UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF
SECURITIES Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
SportsPrize Entertainment Inc.
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(Exact name of registrant as specified in its charter)
Nevada 98-0207616
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
13101 Washington Boulevard, Suite 131
Culver City, California 90066
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 566-7140
Securities to be registered under Section
12(b) of the Act:
None None
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Title of each class to be so Name of each exchange on which each
registered class is to be registered
Securities to be registered under Section
12(g) of the Act:
Common Shares, Par Value of $0.001 per Share
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(Title of Class)
Not Applicable
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(Title of Class)
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TABLE OF CONTENTS
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Item 1. Description of Business..............................................................................1
Item 2. Financial Information...............................................................................50
Item 3. Properties..........................................................................................56
Item 4. Security Ownership of Certain Beneficial Owners and Management......................................56
Item 5. Directors, Executive Officers, Promoters and Control Persons........................................58
Item 6. Compensation of Officers and Directors..............................................................61
Item 7. Certain Relationships and Related Transactions......................................................66
Item 8. Legal Proceedings...................................................................................68
Item 9. Market Price of and Dividends on Registrant's Common Equity and Related Stockholder Matters.........68
Item 10. Recent Sales of Unregistered Securities.............................................................69
Item 11. Descriptions of Registrant's Securities to be Registered............................................70
Item 12. Indemnification of Directors and Officers...........................................................71
Item 13. Financial Statements and Supplementary Data.........................................................71
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................72
Item 15. Financial Statements and Exhibits...................................................................73
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15
NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
Registration Statement constitutes "forward-looking statements," including
without limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, as well as projections of
future results. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results or
achievements of the Registrant to be materially different from any future
results or achievements of the Registrant expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: the Registrant's limited operating history; undercapitalization;
risks involving new product development; unpredictability of future revenues;
management of growth and integration; potential technological changes; the
Registrant's dependence on key personnel; marketing relationships and third
party suppliers; reliance on advertisers; potential new businesses, competition
and low barriers to entry; uncertain acceptance of the Internet as an
advertising medium; uncertain acceptance of the Registrant's SportsPrize
Tournament; limited experience in sales, marketing and advertising; dependence
on continued growth in use of the Internet; the Registrant's ability to protect
its intellectual property rights and uncertainty regarding infringing
intellectual property rights of others; potential capacity and systems
disruptions; liability for Internet content; government regulations; security
risks; year 2000 compliance risks and the other risks and uncertainties
described under "Description of Business - Risk Factors" in this Registration
Statement.
The Registrant's management has included projections and estimates in this
Registration Statement, which are based primarily on management's experience in
the industry, assessments of the Registrant's results of operations, discussions
and negotiations with third parties and a review of information filed by its
competitors with the Securities and Exchange Commission. Investors are cautioned
against attributing undue certainty to management's projections.
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Item 1. Description of Business.
General Overview
We, SportsPrize Entertainment Inc., intend to engage in the business of
offering, marketing and promoting sports-related content, entertainment,
merchandise and other products on the Internet through our Web site at
http://www.sportsprize.com.
Our mission is to establish a leading Internet sports-based entertainment,
merchandising and community destination Web site. We intend to build an online
sports, entertainment and e-commerce community that appeals to sports fans from
around the world by providing three primary components on our Web site: (i)
sports content, (ii) the SportsPrize Tournament and (iii) sports oriented
e-commerce.
Content: We plan to offer the following sports content:
o Sporting news feeds;
o Articles and sports commentary;
o Interviews with players, coaches and sports commentators;
o Player and team profiles;
o Team schedules and information;
o Ticket and sporting events information;
o Chat rooms and message boards; and
o Email.
The SportsPrize Tournament: We have developed a proprietary,
interactive game called the "SportsPrize Tournament," which offers
participants the opportunity to compete in a multi-sport, periodic
tournament whereby participants answer weekly questions and accumulate
points to win a wide variety of prizes and awards, as well as discounts
on merchandise within our SportsPrize e-commerce venues.
We expect that our SportsPrize Tournament will be the center-piece of
the SportsPrize.com(TM) Web site. The SportsPrize Tournament is
designed to integrate the excitement of sports content and information
with the communication and marketing capabilities of the Internet. We
will offer our SportsPrize Tournament as free entertainment to visitors
on our Web site who become Registered Members on the site.
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E-Commerce: Visitors to our Web site have the opportunity to purchase a
broad range of sports-related merchandise in our SportsPrize stores.
Beginning in the first quarter 2000, visitors will be able to purchase
and sell merchandise on our SportsPrize Auction site.
Based on our research, we do not believe that currently there are any
sports-oriented Web sites that provide all three of these components
integrated into one comprehensive Web site. We believe that we will
have a competitive advantage in the marketplace by being
first-to-the-market with a unique, multi-faceted Web site offering
compelling sports content, our SportsPrize Tournament, and a
comprehensive e-commerce program to our visitors, all at one
destination on the Internet. Our goal is to differentiate our Web site
from our competitors' Web sites through an aggressive marketing
strategy. See "Our Marketing Strategy."
We intend to generate revenue by:
o Selling advertising and sponsorships on our Web site;
o Selling merchandise through our virtual SportsPrize e-commerce shopping
venues;
o Receiving transaction fees through sales on our SportsPrize Auction
site; and
o Other marketing programs.
We are a development stage company, which means that we are in the process of
developing our business and we have no revenue from our operations. We have a
history of losses, and as of October 31, 1999, we had an accumulated deficit of
$4,300,873, including $2,663,818 in non-cash compensation expenses related to
the issuance of stock and the granting of stock options to certain of our
employees and consultants. We incurred losses during each of the following
periods:
o $144,125 for the period from March 6, 1998 (inception) to February 28,
1999;
o $1,942,875 for the fiscal quarter ended May 31, 1999, including
$1,762,600 in non-cash compensation expenses related to the issuance of
stock and the granting of stock options;
o $1,434,139 for the fiscal quarter ended August 31, 1999, including
$638,674 in non-cash compensation expenses related to the granting of
stock options; and
o $779,734 for the period from September 1, 1999 to October 31, 1999,
including $262,544 in non-cash compensation expenses related to the
granting of stock options.
We anticipate that we will continue to incur substantial losses for the
foreseeable future. Thus far, we have raised $3,500,000 through private
placements to finance our business, and we anticipate that we will close
additional private placements for a total of $1,500,000 in January 2000. In
addition, we estimate that we will require additional financing of approximately
$2,750,000 to meet our cash requirements through our fiscal year ending February
29, 2000. See "Note Regarding Forward Looking Statements." We cannot assure you
that we will obtain additional financing to implement our business plans on
acceptable terms, if at all.
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We launched the initial version of our SportsPrize.com(TM) Web site on November
8, 1999. Visitors to our SportsPrize.com(TM) Web site can play our
SportsPrize.com(TM) Tournament, access sports-related information and purchase
sports-related merchandise. We are currently in the process of refining our Web
site software and the technology related to our SportsPrize.com(TM) Web site. We
anticipate that these three components of our Web site will be fully integrated
by December 29, 1999. We cannot guarantee that we will successfully complete our
Web site as planned or that we will earn any profits from our operations.
We currently have relationships with DBC Sports to provide our sports content
and statistical information, ShopSports.com to provide merchandise and related
order fulfillment services, and Dream Products, Inc. to provide sports-related
memorabilia and related order fulfillment services. We are currently in the
process of attempting to establish relationships with potential sports marketing
groups, athletes and content providers to provide additional content on our Web
site, as well as potential advertisers and sponsors to purchase advertising on
our Web site. We cannot assure you that we will successfully maintain our
existing relationships with DBC Sports, ShopSports.com or Dream Products, Inc or
that we will enter into any new relationships with vendors, athletes, content
providers or advertisers.
We intend to compete in the highly competitive Internet commerce industry. Many
of our competitors have substantially greater financial, technical and other
resources than us. Several competitors already have established Web sites, brand
names, strategic relationships with advertisers and other Web sites, and user
loyalty, all of which create a competitive advantage over us. We have not begun
developing our brand name or promoting our Web site. We cannot guarantee that we
will be able to compete effectively or that we will ever generate sufficient
revenues from our operations to make our business commercially viable.
The SportsPrize.com(TM) Community
Our goal is to build a community of loyal repeat visitors to our Web site that
will allow us to generate revenue from advertising, sponsorships and the sale of
merchandise. We anticipate that visitors to our Web site will be able to enter
an Internet community that allows them to view sporting news feeds, check
up-to-date sporting results, communicate with other SportsPrize Registered
Members and sports enthusiasts in chat rooms, get personal e-mail, play our
SportsPrize Tournament and monitor SportsPrize Tournament rankings. We will not
charge visitors to enter the SportsPrize.com(TM) community or to play our
SportsPrize Tournament.
We anticipate that the SportsPrize community will be an online community focused
on sports-related news, events, e-commerce and interactive products designed for
people who love sports. We intend to develop strategic relationships with
content providers, fulfillment vendors, manufacturers and marketers of
sports-related products and services as well as other Web sites to meet the
needs of our users. Other than our contract to obtain sports news feeds through
DBC Corporation and our merchandise and product arrangements with ShopSports.com
and Dreams Products, Inc., we have not entered into any agreements to provide
other content or merchandise. However, we anticipate that we will establish
additional strategic relationships with other content providers and
merchandisers that will allow us to provide a wide variety of diversified
content and products on the SportsPrize Web site.
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By becoming part of the SportsPrize community, we anticipate visitors to our Web
site will be able to share their sports interests in a variety of ways,
including playing in the SportsPrize Tournament, creating their own Tournament
groups, sharing online shopping discounts, exchanging news and views in chat
rooms, using interactive services for online access to experts such as athletes,
coaches and commentators, buying and selling merchandise with other Members
through the SportsPrize Auction, and keeping in touch with family and friends by
e-mail. We intend to have regular interaction with our Members and to encourage
them to provide feedback on improving our Web site. In this way, we hope that we
will be able to anticipate the needs and interests of our Membership and help
ensure that our overall content and merchandising strategies will be attractive
to our entire Membership.
We intend to create a Sports Advisory Panel to help us create unique content
areas, prizes and special merchandising opportunities, such as discount
incentives and special instant coupon offers. We are also in the process of
negotiating with professional athletes to provide content such as player tips,
training techniques and commentary on events and to participate in our chat
rooms. As of December 26, 1999, we have not entered into any agreements with
athletes to provide content for our Web site or to participate in our chat
rooms.
The online interactivity of the SportsPrize.com(TM) community is expected to
connect Members with each other and our sponsors and strategic associates on
many levels: global, regional, state or provincial and local. We plan to bring
the world of sports to Members' homes and offices and to enrich our Members'
world of sports with the communication powers of the Internet. We believe that
the SportsPrize.com(TM) community will allow Members to expand and enrich their
love of sports.
Business Opportunities
We intend to generate revenues and profits from three primary sources: (i)
advertising and sponsorships, (ii) e-commerce and (iii) direct marketing.
Advertising and Sponsorships - The SportsPrize System
We intend to generate revenues by selling advertising and sponsorships to
merchandisers and manufacturers of goods, products and services. Although we
have not entered into any agreements to sell advertising or sponsorships, we are
in the process of building relationships with distributors, merchandisers,
manufacturers and other e-commerce companies. However, we cannot assure you that
we will successfully sell any advertising or sponsorships or enter into any
revenue generating relationships. Internet advertising is highly competitive and
many advertisers require statistical verification of the demographic profiles
and the number of visits, impressions or page views that a Web site is
delivering. Based on our lack of an operating history, this historical data is
not available, which may adversely affect our ability to sell advertising and
sponsorships or to enter into any revenue generating relationships. Our
inability to sell advertising or sponsorships may have a material adverse effect
on our business and results of operations.
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We anticipate that our unique SportsPrize marketing system will allow us to
generate advertising revenues and the interest of advertisers. We intend to
offer a forum capable of generating multiple interactions between Members of the
SportsPrize.com(TM) community and our advertisers and sponsors. When Members
visit, whether for SportsPrize Tournament play, sports news, chat or online
shopping, they will be encouraged, through SportsPrize Tournament rewards and
other incentives, to view several advertiser pages.
The SportsPrize Tournament is designed to be an Internet marketing system with
built-in features and incentives to attract players, build user loyalty, and
induce them to encourage their friends to visit our Web site and play in the
Tournament. These features and incentives are expected to include:
o An annual grand prize drawing for major prizes to be awarded to winners
selected from our weekly world pool winners, including an annual grand
prize of $1,000,000 in the form of a 15-20 year annuity. Players are
assigned to public groups or pools based on data provided when
registering with SportsPrize.com(TM);
o Flexibility that allows players to create their own private pools,
which may generate opportunities for permission based marketing, or
solicited advertising, as well as advertising or sponsorship
opportunities targeted at market segments in specific geographic areas;
o Pop-up redemption notices that notify winners as they play and allow
them to continue playing and to claim their prizes later;
o A results and rankings system that informs players of their ranking in
a particular contest, which we believe will generate further marketing
and communications opportunities; and
o Rewards for logging on, such as being entered in "fantasy draws" for
tickets to the sporting events or experiences and immediate discounts
on merchandise.
These features are designed to create interest in the SportsPrize.com(TM) Web
site and attract visitors on a regular basis. Our Web site is designed to
incorporate the SportsPrize Tournament, sports news, chat rooms, online
shopping, rewards and other incentives that are designed to increase traffic on
our Web site. We intend to direct traffic to our advertisers' and sponsors'
pages by offering visitors SportsPrize Tournament credits for visiting these
pages. We anticipate that the traffic generated will provide economic returns to
advertisers and sponsors, leading ultimately to increased advertising revenue
and commissions for us.
We also intend to develop the SportsPrize Sponsorship Program, which we hope
will be an additional revenue source. We anticipate that sponsors participating
in the SportsPrize Sponsorship Program will place informational and promotional
links, product and sports information, advertising and other sports-related
information on our SportsPrize.com(TM) Web site. The program is anticipated to
include endorsements from advertisers and sports-related merchandisers,
equipment manufacturers, news organizations and sports event promoters. We
intend to charge fees to these sponsors for participation in the program.
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We cannot assure you that we will successfully sell any advertising or
sponsorships or enter into any revenue generating relationships. Our failure to
do so will have a material adverse effect on our business and results of
operations.
SportsPrize E-Commerce Sites
We intend to offer shopping venues on our SportsPrize.com(TM) Web site that will
allow our Members to purchase sports-related merchandise, goods and other
products from us or from sponsors who post product and service offerings in our
e-commerce shopping venues. Our visitors and Members will have the opportunity
to purchase a wide range of merchandise, consisting of nearly 14,000 individual
products in three SportsPrize e-commerce shopping venues.
o Our Winners Store will feature select sports equipment, sportswear and
accessories, and sports-related merchandise offered directly by us or
our sponsors. SportsPrize Members will be offered discounts on
merchandise in this Mall based on their success in the SportsPrize
Tournament;
o Our SportsPrize SuperStore is designed to be an online sports
department store with a full range of sporting goods and apparel
offered at competitive prices. This e-commerce site is designed to be a
one-stop, online shopping destination for sports lovers. The
SportsPrize SuperStore is expected to present merchandise from
e-commerce companies that already sell sports merchandise online,
including ShopSports.com. We anticipate that we will share revenue or
profit equitably based on the traffic directed through and sales
generated in the SportsPrize.com(TM) Web site; and
o Our Clearance Mall will offer quality sports-related merchandise at
clearance sale prices. This venue is expected to feature a limited
stock of sports related merchandise at close-out prices. Clearance Mall
merchandise is expected to change weekly to provide new and interesting
product selections with every visit.
We intend to allow SportsPrize Members and SportsPrize Tournament Winners to
receive discounts on merchandise in our e-commerce shopping venues ranging from
5% to 35%.
We anticipate that our inventory will be owned and held by outside
"merchandising and fulfillment vendors" and shipped directly from these vendors
to our customers. We entered into a merchandising, distribution and customer
service agreement with ShopSports.com, related to merchandising, order
fulfillment, packaging and distribution of sports-related products ordered by
our customers. Under our Agreement, we will share any profits equally with
ShopSports.com on merchandise sold through our e-commerce shopping venues. See
"Agreements Related to Our Business - ShopSports - Merchandising, Fullfillment
and Customer Service Agreement." In 2000, ShopSports.com is anticipated to be
our primary provider of sports-related merchandise, product fulfillment and
customer service.
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We also have an agreement with Dreams Products, Inc. for order fulfillment of
sports-related memorabilia and sports collectibles. In 2000, we anticipate that
we will obtain a substantial portion of our sports-related memorabilia and
sports collectibles as well as order fulfillment from Dreams Products. See
"Agreements Related to Our Business - Dreams Products, Inc. Agreement."
We intend to update our site daily with inventory information received from our
vendors, which will enable our customers to check the availability of products
before ordering. We intend to electronically transmit orders to our outside
vendors at least once a day and anticipate that orders will be shipped by these
vendors within one day after an order is placed. A customer's credit card will
be charged at the time an order is shipped.
We have no fulfillment operation or warehouse facility of our own and,
accordingly, we are dependent on maintaining existing fulfillment relationships.
We cannot assure you that we will maintain our relationships with ShopSports.com
and Dreams Products or any other distributor capable of meeting our order
fulfillment requirements beyond the term of our existing agreements.
Except for our relationship with ShopSports.com and Dream Products, Inc., we
have not entered into any other relationships with distributors, merchandisers,
manufacturers or other e-commerce companies related to offering and selling
products in any of our SportsPrize e-commerce shopping venues. We cannot assure
you that we will successfully be able to continue to secure merchandise that is
attractive to our target market on acceptable terms or be able to offer products
at competitive prices. If we are unable to offer a broad range of merchandise or
to attract a broad range of e-commerce retailers to offer merchandise and/or
services on our SportsPrize.com(TM) Web site, our business and results of
operations will be adversely affected.
The SportsPrize Auction
In the first quarter of 2000, our Web site will feature the SportsPrize Auction.
Through our SportsPrize Auction, SportsPrize Members will be able to buy, sell
and trade goods, services and tickets with other SportsPrize.com(TM) community
Members through personal online trading.
We also anticipate the SportsPrize Auction will offer one-of-a-kind memorabilia
items selected and authenticated for us by firms specializing in these products,
such as Dreams Products. Memorabilia from most of the major sports is expected
to be offered. Such merchandise could include actual sports gear used in
competition ranging from baseballs and hockey pucks to uniforms and sports
artifacts. We also intend to sell collectibles autographed by professional
athletes and sold on the SportsPrize Auction, and we may arrange for athletes
and sports celebrities to be present at signing ceremonies to build awareness of
our Web site.
By providing authenticated sports memorabilia and a person-to-person trading
site for sports enthusiasts, we anticipate the SportsPrize Auction will be
positioned to become a leading e-commerce opportunity for online traders of
sports merchandise. We intend to generate revenues
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for facilitating the SportsPrize Auction and providing related services by
charging a transaction fee to post ads and sell merchandise.
We will compete with several auction sites operating on the Internet, many of
which are well established and have greater resources than us and will offer a
broader line of merchandise goods and services than the SportsPrize Auction. We
believe that our particular focus on sports-related merchandise may provide us
with a competitive advantage for auctioning sports-related products and
services.
We cannot assure you that we will be able attract buyers and sellers as
anticipated.
The SportsPrize Tournament
As part of our strategy to build and retain Membership in the
SportsPrize.com(TM) community, we have developed the SportsPrize Tournament, a
proprietary, interactive game that challenges and rewards players. The
SportsPrize Tournament allows sports enthusiasts and sports novices to compete
head to head in sports contests and predictive information-oriented games for
chances to win prizes and receive discounts on merchandise featured on our Web
site. Each week, the SportsPrize Tournament participants will answer brief
questionnaires about upcoming sports events in a wide variety of sports. Winners
of the weekly SportsPrize Tournaments will qualify for prizes, including
discounts on sports-related-merchandise offered in our SportsPrize e-commerce
shopping venues. Our goal is to use competition and the rewards of the
SportsPrize Tournament to attract visitors to our Web site and to keep Members
returning on a regular basis. We anticipate the SportsPrize Tournament will
offer a continuous stream of new weekly competitions covering sports from around
the world.
Registration to play in the SportsPrize Tournament will require Members to
provide us with certain demographic and other information on an on-going basis,
including the following:
o Name;
o Gender;
o Age;
o E-mail address; and
o Zip code.
We may also gather other specific information that our advertisers and sponsors
may request.
A New Type of Online Competition
We believe the SportsPrize Tournament is a new type of online sports
entertainment experience. Our Members can play in the Tournament for free. We
designed the Tournament to incorporate a wide variety of sports information into
a game that challenges players with a series of questions related to various
sports from around the world. We believe this is a unique concept and one of
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the primary features that distinguishes our SportsPrize Tournament from other
games and contests on the Internet.
Tournament Structure
SportsPrize Tournament participants are challenged to test their knowledge of
and insight into their favorite sports, teams and athletes against other
participants. Each player who registers as a Member will be required to complete
a registration form to become a SportsPrize Tournament participant. Each Member
will automatically be entered in a series of pre-selected, public competitions
based on their address. These competitions and games are structured as
"cascading competitions." For example, a player from Atlanta, Georgia will be
automatically entered into the World, USA, Georgia, and Atlanta competitions.
We will encourage Members to form private competitions and to play against their
friends or co-workers. Members also can structure private competitions for
associations with which they are affiliated, such as their school, social or
sports club, or neighborhood. A player must have at least five of his friends,
co-workers or other Members in order to register a private competition. We
intend to track and report the results of these competitions.
Tournament Game Play
The SportsPrize Tournament combines the excitement of predicting the outcome of
an activity in a major sports event with the excitement of wagering credits to
win prizes. We have designed the Tournament to be simple and fun. Each Wednesday
morning a new weekly SportsPrize Tournament game will begin. Active players are
automatically entered into their public and private weekly competitions as well
as the ongoing monthly, quarterly and annual competitions.
We intend to give each player 100 credits at the start of each weekly
SportsPrize Tournament Game. Each week, we will create 20 to 30 questions
relating to upcoming sporting events for each of several different sports
categories. A Tournament participant plays the SportsPrize Tournament by
submitting entry tickets with one to five questions selected per entry ticket.
The more selections a Tournament participant makes on an entry ticket, the more
points the participant can accumulate. If a Tournament participant answers all
the questions correctly, they will earn the maximum number of points. For
example: A Member selects the upcoming NFL Football games for this Sunday. A
ticket to participate appears on the user's screen. A series of ten questions
will appear. A question may be: Which NFL defensive end will record the most
sacks this weekend?
The site will provide a list of four football players to choose from in a
"multiple choice" format. Players may gather statistical information about how
the individuals have performed by clicking on the "stats" button, which will
provide statistics about the individual player's performances in the NFL last
week, last month and year-to-date. This feature is designed to level the playing
field for all types of participants.
A Member may assign a portion or all of the 100 credits they receive in the
current week on any one question or allocate a portion of their 100 credits to
multiple questions regarding several
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sports events. Additionally, a Member is able to increase the value of the
points earned by answering more than one question correctly on an entry ticket.
Consequently, a player has the opportunity to win points based upon several
different strategies.
Players have the option of submitting entries from a single sport category or
from multiple sports categories. Players may play any categories they choose,
and may submit selections as long as they have weekly credits in their account.
The SportsPrize Tournament configuration is designed to challenge players with
multiple layers of strategic choices, including selecting sports categories, the
number of questions to play within that entry and the number of credits to
assign. Our goal is to create an interactive environment, which will test
knowledge and intuition, and provide a multi-level competition with numerous
chances to win.
We will track and report Members' results from every competition on the "My
Results" page, which will contain statistical and performance information.
Once we have sold advertising on our Web site, Members may earn additional
credits to use in the Tournament by clicking on advertisements on our Web site.
These incentives are designed to encourage Members to click on the SportsPrize
Web site advertisements more frequently, which may result in higher levels of
page views and advertising revenue.
Winning Prizes
Members who play in the SportsPrize Tournament will have a chance to win prizes
and to receive discounts on merchandise offered on our Web site. We anticipate
that we will award prizes to the winners of the SportsPrize Tournament
including:
o Tickets to sporting events;
o Sports memorabilia;
o Sportswear;
o Sporting goods such as balls, rackets, golf clubs, athletic shoes and
other merchandise that is available from our SportsPrize e-commerce
shopping venues;
o Gift certificates from our SportsPrize e-commerce shopping venues;
o SportsPrize t-shirts, caps, jackets and pennants; and
o Other prizes that may be offered by SportsPrize advertisers or
sponsors.
