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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB/A
GAME DATA, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 88-0315075
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1575 DELUCCHI LANE, #115
RENO, NV 89502
(Address of principal executive offices)
Issuer's telephone number, including area code: (775) 829-7077
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Security Will be Traded
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None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value(1)
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(Title of Class)
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(1)Pursuant to Section 12(g)(1) of the Securities Exchange Act of 1934,
as amended, the Registrant is voluntarily registering its Common Stock with the
United States Securities and Exchange Commission (the "Commission") under
Section 12(g) but has no current plans to list such shares on a stock exchange.
This registration is not being made in connection with any public offering of
securities and the Registrant has made no public offerings of securities in the
past nor does it have a current intention to do so in the near future.
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PART I
Pursuant to Part I, Alternative 2 of this Form, the Registrant is
furnishing the information required by Items 6-12 of Model B of Form 1-A.
The matters discussed in this registration statement, to the extent
that they address anticipated activities or results, are forward-looking
statements, the accuracy of which is necessarily subject to risks and
uncertainties. These risks include, but are not limited to, potential variations
in the timing of the Registrant's anticipated product introductions, receipt of
regulatory approvals the timing and approval of which is largely outside the
Registrant's control, market acceptance and demand for the Registrant's
products, and the development and rate of growth of gaming markets in general.
Actual events and results may differ significantly from the discussion of such
matters in the forward-looking statements. Such differences may be based upon
factors within the Registrant's control, such as strategic planning decisions by
management and reallocation of internal resources, or on factors outside of the
Registrant's control, such as introduction of competitive products by third
parties.
ITEM 6. DESCRIPTION OF BUSINESS
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OVERVIEW
Game Data, Inc. (the "Company" or "GDI") was formed in February 1994 to
develop innovative and proprietary new products for legal gaming markets around
the world. The Company's principal activities to date have focused primarily on
research and development and legal protection of the Company's primary products.
The Company's revolutionary Live Interactive Video Entertainment ("LIVE") table
game platform products combine traditional table games with state of the art
technology and are designed to increase overall revenues to the casino by, among
other things, providing the opportunity for faster play, increased wagering
options, and decreased losses due to cheating. The Company believes that its
LIVE products will provide an attractive alternative to table game players, who
in addition to being able to play a faster version of traditional card games
will also be able to take advantage of progressive or customized jackpots.
The gaming industry has been proliferating throughout the United States
and the world for the past decade, and along with this expansion the use of
technology to improve casino operations and create new and exciting games that
keep players interested has been paramount. Technology has most significantly
changed the slot floor of casinos, with mechanical, reel-spinning slots being
replaced by computer-controlled slots and video slots that feature bonus games,
lifestyle changing jackpots, and multimedia features (high resolution graphics,
sound, and streaming video). With this expansion has come increased competition
amongst the throng of new gaming manufacturers maneuvering to sell casinos
products. The bulk of the manufacturing competition has been focused on the slot
machine side of the business. Indeed, there has been little innovation or
excitement infused into the table game or other gaming areas (such as poker,
keno, horse racing, etc.). Typically, these areas have also seen a decline in
play and, inevitably, revenues.
GDI was created to identify and exploit areas within gaming that have
seen little innovation or creativity. The Company believes that the historically
narrow focus of new gaming products creates several opportunities to introduce
new and exciting games or methods of play to create new customers and renew
interest in traditional games. GDI has devoted significant resources to the
development of products and product ideas and expects that its first product
based on the LIVE table game platform will be submitted to Nevada regulatory
authorities for necessary approvals in the fourth quarter of 1999.
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In addition to the LIVE table game platform, GDI has concepts and
patent filings covering a broad range of gaming products, including slot
machines, themed games, pari-mutuel horse racing, sports betting, player
tracking, and other gaming-related ideas.
STRATEGY
GDI's objective is to become a leading producer of novel gaming
products utilized in gaming establishments around the world. The Company's
strategy to achieve this objective includes the following key elements:
o IDENTIFY AND ADDRESS NEGLECTED OPPORTUNITIES. Utilize the combined
experience of its management, employees and consultants to identify
product opportunities either overlooked by other gaming product
manufacturers or beyond their capabilities and exploit those
opportunities ahead of the competition.
o TAILOR PRODUCT CONCEPTS TO BENEFIT BOTH CASINO AND CONSUMER.
Exemplified by the Company's LIVE table game platform, develop
products or product systems that address the needs and desires of both
the gaming proprietor (e.g. heightened security, speed of play, ease
of use and maintenance) as well as the playing consumer (e.g. video
displays, greater jackpot potential and variety).
o PROTECT CONCEPTS TO THE MAXIMUM EXTENT POSSIBLE. Recognize and treat
new products and product concepts as valuable property of the Company
and protect it as such, whether by patent, trademark, copyright or
other appropriate form of protection.
o UTILIZE EXISTING CHANNELS OF DISTRIBUTION. Identify and partner with
leading distributors of gaming products on a product-by-product basis
to both allow the Company to focus its efforts while at the same time
maximizing market penetration of the Company's products.
o MAINTAIN FOCUS AND CONTINUE TO INNOVATE. By contracting for
third-party manufacturing, sales and support of the Company's
products, the Company will be able to focus its internal efforts on
the continued development and enhancement of gaming products and
product concepts. The Company believes that this heightened focus on
its core business will allow the Company to stay ahead of its
competition who often attempt to internalize all aspects of the
product cycle, from product conceptualization to the servicing of
installed products.
POTENTIAL MARKETS
The Company believes that the markets for its products are substantial.
GDI's LIVE table game platform represents a technological extension but not a
radical departure from the current games of blackjack or poker. The platform
would be marketable, subject to regulatory compliance, in any jurisdiction that
allows casino gaming (house-banked tables) and/or card rooms (player-banked
tables). One industry magazine estimates that there are over 1,000 card rooms in
the United States. The Company estimates that there are approximately 12,000
house-banked blackjack and 10,000 poker tables in North American gaming
establishments. Furthermore, the Nevada State Gaming Control Board reports that
the 1997 win from 3,527 blackjack tables in the state was $1.02 billion
(approximately $289,320 per table). In addition, the reported 1997 win from 490
tables in Nevada card rooms was $61.5 million, based on an approximate 3-5% rake
with a maximum dollar amount. In addition to domestic market opportunities, the
international market is growing rapidly in its acceptance of poker-style games.
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PRODUCTS
LIVE PLATFORM PRODUCTS
GDI's first product concept is the LIVE table game platform. LIVE is a
live casino table, of standard size for the applicable game, containing embedded
interactive display screens (so-called "touch screens") for each player and the
dealer to depict video images including playing cards and status messaging. A
computer controls the shuffling and dealing of the deck via touch screen prompts
from a live dealer. Utilizing the touch screens at each player station, players
are able to view their hands and make decisions and/or inputs such as wagering
and choosing discards. To the extent that hands are dealt in a "face down"
manner, a continuous touch by the player peels the corners of the cards upward
toward the player to reveal the identity of the cards, and the cards revert to
their face-down nature when the player releases the touch screen. Requests for
additional cards, if applicable, are made verbally and non-verbally as they
would be at a conventional card table. Betting also remains a manual exercise,
with players placing bets with the establishment's standard gaming chips and the
dealer manually distributing winnings in chips and collecting chips representing
lost bets.
The LIVE platform will initially be deployed in two variations, a
blackjack-style table and a poker-style table. Each variation is capable of
switching between a multitude of games, similar to the multi-game video slot
machines currently available in the marketplace. The blackjack table will debut
with standard, public domain blackjack software with a large jackpot version
called Million Dollar Blackjack' to follow. The poker-style table will debut
with public domain Texas Hold-Em with other standard and bonus versions of
popular poker games to follow. In each configuration, the player displays will
be tilted toward the player while there will be communal, face-up displays
embedded in the table for all to see. For instance, while each player will have
access to only his or her initial two cards dealt in blackjack, any additional
cards dealt to a player and the dealer's cards will be reflected on the communal
face-up display in the center of the table. Similarly, at the poker-style table,
each player has access to his or her own face-down cards but the face-up cards
are reflected on the face-up display in the center of the table for all players
to track play. The Company intends to continue to develop and adapt new games
for play on the LIVE platform.
