<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-85163
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PREDICT IT INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7375 84-1433978
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
694 EIGHTH AVENUE
NEW YORK, NEW YORK 10036
(212) 217-1200
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW P. MERKATZ
PRESIDENT
694 EIGHTH AVENUE
NEW YORK, NEW YORK 10036
(212) 217-1200
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
MICHAEL L. PFLAUM, ESQ.
MARLENE M. MARKARD, ESQ.
CAMHY KARLINSKY & STEIN LLP
1740 BROADWAY, 16TH FLOOR
NEW YORK, NEW YORK 10019-4315
(212) 977-6600
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
check the following box. / /
------------------------
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<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS ADDITIONAL AMOUNT PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
------------------------------ ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $0.01
par value........................ 2,878,954 shares $1.625 $4,678,300.25 $1,235.07
Total....................................................................... $4,678,300.25 $1,235.07
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457(c) under the Securities Act on the basis of the average of the bid
and asked price of our common stock as quoted on the OTC Electronic Bulletin
Board on February 8, 2000.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Commission is effective. This prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED FEBRUARY , 2000
PREDICT IT INC.
13,189,152 SHARES OF COMMON STOCK
------------------
This prospectus covers an aggregate of 13,189,152 shares of our common
stock, which will be sold, from time to time, by some of our stockholders,
including persons who have received shares from our initial selling shareholders
after the date of this prospectus as reflected in the "Selling Security Holders"
section. We will not receive any money from the stockholders when they sell
their shares of common stock, but we will receive monies upon the exercise of
our stock options.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
symbol "PRIT." On February 8, 2000, the price of our common stock as quoted on
the OTC Electronic Bulletin Board was $1.625.
-----------------------
The securities offered hereby are speculative and involve a high degree of
risk. SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
FEBRUARY 10, 2000
<PAGE>
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of the prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 3
Summary Financial Information.............................................................................. 4
Risk Factors............................................................................................... 5
Special Note on Forward-Looking Statements................................................................. 11
Available Information...................................................................................... 11
Predict It................................................................................................. 12
Use of Proceeds............................................................................................ 12
Price Range of Common Stock................................................................................ 12
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 13
Selected Financial Data.................................................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 16
Business................................................................................................... 21
Management................................................................................................. 29
Executive Compensation and Other Information............................................................... 31
Stock Option Plan.......................................................................................... 33
Related Party Transactions................................................................................. 34
Principal Stockholders..................................................................................... 35
Selling Security Holders................................................................................... 37
Plan of Distribution....................................................................................... 40
Description of the Capital Stock........................................................................... 41
Shares Eligible for Future Sale............................................................................ 44
Legal Matters.............................................................................................. 45
Experts.................................................................................................... 45
Disclosure of Company Position on Indemnification for Securities Act Liabilities........................... 45
Index to Financial Statements.............................................................................. F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
PREDICT IT INC.
Our business is the development of interactive products, which are
distributed over the Internet. The Predict It business allows users to
participate actively by predicting the outcome of events and evaluating the
results of their participation and those of other users. Our innovative system,
which is patent pending as of the date of this registration statement, permits
users to pick and exchange predictions with other users. Predict It accumulates
all user picks into a database that, over time, allows Predict It to calculate
the accuracy of predictions for any set of events whose outcome can be measured
objectively. Our initial product offering, "Predict It Sports," allows users to
pick and exchange predictions on sporting events with other Predict It users. We
utilize our database to calculate the accuracy of those predictions and allow
other users to view the entries. Our system, unlike chat rooms, bulletin boards
and stock tracking systems, enables users to quickly find and view the
predictions of the best analysts, who in turn may earn money each time their
future predictions are viewed. Users may post predictions and view the
predictions of others free of charge.
We employ a strategy in which we enter into partnership relationships with
other Internet companies to market our product by creating a web site with
Predict It's content, while simultaneously maintaining the overall look and feel
of our partners' web sites. Presently, revenues are principally earned by the
sale of advertisements either by us directly or on a revenue sharing basis with
our partners. Unlike other businesses on the Internet that attempt to attract
visitors by providing many services on one web site, our strategy is to attract
visitors by providing unique, compelling and user-generated content that drives
repeat visits by Predict It users to the web sites of companies with which we
have created partnerships.