We also intend to offer major prizes, which may include automobiles, boats, as
well as trips to the Super Bowl, World Series, Stanley Cup, NBA championship or
other sporting events, and cash prizes for special promotions and our annual
grand prize drawing. We anticipate that we
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will make arrangements to obtain these major prizes prior to announcing the
special promotions and our grand prize drawing.
We anticipate that there will be five different ways to win.
First, Tournament participants will earn discounts on merchandise
offered in the Winners Store based on their scores in the Tournament.
Weekly winners will receive a 5% to 35% discount on products available
in the Winners Store.
Second, there will be first, second and third place prizes awarded to
the top scorers in each weekly competition. Weekly competition prizes
are anticipated to include cash, merchandise, sporting event tickets
and SportsPrize t-shirts, caps, jackets and pennants.
Third, the top 100 weekly scorers will be entered into the weekly
drawing for special prizes in each of their sponsored public or private
competitions as well as the ongoing monthly, quarterly and annual prize
drawings in those competitions.
We anticipate that these special prizes will consist of merchandise of
sponsors.
Fourth, "instant" prizes will also be awarded randomly every week, to
add to the fun and excitement of the SportsPrize Tournament. We
anticipate that instant prizes will consist of cash, merchandise,
sporting event tickets and SportsPrize t-shirts, caps, jackets and
pennants.
Fifth, there will be an annual grand prize drawing to win major prizes
including a $1,000,000 grand prize, payable as a 15-20 year annuity.
The more a player participates in the Tournament, the more chances the
Tournament participant will have to win and qualify for our annual grand prize
drawing. Our grand prize winner will be drawn from weekly public pool winners in
the world competition. No purchase will be necessary in order to qualify for
prizes and discounts.
We intend to motivate SportsPrize Members to encourage their friends to play the
SportsPrize Tournament by awarding Members Tournament credits for their
referrals, and by qualifying them for a free trip to the Super Bowl in a drawing
from the Members who have referred friends to play in our Tournament.
Additionally, we will award a SportsPrize.com(TM) hat to each Member who gets
five friends to join the Tournament; a SportsPrize.com(TM) T-shirt to each
Member who gets ten friends to join the Tournament; and a SportsPrize.com(TM)
golf shirt to each Member who gets twenty-five friends to join the Tournament.
We will determine the specific prizes that will be awarded to winners for each
competition in advance of the competition. In the future, we anticipate we will
award products from the sponsors of our Web site as prizes. We currently do not
have any sponsors for our Web site, and we cannot assure you that we will
successfully secure any sponsorships for our Web site.
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Our Marketing Strategy
We do not plan to compete directly with existing sports and entertainment Web
sites. Instead, we anticipate SportsPrize.com(TM) will fill a complementary
market niche that is designed to combine the entertainment value of interactive
games and the challenge of sports competition with online merchandising,
promotion and marketing in an innovative way. We intend to position
SportsPrize.com(TM) as a Web site for online sports enthusiasts and to replicate
the success of other online communities, such as those focused on women's needs,
health care, children's entertainment, music, and individual online trading.
Our marketing strategy will be to target the market of online sports enthusiasts
who are looking for both entertainment and sports-related content. We are in the
process of negotiating some agreements with potential content providers, sports
merchandisers, and other e-commerce companies to implement our marketing
strategy. However, we have not entered into all of the relationships that will
be necessary for us to promote our Web site, and we cannot assure you that we
will successfully enter into agreements or relationships on acceptable terms, if
at all, that will allow us to market our SportsPrize Web site effectively. We
intend to implement the following marketing strategies to attract our targeted
niche to our SportsPrize.com(TM) Web site:
Content: We are designing our SportsPrize Web site to feature live
sporting news feeds, up-to-date sporting results, interviews with
professional athletes, articles from sports commentators, team
schedules, league information and standings, ticket and event
information, and free services such as email, community bulletin boards
and chat rooms.
We anticipate the SportsPrize Chat Rooms will feature discussions of
topics related to sports that are currently in season. The Chat Rooms
also will be a venue for Members to exchange personal ideas about the
sports that they are interested in. Members can join public rooms,
private chat or create their own rooms to suit their interests.
The SportsPrize e-mail system will enable Members to have a local mail
drop on SportsPrize servers accessible through our Web based e-mail
interface. Members also will be able to access other e-mail accounts
through the SportsPrize Web site.
SportsPrize will provide a full array of sports-related services,
including live sporting news feeds, up-to-date sports results,
communication with other Members, personal e-mail, and monitoring of
the SportsPrize Tournament rankings.
Interactivity at the heart of the SportsPrize community will enable
Members to interact with each other as well as sponsors and strategic
associates on many levels including: global, national, regional,
statewide and local. We believe that SportsPrize.com(TM) will expand
and enrich our Members' love of sports.
SportsPrize Tournament: We designed our SportsPrize Tournament to
encourage players to return to our Web site on a regular basis and to
visit other areas of our Web site, including our SportsPrize e-commerce
shopping venues, our SportsPrize Auction site,
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and the postings of our advertisers and sponsors. We also encourage
Members to provide us with demographic information that may allow us to
design personalized promotional offers in the future based on the
Member's individual interests and preferences.
Direct Marketing Programs: We intend to use direct marketing to
increase purchases by existing customers of our SportsPrize e-commerce
shopping venues and encourage our customers to refer visitors to our
Web site by using email promotional techniques, including providing
special discounts for purchases, special promotional offers, gifts and
other specialized marketing programs. In the future, we intend to:
o Conduct direct e-mail marketing campaigns to promote our Web
site;
o Offer discounts on targeted selections based on prior purchases;
o Offer gifts for referring new customers to our Web site; and
o Make additional purchases and reinforce our brand name.
Customer Service: Currently, our technical personnel provide customer
service assistance related to technical problems and ShopSports.com
provides customer service to our SportsPrize.com merchandise customers
under the terms of our ShopSports.com agreement. See "Agreements
Related to Our Business - ShopSports - Merchandising, Fulfillment and
Customer Service Agreement." In January 2000, we anticipate we will
hire 1 or 2 customer service representatives. We also intend to
license software that allows our customer service representatives to
initiate contact with users of our Web site or allows customers to
contact us while they are browsing our Web site. We believe this will
enable our customer service representatives to answer questions,
suggest product selections and assist customers in making buying
decisions. We intend to train our customer service representatives to
assist customers in their buying decisions and to provide superior
customer service in a virtual environment.
Advertising Campaigns: We intend to implement online marketing
campaigns on a number of high traffic Web sites such as America
Online, MSN, Yahoo! and USA Today. These campaigns are contemplated to
use a variety of online marketing techniques, including:
o Click-through advertisements that bring consumers directly to our
Web site;
o Advertising campaigns that collect the e-mail addresses of
visitors who wish to receive online promotions;
o Affiliate promotion campaigns; and
o Coupons, contests and other sponsorships.
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We also will conduct special promotions at various times during the
year, such as the start of the baseball, football, basketball and
hockey seasons and during major sporting events. For example, we intend
to create a special contest on our Web site and special ticket
give-aways for major sporting events such as the Super Bowl, the
College Final Four, the World Series, the Stanley Cup, the Kentucky
Derby, the NBA championships, the U.S. Open and other major sporting
events.
Strategic Marketing Relationships: We have entered into strategic
relationships with two consulting firms, Interactive Marketing, Inc.
and Kaleidoscope Sports and Entertainment, LLC, to assist us in
developing a comprehensive strategic and Web site development plan.
Interactive Marketing is a strategic marketing consulting firm that
specializes in assisting companies with developing Internet strategies.
See "Agreements Related to Our Business - Interactive Marketing Inc.
Strategic Marketing and Consulting Agreement." Kaleidoscope, a division
of the Interpublic Group of Companies, specializes in developing
marketing and advertising strategies for companies in the sports and
entertainment industries. See "Agreements Related to Our Business -
Kaleidoscope -Consulting Agreement."
Affiliate Networks: We intend to develop an affiliate program that is
designed to enable other Web sites to create their own sports-related
Web site by linking directly to SportsPrize.com(TM). When visitors
follow a link to our SportsPrize e-commerce shopping venues, the
affiliated Web site receives a commission ranging from approximately
five percent to fifteen percent of any referred sales. Since no payment
is made to the affiliate unless a sale is generated by the affiliate,
the program is designed to be an efficient means of acquiring new
customers.
The Internet is becoming increasingly crowded and the competition for visitors
is becoming more intense. Many Internet companies have very aggressive marketing
programs and have developed affiliations that drive traffic to their Web sites.
We cannot assure you that we will successfully market our Web site or attract a
sufficient number of visitors to implement our business plan. See "Note
Regarding Forward Looking Statements." Our inability to successfully market our
Web site may have a material adverse effect on our business and results of
operations.
The e-commerce Industry
The term "e-commerce" was developed with the increase of electronic retailing
transactions conducted over the Internet and the World Wide Web. As interest in
the World Wide Web developed during the 1990's, and as the number of consumers
with access to the Internet grew, companies established Web sites for marketing
purposes to promote their corporate or brand identity or to provide information
about their products, and began using those sites for marketing, merchandising
and sales purposes. Businesses use the Internet as a means to shorten the sales
cycle by appealing to a broad audience and eliminating middlemen in the
distribution channel. The information that is presented on a Web site is
delivered in a focused manner to businesses and individuals who are looking for
specific information. The Internet can reduce costs and level the playing field
for small and large businesses, allowing them to extend their reach globally.
Additionally, the availability of sophisticated Internet and Web technology,
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stronger security mechanisms, and the increasing acceptance of the new
communications medium are fueling the use of e-commerce by businesses and
consumers.
We believe that the way in which certain products and services will be directly
or indirectly sold in the future will increasingly shift toward the Internet.
Businesses throughout the world are developing their Web strategies to take
advantage of this shift in the way consumers search for product and service
related information, and purchase goods and services. We believe that an
increasing percentage of business advertising budgets will be allocated to
Internet promotion and marketing strategies. We believe advertisers are and will
look for Web sites that have the volume of users that match the demographic
profile of their target consumer. See "Note Regarding Forward Looking
Statements."
We believe the growth in the Internet represents a substantial opportunity for
companies to conduct business online. Internet retailers are able to communicate
more effectively with customers by providing:
o Visual product presentations;
o Up-to-date pricing and product information in a consistent and uniform
format;
o Customer support, including opportunities for customer feedback;
o Product offerings tailored to customer preferences; and
o Electronic billing and payment systems.
We anticipate that our focus on sports entertainment and recreation will create
attractive demographic consumer profiles for merchandisers and marketers of
sports-related goods and services. As a result, we anticipate that we will be
able to sell advertising and sponsorships, and enter into promotional joint
ventures with a broad spectrum of sports-related businesses. We also anticipate
that our Web site will generate revenue from the sale of sports-related
merchandise through our virtual stores and through transactions facilitated
through our auction site. See "Note Regarding Forward Looking Statements."
Our Competition
We intend to compete in a highly competitive market. The competition among
e-commerce companies is fierce and there are many competitors that have
established brand names and users. We intend to compete with established Web
sites for advertising revenues, revenues from the sales of sports-related
merchandise and revenues from transactions on our auction site.
Advertising Revenue Competition
The online sports entertainment market in which we intend to compete is
comprised of many competitors, and we expect competition to increase. We also
intend to compete with other non-sports-related Internet sites for the time and
attention of consumers and for advertising and
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sponsorship revenue. Competition among Internet sites is intense and is expected
to increase significantly in the future. Our Web site will also compete with a
variety of companies that provide similar offerings through one or more media,
such as print, radio and television. To compete successfully, we must develop
and deliver popular, original, entertaining, information and compelling product
offerings. We have not entered into any agreements to sell advertising on our
Web site, and we cannot assure you that we will sell any advertising in the near
future, if at all.
In our entertainment areas of focus, including games, sports-related discussion
communities, sports merchandising and Internet shopping, we intend to compete
with various Internet sites, such as CBS SportsLine, ESPN.com, SportsLine USA,
Sandbox.com and others. All of these competitors currently offer a wider range
of products, services, information and news than we contemplate offering. Their
products and services may be more attractive to Internet users than ours, and
consequently, may dissuade users from visiting our Web site.
We believe that our ability to compete will depend, to a great extent, upon our
ability to be a leader in the development and marketing of novel and unique
interactive sports-related entertainment games for our Web site and our ability
to offer a unique mix of sports-related information and merchandise. To be
successful, our Web site must be user friendly and we must respond effectively
to the challenges of technological changes and innovation by continually
enhancing our products and merchandise. The competitive factors affecting the
success of our Web site include product functionality, performance and
reliability, customer support, and cost effectiveness of our advertising
offerings.
We cannot assure you that our Web site content or our SportsPrize Tournament
will appeal to our target market, that we will generate sufficient traffic on
our Web site to sell advertising or that we will generate any revenues from
selling advertising on our Web site.
Retailing Sports-Related Merchandise Competition
The online market for retailing products and services on the Internet is new and
rapidly evolving. We expect to compete with traditional "bricks and mortar"
retail stores and other online retailers of sports-related products and
services. Our competitors include, among others:
o Online retailers, including ShopSports.com; FogDog.com, CBS SportsLine,
Gear.com and Justballs.com;
o Traditional retailers, including Oshman's SuperSports USA, Big 5
Sporting Goods, Gart Sports, The Sports Authority, Sportmart, Dick's
Sports and a variety of independent and regional retailers of
sports-related merchandise;
o Specialty retailers of sports-related merchandise;
o Mail order retailers of sports-related merchandise; and
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o Mass merchandisers and department stores, including Costco, Kmart,
Sears, Target and Wal-Mart.
Many of our competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we have. To our knowledge, ShopSports.com, FogDog.com, and
SportsLine are market leaders in the sale of sports-related merchandise on the
Internet. Some of our competitors, like ShopSports.com, Gear.com, Justballs.com,
ESPN.com, CNN/SI, and CBS SportsLine, also may be able to secure merchandise
from vendors on more favorable terms, devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing or inventory availability
policies and devote substantially more resources to their Web sites and systems
development than we can. We believe that the principal competitive factors the
sale of sports-related merchandise on the Internet are:
o Product selection;
o Price;
o Timeliness of delivery;
o Ease of use and Web site convenience; and
o Brand recognition.
We cannot assure you that we will successfully compete against established
competitors or that we will generate sufficient revenues from the sale of
merchandise though our Web site to earn any profits.
Auction Competition
Our Web site will compete directly with various online auction services,
including eBay, Amazon.com, MSN.com, Yahoo!, Onsale, First Auction, Ubid,
Auction Universe, auctions Powered by Onsale and Excite, and a number of other
small services, some of which are free to sellers and buyers, including those
that serve specialty or regional markets such as CityAuction. Some of these
competitors, like eBay and Amazon.com, offer special sports-related product
categories that compete directly with the products that are most likely to be
offered on our SportsPrize.com(TM) Auction site. Others offer auction services
free to sellers and buyers. We also potentially face competition from a number
of large online communities and services that have expertise in developing
online commerce and in facilitating online business-to-person interaction. Some
of these potential competitors, including America Online and Lycos, currently
offer business-to-consumer trading services and classified ad services, and may
introduce person-to-person trading to their large user populations.
We believe that the sports oriented focus of our Web site will appeal to buyers
and sellers of sports-related collectibles, memorabilia and merchandise;
however, we cannot assure you that we
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will successfully compete with established auction Web sites or competitors that
introduce auction Web sites in the future.
We have not completed development of the technology necessary to launch our
SportsPrize Auction site, and there can be no assurance that we will develop
such technology in a timely manner, if at all.
Regulation
There are currently few laws or regulations directly applicable to access to, or
commerce on, the Internet. Due to the increasing popularity and use of the
Internet, it is possible that laws and regulations may be adopted, covering
issues such as user privacy, defamation, pricing, taxation, content regulation,
quality of products and services, and intellectual property ownership and
infringement. Such legislation could expose us to substantial liability as well
as slow the growth in use of the Internet and decrease the acceptance of the
Internet as a communications and commercial medium. We may be required to incur
significant expenses in complying with any new regulations and restrictions.
The European Union has recently adopted privacy and copyright directives that
may impose additional burdens and costs on international operations. In
addition, several telecommunications carriers, including America's Carriers'
Telecommunications Association, are seeking to have telecommunications over the
Internet regulated by the Federal Communications Commission, or FCC, in the same
manner as other telecommunications services.
Because the growing popularity and use of the Internet has burdened the existing
telecommunications infrastructure, many areas with high Internet usage have
begun to experience interruptions in phone services. Local telephone carriers,
such as Pacific Bell, have petitioned the FCC to regulate the Internet and to
impose access fees. Increased regulation or the imposition of access fees could
substantially increase the costs of communicating on the Internet, potentially
decreasing the demand for our content or the ability to access our Web site.
A number of proposals have been made at the federal, state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
e-commerce and could adversely affect us.
The United States recently passed the Digital Millennium Copyright Act, which is
intended to reduce the liability of online service providers for listing or
linking to third-party Web sites that include materials that infringe
copyrights. The United States also recently passed the Children's Online
Protection Act and the Children's Online Privacy Act, which will restrict the
distribution of certain materials deemed harmful to children and impose
additional restrictions on the ability of online services to collect user
information from minors. Further, the United States recently passed the
Protection of Children from Sexual Predators Act, which mandates that electronic
communication service providers report facts or circumstances from which a
violation of child pornography laws is apparent. We cannot currently predict the
effect, if any, that this legislation will have on our business. There can be no
assurance that this legislation will not impose
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significant additional costs on our business or subject us to additional
liabilities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain. We may be subject to claims that our services
violate rules, regulations or applicable laws or the rights of third parties.
Any new legislation or regulation in the United States or abroad or the
application of existing laws and regulations to the Internet could damage our
business.
In addition, our SportsPrize Tournament may be subject to state and local laws
related to sweepstakes and contests. We do not intend to charge any fees for
playing the SportsPrize Tournament or charge any fees or require any purchases
to be eligible to receive prizes or gifts. Although we do not believe our
SportsPrize Tournament violates any federal, state and local laws, there can be
no assurance that future federal, state or local legislation or regulations will
not adversely affect our operation of the SportsPrize Tournament. Any such
legislation may have a material adverse effect on our business and results of
operations.
Due to the global nature of the Internet, it is possible that the governments of
other states and foreign countries might attempt to regulate our transmissions
or prosecute us for violations of their laws. We might unintentionally violate
such laws. Such laws may be modified, or new laws may be enacted, in the future.
Any such development could damage our business.
Plan of Operation
Our plan of operation includes several important strategic initiatives and is
based on estimates of our senior management. A summary of our plan of operation
and operating budget for our business as well as for our administration and
marketing for the 12 months ending August 31, 2000 is set forth below.
Summary of Plan of Operation
The following is a summary of our corporate plan of operation through August 31,
2000. During the period ending February 29, 2000, the primary focus of the plan
is to develop and launch our Web site and build the necessary infrastructure to
operate and market the site. We launched the initial version of our Web site on
November 8, 1999. In the first quarter 2000, we plan to implement a major
marketing program to build the SportsPrize brand as well as the Web site
Membership. We also will continue developing and enhancing the Web site during
this period. During our first two fiscal quarters ending August 31, 2000, we
intend to allocate up to 55% of our operating budget towards marketing and
promotion to facilitate the aforementioned marketing program. Our other primary
operating objectives will be to continue establishing strategic alliances with
corporate advertisers, sponsors, e-commerce associates, and other potential
content and marketing associates. We also intend to continue to build the
SportsPrize community areas on the SportsPrize.com(TM) Web site by increasing
sports information, news and chat room content, and sports celebrity-related
content.
Our major strategic initiatives through August 31, 2000 are as follows:
- --------------------------------------------------------------------------------
Description of Major Strategic Initiatives
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
i. Raise sufficient capital to finance our business.
ii. Complete secondary round of private financing to raise an additional
$15,000,000 of capital to fund and implement the aforementioned
strategic and marketing initiatives and fund the growth of the
business in 2000.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Appoint or Recruit Senior Management:
i. Chief Executive Officer
ii. Vice President of Sales
iii. Vice President of Business Development
iv. Vice President of Sports Development
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Complete Development, Beta Testing and Launch of the SportsPrize Web site:
i. Design the Home Page and Graphical User Interface for the site.
ii. Integrate the major components of the site.
iii. Complete the SportsPrize Tournament and integrate the Tournament into
the Web site.
iv. Develop and complete the E-Shopping component of the site and
integrate the E-Shopping component into the Web site.
v. Develop and complete the Community component of the site and integrate
the Community component into the Web site;
vi. Launch the Web site.
vii. Conduct a Public Beta Test of the Web site.
viii. Develop and enhance the interface design and content on the Web site.
-------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Build the Technological Infrastructure Necessary to Operate Our Web site.
i. Obtain the equipment and Internet connectivity services necessary to
operate the site.
ii. Develop sufficient technology to operate and manage the site and its
Membership Database, and other technological components of the site.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Development:
i. Recruit Outside Directors to increase the Board of Directors to seven
Directors, including four Outside Directors.
ii. Establish a Sports Advisory Panel with representatives from each of
the major sports categories offered on our Web site.
iii. Enter into strategic relationships with content associates for our Web
site.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preparation of Sales, Marketing and Business Development Plans/Implementation:
i. Complete the initial sales, marketing and business development plans.
ii. Obtain Prizes and Awards for the SportsPrize Tournament.
iii. Commence sales process to begin generating revenue.
iv. Commence the marketing and business development processes to build the
membership base, build the brand, and broaden the content offering on
the Web site.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Locate and lease a new corporate office in the Los Angeles area.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder Relations and Investor Relations:
i. Develop comprehensive database of shareholders and maintain
communication with them.
ii. Develop and deliver comprehensive information about our company to
prospective investors to broaden our shareholder base and capital
structure.
- --------------------------------------------------------------------------------
Beginning in the first quarter 2000, we intend to concentrate our efforts on
marketing our Web site to users, sponsors and advertisers; soliciting feedback
on our content and technology offerings from our users, sponsors and
advertisers; selling advertising and sponsorships; increasing sales of products
offered through our SportsPrize e-commerce shopping venues; building additional
strategic relationships; developing new content and technology offerings;
obtaining endorsements from professional athletes, coaches and sports
organizations; and enhancing and improving our Web site.
We cannot assure you that we will successfully complete all of the items
contemplated in our plan of operation on a timely basis, if at all. Our ability
to complete our plan of operation will be dependent on a number of factors, some
of which are beyond our control, including our ability to
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raise additional financing on acceptable terms, our ability to develop our
content and technology on a timely basis, our ability to attract advertisers and
sponsors, and the acceptance of our SportsPrize.com(TM) Web site.
Summary of Operating Budget
Our operating budget for our plan of operation is estimated to be approximately
$16,850,000 for the period beginning September 1, 1999 and ending August 31,
2000. See "Note Regarding Forward Looking Statements." Our projected operating
budget is as follows:
<TABLE>
<S> <C> <C> <C>
9/1/99 to 3/1/00 to
2/29/00 8/31/00 Total
Operating Expenses:
Financing Fees and Costs $ 100,000 $ 750,000 $ 850,000
Content Costs 250,000 500,000 750,000
General and Administrative 1,500,000 3,500,000 5,000,000
Marketing 2,150,000 6,000,000 8,150,000
--------- --------- ---------
Total Operating Expenses $ 4,000,000 $ 10,750,000 $ 14,750,000
----------- ------------ ------------
Capital Expenditures:
Web Site Equipment/Software $ 250,000 $ 250,000 $ 500,000
Web Site Design/Development 250,000 500,000 750,000
Office Equipment/Software 250,000 250,000 500,000
Other 100,000 250,000 350,000
------- ------- -------
Total Capital Expenditures $ 850,000 $ 1,250,000 $ 2,100,000
--------- ----------- -----------
Total Capital Required $4,850,000 $12,000,000 $16,850,000
========== =========== ===========
</TABLE>
As of October 31, 1999, we had approximately $1,729,000 in cash and cash
equivalents. Currently we are expending approximately $250,000 per month. We
cannot assure you that our actual expenditures for the period from September 1,
1999 through August 31, 2000 will not exceed our estimated operating budget. We
based our projected costs on our results of operations, our current contractual
commitments, our discussions and negotiations with potential third party service
providers, public disclosure of our competitors of their historical costs for
similar operations, our discussions with consultants, our planned business
activities and our management's experience. See "Note Regarding Forward Looking
Statements." Actual expenditures will depend on a number of factors, some of
which are beyond our control, including, but not limited to, timing of changes
to our SportsPrize Web site, our ability to generate revenue from advertising,
sponsorships, e-commerce sales and our auction site; the availability of
financing on acceptable terms; reliability of the assumptions of management in
estimating costs and timing; certain economic and industry factors; the time
expended by consultants and professionals and fees associated with developing
strategic relationships related to our business plan; our ability to enter into
strategic relationships with third parties; the success of our SportsPrize
Tournament; and our ability to attract visitors to our SportsPrize Web site. You
are cautioned not to place undue certainty in management's assessments and
projections. If the actual expenditures for such costs exceed the estimated
costs or if we are incapable of generating revenues from our operations, we will
be required to raise additional financing or to defer certain expenditures.