Among the LIVE platform's advantages and capabilities over a hand dealt
game using real playing cards are that:
o The platform is capable of playing any one of a number of poker and
non-poker games, extending the multi-game video slot paradigm to the
pit and card room. The multi-game capability of the LIVE platform
hardware provides the gaming establishment with the potential to
change the type of game played at a particular LIVE table without
altering the physical set-up.
o The platform can and will be produced in 6-seat blackjack style,
10-seat poker, and 7-seat poker formats to accommodate blackjack,
baccarat, all versions of poker, and potentially additional specialty
card games.
o The platform can be expanded to include specialty games that currently
can only be played on the slot floor.
o The platform can be utilized to allow bonusing, local-area
progressives, and wide-area progressives on any or all games, making
lifestyle-changing, multi-million dollar jackpots possible.
o The platform will provide the ability to increase the number of hands
played per hour of each game.
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o Significant cost savings to casinos will be recognized due to a
reduction in playing card stock, automatic shuffling devices, and
blackjack quick-peek reading devices.
o The training and expertise required of dealers will be significantly
reduced as will the human error factor present in the manual handling
of playing cards.
o Reduced dealing duties will allow dealers to become more
customer-service oriented (e.g. enticing players to the table and
interacting with players) because the computer unit will be
responsible for shuffling and dealing the cards and determining the
winner.
o The elimination of the handling of physical playing cards by the
dealer and players will dramatically reduce the potential for cheating
by the players and/or dealer (through the elimination of card
manipulation, shuffle tracking and "coolers"), and, accordingly, lower
the amount of losses currently incurred by gaming establishments due
to cheating in such games. In addition, card counting may be
eliminated via reshuffling the deck for each deal, if desired.
o Player privacy will be enhanced by the liquid crystal display monitors
at the player stations, which will be difficult to read by persons
other than those positioned directly in front of the monitor. In
addition, a privacy filter has been added to the display to enhance
this security effect and make viewing the screen virtually impossible
from any position other than straight on.
o Notwithstanding the innovative utilization of technology, the game
will retain its live nature, with a human dealer, actual betting
chips, player interaction, and, in some instances, team play.
OTHER PRODUCTS
SLOT WITH COMBINATION DISPLAY. The Slot with Combination Display is a
unique slot concept that addresses the problem of providing a bonus wheel to a
reel-spinning or video slot without the requirement of a large, mechanical
apparatus for the bonus wheel. Bonus wheel games have been extremely successful
in casinos over the past few years, with Anchor Gaming's Wheel of Gold' and
International Game Technology's Wheel of Fortune' being the most notable
examples. The major appeal of these games is a secondary wheel apparatus above
the standard slot cabinet that is activated by the player when a particular reel
symbol combination is achieved on the primary slot game. These games however
cannot be placed in locations that cannot accommodate the large apparatus,
namely bars, pubs, and convenience stores.
GDI intends to develop a demonstrable prototype of this game, then
license it to a major gaming vendor for manufacturing and distribution.
PIR SLOT. The PIR slot follows in the wake of the most successful slot
machine in the history of gaming, IGT's Wheel of Fortune. Like Wheel of Fortune,
it will be a themed game with a bonus wheel apparatus added to a standard
reel-spinning slot machine. The PIR slot has a major advantage over Wheel of
Fortune in that it adds the elements of decision and strategy for the player,
giving the player the perception of being able to affect the outcome and thereby
enhancing the gaming experience.
COMPETITION
LIVE TABLE GAME PLATFORM.
GDI has identified three areas of potential competition (direct,
indirect, and displacement) in connection with its LIVE table game platform.
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DIRECT COMPETITION. GDI is aware of only one potential direct
competitor for its LIVE table game platform, Digideal, which has developed a
live blackjack table, called Digital 21(TM). The primary knowledge the Company
has about Digideal was obtained from viewing a demonstration of Digideal's table
device at last fall's WGCE gaming show. The Digideal product is a blackjack
table with LCD panels (player displays) for each player in lieu of real cards.
The cards on the Digideal product are dealt face-up, so players merely watch the
game unfold with little or no interaction. By contrast, the Company's product
deals cards either face-down or face-up, making for more player interaction and
enjoyment. To the Company's knowledge, Digideal does not have a patent on its
technology, although it claims that a patent application has been filed. Thus,
the Company views its competitive edge against Digideal to be in the form of its
superior product, which players should find more interactive and enjoyable, and
potentially an edge by virtue of intellectual property, if in fact Digideal does
not have a patent application on file or pending. There can be no assurances
that additional direct competitors to the Company's LIVE products will not enter
the market.
INDIRECT COMPETITION. There are currently two gaming manufacturers that
market video machine adaptations of live tables games: SEGA Gaming and
Innovative Gaming Corporation of America ("IGCA"). As these video products lack
a live dealer, are player initiated, have coin and bill acceptors, and are
typically located on the slot floor not the live pit, these games are more akin
to video slot machines than live table games. However, both companies have been
operating for a number of years and have carved out niche markets for their
respective machines. While GDI does not consider SEGA and IGCA to be true
competitors because those companies' products appeal more to a slot machine
player than a live table player, there is the potential that the products
manufactured by these companies, or by other companies introducing similar
products, may be considered a competitive alternative to the Company's products.
DISPLACEMENT COMPETITION. Finally, the LIVE table game platform will
potentially compete with gaming vendors that market automatic shufflers and
blackjack quick-peek reading devices. Although this may be an issue of concern,
GDI believes that security and large jackpot capability of the LIVE platform
differentiate LIVE from merely replacing a shuffling device.
SLOT PRODUCTS.
There are dozens of gaming manufacturers marketing reel-spinning and
video slot machines in North America and around the world. Several of these
manufacturers are large domestic or international companies that have
substantially greater financial, manufacturing, marketing, sales and other
resources, larger installed customer bases, greater name recognition and longer
standing customer relationships than the Company. While the Company believes
that its product concepts are novel and sustainable in such a populated market
segment, there can be no assurance that such competitors will not be able to
respond more quickly to changes in customer requirements or to devote greater
resources to the development, promotion and sale of their products than the
Company.
MANUFACTURING, SALES AND DISTRIBUTION
The Company intends to outsource manufacturing, warehousing, sales, and
service operations, and use consultants for specialized software. By utilizing
outsourcing, GDI will be able to maintain its focus on new product development
activities. To date, GDI has shipped no products for commercial use. The Company
has generated no operating revenues to date and all funds utilized in the
Company's operations are attributable to the Company's financing activities.
There is a trend in the casino industry to lease games and equipment,
rather than purchase them. A significant motivation for this movement is that
lease payments are recorded as operating expenses on a periodic basis and, as a
result, there is no large capital outlay to be amortized over a number of years.
Leasing also keeps technology current and permits a casino to compete in a very
aggressive business environment. GDI intends to provide its LIVE, slot, and
other gaming-related products on a lease basis to build a large recurring
revenue stream for the Company and its stockholders. GDI anticipates that the
LIVE platform hardware will be leased to casinos, on an annual basis, for a
monthly rental per table. LIVE platform software (being multi-game in nature)
will be leased to casinos, on an annual basis, again for a monthly rental per
table, but prorated upon the number of hours each software program is actually
utilized by the casinos.
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A significant aspect of the Company's strategy is to identify the most
suitable joint-venture partner or distributor for each of the Company's
products. In evaluating each of the existing gaming manufacturers, in addition
to demonstrated sales and marketing capability, four main factors will be
considered: the target company's financial strength, whether or not the company
has wide area progressive (WAP) capability, number of jurisdictions in which the
company is licensed (particularly Nevada), and whether or not the company has an
adequate manufacturing, field service, and customer service infrastructure.
RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 1998 and 1997, the Company
expended $400,271 and $105,000, respectively, on research and development
activities.
As previously noted, the gaming industry is intensely competitive
driving casinos to constantly seek out, evaluate and introduce new and upgraded
gaming products in an effort to attract and retain gaming customers.
Accordingly, the Company anticipates that it will continue to devote significant
resources to research and development activities in order to enhance and extend
its current products and product concepts as well as to generate new product
ideas. Such development activities will likely continue to represent a
combination of both internal efforts as well as the efforts of contracted
developers.
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, trademark, copyright and
trade secret laws, as well as nondisclosure agreements and other contractual
restrictions to establish and protect its intellectual property rights. GDI
currently holds three material patents issued by the United States Patent and
Trademark Office ("USPTO") covering the LIVE table game platform as well as a
pari-mutuel horse racing betting method. The Company's current material patents
expire during the period from November 2015 through January 2016. Additional
patent applications have been filed and more are planned for broader protection
and new concepts. In addition, the Company currently holds one federally
registered trademark and has additional applications on file at the USPTO to
protect further marks.