On November 18, 1999, we introduced a redesigned web site,
www.sports.predictit.com, enabling users to gain access to global events using
up-to-the-minute information, increased research capabilities, and additional
research features.
On July 16, 1999, we introduced the Predict It Network web site, which we
plan to use to integrate all of our current and future products, including
Predict It Sports, with products that we may acquire. This will allow us to
integrate additional products and services that we may develop or acquire. In
addition, we built the Predict It Network web site so that, as the number of
users increases, all of our users will be able to access our web sites at one
time. The Predict It Network web site is located at www.predictit.net.
On June 30, 1999, we purchased Virtual Stock Exchange, Inc. Virtual Stock
Exchange is an Internet-based stock market simulation and forecasting company
that operates www.VirtualStockExchange.com, which services over 100,000
registered members and generates in excess of 4.5 million page views per month.
Consumers may access Virtual Stock Exchange directly via its web site or at
other web sites, including Crosswalk.com, PlanetDirect.com and
Collegestudent.com. Virtual Stock Exchange is a separate Predict It product that
can also be accessed at the Predict It Network web site, www.predictit.net.
Please see the "Selected Financial Data" and "Business" sections for a detailed
account of this transaction.
We maintain our principal business operations at 694 Eighth Avenue, 5th
Floor, New York, NY 10036. Our telephone number is (212) 217-1200, and our web
sites include http://www.predictit.com, http://www.sports.predictit.com,
http://www.predictit.net, and http://www.VirtualStockExchange.com. The
information in our web sites is not incorporated by reference into this
prospectus.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information below is derived from and should be read
in conjunction with the financial statements, including the notes to the
financial statements, appearing elsewhere in this prospectus.
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<CAPTION>
PRO FORMA AS ADJUSTED FOR
ACQUISITION OF VIRTUAL
HISTORICAL STOCK
--------------------------------------------------------- EXCHANGE, INC.
SEPTEMBER 2, ---------------------------
1997 NINE MONTHS
(INCEPTION) NINE MONTHS ENDED ENDED
THROUGH YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER
DECEMBER 31, DECEMBER 31, --------------------------- DECEMBER 31, 30,
1997 1998 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
User fees............................. $ 7,712 $ 6,202 $ 3,461 $ 24,173 $ 10,558
Advertising........................... 6,000 6,000 93,209 56,736 152,302
-------- ---------- ---------- ------------ ------------ ------------
13,712 12,202 96,670 80,909 162,860
-------- ---------- ---------- ------------ ------------ ------------
Costs and expenses:
Site development/maintenance.......... 177,783 148,244 160,698 227,243 327,725
Selling, general and
administrative(2)................... $ 21,402 340,698 191,915 1,368,828 503,679 1,465,279
Amortization of intangibles(1)........ 122,338 489,352 367,014
Interest expense (income)............. 3,000 3,000 (30,338) 9,768 (23,050)
-------- ---------- ---------- ------------ ------------ ------------
21,402 521,481 343,159 1,621,526 1,230,042 2,136,968
-------- ---------- ---------- ------------ ------------ ------------
Net Loss before income tax.............. $(21,402) $ (507,769) $ (330,957) $ (1,524,856) $ (1,149,133) $ (1,974,108)
-------- ---------- ---------- ------------ ------------ ------------
-------- ---------- ---------- ------------ ------------ ------------
Net loss per share--basic and diluted... $ (.04) $ (.21) $ (.18) $ (.17) $ (.25) $ (.20)
-------- ---------- ---------- ------------ ------------ ------------
-------- ---------- ---------- ------------ ------------ ------------
Weighted average number of shares
outstanding........................... 488,412 2,381,327 1,784,508 8,790,775 4,581,327 9,890,775
-------- ---------- ---------- ------------ ------------ ------------
-------- ---------- ---------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 45,118 $ 858,156
Total assets......................................................................... 198,894 4,954,315
Long term debt......................................................................... 0 114,679
Total liabilities...................................................................... 72,729 974,334
-------- -----------
-------- -----------
Accumulated deficit.................................................................... (529,171) (2,054,027)
-------- -----------
-------- -----------
Total stockholders' equity............................................................. 126,165 3,179,981
-------- -----------
-------- -----------
</TABLE>
- ------------------
(1) Represents amortization expense related to goodwill resulting from the
acquisition of Virtual Stock Exchange, which is being amortized over a
period of three years.