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We anticipate we will need to raise approximately $15,000,000 to meet our
projected capital requirements through August 31, 2000. We intend to raise
additional financing to fund our operating budget by issuing equity or debt
through a combination of private and public financings. We cannot assure you
that we will successfully raise additional financing on acceptable terms, if at
all. If we cannot raise additional financing, we anticipate that we will reduce
our projected expenditures related to marketing our SportsPrize Web site and
concentrate our resources on selling advertising and sponsorships, and
developing our SportsPrize Web site and the SportsPrize Tournament. The failure
to meet certain expenditures may cause us to default on material obligations and
such default may have a material adverse effect on our business and results of
operations.
History of Our Company
We were incorporated in the State of Nevada on August 25, 1995 as "Par Golf,
Inc." with an authorized share capital of 25,000,000 shares of common stock with
a par value of $0.001 per share.
We were generally inactive until August 1997. In August 1997, we commenced the
business of marketing advanced graphic technologies and services by offering
print and screen services to the wholesale and retail sectors of the screen,
print and publication industries. On August 21, 1997, we amended our Articles of
Incorporation and changed our authorized share capital to 25,000,000 shares,
consisting of 20,000,000 shares of common stock with a par value of $0.001 per
share and 5,000,000 shares of preferred stock with a par value of $0.001 per
share, and changed our name to "Kodiak Graphics Company". We did not generate
sufficient revenues to make this business plan commercially viable and abandoned
this business plan in the second quarter of 1999.
On May 14, 1999, we acquired all of the issued and outstanding shares of
SportsPrize Inc., a Nevada corporation, pursuant to a statutory share exchange.
SportsPrize Inc. was in the process of designing, developing, building and
operating an Internet site focused on the sports and entertainment sectors of
the Internet market. In connection with the share exchange, we amended our
Articles of Incorporation to change our name to "SportsPrize Entertainment Inc."
on May 21, 1999.
At the time of the share exchange, we were a non-operating shell with no
revenues, expenses, assets or liabilities, and our book value was $1,440, which
were written down to zero at the time of the share exchange. Prior to our
acquisition of SportsPrize Inc., SportsPrize Inc. was engaged in the mineral
exploration business. SportsPrize Inc. had an option to purchase mineral
property rights located in the Province of Alberta, Canada pursuant to an
agreement with Jody Dahrouge and Halferdahl & Associates, Ltd. SportsPrize Inc.
elected not to exercise the option, and the option expired unexercised on
February 11, 1999. In February 1999, SportsPrize Inc. shifted its business
strategy from resource exploration to developing an Internet business.
As a result of the share exchange, all of the assets of SportsPrize Inc. became
the assets of SportsPrize Entertainment Inc., and our historical and ongoing
operations are deemed to be those
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of SportsPrize Inc. for accounting purposes. As such, we have presented our
interim consolidated financial information for the six month period ended August
31, 1999, and we have included the audited financial statements of SportsPrize
Inc. for the fiscal year ended February 28, 1999.
In June 1999, we amended our Articles of Incorporation to change our authorized
share capital to 105,000,000 shares consisting of 100,000,000 shares of common
stock with a par value of $0.001 per share and 5,000,000 shares of preferred
stock with a par value of $0.001 per share.
Our common stock is currently quoted on the National Association of Securities
Dealers' over-the-counter bulletin board and trades under the symbol "JOCK".
SportsPrize Inc. is our sole subsidiary. We have not been subject to any
bankruptcy, receivership or other similar proceedings.
Development of Our Business to Date
The SportsPrize business concept and initial business plan were developed by
SportsPrize Inc., our wholly owned subsidiary. Jeffrey Paquin, a director and
our former President, was the founder and President of SportsPrize Inc., and
guided the development of the initial business plan and company strategy.
Since May 14, 1999, we have taken the following steps to implement our business
plan:
o Acquired SportsPrize Inc.;
o Developed the prototype of the SportsPrize Tournament;
o Developed the initial software and technology for the SportsPrize.com
(TM) Web site;
o Obtained computer software licenses related to the SportsPrize
technology;
o Filed a patent application related to our SportsPrize system and method
for delivering targeted advertising through our online SportsPrize
Tournament Marketing System;
o Completed initial financings totaling $3,500,000, providing sufficient
capital to develop our plan to the revenue generation stage, and
arranged on a best efforts basis for additional financing of $1,500,000
scheduled to close in January 2000;
o Retained Interactive Marketing Inc. to assist us in defining and
prioritizing our strategic and marketing objectives;
o Added four new members to our Board of Directors: Alan Gerson, Abe
Carmel, Robert Hunziker and Bruce Cameron;
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Hired and retained Bruce Cameron, as our President, Chief Financial Officer
and Treasurer, Robert Hunziker, as our Senior Vice President of Corporate
Finance, Donald MacKay as our Senior Vice President and Controller, and
Michael Wiedder, as our Vice President of Marketing, thereby supplementing
our executive and senior management team;
o Appointed Alan Gerson as our Chairman of the Board;
o Submitted a trademark application for SportsPrize.com(TM) in both the
United States and Canada; and
o Completed the launch of the initial version of our Web site on
November 8, 1999; and
o Negotiated the following consulting, software development,
marketing and vendor fulfillment agreements:
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<TABLE>
<S> <C>
----------------------------------------- ----------------------------------------------------------------------
Consultant Services
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Quad-Linq Software Quad-Linq is designing
the graphical user interface and
programming the database for the
SportsPrize Tournament.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Interactive Marketing Inc. Interactive Marketing is providing us with strategic marketing and
operational guidance through May 2000.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
</TABLE>
Kaleidoscope Sports and Entertainment, Kaleidoscope is assisting us in
developing strategic alliances with LLC potential corporate sponsors,
professional sports leagues, players associations and professional athletes.
<TABLE>
<S> <C>
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Las Vegas Sports Consultants Inc., DBC Sports will support our SportsPrize Tournament by providing the
d.b.a. DBC Sports sports content and statistical information, as well as develop
ongoing questions for the SportsPrize Tournament.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Tridian Design and Development Tridian is designing the graphical user interface for the
SportsPrize Web site.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Intershop Communications, Inc. Intershop is providing us with the software and implementation
necessary to complete the infrastructure to host our various
e-commerce sites.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Frontier/Globalcenter Frontier will host the
SportsPrize.com(TM) Web site and
deliver the Web content to our
online audience.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Dreams Products, Inc. Dreams Products will provide vendor fulfillment services related to
our sports memorabilia product line.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
ShopSports.com ShopSports.com is providing
merchandise and vendor fulfillment
services related to approximately
14,000 sports-related products.
----------------------------------------- ----------------------------------------------------------------------
----------------------------------------- ----------------------------------------------------------------------
Focus Partners, LLC Focus is providing investor relations services.
----------------------------------------- ----------------------------------------------------------------------
</TABLE>
28
<PAGE>
Our Acquisition of SportsPrize Inc.
Effective May 14, 1999, we acquired all the issued and outstanding shares of
SportsPrize Inc. pursuant to a statutory share exchange and SportsPrize Inc.
became our wholly-owned subsidiary. We also acquired all of the assets of
SportsPrize Inc. Our historical and ongoing operations are those of SportsPrize
Inc. for accounting purposes. Pursuant to the terms of Agreement and Plan of
Share Exchange:
o We issued 9,999,709 shares of our common stock for 5,804,000 shares of
common stock of SportsPrize Inc. or 1.7229 shares of our common stock
for each share of SportsPrize Inc. We issued the exchange shares at a
deemed price of $0.01 per share;
o The holders of the exchange shares agreed that if a registration
statement was filed to register the sale of their exchange shares, they
would hold at least 50% of their shares for at least six months;
o We undertook to use our best efforts to file a resale registration
statement with the SEC to register the exchange shares for resale under
the Securities Act;
o We completed a $2,500,000 private placement of 1,666,665 shares of our
common stock at a price of $1.50 per share on May 7, 1999. We paid
Sonora Capital Corp. a finder's fee of $70,000 in connection with this
private placement;
o We agreed to use reasonable efforts to arrange additional financings,
for a total amount of $2,500,000, of which $1,000,000 closed in July
1999 and $1,500,000 is expected to close in January 2000;
o We agreed to adopt a stock option plan and reserve 3,000,000 shares of
our common stock for issuance under the plan at a price of no less than
$0.25 per share. From the 3,000,000 shares, we agreed to grant options
to acquire 805,000 shares of our common stock to Jeffrey Paquin
(300,000 shares), Olsen Cove Consulting (100,000 shares), Donald MacKay
(100,000 shares), John Thompson (175,000 shares), Mark O'Donoghue
(100,000 shares) and Gilmore MacKay Roberts Consulting Ltd. (30,000
shares), former option-holders of SportsPrize Inc., on a one-for-one
basis; and
o We undertook to file this Registration Statement with the SEC to
register our common stock and to become a reporting issuer under the
Securities Exchange Act of 1934, as amended.
Agreement Among Certain SportsPrize Inc. Shareholders
Under the terms of the exchange agreement, certain principal shareholders of
SportsPrize Inc., namely Jeffrey Paquin, Randy Daggitt, James Brown, Michael
Slater, Anthony Vecchio and Gang Consulting Inc., entered into an escrow
agreement dated May 7, 1999. The escrow agreement provided, among other things,
that the shareholders place 2,530,150 of their exchange shares into escrow for a
period of up to one year. The shareholders agreed to personally convey
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<PAGE>
these escrowed shares to key management personnel that we recruit. These shares
would be used as compensation and signing bonuses to enable us to hire and
retain high-quality senior management. If the escrowed shares are not granted as
compensation and signing bonuses by May 6, 2000, the shareholders agreed that
the escrowed shares would be released pro rata: 50% to the contributing
shareholders, pro rata as a group, and 50% to Sonora.
As of December 26, 1999, 600,000 of the escrowed shares have been reserved to be
transferred to Interactive Marketing Inc. pursuant to our consulting agreement
with Interactive Marketing Inc. at $0.01 per share. See "Interactive Marketing
Inc. - Strategic Marketing Consulting Agreement." No other shares have been
reserved or transferred.
Our Agreements with Sonora
Sonora Capital Corp. initially introduced us to SportsPrize Inc. Prior to our
acquisition of SportsPrize Inc. we had no material business or operations. In
connection with our acquisition of SportsPrize Inc., we entered into two
agreements with Sonora anticipated to raise a total of $5,000,000, including a
$2,500,000 financing in connection with the statutory share exchange and three
additional financings for a total of $2,500,000. We agreed to pay Sonora
finder's fees for these transactions. We also entered an agreement with Sonora
under which Sonora agreed to assist us with our corporate affairs and to provide
us with consulting services related to the development of our business strategy
and investor relations services. Our agreements with Sonora are as follows:
o On May 7, 1999, we entered into an agreement with Sonora under which we
agreed, upon closing of the additional financings, to pay Sonora a
finder's fee equal to 2.8 percent of the aggregate gross proceeds
derived from the initial financing of $2,500,000, as well as for the
three additional financings contemplated in the share exchange
agreement, provided that the additional financings are fully completed
with minimum gross proceeds of $2,500,000; and
o On May 21, 1999, we entered into an agreement with Sonora under which
Sonora agreed to assist us with our corporate affairs and to perform
certain consulting services related to the development of our business
strategy and investor relations services. Sonora provided these
consulting and investor relations services to us from May 1999 through
September 30, 1999. In consideration for Sonora's services, we paid
Sonora $20,000 per month. Our consulting and investor relations
services agreement with Sonora was terminated on September 30, 1999.
Our business relationship with Sonora has been as follows:
o Sonora initially introduced us to SportsPrize Inc.;
o Sonora introduced us to Lamplighter Investments Ltd., Strathburn
Investments Inc. and Aero Atlantic Ltd., which participated in our May
1999 private placement of 1,666,665 shares at $1.50 per share and our
July 1999 private placement of 250,000 shares at $4.00 per share. See
"Recent Sales of Unregistered Securities";
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<PAGE>
o Sonora assisted in defining our investor relations goals and
objectives;
o Sonora assisted us in preparing a corporate fact sheet for distribution
to targeted investment professionals and certain accredited investors;
o Sonora arranged periodic meetings with interested retail brokers, fund
managers and investment advisers;
o Sonora assisted us in preparing and disseminating press release
materials to the financial community and media;
o Sonora assisted us in communicating with NASD market makers by
informing them of recent company developments;
o Sonora provided potential investors with certain company approved due
diligence/investor relations kits;
o Sonora provided us with recommendations to improve disclosure on our
Web site related to investors relations;
o Sonora agreed to assist us in developing relationships with merchant
and investment banks, private placement professionals and other
intermediaries which could provide us with additional private placement
financing;
o Sonora assisted us in developing our business strategy and identifying
potential target markets for our Web site;
o Sonora assisted us in developing relationships with potential strategic
e-commerce associates; and
o Sonora assisted us in developing our plan of operation and initial
operating budget.
Agreements Related to Our Business
In connection with our acquisition of SportsPrize Inc., we acquired all of the
assets of SportsPrize Inc. and assumed the rights to technologies, know-how and
assets that are related to our business including several agreements with
various strategic entities. Subsequently, we entered into additional agreements
related to technology development, marketing and vendor fulfillment.
Technology Development Agreement
We acquired and assumed 100% of the interest and rights in the
SportsPrize.com(TM) Web site and games, including the SportsPrize Tournament
created by John Thompson, Vice-President of Game Content and Development of
SportsPrize Inc. The development of these technologies was
31
<PAGE>
coordinated and overseen by Thomas Cove, Vice-President of Technology of
SportsPrize Inc., who together with software programmers and developers,
Quad-Linq Software Inc., created the patent pending technology that will be used
in connection with our SportsPrize.com(TM) Web site.
Quad-Linq - Software Development Agreement
We assumed a software development agreement dated February 18, 1999, by and
between SportsPrize, Inc. and Quad-Linq Software, Inc. pursuant to our share
exchange with SportsPrize, Inc. Under the terms of the software development
agreement, Quad-Linq agreed to provide the ability, technical knowledge and
services to develop a commercially viable, Internet based application, which is
now our SportsPrize Tournament. SportsPrize Inc. agreed to pay Quad-Linq as
follows:
(i) $50,000 in three installments:
(a) $17,000 on signing;
(b) $16,500 on March 30, 1999; and
(c) $16,500 upon delivery of the application;
(ii) 200,000 shares of common stock in to escrow, released as follows: (a)
100,000 shares upon delivery of the application and (b) 100,000 shares upon
completion of testing the application;
(iii) a 5% royalty on the first $1,000,000 in net sales of any products
manufactured, used, licensed or sold by SportsPrize and a 3% royalty
on net sales over $1,000,000.
On May 12, 1999, SportsPrize Inc. and Quad-Linq amended the software development
agreement to eliminate the royalty based compensation in consideration for:
(i) an additional cash payment of $80,000 upon delivery of the application
for testing;
(ii) $30,000 upon completion of testing the application by July 1, 1999
or $10,000 if testing was completed after July 1, 1999; and
(iii) options exercisable to acquire 50,000 shares of common stock at $0.25
per share.
SportsPrize also agreed to pay Quad-Linq $80 per hour for software development
work unrelated to the development of the SportsPrize Tournament.
Quad-Linq provided us with services related to the development of our
SportsPrize Tournament, systems testing, integration of our SportsPrize
Tournament and other features of our Web site, and system and software
maintenance services.
We assumed all of SportsPrize Inc.'s interests, rights and obligations related
to the Quad-Linq development agreement in connection with our share exchange
with SportsPrize Inc. See "Our Acquisition of SportsPrize Inc." As of November
30, 1999, we paid Quad-linq a total of $161,970 under the software development
agreement.
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<PAGE>
Interactive Marketing Inc. - Strategic Marketing Consulting Agreement
As a result of the share exchange, we assumed a marketing consulting agreement
with Interactive Marketing Inc. dated as of May 6, 1999 and effective May 14,
1999, from SportsPrize Inc. Pursuant to the terms of the agreement, Interactive
Marketing will provide us with overall strategic and tactical marketing as well
as operational strategy, including recommendations for the operational, revenue,
marketing and organizational issues involved in the launch of the
SportsPrize.com(TM) Web site for a period of six months to one year. Interactive
Marketing provided us with the following consulting services:
o Advice regarding the creation and operation of our planned retailing
areas;
o A review of the structure and operation of the SportsPrize.com(TM)
games;
o A review of all legal and regulatory issues relating to the conduct of
the SportsPrize.com(TM) games;
o Reviews of site design, navigation, hosting, hardware and connectivity;
o Reviews of database design, capabilities and report functions;
o The creation of a "go-to-market" plan for securing media and event
affiliates and for promotion;
o Assistance in identifying key management and advisory board members;and
o Consulting services related to developing revenue models from such
sources as advertising, e-commerce, sponsorships, promotions and
subscriptions, and retailing.
In consideration for the services provided by Interactive Marketing Inc., we
agreed to:
o Pay Interactive Marketing a monthly retainer of $25,000 over the first
three months;
o Pay Interactive Marketing a monthly retainer of $30,000 for each
subsequent month for up to nine subsequent months; and
o Pay Interactive Marketing 15% of any and all of our recurring net
revenues resulting from advertising, sponsorship and promotional
revenues generated by sales and agreements that Interactive Marketing
directly brings to us during the term of the agreement and any
extensions thereto. Interactive Marketing will also be entitled to that
commission on other direct revenue opportunities with respect to which
we request Interactive Marketing's assistance in developing and
closing.
We also agreed that Interactive Marketing had the right to purchase 600,000
shares of our common stock at a price of $0.01 per share from shares pooled by
certain principal shareholders
33
<PAGE>
of SportsPrize Inc., who placed 2,530,150 shares of our common stock into escrow
to be used as signing bonuses. See "Agreement Among Certain SportsPrize Inc.
Shareholders." Under our agreement with Interactive Marketing, Interactive
Marketing had the right to purchase 400,000 shares on the effective date of the
agreement and an additional 200,000 shares 180 days after the effective date of
the agreement, provided the agreement was not cancelled. The right to purchase
all of the shares under the consulting agreement expire on May 14, 2000. We also
agreed to provide full "piggyback" registration rights, at our expense, in the
event we file a registration statement to register shares under the Securities
Act. Interactive Marketing agreed that when such shares become free trading,
Interactive Marketing would limit the shares it offers for sale in any single
week to 5% of the previous weeks' total share trading volume. As of December 6,
1999, Interactive Marketing has not purchased the shares.
As of November 30, 1999, we paid Interactive Marketing a total of $180,000 under
the consulting agreement.
Alan Gerson, president of Interactive Marketing Inc., became a director of
SportsPrize Entertainment Inc. on July 8, 1999 and our Chairman of the Board on
November 1, 1999. See "Certain Relationships and Related Transactions."
Kaleidoscope - Consulting Agreement
As a result of the share exchange, we assumed an agreement with Kaleidoscope
Sports and Entertainment, LLC, a division of the Interpublic Group of Companies,
dated May 1, 1999, from SportsPrize Inc. We amended this agreement in September
1999 to extend the term of the agreement for an additional two months without
additional compensation. Kaleidoscope is in the business of planning, designing,
marketing, selling and consulting for sports-related ventures and companies.
Pursuant to the terms of the agreement, Kaleidoscope agreed to perform the
following functions, for an initial period of six months, which commenced on May
15, 1999:
o Provide a list of qualified candidates with Internet company
development experience to serve as our President and a list of
professional athletes, former sports stars, coaches and sports
celebrities to serve as possible spokespersons for SportsPrize, and
advise and work with us to negotiate the relevant employment contracts;
o Prepare a strategic plan to allow us to make presentations to officials
with major professional sports leagues, including, for example, the
National Football League, Major League Baseball, the National
Basketball Association, the National Hockey League and Major League
Soccer, and players associations for the endorsement of our SportsPrize
Tournament and Web site;
o Assist Interactive Marketing Inc. and us in creating an overall
marketing and operational strategy for the promotional Revenue,
marketing and partnership issues involved in the launching the
SportsPrize.com(TM) Web site, including:
(a) identifying and procuring e-commerce associations to assist us
in generating advertising revenues;
34
<PAGE>
(b) securing commitments for endorsements from professional athletes,
coaches and sports figures; (c) securing commitments by advertisers;
(d) identifying and securing special events sponsors and sponsorships
for our Web site; and (e) identifying and procuring strategic media
associates; and
o Consult and oversee the implementation and execution of the strategies
and recommendations of Kaleidoscope.
In consideration for the services provided by Kaleidoscope, we have agreed to:
o Pay Kaleidoscope four monthly payments of $20,000, commencing on
May 15, 1999, and four monthly payments of $10,000, Commencing on
September 15, 1999;
o Grant Kaleidoscope a two-year option to purchase up to 100,000
shares of our common stock at $0.25 per share, with resale restrictions
for a one year period from the date of purchase;
o Grant Kaleidoscope a two-year option to purchase an additional 100,000
shares of our common stock at $0.25 per share, with resale restrictions
for a one year period from the date of purchase, if Kaleidoscope:
(a) successfully produces a list of qualified individual
candidates with Internet company development experience to
serve as our President or in the alternative provides us with
a well known athlete or sports figure spokesperson; and
(b) approaches and secured definitive times for presentation by us
before two of the four major professional sports leagues,
which include the National Football League, Major League
Baseball, the National Basketball Association and the National
Hockey League for approval and endorsement of our SportsPrize
Tournament; and
o Grant Kaleidoscope an option to purchase an additional 300,000 shares
of our common stock at a price equal to the average closing price of
our shares less 20%, for a period of ten days preceding the completion
of the conditions set forth in (iii) above, with resale restrictions
for a one year period from the date of purchase, provided that
Kaleidoscope reasonably completes the conditions set forth in (iii)
above. We will release the shares to Kaleidoscope at 30,000 shares per
month over a period of ten months. Kaleidoscope agreed to limit its
sale of shares into the market at a volume of no greater than 2% of the
volume of the preceding weeks total amount of our traded shares after
expiration of the resale restrictions.
As of November 30, 1999, we paid Kaleidoscope a total of $110,000 under the
consulting agreement. Kaleidoscope has introduced us to professional athletes
for potential endorsements of our Web site and assisted us in identifying
potential strategies for marketing our Web site.
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<PAGE>
DBC Sports Agreement
We entered into a data and service agreement with DBC Sports, dated as of May
26, 1999. DBC Sports, a subsidiary of Data Broadcasting Corporation, provides a
sports statistical database and media information, distributes headline news,
sports scores, statistics and other information. Pursuant to the terms of the
agreement, DBC Sports will provide us with the following, for a period of three
years, which commenced on June 1, 1999:
o All sports information necessary to conduct the weekly SportsPrize
Tournament, including the questions for the Tournament, and statistical
content including results of sporting events; and
o Additional technical and research staff necessary to gather and provide
data in sports categories where information may not be readily
available, including developing relationships with various sports
leagues.
In consideration for the services provided by DBC Sports, we have agreed to pay
to DBC Sports:
o $8,500 per month from June 1, 1999 to August 1, 1999;
o $11,000 per month from September 1, 1999 to November 1, 1999;
o $15,000 per month from December 1, 1999 to March 1, 2000; and
o $20,000 per month from April 1, 2000 to termination of the DBC Sports
Agreement.
As of November 30, 1999, we paid DBC Sports a total of $58,500 under the
agreement. DBC Sports has provided us with the information necessary to conduct
the SportsPrize Tournament as well as the sports information and content
described above.
Tridian Agreement
On August 2, 1999, we entered into an agreement with Tridian Design and
Development to develop the graphical user interface for our SportsPrize.com(TM)
Web site. Under the agreement, Tridian agreed to design a graphical user
interface for our Web site based on our specifications and requirements. We
agreed to pay Tridian approximately $15,000 to $20,000 for such services based
on their standard hourly rates for graphic design services.