There can be no assurance that any of the pending patent or trademark
applications will issue, that any of these rights will not be infringed by
others or that already issued patents or trademark registrations will not be
invalidated or canceled. None of the foregoing measures provides assurance that
the Company's proprietary games or the concepts incorporated in the games could
not be successfully duplicated by third parties. Furthermore, third parties
could infringe on GDI's rights.
To date the Company has not been, nor does it have any expectation that
it will be, the subject of claims of infringement or misappropriation of
intellectual property rights of third parties. However, there can be no
assurance that third parties will not assert infringement claims against the
Company (for competitive reasons or otherwise), that any such assertions will
not result in litigation or that the Company would prevail in any such
litigation. Furthermore, any such claims, with or without merit, could result in
substantial cost to the Company and diversion of its personnel, require the
Company to develop new technology, or require the Company to enter into royalty
or licensing arrangements which could prove costly.
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Royal Hold-Em, Mega-Platinum, Mega-Gold, Mega-Silver, Million Dollar
Blackjack, Live Interactive Video Entertainment, LIVE, and LIVE 21 are
trademarks of GDI. All other marks set forth herein are the property of their
respective owners.
EMPLOYEES
As of April 30, 1999, the Company employed 2 full time employees and 1
part time employee. All employees are located in the United States. The Company
has utilized the services of independent contractors in connection with much of
its product development efforts to date but anticipates that as the Company
continues to grow, additional development personnel will be hired directly by
the Company. Furthermore, while the Company intends to contract with reputable
distributors for the sale and services of Company products, the Company
anticipates that as products are introduced, additional personnel will be added
internally to manage such distribution relationships.
GOVERNMENT REGULATION
As the Company's efforts to date have focused primarily on research and
development and have as of yet not involved the sale or distribution of its
gaming products, the Company has not applied for licensure in any jurisdiction
where licensing of the Company or its products will be required. However, the
Company anticipates that shortly following the effectiveness of this
registration statement, the Company will prepare and file the necessary
applications to be licensed as a manufacturer and distributor of gaming devices,
and as a licensed operator of a slot machine route ("Slot Route License") and an
inter-casino linked system ("OILS License"), in the State of Nevada. Gaming
regulatory requirements vary from jurisdiction to jurisdiction, and obtaining
licenses, findings of suitability and/or other required approvals with respect
to the Company, its personnel and its products will be time consuming and
expensive.
Generally, gaming regulatory authorities have broad discretionary
powers and may deny applications for or revoke authorizations on any basis they
deem reasonable. Although the Company is confident in the quality of its
products and personnel, there is no guarantee that the Company, its products or
its personnel will receive or be able to maintain any necessary licenses,
approvals, qualifications or authorizations.
NEVADA REGULATION
The manufacture, sale and distribution of gaming devices for use or
play in Nevada or for distribution outside of Nevada from within Nevada, and the
manufacture and distribution of associated equipment for use in Nevada, are
subject to (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act") and (ii) various local ordinances and
regulations. Such activities are subject to the licensing and regulatory control
of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming
Control Board ("Nevada Board"), and various county and municipal regulatory and
licensing agencies (collectively referred to as the "Nevada Gaming
Authorities"). The Company believes that its LIVE table game platform products
are gaming devices as such term is defined by the Nevada Act and that the
Company will be required to obtain from the Nevada Commission a manufacturer's
and distributor's license, in addition to a Slot Route License and an OILS
License, in order to commercially exploit its products.
The laws, regulations and supervisory practices of the Nevada Gaming
Authorities are based upon declarations of public policy having as their
objectives (i) preventing any involvement, direct or indirect, of any unsavory
or unsuitable persons in gaming or the manufacture or distribution of gaming
devices at any time or in any capacity; (ii) strictly regulating all persons,
locations, practices and activities related to the operation of licensed gaming
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establishments and the manufacture or distribution of gaming devices and
associated equipment; (iii) establishing and maintaining responsible accounting
practices and procedures; (iv) maintaining effective controls over the financial
practices of licensees (including requirements covering minimum procedures for
internal fiscal controls and safeguarding assets and revenues, reliable record
keeping and periodic reports to be filed with Nevada Gaming Authorities); (v)
preventing cheating and fraudulent practices and (vi) providing and monitoring
sources of state and local revenue based on taxation and licensing fees. Changes
in such laws, regulations and procedures, depending upon their nature, could
have an adverse effect on the Company's operations.
All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution outside of Nevada from within Nevada,
must be manufactured by licensed manufacturers and distributed and sold by
licensed distributors. All gaming devices manufactured for use or play in Nevada
must be approved by the Nevada Commission before distribution or exposure for
play.
The approval process for gaming devices includes rigorous testing by
the Nevada Board, a field trial and a determination that the gaming device meets
strict technical standards set forth in the regulations of the Nevada
Commission. The Company anticipates that its initial product based upon the LIVE
table game platform will be submitted to the Nevada Board laboratory during the
fourth quarter of 1999. It is estimated that the game will remain in the
laboratory for approximately ninety days. Upon laboratory approval, the product
must then be placed on field test at one to three Nevada casinos for ninety to
one hundred eighty days. Assuming the product is found suitable and operates as
designed, and that GDI has been licensed as a manufacturer and distributor, GDI
would then be able to freely market the product to casinos statewide.
The Company intends to apply to the Nevada Commission for licenses as a
manufacturer and distributor of gaming devices, in addition to a Slot Route
License and an OILS License, and for registration as a "publicly traded
corporation" by the Nevada Commission (a "Registered Corporation"). The Company
believes that it will qualify as a Registered Corporation after it completes the
registration of its common stock with the Commission pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended. However, any application
filed with the Nevada Commission may be denied for any cause deemed reasonable
by the Nevada Commission. In order for a Registered Corporation to receive such
gaming licenses, the Nevada Commission must exempt the Company from a provision
of the Nevada Act that makes publicly traded corporations ineligible to apply
for or hold such gaming licenses. However, the Nevada Commission has exempted
companies from such provision in the past and has granted gaming licenses to
Registered Corporations. The Company intends to apply for an exemption from this
eligibility requirement in connection with its gaming license applications.
The Company has not yet obtained from the Nevada Gaming Authorities the
various registrations, approvals, licenses and permits ("Gaming Approvals")
required in order to engage in gaming activities in Nevada and there can be no
assurances that such Gaming Approvals will be obtained, or that they will be
obtained on a timely basis. There can also be no assurances that the Company's
officers, directors, stockholders and key employees will obtain the necessary
Gaming Approvals from the Nevada Gaming Authorities.
If the Company is successful in obtaining the Gaming Approvals, the
Company will be required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information the Nevada
Commission may require. In addition, if licensed, GDI's gaming licenses will
require the periodic payment of fees and taxes, and are not transferable or
assignable.
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The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered Corporation
in order to determine whether such individual is suitable or should be licensed
as a business associate of a gaming licensee. Certain officers, directors and
key employees of GDI will be required to file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The Nevada Gaming Authorities may deny any
application for any cause they deem reasonable. A finding of suitability is
comparable to licensing. Both require submission of detailed personal and
financial information, which is followed by a thorough investigation. The
applicant for licensing or a finding of suitability must pay all the costs of
the investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities. In addition to their authority to deny an application for a
finding of suitability or licensure, the Nevada Gaming Authorities have the
power to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or to continue having a relationship with
the Company, the Company would have to sever all relationships with that person.
In addition, the Nevada Commission may require the Company to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
If it were determined that the Nevada Act was violated by the Company,
the Gaming Approvals it holds could be limited, conditioned, suspended or
revoked subject to compliance with certain statutory and regulatory procedures.
In addition the Company and the persons involved could be required to pay
substantial fines, at the discretion of the Nevada Commission, for each separate
violation of the Nevada Act. Limitation, conditioning or suspension of any
license obtained by the Company could (and revocation of any license would)
materially adversely affect the Company's operations.
