ 100,000 5.3%
Personnel:
Administrative 15,600 3.7 83,950 4.4
Sales 18,000 4.2 117,000 6.2
Technical 41,500 9.9 184,350 9.8
Management fees(2) 72,000 16.9 -- 0.0
Monthly overhead 24,000 5.6 41,850 2.2
Marketing 37,800 8.9 680,450 36.0
Professional services(3) 68,000 16.0 84,000 4.4
Technical equipment 8,500 2.0 34,000 1.8
Research and development -- 0.0 179,500 9.5
Working capital 39,600 9.3 384,900 20.4
-------- ------ ---------- -------
Total $425,000 100.0% $1,890,000 100.0%
-------- ------ ---------- -------
-------- ------ ---------- -------
</TABLE>
- ----------------
(1) The bridge financing is evidenced by a promissory note (the "Bridge Note")
that bears interest at an annual rate of 10% and is payable on demand. See
"Certain Transactions." As of May 31, 1997, $65,628 was outstanding under
the Bridge Note.
(2) Payable to CyberMall pursuant to the CyberMall Agreement.
(3) Includes accounting and legal services, including legal fees relating to
registration of the Company's trademarks.
The foregoing represents the best estimate by the Company of its use of
net proceeds based upon present planning and business conditions. The
proposed application of proceeds is subject to change as market and financial
conditions change. Although the Company does not contemplate material
changes in the proposed use of net proceeds, to the extent the Company finds
that adjustment is required by reason of changing business conditions or
other changes, the amounts shown may be adjusted among the intended uses.
For a discussion of the expected use of proceeds in the event more than the
Minimum Offering but less than the Maximum Offering is sold, see "Plan of
Operation."
All proceeds from the sale of the Common Stock offered hereby will be
deposited into the Escrow Account. After release from escrow, the proceeds
will be invested by the Company in short-term obligations of the U.S.
government, its agencies and divisions, pending the uses described above.
DIVIDEND POLICY
The Company has not paid or declared cash distributions or dividends to
date and does not intend to pay cash dividends on the Common Stock in the
foreseeable future. The Company currently intends to retain all earnings, if
any, to finance the development and expansion of its operations. The
declaration of cash dividends in the future will be determined by the Board
of Directors based upon the Company's earnings, financial condition, capital
requirements and other relevant factors.
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DILUTION
The net tangible book value of the Company as of May 31, 1997 was
($118,360), or approximately ($0.13) per share of Common Stock outstanding at
that date. Net tangible book value per share represents the amount of the
Company's shareholders' equity less intangible assets, divided by the number
of shares of Common Stock outstanding. As of May 31, 1997, the Company had
intangible assets with a net book value of $33,288. Net tangible book value
per share dilution represents the difference between the amount per share
paid by purchasers of Common Stock in the offering and the pro forma net
tangible book value per share after the offering.
The following tables set forth, assuming the sale of both the Minimum
Offering and the Maximum Offering, the difference between the existing
shareholders and the purchasers of Common Stock in the offering with respect
to the number of shares purchased from the Company, the total consideration
paid and the average price per share paid.
SALE OF MINIMUM OFFERING(1)
<TABLE>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- --------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(2) 900,000 90.0% $ 9,000 1.8% $0.01
New Investors 100,000 10.0 500,000 98.2 5.00
--------- ------- -------- -------
Total 1,000,000 100.0% $509,000 100.0%
--------- ------- -------- -------
--------- ------- -------- -------
</TABLE>
- ----------------
(1) Assumes the sale of 100,000 shares.
(2) Excludes 35,000 shares of Common Stock issuable upon the exercise of
currently exercisable stock options. See "Management--Stock Options."
SALE OF MAXIMUM OFFERING(1)
<TABLE>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- --------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(2) 900,000 69.2% $ 9,000 0.4% $0.01
New Investors 400,000 30.8 2,000,000 99.6 5.00
--------- ------- ---------- -------
Total 1,300,000 100.0% $2,009,000 100.0%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
- ----------------
(1) Assumes the sale of 400,000 shares.
(2) Excludes 35,000 shares of Common Stock issuable upon the exercise of
currently exercisable stock options. See "Management--Stock Options."
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After giving effect to the sale by the Company of the Minimum Offering
and the Maximum Offering at a purchase price of $5.00 per share as of May 31,
1997, the pro forma net tangible book value of the Company, the increase in
net tangible book value to the existing shareholders and the decrease in net
tangible book value to the existing shareholders and the decrease in net
tangible book value to purchasers of shares in the offering are summarized in
the following table:
MINIMUM MAXIMUM
------- -------
Offering price per share $5.00 $5.00
Net tangible book value per share at May 31, 1997(1) ($0.13) ($0.13)
Pro forma net tangible book value per share after the
offering $0.31 $1.36
Net tangible book value increase to existing shareholders
after the offering $0.44 $1.49
Net tangible book value decrease (dilution) to purchasers
of shares in the offering $4.69 $3.64
Percentage dilution to new shareholders 94% 73%
- ----------------
(1) Calculated based on 900,000 shares outstanding.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
May 31, 1997 on an actual basis and as adjusted to give effect to (i) the
sale of the Minimum Offering and the Maximum Offering at a public offering
price of $5.00 per share, and (ii) the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should
be read in conjunction with "Summary Financial Data" and the Financial
Statements of the Company appearing elsewhere in this Prospectus.
<TABLE>
MAY 31, 1997
------------------------------
ACTUAL AS ADJUSTED
------- --------------------
MINIMUM MAXIMUM
--------- ---------
<S> <C> <C> <C>
Current liabilities 121,700 - -
---------
---------
Long-term debt - - -
Preferred Stock, $0.10 par value, 2,000,000 shares
authorized, none issued and outstanding - - -
Common Stock, $0.01 par value, 8,000,000 shares
authorized, 900,000 shares issued and
outstanding actual; 1,000,000 shares issued and
outstanding, as adjusted if the Minimum
Offering is sold, and 1,300,000 shares issued
and outstanding, as adjusted if the Maximum
Offering is sold $ 9,000 $ 10,000 $ 13,000
Additional paid-in capital 93,975 517,975 1,982,975
Additional paid-in capital--stock options 20,496 20,496 20,496
Accumulated deficit (151,048) (151,048) (151,048)
--------- ---------- -----------
Total stockholders' equity ($27,577) $ 397,423 $1,865,423
--------- ---------- -----------
Total capitalization $ 94,123 $ 397,423 $1,865,423
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
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PLAN OF OPERATION
OVERVIEW
The Company was organized and began operations in October 1996 by
developing its Internet Site called "TheGameMaster.com". The Company is
currently still in the development stage and has generated limited, in-kind
revenues to date from the sponsors of its entertainment programming.
Currently, the Company operates three interactive entertainment programs on
the Site of the six programs that have been developed. One of these programs
is an audience program currently scheduled for only one hour per week. See
"Business--The Programming." No revenue has been generated from the Company's
marketing activity or catalog sales.
The Company's Plan of Operation for the next 12 months is dependent upon
whether the Minimum or Maximum Offerings are achieved. Management believes
that the Minimum Offering will be sufficient to sustain the Company until
client revenues are realized. See "Use of Proceeds."
PLAN OF OPERATION
The Company seeks to expand and maintain its existing Site, with the
objective of building a loyal audience. In the short term, the Company is
focused on developing interactive television-style programs that will attract
and keep the interest of members, thereby increasing the size and value of
the Company's database of demographic information. Management of the Company
believes that it will need to obtain at least 25,000 members in order to have
sufficient advertising and market research revenue to operate the Site
successfully. With new registered members currently being added at the rate
of 40 to 60 per day without marketing the Site, the Company estimates that it
may be able to reach this level of membership within one year after closing
the Minimum Offering. Constant development is an integral part of the
Company's strategy. Changing the content of the existing Site, introducing
new attractions to the Site, and introducing a variety of prizes are
paramount in attracting a loyal audience.
If the Minimum Offering is closed, the Company will hire the necessary
staff to expand the availability of its scheduled audience programming, to
activate three additional programs that have already been developed, and to
attract additional sponsors. The Company will add additional personnel in
the areas of prize fulfillment and administration. The addition of personnel
in these two areas will allow the Company to increase sales and marketing
efforts. It is anticipated that three new employees will be hired initially.
Because the Minimum Offering will not provide sufficient capital to employ
the management team on a full-time basis, management of the Company will
continue to be obtained on a part-time basis through the CyberMall Agreement.
It is anticipated that Messrs. Gilchrist and Buettner will continue to
dedicate approximately one-third of their time to the Company if the Minimum
Offering is closed. See "Use of Proceeds" and "Certain Transactions."
If the Maximum Offering is closed, the Company will be engaged in
expanded research and development, which will result in introducing new
programs and improving the on-line catalog. New technologies such as
Shockwave and Java will be included in the research and development efforts,
resulting in new features and enhanced performance of existing programs. In
the event the Maximum Offering is completed, the business of the Company will
require the full time and attention of Messrs. Gilchrist and Buettner, and
consequently the CyberMall Agreement will terminate and Messrs. Gilchrist and
Buettner will become employees of the Company. See "Use of Proceeds" and
"Management--Executive and Director Compensation."
The Company markets its Site to various Internet Web sites, directories
and listing services. Additionally, the Company has initiated a banner
advertising program across the Internet. The Company plans to market the
Site via print and electronic media. The Company's focus concerning market
research will be on building the Company's member database to a statistically
significant size. To accomplish this task, the Company has developed a
marketing strategy that incorporates promotion and targeted Internet
advertising. If the Maximum Offering is closed, these efforts will be
increased, and the Company will also engage a public relations firm to aid in
making the Site a recognized name in Internet entertainment. The Company
does not anticipate significant market research revenues can be realized
until the Company's database has been significantly increased through the
attraction of a large audience to its programming.
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In the event that more than the Minimum Offering but less than the
Maximum Offering is closed, management of the Company intends to focus
additional capital first on marketing the Site to potential new members by
increasing its advertising expenditures. As the number of registered members
increases, the Company will then focus additional capital on marketing to
potential sponsors by increasing advertising and increasing the Company's
sales force, both to increase advertising revenues and to begin receiving
market research revenue. The third priority for use of capital, to be
undertaken if sufficient funds either from the offering or from cash flow
have been obtained to accomplish the first two priorities, is research and
development of programming for the Site and Site enhancement.
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BUSINESS
OVERVIEW
The Company is engaged in the creation, design, development and
operation of an interactive entertainment site on the Internet, located at
www.TheGameMaster.com (the "Site"). Internet users may access the Site and
play games for no charge. Before playing a game on the Site, however, each
user must complete a one-time registration process that requires the user to
answer a series of lifestyle and demographic questions. The detailed data
collected from members is maintained by the Company in a database called
DeliveryMaster-TM-. The DeliveryMaster-TM- database is the foundation from
which the Company's revenues are to be generated.
The Company projects three primary sources of revenue: market research
sales, advertising sales and on-line catalog sales. To date, the Company has
had only limited advertising sales (all of which have been in the form of
contributed prizes), no catalog sales and no market research sales, and,
other than agreements with advertising customers to provide prizes in
exchange for advertising, has no formal or informal agreements with any
clients to purchase any such services.
The Company's long-term objective is to become a leading provider of
demographic, lifestyle and consumer information. Initially, this goal will
be accomplished by attracting members through interactive entertainment
programming on the Internet. In the future, the Company intends to position
itself for the convergence of the computer and other media technologies, such
as television, into a central entertainment access vehicle with direct
audience interaction, applying the Company's data collection model to new
communication technologies as they emerge.
Initially, the Company expects that a significant portion of its
revenues will come from advertising and on-line catalog sales. The
advertising will consist of both general and targeted full-page and banner
advertising on game sites. "General" advertising is not directed at a
specific audience and "targeted" advertising is directed at a specific
audience through demographic and lifestyle filters utilizing the Company's
database obtained from its members. The Company also expects to obtain
revenues from on-line sales of products of the various sponsors. Sales will
be made only to individuals who have registered to play games.
INDUSTRY BACKGROUND
CREATION OF A MASS COMMUNICATION MEDIUM
The Internet is a world wide collection of computer networks made up of
millions of private and public computers linked through the World Wide Web
(the "Web"). The Internet was initially used by academic institutions and
government agencies for quick and efficient communication. The proliferation
of personal computers, along with technological advances and the development
of graphical browsers, have allowed for the commercialization of the
Internet. The Internet provides an interactive environment that allows for
the exchange of graphic and textual information to millions of users.
Through the development and acceptance of Web browsers and search engines,
the Internet has become easily accessible.
Rapid growth in the number of Internet users has resulted in the
development of an emerging new mass communications medium. Industry sources
estimate the current number of households in the United States using the
Internet to be 15 million, which is approximately 15% of the 99 million
households in the United States. According to information published by
International Data Corporation, the projected number of Internet users by the
year 1999 is 200 million.