As of November 30, 1999, we paid Tridian a total of $3,075 under the service
agreement. Tridian has assisted us with the design of the graphical user
interface for our Web site.
Intershop - Letter Agreement
We entered into a letter agreement with Intershop dated June 24, 1999. We will
deploy Intershop's e-commerce solutions to develop and customize our online
storefronts. We anticipate that integrating Intershop's technology with the
SportsPrize.com(TM) business model will
36
<PAGE>
allow Members of the SportsPrize community to browse, select and purchase sports
merchandise and memorabilia online at the SportsPrize.com(TM) e-commerce stores.
Pursuant to the terms of the Intershop Agreement, Intershop will provide the
following services by way of a professional services consulting agreement:
o On-site solution definition;
o Off-site solution definition; and
o Development and implementation of the e-commerce software pertaining to
our Web site.
Intershop has provided us with the e-commerce software described above. As of
November 30, 1999, we paid Intershop a total of $161,781 in fees. We do not
anticipate that we will pay Intershop any additional fees related to this
agreement.
Frontier - Master Service Agreement
We entered into a master service agreement with Frontier dated July 22, 1999.
Frontier is a provider of computer systems, applications and hardware for
Internet sites. Under our agreement, Frontier provided us with high-speed
servers and a software system that have been installed at its facilities located
in Sunnyvale, California. Sun E250 and E450 servers, suitable for large-scale
and mission-critical applications, will support our Web site including all
sports content, the SportsPrize Tournament, including data input, management and
warehousing, and e-commerce applications intrinsic to the SportsPrize business
model. Pursuant to the terms of the Frontier Agreement, Frontier will provide us
with the following:
o Internet connectivity services;
o The lease or purchase of our equipment to provide such connectivity
services and the installation of such equipment;
o The lease of data center space suitable to store and operate such
equipment;
o Management, planning and consulting resources to support such
services, including maintenance and operation of such equipment; and
o The licensing of software to provide such services, which together
comprise an Internet connectivity and co-location package to support
our Web site.
We have paid a total of $116,000 to Frontier for Internet equipment and services
as of November 30, 1999. We anticipate that we will pay Frontier approximately
$2,000 to $5,000 per month for its co-location and Internet connectivity
services through August 31, 2000. Frontier provided us with high-speed servers
and a software system for our Web site.
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<PAGE>
Dreams Products, Inc. Agreement
We entered into an Internet Distribution and Marketing Agreement with Dreams
Products, Inc. dated August 6, 1999, related to vendor fulfillment services for
sports memorabilia and collectibles. The agreement was for a term of three
years. Under the terms of the Agreement, we are authorized to offer, pursuant to
a non-exclusive, non-assignable and royalty-free license, products cataloged and
inventoried by Dreams Products, and Dreams Products agreed to provide vendor
fulfillment services related to such products. These products include sports
memorabilia, collectibles and other sports-related products.
Dreams Products has also agreed to provide us with a range of products that will
be offered exclusively in SportsPrize special events or promotions. We have not
paid any fees to Dreams Products as of the date of December 26, 1999. We do not
anticipate that the Dream Products merchandise will be integrated into in our
product offerings until the first quarter of 2000.
ShopSports - Merchandising, Fulfillment and Customer Service Agreement
We entered into a merchandising, fulfillment and customer service agreement with
ShopSports.com dated September 17, 1999, pursuant to which we agreed to develop
a co-branded shopping environment to be offered on our SportsPrize.com(TM) Web
site. Under the agreement, ShopSports.com agreed to provide the following
support services for our Web site:
o Product merchandise, warehousing and fulfillment;
o Site hosting;
o Customer service;
o Order processing; and
o Financial reporting and audit support.
Under the terms of the agreement we agreed to co-brand our SportsPrize.com(TM)
Web site with the ShopSports.com Web site by offering the following venues:
o Winners Store - the Winners Store will provide SportsPrize Registered
and Non-Registered Members select access to a predetermined collection
of products at variable discounts based on success in the SportsPrize
Tournament. The weekly winners of the SportsPrize Tournament will be
entitled to receive discounts of 5% to 35% on merchandise offered in
the Winners Store; and
o SportsPrize SuperStore - The SportsPrize SuperStore will offer our Web
site users access to a collection of products and features from eight
super stores and five specialty shops offered through the
ShopSports.com Web site. SportsPrize Members playing the SportsPrize
Tournament will be eligible for discounts on most purchases from the
SuperStore.
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On November 8, 1999, we completed the initial launch of our Web site, which
contains our co-branded SportsPrize SuperStore. Our SportsPrize SuperStore is
co-branded with ShopSports and features the inventory of ShopSports. Our
visitors can browse and select purchases from the ShopSports inventory through
an interface from our Web site without leaving our Web site. The graphical
display of our SportsPrize SuperStore is designed to emulate the other pages on
our Web site and contains the logo of ShopSports. We are currently in the
process of redesigning the graphical display of our SportsPrize SuperStore and
anticipate the graphical displays of our SportsPrize SuperStore will be
redesigned by December 29, 1999.
We agreed to pay a project fee of $29,800 for site development and
implementation to ShopSports.com. As of November 30, 1999, we have paid $15,000
of this project fee. In addition, we agreed to pay ShopSports.com for any
consulting, project management, programming, development and design, production
and administrative services based on their standard hourly rates. We also agreed
to share equally the net profits from all sales facilitated through the Winners
Store and the SportsPrize SuperStore.
Focus Partners Group Agreement
We entered into a letter agreement with Focus Partners LLC, dated July 27, 1999,
pursuant to which Focus agreed to provide us with investor relations services.
The agreement commenced on August 1, 1999 through July 31, 2000. Under the terms
of the agreement, we agreed to pay Focus a fee of $6,000 per month and to grant
Focus options to acquire 25,000 shares of our common stock. Focus agreed to
provide the following investor relations services including assisting us in
developing an investor relations strategy, preparing and distributing company
information to investment professionals, institutional investors and potential
retail investors, arranging periodic meetings with interested analysts,
preparing and distributing an investor relations kit for us, assisting us in
preparing and disseminating press releases and providing other investor
relations services.
Focus Partners has assisted us with our corporate communications and shareholder
relations since August 1, 1999. As of November 30, 1999, we have paid Focus
Partners a total of $24,000 in fees under this agreement.
Research and Development
Our research and development program consists of developing technologies related
to our SportsPrize Web site and the SportsPrize Tournament. As of November 30,
1999, we had spent $99,149 for research and development, including expenses
related to developing the SportsPrize Tournament and other technological aspects
of our Web site.
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Trademarks and Patents
We have applied for trademark registration and protection for "SportsPrize.com"
in Canada and the United States. We have also applied for patent protection in
the United States for our system and method for delivering targeted advertising
through our SportsPrize Tournament marketing system. However, we have not been
granted any patents, copyrights or trademarks. In the event we determine that we
have created an asset whose value can be protected, we will attempt to protect
our proprietary assets by applying for patents, copyrights or trademarks. In
addition, we will endeavor to rely on trade secret laws and non-disclosure and
confidentiality agreements with our employees and consultants who have access to
our proprietary technology.
Employees or Consultants
As of December 26, 1999, we had fifteen employees or consultants. We anticipate
that we will hire an additional fifteen to thirty employees during calendar year
2000, including 5 to 10 content personnel, 5 to 10 technical personnel, 4 to 8
sales and marketing personnel and 1 or 2 customer service personnel. From time
to time, we may retain additional consultants and consulting firms to provide us
with special expertise in developing marketing, software and telecommunications
technologies.
Risk Factors
We have included information in this Registration Statement that contains
"forward looking statements." Our actual results may materially differ from
those projected in the forward looking statements as a result of risks and
uncertainties. Although we believe that the assumptions made and expectations
reflected in the forward looking statements are reasonable, we cannot assure you
that the underlying assumptions will, in fact, prove to be correct or that
actual future results will not be different from the expectations expressed in
this report. An investment in our securities is speculative in nature and
involves a high degree of risk. You should read this Registration Statement
carefully and consider the following risk factors.
Insufficiency of current round of financing; our ability to carry out our
proposed business activities depends upon securing additional financing
We are dependent upon the proceeds of additional financing in order to implement
our business plan. Unless we can obtain such financing, we will be unable to
conduct our business or to otherwise carry out all of our proposed business
activities. There is no assurance that we will be able to raise the funds sought
in a timely manner, if at all.
Our ability to meet our business projections may depend on the securing of
additional capital in the amount of $15,000,000 or more through August 31, 2000
We also anticipate we may need to seek additional capital in the amount of
$15,000,000 or more during the next 12 months, and no assurance can be given
that any additional financing would be available or, if available, that it would
be available on terms acceptable to us. See "Note Regarding Forward Looking
Statements." Furthermore, any issuance of additional securities
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may result in dilution to the then existing shareholders. If adequate funds are
not available, we will lack sufficient capital to pursue our business fully,
which will have a material adverse effect upon our ability to meet our business
projections.
We may be required to sell additional common stock or parties may exercise
options and warrants that cause dilution of your shares
The number of shares of our outstanding common stock held by non-affiliates is
large relative to the trading volume of our common stock. Any substantial sale
of our common stock or even the possibility of such sales occurring may have an
adverse effect on the market price of our common stock.
As of December 26, 1999, we had outstanding options to purchase an aggregate of
3,005,000 shares of our common stock.
We also have reserved up to an additional 2,995,000 shares of common stock for
issuance upon exercise of options which have not yet been granted under our
stock option plan. Holders of the options are likely to exercise them when, in
all likelihood, we could obtain additional capital on terms more favorable than
those provided by the options. However, there can be no assurance that such
options will be exercised. Further, while our options are outstanding, our
ability to obtain additional financing on favorable terms may be adversely
affected.
We have a limited operating history and a history of losses, which makes our
ability to continue as a going concern questionable
We have incurred net losses since our inception and anticipate that we will
continue to incur losses for the foreseeable future. As of October 31, 1999, we
had an accumulated deficit of $4,300,873, including $2,663,818 in non-cash
compensation expenses related to the issuance of stock and the grant of stock
options to certain or our employees and consultants. We incurred losses during
each of the following periods:
o $144,125 for the period from March 6, 1998 (inception) to February 28,
1999;
o $1,942,875 for the fiscal quarter ended May 31, 1999, including
$1,762,600 in non-cash compensation expenses related to the issuance of
stock and the grant of stock options;
o $1,434,139 for the fiscal quarter ended August 31, 1999, including
$638,674 in non-cash compensation expenses related to the granting of
stock options; and
o $779,734 for the period from September 1, 1999 to October 31, 1999,
including $262,544 in non-cash compensation expenses related to the
granting of stock options.
Due to a number of factors, we do not believe that our revenues will be
sufficient to support our operations in fiscal 2000. Therefore, in the
foreseeable future, we believe that such expenses will increase our net losses,
and we cannot assure you that we will ever be profitable.
As of October 31, 1999, we had approximately $1,729,000 in cash and cash
equivalents, and we are currently expending approximately $250,000 per month.
While we anticipate raising additional capital through sales of our common stock
or debt, we cannot assure you that we will
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be able to obtain adequate financing or on terms favorable to us, to support our
operations. Our ability to continue after April 2000 will depend on our ability
to obtain additional financing.
Because we have only recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that we will attract
registered users, advertisers, consumers and network affiliates or achieve
significant revenues or operating margins in future periods. We cannot guarantee
we will ever achieve commercial success.
We do not intend to declare dividends, which may lower the market value of our
shares
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
Broker-dealers may be discouraged from effecting transactions in our shares
because they are considered penny stocks and are subject to the penny stock
rules
Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales
practice and disclosure requirements on NASD brokers-dealers who make a market
in "a penny stock." A penny stock generally includes any non-NASDAQ equity
security that has a market price of less than $5.00 per share. Our shares are
quoted on the OTCBB and the closing price of our shares on November 30, 1999 was
$1.78125 per share. As such, our shares will be deemed penny stock for the
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed upon brokers-dealers may discourage broker-dealers from
effecting transactions in our shares, which could severely limit the market
liquidity of the shares and impede the sale of our shares in the secondary
market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor," generally, an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse, must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker-dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker-dealer to deliver, prior to any transaction involving a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, unless the broker-dealer or the transaction is otherwise exempt. A
broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer's account and information with respect to the limited market in penny
stocks.
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We lack current advertising agreements and our success depends on securing
relationships or agreements with a network of advertisers
We currently have no relationships or agreements with advertisers, and we
believe that any relationships developed with advertisers will be terminable
within a short period of time. Consequently, our advertising customers, if any,
may move their advertising to competing Internet sites, or from the Internet to
traditional media, quickly and at relatively low costs, thereby increasing our
exposure to competing pressures and fluctuations in revenues and operating
results. In selling Internet-based advertising, we probably will depend on
advertising sales rep. firms, which will sell such advertising on our behalf.
Our ability to attract advertisers may be hampered by management's limited
experience in sales and marketing of advertising
Few of our senior management team have any significant experience in selling
advertising on the Internet or any other medium, and few members of our senior
management team have any significant experience in the Internet industry or
providing entertainment on the Internet. Achieving acceptance by potential
advertisers and advertising agencies of our Internet sites as a viable marketing
forum will require us to develop and maintain relationships with key advertisers
and advertising agencies, and there can be no assurance that any such
relationships will be developed, on a timely basis or at all.
Our ability to attract advertisers will depend on our ability to attract a
significant user base
Our success will depend on our ability to convince advertisers and advertising
agencies of the benefits of advertising on our SportsPrize Web site, and on our
ability to retain, broaden and diversify our future base of advertising
customers. In order to generate significant advertising revenues, we will depend
on the development of a larger base of users possessing demographic
characteristics attractive to advertisers. If we are unable to attract and
retain paying advertisers or are forced to offer lower than anticipated
advertising rates, our business, financial condition and operating results will
be materially adversely affected and we may never achieve commercial success.
Our ability to secure and retain advertising revenues may depend on whether our
users actually access our advertisers' Internet sites
Currently, we are seeking to negotiate advertising and sponsorship arrangements
with third parties to provide a variety of ad placements and sponsorships on our
Web site. In connection with these arrangements, we may receive advertising
and/or sponsorship fees as well as a portion of transaction revenues received by
sponsors in return for minimum levels of user impressions or "click throughs"
from our Web site to their Web sites. To the extent implemented, these
arrangements may expose us to potentially significant financial risks, including
the risk that we fail to deliver required minimum levels of user impressions or
click throughs, in which case, these agreements typically provide for
adjustments to the fees payable thereunder or "make
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good" periods, and that third party sponsors do not renew the agreements at the
end of their terms. We anticipate that certain of these arrangements will
require us to integrate sponsors' content with our services, which may require
the dedication of resources and significant programming and design efforts to
accomplish. We cannot guarantee that we will be able to attract sponsors or that
we will be able to renew sponsorship arrangements, if any, when they expire.
Our ability to contract with advertisers may be materially limited by
exclusivity provisions of certain of our sponsors
We anticipate we will grant exclusivity provisions to certain of our sponsors.
Such exclusivity provisions may have the effect of preventing us, for the
duration of such exclusivity arrangements, from accepting advertising or
sponsorship arrangements within a particular subject matter in our Web site or
across our entire service. Our inability to enter into further sponsorships or
advertising arrangements as a result of its exclusivity arrangements could have
a material adverse effect on our business, financial condition and operating
results.
Our success depends on the services of our President, Chief Financial Officer
and Treasurer, our Senior Vice President of Corporate Finance, our Senior Vice
President and Controller and our Vice President of Marketing, and our ability to
attract and maintain qualified, experienced personnel
Our future success depends on the services of Bruce Cameron, our President,
Chief Financial Officer and Treasurer, Robert Hunziker, our Senior Vice
President of Corporate Finance, Donald MacKay, our Senior Vice President and
Controller, and Michael Wiedder, our Vice President of Marketing. The loss of
these key personnel could have an adverse effect on our operations, and we do
not maintain insurance to cover losses that may result from the death of any of
our key personnel. We also heavily rely upon consultants and advisors who are
not employees. Our ability to attract, train and retain qualified, experienced
personnel and management is uncertain. Competition for qualified employees is
intense, and an inability to attract, retain and motivate additional, highly
skilled personnel required for expansion of operations and development of
technologies could adversely affect our business, financial condition and
results of operations. Each of our officers and directors has been affiliated
with us for less than one year. We cannot assure you we will be able to retain
our existing personnel or attract additional, qualified persons when required
and on acceptable terms. Although we have made application to obtain directors'
and officers' liability insurance, there can be no assurance that we will be
able to obtain such insurance or in such amounts or on terms that are acceptable
to us.
Investors may not be able to secure foreign enforcement of civil liabilities
against our management
Some of our directors and officers are residents of Canada. Consequently, it may
be difficult for United States investors to effect service of process within the
United States upon those directors or officers who are not residents of the
United States, or to realize in the United States upon judgments of United
States courts predicated upon civil liabilities under the United States
Securities Exchange Act of 1934, as amended. A judgment of a U.S. court
predicated solely
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upon such civil liabilities would probably be enforceable in Canada by a
Canadian court if the U.S. court in which the judgment was obtained had
jurisdiction, as determined by the Canadian court, in the matter. There is
substantial doubt whether an original action could be brought successfully in
Canada against any of such persons or SportsPrize Entertainment Inc. predicated
solely upon such civil liabilities.
We have capacity constraints and system development risks that could damage our
customer relations or inhibit our possible growth, and we may need to expand our
management systems and controls quickly
Our success and our ability to provide high quality customer service, largely
depends on the efficient and uninterrupted operation of our computer and
communications systems and the computers and communication systems of our third
party vendors in order to accommodate any significant numbers or increases in
the numbers of consumers and advertisers using our service. Our success also
depends upon us and our vendors' abilities to rapidly expand
transaction-processing systems and network infrastructure without any systems
interruptions in order to accommodate any significant increases in use of our
service. We have engaged Frontier to provide Internet servers and Internet
connectivity for our Web site, and we are dependent on Frontier's ability to
deliver such services.
Although we anticipate that we and our vendors will enhance and expand our
respective transaction-processing systems and network infrastructure as they
grow, we and our vendors may experience periodic systems interruptions and
infrastructure failures, which we believe may cause customer dissatisfaction and
may adversely affect our results of operations. Limitations of our technology
infrastructure and our vendors' technology infrastructures may prevent us from
maximizing our business opportunities.
Our ability to adapt our management systems and controls quickly may depend on
the availability of certain employees or contractors
In addition, we expect that many of our software systems and our vendors'
software systems may be custom-developed and that we and our vendors may rely on
employees and certain third-party contractors to develop and maintain these
systems. If certain of these employees or contractors become unavailable, we and
our vendors may experience difficulty in improving and maintaining these
systems. Furthermore, we expect that we and our vendors may continue to be
required to manage multiple relationships with various software and equipment
vendors whose technologies may not be compatible, as well as relationships with
other third parties to maintain and enhance their technology infrastructures.
Our failure and our vendors' failure to achieve or maintain high capacity data
transmission and security without system downtime and to achieve improvements in
our respective transaction processing systems and network infrastructure could
adversely affect our business and results of operations.
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Our commercial viability depends on our ability to successfully develop our
SportsPrize Tournament and to successfully attract and retain users with
demographic characteristics valuable to advertisers
We believe our commercial viability depends in large part upon our ability to
develop and provide the SportsPrize Tournament and our ability to successfully
attract and retain users with demographic characteristics valuable to the
various advertisers and advertising agencies. We cannot assure you that our
products and services will be attractive enough to a sufficient number of
Internet users to generate advertising revenues or that we 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 our SportsPrize
Web site within the demographics desirable to potential advertisers and
advertising agencies.
Internet users can freely navigate and instantly switch among a large number of
Internet sites, many of which offer competitive entertainment products and
services, making it difficult for us to distinguish our product offerings and
attract users. In addition, many other Internet sites offer very specific,
highly targeted single sports event media that may have greater appeal than the
sports categories that will be offered on our SportsPrize Web site. In addition,
users of the Internet who do not use the most recent browser or operating
software will have greater difficulty in accessing and navigating our
SportsPrize Web site than users who use the most recent versions of such
software. Such difficulty could cause Internet users to cease using our
SportsPrize Web site. If we are unable to develop original and compelling
Internet-based entertainment in a manner that allows us to attract, retain and
expand a loyal user-base targeted by advertisers and advertising agencies, then
we will be unable to generate sufficient advertising or subscription revenues,
and our business, financial condition and operating results will be materially
adversely affected.
We anticipate expanding into new business areas that require significant
expenses and programming and that have no guaranteed market
The success of our business strategy will depend to a significant extent on our
ability to successfully develop the SportsPrize Tournament and to expand our
offerings into other revenue generating areas such as subscription-based
products and services and other e-commerce opportunities. We cannot guarantee
that we will be able to develop the SportsPrize Tournament into an operating
game or that visitors or potential advertisers or sponsors will accept the
concept of the SportsPrize Tournament. We cannot assure you that we will
successfully expand into other areas, develop and launch any new entertainment
concepts or enhance existing ones.
Any expansion of product offerings or operations, or new games developed and
launched by us that are not favorably received by Internet users could damage
our reputation or the SportsPrize.com(TM) brand.
Expansion into new business areas or the development and launching of new games
also will require significant additional expenses and programming and other
resources and will strain our management, financial and operational resources.
Furthermore, any expansion of business areas
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and the developing and launching of new games, as well as the enhancement of our
contemplated SportsPrize Tournament, will necessarily rely on untested business
models. Our failure to develop and launch the SportsPrize Web in a cost
effective and timely manner will have a material adverse effect on our business,
financial condition and operating results.
We cannot guarantee that our venture will ever achieve profitability, and a
failure by us to recover the substantial investment required to launch and
operate our Web site would have a material adverse effect on our business,
financial condition and operating results.
The e-commerce industry is highly competitive, and we cannot assure you that we
will be able to compete effectively
The market for Internet-based products and services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new Internet sites at a relatively low
cost within relatively short time periods. In addition, we compete for the time
and attention of Internet users with thousands of non-profit Internet sites
operated by, among other persons, individuals, government and educational
institutions. Existing and potential competitors also include magazine and
newspaper publishers, cable television companies and start-up ventures attracted
to the Internet market. Accordingly, we expect competition to persist and
intensify and the number of competitors to increase significantly in the future.
Should we seek in the future to attempt to expand the scope of our Internet site
and product offerings, we will compete with a greater number of Internet sites
and other companies. Because the operations and strategic plans of existing and
future competitors are undergoing rapid change, it is extremely difficult for us
to anticipate which companies are likely to offer competitive products and
services in the future. We cannot guarantee that our SportsPrize Web site will
compete successfully. In addition, expansion into new business areas and new
entertainment offerings may bring us into direct competition with new
competitors.
Due to the emerging nature of Internet commerce, we are unable to forecast our
expenses and revenues accurately, and should our expenses exceed our revenues,
we may never become profitable
As a result of the emerging nature of the Internet, including Internet-based
advertising, services and electronic commerce, we are unable to forecast our
expenses and revenues accurately. We believe that due primarily to the
relatively brief time the Internet has been available to the general public,
there are several uncertainties related to the successful operation of any form
of Internet-based business. Our current and future estimated expense levels are
based largely on our estimates of future revenues and may increase considerably.
Few, if any, of our operating expenses can be quickly or easily reduced, such as
the laying off of personnel or reducing our commitment to our consultants and
service providers, in a manner which would not cause a material adverse effect
to our business, financial condition and operating results. In addition, we may
be unable to adjust spending in a timely manner to compensate for any unexpected
expenditures; and a shortfall in actual revenues as compared to estimated
revenues would have an immediate material adverse effect on our business,
financial condition and operating results.
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Our ability to generate revenues will depend upon advertisers' acceptance of the
Internet as an advertising medium and upon the on the use of the Internet by
consumers
Use of the Internet by consumers is at a very early stage of development and
market acceptance of the Internet as a medium for information, entertainment,
commerce and advertising is subject to a high level of uncertainty. We believe
that our success depends upon our ability to obtain significant revenues from
our Internet operations, which will require the development and acceptance of
the Internet as an advertising medium. We believe that most advertisers and
advertising agencies have limited experience with the Internet as an advertising
medium and neither advertisers nor advertising agencies have devoted a
significant portion of their advertising budgets to Internet-related advertising
to date. In order for us to generate advertising revenues, advertisers and
advertising agencies must direct a portion of their budgets to the Internet as a
whole, and specifically to our Web site. There can be no assurance that
advertisers or advertising agencies will be persuaded, or able, to allocate or
continue to allocate portions of their budgets to Internet-based advertising, or
if so persuaded or able, that they will find Internet-based advertising to be
more effective than advertising in traditional media such as television, print
or radio, or in any event decide to advertise on our Internet sites. Moreover,
we cannot assure you that the Internet advertising market will develop as an
attractive and sustainable medium that we will achieve market acceptance of our
products or that we will be able to execute our business strategy successfully.