(2) Includes the impact of employment agreements entered into upon the
consummation of the acquisition of Virtual Stock Exchange, representing
additional costs of $114,000 and $57,000 for the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively.
4
<PAGE>
RISK FACTORS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS.
We were organized in September 1997 and first introduced SportsCappers at
SportsCappers.com in March 1998. We reintroduced SportsCappers in September 1998
and introduced Predict It Sports in March 1999. In addition, on June 30, 1999 we
acquired Virtual Stock Exchange, Inc., which was formed in 1997. Because of our
limited operating history, it is extremely difficult to evaluate our business
and prospects. Our revenue and income potential are unproven and our business
strategy is constantly evolving. Since the way in which the Internet is used is
constantly changing, we may need to further change our business strategy to
adapt to those changes. Frequent changes in organizational structure could
impose significant burdens on our management and our employees and could result
in loss of productivity or even increased attrition.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO INCUR ADDITIONAL LOSSES IN THE
FUTURE.
We have incurred losses since inception, including a net loss of
approximately $1,525,000 for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $2,054,000.
Although we expect our revenues to grow in upcoming quarters, we expect to have
increasing net losses and negative cash flows for the foreseeable future. The
size of these net losses will depend, in part, on the rate of growth in our
revenues from our advertisers and from our partners, and on our expenses. It is
critical to our success that we continue to expend financial and management
resources to develop brand loyalty through marketing, promotion and enhancement
of our services. As a result, we expect that our operating expenses will
increase significantly for the foreseeable future. With increased expenses, we
will need to generate significant additional revenues to achieve profitability.
Consequently, it is possible that we may never achieve profitability, and even
if we do, we may not be able to sustain or increase profitability on a quarterly
or annual basis in the future. For a more detailed account of our historical
losses, please see the "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections.
OUR OPERATING EXPENSES ARE FIXED OVER THE SHORT TERM SO WE MAY NOT BE ABLE TO
RESPOND QUICKLY IF OUR REVENUES DO NOT MEET OUR EXPECTATIONS.
Our operating expenses are based on our expectations of our future revenues
and are relatively fixed in the short term. Given our limited operating history,
user visits to our web sites are extremely difficult to forecast accurately.
Moreover, entering into additional partnerships is time-consuming and depends on
many factors that we are not able to control. Therefore, it is difficult to
estimate the number of partnerships we will have in the future. In particular,
we intend to expend significant amounts to build brand awareness of Predict It.
We may be unable to adjust the amount of money we spend on building brand
awareness quickly enough to offset any unexpected revenue shortfall.
OUR SUCCESS DEPENDS ON FUTURE USAGE OF OUR PRODUCTS AND SERVICES AND ACCEPTANCE
OF THE INTERNET AS AN ADVERTISING MEDIUM.
We have not demonstrated the success of our Internet services and
applications and we will be successful only if Internet users adopt the usage of
our products and services on the Predict It web sites. It is difficult to
forecast the extent and rate of user adoption of our products and services. We
cannot be certain that widespread acceptance of our products and services will
occur.
We expect to generate substantially all of our future revenues through
Internet advertising and subscriptions. These methods of revenue generation are
relatively new and largely untested. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that traditionally relied on other
advertising media may be reluctant to advertise on the Predict It web sites,
believing that Internet advertising is less effective than traditional
advertising media for promoting their products and services. Consequently, they
may allocate only limited portions of their advertising budgets to advertising
on Predict It web sites. We may be required to find alternate means of revenue
generating if Internet advertising does not continue to grow or if we are
unsuccessful in increasing our advertising revenues.
5
<PAGE>
GROWTH OF OUR BUSINESS MAY STRAIN OUR MANAGERIAL, FINANCIAL AND OPERATIONAL
RESOURCES.