ADVERTISING ON THE INTERNET
According to Jupiter Communications, more than 900 Web sites offer
advertising space. The current advertising model on the Internet involves
advertisements that scroll across the bottom of the screen ("banner
advertisements") that deliver a message to a general audience. The advertiser
is charged for the number of times the banner is viewed ("impressions"). New
improvements to the current banner advertising model include targeted
audience delivery of the advertiser's message. Internet advertising generated
approximately $267 million in 1996. Jupiter Communications projects Internet
advertising revenue to reach $5 billion annually by the year 2000. Of the
Internet sites which generated advertising revenue in 1996, Jupiter
Communications reported that the top ten sites in the third quarter
accounted for approximately 64% of all revenue.
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These sites were Netscape, Yahoo!, Infoseek, Excite, Lycos, CNET, WebCrawler,
ZDNet, Magellan and ESPNet (SportsZone). Web advertisers include Ford Motor
Company, Toyota, Colgate, Proctor and Gamble, Microsoft, Pizza Hut, ESPN and
Levi Strauss.
Management believes that advertisers desire more responsive and
accountable advertising systems for use on the Internet. General advertising
message delivery to unqualified audiences through "push" advertising is being
largely replaced with targeted message delivery to interested and qualified
audiences through "pull" advertising. "Push" advertisements are aimed at
general audiences and require no interaction with the advertiser. "Pull"
advertisements are aimed at specific audiences of targeted user profiles that
provide the facility for audience interaction.
CATALOG SALES THROUGH THE INTERNET
Forrester Research estimates that approximately $518 million of goods
and services were purchased on-line in 1996. Forrester forecasts on-line
sales for the year 2000 to be over $6 billion. The variety of companies that
sell through the Internet include Amazon.com (books), Music BLVD, 1-800-Music
Now, C.D. World, Video Online Express, J.Crew, J.C. Penny, L.L. Bean,
Spiegel, Lands End, Dell Computers, CyberWarehouse, The Sharper Image,
1-800-Flowers, AOL and Yahoo.
CONVERGENCE OF THE PERSONAL COMPUTER AND OTHER TECHNOLOGY ACCESS VEHICLES
The computer, the television set and other technology are forecasted to
converge, creating a central entertainment vehicle that can access multiple
entertainment media, including interactive television programming and the
Internet. In December 1996, several companies began selling products that
link the television to the Internet. This movement has the potential to
radically alter the Internet user base through expanded audience size.
Access to the Internet through the television is expected to produce a large
audience and erode traditional advertising revenues. Companies that are
currently marketing products to allow the user to access the Internet via the
television include WEBTV, Magnavox, Sony, Zenith, Akai, Bandai, Diba and SEGA.
THE GSC OPPORTUNITY
The Company believes that successful Internet advertising requires
direct and meaningful interaction between buyers and sellers. The Company's
entertainment programs have been designed to allow for this interaction in a
fun environment. Advertisers will receive data based upon interaction with
consumers and potential customers through one-on-one surveys, and through the
delivery of highly targeted messages. Advertisers will also obtain sales
through the Company's on-line catalog on the Site.
MARKET RESEARCH
The Company currently offers clients two market research models and
intends to develop additional market research models in the event that the
Maximum Offering is consummated. The Company has designed an interactive
survey model in the form of a "slot machine" game that resides on the Site.
Consumers answer survey questions designed by the client and are rewarded
with "tokens" for each question completed. These tokens are then used to
"spin" the slot machine. Slot machine winners receive prizes offered by the
client. The slot machine gathers survey results and demographic information
about the registered members answering the questions. The Company also
offers an e-mail survey model that gives clients the ability to ask questions
of individuals in the DeliveryMaster-TM- database through a targeted e-mail
program. Clients create specific queries that the Company e-mails to
targeted demographic profiles in the existing DeliveryMaster-TM- database.
ADVERTISING
At present, various mediums exist for advertisers. Until the advent of
the Internet, reaching a preferred demographic profile was often difficult
and expensive. Most advertising vehicles have no mechanism for targeted
message delivery. Only through specialty publications, direct mail and other
limited media can a targeted audience be reached. Even in these situations,
only a small percent of the audience actually meet advertiser's desired
profiles. The Internet offers the ability to ask questions of the audience.
By collecting lifestyle and demographic information, a profile can be created
that can be
22
<PAGE>
matched with the desired audience profiles of the advertisers. This process
allows direct one-to-one message delivery to the actual target market. The
delivery of this information can be tracked to see which potential customers
were reached, and how many times. The Company believes that this type of
tracking creates the accurate and accountable measuring systems that
advertisers are demanding.
The Company's advertising sales efforts are concentrated on consumer
product companies that desire to reach a highly targeted audience.
Advertisers are offered general market delivery and targeted market delivery.
General market delivery is available to the entire population of the
Company's registered members. Targeted market delivery offers the advertiser
the ability to use "target filters" generated through the lifestyle questions
in the registration process. By choosing multiple filters, an advertiser can
narrow the message delivery to specific audiences.
FULL-PAGE ADVERTISEMENTS. A full-page advertisement is similar to the
advertisement experienced in traditional print media and is offered to the
Company's program sponsors. The member is exposed to a scrollable, full
color advertisement. The full-page advertisement is reinforced with several
banner advertisements on succeeding pages. The prize that is awarded may
also be the sponsor's. Full-page advertisements may be either general or
targeted. Pricing of targeted advertisements is based upon the number of
filters utilized to identify the potential customer.
BANNER ADVERTISEMENTS. Banner advertisements appear on the screen while
a visitor to the Site is viewing other information. Banner advertisements
may be either targeted or general.
CUSTOMIZED ADVERTISING. The Company believes that advertising income
can be enhanced by offering specifically tailored advertising vehicles and
game programs to particular sponsors. These custom packages could involve
customizing the Company's existing advertising products and games or
integrating the Company's games into a customer's Web site. This
capability, coupled with additional target filtering, would create products
meeting a customer's own specifications.
ON-LINE CATALOG SALES
The Company offers advertisers the ability to sell products to its
registered members directly through its on-line catalog, called
PrizeCatalog-TM-. The PrizeCatalog-TM- on-line catalog may be accessed
directly at www.PrizeCatalog.com or through the Site. The products and
services are offered for sale only to the Company's registered members, and
are bought by the Company at wholesale and resold at retail or a discounted
retail depending on special promotions being run. Upon receipt of an order,
the sale is fulfilled directly by the sponsor. PrizeCatalog-TM- serves as an
on-line retailer of products and services, without a fulfillment center (the
Company will keep no inventory). PrizeCatalog-TM- has a shopping cart system
and "secure server" for purchase of any product in the catalog. Visa,
MasterCard, Digicash and CyberCash will be accepted for payment.
Management believes that catalog sales will be driven by the size of the
registered member base, their propensity for mail order and online shopping,
the depth and scope of products offered for sale and product pricing.
Management believes that depth and uniqueness of product offerings will make
PrizeCatalog-TM- attractive. In addition, because the products available for
sale will also be given away as prizes through the games, members will have
constant reinforcement of the existence and content of PrizeCatalog-TM-. The
demographic profile of the Company's registered database indicates that
approximately 55% of it members shop via mail order or online, thereby
demonstrating the propensity to purchase directly. By offering a variable
schedule of discounts and specials, the Company can create an atmosphere
through PrizeCatalog-TM- that encourages shoppers to regularly visit the Site
to see what specials are coming and when. The Company plans to market the
catalog via targeted direct mail advertisements focused on certain
demographic profiles of proven mail order buyers.
DATABASE
The DeliveryMaster-TM- database is the Company's proprietary database of
registered members and their demographic and lifestyle information. Members
must complete a one time registration profile form that asks 22 questions,
such as gender, age group, education, interests, sports, income range,
occupation, family size, marital status, hobbies, music, Internet related
information, computer system information, and personal tastes in mail-order
activities. Additional information can be gathered through pop-up questions
and incentive programs designed to reward members for providing additional
information. This profile provides a detailed demographic picture of each
member. This detailed demographic information will be used to match
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<PAGE>
appropriate advertisers with appropriate potential buyers, giving advertisers
exposure to a very detailed and targeted market through targeting filters.
THE PROGRAMMING
The Company's primary programming design strategy is to design
interactive entertainment programming that only requires the functions
contained in the "normal" Internet browser software utilizing standard Hyper
Text Markup Language ("HTML") commands. This design strategy allows 93% of
the potential market of Internet users access to the Site. The Company has
designed six programs utilizing proprietary software. In the event the
Maximum Offering is completed, the Company intends to develop entertainment
programming taking advantage of new technology improvements and reduced
restrictions on communication speeds. Special programs will be available to
those Internet users with system capabilities that allow Java, Shockwave,
streaming video and audio and other plug-in technologies. These programs
will be versions of the HTML programs initially presented.
Management believes that the Company's Site is the first interactive
Internet site to provide both passive and moderated game programs in which
participants can win instant prizes. The Company's moderated programs
provide television-style programming in an interactive environment that
allows a large audience to "watch" the programs, with contestants being
called from the audience. In addition to the entertainment value of watching
the game as a television-style experience, there is an incentive to
participate as a result of the possibility of winning a prize. Prizes are
awarded both during and at the conclusion of each program. Below is a
description of the six interactive programs the Company has developed to date.
COMEONDOWN!!-TM- is an audience program currently offered for one to two
hours each week. Currently, up to 50 people can participate at one time.
Management believes that this game is the Internet's first television-style
audience based program. Contestants are randomly chosen from the audience
and called into the game for their chance to win prizes. After each round at
least one new audience member is asked to participate for his or her chance
to win. Members register for COMEONDOWN!!-TM- based on a posted schedule.
Audience programming can be scheduled for either 30 or 60 minute playtime
depending on the game. Members may enter the PLAYERSLOUNGE-TM- chat room
while waiting for the next game to start. Multiple games are involved in
COMEONDOWN!!-TM- such as TRIVIALMATTERS-TM-, PENNYWISE-TM-, and TRICTRAX-TM-.
SLOTS-OF-LUCK-TM- is an individual play program currently active on the
Site. Players play SLOTS-OF-LUCK-TM- by inserting "tokens." These tokens
are gathered while participating on the Company's Web Site. An account is
automatically kept for each member. Variable numbers of tokens are awarded
at various times for completion (win or lose) of other programs, as
consolation prizes, and for being in the PLAYERSLOUNGE-TM- chat room. Each
token is good for one try at SLOTS-OF-LUCK-TM-. Tumblers on the slot machine
contain graphics of sponsors' logos, with associated prizes for getting three
of the same logos in a row. Tokens have no monetary value. The sole vehicle
for receiving tokens is game play resulting in an incentive to play games, to
receive tokens and to spin for other prizes.
TRIVIALMATTERS-TM- is an individual play program currently active on the
Site and an audience program on COMEONDOWN!!-TM-. Ten questions are posed in
a selected category (i.e., science, geography, sports, history,
entertainment). Players' final scores are added to the prize pool. Each day's
high scorer wins a prize. Daily winners are also eligible for weekly and
monthly prizes.
TRICTRAX-TM- is an individual play program and an audience play program
for COMEONDOWN!!-TM-. This program is currently inactive because of lack of
a sponsor. After selecting a category (i.e., classical, classic rock,
country & western, pop), participants are given a question and a clue.
Players then download TRICTRAX-TM- audio clips in the form of WAV files,
listen to the audio clip, and attempt to answer the question, giving the name
of the artist, song name or both. The final score is added to a TRICTRAX-TM-
prize pool, from which winners are named daily, weekly and monthly.
PENNYWISE-TM- is an individual play program and an audience play program
for COMEONDOWN!!-TM-. This program is currently inactive because of lack of
a sponsor. The participant receives a credit card and chooses a category
(i.e., big boy's toys, trendy fashions, appliances or cars). The participant
is then given a description and shown a picture of the product.
Participants must then guess the price of the product to the nearest penny.
The difference between the answer and the exact price will be added to the
credit card account. The lowest total balance each day, week and month will
win.
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<PAGE>
SEARCHPARTY-TM- is an individual play program that is not active because of
lack of a sponsor. This Web-wide scavenger hunt requires players to track down
clues and graphics that are hidden all over the Web. Participants are given a
list of clues and riddles that help direct the participant's "surfing" of the
Web for answers to questions. SEARCHPARTY-TM- will also be available in a
children's version for educational purposes. Participants must answer the
riddle to win.
The Company currently gives away prizes donated by sponsors that have an
average retail value of $35.00. These prizes include food, clothing, music
(CD's and tapes), electronic items and computer related products. Sponsors that
have participated in TheGameMaster programs include Lisa's Gourmet Snacks,
Mayacamas Foods, Rossi Pasta, System Design Solutions, Antones Records, Olglio
Records, The Spy Exchange, West Indies Connection, Buckeye Beans, The Video
Professor, Off The Wall Magnetics and Glyph Quest.