Acceptance of the Internet among advertisers and advertising agencies will also
depend on the level of use of the Internet by consumers, which is highly
uncertain, and on the acceptance of the alternative new model of conducting
business and exchanging information presented by the Internet. Advertisers and
advertising agencies that have invested resources in traditional methods of
advertising may be reluctant to modify their media buying behavior or their
systems and infrastructure to use Internet based advertising. Furthermore, no
standards to measure the effectiveness of Internet based advertising have yet
gained widespread acceptance, and we cannot assure you that such standards will
be adopted or adopted broadly enough to support widespread acceptance of
Internet-based advertising. If Internet-based advertising is not widely accepted
by advertisers and advertising agencies, our business, financial condition and
operating results will be materially adversely affected and we may cease to be a
commercially viable enterprise.
Our business may be harmed if the recent growth in the use of the Internet is
limited by inadequate infrastructure, technology or standards and protocols
Rapid growth in the use of and interest in the Internet is a recent phenomenon,
and we cannot assure you that acceptance and use of the Internet will continue
to develop or that a sufficient base of users will emerge to support our
business. Revenues from our Internet operations will depend largely on the
widespread acceptance and use of the Internet as a source of information and
entertainment and as a vehicle for commerce in goods and services. The Internet
may not be accepted as a viable commercial medium for a number of reasons,
including potentially inadequate development of the necessary infrastructure,
lack of timely development of enabling
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technologies or lack of commercial support for Internet-based transactions and
advertising. To the extent that the Internet continues to experience an increase
in users, an increase in frequency of use or an increase in the bandwidth
requirements of users, there can be no assurance that the Internet
infrastructure will be able to support the demands placed upon it. In addition,
the Internet could lose its viability as a commercial medium 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 government
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times and
could adversely affect use of the Internet generally and of our Internet sites
in particular. If use of the Internet does not continue to grow or grows more
slowly than expected, or if the Internet infrastructure does not effectively
support growth that may occur, our business, financial condition and operating
results would be materially adversely affected.
Our success may depend on successfully developing and defending intellectual
property rights without which competitors may copy aspects of our products or
services
We anticipate our success will depend significantly on our proprietary
technology. We intend to rely primarily on a combination of patent, copyright,
trademark and trade secret laws, license agreements, non-disclosure agreements
and other contractual provisions to establish, maintain and protect our
proprietary rights in our products and technology, all of which afford only
limited protection. We have applied for intellectual property protection for our
SportsPrize marketing system technology, and we have put in place agreements
attempting to protect our intellectual property. There can be no assurance that
our intellectual property protection applications will be granted or that we
will be able to continue to successfully negotiate agreements protecting our
intellectual property. In addition, despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or services or to obtain and use information that we regard as
proprietary. Third parties may also independently develop similar technology
without breach of our proprietary rights. In addition, the laws of some foreign
countries do not protect the proprietary rights to the same extent as do the
laws of the United States.
If we cannot protect our Internet domain name, our ability to conduct our
operations may be impeded
We anticipate that the Internet domain name, "SportsPrize.com(TM)" will be an
extremely important part of our business. Governmental agencies and their
designees generally regulate the acquisition and maintenance of domain names.
The regulation of domain names in the United States and in foreign countries may
be subject to change in the near future. Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.
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Our business may be harmed by claims that we have infringed intellectual
property rights of others
Claims of infringement are becoming increasingly common as the software industry
develops and legal protections are applied to software products. Litigation may
be necessary to protect our proprietary technology, and third parties may assert
infringement claims against us with respect to their proprietary rights. Any
claims or litigation can be time-consuming and expensive regardless of their
merit. Infringement claims against us could cause product release delays,
require us to redesign our products or require us to enter into royalty or
license agreements, which agreements may not be available on terms acceptable to
us or at all.
Changing technology may render our equipment, software and programming obsolete
or irrelevant
The market for Internet-based products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that we continually improve the performance,
features and reliability of our Internet-based products and services,
particularly in response to competitive offerings. There can be no assurance
that we will be successful in responding quickly, cost effectively and
sufficiently to these developments. In addition, the widespread adoption of new
Internet technologies or standards could require substantial expenditures by us
to modify or adapt our Internet sites and services and could fundamentally
affect the character, viability and frequency of Internet-based advertising,
either of which could have a material adverse effect on our business, financial
condition and operating results. In addition, new Internet-based products,
services or enhancements offered by us may contain design flaws or other defects
that could require costly modifications or result in a loss of consumer
confidence, either of which could have a material adverse effect on our
business, financial condition and operating results.
Our business may encounter periodic system disruptions that may harm our ability
to attract and retain advertisers
The satisfactory performance, reliability and availability of our SportsPrize
Web site and our computer network infrastructure are critical to attracting
Internet users and maintaining relationships with advertising customers. Our
Internet-based advertising revenues will be directly related to the number of
advertising impressions delivered by us. We have engaged Frontier to provide an
Internet solution to meet our systems requirements. System interruptions that
result in the unavailability of our Internet sites or slower response times for
users would reduce the number of advertisements delivered and reduce the
attractiveness of our Internet sites to users and advertisers. We may experience
periodic systems interruptions from time to time in the future.
Our Internet operations are vulnerable to interruption by fire, earthquake,
power loss, telecommunications failure and other events beyond our control. We
cannot assure you that
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interruptions in service will not materially adversely affect our operations in
the future. While we will carry business interruption insurance to compensate us
for losses that may occur, there can be no assurance that such insurance will be
sufficient to provide for all losses or damages incurred by us.
If system constraints are exceeded, our operations may be subject to system
disruptions that harm our business
Additionally, any substantial increase in traffic on our Internet site may
require us to expand and adapt our computer network infrastructure. Our
inability to add additional computer software, hardware and bandwidth to
accommodate increased use of our Internet sites may cause unanticipated system
disruptions and result in slower response times.
We cannot assure you that we will be able to expand our computer network
infrastructure on a timely basis to meet increased use. Any system interruptions
or slower response times resulting from the foregoing factors could have a
material adverse effect on our business, financial condition and operating
results.
We depend on third parties for uninterrupted Internet access and may be harmed
by the loss of any such service
We are dependent on Frontier, an Internet service provider located in Sunnyvale,
California, and on other third parties for uninterrupted Internet access. In
addition, we are dependent on various third parties for substantially all of our
information. Loss of such services from any one or more of such third parties
may have a material adverse effect on our business, financial condition and
operating results. We cannot guarantee whether, or on what terms, we would be
able to obtain such services from other third parties in the event of the loss
of any of such services.
Increased security risks of online commerce may deter future use of our services
which may adversely affect our ability to generate revenues
We intend to institute security measures designed to protect our Internet site
and other operations from unauthorized use and access. We have implemented a
firewall with a redundant backup to prevent all but standard Web traffic, with
the exception of a small opening for secure and encrypted terminal connections.
We also have isolated our database on a server that is sitting on a private
network. This means that someone would have to break into our firewall and
external network before trying to get into our database. Our servers are housed
in Frontier's Globalcenter Media Distribution Center. Security measures employed
at this location include biometric hand scanners, ramming ballards, laser
sniffers and bullet proof glass. Such measures cannot guarantee complete
security, however, and a party who is able to circumvent our or our vendors'
security measures could misappropriate proprietary information or cause
interruptions in our Internet operations.
We may be required to expend significant capital and resources to protect
against the threat of such security breaches or to alleviate problems caused by
such breaches. Concerns over the security of Internet transactions and the
privacy of users may also inhibit the growth of the
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Internet generally, particularly as a means of conducting commercial
transactions. To the extent that our activities or the activities of any third
party contractors involve the storage and transmission of proprietary
information, such as computer software or credit card numbers, security breaches
could expose us to a risk of loss or litigation and possible liability. We
cannot guarantee that contractual provisions attempting to limit our liability
in such areas will be successful or enforceable, or that parties will accept
such contractual provisions as part of our agreements.
In addition, while we believe that both our and our vendors' data repositories,
financial systems and other technology resources will be secure from security
breaches or sabotage, we cannot guarantee that this will continue to be true as
technology changes and becomes more sophisticated.
We may encounter significant costs should our software fail to meet Year 2000
compliance requirements
The "Year 2000" issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. We
have completed our review of the potential impact of Year 2000 issues and do not
anticipate any significant costs, problems or uncertainties associated with
becoming Year 2000 compliant. Our failure or failure of our software providers
to adequately address the Year 2000 issue could result in misstatement of
reported financial information or otherwise adversely affect our business
operations. See "Financial Information - Year 2000 Compliance."
Our business may be subject to government regulation and legal uncertainties
that may increase the costs of operating our Internet site or limit our ability
to generate revenues
As a publisher and a distributor of content over the Internet, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. In addition, we could be exposed to liability
with respect to the content or unauthorized duplication of material indexed in
our search services. Our liability insurance may not cover potential claims of
this type or may not be adequate to indemnify us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
business, financial condition and operating results. There are currently few
laws and regulations directly applicable to the Internet, but it is possible
that new laws and regulations will be adopted covering issues such as, among
other things, pricing, characteristics and quality of Internet products and
services. As a provider of Internet-based products and services, we are subject
to the provisions of existing and future federal and local legislation that
could be applied to our operation. Such legislation could also dampen the growth
of the Internet generally and decrease the acceptance of the Internet as an
advertising medium, and could, thereby, have a material adverse effect on our
business, financial condition and operating results.
52
<PAGE>
Our SportsPrize Tournament may be subject to regulatory review under state and
federal gaming laws that may limit our ability to generate revenues
There is substantial risk that our SportsPrize Tournament may be subject to
regulatory review by state and federal regulatory authority as the size of our
prizes grow. Although we will not charge visitors to the SportsPrize Web any
registration fees, require any purchase to play the SportsPrize Tournament,
charge any cost to deliver prizes or gifts or otherwise imply that a purchase is
required to play the SportsPrize Tournament, there can be no assurance that the
SportsPrize Tournament will not be subject to investigation or review by
federal, state local regulatory authorities.
Our business may be subject to sales and other taxes, which may cause
administrative difficulties and increase our cost of operations
One or more states may seek to impose additional sales tax collection
obligations on companies such as ours that engage in or facilitate online
commerce. Several proposals have been made at the state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce, and could diminish our opportunity to derive financial
benefit from our activities. The U.S. federal government recently enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce until October 21, 2001. This tax moratorium will last
only for a limited period and does not prohibit states or the Internal Revenue
Service from collecting taxes on our income, if any, or from collecting taxes
that are due under existing tax rules. A successful assertion by one or more
states or any foreign country that we should collect sales or other taxes on the
exchange of merchandise on our system could harm our business and adversely
affect our results of operations.
Item 2. Financial Information.
Selected Financial Data
The following table sets forth selected financial data regarding our
consolidated operating results and financial position of our Company. The data
has been derived from our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The following selected financial data is qualified
in its entirety by, and should be read in conjunction with, the consolidated
financial statements and notes thereto included elsewhere in this Registration
Statement.
53
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------- --------------------------- -------------------------
Six Months Ended August Fiscal Year Ended
31, 1999 February 28, 1999
--------------------------- -------------------------
$ $
--------------------------- -------------------------
Net Sales - -
Gross Profit - -
Total Operating Expenses 3,394,803 66,766
Net Loss from (3,377,014) (137,306)
Continuing Operations
Net Loss from - (6,819)
Discontinued Operations
Net Loss (3,317,014) (144,125)
Net Loss per Share
Continuing Operations ($0.22) ($0.041)
Discontinued Operations - ($0.002)
Net Loss Per Share ($0.22) ($0.043)
- ---------------------------------------------- --------------------------- -------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------ --------------------------- --------------------------
At At
August 31, 1999 February 28, 1999
--------------------------- --------------------------
$ $
--------------------------- --------------------------
Working Capital 2,338,416 66,477
Total Assets 2,792,591 103,202
Total Liabilities 88,141 3,331
Shareholders' Equity 2,704,450 99,871
Long-term Obligations - -
Cash Dividends - -
- ------------------------------------ --------------------------- --------------------------
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward looking
statements. Actual results may materially differ from those projected in the
forward looking statements as a result of certain risks and uncertainties set
forth in this Registration Statement. Although management believes that the
assumptions made and expectations reflected in the forward looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual future results will not be different
from the expectations expressed in this Registration Statement.
54
<PAGE>
Overview
In May 1999, we completed a statutory share exchange with SportsPrize Inc.
pursuant to the laws of the State of Nevada. With our acquisition of SportsPrize
Inc., we have implemented a new business strategy and plan, which is building a
Web-based entertainment company dedicated to creating an interactive community
on the Internet. Through our Web site, SportsPrize.com(TM), we intend to provide
a multi-faceted online sports entertainment community. We believe one of the
featured attractions will be the SportsPrize Tournament, a proprietary,
interactive sports game we developed to generate interest in our Web site. We
also intend to focus on retailing sports equipment, apparel, memorabilia and
other products through our various stores on our Web site.
At the time of the share exchange, we were a shell company with no revenues,
expenses, assets or liabilities, and our book value was $1,440, which was
written down to zero at the time of the share exchange. As a result of the share
exchange, all of the assets of SportsPrize Inc. became our assets, and our
historical and ongoing operations are deemed to be those of SportsPrize Inc. for
accounting purposes. The assets of SportsPrize Inc. consisted of cash and
investments of approximately $61,000, prepaid expenses and deposits of
approximately $26,000 and other assets of approximately $16,000. As such, we
have presented our interim consolidated financial information for the six month
period ending August 31, 1999, and we have included the audited financial
statements of SportsPrize Inc. for the fiscal year ended February 28, 1999.
Results of Operations
Six Months Ended August 31, 1999
The six month period ended August 31, 1999 was our first period of material
operations with our new business plan. We had no revenues during this period.
Our loss of $3,377,014 was comprised primarily of cash compensation and
consulting costs totaling $700,260, as well as $2,401,274 in compensation
expense related to stock grants and stock option grants. Our legal and audit
costs were $121,570, and our research and development costs were $99,149. We
expect our general and administrative expenses to continue to be a material
component of our total expenses during the start-up phase of our development. In
2000, sales and marketing costs will become the largest component of our
expenses.
We generated $7,506 through the disposal of assets not integral to our business
operations during this six month period. We intend to dispose of other assets
that are not integral to our business operations in a timely manner.
With the receipt of $2,500,000 from a private placement of our common stock in
May 1999 and $1,000,000 from a private placement of our common stock in July
1999, we had $2,338,416 in working capital as of August 31, 1999.
While we expended only a nominal amount on capital equipment during this period,
these expenditures will accelerate as we complete the infrastructure for our Web
site and e-commerce operations.
55
<PAGE>
Year Ended February 28, 1999
In our first eleven months of operations, we explored several business
opportunities. We attempted to secure mineral and oil and gas equity
participation interests in selected mineral properties. We purchased securities
in a publicly traded oil and gas company, with which we anticipated entering
into an exploration and development program. Oil and gas prices declined, and
the financing we anticipated receiving to complete this investment did not
develop. Consequently, we abandoned the business strategy of exploring mineral
properties and embarked on our current business plan to establish a leading
Internet sports-based entertainment, merchandising and community destination Web
site. As a result of the disposal of our investment portfolio, we lost $71,455.
These losses are non-recurring.
Our operating loss was $66,766, and the largest component of this was consulting
costs of $31,164.
We raised a total of $239,572 from private placements of our common stock, net
of finder's fees of $26,187, to finance our initial startup. At February 28,
1999, we had $34,345 cash on hand.
Liquidity and Capital Resources
Since our Share Exchange with SportsPrize Inc., we have raised a total of
$3,500,000 less finder's fees of $98,000. We completed our initial funding at
the time of the Share Exchange by issuing 1,666,665 shares of our common stock
at a price of $1.50 per share, providing us with $2,500,000, less a finder's fee
of $70,000 paid to Sonora Capital. We also completed a private placement in July
1999, the first of three financings to be completed as part of our Share
Exchange with SportsPrize Inc., of 250,000 shares of our common stock at a price
of $4.00 per share, providing us with $1,000,000. We paid Sonora a finder's fee
of $28,000 in connection with this private placement.
As of August 31, 1999, we had working capital of $2,338,416. Our current working
capital requirements are approximately $250,000 to $300,000 per month. Once we
are fully staffed, our working capital requirements related to financing fees
and costs, content costs, and general and administrative expenses are
anticipated to increase to approximately $800,000 per month during the period
from March 1, 2000 to August 31, 2000. Our working capital requirements related
to marketing expenses are anticipated to increase to approximately $1,000,000
per month during the period from March 1, 2000 to August 31, 2000, provided we
are able to obtain sufficient financing to implement our marketing program. We
also anticipate that we will invest approximately $200,000 per month for capital
expenditures including Web site equipment and software, Web site design and
development and office equipment. See "Summary of Operating Budget."
We anticipate that we will require additional capital of approximately
$1,500,000 to fund our operations through February 29, 2000. See "Note Regarding
Forward Looking Statements." We anticipate we will complete additional private
placements of our common stock to raise
56
<PAGE>
$1,500,000 in January 2000. We cannot assure you that we will successfully
complete the planned additional private placements on acceptable terms, if at
all.
In addition to the anticipated $1,500,000 in private placements, we anticipate
we will need to raise approximately $13,500,000 to meet our projected Operating
Budget requirements for content development, general and administrative
expenses, as well as marketing costs through the second fiscal quarter of 2000.
See "Summary of Operating Budget." We intend to complete additional financing to
fund our Operating Budget by issuing equity or debt through a combination of
private and public financings. We cannot assure you that we will successfully
complete additional financing on acceptable terms, if at all. If we cannot raise
additional financing, we anticipate that we will reduce our projected
expenditures related to marketing our SportsPrize Web site and concentrate our
resources on selling advertising and sponsorships and developing the
technologies related to our SportsPrize Web site and the SportsPrize Tournament.
We have the following material financial obligations to fulfillment vendors,
software systems developers, Internet access providers and marketing
communications providers:
<TABLE>
<S> <C>
- -------------------------------------------------- -------------------------------------------------------
Vendor Obligation
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Quad-Linq $15,000 to $25,000 per month
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Interactive Marketing $30,000 per month
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Kaleidoscope $10,000 per month through December 1999
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
DBC Sports $15,000 per month from
December 1, 1999 to March 1,
2000; and $20,000 per month
from April 1, 2000 to
termination
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Tridian $15,000 to $20,000
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Frontier $2,000 to $5,000 per month
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
ShopSports.com $14,800
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Focus Partners $6,000 per month
- -------------------------------------------------- -------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------
Office Lease Agreements $10,000 per month
- -------------------------------------------------- -------------------------------------------------------
</TABLE>
In addition to these material commitments, we have agreements with our employees
and consultants, which require us to make monthly payments totaling
approximately $100,000 per month. Our failure to meet these financial
commitments and our future obligations may have a material adverse effect on our
business and results of operations.
Recent Financings
Our current business activities and operations have been funded to date through
issuance of shares of our common stock in the following transactions:
57
<PAGE>
<TABLE>
<S> <C> <C>
Summary of Transactions
- --------------------------------------------------------------------------------------------------------------
Total
Number of Shares Consideration for
Shares ($)
-------------------- --------------------
Private Placement at $1.50 per share 1,666,665 $2,500,000
Private Placement at $4.00 per share 250,000 1,000,000
-------------------- --------------------
TOTAL 1,916,665 $3,500,000
========= ==========
</TABLE>
Year 2000 Compliance
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century, i.e. December 31, 1999 would appear as 12/31/99, assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000, and
calculations using or reporting the date will not be correct and errors will
arise. To prevent this from occurring, information systems need to be updated to
ensure they recognize dates during and after the Year 2000.
The potential exists that we are exposed to a risk that our Web site and the
services that support our Web site will fail or suffer impairment as a result of
internally operated or externally contracted hardware or software systems and
services not being able to correctly "rollover" dates to the new century. The
risk stems from our reliance on computer hardware, servers, payment systems,
software and other services to carry out the daily operation of our proposed
business. The exposure may result from, among other things, the use of
computers, general software and servers for office purposes and data storage;
connections to and use of the services of Internet Service Providers and
telephone companies for office purposes and customer service and support; the
software underlying the operation of our Web site and our online e-commerce
operation; and the servers that allow us to broadcast our Web site to the
public.
We have only been operating and developing our business during the last six
months. The office hardware, general software, custom developed software,
servers and services of Internet Service Providers and telephone companies have
been acquired during this period. As a result, and in consultation with the
suppliers of this hardware, software and services, we believe the related
systems that we intend, directly or indirectly, to use in our respective
businesses are Year 2000 compliant. Our due diligence also included an
evaluation of supplier provided technology and the implementation of new
policies to require our suppliers to confirm in writing that they have disclosed
and will correct Year 2000 compliance issues. However, we have not undertaken
any other measures to assure year 2000 compliance of our third party vendors and
we cannot assure you that such vendor systems will not experience disruptions as
a result of the Year 2000 Issue. Although we are relying primarily on systems
developed with current technology and on systems designed to be Year 2000
compliant, we may have to replace, upgrade or reprogram certain systems to
ensure that all interfacing technology will be Year 2000 compliant when running
jointly.
58
<PAGE>
In the event that we incur expenses associated with resolving Year 2000
compliance issues, we intend to expense the operating costs as they are incurred
and capitalize the capital costs as they are incurred. However, our purchases of
hardware and general and specific purpose software have been relatively recent,
and the more expensive of the hardware and general and specific software items
that we have purchased are covered under warranties that will extend over the
rollover period to January 1, 2000. As a result, we do not expect to incur any
major operating or capital expenditures that would have a material impact on our
financial condition or results of operations. Our Year 2000 compliance costs to
date have been non-material and are estimated to be less than $2,000.
We do not currently anticipate any disruption in our operations as the result of
the Year 2000 issue. We do not have any information concerning the Year 2000
compliance status of our suppliers and customers that would affect our
operations. Any failure of our material systems, our vendors' material systems
or the Internet to be Year 2000 compliant may have a material adverse effect on
our business and results of operations.
In the worst case scenario, the systems of our third-party vendors and the
Internet will fail as a result of year 2000. If such worst case scenario occurs,
we anticipate we will delay further development of our Web site until systems
are re-established for the Internet. Such a material failure would have a
material adverse effect on our business. See "Note Regarding Forward Looking
Statements."
In order to protect against the possibility of any material disruption in our
operations as a result of the Year 2000 issue, we have taken or will be taking
the following precautions:
o Developed, initiated and maintained procedures that ensure that the
information stored on the office computer hard drives are backed up on
a regular basis and stored safely;
o Copies of the source code for the special purpose software are
maintained in secure offsite locations by the developers of the
software;
o Install a backup server; and
o Implemented a policy of acquiring name brand hardware and retained
experienced consultants upon whose warranties we believe that we can
rely.
New Accounting Pronouncements
The recent and future accounting pronouncements do not and are not expected to
have any significant effect on our financial position or operating results.
59
<PAGE>
Item 3. Properties.
On September 27, 1999, we entered into a short-term lease agreement with
eOfficeSuites, Inc. for office space located at 13101 Washington Boulevard,
Suite 131, Culver City, California. The term of the lease was for two months
from October 1, 1999 through November 30, 1999, and has continued on a month to
month basis. Currently, the base rent is $7,000 per month, and we agreed to pay
additional rent of $2,000 per month for other services including furniture
rental, telephone instruments and voice mail, high speed Internet service and
parking.
We also currently rent a research and development office at 101 West 5th Avenue,
Vancouver, British Columbia, Canada, on a month-to-month basis. Our monthly
payments are approximately $2,200.
We do not presently own or lease any other property or real estate.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners.
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of December 26, 1999 by: (i)
each of our officers and directors, (ii) each person, including any group, known
to us to own more than five percent (5%) of any class of our voting securities,
and (iii) officers and directors as a group. Unless otherwise indicated, the
shareholders listed possess sole voting and investment power with respect to the
shares shown.