Once the Company has received the Gaming Approvals, and unless the
Company has been registered as a Registered Corporation and been granted certain
exemptions by the Nevada Commission, no holder of any share of stock of the
Company may sell, assign, transfer, pledge or make any other disposition
thereof, without the prior approval of the Nevada Commission. Unless the Company
has been registered as a Registered Corporation and been granted certain
exemptions by the Nevada Commission, no person may become a stockholder of, or
receive any percentage of profits from, GDI without first obtaining the
necessary licenses and approvals from the Nevada Commission. In connection with
its applications for the Gaming Approvals and for registration as a Registered
Company, the Company will also request that the Nevada Commission grant
exemptions available under the Nevada Act that will generally exempt GDI's
stockholders from the mandatory finding of suitability/licensure requirements
normally applicable. No assurance can be given that the Company's application
for registration as a Registered Corporation and requests for such exemptions
will be granted by the Nevada Commission.
Any beneficial holder of the Company's voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his or her suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission finds reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting such
investigations.
The Nevada Act requires any person who acquires more than 5% of any
class of a Registered Corporation's voting securities to report the acquisition
to the Nevada Commission. It also requires beneficial owners of more than 10% of
any class of a Registered Corporation's voting securities to apply to the Nevada
Commission for a finding of suitability within thirty days after the chairman of
the Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor", as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only.
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An institutional investor is not deemed to hold voting securities for
investment purposes if the voting securities were acquired and are held in the
ordinary course of its business as an institutional investor and were not
acquired and are not held for the purpose of causing, directly or indirectly,
(i) the election of a majority of the members of the board of directors of the
Registered Corporation; (ii) any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations or those of any of
its gaming affiliates or (iii) any other action that the Nevada Commission finds
to be inconsistent with holding the Registered Corporation's voting securities
for investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in management, policies or
operations and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder of a Registered
Corporation found unsuitable and who holds, directly or indirectly, any
beneficial ownership in the Common Stock beyond such period of time as the
Nevada Commission may specify for filing any required application may be guilty
of a criminal offense. Moreover, the Registered Corporation will be subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Registered
Corporation, it (i) pays that person any dividend on its voting securities; (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities ownership; (iii) pays remuneration in any form to
that person for services rendered or otherwise or (iv) fails to pursue all
lawful efforts (including, if necessary, the immediate purchase of said voting
securities for cash at fair market value) to require such unsuitable person to
completely divest all voting securities held.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation if
the Nevada Commission finds reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. If
the Nevada Commission determines that a person is unsuitable to own such
security, it may sanction the Registered Corporation, which sanctions may
include the loss of its approvals if, without the prior approval of the Nevada
Commission, it (i) pays to the unsuitable person any dividend, interest, or
other distribution; (ii) recognizes any voting right of such unsuitable person
in connection with such securities; (iii) pays the unsuitable person
remuneration in any form or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company will be required to maintain in Nevada a current stock
ledger that may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record owner may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record owner unsuitable.
The Company will also be required to render maximum assistance in
determining the identities of the beneficial owners of its securities. The
Nevada Commission has the power to require the Company to imprint its stock
certificates with a legend stating that such securities are subject to the
Nevada Act. It is unknown at this time whether the Nevada Commission will impose
this requirement on the Company.
-11-
<PAGE>
The Company will not be able to make a public offering of its
securities without the prior approval of the Nevada Commission if the securities
or proceeds therefrom are to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the offered securities,
and any representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by which anyone obtains control, may not lawfully occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must meet the strict standards established
by the Nevada Board and the Nevada Commission prior to assuming control of a
Registered Corporation. The Nevada Commission also may require persons who
intend to become controlling stockholders, officers or directors, and other
persons who expect to have a material relationship or involvement with the
acquired company to be investigated and licensed as part of the approval process
of the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to minimize the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form and
(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above market price and before a corporate acquisition opposed
by management can be consummated. The Nevada Act also requires prior approval of
a plan of recapitalization proposed by the Registered Corporation's board of
directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, must be paid to the State of Nevada and to the
counties and cities in which gaming operations are conducted. These fees and
taxes, depending upon their nature, are payable monthly, quarterly or annually
and are based upon either (i) a percentage of the gross revenues received or
(ii) the number of gaming devices operated. Annual fees are also payable to the
State of Nevada for renewal of a Slot Route License, an OILS License, and
licenses as a manufacturer and distributor.
Any person who is licensed, required to be licensed, registered,
required to be registered, or who is under common control with any such persons
(collectively, "Licensees") and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of his or her participation
outside of Nevada. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
also are subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the
non-Nevada gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the non-Nevada
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
-12-
<PAGE>
OTHER JURISDICTIONS
Other jurisdictions in which the Company may do business in the future
require various licenses, permits, and approvals in connection with the
manufacture and/or the distribution of gaming devices and operation of
progressive systems, typically involving restrictions similar in most respects
to those of Nevada. At this time the Company is not certain in which other
jurisdictions it will do business. It will be exploring opportunities in other
jurisdictions in which its gaming devices are legal, and to a large extent the
decision as to which jurisdictions to expand to and the order of such expansion
will be determined jointly with distributors of the Company's products. At the
time such decisions are made, appropriate regulatory inquiries and applications
will be made by the Company.
The National Gambling Impact Study Commission was created in August
1996 to conduct a comprehensive legal and factual study of the social and
economic impacts of gambling on federal, state, local and Native American tribal
governments and on communities and social institutions. Their report is due to
Congress, the President and the governors by June 20, 1999. The impact of the
results of this study on the Company are unknown at this time.
FEDERAL REGULATION
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver, or receive gaming
machines, gaming machine type devices, and components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. The Company has not yet registered under
the Federal Act, but anticipates that it will do so when appropriate. Federal
registrations must be renewed annually. In addition, various record keeping and
equipment identification requirements are imposed by the Federal Act. Violation
of the Federal Act may result in seizure and forfeiture of the equipment, as
well as other penalties.
PLAN OF OPERATION
The Company is not expected to generate operating revenues until the
first quarter of 2000 at the earliest and potentially not until the second
quarter of 2000. During the next twelve months, the Company's primary activities
will continue to consist of research and development regarding existing and new
products. Specifically, the Company anticipates that adjustments and
improvements will be made to its initial products based on the LIVE platform and
that significant development resources will be devoted to bringing along the
Company's slot-based products. The Company's primary expenditures are expected
to be incurred in pursuit of such research and development activities, further
patent and trademark protection for the Company's assets and regulatory approval
of its games, concepts, individuals and the corporate entity in the State of
Nevada and other appropriate jurisdictions.
The Company's cash and cash equivalents balance at December 31, 1998
was $222,063. The Company is currently conducting a limited private offering of
its capital stock to raise additional funds to support its ongoing operations.
The maximum size of such offering will be $3,000,000, although no assurance can
be made that such maximum amount will be sold. As of April 30, 1999, exclusive
of amounts reflected in the December 31, 1998 cash balance, the Company has
raised $1,155,000 in such offering. Based upon the Company's existing cash
resources and the funds raised to date from such private offering, the Company
does not anticipate the need for any additional equity or debt financing in the
next twelve months. As of April 30, 1999, the Company had no material
commitments for capital expenditures and the Company does not expect any
significant changes in the number of employees over the next twelve months.
-13-
<PAGE>
YEAR 2000
The "Year 2000" issue results from the use in computer hardware and
software of two digits rather than four digits to define the applicable year.
When computer systems must process dates both before and after January 1, 2000,
two-digit year "fields" may create processing ambiguities that can cause errors
and system failures. The results of these errors may range from minor undetected
errors to complete shutdown of an affected system. These errors or failures may
have limited effects, or the effects may be widespread, depending on the
computer chip, system or software, and its location and function. The effects of
the Year 2000 problem are exacerbated because of the interdependence of computer
and telecommunications systems in the United States and throughout the world.
Because of this interdependence, the failure of one system may lead to the
failure of many other systems even though the other systems are themselves "Year
2000 compliant."
The Company has reviewed the Year 2000 issue as it may affect the
Company's business activity. The Company has concluded that its current hardware
and software systems, as well as the design and operation of the Company's
current products, are Year 2000 compliant and the costs of addressing the Year
2000 issue with respect to the Company's systems and products, if any, are not
expected to be material. The Company will continue to monitor and evaluate any
alterations or upgrades to such systems and products for continued Year 2000
compliance.