INTELLECTUAL PROPERTY
The Company has no registered trademarks or copyrights. The Company relies
on a combination of copyright, trademark and trade secret laws and third-party
non-disclosure agreements to protect its intellectual property. A substantial
amount of uncertainty exists concerning the application of copyright laws to the
Internet, and there can be no assurance that existing laws will provide adequate
protection for the Company's original content. In addition, because copyright
laws do not prohibit independent development of similar content, there can be no
assurance that copyright laws will provide any competitive advantage to the
Company.
Management of the Company intends to use a portion of the proceeds of this
offering to register certain trademarks and service marks owned by the Company,
including the "GameMaster" trade name. There can be no assurance that the
Company will be able to secure registration for any of its marks.
The Company intends to file patent applications with respect to certain of
its software systems, methods and related technologies, but there can be no
assurance that such applications will be granted or that any future patents will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide a competitive advantage for the Company. In addition,
the Company relies on certain technology licensed from third parties, and may be
required to license additional technology in the future. The Company's ability
to generate revenues from Internet commerce may also depend on data encryption
and authentication technologies that the Company may be required to license from
third parties. There can be no assurance that these third party technology
licenses will be available or will continue to be available to the Company on
acceptable commercial terms or at all. The inability to enter into and maintain
any of these technology licenses could have a material adverse effect on the
Company's business, financial condition or operating results.
Policing unauthorized use of the Company's proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford the Company little or
no effective protection of its intellectual property. In addition, there can be
no assurance that third parties will not bring claims of copyright or trademark
infringement against the Company or claim that the Company's use of certain
technologies violates a patent. The Company anticipates an increase in patent
infringement claims involving Internet-related technologies as the number of
products and competitors in this market grows and as related patents are issued.
Further, there can be no assurance that third parties will not claim that the
Company has misappropriated their creative ideas or formats or otherwise
infringed upon their proprietary rights in connection with its Internet content
or programming. Any claims of infringement, with or without merit, could be
time consuming to defend, result in costly litigation, divert management
attention, require the Company to enter into costly royalty or licensing
arrangements or prevent the Company from using important technologies or
methods, any of which could have a material adverse effect on the Company's
business, financial condition or operating results.
As a publisher and a distributor of content over the Internet, the Company
also faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature and content of the
materials that it publishes or distributes. Such claims have been brought, and
sometimes successfully pressed, against online services. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could have a material adverse effect on the Company's business, financial
condition or operating results.
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REGULATION AND LICENSES
There are strict federal and state laws regulating prize fulfillment, free
giveaways and sweepstakes. Management of the Company believes that it is in
substantial compliance with all such regulations. From time to time, the
Company's programming or prize structure may be modified to accommodate prize
fulfillment rules.
New laws and regulations could be adopted covering issues such as privacy,
copyright infringement, obscene or indecent communications and the pricing,
characteristics and quality of Internet products and services. Application to
the Internet of existing laws and regulations governing issues such as property
ownership, libel and personal privacy is also subject to substantial
uncertainty. Application of any such laws and regulations could dampen the
growth of the Internet generally and decrease the acceptance of the Internet as
an advertising medium, and could have a material adverse effect on the Company's
business, financial condition or operating results.
In addition, a number of legislative initiatives exist domestically and
abroad that seek to regulate the electronic collection of data about persons.
An increasing number of court cases have been brought seeking damages and
injunctive relief for actions allegedly violating so-called "rights of privacy."
The law in this area, both statutory and case law, is highly unsettled. No
assurance can be given, therefore, that the Company will be allowed to continue
to pursue existing or proposed products.
Other than described above, the Company is not currently subject to direct
regulation by any governmental agency in the United States, other than
regulations applicable to businesses generally.
COMPETITION
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. Management
estimates that there are currently over 800,000 Web sites on the Internet. The
cost of creating an Internet Web site is relatively low, thus increasing the
likelihood that competition for impressions on the Internet will become even
more intense, and that the Internet will become even more cluttered with sites,
making the Company's Site difficult to find.
There is intense competition in the sale of advertising on the Internet
among current and future providers of Web-based advertising, as well as with
other traditional media for advertising placements. According to Jupiter
Communications, more than 900 Web sites offer advertising space. See
"Business--Industry Background--Advertising on the Internet." Many of the
Company's competitors have been in existence for a longer period than the
Company and have significantly greater financial, marketing, personnel and
other resources than the Company.
Overall, the technology-focused market research industry is highly
competitive. The Company will compete directly with significant providers of
(i) analyst-based, technology-focused market research (such as Intelliquest,
Gartner Group, Inc., META Group, Inc. and Forrester Research, Inc.);
(ii) survey-based, general market research (such as A. C. Nielsen Company, NFO
Research, Inc., Information Resources, Inc. and The NPD Group, Inc.); and
(iii) analyst-based general business consulting. Although only a few of these
competitors have to date offered survey-based, technology-focused market
research that competes directly with the Company's products and services, many
of these competitors have substantially greater financial, information gathering
and marketing resources than the Company and could decide to increase their
resource commitments to the Company's market. Moreover, each of these companies
currently competes indirectly, if not directly, for funds available within
aggregate industry-wide market research budgets.
The market for computer entertainment-related products and the consumers
utilizing them is also highly competitive. The Company expects to encounter
intense competition in the computer-game entertainment field, competing with
companies which have been in existence for a longer period than the Company and
have significantly greater financial, marketing, personnel and other resources
than the Company. In addition, it is likely that competition for computer-game
entertainment products will become even more intense with the expansion of
game-related programs developed and marketed by such companies as Sony, Nintendo
and SEGA.
26
<PAGE>
EMPLOYEES
The Company currently has no employees. If the Minimum Offering is sold,
the Company intends to initially hire three employees, none of whom will be
founders. If the Maximum Offering is sold, the Company intends to initially
hire ten employees, including Messrs. Gilchrist and Buettner. See "Management."
PROPERTIES
The Company shares office space in Austin, Texas at no cost with
CyberMall, an Internet site development and management company owned by
Roderick E. Gilchrist and Joshua E. Buettner, both officers, directors and
shareholders of the Company. The Company maintains no other physical
premises.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
Roderick E. Gilchrist 49 Chairman of the Board and Chief Executive
Officer
Joshua E. Buettner 32 Chief Operating Officer and a Director
Kathleen S. Sullivan 37 Chief Financial Officer and a Director
Stephen P. Colmar 41 Secretary and a Director
David B. Foreman 37 Director
RODERICK E. GILCHRIST, a founder of the Company, has been a director and
the Chief Executive Officer of the Company since October 1996. Mr. Gilchrist is
also currently President and a shareholder of CyberMall, which he co-founded in
June 1995. From September 1989 to May 1993, Mr. Gilchrist was founder and
President of LapPaq Computer Corporation, an original equipment manufacturer of
notebook computers with sales in the United States and several foreign
countries. From 1987 to 1992, Mr. Gilchrist was a divisional sales manager of
Piiceon, Inc., a subsidiary of Dynatech. Mr. Gilchrist also co-founded
Australasian Memory, P/L, a distributor of memory products, including chips and
rotating memory, in 1987 and was Executive Vice President and served on the
board of directors from 1987 to February 1995. Mr. Gilchrist graduated with an
Applied Science Degree from Delta College, a community college located in
University Center, Michigan, in 1972.
JOSHUA E. BUETTNER, a founder of the Company, has been a director and the
Chief Operating Officer of the Company since October 1996. Mr. Buettner is also
currently Executive Vice President and a shareholder of CyberMall, which he
co-founded in June 1995. Mr. Buettner attended Humber College in Toronto,
Ontario from 1989 to 1991, majoring in business administration. From 1991 to
1995, Mr. Buettner attended the University of Texas at Austin, majoring in
management information systems.
KATHLEEN S. SULLIVAN has been a director and the Chief Financial Officer of
the Company since October 1996. Ms. Sullivan is also currently the Chief
Financial Officer of Absolute Healthcare, a position she has held since October
1994. Ms. Sullivan was employed by the public accounting firm of Lockart &
Associates from October 1989 to October 1994. Ms. Sullivan has a Bachelors
degree in Accounting from the University of Texas at Austin, and is a Certified
Public Accountant. Ms. Sullivan owns the only outstanding voting shares of
common stock and is the sole director and officer of FSF, Inc.
STEPHEN P. COLMAR has been a director and the Secretary of the Company
since October 1996. Mr. Colmar is co-founder and a principal in Colmar,
Crawford & Parkhouse, Inc., a position he has held since March 1996. Mr. Colmar
is also co-founder and a principal in Colmar & Crawford, Inc., a position he has
held since November 1993. Both of these companies are investment banking
companies. From 1980 to 1993, Mr. Colmar was President and Chief Executive
Officer of Integrated Risk Incorporated, a private investment firm that
specialized in early stage investments. Mr. Colmar founded American Information
Corp., a data processing company, in 1980 and acted as its Chairman from 1980 to
1983. Mr. Colmar earned a Graduate degree in Marketing from the University of
Tulsa, Oklahoma School of Business. Mr. Colmar has served as Director of
American Information Corporation, Integrated Risk Incorporated and their
portfolio companies, Used Equipment Inc. and 6th Street Productions.
DAVID B. FOREMAN has been a director of the Company since April 1997.
Mr. Foreman is also currently President for Lisa's Gourmet Snacks, Inc., a
national snack food company, a position he has held since July 1997. Prior
thereto, he was Executive Vice President of Lisa's Gourmet Snacks, Inc. from
June 1996 to July 1997. From August 1989 to June 1995, Mr. Foreman was national
marketing and sales director for Guiltless Gourmet, a national snack food
company. From June 1995 to June 1996, Mr. Foreman was a self-employed
consultant in the snack and specialty food industry.
The following individual has served as an advisory member of the Board of
Directors of the Company since October 1996:
EUGENE LOWENTHAL, PHD, is currently an independent consultant and is a
partner of Growth Capital Partners of Houston. Mr. Lowenthal has served in
senior management positions with Microelectronics and Computer Technology
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Corporation (MCC) and MRI Systems Corporation and was Director of Strategic
Planning for Intel's System Division. Mr. Lowenthal also serves on the Board of
Directors of the American Institute for Learning. Mr. Lowenthal's past
directorships have included Infoglide Corporation, Reliant Data Systems and
General Computer Systems.
MANAGEMENT EXPERIENCE IN THE COMPANY'S INDUSTRY
Roderick E. Gilchrist and Joshua E. Buettner, founders of the Company and
the Company's Chief Executive Officer and Chief Operating Officer, respectively,
are also the founders of CyberMall, which entered the Internet development and
marketing business in the early stages of commercialism of the WorldWideWeb. As
President and Executive Vice President, respectively, of CyberMall, Messrs.
Gilchrist and Buettner have accumulated significant experience in the areas of
Internet programming on the Internet and on-line catalog sales.
Since its inception, through CyberMall Messrs. Gilchrist and Buettner have
designed and created multiple commercial retail catalog sites within the
CyberMall site found at www.cycorp.com. Commercial retail Internet sites are,
by nature, electronic catalogs. Messrs. Gilchrist and Buettner's CyberMall
experience includes the layout, design and creation of every level of commercial
retail business. Clients include office equipment, flower shops, bed and
breakfast establishments, food manufacturers, art gallery, collectibles,
luggage, garments, jewelry and travel. CyberMall marketed each of these sites
utilizing Internet marketing facilities, creating the traffic required to
facilitate sales and exposure to the public of each of its clients.
All of CyberMall's clients have experienced sales via the Internet both
directly from their web site and through a CyberMall designed and created
shopping cart facility. Several customers have reported substantial increases
in sales directly attributed to the web site. The same "click to order"
shopping cart facility is in place on the Company's on-line catalog, called
PrizeCatalog-TM-, customized for the Company's requirements.
EXECUTIVE AND DIRECTOR COMPENSATION
The executive officers of the Company currently receive no compensation.
In the event the Minimum Offering is completed, the executive officers will
continue to receive no compensation except for indirect compensation through a
consulting contract with CyberMall. See "Certain Transactions." In the event
the Maximum Offering is completed, Mr. Gilchrist and Mr. Buettner will become
employees of the Company and will initially receive a total annual compensation
package, including a performance bonus, of $90,000 each. Except for the stock
options described below, the Company does not currently compensate its directors
for their services and has no existing plan to do so.
In October 1996, the Company entered into the CyberMall Agreement with
CyberMall to design, produce and maintain the Company's Site. CyberMall is owned
by Messrs. Gilchrist and Buettner. CyberMall has been paid $39,145 of fees and
expenses pursuant to the CyberMall Agreement through May 31, 1997. In the event
the Maximum Offering is completed, the business of the Company will require the
full time and attention of Messrs. Gilchrist and Buettner, and consequently the
CyberMall Agreement will terminate and Messrs. Gilchrist and Buettner will
become employees of the Company. In the event the Minimum Offering is
completed, CyberMall will be paid $72,000 annually for administrative services,
plus reimbursement of reimbursable expenses such as prize shipping costs,
pursuant to the CyberMall Agreement.