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Title of Class Name and Address of Amount and Nature of Percentage of Class
Beneficial Owner Beneficial Ownership
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- --------------------------------------------------------------------------------------------------------------------
Officers and Directors
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Common Shares Bruce Cameron, Director, 100,000(1) 0.49%(1)
President, Chief Financial
Officer and Treasurer
13101 Washington Boulevard,
Suite 131
Culver City, California
90066
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Robert Hunziker, Director 100,000(1) 0.49%(1)
Senior Vice President of
Corporate Finance
13101 Washington Boulevard,
Suite 131
Culver City, California
90066
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Jeffrey Paquin, Director 1,333,740 (2) 6.50%(2)
4775 Woodgreen Drive
West Vancouver, B.C.
Canada V7S 2Z9
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Alan Gerson, Director Nil Nil
225 S. Sepulveda Boulevard,
Suite 360
Manhattan Beach, California
90266
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Abe Carmel, Director 150,000(7) 0.73%(7)
4550 Northpark Avenue, #809
Chevy Chase, Maryland 20815
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Michael Wiedder, 50,000(1) 0.24%(1)
Vice-President of Marketing
13101 Washington Boulevard,
Suite 131
Culver City, California
90066
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Donald MacKay, 358,435(3) 1.75%(3)
Senior Vice President and
Controller
1840 Redwood Drive
Surrey, B.C.
Canada V4P 1M6
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
John Thompson, 778,015(4) 3.79%(4)
Vice-President of Game
Content and Development
6368 Crescent Court
Delta, B.C.
Canada V4K 4Y5
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Skye Cove, Vice-President 358,434(3) 1.74%(3)
of Technology
921 Roslyn Boulevard
North Vancouver, B.C.
Canada V7G 1P4
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
David Bissett, Corporate Nil Nil
Secretary
1040-999 W. Hastings Street
Vancouver, B.C.
Canada V6C 2W2
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Common Shares Officers and Directors as a 3,228,624(5) 15.73%(5)
Group
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- --------------------------------------------------------------------------------------------------------------------
5% Shareholders
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Lamplighter Investments Ltd. 1,088,888 5.59%
88 Ellis Road
Crowthorne Berks, England
Common Shares RG45 6PN
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
James Brown 1,033,740 (6) 5.31%(6)
5453 West Vista Court
West Vancouver, B.C.
Canada V7W 3G8
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Randy Daggitt 1,033,740 (6) 5.31%(6)
12714 25A Avenue
Surrey, B.C.
Canada V4A 5R5
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Michael Slater 1,033,740 (6) 5.31%(6)
5289 Keith Road
West Vancouver, B.C.
Canada V7W 2M9
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Anthony Vecchio 1,033,740 (6) 5.31%(6)
4728 Woodvalley Place
West Vancouver, B.C.
Canada V7S 2X3
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
</TABLE>
(1) Consisting of vested stock options exercisable within 60 days of
December 26, 1999 to acquire such shares. (2) Includes (a)
vested stock options exercisable within 60 days of December 26, 1999
to acquire 300,000 shares and (b) 433,740 shares held in escrow
pursuant to an Escrow Agreement dated May 7, 1999.
See "Description of Business - Agreement Among Certain SportsPrize Inc.
Shareholders."
(3) Includes vested stock options exercisable within 60 days of
December 26, 1999 to acquire 100,000 shares.
(4) Includes vested stock options exercisable within 60 days of
December 26, 1999 to acquire 175,000 shares.
<PAGE>
(5) Includes vested stock options exercisable within 60 days of
December 26, 1999 to acquire 1,050,000 shares.
(6) Includes 433,740 shares held in escrow pursuant to an Escrow Agreement
dated May 7, 1999. See "Description of Business - Agreement Among
Certain SportsPrize Inc. Shareholders."
(7) Includes vested stock options exercisable within 60 days of
December 26, 1999 to acquire 125,000 shares.
Security Ownership of Management.
We are not aware of any arrangement that might result in a change in control in
the future.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Directors and Officers
0
All of our directors are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors
are duly elected and qualified, unless they sooner resign or cease to be
directors in accordance with our Articles and Bylaws. The date of our next
annual general meeting has yet to be determined. Our executive officers are
appointed by and serve at the pleasure of our Board of Directors.
As at November 30, 1999, the following persons were our directors and/or
officers:
<TABLE>
<S> <C>
- ------------------------------------------------------------------ ----------------------
Director/
Officer/
Employee since
Name and present office held
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Bruce Cameron, Director September 16, 1999
President, Chief Financial Officer and Treasurer
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Robert Hunziker, Director August 16, 1999
Senior Vice President of Corporate Finance
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Jeffrey Paquin, May 14, 1999
Director
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Alan Gerson, July 8, 1999
Director and Chairman of the Board (1)
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Abe Carmel, July 8, 1999
Director
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Donald MacKay, May 14, 1999
Senior Vice President and Controller
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Michael Wiedder, June 24, 1999
Vice-President of Marketing
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
John Thompson, Vice-President of Game Content and Development May 14, 1999
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
Skye Cove, Vice-President of Technology May 14, 1999
- ------------------------------------------------------------------ ----------------------
- ------------------------------------------------------------------ ----------------------
David Bissett, Corporate Secretary May 14, 1999
- ------------------------------------------------------------------ ----------------------
</TABLE>
(1) Mr. Gerson has served as our Chairman of the Board since
November 1, 1999.
The following is a brief biographical information on each of the officers,
directors and significant employees listed:
60
<PAGE>
Bruce Cameron, age 43, has served as our President, Chief Financial Officer and
Treasurer, and a Director since September 16, 1999. Prior to joining us, Mr.
Cameron was Executive Vice President and Chief Financial Officer of Hollywood
Online Inc., a movie-oriented Web publishing company. Prior to joining Hollywood
Online, Mr. Cameron served as Vice President and Manager at Imperial Bank and
First Interstate Bank. Prior to his banking experience, Mr. Cameron held a
senior management consulting position with Gorsey, Hanson & Company from 1986 to
1988. From 1978 to 1986, he worked in a variety of managerial roles at Price
Waterhouse. Mr. Cameron has a Bachelor of Arts Degree in Economics from the
University of California, Los Angeles and is a CPA.
Robert Hunziker, age 55, has served as our Senior Vice President of Corporate
Finance and a Director since August 16, 1999. Prior to joining us, Mr. Hunziker
was a Limited Partner and Associate Director of Bear Stearns & Company from 1984
to 1991 and a Vice President and a Principal of Oppenheimer from 1975 to 1984.
Since 1992, Mr. Hunziker has been self-employed as a corporate advisor and
financier. Mr. Hunziker also serves on the board of directors of Advanced Gaming
Technology, Inc. and Chapleau Resources, Ltd. Mr. Hunziker has a M.A. degree in
Economic History from DePaul University/Chicago.
Jeffrey Paquin, age 36, has been a director since May 14, 1999 and was our
President from May 14, 1999 to September 15, 1999. Mr. Paquin is a lawyer and is
currently President of JD Paquin Personal Law Corporation. Mr. Paquin's
corporate experience includes directorships in the following emerging public
companies: Broadwater Development Inc., a natural resource exploration company
listed on the Vancouver Stock Exchange, from 1996 to 1997; Solar Pharmaceuticals
Ltd., a manufacturer and supplier of medical devices and services formally
listed on the Vancouver Stock Exchange, from 1995 to 1998; and Watson Bell
Communications Inc., now Cosworth Ventures, listed on the Vancouver Stock
Exchange, from 1993 to 1995. Mr. Paquin was the President and Director of
SportsPrize Inc. from its inception to May 14, 1999.
Alan Gerson, age 53, has been a director since July 8, 1999 and the Chairman of
our Board since November 1, 1999. Mr. Gerson's experience includes broadcast and
cable television, e-commerce, live event marketing, and the Internet. Mr. Gerson
is a principal and President of Interactive Marketing Inc. Mr. Gerson was a
longtime senior executive at NBC, Inc. and from 1991 to 1994 was the Executive
Vice-President of the Home Shopping Network. In 1994, he consulted for various
media, Interactive Marketing Inc. and electronic commerce companies. In 1995,
Mr. Gerson joined Ticketmaster Corp. as Senior Vice-President of Television and
Business Development and oversaw Ticketmaster's Direct Marketing Division and
the launch of the Ticketmaster Online store. In 1996, Mr. Gerson held an
executive consulting position with Softbank Interactive Marketing. Prior to
establishing Interactive Marketing Inc., Mr. Gerson served as President and
Chief Executive Officer of WorldSite Networks, Inc. under an executive
consulting arrangement.
Abe Carmel, age 66, has been a director since July 8, 1999. Since 1986, Mr.
Carmel has lead Carmel Associates LLC, an international investment banking firm
which specializes in the financing and marketing of high technology, Internet
and telecommunications companies.
61
<PAGE>
Donald MacKay, age 47, was our Chief Financial Officer from May 14, 1999 to
September 15, 1999 and our Treasurer from June 30, 1999 to September 15, 1999.
Mr. MacKay has been a Certified Management Accountant since 1991. Mr. MacKay was
the Chief Financial Officer of Advanced Gaming Technology, Inc. from 1995 to
1998; the manager of business analysis of TCG International Inc. from 1994 to
1995; and a senior financial accountant of GLENTEL Inc. from 1989 to 1993.
Michael Wiedder, age 40, has been our Vice-President of Marketing since June 24,
1999. Mr. Wiedder founded and served as CEO of Online Expo, an Internet
exposition and conference produced in Los Angeles, San Francisco and New York.
Mr. Wiedder has been involved in the Internet marketing industry since 1994.
John Thompson, age 41, has been our Vice-President of Game Content and
Development since May 14, 1999. Mr. Thompson created and developed the
SportsPrize Tournament game. Mr. Thompson spent 14 years as an oddsmaker and
sports analyst with the British Columbia Lottery Corporation. Mr. Thompson was a
Vice-President of SportsPrize Inc. prior to the Share Exchange.
Skye Cove, age 23, has been our Vice-President of Technology since May 14, 1999.
Since 1994, Mr. Cove has been a computer programming consultant and an employee
of Olson Cove Consulting. Mr. Cove was a Vice-President of SportsPrize Inc.
prior to the Share Exchange.
David Bissett, age 45, has been our Corporate Secretary since May 14, 1999.
Since 1988, Mr. Bissett has been a partner of the law firm Scott, Bissett, of
Vancouver, British Columbia, Canada, that specializes in securities law. He is a
past Chair of the Securities Subsection of the British Columbia branch of the
Canadian Bar Association. Mr. Bissett served as Corporate Secretary of
SportsPrize Inc. prior to the Share Exchange.
Members of the Board of Directors are elected by our shareholders. Our Board of
Directors meets periodically to review significant developments affecting our
company and to act on matters requiring Board approval. Although the Board of
Directors delegates many matters to others, it reserves certain powers and
functions to itself. Our audit committee is directed to review the scope, cost
and results of the independent audit of our books and records, the results of
the annual audit with management and the adequacy of our accounting, financial
and operating controls; to recommend annually to the Board of Directors the
selection of the independent auditors; to consider proposals made by the
Registrant's independent auditors for consulting work; and to report to the
Board of Directors, when so requested, on any accounting or financial matters.
None of our directors or executive officers is a party to any arrangement or
understanding with any other person pursuant to which said he was elected as a
director or officer.
None of our directors or executive officers has any family relationship with any
other officer or director.
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None of our officers or directors have been involved in the past five years in
any of the following: (1) bankruptcy proceedings; (2) subject to criminal
proceedings or convicted of a criminal act; (3) subject to any order, judgment
or decree entered by any court limiting in any way his or her involvement in any
type of business, securities or banking activities; or (4) subject to any order
for violation of federal or state securities laws or commodities laws.
Item 6. Compensation of Officers and Directors.
As of February 28, 1999, our sole named executive officer was Joseph Ochoa. On
April 3, 1999, Joseph Ochoa was replaced by William Turner as our sole named
executive officer. On May 14, 1999, William Turner was replaced by Jeffrey
Paquin, our President, and a named executive officer until being succeeded by
Bruce Cameron on September 16, 1999. Currently, our three highest paid named
executive officers are as follows:
o Bruce Cameron became our President, Chief Financial Officer and
Treasurer and a named executive officer on September 16, 1999.
o Robert Hunziker became our Senior Vice President of Corporate Finance
and a named executive officer on August 16, 1999.
o Michael Wiedder became our Vice President of Marketing and a named
executive officer on June 17, 1999.
Subsequent to our fiscal year ended February 28, 1999, through November 30,
1999, we paid the following compensation to the following named executive
officers:
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C>
Long Term Compensation
- ------------------------- ----------------------------------------- -------------------------- ----------
Annual Compensation Awards Payouts
- ------------------------- ----------------------------------------- -------------------------- ----------
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Annual
Compen-sation Restricted Securities
($) Stock Underlying LTIP All Other
Name and Salary Bonus Award(s) Options/ Payouts Compen-sation
Principal Position Period ($) ($) ($) SARs(#) ($) ($)
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
300,000
Jeffrey Paquin, Eight 90,000(2) Nil Nil Nil Nil
President(1) Months Nil
Ended
11/30/99
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
Bruce Cameron, 100,000
President, Chief Eight 43,750 Nil Nil Nil Nil
Financial Officer Months Nil
and Treasurer(3) Ended
11/30/99
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
Robert Hunziker, 100,000
Senior Vice Eight 38,333 Nil Nil Nil Nil
President of Months Nil
Corporate Finance(4) Ended
11/30/99
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
Michael Wiedder, 50,000
Vice President of Eight 68,750 Nil Nil Nil Nil
Marketing(5) Months Nil
Ended
11/30/99
- ------------------------- --------- --------- ------ -------------- ------------ ------------- ---------- -------------
</TABLE>
(1) Mr. Paquin was replaced by Bruce Cameron as our President, effective
September 16, 1999, and currently serves us as a Director and a
consultant.
(2) Includes $45,000 paid to Mr. Paquin as severance pay upon his
replacement on September 16, 1999.
(3) Bruce Cameron became our President, Chief Financial Officer and
Treasurer and a named executive officer on September 16, 1999.
(4) Robert Hunziker became our Senior Vice President of Corporate Finance
and a named executive officer on August 16, 1999. (5) Michael Wiedder
became our Vice President of Marketing and a named executive officer on
June 17, 1999.
The following table contains information concerning compensation paid to our
named executive officers during the fiscal year ended February 28, 1999.
<TABLE>
<S> <C>
===================================================================================================================
SUMMARY COMPENSATION TABLE
======================--------------------------------------------------------------------------------=============
Annual Compensation Long-Term Compensation
------------------------------------------------------------------------
Awards Pay-outs
--------------------------------------
Other Securities
Annual Restricted Under-lying All Other
Name and Compen-sationStock Options/ LTIP Compen-sation
Principal Position Year Salary ($) Bonus ($) ($) Award(s) ($) SARs (#) Payouts ($)
===================================================================================================================
Jeffrey Paquin 1999 $6,375 Nil Nil Nil Nil
===================================================================================================================
</TABLE>
64
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Stock Options
During our most recently completed fiscal year ended February 28, 1999, we
granted options to acquire 300,000 common shares to Jeffrey Paquin, our sole
named executive officer and no long-term incentive plan awards were made to a
named executive officer. No share purchase options were outstanding during the
fiscal year ended February 28, 1999. We do not have a defined benefit or
actuarial plan. We have adopted a stock option plan. See "Description of 1999
Stock Option Plan."
The following table contains information concerning options granted paid to our
named executive officers during the fiscal year ended February 28, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C>
===================================================================================================================
OPTION/SAR GRANTS IN LAST FINANCIAL YEAR
===================================================================================================================
Individual Grants
======================== ============= -------------- ---------------- --------------- ============================
Name Number of % of Total
Securities Options/SARs Exercise or
Underlying Granted to Base Price Expiration Grant Date
Options/SARs Employees in ($/Sh) Date Present Value $
Granted Fiscal Year
======================== ============= ============== ================ =============== ============================
Jeffrey Paquin 300,000 44.4% $0.25/share May 14, 2004 $21,000 (1)
======================== ============= ============== ================ =============== ============================
</TABLE>
(1) The fair market value of the option grant estimated at the grant date
using the Black Scholes option-pricing model for the period from March 6,
1998 (inception) to August 31, 1999, assuming a risk-free interest rate
ranging from 5.27% to 5.6%, volatility of 30%, zero dividend yield, and an
expected life of 5 years. The fair market value of the shares underlying
the options on the date of grant was $0.25, based on the price similar
shares issued in conjunction with a private placement completed during the
same period.
There were no share purchase options exercised by our officers, directors and
employees during the fiscal year ended February 28, 1999.
There were no long-term incentive plans granted to our officers, directors and
employees during the fiscal year ended February 28, 1999.
Description of 1999 Stock Option Plan
We adopted a stock option plan and authorized the issuance of up to 3,000,000
shares of our common stock as incentive stock options to our current and future
key employees and consultants on June 21, 1999. The Board of Directors approved
an amendment to the plan to increase the number of shares issuable under the
plan to 6,000,000, and our shareholders ratified the plan and approved the
amendments at our annual shareholders meeting held on October 6, 1999. As of
December 26, 1999, we granted options to acquire 3,005,000 common shares. The
following is a summary of the principal features of the 1999 Plan.
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<PAGE>
Under the amended stock option plan, the total number of shares of common stock
reserved for issuance 6,000,000 shares of our common stock, which may be
Incentive Stock Options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonqualified stock options. If any
outstanding option expires or is terminated for any reason, the shares of common
stock allocable to the unexercised portion of that option may again be subject
to an option to the same optionee or to a different person eligible under the
1999 Plan.
The option grant program is administered by the Board of Directors or a
committee of two or more outside directors of the Board. Plan administrators
have sole authority to prescribe the form, content and status of options to be
granted, select the eligible recipients, determine the timing of option grants,
determine the number of shares subject to each grant, the exercise price,
vesting schedule, and term for which any option will remain outstanding,
provided, however, that the exercise price for any ISOs granted may not be less
than the fair market value per share of the common stock at the date of grant.
The Board of Directors has the authority to determine the terms and restrictions
on all restricted option awards granted under the 1999 Plan, and in general, to
construe and interpret any provision of the 1999 Plan.
The exercise price for outstanding option grants under the 1999 Plan may be paid
in cash or in shares of common stock valued at fair market value on the exercise
date, having shares withheld from the amount of shares of common stock to be
received by the optionee, by delivery of an irrevocable subscription agreement
obligating the optionee to take and pay for the shares of common stock to be
purchased within one year of the date of such exercise, through a same-day
cashless exercise program or a reduction in the amount of any liability on our
behalf to the optionee, or by such other consideration and method of payment for
the issuance of shares to the extent permitted by applicable laws.
Under the 1999 Plan, no stock option can be granted for a period longer than ten
years or for a period longer than five years for ISOs granted to optionees
possessing more than 10% of the total combined voting power of all of our
classes of stock. Unless extended by the Plan administrators until a date not
later than the expiration date of the option, the right to exercise an option
terminates 90 days after the termination of an optionee's employment,
contractual or director relationship with SportsPrize Entertainment Inc. If the
optionee dies or is disabled, the option will remain exercisable for a period of
one year after the termination of employment or relationship with us.
Pursuant to our statutory share exchange with SportsPrize Inc., we agreed to
issue options to acquire 805,000 shares of our common stock to the option
holders of SportsPrize Inc., of which 300,000 options were granted to Jeffrey
Paquin, a named executive officer.
Compensation of Directors
Our Directors do not receive any salary for their services as directors or
members of committees of the Board of Directors, but by resolution of the Board,
a fixed fee and expenses of attendance may be allowed for attendance at each
meeting. Directors may also serve our company in other
66
<PAGE>
capacities as an officer, agent or otherwise, and may receive compensation for
their services in such other capacity.
During our most recently completed fiscal year ended February 28, 1999, no
director of the registrant was compensated for any service as a director. There
is currently no arrangement or agreement to compensate any directors for their
service as a director.
We granted to Abe Carmel options to acquire 125,000 shares of our common stock
as an incentive to become a director of our company. These options are
exercisable at $0.75 per share.
Executive Officer Agreements
We entered into the following agreements with our named executive officers:
We entered into an agreement with Bruce Cameron, as our President, Chief
Financial Officer and Treasurer, dated September 16, 1999. Under the terms of
the agreement, we agreed to pay Mr. Cameron compensation in the amount of
$14,583.33 per month during the two year term of the agreement, beginning
September 16, 1999, subject to a minimum increase of 15% on September 1, 2000
and annually thereafter for any additional period for which the agreement is
renewed. We also granted Mr. Cameron options exercisable to acquire up to
600,000 shares of our common stock, exercisable as follows: 200,000 at $0.50 per
share, 200,000 at $1.00 per share and 200,000 at $2.00 per share. Of the options
exercisable at $0.50 per share, 25,000 vested immediately upon execution of the
agreement, and the balance vests pro rata over the following seven months at
25,000 per month. The options exercisable at $1.00 per share vest pro rata in
the amount of 25,000 shares per month, beginning eight months from September 16,
1999. The options exercisable at $2.00 per share vest pro rata in the amount of
25,000 shares per month, beginning sixteen months from September 16, 1999.
We entered into an agreement with Robert Hunziker, a Director and our Senior
Vice President of Corporate Finance, dated August 15, 1999. Under the terms of
the agreement, we agreed to pay Mr. Hunziker compensation in the amount of
$10,000 per month during the six month term of the agreement, beginning August
16, 1999. We also granted Mr. Hunziker options exercisable to acquire up to
400,000 shares of our common stock, exercisable as follows: 200,000 at $0.50 per
share and 200,000 at $2.00 per share. Of the options exercisable at $0.50 per
share, 100,000 vested immediately upon execution of the agreement and 100,000
vest in the event that our trading price closes at a price equal to or greater
than $7.00 per share or in the event that we complete a financing in excess of
$10,000,000. If 100,000 of the options exercisable at $0.50 per share vest as a
result of our trading price closing at a price equal to or greater than $7.00
per share, then, of the options exercisable at $2.00 per share, 50,000 vest
immediately and 150,000 vest in the event we complete a financing in excess of
$10,000,000. If 100,000 of the options exercisable at $0.50 per share vest as a
result of us completing a financing in excess of $10,000,000, then, of the
options exercisable at $2.00 per share, 50,000 vest immediately and 150,000 vest
in the event that our trading price closes at a price equal to or greater than
$7.00 per share.
67
<PAGE>
We entered into an agreement with Michael Wiedder, our Vice President of
Marketing, dated June 17, 1999, as amended August 30, 1999. Under the terms of
the agreement, we agreed to pay Mr. Wiedder compensation in the amount of
$12,500 per month during the six month term of the agreement. We also agreed to
grant Mr. Wiedder options exercisable to acquire 100,000 shares of our common
stock for $0.50 per share, 50,000 vesting pro rata over six months at 8,333 per
month and 50,000 vesting at the end of six months, provided that 50,000 of such
options shall be cancelled in the event that Mr. Wiedder does not agree to
extend the term of the agreement for an additional one year period. Mr. Wiedder
agreed to assist us in developing marketing strategies and developing strategic
relationships related to the development of our SportsPrize Web site and our
business. We also agreed to grant Mr. Wiedder options to acquire an additional
300,000 shares of our common stock at $4.00 per share, vesting over an eighteen
month period, in the event that we agree to renew the contract for an additional
one year period. We have agreed in principle to continue Mr. Wiedder's
employment on an "at will" basis at the rate of $12,500 per month and to lower
the exercise price of the additional 300,000 shares to $2.00 per share. These
options will vest at the rate of 16,667 shares each month during the term of Mr.
Wiedder's employment.
Item 7. Certain Relationships and Related Transactions.
Transactions with Management and Others
Except for (a) the ownership of our securities and (b) the compensation
described herein, none of our directors, executive officers, holders of ten
percent of our outstanding shares of common stock, or any associate or affiliate
of such person, have, to our knowledge, had a material interest, direct or
indirect, during the year ended February 28, 1999 and the six month period ended
August 31, 1999, or in any proposed transaction which may materially affect us.
David Bissett is our Corporate Secretary. Mr. Bissett is also a partner at
Scott, Bissett, which is our Canadian counsel. Scott, Bissett is a Canadian law
firm, which provides legal services in the areas of general corporate and
securities law. As of October 31, 1999, we paid Scott, Bissett legal fees in the
total amount of $78,995.
We have employment agreements with Bruce Cameron and Robert Hunziker. See
"Compensation of Officers and Directors - Executive Officer Agreements."