We have experienced, and may continue to experience, rapid growth, which
has placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. Any growth we may experience will result in
increased responsibility for existing and new management personnel. Our
effective growth management will depend on the following:
o Our ability to integrate new personnel into our corporate structure;
o Improving our operational, management and financial systems and controls;
and
o Our capacity to recruit, train, motivate and manage employees.
We cannot be certain that our systems, procedures or controls will be
adequate to support our operations or that we will be able to manage any growth
effectively. If we do not manage growth effectively, our expenses may exceed our
revenues and we may never achieve profitability.
OUR LOSS OF ANDREW MERKATZ AND OTHER KEY PERSONNEL COULD IMPAIR OUR ABILITY TO
SUCCEED.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Andrew Merkatz, our President, Robert Jacobs,
our Vice President of Business Development, Geordie Pace, our Senior Vice
President of Product Development, Desmond Glass, our Controller, Alana Oldham,
our Chief Technology Officer, Gary Cheng, our Vice President of Business
Development and Howard Yen, our Director of Technology. The loss of their
services, or the services of other key employees, could impair our ability to
grow. Currently, we have employment agreements with Mr. Merkatz, Mr. Cheng,
Mr. Yen and Mr. Pace. For detailed accounts of these employment agreements,
please see the "Executive Compensation and Other Information" section.
EXPANSION OF OUR SALES AND SUPPORT ORGANIZATIONS WILL INCREASE OUR FINANCIAL
OBLIGATIONS.
We must expand our advertising sales operations, business development
operations and marketing efforts to increase market awareness and sales of our
products and services. We must also increase our staff to support new partners,
a larger user base, additional advertisers, and the expanding needs of our
existing users. We recently expanded our sales force and plan to hire additional
sales personnel. We expect to continue to expand our sales and support
organizations, which will increase our salary and benefit obligations.
OUR INABILITY TO ATTRACT, RETAIN AND MOTIVATE SKILLED EMPLOYEES MAY DISTRACT THE
EFFORTS OF OUR EXISTING PERSONNEL.
In the past, we have experienced, and we expect to continue to experience
in the future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Our future success depends, in part, on our ability
to attract, retain and motivate highly skilled employees. Since competition for
employees in our industry is intense, we may be unable to attract, assimilate or
retain other highly qualified employees in the future. Our failure to attract
and retain highly qualified employees may disable our growth and may distract
the efforts of our existing personnel.
THE DEVELOPMENT OF THE PREDICT IT AND VIRTUAL STOCK EXCHANGE BRANDS WILL REQUIRE
US TO EXPEND SIGNIFICANT RESOURCES.
We believe that broader brand recognition and a favorable consumer
perception of the Predict It and Virtual Stock Exchange brands are essential to
our future success. Accordingly, we intend to continue pursuing an aggressive
strategy to increase brand awareness, which will include mass market and
multimedia advertising, promotional programs and public relations activities. We
intend to incur significant expenditures on these advertising and promotional
programs and activities in the future. These expenditures may not result in a
sufficient increase in revenues to cover such advertising and promotion
expenses. In addition, even if brand recognition increases, the number of new
users may not increase. Further, even if the number of new users increases, the
number of visits to our web sites and the web sites of our partners may not
increase sufficiently to justify the expenditures. If our strategy to increase
brand awareness is unsuccessful, these expenses may never be recovered and we
may be unable to increase future revenues.
6
<PAGE>
THE TERMS OF FUTURE CAPITAL RAISES MAY BE UNFAVORABLE TO OUR THEN STOCKHOLDERS.
We anticipate the need to raise additional funds by July 2000 in order to
fund more aggressive brand promotion, develop new or enhanced services, respond
to competitive pressures, and/or make acquisitions. We may be unable to obtain
any required additional financing on terms favorable to us. If adequate funds
are not available on acceptable terms, we may be unable to fund our expansion,
successfully promote our brand, develop or enhance services, respond to
competitive pressures or take advantage of acquisition opportunities. Additional
financing may be debt, equity or a combination of debt and equity. If we raise
additional funds through the issuance of equity securities, our stockholders may
experience dilution of their ownership interests and the newly issued securities
may have rights superior to those of the common stock. If we raise additional
funds by issuing debt, we may be subject to limitations on our operations.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY BECAUSE OUR COMPETITORS ARE MORE
ESTABLISHED AND HAVE GREATER RESOURCES THAN WE DO.