STOCK OPTIONS
On April 13, 1997, the Company granted an option to purchase 20,000 shares
of Common Stock to Mr. Foreman and an option to purchase 5,000 shares of Common
Stock to Mr. Lowenthal. On April 13, 1997, the Company also granted an option
to purchase 10,000 shares of Common Stock to a sales agent of the Company who is
to become an employee of the Company upon completion of the offering. These
stock options entitle the holders to purchase the Company's Common Stock at any
time between the date of grant and April 12, 2002 at a price of $4.00 per share.
The Company does not currently have a stock option plan and has no current
plans to adopt one. However, in order to attract competent employees to manage
future growth of the Company, it may be necessary to adopt benefit plans that
grant substantial equity interests in the Company at prices significantly below
the offering price. For a period of one year following
29
<PAGE>
the offering, the Company will not grant options in excess of 15% of the
outstanding shares, and will not grant options with an exercise price of less
than 75% of the fair market value of the Common Stock on the date of grant.
EMPLOYMENT AGREEMENTS
The Company has no employment agreements with any of its employees.
CERTAIN TRANSACTIONS
In October 1996, the Company entered into the CyberMall Agreement with
CyberMall to design, produce and maintain the Company's Site. CyberMall is owned
by Messrs. Gilchrist and Buettner. CyberMall has been paid $39,145 of fees and
expenses pursuant to the CyberMall Agreement through May 31, 1997. In the event
the Maximum Offering is completed, the business of the Company will require the
full time and attention of Messrs. Gilchrist and Buettner, and consequently the
CyberMall Agreement will terminate and Messrs. Gilchrist and Buettner will
become employees of the Company. In the event the Minimum Offering is
completed, CyberMall will be paid $72,000 annually for administrative services,
plus reimbursement of reimbursable expenses such as prize shipping costs,
pursuant to the CyberMall Agreement.
FSF, Inc., the majority shareholder of the Company and an affiliate of
Kathleen S. Sullivan, the Company's Chief Financial Officer, is the holder of
the Bridge Note. The primary business of FSF, Inc. is investments. The Bridge
Note is a draw promissory note in the maximum principal amount of $90,000. The
Bridge Note bears interest at 10% and is payable on demand or, if no demand is
made, on September 30, 1997. The Bridge Note had an outstanding principal
balance as of May 31, 1997 of $65,628, and will be fully repaid with the
proceeds of this offering.
Since the inception of the Company, certain shareholders have performed
services for the Company at no cost. The estimated fair value of the
contributed services through May 31, 1997 was $43,100. In accordance with
generally accepted accounting principles, the Company has recognized expense of
$43,100 and a corresponding increase to additional paid-in capital. During the
early development of the Company, it was estimated that Messrs. Gilchrist and
Buettner devoted approximately 80% of their business time and attention to the
interests of the Company, and the accrual relating to their services was
calculated based on 80% of their estimated market salaries. Small amounts were
included in the accrual for services provided by Ms. Sullivan and for office
facilities contributed by Mr. Gilchrist. For periods after May 31, 1997, the
amount of the accrual will be substantially lower as Messrs. Gilchrist and
Buettner presently devote approximately one-third of their business time and
attention to the business of the Company. The Company's independent director
has ratified the valuation of additional paid-in capital described above.
The transactions discussed above were on terms no less favorable to the
Company than could have been obtained from independent parties. All future
transactions between the Company and its officers, directors, principal
shareholders, or their affiliates, will be on terms no less favorable to the
Company than could be obtained from unaffiliated parties.
On October 1, 1996, in connection with the formation of the Company, the
Company issued a total of 462,800 shares of Common Stock to the promoters of the
Company for an aggregate consideration of $4,628 in a private placement under
the exemption provided for in Section 4(2) of the Securities Act of 1933. Set
forth below is the name of each promoter, the position of each promoter with the
Company, the number of shares of Common Stock originally issued to each promoter
and the consideration received by the Company from each such promoter. Other
than the shares of Common Stock shown below, and except as otherwise described
in this Prospectus, no promoter has received anything of value from the Company.
The persons listed in the table below are the only promoters of the Company.
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Promoter Position Shares Consideration
-------- -------- ------ -------------
Roderick E. Gilchrist Chairman of the Board and
Chief Executive Officer 178,000 $ 1,780
Joshua E. Buettner Chief Operating Officer
and a Director 178,000 $ 1,780
Kathleen S. Sullivan Chief Financial Officer
and a Director 53,400 $ 534
Stephen P. Colmar Secretary and a Director 53,400 $ 534
PRINCIPAL SHAREHOLDERS
The following table sets forth as of the date of this Prospectus certain
information with respect to the beneficial ownership of the Common Stock by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock of the Company, (ii) each of the
Company's directors, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the shareholders listed
below has sole voting and investment power with respect to the shares of Common
Stock beneficially owned. All of the shares included in this table, other than
shares underlying stock options, were originally issued by the Company in
connection with the founding of the Company for consideration of $.01 per share.
<TABLE>
PERCENTAGE OF PERCENTAGE OF
SHARES PERCENTAGE OF COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES HELD IF HELD IF
OWNED BEFORE HELD BEFORE MINIMUM MAXIMUM
NAME AND ADDRESS OFFERING OFFERING OFFERING IS SOLD OFFERING IS SOLD
- ---------------- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
FSF, Inc. (1) 427,200* 47.5% 42.7% 32.9%
Joshua E. Buettner (2) 160,200* 17.8% 16.0% 12.3%
Roderick E. Gilchrist (2)(3) 132,307* 14.7% 13.2% 10.2%
Kathleen S. Sullivan (2)(4) 480,600* 53.4% 48.1% 37.0%
Stephen P. Colmar (2)(5) 53,400* 5.9% 5.3% 4.1%
Jodi Lynn Gilchrist (6) 45,693* 5.1% 4.6% 3.5%
David B. Foreman (7) 20,000 2.2% 2.0% 1.5%
All executive officers and
directors as a group (5 persons)
(3)(4)(5)(7) 846,507 92.0% 83.0% 64.1%
</TABLE>
- ---------------
* 85% of such shares are subject to an escrow. See "Shares Eligible for
Future Sale."
(1) The address of FSF, Inc. is 2525 Wallingwood, Suite 1-B, Austin, Texas
78746. Shares held by FSF, Inc. were received as a capital contribution
from the holder of non-voting preferred stock of FSF, Inc.
(2) The address of the officers of the Company is 3321 Westlake Drive, Austin,
Texas 78746.
(3) Includes 96,120 shares owned by Mr. Gilchrist's spouse, which he
transferred to her as a gift, but does not include 45,693 shares owned by
Mr. Gilchrist's adult daughter, as to which shares Mr. Gilchrist disclaims
beneficial ownership.
(4) Includes 427,200 shares which Ms. Sullivan may be deemed to beneficially
own by virtue of her ownership of the only outstanding voting shares of
common stock of FSF, Inc. and her position as the sole director, President,
Secretary and Treasurer of FSF, Inc. Also includes an aggregate of 30,000
shares owned by her children, which she transferred as gifts.
(5) Includes 13,350 shares owned by Mr. Colmar's spouse and an aggregate of
13,350 shares owned by his children, which he transferred as gifts.
(6) Includes 45,693 shares transferred as a gift from Roderick E. Gilchrist.
Ms. Gilchrist is Roderick E. Gilchrist's daughter. Her address is 5141
Ganymede Drive, Austin, Texas 78727.
(7) Includes 20,000 shares underlying a currently exercisable option to
purchase Common Stock.
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<PAGE>
DESCRIPTION OF SECURITIES
AUTHORIZED SHARES
The authorized capital stock of the Company consists of 8,000,000 shares
of Common Stock and 2,000,000 shares of preferred stock.
COMMON STOCK
As of the date of this Prospectus, there were 900,000 shares of Common
Stock outstanding and held of record by 18 shareholders. All of these shares
were offered and sold in private transactions in reliance on an exemption from
registration under the Securities Act. Accordingly, such shares are "restricted
securities" as defined by Rule 144 under the Securities Act and cannot be
resold without registration except in reliance on Rule 144 or another applicable
exemption from registration. Each share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of the stockholders. Since the
holders of Common Stock do not have cumulative voting rights, holders of more
than 50% of the outstanding shares can elect all of the directors of the
Company, and holders of the remaining shares by themselves cannot elect any
directors. Holders of Common Stock will be entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock have the right to a ratable portion of
the assets remaining after payment of liabilities. All shares of Common Stock
outstanding and to be outstanding upon completion of this offering are and will
be fully paid and non-assessable. The Company currently does not anticipate
issuing additional shares of Common Stock to management, promoters or their
affiliates or associates except as may be necessary to attract new management
personnel or directors.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value of $0.10 per share, in one or more series, with such voting
powers, or without voting powers, and with such designations, preferences and
relative participating optional or other special rights, qualifications,
limitations or restrictions, as shall be set forth in resolutions providing for
the issue thereof adopted by the Board of Directors. No preferred stock is
currently outstanding, and the Company has no current plans to issue preferred
stock.
TRANSFER AGENT AND ANNUAL REPORT
The Company will serve as its own transfer agent for its Common Stock.
Each year, the Company will prepare and distribute to shareholders an annual
report which describes the nature and scope of the Company's business and
operations for the prior year and contains a copy of the Company's audited
financial statements for its most recent fiscal year. Because of the
development stage of the Company, however, there will be no annual report issued
until after December 31, 1997, the Company's first full year of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 1,000,000 shares of
Common Stock outstanding if the Minimum Offering is sold, and 1,300,000 shares
of Common Stock outstanding if the Maximum Offering is sold. Of these shares,
100,000 shares (assuming the Minimum Offering is sold) and 400,000 shares
(assuming the Maximum Offering is sold) will be freely tradeable without
restriction or further registration under the Securities Act, except for shares
purchased by "affiliates" of the Company, which will be subject to the resale
limitations of Rule 144 under the Securities Act. As defined in Rule 144, an
affiliate of an issuer is a person who directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with,
such issuer, and generally includes members of the Board of Directors and senior
management.
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<PAGE>
The remaining outstanding shares (the "Restricted Shares") are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon an exemption under
the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) is entitled to sell within any
three-month period Restricted Shares that were acquired from the Company or an
"affiliate" of the Company not less than one year before the sale, in an amount
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (13,000 shares based on the number of shares to be outstanding after the
offering, if the Maximum Offering is sold) or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. A person (or persons whose shares are aggregated) who is not an
"affiliate" of the Company at the time of sale and has not been such an
"affiliate" at any time during the three months preceding such sale, and whose
Restricted Shares were acquired from the Company or an affiliate of the Company
at least two years before the sale would be entitled to sell such shares under
Rule 144 without regard to the volume limitations, manner-of-sale provisions,
notice or public information requirements described above. Rule 144A under the
Securities Act permits the immediate sale by the current holders of Restricted
Shares of all or a portion of their shares to certain qualified institutional
buyers as defined in Rule 144A.
As of the date of this Prospectus, options to purchase 35,000 shares of the
Company's Common Stock are outstanding, all of which are currently exercisable.
See "Management--Stock Options." Shares of Common Stock issued upon exercise of
such options will be restricted securities under Rule 144, and must be sold in
accordance with the provisions thereof.
Certain states in which the Common Stock offered hereby has been qualified
for sale under applicable securities or Blue Sky laws have required, as a
condition of such qualification, that the shares of Common Stock held by
promoters and greater than 5% shareholders be held in escrow for a period of
time, with shares eligible to be released from escrow upon the achievement of
certain earnings measures or the passage of time. Accordingly, 85% of the
900,000 shares currently outstanding, an aggregate of 765,000 shares, will be
deposited in escrow with ___________ as escrow agent.
The escrowed shares will be released (i) if for 90 consecutive trading days
commencing at any time after the escrow commences the Common Stock has traded in
a public market at a price of not less than 110% of the initial public offering
price per share or (ii) if at the end of any two consecutive fiscal years
commencing at any time after the escrow commences, the Company has had earnings
per share equal to not less than 5% of the initial public offering price per
share for each of such two years. If the escrowed shares have not been released
pursuant to the foregoing by the end of the second year of the escrow,
one-eighth of the escrowed shares will be released over each of the next eight
calendar quarters.
During the term of the escrow agreement, the holders of the escrowed shares
will continue to have the right to vote the shares and to receive dividends.