Under the terms of the statutory share exchange, certain shareholders of
SportsPrize Inc., namely Jeffrey Paquin, Randy Daggitt, James Brown, Michael
Slater, Anthony Vecchio and Gang Consulting Inc., entered into an escrow
agreement dated for reference May 7, 1999. See "Our Acquisition of SportsPrize
Inc. - Agreement Among Certain SportsPrize Inc. Shareholders." These
shareholders agreed:
o To place 2,530,150 of their shares into escrow for a period of up
to one year; and
o To convey the escrowed shares to key personnel which we hire in
the future as compensation or signing bonuses; and that if the
escrowed shares are not conveyed as
68
<PAGE>
compensation or signing bonuses, the escrowed shares would be
released pro rata: 50% to the shareholders, as a group, and 50%
to Sonora.
As a result of our share exchange with SportsPrize Inc., the following officers
and directors of our company received shares of our common stock:
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------------------
Number of Shares Deemed Value of Shares
Name and Principal Position Received Received
------------------------------------------------------------------------------------------------
Jeffrey Paquin, Director 1,033,740(1) $0.01/per share (2)
Donald MacKay, Senior Vice President 258,435 $0.25/per share (3)
and Controller
John Thompson, 633,015 $0.25/per share(3)
Vice-President of Game Content and
Development
Skye Cove, 258,434 $0.25/per share(3)
Vice-President of Technology
------------------------------------------------------------------------------------------------
</TABLE>
(1) Of which 433,740 shares are held in escrow pursuant to an Escrow
Agreement dated May 7, 1999.
(2) The deemed value of such shares is based on the fair market value of
the shares on the date such shares were acquired by the shareholders.
Mr. Paquin acquired his shares as founder's shares for $0.01.
(3) The deemed value of such shares is based on the fair market value on
the date of issuance, which is based on the price of similar shares
issued in conjunction with a private placement completed during the
same period. These shares were issued as consideration for services at
$0.25.
As a result of our share exchange with SportsPrize Inc., we agreed to grant the
following officers and directors of our company options exercisable to acquire
shares of our common stock:
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Name and Principal Position Number of Exercise Market Value of
Shares Price Common Shares on the
Underlying Date of Grant
Options
----------------------------------------------------------------------------------------------
Jeffrey Paquin, Director 300,000 $0.25 $0.25/per share (1)
Donald MacKay, Senior Vice 100,000 $0.25 $0.25/per share (1)
President and Controller
John Thompson, 175,000 $0.25 $0.25/per share (1)
Vice-President of Game Content
and Development
Skye Cove, 100,000 $0.25 $0.25/per share (1)
Vice-President of Technology
----------------------------------------------------------------------------------------------
</TABLE>
(1) The fair value of such shares is based on the price of similar shares
issued in conjunction with a private placement completed during the same
period.
As a result of our share exchange, we assumed from SportsPrize Inc. a marketing
consulting agreement with Interactive Marketing Inc. dated as of May 6, 1999.
Alan Gerson, a director and the Chairman of the Board of our company, is the
President of Interactive Marketing Inc.
69
<PAGE>
Interactive Marketing Inc. provides us with overall strategic and tactical
marketing and operational strategy consulting services. See "Interactive
Marketing Inc. - Marketing Consulting Agreement."
We believe that the terms of all of these agreements are no less fair to us than
contracts that would have been negotiated with unrelated parties at arms'
length.
Indebtedness of Management
Since the beginning of our last fiscal year, none of the following persons have
been indebted to us or our subsidiary in an amount in excess of $60,000: (i)
director or executive officer, (ii) nominee for election as a director, (iii)
member of the immediate family of a person specified in (i) or (ii), (iv)
corporation or organization other than us or our majority owned subsidiary of
which any of the persons specified in (i) or (ii) is an executive officer or
partner or is, directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, (v) any trust or other estate in which
any of the persons specified in (i) or (ii) has a substantial beneficial
interest or as to which such person serves as a trustee or in a similar
capacity.
Item 8. Legal Proceedings.
To the best of our knowledge, we are not subject to any active or pending legal
proceedings or claims against us or any of our properties. However, from time to
time, we may become subject to claims and litigation generally associated with
any business venture.
Item 9. Market Price of and Dividends on Registrant's Common Equity and
Related Stockholder Matters.
Our common stock is approved for trading on the OTCBB under the symbol "JOCK".
The following table sets forth, for the periods indicated, the range of the high
and low bid quotations as reported by NASD. There were no trades of our
securities on the OTCBB during the first quarter of 1999 prior to May 12, 1999.
The bid quotations set forth below, reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions:
OTCBB
<TABLE>
<S> <C> <C> <C>
- ----------------------------------- ---------------------- ----------------------- -----------------------------
1999 High Low Volume
- ----------------------------------- ---------------------- ----------------------- -----------------------------
First Fiscal Quarter $9.1875 $5.7500 836,600
- ----------------------------------- ---------------------- ----------------------- -----------------------------
- ----------------------------------- ---------------------- ----------------------- -----------------------------
Second Fiscal Quarter $5.9375 $2.8750 9,213,700
- ----------------------------------- ---------------------- ----------------------- -----------------------------
- ----------------------------------- ---------------------- ----------------------- -----------------------------
Third Fiscal Quarter $4.00 $1.6250 2,909,400
- ----------------------------------- ---------------------- ----------------------- -----------------------------
</TABLE>
On November 29, 1999, the last reported sales price of our common stock, as
reported by the NASD, was $1.78125 per share.
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<PAGE>
As of November 30, 1999, there were 103 registered holders of record of our
common stock.
We have not declared or paid any cash dividends on our common stock since our
inception, and our Board of Directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our Board of Directors.
Item 10. Recent Sales of Unregistered Securities.
In 1995, we initially issued 9,000,000 shares of common stock at $0.001 per
share for legal services and services rendered to the Registrant in connection
with the forming, organizing and developing of the business plan, valued at
$9,000. The issuance of these shares was exempt from registration under the
provisions of Section 4(2) of the Securities Act, as amended.
In 1997, we issued 2,564,000 shares of our common stock for $0.01 per share to
raise $26,640. This offering was made to 42 subscribers, 21 of which were
resident in Nevada and 21 were outside the United States. The offering was not
underwritten. This sale was exempt from registration in reliance upon Rule 504
under Regulation D promulgated under the Securities Act. The aggregate offering
price did not exceed $1,000,000, and the offering was otherwise in compliance
with Rules 501 and 502 promulgated under the Securities Act. No fees or
commissions were paid in connection with the transaction.
In April 1999, as part of a capital reorganization, we issued 5,000,000 shares
of our common stock at a deemed value of $0.01 per share, and we redeemed
9,000,000 shares of our common stock held by two shareholders, at a deemed value
of $0.001 per share. The share issuance was made to 11 subscribers, including
Dreamweaver Investments Ltd., Lamplighter Investments Ltd., Cronwall Investments
Inc., Anchor Cove Investments Inc., Spirit Investments Ltd., Strathburn
Investments Inc., Aero Atlantic Ltd., Swordfish Capital, Castaway Holdings,
Dynamic Investments Ltd. and BCLM Investment Corporation, all of which were
resident outside the United States. The offering was not underwritten. This sale
was exempt from registration in reliance upon Rule 504 under Regulation D
promulgated under the Securities Act. The aggregate offering price did not
exceed $1,000,000, and the offering was otherwise in compliance with Rules 501
and 502 promulgated under the Securities Act. No fees or commissions were paid
in connection with the transaction.
In May 1999, we issued 9,999,709 shares of our common stock at a deemed price of
$0.01 per share pursuant to a statutory share exchange whereby we acquired all
of the issued and outstanding shares of SportsPrize Inc., our wholly owned
subsidiary, by exchanging 1.7229 shares of our common stock for each share of
common stock of SportsPrize Inc. The share exchange was effected pursuant to a
statutory share exchange under the laws of Nevada. The sale was exempt from
registration in reliance upon Section 4(2), Rule 506 under Regulation D and/or
Regulation S promulgated under the Securities Act. No fees or commissions were
paid in connection with the transaction.
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<PAGE>
In May 1999, we issued 1,666,665 shares of our common stock at $1.50 per share
to raise $2,500,000. This offering was made to three subscribers, Lamplighter
Investments Ltd., Strathburn Investments Inc., and Aero Atlantic Ltd., each
outside the United States. The offering was not underwritten. The sale was
exempt from registration under Regulation S promulgated under the Securities
Act. No placement agent was retained in connection with the offering. A finder's
fee was paid in cash to Sonora Capital in the amount equal to 2.8% of the gross
proceeds.
In July 1999, we issued 250,000 shares of our common stock at $4.00 per share to
raise $1,000,000. This offering was made to three subscribers, Lamplighter
Investments Ltd., Strathburn Investments Inc., and Aero Atlantic Ltd., each
outside the United States. The offering was not underwritten. This sale was
exempt from registration under Regulation S promulgated under the Securities
Act. A finder's fee was paid to Sonora in cash in the amount equal to 2.8% of
the gross proceeds. This offering was the first of three offerings to be
completed as part of our Share Exchange Agreement with SportsPrize Inc.
Item 11. Descriptions of Registrant's Securities to be Registered.
Our authorized share capital consists of 100,000,000 shares of common stock with
a par value of $0.001 per share and 5,000,000 shares of preferred stock with a
par value of $0.001 per share. As of November 30, 1999, there were 19,480,374
shares of common stock issued and outstanding and no shares of preferred stock
issued and outstanding. An additional 3,005,000 shares of common stock have been
allotted and reserved for issuance pursuant to outstanding options to purchase
shares as of December 26, 1999.
Holders of common stock are entitled (i) to receive ratable dividends from funds
legally available for distribution when and if declared by the Board of
Directors; (ii) to share ratably in all of our assets available for distribution
upon our liquidation or winding up; and (iii) to one vote for each share held of
record on each matter submitted to a vote of shareholders. The common stock does
not have cumulative voting, pre-emptive, purchase or conversion rights. There
are no sinking fund provisions in relation to the common stock and they are not
liable to further calls or to assessment by us.
There are no restrictions on the repurchase or redemption of common stock by us
provided that we are not insolvent at the time of such repurchase or redemption
nor would be made insolvent by such action.
We are limited in our ability to pay dividends on our common stock by
limitations under Nevada General Corporation Law if (i) we would be unable to
pay our debts as they become due in the ordinary course of business or (ii) we
would be insolvent, meaning total liabilities plus the amount require to satisfy
preferential shareholder rights on liquidation exceed total assets, after making
such distribution. We currently have no intention of paying dividends on our
common stock.
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<PAGE>
The preferred stock may contain special preferences as determined by our Board
of Directors, including, but not limited to, the bearing of interest and
convertibility into shares of common stock.
Item 12. Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws require us to indemnify to the fullest
extent permitted by Nevada law, each person that we have the power to indemnify.
Nevada law permits a corporation, under specified circumstances, to indemnify
its directors, officers, employees or agents against expenses, including
attorney's fees, judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by third parties by reason of the fact that they were or are directors,
officers, employees or agents of the corporation, if such directors, officers,
employees or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was unlawful. In a derivative action, that is, one by or in the right of
the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Our Articles of Incorporation and Bylaws also contain provisions stating that no
director shall be liable to us or any of our stockholders for monetary damages
for breach of fiduciary duty as a director, except with respect to (1) a breach
of the director's duty of loyalty to the corporation or its stockholders, (2)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Nevada law for unlawful payment of
dividends, or unlawful stock purchases or redemptions or (4) a transaction from
which the director derived an improper personal benefit. The intention of the
foregoing provisions is to eliminate the liability of our directors or our
stockholders to the fullest extent permitted by Nevada law.
Item 13. Financial Statements and Supplementary Data.
Not Applicable.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
73
<PAGE>
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
The following financial statements and related schedules are included in this
Item:
Interim Consolidated Financial Statements of SportsPrize Entertainment
Inc. (formerly Kodiak Graphics Company) as of August 31, 1999.
Audited Financial Statements of SportsPrize Inc. (formerly SportsPrize
Entertainment Inc., formerly Beagle Ventures Resources Management
Inc.) for the year ended February 28, 1999.
(b) Exhibits
<TABLE>
<S> <C>
Exhibit Number
Description
----------------- ------------------------------------------------------------------------------------------
2.1(1) Articles of Share Exchange
3.1(1) Articles of Incorporation of Par Golf, Inc. effective August 25, 1995
3.2(1) Articles of Amendment to Par Golf, Inc. effective August 21, 1997
3.3(1) Articles of Amendment to Kodiak Graphics Company effective May 21, 1999
3.4(1) Articles of Amendment to SportsPrize Entertainment Inc. effective June, 1999
3.5(1) Bylaws of Par Golf Inc.
10.1(1) Form of Stock Option Plan
10.2(1) Form of Stock Option Agreement
10.3(1) Agreement and Plan of Share Exchange by and between Kodiak Graphics Company and
SportsPrize Entertainment Inc. dated May 7, 1999
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
10.4(1) Escrow Agreement by and between Kodiak Graphics
Company of the first part, Randy Daggitt, Jeff Paquin,
James Brown, Michael Slater, Anthony Vecchio and Gang
Consulting Inc. of the second part and Clark, Wilson
of the third part, dated May 7, 1999
10.5(1) Service Agreement by and between SportsPrize Inc. (formerly SportsPrize Entertainment
Inc.) and Jeffrey D. Paquin, dated March 1, 1999
10.6(1) Service Agreement by and between SportsPrize Inc. (formerly SportsPrize Entertainment
Inc.) and John Thompson, dated March 1, 1999
10.7(1) Service Agreement by and between SportsPrize Inc. (formerly SportsPrize Entertainment
Inc.) and Donald MacKay, dated March 1, 1999
10.8(1) Service Agreement by and between SportsPrize Entertainment Inc. and Olson Cove
Consulting, dated March 1, 1999
10.9(1) Contract by and between SportsPrize Inc. and Quad-Linq Software Inc., dated February 18,
1999 and Addendum thereto dated May 12, 1999
10.10(1) Acquisition Agreement by and between SportsPrize Inc. and Justin Tighm Innovative Games
Inc., dated March 1, 1999 and Addendum thereto dated May 21, 1999
10.11(1) Marketing Consulting Agreement by and between Interactive Marketing Inc. and SportsPrize
Entertainment Inc., dated May 6, 1999
10.12(1) Agreement by and between Kaleidoscope Sports & Entertainment, LLC and SportsPrize
Entertainment Inc., dated May 1, 1999
10.13(1) Assignment and Assumption Agreement by and between Kaleidoscope Sports & Entertainment,
LLC and SportsPrize Entertainment Inc. effective as of May 14, 1999
10.14(1) Private Placement Subscription Agreement by and between Kodiak Graphics Company and
Lamplighter Investments Ltd., dated May 6, 1999
75
<PAGE>
10.15(1) Private Placement Subscription Agreement by and between Kodiak Graphics Company and
Strathburn Investments Inc., dated May 6, 1999
10.16(1) Private Placement Subscription Agreement by and between Kodiak Graphics Company and
Lamplighter Investments Ltd., dated July 15, 1999
10.17(1) Private Placement Subscription Agreement by and between Kodiak Graphics Company and
Strathburn Investments Inc., dated July 15, 1999
10.18(1) Data and Service Agreement by and between Las Vegas Sports Consultants, Inc. (dba DBC
Sports) and SportsPrize Entertainment Inc., dated May 26, 1999
10.19(1) Agreement and Contract for Services by and between SportsPrize Entertainment Inc. and
Michael Wiedder, dated June 17, 1999
10.20(1) Agreement and Contract for Services by and between SportsPrize Entertainment Inc. and
Ronald Sheridan, dated July 1, 1999
10.21(1) Letter Agreement by and between Intershop Communications, Inc. and SportsPrize
Entertainment Inc., dated June 29, 1999
10.22(1) Master Service Agreement by and between Frontier Global Center and SportsPrize
Entertainment Inc., dated July 22, 1999
10.23(1) Letter Agreement by and between Kodiak Graphics Company and Sonora Capital Corp., dated
May 7, 1999
10.24(1) Investor Relations Agreement by and between SportsPrize Entertainment Inc. and Sonora
Capital Corp., dated May 21, 1999
10.25(1) Letter Agreement by and between SportsPrize Entertainment Inc. and FOCUS Partners LLC,
dated July 27, 1999
10.26(1) Internet Distribution and Marketing Agreement by and between SportsPrize Entertainment
Inc. and Dreams Products, Inc., dated August 6, 1999
76
<PAGE>
10.27(1) Executive Employment Agreement by and between SportsPrize Entertainment Inc. and Bruce
R. Cameron, dated September 16, 1999
10.28(1) Executive Employment Agreement by and between SportsPrize Entertainment Inc. and Robert
Hunziker, dated August 15, 1999
10.29(1) Addendum to Agreement and Contract for Services by and between SportsPrize Entertainment
Inc. and Michael Wiedder, dated August 30, 1999
10.30(1) Proposal Agreement by and between SportsPrize Entertainment Inc. and ShopSports.com,
dated September 17, 1999
10.31(1) Lease Agreement by and between eOfficeSuites Inc. and SportsPrize Entertainment Inc.,
dated September 27, 1999
10.32(1) Amendment to Assignment and Assumption Agreement by
and between Kaleidoscope Sports and Entertainment, LLC
and SportsPrize Entertainment Inc., dated September
10, 1999
10.33(1) Agreement by and between Tridian Design and Development and SportsPrize Entertainment
Inc., dated August 2, 1999
10.34(1) Form of Confidentiality Agreement
21.1(1) List of Subsidiaries of the Registrant
27.1 Financial Data Schedule
(1) Previously filed on December 7, 1999.
</TABLE>
77
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 28, 1999
SPORTSPRIZE ENTERTAINMENT INC.
/s/ Bruce R. Cameron
Bruce R. Cameron, President
78
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
August 31, February 28,
1999 1999
(Unaudited) (Audited)
---------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,359,550 $ 34,345
Accrued interest receivable 10,544 -
Portfolio investments (Note 4) 12,966 26,350
Prepaid expenses 43,497 9,113
---------------- --------------
2,426,557 69,808
---------------- --------------
Equipment and Software
Software development costs 228,742 -
Internet equipment 124,001 -
Office computers and equipment 14,839 3,649
Less: accumulated depreciation and amortization (1,548) (730)
---------------- --------------
366,034 2,919
---------------- --------------
Other
Organization costs, net - 13,475
Deposit - 17,000
---------------- --------------
- 30,475
---------------- --------------
Total assets $ 2,792,591 $ 103,202
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,689 $ 2,847
Accrued liabilities 79,452 484
---------------- --------------
88,141 3,331
---------------- --------------
Stockholders' Equity
Common stock - $0.001 par value
authorized 100,000,000 shares;
19,480,374 issued and outstanding 19,480 4,424
Preferred stock - $0.001 par value
authorized 5,000,000 shares;
none issued and outstanding - -
Additional paid - in capital 5,861,807 239,571
Contribution of Capital 596,000 -
Deferred compensation (251,698) -
Deficit accumulated during the development stage (3,521,139) (144,124)
---------------- --------------
2,704,450 99,871
---------------- --------------
$ 2,792,591 $ 103,202
================ ==============
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these financial statements
2
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF LOSS
for the periods ended
<TABLE>
February 28,
1999
Period August 31, (period from
from Inception 1999 March 6, 1998-
(March 6, 1998) (6 months) February 28, 1999)
to August 31, 1999 (Unaudited) (Audited)
-------------------- ----------------- ----------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
-------------------- ----------------- ----------------
Operating expenses
General and administrative 3,356,968 3,293,632 63,336
Research and development 99,159 99,149 -
Depreciation and amortization 5,452 2,022 3,430
-------------------- ----------------- ----------------
3,461,569 3,394,803 66,766
-------------------- ----------------- ----------------
Operating loss (3,461,569) (3,394,803) (66,766)
Other income (expense)
Write Off of organization costs (Note 3) (13,475) (13,475) -
Foreign exchange (2,486) (3,764) 1,278
Interest income 27,554 27,522 32
Interest expense (395) (395)
(Loss) gain on sale of investments (63,949) 7,506 (71,455)
-------------------- ----------------- ----------------
Loss before discontinued operations (3,514,320) (3,377,014) (137,306)
Discontinued operations (6,819) - (6,819)
-------------------- ----------------- ----------------
Net loss for the period $ (3,521,139) $ (3,377,014) $ (144,125)
==================== ================= ================
Weighted average shares outstanding 15,321,978 3,515,244
================= ================
Net loss per share $ (0.22) $ (0.04)
================= ================
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
3
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the period from inception (March 6, 1998) to August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
<TABLE>
Additional Contribution
Common Stock Paid - in of Deferred
Date(s) Stock Amount Capital Capital Compensation Deficit Total
-------------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 6, 1998 - $ - $ - $ - $ - $ - $ -
Issuance of common stock
for cash March 1998 - 7,622,110 7,622 236,374 243,996
February 1999
Net loss for the period (144,125) (144,125)
---------- ---------- ----------- ---------- ---------- ----------- ----------
Balance - February 28, 1999 7,622,110 7,622 236,374 0 0 (144,125) 99,871
---------- ---------- ----------- ---------- ---------- ----------- ----------
Issuance of common stock March -
for cash April 1999 913,134 913 131,624 132,537
Issuance of common stock
for compensation (Note 6) March 1, 1999 1,464,465 1,465 211,035 212,500
---------- ---------- ----------- ---------- ---------- ----------- ----------
Common stock issued in
reverse merger 9,999,709 10,000 579,033 0 0 (144,125) 444,908
Issuance of common stock
for compensation (Note 6) May 6, 1999 596,000 596,000
Common stock
before merger May 14, 1999 7,564,000 7,564 (7,564) -
Issuance of common stock
for cash May 14, 1999 1,666,665 1,666 2,498,332 2,499,998
Less: share issuance costs May 14, 1999 (70,000) (70,000)
Issuance of common stock
for cash July 27, 1999 250,000 250 999,750 1,000,000
Less: share issuance costs July 27, 1999 (28,000) (28,000)
Compensation expense
for stock options 1,890,256 (251,698) 1,638,558
Net loss for the period (3,377,014) (3,377,014)
---------- ---------- ----------- ---------- ---------- ----------- ----------
Balance - August 31, 1999 19,480,374 $ 19,480 $5,861,807 $596,000 $(251,698) $(3,521,139) 2,704,450
========== ========== =========== ========== ========== ============ ==========
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
4
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the periods ended
(Unaudited)
<TABLE>
February 28,
1999
Period Period from inception
from Inception August 31, (March 6, 1998)
(March 6, 1998) 1999 to February 28, 1999
to August 31, 1999 (Unaudited) (Audited)
------------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,509,581) $ (3,365,456) $ (144,125)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,369 3,939 3,430
Loss ( gain ) on sale of investments 63,949 (7,506) 71,455
Issuance of common stock for compensation 808,500 808,500 -
Compensation expense for stock options 1,638,558 1,638,558 -
Foreign exchange 2,486 3,764 (1,278)
Change in operating assets and liabilities:
Accrued interest receivable (10,544) (10,544) -
Prepaid expenses (43,497) (34,384) (9,113)
Deposit - 17,000 (17,000)
Organization costs (162) 16,013 (16,175)
Accounts payable 8,689 5,842 2,847
Accrued liabilities 79,452 78,968 484
------------------- ---------------- ---------------
Net cash used in continuing operations (968,256) (858,781) (109,475)
Net cash used by discontinued operations (6,819) - (6,819)
------------------- ---------------- ---------------
Net cash used in operating activities (975,075) (858,781) (116,294)
Cash flows from investing activities:
Proceeds from sale of investments 218,307 60,513 157,794
Purchases of portfolio investments (290,207) (47,129) (243,078)
Software development costs (228,742) (228,742) -
Purchases of equipment (138,840) (135,191) (3,649)
------------------- ---------------- ---------------
Net cash used in investing activities (439,482) (350,549) (88,933)
------------------- ---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,924,481 3,658,722 265,759
Share issuance costs (150,374) (124,187) (26,187)
------------------- ---------------- ---------------
Net cash provided by financing activities 3,774,107 3,534,535 239,572
------------------- ---------------- ---------------
Net change in cash and cash equivalents $ 2,359,550 2,325,205 34,345
===================
Cash and cash equivalents at beginning of period - -
---------------- ---------------
Cash and cash equivalents at end of period $ 2,359,550 $ 34,345
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 395 $ - $ 395
Non cash investing and financing activities;
Issuance of common stock for compensation $ 808,500 $ 808,500 $ -
Compensation expense for stock options $ 1,638,558 $ 1,638,558 $ -
</TABLE>
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
5
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
Notes to Financial Statements
as of August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
1. Presentation of Interim Consolidated Financial Information
The accompanying unaudited interim consolidated financial statements have
been prepared by SportsPrize Entertainment Inc., and its subsidiary,
SportsPrize Inc., in conformity with generally accepted accounting
principles for interim financial information and with the rules and
regulations of the U.S. Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such regulations. The
unaudited interim consolidated financial statements reflect all normal,
recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The results of operations
for the interim period are not necessarily indicative of the results to be
expected for the full year.