The impact of Year 2000 issues on the Company will depend not only on
continued compliance of the Company's systems, but also on the way in which Year
2000 issues are addressed by governmental agencies, business and other third
parties that provide services or data to, or receive services or data from, the
Company, or whose financial condition or operational capability is important to
the Company. To reduce this exposure, the Company has an ongoing process of
contacting mission-critical third party vendors and other significant third
parties as they are identified to determine their Year 2000 plans and target
dates. Notwithstanding the Company's efforts, there can be no assurance that the
Company, mission-critical third party vendors or other significant third parties
will adequately address their Year 2000 issues.
The Company is developing contingency plans for implementation in the
event that the Company, mission-critical third party vendors or other
significant third parties fail to adequately address Year 2000 issues. The
Company anticipates that such plans will principally involve identifying
alternative vendors and internal remediation activities. There can be no
assurance that any such plans will fully mitigate any such failures or problems.
Furthermore, there may be certain mission-critical third parties, such as
utilities, telecommunication companies, or material vendors where alternative
arrangements or sources are limited or unavailable.
While it is impossible to predict the potential adverse effects (or
timing thereof) of Year 2000 issues, the Company believes that its "worst case
scenario" is significantly mitigated by the fact that it anticipates that its
product will be undergoing testing at the Nevada Gaming Control Laboratory
during January 2000, thus providing the Company an opportunity to learn of any
Year 2000 issues impacting its product in a laboratory as opposed to a
marketplace setting. The Company will then have an opportunity to correct any
problems before beginning production and introducing products into the
marketplace. The Company believes that because its product development efforts
will be mitigated as previously discussed, its "worst case scenario" will be
similarly mitigated from an operations standpoint.
-14-
<PAGE>
The extent and magnitude of the Year 2000 Problem as it will affect the
Company, both before and for some period after January 1, 2000, are difficult to
predict or quantify for a number of reasons. Among the most important are lack
of control over systems that are used by third parties who are critical to the
Company's operation, complexity of testing inter-connected networks and
applications that depend on third party networks and the uncertainty surrounding
how others will deal with liability issues raised by Year 2000 related failures.
There can be no assurance for example, that systems used by third parties will
be adequately remediated so that they are Year 2000 ready by January 1, 2000, or
by some earlier date, so as not to create a material disruption to the Company's
business. These risks are exacerbated by the Company's current stage of
operation in that has not yet identified all of the vendors that it anticipates
using once its products are in full production mode.
ITEM 7. DESCRIPTION OF PROPERTY
-----------------------
The Company occupies approximately 600 square feet in Reno, Nevada.
This facility is leased on a month-to-month basis and is terminable upon thirty
(30) days written notice by either party. The current monthly rent is $630. The
Company believes that this space is adequate for its immediate needs, and that
it will be able to obtain additional space if necessary to supplement or replace
the existing offices.
ITEM 8. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The following table sets forth certain information regarding the
Company's current executive officers and directors. Pursuant to Section 7 of the
Company's Bylaws, directors are elected at the annual stockholders meeting and
hold office for a period of one (1) year or until their successors are duly
elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Elia R. Tarantino 65 Co-Chairman of the Board of Directors and Chief Executive
Officer
Eric J. Maiss 30 President
Frank A. Roide 56 Chief Financial Officer, Treasurer, Secretary and Director
Edward A. Sasso 46 Director
John Klacking 44 Co-Chairman of the Board of Directors
Quentin Peterson 69 Director
Robert F. List 62 Director
Dale McKenzie 55 Director
</TABLE>
ELIA R. TARANTINO has served as Chairman and Chief Executive Officer
since the Company's inception in 1994. From August 1995 until December 1997 he
served as Chairman and Chief Executive Officer of MaxiSoft, Inc., a developer of
software to replicate OSHA and ANSI standard signs, pipe markers and
right-to-know products. From July 1992 until December 1995, Mr. Tarantino served
as the Chairman and Chief Executive officer of Biomolecular, Inc., a laboratory
instrument manufacturer.
-15-
<PAGE>
ERIC J. MAISS has served as President of the Company since November 1,
1997. From June 1996 until October 1997 he served as General Manager of Gaming
Systems International, a supplier of player-tracking and gaming systems to
casinos. From November 1993 to May 1996, Mr. Maiss served as Director of
Technical Resources of Casino Data Systems, a supplier of player-tracking and
gaming systems to casinos.
FRANK A. ROIDE has served in the capacities of Chief Financial Officer,
Treasurer, Secretary, and Director of the Company since January 1998. From
January 1996 to December 1997 he served as Vice President of Finance of
MaxiSoft, Inc., a developer of software to replicate OSHA and ANSI standard
signs, pipe markers and right-to-know products. From July 1992 to December 1995,
Mr. Roide served as Vice President and Chief Financial Officer of Biomolecular,
Inc., a laboratory instrument manufacturer.
EDWARD A. SASSO has served as a Director of the Company since November
1997. From July 1997 to the present, he has served as Regional Vice President of
American Residential Services, Inc., an air conditioning and heating company.
>From November 1977 to June 1997, Mr. Sasso served as President and General
Manager of Sasso Air Conditioning, Inc., an air conditioning and heating
company.
JOHN KLACKING has served as a Director of the Company since November
1997. From February 1987 to the present he has served as Senior Vice President
of Salomon Smith Barney in Reno, Nevada.
QUENTIN PETERSON has served as a Director of the Company since May
1998. He has been a private investor since March 1989, serving as President or
Vice President of four (4) small companies. From December 1960 to February 1989,
Mr. Peterson served as Staff Engineer for Lockheed Missile & Space, an aerospace
company.
ROBERT F. LIST has served as a Director of the Company since April
1997. From March 1993 to the present he has served as Executive Vice President,
Corporate Secretary, Counsel and Director of Boomtown, Inc.
DALE MCKENZIE has served as a Director of the Company since April 1997.
From June 1966 to the present he has served as Chairman, Secretary and Treasurer
of McKenzie Construction Inc., a privately held construction and development
company.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
--------------------------------------
The following table sets forth certain information regarding the
aggregate annual remuneration paid to the three highest paid persons that are
officers and/or directors of the Company as a group during calendar 1998.
<TABLE>
<CAPTION>
CAPACITIES IN WHICH
NAME OF INDIVIDUALS IN GROUP REMUNERATION WAS RECEIVED AGGREGATE REMUNERATION
- ---------------------------- -------------------------------- ----------------------
<S> <C> <C>
Elia R. Tarantino Chief Executive Officer $120,500.00
Eric J. Maiss President $106,700.00
Frank A. Roide Chief Financial Officer $ 81,000.00
-----------
All Officers & Directors (3) $308,200.00
===========
</TABLE>
-16-
<PAGE>
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
-------------------------------------------------------------
The following table sets forth certain information regarding the
ownership of the Company's outstanding Common Stock as of April 30, 1999 by (a)
each of the three highest paid persons that are officers and/or directors of the
Company, (b) each holder of more than 10% of the Company's outstanding Common
Stock, and (c) all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF HOLDER SHARES OWNED(1) OF CLASS
-------------------------- --------------- --------
<S> <C> <C>
Elia R. Tarantino Family Trust...... 1,607,500 40.8%
1575 Delucchi Lane, #115
Reno, Nevada 89502
Eric J. Maiss....................... 500,000 12.7%
1575 Delucchi Lane, #115
Reno, Nevada 89502
Frank A. and Linda D. Roide
Family Trust........................ 460,000 11.7%
1575 Delucchi Lane, #115
Reno, Nevada 89502
Kathleen E. Dickinson Trust......... 400,000 10.2%
All officers and
directors as a group.............. 3,240,000 82.2%
</TABLE>
- -----------------
(1) This registration statement is not filed in connection with an offering of
securities by the Company.
(2) Elia R. Tarantino, Frank A. Roide and Linda D. Roide, and Kathleen E.
Dickinson are trustees of the respective trusts listed above and have
voting and investment control for the shares held by such trusts.
The following table sets forth certain information regarding the
ownership of warrants to purchase shares of the Company's outstanding Common
Stock by (a) each of the three highest paid persons that are officers and/or
directors of the Company, (b) each holder of more than 10% of the Company's
outstanding Common Stock, and (c) all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
CALLED FOR BY TERMINATION
NAME OF HOLDER WARRANTS EXERCISE PRICE DATE
-------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Elia R. Tarantino.................... -- -- --
1575 Delucchi Lane, #115
Reno, Nevada 89502
Eric J. Maiss........................ -- -- --
1575 Delucchi Lane, #115
Reno, Nevada 89502
Frank A. Roide....................... -- -- --
1575 Delucchi Lane, #115
Reno, Nevada 89502
10% holders.......................... -- -- --
All officers and 4/29/2002 to
directors as a group............... 700,000 $.25 - $2.00 5/11/2003
</TABLE>
-17-
<PAGE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
---------------------------------------------------------
The Company is the maker of an $800,000 promissory note dated May 11,
1998, payable to the Q and V Peterson Family Trust. Quentin Peterson , a Trustee
of the trust, is a Director of the Company. This note bears interest at the rate
of six percent (6%), paid quarterly, and is unsecured. The outstanding principal
and accrued but unpaid interest is payable on May 10, 2003.