Any dividends will be paid to the escrow agent and held pursuant to the terms of
the escrow agreement. The dividends and interest earned thereon will be
disbursed in proportion to the number of shares released from escrow. Prior to
such disbursement, any dividends and interest earned thereon will be treated as
assets of the Company available for distribution in the event of a dissolution,
liquidation, merger, sale of substantially all assets or other similar
transaction. In the event of a dissolution, liquidation, merger, sale of
substantially all assets or other similar transaction, the escrowed shares will
not be entitled to participate in any resulting distribution until all other
issued and outstanding shares have received a distribution dividend equal to the
initial public offering price, and thereafter the escrowed shares will be
entitled to participate equally with the other outstanding shares of Common
Stock.
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
shares in the public market could adversely affect market prices of the shares
and make it more difficult for the Company to sell equity securities in the
future at a time and price which it deems appropriate.
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<PAGE>
PLAN OF DISTRIBUTION
The Company is offering to sell, on a best efforts basis, a minimum of
100,000 shares and a maximum of 400,000 shares of its Common Stock at an initial
public offering price of $5.00 per share. The offering will begin on the date
of this Prospectus and continue until either the Maximum Offering has been sold
or the Company terminates the offering, unless the Minimum Offering is not sold
within 60 days from the date of this Prospectus (which period may be extended,
at the Company's discretion, for up to three additional 30-day periods), in
which case the offering will immediately terminate.
The Company plans to offer and sell the shares directly to investors who
reside in selected states and has not retained any underwriters, brokers or
placement agents in connection with the offering. The Company reserves the
right, however, to use brokers or placement agents and could pay commissions
equal to as much as 5% of the gross proceeds. Any such brokers or placement
agents would be required to comply with all applicable securities and industry
regulations, including those of the National Association of Securities Dealers
("NASD"). In such event, the Company will amend the Registration Statement by
post-effective amendment to identify a selected broker-dealer at such time as
such broker-dealer sells a portion of the offering. In the view of the
Commission's Division of Corporation Finance, any selected broker-dealer that
sells securities in the offering would be deemed an underwriter as defined in
Section 2(11) of the Securities Act. Prior to the involvement of any
broker-dealer in the offering, the Company must obtain a no-objection position
from the NASD regarding the contemplated underwriting compensation and
arrangements. The Company intends to contact prospective investors by
publicizing the offering through a posting on the Company's Site. The Company
also intends to publicize the offering through advertisements and direct
solicitation of potential investors, including public and private meetings. The
Company also intends to contact additional potential investors by direct e-mail
and regular mail solicitation. Clifford L. Haigler, Assistant Secretary of the
Company, will conduct the offering on behalf of the Company. Mr. Haigler will
not be compensated for such activities by the payment of commissions or other
remuneration based either directly or indirectly on transactions in securities.
Shares may be purchased by completing and delivering the Company's
Subscription Agreement along with the purchase price by check to the Company. A
copy of the Subscription Agreement is attached at the end of this Prospectus at
page A-1. Within 10 days of its receipt of a Subscription Agreement accompanied
by a check for the purchase price, the Company will send by electronic mail or
first class mail a written confirmation to notify the subscriber of the extent,
if any, to which such subscription has been accepted by the Company.
All subscription proceeds will be deposited by the Company into the Escrow
Account. If the Initial Closing does not occur, all proceeds held in the Escrow
Account will be returned by the Company to the investors without interest,
except that funds of Pennsylvania residents held more than 90 days will receive
interest, as required under Pennsylvania regulations. Because the Company's
stock is uncertificated, investors will not receive stock certificates. Upon
consummation of the Initial Closing, investors will be sent a written notice
verifying the number of shares they have purchased. After the Initial Closing,
proceeds of additional subscriptions will be deposited into the Escrow Account
pending Subsequent Closings. All of the proceeds held in the Escrow Account,
including interest thereon, will be disbursed after each closing to the
Company's general account. Subsequent Closings will occur from time to time
until the Maximum Offering has occurred or the Company has elected to terminate
the offering. In either of such events, any subscriptions not accepted by the
Company will be returned to the subscriber without interest. See "Use of
Proceeds."
The offering price of the shares was determined arbitrarily by the Company,
and should not be considered as an indication of the actual value of the
Company. In determining the offering price, the Company considered, among other
things, valuations of comparable Internet early-stage companies, the Company's
limited operating history, its limited financial resources, its growth and
profit potential, the amount of dilution to investors in the offering and the
risk of investing in the Company.
There is no public trading market for the Company's Common Stock and there
can be no assurance that an active public market will develop in the near future
as a result of this offering. The Company's long-term plan for providing
liquidity to its shareholders is to develop a public market for its Common Stock
by developing a mechanism on the Internet for trading of its Common Stock. The
Company has not solicited any securities brokers to become market-makers of the
shares, nor does the Company have current plans to do so.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares offered hereby will be passed
upon for the Company by Winstead Sechrest & Minick P.C., Austin, Texas.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
35
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F - 2
Balance Sheets F - 3
Statements of Loss During the Development Stage F - 4
Statements of Stockholders' Deficit F - 5
Statements of Cash Flows F - 6
Summary of Significant Accounting Policies F - 7
Notes to Financial Statements F - 10
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Global Statistics Corporation
(formerly Intergames, Inc.)
Austin, Texas
We have audited the accompanying balance sheet of Global Statistics
Corporation (formerly Intergames, Inc.) as of December 31, 1996, and the related
statements of loss during the development stage, stockholders' deficit, and cash
flows for the period from inception (October 1, 1996) through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Statistics
Corporation (formerly Intergames, Inc.) at December 31, 1996 and the results of
its operations and its cash flows for the period from inception (October 1,
1996) through December 31, 1996, 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 discussed in Note 1 to the
financial statements, the Company is in the development stage, has not achieved
its planned level of operations or realized significant revenues and has
incurred losses. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Austin, Texas
March 18, 1997
F-2
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
December 31, 1996 May 31, 1997
----------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 554 $ 165
Computer equipment, less accumulated depreciation
of $59 and $354 3,470 3,175
Computer software, less accumulated amortization
of $837 and $5,857 (Note 2) 29,308 33,288
Deferred offering costs - 57,495
---------- ----------
Total assets $ 33,332 $ 94,123
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Stockholder loan (Note 2) $ 33,928 $ 65,628
Accrued expenses 1,508 56,072
---------- ----------
Total current liabilities 35,436 121,700
---------- ----------
Long-term debt - -
Contingency (Note 1)
Stockholders' deficit:
Preferred stock, $0.10 par value; 2,000,000
shares authorized; none issued - -
Common stock, $0.01 par value; 8,000,000 shares
authorized 9,000 9,000
Additional paid-in capital (Note 4) 25,875 93,975
Additional paid-in capital--stock options (Note 5) - 20,496
Deficit accumulated during the development stage (36,979) (151,048)
---------- ----------
Total stockholders' deficit (2,104) (27,577)
---------- ----------
Total liabilities and stockholders' deficit $ 33,332 $ 94,123
---------- ----------
---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-3
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS DURING THE DEVELOPMENT STAGE
<TABLE>
For the period from
inception Five months
(October 1, 1996) to ended
December 31, 1996 May 31, 1997 Since Inception
----------------- ------------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Advertising fees $ - $ - $ -
Advertiser contributed prizes 5,635 27,633 33,268
---------- ---------- ----------
Total Revenue $ 5,635 $ 27,633 $ 33,268
---------- ---------- ----------
EXPENSES:
Prize fulfillment 6,635 31,098 37,733
Professional services 8,000 55,746 63,746
Depreciation and amortization 896 5,315 6,211
General and administrative (Note 4) 25,875 47,238 73,113
Interest expense and other 1,208 2,305 3,513
---------- ---------- ----------
Total Expenses $ 42,614 $ 141,702 $ 184,316
---------- ---------- ----------
Net loss during the development stage $ (36,979) $ (114,069) $ (51,048)
---------- ---------- ----------
---------- ---------- ----------
Loss per common share $ (0.04) $ (0.13)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding 907,000 907,000
---------- ----------
---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-4
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
DEFICIT
ADDITIONAL ACCUMULATED
COMMON STOCK ADDITIONAL PAID-IN DURING THE
--------------------- PAID-IN CAPITAL-- DEVELOPMENT
SHARES AMOUNT CAPITAL STOCK OPTIONS STAGE TOTAL
--------- -------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
inception (October 1, 1996) 900,000 $9,000 $ - $ - $ - $ 9,000
Services contributed by stockholders
(Note 4) - - 25,875 - - 25,875
Net loss during the development
stage - - - - (36,979) (36,979)
--------- -------- --------- --------- ---------- ---------
Balance at December 31, 1996 900,000 $9,000 $25,875 $ - $ (36,979) $ (2,104)
Service contributed by stockholders
(unaudited) - - 43,100 - - 43,100
Issuance of stock options (Note 5)
(unaudited) - - 25,000 20,496 - 45,496
Net loss during the development
stage (unaudited) - - - - (114,069) (114,069)
--------- -------- --------- --------- ---------- ---------
Balance at May 31, 1997
(unaudited) 900,000 $9,000 $93,975 $20,496 $(151,048) $(27,577)
--------- -------- --------- --------- ---------- ---------
--------- -------- --------- --------- ---------- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-5
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE PERIOD FROM
INCEPTION FIVE MONTHS
(OCTOBER 1, 1996) TO ENDED
DECEMBER 31, 1996 MAY 31, 1997 SINCE INCEPTION
-------------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss during the development stage $(36,979) $(114,069) $(151,048)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 896 5,315 6,211
Expenses paid with options - 45,496 45,496
Services contributed by stockholders (Note 4) 25,875 43,100 68,975
Changes in assets and liabilities:
Accrued expenses 1,508 54,564 56,072
--------- ---------- ----------
Net cash (used in) provided by operating activities $ (8,700) $ 34,406 $ 25,706
--------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of computer equipment (3,529) - (3,529)
Computer software (30,145) (9,000) (39,145)
--------- ---------- ----------
Net cash used in investing activities $(33,674) $ (9,000) $ (42,674)
--------- ---------- ----------
FINANCING ACTIVITIES:
Issuance of common stock 9,000 - 9,000
Deferred offering costs - (57,495) (57,495)
Proceeds from stockholder loan 33,928 31,700 65,628
--------- ---------- ----------
Net cash provided by (used in) financing activities 42,928 (25,795) 17,133
--------- ---------- ----------
Net increase (decrease) in cash 554 (389) 165
Cash beginning of period - 554 -
--------- ---------- ----------
Cash, end of period $ 554 $ 165 $ 165
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-6
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Global Statistics Corporation (formerly Intergames, Inc.) (the
"Company") was incorporated on October 1, 1996 in the state of Texas. The
Company is engaged in the creation, design, development and operation of an
interactive entertainment site on the Internet. The content of this
entertainment site is used as a vehicle to carry consumers through an
interactive demographic and lifestyle data collection model, developed by the
Company, which offers advertisers the ability to both target their message to
the desired audience, obtain marketing information, and make product sales
directly via an online catalogue.
The Company operates an Internet interactive entertainment web site from
its headquarters in Austin, Texas. The web site can be accessed on the
Internet at www.TheGameMaster.com. At the web site, users may play a variety
of video type games at no charge. The Company awards prizes to players based
on their performance. Prizes are contributed by various advertisers.
The Company generates revenues from fees for advertising, marketing
research and retail sales through the prize catalog. While anyone in the
world with access to the Internet may play, most users are located in the
United States and Canada.
To date, substantially all of the Company's efforts have been devoted to
marketing, research and software development. The Company is in the
development stage and has not achieved its planned level of operations or
realized significant revenues.
BASIS OF PRESENTATION
The accompanying balance sheet as of May 31, 1997 and the statements of
operations and cash flows for the five months then ended have not been
audited. However, in the opinion of management, they include all adjustments
necessary for a fair presentation of the financial position and the results
of operations for the period presented. The results of operations for the
five months ended May 31, 1997 are not necessarily indicative of results to
be expected for any future period or a complete year.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from services are recognized as services are rendered.
COMPUTER EQUIPMENT
Equipment is stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets (5 years).
Expenditures that increase the value or extend the life of an asset are
capitalized, while costs of maintenance and repairs are expensed as incurred.
Gains or losses on disposals of assets are recognized upon disposition.
F-7
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPUTER SOFTWARE
Internally developed game software is stated at cost. Amortization is
computed on the straight-line method over the estimated useful life of the
software (3 years). Game software is periodically assessed for impairment of
value and any loss is recognized upon impairment.
DEFERRED OFFERING COSTS
Deferred offering costs include professional fees directly related to
the Company's proposed public offering. If the offering is successful, costs
incurred will be offset against the proceeds of the offering. If the
offering is unsuccessful, such costs will be expensed.
INCOME TAXES
The Company follows the liability method of accounting for income taxes
as required by Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES. This method provides deferred income taxes
based on enacted income tax rates in effect on the dates on which temporary
differences between the financial reporting and tax bases of assets and
liabilities are expected to reverse. The effect on deferred tax assets and
liabilities of a change in income tax rates is recognized in the period in
which the change is determined.