Comparative results for the period from inception to August 31, 1998 are
not presented as no significant transactions occurred.
2. Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the year. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Accounting For Stock Options
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock - Based Compensation ("SFAS No.
123"), which requires entities to calculate the fair value of stock awards
granted to employees. This statement provides entities with the option of
either electing to expense the fair value of employee stock - based
compensation or continue to recognize compensation expense under previously
existing accounting pronounce - ments and provide pro forma disclosures of
net income and, if presented, earnings per share, as if the above -
referenced fair value method of accounting was used in determining
compensation expense. However, pro - forma disclosures are not required for
interim statements.
The Company accounts for stock based employee compensation arrangements in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25'). The Company has included the
additional disclosures about stock - based employee compensation plans
required by SFAS 123 in these interim financial statements.
Stock options issued to non - employees are recorded at the fair value of
the services received or the fair value of the options issued, whichever is
more reliably measurable. Compensation is charged to expense over the
shorter of the service or vesting period. Unearned amounts are shown as
deferred compensation in shareholders' equity.
3. Change in Accounting Principle
The Company adopted AICPA Statement of Position 98 - 5, Reporting on the
Costs of Start-Up Activities, in the first quarter of fiscal 2000. The SOP
requires the Company to expense start-up costs as incurred. On adoption,
the Company was required to write-off as a cumulative effect of a change in
accounting principle all previously capitalized organization costs. The
cumulative effect of adopting SOP 98-5 was to increase the loss for the
period by $13,475 net of Federal, state, and local tax benefits, which were
zero because realization of those benefits was not assured.
4. Portfolio Investments
All marketable securities were reclassified from the category "Available
for Sale" to "Trading Securities". There were no unrealized gains or losses
recorded in equity at the reclassification date. Therefore there was no
accounting impact on the Statement of Loss. Any unrealized gains and losses
are reported in earnings. Realized gains and losses are recorded by using
the specific identification method.
6
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
Notes to Financial Statements
as of August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
5. Recapitalization
Kodiak Graphics Company, a Nevada Corporation, ("Kodiak Graphics"), entered
into a merger agreement to acquire all the outstanding common stock of
SportsPrize Inc., a Nevada corporation, in a transaction described for
legal purposes as a reverse merger. The merger became effective on May 14,
1999. The surviving entity, Kodiak Graphics, changed its name to
SportsPrize Entertainment Inc. The transaction has been treated as a
recapitalization of SportsPrize Inc.
For reporting purposes, the historical information disclosed in the
financial statements of SportsPrize Entertainment Inc. are those of
SportsPrize Inc., the accounting acquirer. However, the capital structure
is that of the legal acquirer, Kodiak Graphics. All shares listed in the
Statement of Stockholders' Equity prior to the reverse merger represent
those of SportsPrize Inc., and have been converted at the conversion rate
described below.
Immediately prior to the merger, Kodiak Graphics was a non - operating
shell with no net assets and 7,564,000 shares of common stock outstanding.
As part of the recapitalization, Kodiak Graphics issued an additional
9,999,709 shares in exchange for all of the shares of SportsPrize Inc. (
5,804,000 ), at a conversion rate of 1.7229 shares of Kodiak Graphics for
each share of SportsPrize Inc. Approximately 57 % of the shares outstanding
in SportsPrize Entertainment Inc. were held by the former shareholders of
SportsPrize Inc. immediately following the transaction.
6. Stockholders' Equity
Common Stock
The Company's Articles of Incorporation authorizes the issuance of up to
100,000,000 shares of Common Stock, $0.001 par value per share, of which
19,480,374 shares were outstanding as of August 31, 1999. Holders of shares
of Common Stock are entitled to one vote for each share on all matters to
be voted on by the stockholders. Holders of Common Stock have no cumulative
voting rights. Holders of shares of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the
Board of Directors, from funds legally available. In the event of
liquidation, dissolution or winding up of the Company, the holders of
shares of Common Stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. Holders of Common Stock have no
preemptive rights to purchase the Company's common stock. There are no
conversion rights or redemption or sinking fund provisions with respect to
the common stock. All of the outstanding shares of common stock are fully
paid and non - assessable.
On March 1, 1999, the Company executed agreements to issue 650,000 shares
of common stock to its employees and 200,000 shares of common stock to an
outside consultant for services. The total compensation expense recorded
for these transactions was $212,500. The value was based on equivalent
shares issued in conjunction with a private placement financing occurring
in the same period. The shares were subsequently converted into 1,464,465
shares based on the exchange rate of 1.7229 in connection with the
aforementioned reverse merger (Note 5).
On May 6, 1999, the Company executed a strategic marketing and consulting
agreement with Interactive Marketing Inc. ("IMI"). IMI is providing overall
strategic and tactical marketing as well as operational strategy. In
exchange for services, IMI received fully vested, non-cancelable options to
purchase 400,000 shares of SportsPrize Entertainment Inc. unregistered
common stock, which was previously issued to various founders of the
Company. IMI can exercise these options upon demand for up to one year. The
stock was placed in escrow by the founders upon signing the contract with
IMI.
The Company accounted for the transaction as a contribution of capital by
the founders and recorded $596,000 compensation expense because the
services were performed in the current period. The options were valued at
$1.50 per share using the Black Scholes model, which assumed a $0.01 grant
price, a 4.79% risk free rate, a 30% volatility and an expected life of
three years.
7
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
Notes to Financial Statements
as of August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
7. Earnings per share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". Basic earnings per share is based on the weighted
effect of all common shares issued and outstanding. The following table
sets forth the computation of basic and diluted earnings per share for the
six months ended August 31, 1999, and the period ended February 28, 1999.
<TABLE>
August 31,1999 February 28, 1999
-------------- -----------------
<S> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share - net loss ($3,377,014) ($144,125)
Denominator
Denominator for basic and diluted
earnings per share -
weighted average shares outstanding 15,321,978 3,515,244
</TABLE>
Options to purchase 2,305,000 shares of common stock ranging from $0.25 -
$2.00 a share were outstanding at August 31, 1999. Such options were not
included in the computation of diluted earnings per share because they were
antidilutive.
8. Stock Options and Warrants
The Company established a stock option plan effective June 21, 1999, and
amended it October 6, 1999. The plan originally allowed issuance of up to
3,000,000 shares of our common stock as incentive stock options to our
current and future key employees and consultants. The amended plan
increased the options issuable to 6,000,000. The Plan is administered by
the Board of Directors or a committee of two or more outside directors on
the Board. The Board of Directors has the authority to determine the terms
and restrictions on all options, as well as to construe and interpret any
provision of the Plan.
The options can be granted for periods up to ten years, or five years for
ISOs granted to optionees possessing more than 10 % of the total combined
voting power of all classes of stock. Unless extended by the Plan
administrators, the right to exercise on option terminates 90 days after
the termination of an optionee's relationship with the Company. If the
optionee dies or becomes disabled, the option will remain exercisable for
one year.
The Company accounts for its stock option plan in accordance with the
provisions of APB Opinion No.25, Accounting for Stock Issued to Employees.
Had compensation cost for the stock option plan been determined based on
the fair value at the grant date consistent with the method summarized in
SFAS No. 123, Accounting for Stock - Based Compensation, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below: For the six months ended August 31, 1999
For the six months ended
August 31, 1999
Actual net loss $ (3,377,014)
Pro forma net loss $ (4,342,264)
Actual net loss $ (0.22)
Pro forma net loss $ (0.28)
The fair value of each option grant was estimated at the grant date using
the Black - Scholes option - pricing model for the period from March 6,
1998 (inception) to August 31, 1999, assuming a risk - free interest rate
ranging from 5.27 % to 5.6 %, volatility of 30 %, zero dividend yield, and
an expected life of 2 to 3 years.
8
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
Notes to Financial Statements
as of August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
8. Stock Options and Warrants (continued)
The Black - Scholes option valuation method was developed for use in
estimating the fair value of traded options and warrants which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's
employee stock options and warrants have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
A summary of the status of the company's options as of August 31, 1999 and
changes during the period from March 6, 1998 (inception) to August 31, 1999
is presented below:
<TABLE>
Exercise Price Weighted Average
Per Share Exercise Price Shares
------------------ ------------------- ----------------
<S> <C> <C> <C>
Granted Below FMV $0.25 - 2.00 $0.49 1,500,000
At FMV $0.25 $0.25 805,000
----------------
Total options outstanding at August 31, 1999 $0.39 2,305,000
================
Total options exercisable at August 31, 1999 $0.30 1,780,000
Weighted - average fair value of
options granted during the period $1.02 2,305,000
</TABLE>
The following table summarizes information concerning options outstanding
at August 31, 1999:
<TABLE>
Total Outstanding Exercisable
------------------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise prices of Shares Life (years) Exercise Price of Shares Exercise Price
--------------- ---------------- ------------------ ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.25 1,580,000 3.00 $0.25 1,555,000 $0.25
$0.50 - $0.75 475,000 3.00 $0.57 225,000 $0.64
$2.00 250,000 2.00 $2.00 - -
</TABLE>
For the period ended August 31, 1999, total employee compensation expense
related to the granting of these stock options was $678,646.
Non - Employees
The Company granted options to purchase 905,000 shares of the Company's
common stock to non employees during the period ended August 31, 1999 and
recognized expense related to these options of $959,913. The total
compensation expense was determined by the fair value of the options issued
calculated the Black - Scholes model.
9
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Corporation)
Notes to Financial Statements
as of August 31, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
9. Contingencies
All shares in escrow to Quad - Linq and certain individuals have been
distributed and recorded at fair market value. These shares were converted
at 1.7229 shares of Kodiak Graphics Company for each share of SportsPrize
Entertainment Inc. upon the merger of the Companies.
On May 12, 1999, the Company negotiated an addendum to the original
agreement with Quad - Linq Software Inc. Under this addendum, the Company
agreed to pay an additional $80,000 to Quad - Linq when the product is
completed and ready for testing. At August 31, 1999, $55,000 had been paid
in connection with this addendum. The Company will also pay Quad - Linq at
their contracted rates, for any additional software development and
programming services not related to the product.
Pursuant to an agreement dated May 6, 1999, with Interactive Marketing,
Inc., who agreed to provide strategic, marketing and other consulting
services, the Company committed to the following;
* Cash payments totaling $165,000.
* 15 % royalties on net revenues that Interactive Marketing, Inc.
materially participates in developing on behalf of the Company.
Additional cash payments of $180,000, and the option for IMI to purchase an
additional 200,000 founders escrowed common shares may also be due under
the extension provisions of this agreement.
On June 24, 1999, the Company signed a letter agreement with INTERSHOP to
utilize INTERSHOP's e - commerce solutions to develop and customize its
online storefronts. Pursuant to this agreement, the Company has paid
$120,680 in cash 'through August 31, 1999; and has incurred an additional
$41,000 payable in cash for this software product.
10. Subsequent Events
In September 1999, Mr. Bruce Cameron was elected a director, and appointed
President, Chief Financial Officer and Treasurer. In September 1999,
700,000 options were issued to an executive officer and a consultant to the
Company. In November 1999, Mr. Alan Gerson was appointed Chairman of the
Board of Directors of the Company.
10
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FEBRUARY 28, 1999
AUDIT REPORT
<PAGE>
[Geneyne Hodges, CPA Letterhead]
1135 Terminal Way
Sutie 208B
Reno, NV 89502
Phone (775) 332-2985
Fax (775) 332-2986
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Sportsprize, Inc.
Reno, Nevada
I have audited the accompanying balance sheet of Sportsprize, Inc.,
formerly Sportsprize Entertainment, Inc., formerly Beagle Ventures Resources
Management, Inc., (a development stage company) as of February 28, 1999 and the
related statements of loss, stockholders' equity and cash flows for the period
March 6, 1998 (date of inception) to February 28, 1999. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sportzprize, Inc., (a
development stage company) as of February 28, 1999, and the results of its
operations and its cash flows for the period March 6, 1998 (date of inception)
to February 28, 1999 in conforming with generally accepted accounting
principles.
/s/ Geneyne A. Hodges
May 25, 1999
2
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
FEBRUARY 28, 1999
Page
----
Independent Auditor's Report 2
Financial Statements:
Balance Sheet 3
Statement of Loss 4
Statement of Stockholders' Equity 5
Statement of Cash Flows 6
Notes to Financial Statements 7-11
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
FEBRUARY 28, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents - (Note 3) $ 34,345
Investments - (Note 1b) 26,350
Prepaid Expenses 9,113
----------------
69,808
EQUIPMENT - (Notes 1d & 4) 2,919
----------------
OTHER ASSETS
Deposits - (Note 1e) 17,000
Organization Costs - (Note 1f) 13,475
30,475
$ 103,202
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,847
Accured liabilities 484
----------------
3,331
STOCKHOLDERS' EQUITY
Common stock -$0.001 par value
Authorized 25,000,000 shares;
4,424,000 shares issued and outstanding 4,424
Additional paid-in capital 239,572
Deficit accumulated during the development stage (144,125)
----------------
99,871
$ 103,202
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 3 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSS
PERIOD FROM MARCH 6, 1998 (DATE OF INCEPTION) TO FEBRUARY 28, 1999
<TABLE>
<S> <C>
REVENUES $ -0-
OPERATING EXPENSES
Consulting 31,164
Rent 6,628
Legal 5,887
Miscellaneous 5,615
Telephone 4,758
Office 3,215
Amortization 2,700
Travel 2,282
Entertainment 2,057
Accounting 1,730
Depreciation 730
----------------
(66,766)
Loss from operations (66,766)
----------------
OTHER INCOME (EXPENSE)
Gain on exchange 1,278
Interest income 32
Interest expense (395)
Loss on sale of investments (71,455)
----------------
(70,540)
Loss before provision for federal income taxes (137,306)
PROVISIONS FOR FEDERAL INCOME TAXES -0-
Loss from continuing operations (137,306)
DISCONTINUED OPERATIONS
Loss from operations of discontinued division (6,819)
----------------
NET LOSS $ (144,125)
================
Per share of common stock
Loss from continuing operations $ (.0410)
Loss from operations of discontinued operations (.0020)
----------------
Net loss $ (.0430)
================
Weighted average shares outstanding 3,515,244
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 4 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM MARCH 6, 1998 (DATE OF INCEPTION) TO FEBRUARY 28, 1999
COMMON STOCK
.001 PAR VALUE 25,000,000 SHARES AUTHORIZED
4,424,000 SHARES ISSUED AND OUTSTANDING
<TABLE>
ADDITIONAL
COMMON STOCK PAID-IN
DATES SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 6, 1998 -0- $ -0- $ -0- $ -0- $ -0-
Net loss for the period -0- -0- -0- (144,125) (144,125)
Issuance of common March 1998-
stock for cash February 1999 4,424,000 4,424 239,572 -0- 243,996
---------- ---------- ------------ --------- ---------
Balance February 28, 1999 4,424,000 $ 4,424 $ 239,572 $(144,125) $ 99,871
========== =========== ============ ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 5 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 6, 1998 (DATE OF INCEPTION) TO FEBRUARY 28, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (144,125)
Adjustments to reconcile net loss to net cash used by operating activities:
Provision for depreciation and amortization 3,430
Loss on sale of marketable securities 71,455
Gain on exchange (1,278)
Increases in operating assets and liabilities:
Prepaid expenses (9,113)
Deposits (17,000)
Organizational costs (16,175)
Accounts payable 2,847
Accrued liabilities 484
--------------
Net cash used by continuing operations (109,475)
Net cash used by discontinued operations (6,819)
--------------
Net cash used by operating activities (116,294)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 157,794
Purchases of marketable securities (243,078)
Purchases of equipment (3,649)
--------------
Net cash used by investing activities (88,933)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan advances from officer 15,416
Loan repayment to officer (15,416)
Proceeds from issuance of common stock (net of financing
of $26,187) 239,572
---------------
Net cash provided by financing activities 239,572
---------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 34,345
CASH AND CASH EQUIVALENTS AT
BEGINNING PERIOD -0-
----------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 34,345
================
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 6 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM MARCH 6, 1998 (DATE OF INCEPTION) TO FEBRUARY 28, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Sportsprize, Inc.
(formerly Sportsprize Entertainment, Inc., formerly Beagle Ventures Resource
Management, Inc. (A Development Stage Company), (the Company) is presented to
assist in understanding the Company's financial statements. These accounting
procedures conform to generally accepted accounting principles and have been
consistently applied in the preparation of financial statements.
a) Business Activity
The Company, formerly known as Beagle Ventures Resources Management,
Inc., changed its name to Sportsprize Entertainment, Inc. on February
25, 1999, and subsequently May 13, 1999 changed its name to
Sportsprize, Inc.. The Company is currently engaged in the business of
promoting and creating a web site that provides the opportunity to
play a pool game that the company is developing on the Internet.
Previously, the Company was engaged primarily in acquiring the rights
to explore and exploit the commercial mineral potential, specifically
diamonds, in property located in the Province of Alberta, Canada.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
b) Marketable Securities
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement
requires securities which are available for sale to be carried at fair
value, with changes in fair value recognized as a separate component
of stockholders' equity.
As of February 28, 1999, the fair value of the securities did not
materially differ from the cost. Therefore, there were no changes in
fair market value to recognize in stockholders' equity for the period
then ended. Proceeds from sales of securities available for sale were
$157,794. Losses of $71,455 were realized on those sales
- 7 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Accounting Basis for Recording Income
The books and records of the Company are kept on the accrual basis for
financial reporting and income tax purposes.
d) Equipment and Depreciation
Equipment is stated at cost. Expenditures for maintenance and repairs
are expensed as incurred while renewals and betterments are
capitalized.
Depreciation and amortization are provided for in amounts sufficient
to relate the costs of depreciable assets to operations over their
estimated service lives, principally on the straight-line and double
declining balance methods.
e) Deposits
The deposit of $17,000 pertained to the agreement with QUAD-LINQ that
required the company to deliver a retainer of one third of the $50,000
contract upon execution.
f) Organizational Costs
Costs incident to the creation of the corporation, including various
legal and accounting fees, have been capitalized and are being
amortized over a five-year period. Amortization expense for the period
ended February 28, 1999 amounted to $2,700.
g) Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due. Taxes
currently payable are based upon the determination of taxable income
which is not materially different from financial statement income.
Therefore, there are no temporary differences reported in this
financial statement
As of February 28, 1999, the company has a net operating loss of
$144,125 for tax and book purposes, which will begin to expire in the
year 2019.
Pursuant to SFAS No. 109, the deferred tax asset created by the tax
loss carryforward is reduced by a 100% valuation allowance.
- 8 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Corporation was formed in Nevada on March 6, 1998, Operations have been
devoted primarily to raising capital, acquiring property rights, marketing,
research and development, and administrative functions.
NOTE 3 - CASH AND CASH EQUIVALENTS
The company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. As of February 28, 1999
cash and temporary investments consisted of the following:
Demand deposits $ 34,345
==============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, stated at costs as of February 28, 1999 consisted
of the following:
Office Equipment $ 3,649
Less: Accumulated depreciation (730)
---------------
$ 2,919
NOTE 5 - MINERAL PROPERTY RIGHTS
The Company had entered into a one-year option agreement with Jody Dahrouge
and Halferdahl & Associates, Ltd. (collectively the "Optionor" to purchase
mineral property rights located in the Province of Alberta, Canada. The company
did not proceed with the operation and terminated the option when it expired on
February 11, 1999 (measurement date). There are no future liabilities or
contingencies associated with the termination of the mineral property rights
option. The termination did not cause a material impact to the financial
statements.
- 9 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMENT, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 6 - CONTINGENCIES
On February 18, 1999, the Company entered into a software development
contract with QUAD-LINQ Software, Inc., a British Columbia Company, consisting
of certain sports pool and lottery schemes that demonstrate significant online
betting applications within the Internet and lotto industry "The Product."
QUAD-LINQ Software, Inc. has agreed to provide their services, know-how and
ability and facilities to deliver the Company a tested working product that is
commercially viable and meets the Company's objectives. QUAD-LINQ has agreed to
insure as part of its service that the product is operational and functioning
over the Company's web site over the Internet. In consideration of QUAD-LINQ
performing these services for the Company, upon the execution of this agreement,
the Company has paid a retainer of approximately one-third ($17,000) of the
agreed upon price of $50,000. The remaining two installments of $16,500 each,
are due on March 30, 1999, and on the product deliver date, respectively.
Additionally, the Company will issue 200,000 Common Class A shares from its
treasury into an escrow account. These shares will be issued to QUAD-LINQ on a
performance basis. 100,000 shares will be released from escrow on the product
deliver date. The remaining 100,000 shares will be released when the systems and
products have been tested and are in operation on the Company's Web site.
The Company shall also pay to QUAD-LINQ Software, Inc. a royalty of five
percent (5%) per annum on the first one million dollars ($1,000,000) in net
sales of the product manufactured, used, licensed, or sold by the Company, and
three percent (3%) on the net sales over one million dollars.
In March 1999, the Company entered into one-year service agreements with
five different parties. These agreements require the company to pay an aggregate
$11,000 - $19,000 per month in cash.
Additionally, 225,000 shares of common stock are to be issued pursuant to
an exemption from registration available under Regulation S of the United States
Securities Act of 1933, as amended, as consideration for entering into the
service agreements. An additional 425,000 shares are to be delivered into escrow
until satisfaction of certain performance conditions are met. When the 225,000
and the 425,000 shares are issued, they will be accounted for as a noncash
issuance of common stock for compensation. These shares will be issued at fair
market value, and will be shown as a separate item on the statement of
stockholders' equity and as compensation expense on the statement of loss.
- 10 -
<PAGE>
SPORTSPRIZE, INC.
(FORMERLY SPORTSPRIZE ENTERTAINMNET, INC.,
FORMERLY BEAGLE VENTURES RESOURCES MANAGEMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 6 - CONTINGENCIES (continued)
The Company is also directed to issue incentive stock options exercisable
to acquire 705,000 common shares for no less than $0.25 per share and 100,000
shares for no less than $0.50 per share.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has paid Jeffrey Paquin $3,000 for legal fees rendered for the
preparation of offering memorandum, $4,018 in consulting fees, and $15,416 for
loan repayment.
NOTE 8 - DISCONTINUED OPERATIONS
During 1999, the Company disposed of its mining and mineral exploration
operations by not exercising its option on February 11. 1999 (measurement date),
and incurred a one-time loss of $6,819, on disposal, with no future consequences
or liabilities. The loss represents the value of the mineral property rights,
which will not be exercised. The segment had no assets or liabilities other than
the mineral property rights and had not begun operations, so there is no income
or loss. Any potential income tax benefits from this loss is offset by a 100%
valuation allowance. The effect of this transaction on the Company's net loss is
as follows:
Mineral property rights $ (6,819)
==================
NOTE 9 - SUBSEQUENT EVENTS
On May 13, 1999, the Board of Directors approved an agreement and plan of
share exchange by and among Kodiak Graphics Company. Kodiak wishes to acquire
the entire issued and outstanding share capital of the company in exchange for
shares of Kodiak, making the Company the wholly owed subsidiary of Kodiak.
Sportsprize and Kodiak entered into a letter agreement on April 22, 1999
pursuant to which Kodiak has agreed to acquire all of the issued and outstanding
shares of common stock of Sportsprize, subject to the approval of the
Sportsprize shareholders, in exchange for 10,000,000 shares of common stock of
Kodiak. Each of the Constituent Corporations has, subject to the approval of
Sportsprize shareholders, adopted this statutory plan of share exchange.
This Share Exchange is intended to qualify as a reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code.
On May 13, 1999, the Company filed a Certificate of Amendment to Articles
of Incorporation with the Nevada Secretary of State to change the legal name of
the company to Sportsprize, Inc.
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-END> Aug-31-1999
<CASH> 2,359,550
<SECURITIES> 12,966
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,426,557
<PP&E> 0
<DEPRECIATION> 2,022
<TOTAL-ASSETS> 2,792,591
<CURRENT-LIABILITIES> 88,141
<BONDS> 0
0
0
<COMMON> 19,480
<OTHER-SE> 6,457,809
<TOTAL-LIABILITY-AND-EQUITY> 2,704,450
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,394,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,377,014)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