ITEM 12. SECURITIES BEING OFFERED
------------------------
As noted above, the Company is voluntarily registering its Common Stock
with the Commission but has no current plans to list such shares on a stock
exchange. This registration is not being made in connection with any public
offering of securities and the Registrant has made no public offerings of
securities in the past nor does it have a current intention to do so in the near
future.
At the time of the filing of this registration, however, the Company is
in the process of conducting a private offering of its Common Stock. The maximum
aggregate amount of such private offering will be 1,200,000 shares and when
issued, any such shares will constitute "restricted stock" for purposes of Rule
144 promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). As of April 30, 1999, the Company had consummated the sale of 462,000
shares in such offering.
There are 10,000,000 shares of the Company's Common Stock authorized.
As of April 30, 1999, there were 3,942,000 shares of Common Stock issued and
outstanding. Holders of shares of Common Stock are entitled to one vote at all
meetings of shareholders for each share held by them, except that, upon giving
the legally required notice, shareholders may cumulate their votes in the
election of directors. Holders of shares of Common Stock have no preemptive
rights and have no other rights to subscribe for additional shares or any
conversion right or right of redemption, other than as may be provided in
contracts between such holders and the Company, which, if any, have been filed
as exhibits to this registration statement. Holders of the Common Stock are
entitled to receive such dividends as, when and if declared by the Board of
Directors out of funds legally available therefor. To date, the Company has not
paid dividends on the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable.
The Company also has outstanding warrants to purchase up to 800,000
shares of its Common Stock at exercise prices of between $.25 and $2.00 per
share. Such warrants expire at various times between April 29, 2002 and May 11,
2003.
PART II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
-------------------------------------------------------------------
There is no public trading market for the Company's Common Stock. Other
than the currently outstanding warrants for the purchase of up to 800,000 shares
of the Company's Common Stock, there are no outstanding securities exercisable
or convertible into shares of the Company's Common Stock. The Company has not
granted registration rights to any shareholder as of the date of this
registration statement. As of April 30, 1999, no shares of the Company's Common
Stock could be sold pursuant to Rule 144(k) promulgated under the Securities
Act.
-18-
<PAGE>
As of April 30, 1999, there are fourteen (14) holders of record of the
Company's Common Stock.
The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
intends to retain future savings for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
-----------------
On May 14, 1999, the Company filed a complaint in Washoe County
District Court (Reno, Nevada) against Sierra Design Group and related parties
(collectively, "SDG") seeking monetary damages, relief in the form of
declaratory judgment, the imposition of a constructive trust upon certain funds
derived by SDG, and attorneys' fees incurred as a result of the lawsuit. The
Company's complaint alleged, among other things, that SDG breached certain
agreements by which it was obligated to develop gaming technology for the
Company. The gaming technology was not delivered in a timely fashion, which
delayed the Company's progress in bringing its products to the marketplace. The
complaint further alleges that SDG used the Company's intellectual property and
money to develop gaming technology for other customers to the detriment of the
Company while the Company believed SDG was devoting sufficient efforts to
satisfy its contractual obligations to the Company. This lawsuit, which was
recently filed, is in the early pretrial and discovery stages. The Company has
made arrangements with alternative developers of gaming technology to perform
tasks that were not completed by SDG. Development of the new LIVE table and
electronics will result in a delay of approximately ten (10) months beyond the
time frames outlined in Note 1 to the Company's financial statements. A table
based on the replacement technology is expected to be available for
demonstration at the September, 1999 WGCE gaming show in Las Vegas, and is
expected to be submitted to Nevada regulatory authorities for testing in
October, 1999. The Company does not expect the delays encountered with or
because of SDG or the lawsuit to have a material adverse effect on the
operations of the Company, its prospects in the marketplace, or any of the
milestones or time lines set forth herein, except as set forth in the foregoing
sentences.
Other than the foregoing litigation with SDG, there are no legal
proceeding to which the Company is a party or to which any of its properties are
subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
(a) Since the Registrant's inception in February 1994, the
Registrant has issued and sold the following unregistered
securities (as adjusted for stock splits):
(1) On February 10, 1994, the Registrant issued and sold
3,000,000 shares of Common Stock to the Company's
founder in return for the assignment of various
intellectual property rights, the fair value of which
is $32,726.
-19-
<PAGE>
(2) On April 29, 1997, the Registrant granted warrants to
purchase an aggregate of 200,000 shares of Common
Stock at an exercise price of $.25 per share to two
directors. The aggregate purchase price was $2,000 in
cash.
(3) On August 3, 1997, the Registrant issued and sold
50,000 shares of Common Stock to an investor at an
aggregate purchase price of $50,000 in cash.
(4) From September 8, 1997 through January 28, 1998, the
Registrant issued and sold 400,000 shares of Common
Stock to four investors at an aggregate purchase
price of $400,000 in cash.
(5) On November 24, 1997, the Registrant granted warrants
to purchase an aggregate of 200,000 shares of Common
Stock at an exercise price of $.50 per share to two
investor/directors. The aggregate purchase price of
such warrants was $2,000 in cash.
(6) On March 10, 1998 and May 29, 1999, the Registrant
issued and sold 30,000 shares of Common Stock to two
individuals in consideration of services rendered to
the Registrant. The fair market value of the services
rendered in consideration for the 30,000 shares of
common stock is $30,000. The services rendered
involved assistance in securing certain equity and
debt financing for the Company.
(7) On May 11, 1998, the Registrant granted warrants to
Quentin Peterson to purchase an aggregate of 200,000
shares of Common Stock at an exercise price of $2.00
per share, in connection with the extension of a 6%
unsecured long-term note payable. Certain of these
warrants feature a call provision which gives the
Company the right to repurchase said warrants at a
repurchase price equal to 20% of the exercise price
multiplied by the number of years that the warrants
are outstanding.
(8) On May 12, 1998, the Registrant granted warrants to
purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share to a Director.
These warrants were granted upon this person's
appointment as a director and in consideration for
his services on the board of directors.
(9) On May 12, 1998, the Registrant granted warrants to
purchase 100,000 Shares of Common Stock at an
exercise price of $1.50 per share to a product
development firm in conjunction with product
development efforts of the Registrant. The fair value
of the product development efforts is $119,772.
(10) On February 1, 1999 and March 4, 1999, the Registrant
issued and sold an aggregate of 420,000 shares of
Common Stock to two investors at an aggregate
purchase price of $1,050,000 in cash.
(11) On March 16, 1999, the Registrant issued and sold an
aggregate of 42,000 shares of Common Stock to two
investors at an aggregate purchase price of $105,000
in cash.
-20-
<PAGE>
(12) From January 7, 1999 through May 19, 1999, the
Registrant issued and sold 482,000 shares of Common
Stock to 5 investors at an aggregate purchase price
of $1,205,000 in cash.
(b) There were no underwritten offerings employed in connection
with any of the transactions set forth in Item 4(a).
(c) The issuance of the above securities was deemed to be exempt
from registration under the Securities Act in reliance on
Section 4(2) of the Act. All recipients had adequate access
through their relationships with the Company to information
about the Registrant.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
Section 78.7502 of the Nevada Revised Statutes authorizes a court to
award or a corporation to grant indemnification to directors and officers in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Exchange Act of 1934, as amended, and, when
applicable, the Securities Act of 1933, as amended. The Nevada Revised Statutes
permit a corporation to indemnify its officers, directors, employees and agents
against reasonable costs and expenses incurred by such persons in those
capacities in connection with threatened, pending or completed actions other
than actions by or in the right of the corporation, provided that the indemnitee
has acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation and, in a criminal context,
where the indemnitee had no reasonable cause to believe the conduct was
unlawful. Indemnification is also permitted with respect to expenses reasonably
incurred in the defense of any action brought by or in the right of the
corporation, except that no indemnification is permitted where the indemnitee is
found liable to the corporation or for settlement amounts paid to the
corporation other than to the extent that a court determines such
indemnification to be appropriate. Notwithstanding the foregoing,
indemnification otherwise permissive will be mandatory to the extent that the
indemnitee is successful in the defense of such action, whether on the merits or
otherwise. The Company has no specific provisions concerning indemnification in
its Articles of Incorporation or Bylaws and has no separate indemnification
agreements in place with its officers, directors or employees.