ADVERTISER CONTRIBUTED PRIZES
The Company awards prizes to players based on their performance. The
non-cash prizes are contributed to the Company by various advertisers in
exchange for advertising time on the web site. Prizes are booked as revenue
at the advertisers' respective cost when they are awarded to the players.
The prizes are simultaneously expensed at cost. As of December 31, 1996
there were no prizes in inventory.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Account Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), is effective for financial statements
for fiscal years beginning after December 15, 1995. SFAS 123 encourages
companies to adopt a new method of accounting to measure and record
compensation cost for all stock-based compensation using the estimated fair
value of the award at the date it is granted. The Company has adopted only
the disclosure provisions of SFAS 123 for employee stock compensation and has
accounted for stock-based employee compensation using the intrinsic value
method set forth in APB Opinion 25.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), issued by the FASB is effective for financial statements
for fiscal years beginning after December 15, 1997. This pronouncement
provides a different method of calculating earnings per share than is
currently used in accordance with APB 15, "Earnings per Share." SFAS 128
provides for the calculation of Basic and Diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity. Management does not anticipate a significant impact on earnings per
share as a result of implementing SFAS 128.
F-8
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") effective for periods
ending after December 15, 1997, establishes standards for disclosing
information about an entity's capital structure. SFAS 129 requires
disclosure of the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt and
participation rights) including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices and
redemption requirements. Adoption of SFAS 129 will have no effect on the
Company as it currently discloses the information specified.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of common shares and common share equivalents outstanding (if
dilutive) during each period. Stock options granted on April 13, 1997, at a
price less than the expected initial public offering price, are treated as
outstanding for all periods presented.
F-9
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS
The Company's financial statements have been presented on the basis that
it is a going concern which contemplates the realization of assets and the
satisfaction of liabilities in the usual course of business. The Company is
in the development stage and has not achieved its planned level of operations
or realized significant revenues and has incurred significant losses.
The Company's continued existence is dependent upon its ability to
obtain additional financing as contemplated by the proposed offering of its
common stock, and ultimately profitable operations.
Although it cannot be assured that the Company will be able to continue
as a going concern, management believes the Company's proposed stock offering
and its plans to achieve profitability should enable the Company to meet its
obligations and sustain its operations. If the Company's proposed stock
offering should prove to be unsuccessful, the Company would renegotiate
existing lending arrangements and reduce its expenditures on promotion and
administration to preserve cash liquidity.
(2) RELATED PARTY TRANSACTIONS
GAME SOFTWARE AND OFFICE SPACE
The Company developed the Internet site and the associated game software
at a cost of $30,145 pursuant to an agreement with CyberMall Corporation,
Inc. ("CyberMall"), a corporation which is controlled by two of the
Company's officers. The Company also shares office space in Austin,
Texas at no cost with this related corporation (see Note 4).
STOCKHOLDER LOAN
On October 1, 1996, the Company received an unsecured loan from a
stockholder. Subsequent to December 31, 1996, the loan was assigned by
the stockholder to a corporation controlled by an officer of the Company.
The balance of this loan was $33,928 at December 31, 1996. The stated
annual interest rate is 10% and the loan is due on demand. Accrued
interest as of December 31, 1996 was $508.
CONSULTING CONTRACT
In October 1996, the Company entered into an agreement with CyberMall (the
"CyberMall Agreement") to design, produce and maintain the Company's Site.
CyberMall is owned by Roderick E. Gilchrist, Chairman of the Board and
Chief Executive Officer of the Company, and Joshua E. Buettner, Chief
Operating Officer and a director of the Company. CyberMall has been paid
$39,145 of fees and expenses pursuant to the CyberMall Agreement through
May 31, 1997. In the event the Maximum Offering is completed, the
business of the Company will require the full time and attention of
Messrs. Gilchrist and Buettner, and consequently the CyberMall Agreement
will terminate and Messrs. Gilchrist and Buettner will become employees
of the Company. In the event the Minimum Offering is completed, CyberMall
will be paid $72,000 annually for administrative services, plus
reimbursement of reimbursable expenses such as prize shipping costs,
pursuant to the CyberMall Agreement.
(3) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
F-10
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The tax effects of significant items comprising the Company's net
deferred tax assets are as follows:
December 31, 1996 May 31, 1997
----------------- ------------
(UNAUDITED)
Deferred tax assets (liabilities):
Net operating loss carryforward $12,613 $38,837
Fixed assets (40) (157)
$12,573 $38,680
-------- --------
Valuation allowance (12,573) (38,680)
-------- --------
Total $ - $ -
-------- --------
-------- --------
At December 31, 1996 the Company had available for federal income tax
purposes approximately $32,000 of net operating loss carryforwards. This
potential future tax benefit will expire in the year 2011. Under the Tax
Reform Act of 1986, as amended, an annual limitation will be placed on the
amount of net operating loss carryforwards which may be utilized if there are
substantial changes in the ownership of the Company.
In accordance with the provisions of SFAS No. 109 "Accounting for Income
Taxes", management has elected to record a valuation allowance to offset
deferred tax assets generated by the net operating loss carryforward.
(4) SERVICES CONTRIBUTED BY STOCKHOLDERS
During 1996, certain stockholders of the Company performed services for
the Company at no cost. The estimated fair value of the contributed services
through December 31, 1996 was $25,875. In order to reflect the use of these
services in the financial statements, the Company recognized an expense of
$25,875, and a related increase to additional paid-in capital.
(5) STOCK OPTIONS
A summary of the status of the Company's stock options as of May 31,
1997 is presented below:
Weighted
Average
Exercise
1997 Price
------ ---------
Options outstanding at January 1 - $ -
Options granted 35,000 $4.00
Options exercised - $ -
Options canceled - $ -
------
Options outstanding and
exercisable at May 31, 1997 35,000 $4.00
------
------
F-11
<PAGE>
GLOBAL STATISTICS CORPORATION
(FORMERLY INTERGAMES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On April 13, 1997, the Company granted options to purchase 25,000 shares
of common stock in the aggregate to two directors of the Company. The
Company also granted an option to purchase 10,000 shares of common stock to a
sales agent. These stock options entitle the holders to purchase the
Company's common stock at any time between the date of grant and April 12,
2002 at a price of $4.00 per share.
SFAS No. 123 requires the Company to provide pro forma information
regarding net loss applicable to common stockholders and loss per share as if
compensation cost for the Company's stock options granted had been determined
in accordance with the fair value based method prescribed in that Statement.
The Company estimates the fair value of each stock option at the grant
date by using the minimum value option-pricing method with the following
assumptions: dividends yield of 0%; risk-free interest rate of 6.275% and
expected lives of 5 years.
Under the accounting provisions of SFAS No. 123, the Company's net loss
applicable to common stockholders and loss per share would have been
increased to the pro forma amounts indicated below:
MAY 31, 1997
------------
Net loss applicable to common stockholders:
As reported 114,069
Pro forma 165,302
Loss per share:
As reported 0.13
Pro forma 0.18
(6) RISKS AND UNCERTAINTIES
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web. The market for Internet
products and services is highly competitive and competition is expected to
continue to increase significantly. Because the Company expects to derive a
substantial portion of its revenues from advertising, the future success of
the Company is highly dependent on the development of the Internet as an
advertising medium.
F-12
<PAGE>
No dealer, salesman or any other person is authorized to give any information
or to make any representations not contained in this Prospectus in connection
with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Shares where, or to any
person to whom, it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been any change in
the facts set forth in this Prospectus or in the affairs of the Company since
the date hereof.
Until __________________, 1997 (25 calendar days after the date of this
Prospectus), all dealers effecting transactions in the Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
---------------
TABLE OF CONTENTS
PAGE
----
Available Information 2
Prospectus Summary 3
Risk Factors 7
Determination of Offering Price 14
Limited State Registration 14
Use of Proceeds 15
Dividend Policy 15
Dilution 16
Capitalization 18
Plan of Operation 19
Business 21
Management 28
Certain Transactions 30
Principal Shareholders 31
Description of Securities 32
Shares Eligible for Future Sale 32
Plan of Distribution 34
Legal Matters 35
Experts 35
Index to Financial Statements F-1
Subscription Agreement A-1
<PAGE>
400,000 SHARES
GLOBAL STATISTICS
CORPORATION
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1997
------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Texas Business Corporation Act ("TBCA") provides that a corporation may
indemnify any of its directors and officers against liability in connection with
a proceeding if (i) the director or officer acted in good faith; (ii) in the
case of conducting an official capacity, the director or officer reasonably
believed that his or her conduct was in the corporation's best interest;
(iii) in all other cases, the director or officer reasonably believed that his
or her conduct was not opposed to the corporation's best interests; and (iv) in
connection with any criminal proceeding, the director or officer had no
reasonable cause to believe his or her conduct was unlawful. However, the TBCA
provides that no indemnification may be made if the director or officer was
(i) found liable on the basis that personal benefit was improperly received by
him or her, whether or not the benefit resulted from an action taken in the
person's official capacity or (ii) was found liable to the corporation. No
indemnification may be made in respect of any proceeding in which the director
or officer was found liable for willful or intentional misconduct on the
performance of his or her duty to the corporation. In cases where the director
or officer is wholly successful, on the merits or otherwise, in the defense of
any proceeding instigated because of his or her status as an officer or director
of a corporation, the TBCA mandates that the corporation indemnify the director
or officer against reasonable expenses incurred by him or her in the proceeding.
Notwithstanding the foregoing, the TBCA provides that a court of competent
jurisdiction, upon application, may order that an officer or director be
indemnified for reasonable expenses actually incurred, if, in consideration of
all relevant circumstances, the court determines that such individual is fairly
and reasonably entitled to indemnification, notwithstanding the fact that (i) he
or she was adjudged liable to the corporation or (ii) he or she was adjudged
liable on the basis that personal benefit was improperly received by him or her.
The Company's Articles of Incorporation provides that to the fullest extent
permitted by Texas law, no director shall be personally liable to the Company or
its shareholders for monetary damages for acts or omissions that occur in the
directors' capacity as directors, except for acts or omissions for (i) a breach
of the duty of loyalty to the Company or its shareholders; (ii) a bad faith
breach of a director's duty to the Company, intentional misconduct, or a knowing
violation of the law; or (iii) transactions from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office. Under the TBCA this provision on the
Articles of Incorporation relieves the Company's directors from personal
liability to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability arising from a judgment or
other final adjudication establishing (i) any breach of the directors duty of
loyalty; (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or (iii) transactions in which the
director received an improper benefit. In addition, subject to the same
provisions set forth above, the Company's Bylaws provide that persons employed
by or agents of the Company may be indemnified to the same extent as directors
of the Company.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby. All amounts
are estimated except the Commission registration fee.
Minimum Maximum
------- -------
SEC registration fee $ 606 $ 606
Blue Sky fees and expenses 5,000 8,000
Accounting fees and expenses 10,000 15,000
Legal fees and expenses 43,000 60,000
Printing and engraving expenses 5,000 5,000
Registrar and transfer agent's fees N/A N/A
Miscellaneous fees and expenses 11,394 21,394
------- -------
Total $75,000 $110,000
------- -------
------- -------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 1, 1996, the Company issued 900,000 shares of its Common Stock
of the Company for $9,000 cash, pursuant to the organization of the Company.
Such issuance was made under the exemption provided for in Section 4(2) of the
Securities Act of 1933, as the sale was not made in a public or underwritten
offering.
On April 13, 1997, the Company granted immediately exercisable options to
purchase 35,000 shares of the Company's Common Stock. The options, 20,000 of
which were issued to Mr. David Foreman, a director of the Company, 10,000 of
which were issued to Mr. Steve Cox, a sales consultant to the Company, and 5,000
of which were issued to Mr. Eugene Lowenthal, an advisory director to the
Company, entitle the holders to purchase the underlying shares of Common Stock
at any time before April 12, 2002 at a price of $4.00 per share.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------
3.1(3) Articles of Incorporation of Global Statistics Corporation (the
"Company")
3.1.1(1) Articles of Amendment to the Company's Articles of Incorporation
3.2(3) Bylaws of the Company
5(2) Opinion of Winstead Sechrest & Minick P.C.
10.1(1) Development and Maintenance Agreement by and between the Company
and CyberMall Corporation, Inc., dated October 15, 1996.
10.2(3) Form of Stock Option Agreement
10.3(1) Draw Note dated March 17, 1997 made by the Company in favor of
FSF, Inc.
23.1(1) Consent of BDO Seidman, LLP
23.2(2) Consent of Winstead Sechrest & Minick P.C.
24(3) Power of Attorney
27(1) Financial Data Schedule
99(3) Subscription Agreement
- -----------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officer and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore unenforceable. 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 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in
II-3
<PAGE>
a form of prospectus filed by the Company 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.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Amendment
No. 1 to Registration Statement to be signed on its behalf by the
undersigned, in the City of Austin, State of Texas, on August 5, 1997.
GLOBAL STATISTICS CORPORATION
By: /s/ Roderick E. Gilchrist
------------------------------------
Roderick E. Gilchrist
Chairman of the Board and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Roderick E.Gilchrist Chairman of the Board August 5,1997
----------------------------- and Chief Executive
Roderick E. Gilchrist Officer
/s/ Joshua E. Buettner* Director, Chief Operating August 5, 1997
----------------------------- Officer
Joshua E. Buettner
/s/ Kathleen S.Sullivan* Director, Chief Financial August 5, 1997
Kathleen S. Sullivan Officer
/s/ Stephen P. Colmar* Director, Secretary August 5, 1997
-----------------------------
Stephen P. Colmar
/s/David B. Foreman* Director August 5, 1997
-----------------------------
David B. Foreman
By: /s/ Roderick E. Gilchrist
-----------------------------
Attorney-in-Fact
DA970620435
080497 v86
393:17516-2
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------
3.1(3) Articles of Incorporation of Global Statistics Corporation
(the "Company")
3.1.1(1) Articles of Amendment to the Company's Articles of
Incorporation
3.2(3) Bylaws of the Company
5(2) Opinion of Winstead Sechrest & Minick P.C.
10.1(1) Development and Maintenance Agreement by and between the
Company and CyberMall Corporation, Inc., dated October 15,
1996.
10.2(3) Form of Stock Option Agreement
10.3(1) Draw Note dated March 17, 1997 made by the Company in favor
of FSF, Inc.
23.1(1) Consent of BDO Seidman, LLP
23.2(2) Consent of Winstead Sechrest & Minick P.C.
24(3) Power of Attorney
27(1) Financial Data Schedule
99(3) Subscription Agreement
- --------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
<PAGE>
---------------------------
ARTICLES OF AMENDMENT FOR FILED
In the Office of the
INTERGAMES, INC Secretary of State of Texas
JUL 14 1997
Corporations Section
---------------------------
ARTICLE I
The name of the corporation is InterGames, Inc
ARTICLE II
The instrument to be amended is the Article of Incorporation filed with the
Texas Secretary of State on October 1, 1996. Charter #01417219-00
ARTICLE III
The name of the corporation is to be changed to:
GLOBAL STATISTICS CORPORATION
ARTICLE IV
This amendment has been voted by the shareholders of the corporation on the
11th day of July, 1997. There are 8,000,000 shares authorized and 900,000
shares outstanding and entitled to vote. All 900,000 shares voted for the
amendment.
/s/ STEVE COLMAR
- -----------------------
STEVE COLMAR
DIRECTOR
<PAGE>
DEVELOPMENT AND MAINTENANCE AGREEMENT
This agreement (the "Agreement"), dated effective October 15, 1996, is by
and between CYBERMALL CORPORATION, INC., a Texas corporation ("CyberMall"), and
INTERGAMES, INC., a Texas corporation ("InterGames").
WHEREAS, CyberMall and InterGames desire to enter into an
agreement for, among other things, the development and maintenance by
CyberMall of a site on the world wide web for InterGames.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants set forth herein and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEVELOPMENT AND MAINTENANCE OF SITE;
ADDITIONAL SERVICES
SECTION 1.1 DEVELOPMENT OF SITE. CyberMall agrees to provide InterGames
with the following services in connection with the development of a site located
on the world wide web at www.TheGameMaster.com (the "Site"):
(a) Layout and design of the Site;
(b) Registration of domain(s) for the Site;
(c) Coordination of Site domain hosting setup;
(d) Design and production of all necessary programming for the Site,
including HTML, CGI and database programming; and
(e) Design and production of all graphics, copy and games for the Site.
SECTION 1.2 MAINTENANCE OF SITE. CyberMall hereby agrees to provide
continued domain hosting for the Site and to update and maintain the Site on an
ongoing basis for the duration of this Agreement.
SECTION 1.3 ADDITIONAL SERVICES. CyberMall hereby agrees to provide
certain additional services in connection with the Site, as requested by
InterGames, including without limitation, (i) on-line marketing of the Site, and
(ii) the coordination of awards and prize fulfillment in connection with games
played on the Site.
<PAGE>
ARTICLE II
FEES
SECTION 2.1 DEVELOPMENT FEES. InterGames hereby agrees to pay to
CyberMall a fixed fee in the amount of $30,145, plus applicable taxes, for all
services provided by CyberMall to InterGames pursuant to Section 1.1 hereof.
SECTION 2.2 MAINTENANCE AND ADMINISTRATIVE FEES. InterGames hereby
agrees to pay to CyberMall fees for services provided pursuant to Sections 1.2
and 1.3 hereof according to the fee schedule attached as EXHIBIT A hereto.
ARTICLE III
OWNERSHIP OF INTELLECTUAL PROPERTY
CyberMall and InterGames hereby agree that the Site and all intellectual
property (the "Intellectual Property") created in connection with the Site,
including without limitation, all programming, design, graphics, copy and
games, (i) will be created by CyberMall for InterGames' exclusive use, (ii)
shall be the sole property of InterGames, and (iii) shall not be reproduced
by CyberMall for any purpose except as necessary for CyberMall to fulfill its
obligations under this Agreement. CyberMall agrees that, in connection with
the development and creation of the Site and the Intellectual Property, (i)
it will not violate any patent, copyright, trademark or any other
intellectual property rights held by any third party; (ii) it will own all
rights and interests in the Intellectual Property created in the development
of the Site, and (iii) no third-party software will be embedded in or
required to run the Site. CyberMall further covenants that upon delivery of
the Site and the Intellectual Property to InterGames, the Site and the
Intellectual Property will be free from any claims by any third parties, and
will become the sole possessions of InterGames with no rights thereto
allocated to CyberMall.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF CYBERMALL. To induce
InterGames to enter into this Agreement and to consummate the transactions
contemplated by this Agreement, CyberMall hereby represents and warrants as
follows:
-2-
<PAGE>
(a) CyberMall is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas and has full
corporate power and authority to own and lease CyberMall's properties and
to carry on CyberMall's business as presently conducted.
(b) The execution, delivery and performance by CyberMall of this
Agreement and the agreements, instruments and documents contemplated by
this Agreement do not breach any term or provision of or constitute a
default under any material indenture, mortgage, deed of trust, contract,
agreement, lease or other commitment or instrument to which CyberMall is a
party or by which CyberMall or its assets or properties are bound, do not
conflict with any provision of the articles of incorporation or bylaws of
CyberMall and do not constitute an event which, with the lapse of time or
action by a third party, could result in any default under any of the
foregoing.
(c) The execution, delivery and performance by CyberMall of this
Agreement and the agreements, instruments and documents contemplated by
this Agreement do not violate any provision of, or constitute default
under, any law, rule or regulation, or any court order, writ, injunction or
decree, of any court or other governmental agency or instrumentality
applicable to or binding upon CyberMall.
(d) CyberMall has full power, authority and legal right to enter into
this Agreement and the agreements, instruments and documents contemplated
by this Agreement and to consummate the contemplated transactions. This
Agreement and the agreements, instruments and documents contemplated by
this Agreement have been duly authorized by all requisite action of the
directors and shareholders of CyberMall. Upon execution and delivery by
CyberMall of this Agreement and the agreements, instruments and documents
contemplated by this Agreement, they will each be a valid and binding
obligation of CyberMall, enforceable in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization or
similar laws effecting the rights of creditors generally. Notwithstanding
the foregoing, no representation or warranty is made regarding the
availability of equitable remedies.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF INTERGAMES. To induce
CyberMall to enter into this Agreement and to consummate the transactions
contemplated by this Agreement, InterGames represents and warrants as follows:
(a) InterGames is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas and has full
corporate power and authority to own and lease InterGames' properties and
to carry on InterGames' business as presently conducted.
(b) The execution, delivery and performance by InterGames of this
Agreement and the agreements, instruments and documents contemplated by
this
-3-
<PAGE>
Agreement by do not breach any term or provision of or constitute a
default under any material indenture, mortgage, deed of trust, contract,
agreement, lease or other commitment or instrument to which InterGames is a
party or by which InterGames or its assets or properties are bound, do not
conflict with any provision of the articles of incorporation or bylaws of
InterGames and do not constitute an event which, with the lapse of time or
action by a third party, would result in any default under any of the
foregoing.
(c) The execution, delivery and performance by InterGames of this
Agreement and the agreements, instruments and documents contemplated by
this Agreement do not violate any provision of, or constitute default
under, any law, rule or regulation, or any court order, writ, injunction or
decree, of any court or other governmental agency or instrumentality
applicable to or binding upon InterGames.
(d) InterGames has full power, authority and legal right to enter
into this Agreement and the agreements, instruments and documents
contemplated by this Agreement and to consummate the contemplated
transactions. This Agreement and the agreements, instruments and documents
contemplated by this Agreement have been duly authorized by all requisite
action of the directors and shareholders of InterGames. Upon execution and
delivery by InterGames of this Agreement and the agreements, instruments
and documents contemplated by this Agreement, they will each be a valid and
binding obligation of InterGames, enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws effecting the rights of creditors generally.
Notwithstanding the foregoing, no representation or warranty is made
regarding the availability of equitable remedies.
ARTICLE V
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION. SUBJECT TO THE PROVISIONS OF SECTION 5.2
HEREOF, CYBERMALL WILL INDEMNIFY AND HOLD HARMLESS INTERGAMES AND EACH OF ITS
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS HARMLESS FROM AND AGAINST, ANY AND ALL
DAMAGES, CLAIMS, DEFICIENCIES, LOSSES, INCLUDING TAXES, AND ALL EXPENSES
(INCLUDING INTEREST, PENALTIES, AND ATTORNEYS' AND ACCOUNTANTS' FEES AND
DISBURSEMENTS BUT REDUCED BY ANY TAX SAVINGS, BENEFITS OR OFFSETS TO WHICH ANY
PARTY SHALL BE ENTITLED DIRECTLY OR INDIRECTLY BY REASON THEREOF) (COLLECTIVELY,
"DAMAGES") RESULTING FROM ANY MISREPRESENTATION, BREACH OF WARRANTY OR
NONFULFILLMENT OR FAILURE TO PERFORM ANY COVENANT OR AGREEMENT ON THE PART OF
CYBERMALL UNDER THIS AGREEMENT.
SECTION 5.2 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification by InterGames under this Article V will be asserted and resolved
as follows:
-4-
<PAGE>
(a) In the event that any claim or demand for which CyberMall would
be liable to InterGames hereunder is asserted against or sought to be
collected from InterGames by a third party (a "Third Party Claim"),
InterGames will with reasonable promptness notify CyberMall of such claim
or demand, specifying the nature of and specific basis for such claim or
demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate will not be conclusive of the final amount of such
claim and demand (the "Claim Notice")). CyberMall will not be obligated to
indemnify InterGames with respect to any such claim or demand to the extent
the failure of InterGames to promptly notify CyberMall of such a claim or
demand materially prejudices CyberMall's ability to defend against the
claim or demand. CyberMall will have 30 days from the personal delivery or
mailing of the Claim Notice (the "Notice Period") to notify InterGames
(i) whether or not it disputes the liability of CyberMall to InterGames
hereunder with respect to such claim or demand, and (ii) whether or not it
desires at the sole cost and expense of CyberMall, to defend InterGames
against such claim or demand; PROVIDED, HOWEVER, that InterGames is hereby
authorized prior to and during the Notice Period to file any motion, answer
or other pleading which it deems necessary or appropriate to protect its
interests or those of CyberMall and not materially prejudicial to
CyberMall. In the event that CyberMall notifies InterGames within the
Notice Period that it desires to defend InterGames against such claim or
demand, except as hereinafter provided, CyberMall will have the right to
defend by all appropriate proceedings. If InterGames desires to
participate in, but not control, any such defense or settlement it may do
so at its sole cost and expense. If requested by CyberMall, InterGames
agrees to cooperate with CyberMall and its counsel in contesting any claim
or demand which CyberMall elects to contest, and, if appropriate and
related to the claim in question, in making any counterclaim against the
person asserting the third party claim or demand, or any cross-complaint
against any person. No claim may be settled by CyberMall without the
consent of InterGames, which consent will not be unreasonably withheld.