-21-
<PAGE>
<TABLE>
<CAPTION>
PART F/S
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT.....................................................................................23
FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 1999 (unaudited), December 31, 1998 and 1997....................................24
Statements of Operations for the Six-Month Periods ended June 30, 1999
and 1998 (unaudited), for the Years Ended December 31, 1998 and 1997, for
the Period from February 8, 1994 (Inception) through December 31, 1998, and
for the Period from February 8, 1994 (Inception) through June 30, 1999 (unaudited)...............................25
Statements of Stockholders' Equity for the Six-Month Period Ended June 30,
1999 (unaudited), for the Years Ended December 31, 1998 and 1997, and for the
Period from February 8, 1994 (Inception) through December 31, 1996...............................................26
Statements of Cash Flows for the Six-Month Periods ended June 30, 1999 and 1998
(unaudited), for the Years Ended December 31, 1998 and 1997, for the Period from
February 8, 1994 (Inception) through December 31, 1998, and for the Period from
February 8, 1994 (Inception) through June 30, 1999 (unaudited)...................................................27
Notes to Financial Statements...................................................................................28
</TABLE>
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Game Data, Inc.:
We have audited the accompanying balance sheets of Game Data, Inc. (A
Development Stage Company) (the "Company") as of December 31, 1998 and 1997, and
the related statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended and for the period from February 8, 1994
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for the years then
ended and for the period from February 8, 1994 (inception) through December 31,
1998, in conformity with generally accepted accounting principles.
The Company is in the development stage as of December 31, 1998. As discussed in
Note 1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including obtaining adequate financing to fulfill
its development activities, obtaining gaming regulatory approval, and achieving
a level of sales adequate to support the Company's cost structure.
DELOITTE & TOUCHE LLP
Reno, Nevada
January 15, 1999
-23-
<PAGE>
<TABLE>
GAME DATA, INC.
(A Development Stage Company)
BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED), DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
June 30, ---------------------------.
ASSETS 1999 1998 1997
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 786,959 $ 222,063 $ 232,827
Prepaid expenses and other 5,451 3,698 3,334
Inventory 39,615 - -
------------ ------------ ------------
Total current assets 832,025 225,761 236,161
COMPUTER EQUIPMENT, Net of accumulated
depreciation of $2,006, $510 and $39 19,351 1,842 2,313
LONG-TERM NOTE RECEIVABLE -
RELATED PARTY 6,000 6,000 -
------------ ------------ ------------
TOTAL $ 857,376 $ 233,603 $ 238,474
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 7,672 $ 34,228 $ 40,158
Accrued expenses 3,677 8,045 1,500
------------ ------------ ------------
Total current liabilities 11,349 42,273 41,658
------------ ------------ ------------
LONG-TERM NOTE PAYABLE - RELATED
PARTY, Net of discount of $167,986
$184,269 and $0 632,014 615,731 -
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 10,000,000 shares
authorized; 3,962,000, 3,480,000, 3,350,000
shares, respectively issued and outstanding 780,599 512,726 382,726
Additional paid-in capital - 682,918 254,000
Deficit accumulated during the
development stage (566,586) (1,620,045) (439,910)
------------ ------------ ------------
Total stockholders' equity (deficit) 214,013 (424,401) 196,816
------------ ------------ ------------
TOTAL $ 857,376 $ 233,603 $ 238,474
============ ============ ============
</TABLE>
See the accompanying notes to financial statements.
-24-
<PAGE>
<TABLE>
GAME DATA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED), FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997, FOR THE PERIOD FROM FEBRUARY 8, 1994 (INCEPTION) THROUGH
DECEMBER 31, 1998, AND FOR THE PERIOD FROM FEBRUARY 8, 1994 (INCEPTION)
THROUGH JUNE 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE SIX-MONTH FOR THE YEARS ENDED FEBRUARY 8, 1994 FEBRUARY 8, 1994
PERIODS ENDED JUNE 30, DECEMBER 31, (INCEPTION) (INCEPTION)
---------------------------- --------------------------- THROUGH THROUGH
DECEMBER 31 JUNE 30,
1999 1998 1998 1997 1998 1999
(UNAUDITED) (UNAUDITED)
---------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 201,909 $ 191,602 $ 400,271 $ 105,000 $ 505,271 $ 707,180
General and administrative 343,966 240,894 523,885 55,010 611,621 955,587
Compensation expense for
warrants issued - 225,196 225,196 250,000 475,196 475,196
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 545,875 657,692 1,149,352 410,010 1,592,088 2,137,963
OTHER (INCOME) EXPENSE:
Interest expense 40,283 10,619 49,893 - 49,893 90,176
Interest income (19,572) (7,232) (19,110) (2,826) (21,936) (41,508)
------------ ------------ ------------ ------------ ------------ ------------
NET LOSS $ (566,586) $ (661,079) $(1,180,135) $ (407,184) $(1,620,045) $(2,186,631)
============ ============ ============ ============ ============ ============
Loss per share - basic and diluted $ (0.15) $ (0.19) $ (0.34) $ (0.13) $ (0.52) $ (0.70)
------------ ------------ ------------ ------------ ------------ ------------
Weighted average common
shares outstanding 3,847,497 3,442,131 3,461,726 3,069,452 3,105,137 3,139,310
============ ============ ============ ============ ============ ============
</TABLE>
SEE THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-25-
<PAGE>
<TABLE>
GAME DATA, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 1999 (UNAUDITED), FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE
PERIOD FROM FEBRUARY 4, 1994 (INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional during the
---------------------------- Paid-in Development
Shares Amount Capital Stage Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 4, 1994
(Inception) - $ - $ - $ - $ -
Common stock issued -
February 10, 1994 3,000,000 32,726 - - 32,726
Net loss - - - (32,726) (32,726)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 3,000,000 32,726 - (32,726) -
Net loss - - - (407,184) (407,184)
Warrants issued:
April 29, 1997 - - 1,000 - 1,000
May 15, 1997 - - 1,000 - 1,000
November 24, 1997 - - 2,000 - 2,000
Compensation expense for
warrants issued - - 250,000 - 250,000
Common stock issued:
August 3, 1997 50,000 50,000 - - 50,000
September 8, 1997 100,000 100,000 - - 100,000
November 25, 1997 150,000 150,000 - - 150,000
December 10, 1997 50,000 50,000 - - 50,000
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 3,350,000 382,726 254,000 (439,910) 196,816
Net loss - - - (1,180,135) (1,180,135)
Compensation expense for
warrants issued - - 225,196 - 225,196
Warrants issued in connection with
long-term note payable - - 203,722 - 203,722
Common stock issued:
January 28, 1998 100,000 100,000 - - 100,000
March 10, 1998 7,500 7,500 - - 7,500
May 29, 1998 22,500 22,500 - - 22,500
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 3,480,000 512,726 682,918 (1,620,045) (424,401)
Reclassification of accumulated deficit due
to termination of S corporation status
(unaudited) (937,127) (682,918) 1,620,045 -
Common stock issued:
February 1, 1999 (Unaudited) 400,000 1,000,000 - - 1,000,000
March 4, 1999 (Unaudited) 20,000 50,000 - - 50,000
March 16, 1999 (Unaudited) 42,000 105,000 - - 105,000
May 19, 1999 (Unaudited) 20,000 50,000 - 50,000 -
Net loss - - - (566,586) (566,586)
------------- ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1999 3,962,000 $ 780,599 - $ (566,586) $ 214,013
============= ============= ============= ============= =============
</TABLE>
See the accompanying notes to financial statements.