Notwithstanding the foregoing, in connection with a Third Party Claim
asserted against both InterGames and CyberMall, if (i) InterGames has
available to it defenses which are in addition to those available to
CyberMall, (ii) InterGames has available to it defenses which are
inconsistent with the defenses available to CyberMall or (iii) a conflict
exists or may reasonably be expected to exist in connection with the
representation of both InterGames and CyberMall by the legal counsel chosen
by CyberMall, InterGames will have the right to select its own legal
counsel subject to the approval of such legal counsel by CyberMall, such
approval not to be unreasonably withheld. If InterGames selects its own
legal counsel pursuant to the immediately preceding sentence and the
underlying Third Party Claim is otherwise subject to the scope of the
indemnification obligations of CyberMall pursuant to this Article V, the
reasonable fees and expenses of such legal counsel will be included within
the indemnification obligations of CyberMall; provided that under no
circumstances will CyberMall be obligated to indemnify InterGames against
the fees and expenses of more than one legal counsel
-5-
<PAGE>
selected by InterGames in connection with a single claim (notwithstanding
the number persons against whom the Third Party Claim may be asserted).
(b) In the event InterGames should have a claim against CyberMall
hereunder which does not involve a claim or demand being asserted against
or sought to be collected from it by a third party, InterGames will send a
Claim Notice with respect to such claim to CyberMall. If CyberMall does
not notify InterGames within the Notice Period that CyberMall disputes such
claim, the amount of such claim will be conclusively deemed a liability of
CyberMall hereunder.
ARTICLE VI
TERMINATION
Upon consummation by InterGames of an initial public offering of equity
securities with gross proceeds to InterGames of greater than or equal to
$1,500,000, (i) this Agreement shall automatically terminate, and (ii) each of
Roderick E. Gilchrist and Joshua E. Buettner shall terminate his employment with
CyberMall and become an employee of InterGames for total compensation
aggregating an annualized $90,000, including bonus. After the initial
development of the Site has been completed, but in no event prior to August 31,
1997, this Agreement may be terminated by either party hereto upon thirty (30)
days' prior written notice to the other party hereto.
ARTICLE VII
CONFIDENTIALITY
SECTION 7.1 CONFIDENTIAL INFORMATION. "Confidential Information" as
used in this Agreement will mean any and all technical and non-technical
information disclosed pursuant to or in contemplation of this Agreement,
including trade secrets and proprietary information of InterGames and/or its
respective parents, subsidiaries, customers and/or vendors, whether delivered in
written (or other tangible) form or orally, and includes, without limitation,
information concerning research, experimental work, design details and
specifications, financial data, procurement requirements, customer lists,
business forecasts and purchasing, sales, development and marketing plans.
Without limiting the generality of the foregoing, the term "Confidential
Information" will also be deemed to include all analyses, compilations,
forecasts, studies or other documents prepared by InterGames in connection with
this Agreement.
SECTION 7.2 USE. CyberMall hereby agrees that it will not make use of
or in any way circulate within its own organization any Confidential Information
of InterGames which is supplied to or obtained by it in writing, orally or by
observation, except to the extent
-6-
<PAGE>
necessary for the development of the Site; and any other purpose InterGames
may hereafter authorize in writing.
SECTION 7.3 DEGREE OF CARE. Without limiting the generality of the
other provisions of this Agreement, CyberMall agrees that it will treat all
Confidential Information of InterGames with the same degree of care as it
affords to its own Confidential Information, and represents that it exercises
reasonable care to protect its own Confidential Information. CyberMall agrees
that it will keep a record in reasonable detail of the Confidential Information
of the other party furnished to it, the persons to whom such Confidential
Information has been disclosed and the location of such Confidential
Information.
SECTION 7.4 DISCLOSURE. CyberMall further agrees that (i) it will not
publish, copy or disclose any Confidential Information of InterGames to any
third party, (ii) it will use its reasonable best efforts to prevent inadvertent
disclosure of such Confidential Information to any third party, and (iii) it
will not and will direct its officers, directors, employees, agents or
consultants (individually referred to as a "Representative" and collectively
referred to as the "Representatives") not to disclose, except as may be required
to exercise its rights pursuant to this Agreement or as may be required by law,
to any person that Confidential Information has been received or disclosed
pursuant to this Agreement, or any other facts relating to the terms and
conditions of this Agreement. Notwithstanding the foregoing, the parties agree
that either party may disclose the existence of this Agreement and the terms
hereof to the extent (but only to the extent) reasonably required to enforce the
rights of such party under this Agreement.
SECTION 7.5 COMMUNICATION. Neither party will communicate any
information to the other in violation of the proprietary rights of any third
party.
SECTION 7.6 EQUITABLE RELIEF. Since unauthorized disclosure of
Confidential Information will diminish the value to InterGames of the
proprietary interests that are the subject of this Article 7, if CyberMall or
its Representatives breaches any of its obligations hereunder, InterGames will
be entitled to equitable relief to protect its interest therein, including but
not limited to injunctive relief, as well as monetary damages.
-7-
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 APPLICABLE LAW. THIS AGREEMENT AND THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE OF CONFLICTS OF LAW
PRINCIPLES) AND WILL, TO THE MAXIMUM EXTENT PRACTICABLE, BE DEEMED TO CALL FOR
PERFORMANCE IN TRAVIS COUNTY, TEXAS. TO THE EXTENT IT IS NECESSARY TO RESOLVE
ANY DISPUTES ARISING UNDER THIS AGREEMENT AND THE AGREEMENTS, INSTRUMENTS AND
DOCUMENTS CONTEMPLATED HEREBY IN A COURT, COURTS WITHIN THE STATE OF TEXAS WILL
HAVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE PARTIES HERETO, WHETHER
IN LAW OR EQUITY, ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
AGREEMENTS, INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY. THE PARTIES CONSENT
TO AND AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS. VENUE IN ANY SUCH
DISPUTE, WHETHER IN FEDERAL OR STATE COURT, WILL BE LAID IN TRAVIS COUNTY,
TEXAS. EACH OF THE PARTIES HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH
DISPUTE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (I)
SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, (II)
SUCH PARTY AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY
SUCH COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS IS BROUGHT IN AN
INCONVENIENT FORUM.
SECTION 8.2 NOTICES. All notices, demands, requests or other
communications that may be or are required to be given, served or sent by either
party to the other party pursuant to this Agreement will be in writing and will
be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery, telegram or
facsimile transmission addressed as follows:
(a) If to InterGames: InterGames, Inc.
3321 Westlake Drive
Austin, Texas 78746
Facsimile Transmission Number: (512) 328-5346
Attn: Kathleen S. Sullivan
-8-
<PAGE>
with a copy (which
will not constitute
notice) to: Walter Earl Bissex
Winstead Sechrest & Minick, P.C.
100 Congress Avenue
Suite 800
Austin, Texas 78701-4042
Facsimile Transmission Number (512) 370-2850
(b) If to CyberMall: CyberMall Corporation, Inc.
3321 Westlake Drive
Austin, Texas 78746
Facsimile Transmission Number: (512) 328-5346
Attn: Roderick E. Gilchrist
Either party may designate by written notice a new address to which any notice,
demand, request or communication may thereafter be given, served or sent. Each
notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above will be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee with the return receipt, the delivery receipt, the affidavit of
messenger or (with respect to a facsimile transmission) the answer back being
deemed conclusive evidence of such delivery or at such time as delivery is
refused by the addressee upon presentation.
SECTION 8.3 GENDER. Words of any gender used in this Agreement will be
held and construed to include any other gender, and words in the singular number
will be held to include the plural, unless the context otherwise requires.
SECTION 8.4 ENTIRE AGREEMENT. This Agreement and the agreements,
instruments and documents contemplated by this Agreement represent the parties'
entire agreement with respect to the subject matter of this Agreement and such
other agreements, instruments and documents and supersede and replace any prior
agreement or understanding with respect to that subject matter. This Agreement
may not be amended or supplemented except pursuant to a written instrument
signed by the party against whom such amendment or supplement is to be enforced.
Nothing contained in this Agreement will be deemed to create any agency, joint
venture, partnership or similar relationship between the parties to this
Agreement. Nothing contained in this Agreement will be deemed to authorize
either party to this Agreement to bind or obligate the other party.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed to be an original and all of which
will be deemed to be a single agreement. This Agreement will be considered
fully executed
-9-
<PAGE>
when all parties have executed an identical counterpart, notwithstanding that
all signatures may not appear on the same counterpart.
SECTION 8.6 SEVERABILITY. If any of the provisions of this Agreement
are determined to be invalid or unenforceable, such invalidity or
unenforceability will not invalidate or render unenforceable the remainder of
this Agreement, but rather the entire Agreement will be construed as if not
containing the particular invalid or unenforceable provision or provisions, and
the rights and obligations of the parties will be construed and enforced
accordingly. The parties acknowledge that if any provision of this Agreement is
determined to be invalid or unenforceable, it is their desire and intention that
such provision be reformed and construed in such manner that it will, to the
maximum extent practicable, be deemed to be valid and enforceable.
SECTION 8.7 THIRD PARTIES. Except as expressly set forth or referred to
in this Agreement, nothing in this Agreement is intended or will be construed to
confer upon or give to any party other than the parties to this Agreement and
their successors and permitted assigns, if any, any rights or remedies under or
by reason of this Agreement.
SECTION 8.8 ASSIGNMENT. Neither this Agreement nor any rights or
obligations under this Agreement may be assigned or delegated without the
written consent of the other party. Any attempted assignment or delegation in
violation of the immediately preceding sentence will be void.
SECTION 8.9 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. The
representations, warranties and covenants, as well as the indemnification
provisions, contained in this Agreement will survive the consummation of the
transactions contemplated by this Agreement.
SECTION 8.10 WAIVER. No failure or delay in exercising any right
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date first above written.
CYBERMALL CORPORATION, INC.
By: /s/ Roderick E. Gilchrist
-----------------------------------
Name: Roderick E. Gilchrist
Title: Chief Executive Officer
INTERGAMES, INC.
By: /s/ Kathleen S. Sullivan
-----------------------------------
Name: Kathleen S. Sullivan
Title: Chief Financial Officer
-11-
<PAGE>
EXHIBIT A
FEE SCHEDULE
Site Maintenance, Hosting and Marketing, and Prize Fulfillment Services
(after all initial games are full activated). . . . . . . . .$6,000 per month
Site Maintenance, Hosting and Marketing, and Prize Fulfillment
Services (before all initial games are full activated) . . reimbursement of
costs and expenses
<PAGE>
DRAW NOTE
Date: March 17, 1997
Maker: InterGames Inc. (a corporation)
Maker's Mailing Address (including county): 3321 Westlake Drive
Austin, Texas 78746
Travis County
Payee: FSF Inc.
Place for Payment (including county): 2525 WAllingwood Drive
Suite 1-B
Austin, Texas 78746
Travis County
Principal Amount: NINETY THOUSAND DOLLARS ($90,000.00) or so much thereof as
may be advanced hereunder as shall be shown upon Payee's books and records.
Annual Interest Rate on Unpaid Principal from Date of Funding: Ten Percent
(10%)
Annual Interest Rate on Matured, Unpaid Amounts: Eighteen Percent (18%)
Terms of Payment (principal and interest): This note is due in full, both
principal and all accrued interest on demand, or if no demand is made, on or
before September 30, 1997.
All advances under this note shall be at the sole discretion of Payee.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
If Maker defaults in payment of this Note or in the performance of any
obligation in any instrument securing collateral to it, and the default
continues after Payee gives Maker notice of the default and the time within
which it must be cured, as may be required by law or by written agreement,
then Payee may declare the unpaid principal balance and earned interest on
this note immediately due. Maker and each surety, endorser, and guarantor
<PAGE>
waive all demands for payment, presentations for payment, notices of
intention to accelerate maturity, notices of acceleration of maturity,
protests and notices of protest, to the extent permitted by law.
If this Note or any instrument securing or collateral to it is given to
an attorney for collection or enforcement, or if suit is brought for
collection or enforcement, or if it is collected or enforced through probate,
bankruptcy, or other judicial proceeding, then Maker shall pay Payee all
costs of collection and enforcement, including reasonable attorney's fees and
court costs, in addition to other amounts due. Reasonable attorney's fees
shall be TEN percent (10%) of all amounts due unless either party pleads
otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged, or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment,
if already paid, credited on the principal of the debt or, if the principal
of the debt has been paid, refunded. This provision overrides other provisions
in this and all other instruments concerning the debt.
Each Maker is responsible for all obligations represented by this Note.
When the context requires, singular nouns and pronouns inside the plural.
This note is a renewal and extension of Draw Note executed on October 4,
1996 between InterGames Inc. (maker) and Donald Daniels (payee).
InterGames Inc.
By: /s/ Roderick E. Gilchrist, CEO
------------------------------
Date: 3/20/97
----------------------------
FSF Inc.
By: /s/ Kathleen S. Sullivan
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Date: 3/20/97
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Global Statistics Corporation
(formerly Intergames, Inc.)
Austin, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 18, 1997, relating to the
financial statements of Global Statistics Corporation (formerly Intergames,
Inc.), which is contained in that Prospectus. Our report contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
(Signed Manually)
BDO SEIDMAN, LLP
Austin, Texas
August 4, 1997