-26-
<PAGE>
<TABLE>
GAME DATA, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 (Unaudited),
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, FOR THE PERIOD FROM FEBRUARY 8,
1994 (Inception) THROUGH DECEMBER 31, 1998, AND FOR THE PERIOD FROM FEBRUARY 8,
1994 (Inception) THROUGH JUNE 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the For the
Period from Period from
February 8, February 8,
For the Six-Month For the Year Ended 1994 (Inception) 1994
Periods Ended June 30, December 31, through (Inception)
----------------------- --------------------------- December 31, through
1999 1998 1998 1997 1998 June 30,
(Unaudited) 1999
----------------------- (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(566,586) $ (661,079) $ (1,180,135) $ (407,184) $ (1,620,045) $ (2,186,631)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,496 235 471 39 510 2,006
Interest imputed on long-term note 16,283 4,179 19,453 19,453 35,736
Common stock issued for services - - 30,000 - 30,000 30,000
Compensation expense for warrants issued - 225,196 225,196 250,000 475,196 475,196
Changes in assets and liabilities:
Increase in accrued interest receivable (3,505) - (3,505)
Increase in inventory (39,615) - (39,615)
(Increase) decrease in prepaid expenses
and other 1,751 (67,437) (364) (3,334) (3,698) (1,947)
(Decrease) increase in accounts payable (26,556) (32,369) (5,930) 40,158 34,228 7,672
(Decrease) Increase in accrued expenses (4,368) (1,049) 6,545 1,500 8,045 3,677
---------- ----------- ------------- ------------- ------------- -------------
Net cash used in operating activities (621,100) (532,324) (904,764) (118,821) (1,056,311) (1,677,411)
---------- ----------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (19,004) - - (2,352) (2,352) (21,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and warrants 1,205,000 107,500 100,000 354,000 486,726 1,691,726
Issuance of related party notes receivable - - (6,000) - (6,000) (6,000)
Proceeds from issuance of notes payable - 800,000 800,000 - 800,000 800,000
---------- ----------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities 1,205,000 907,500 894,000 354,000 1,280,726 2,485,726
---------- ----------- ------------- ------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 564,898 375,176 (10,764) 232,827 222,063 786,959
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 222,063 232,827 232,827 - - -
---------- ----------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 786,959 $ 608,003 $ 222,063 $ 232,827 $ 222,063 $ 786,959
========== =========== ============= ============= ============= =============
SUPPLEMENTAL STATEMENT OF CASH FLOWS
INFORMATION -
Cash paid for interest $ 24,000 $ 6,440 $ 30,440 $ - $ 30,440 $ 42,440
========== =========== ============= ============= ============= =============
</TABLE>
See the accompanying notes to financial statements.
-27-
<PAGE>
GAME DATA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
Game Data, Inc. (the "Company") was incorporated in the State of Nevada on
February 8, 1994. The Company was organized to invent, develop, and market
gaming concepts and technology to casinos, card rooms, and race tracks
worldwide. Game Data, Inc. has had no revenues and is in its developmental
stage as a business. Although certain patents have been issued and the
Company believes there is significant demand for such products, the Company
is still in the process of developing products that need substantial
capital to license, manufacture, and market to the casino and card room
industries worldwide. Successful completion of the Company's development
program and, ultimately, the attainment of profitable operations are
dependent upon future events, including obtaining adequate financing to
fulfill its development activities, obtaining gaming regulatory approval,
and achieving a level of sales adequate to support the Company's cost
structure. As of December 31, 1998, the product development of certain
gaming devices was substantially complete. The Company expects that during
the first quarter of 1999 it will begin the gaming regulatory approval
process in Nevada and, pending successful approval, expects to begin
collecting revenues during the fourth quarter of 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash equivalents are recorded at cost, which
approximates market. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
COMPUTER EQUIPMENT - Computer equipment is recorded at cost. Depreciation
is provided for using the straight-line method over five years. Maintenance
and repairs are expensed as incurred.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred.
PATENT AND TRADEMARK EXPENSES - Patent and trademark fees, included in
general and administrative expenses, are expensed as incurred. Patent and
trademark fees for the years ended December 31, 1998 and 1997, and for the
period from February 8, 1994 (inception) through December 31, 1998, were
$67,831, $19,811 and $113,738, respectively.
-28-
<PAGE>
COMPENSATION EXPENSE FOR WARRANTS ISSUED - In accordance with the
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company has recorded
compensation expense for the issuance of warrants to purchase common stock
to non-employees based on the fair value of such warrants.
INCOME TAXES - The Company has elected to be treated as an S corporation,
with income taxes to be paid or losses deducted by the individual
shareholders based on the Company's taxable income or loss. Consequently,
no accrual for federal income taxes is reflected in the accompanying
balance sheet (see Note 7).
LOSS PER SHARE - Basic loss per share is computed based upon the weighted
average common shares outstanding. Outstanding warrants were not used in
the computations because they would have been antidilutive.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates used by the
Company include the valuation of warrants and long-term debt. Actual
results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS - The accompanying financial statements as of
June 30, 1999 and for the six-month periods ended June 30, 1999 and 1998
and for the period from February 8, 1994 (inception) through June 30, 1999
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for such periods. In the opinion
of management, all adjustments, (consisting only of normal recurring
adjustments) necessary for a fair presentation of financial condition,
results of operations and cash flows have been included. The results of
operations for the interim periods should not be considered indicative of
results for a full calendar year.
3. STOCKHOLDERS' EQUITY
During 1997, the Company issued warrants to purchase 400,000 shares of
common stock in exchange for services received. The warrants were sold at a
price of $.01 per warrant and entitle the holders to purchase shares of
common stock at $.25 to $.50 per share, and such warrants expire on April
29, 2002. During 1998, the Company issued at no cost warrants to purchase
an additional 400,000 shares of common stock entitling the holder to
purchase such shares at $1.50 to $2.00 per share, and such warrants expire
on May 11, 2003. Certain of these warrants feature a call provision which
gives the Company the right to repurchase said warrants at a repurchase
price equal to 20% of the exercise price multiplied by the number of years
that the warrants are outstanding. Such warrants were issued during 1998 in
exchange for services received and in connection with the issuance of a
long-term note payable (see Note 6). The Company has recorded compensation
expense related to the issuance of warrants to non-employees based on the
fair value of such warrants computed using the difference between the face
value and the fair value of the debt instruments issued, and the value of
the services received.
As of December 31, 1998, the Company reserved 800,000 shares of common
stock for issuance pursuant to such warrants, none of which have been
exercised or have expired.
4. COMMON STOCK SPLIT
On January 3, 1997, the Company effected a 2,000-for-1 split of its common
stock. Prior shares outstanding have been restated to reflect the stock
split.
5. RELATED PARTY TRANSACTIONS
As of December 31, 1998, the Company had a long-term noninterest-bearing
note receivable from a related party in the amount of $6,000. The principal
balance is due August 4, 2001.
See Note 6 for a description of long-term related party note payable.
-29-
<PAGE>
6. LONG-TERM DEBT
On May 11, 1998, the Company issued an unsecured note payable with a face
value of $800,000 to a related party, requiring quarterly interest only
payments at an annual stated rate of 6%. The principal balance is due May
10, 2003 unless certain liquidation or change of control events occur that
result in an acceleration of the due date. In connection with the note
payable, the Company issued the note holder 200,000 warrants to purchase
common stock. The Company has recorded interest expense on this note at an
imputed rate of 13%.
7. SUBSEQUENT EVENT (UNAUDITED)
During the three-month period ended March 31, 1999, the Company issued an
additional 462,000 shares of common stock for $1,155,000.
During March 1999 the Company rescinded its S corporation election and
elected to be treated as a C corporation effective January 1, 1999. The
deficit accumulated during the development stage at that date aggregating
$1,620,045 has been reclassified to additional paid-in capital and common
stock.
No pro forma income tax benefit has been presented in the Statements of
Operations or disclosed herein due to the nature of the cumulative losses
of the Company during the development stage. Utilization of net operating
losses generated after January 1, 1999 to offset future taxable income is
dependent upon the Company obtaining profitable operations.
******
-30-
<PAGE>
PART III
ITEM 1 EXHIBITS
--------
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
2.1 Articles of Incorporation of Registrant *
2.2 Certificate of Designation of Increase
of Authorized and Issued Capital Common
Stock of Registrant *
2.3 Certificate of Amendment of Articles of
Incorporation of Registrant *
2.4 Bylaws of Registrant *
3.1 Specimen Full Share Warrant *
* Previously filed.
- ---------------------
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this first amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
GAME DATA, INC.
By: /s/ Eric J. Maiss
---------------------
Date: August 11, 1999. Eric J. Maiss
President