Many of our existing and prospective competitors may have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. This may allow
them to devote greater resources than we can to the development and promotion of
their products and services. Many of our competitors offer a wider range of
services than we do. Our competitors' services may attract users to their sites
and may consequently result in decreased visits to our sites. Our competitors
may also engage in more extensive research and development, adopt more
aggressive pricing policies and make more attractive offers to existing and
potential employees, partners, advertisers and electronic commerce partners. Our
competitors may develop products and services that are equal or superior to ours
or that achieve greater market acceptance. In addition, current and potential
competitors may establish relationships among themselves or with third parties
to better address the needs of advertisers and businesses engaged in electronic
commerce.
ENHANCEMENT OF OUR PRODUCTS AND SERVICES WILL REQUIRE US TO EXPEND, AND MAY
STRAIN, OUR RESOURCES.
To increase our revenues, we must expand our operations by promoting new or
complementary products and by expanding the breadth and depth of our services.
Specifically, our future success will largely depend on obtaining revenues from
the facilitation of electronic commerce transactions. The market for electronic
commerce services is extremely competitive. Because we have little experience in
this market, we may experience limited success in this market. If we expand our
operations in this manner, we will require significant additional development
resources and such expansion may strain our management, financial and
operational resources. Further, our expansion into new product and service
offerings may not be timely or may not generate sufficient revenues to offset
their cost. If this occurs, we may be unable to recover our expenditures, which
may strain our financial, management and operational resources.
FAILURE TO ADAPT TO EVOLVING INTERNET TECHNOLOGIES AND USER DEMANDS COULD RESULT
IN THE LOSS OF USERS.
To be successful, we must adapt to rapidly changing Internet technologies
and user demands by continually enhancing our products and services and
introducing new products and services. If we need to modify our products and
services or infrastructure to adapt to changes affecting providers of Internet
services, we could incur substantial development or acquisition costs. If we
cannot adapt to these changes, or do not sufficiently increase the features and
functionality of our products and services, our users may switch to the product
and service offerings of our competitors.
SYSTEM FAILURE COULD SIGNIFICANTLY REDUCE OUR REVENUES.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service could result in reduced visits to our web
sites and, therefore, reduced revenues. The servers that host our web sites are
backed-up by remote servers, but we cannot be certain that the back-up servers
will not fail or cause an interruption in our service. Our web sites could also
be affected by computer viruses, electronic break-ins or other similar
disruptions. Our users depend on Internet service providers, online service
providers and other web site operators for access to our web sites. Each of
these providers has experienced significant outages in the past and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Further, our systems are vulnerable to damage or
interruption from fire, flood,
7
<PAGE>
power loss, telecommunications failure, break-ins, earthquake and similar
events. Our insurance policies have low coverage limits and may not adequately
compensate us for any such losses that may occur due to interruptions in our
service.
PROTECTION OR DEFENSE OF OUR INTELLECTUAL PROPERTY RIGHTS MAY DAMAGE OUR
REPUTATION AND REQUIRE US TO EXPEND SIGNIFICANT RESOURCES.
We have filed for patents on our services, but no action has yet been taken
on our applications. We may be subject to or may initiate proceedings in the
United States Patent and Trademark Office, which may demand significant
financial and management resources. While we enter into confidentiality
agreements with our employees and consultants, the steps we have taken to
protect our proprietary rights may not prevent misappropriation. Further, third
parties may infringe or misappropriate our patents, trademarks or other
proprietary rights, which could injure our reputation and our business. In
addition, we do not know whether we will be able to defend our proprietary
rights since the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries is uncertain and still evolving. Although
we believe our products and information system do not infringe upon the
proprietary rights of others, we cannot be certain that third parties will not
assert infringement claims against us. From time to time in the ordinary course
of business we may be subject to claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. These claims
and any resultant litigation, should it occur, could subject us to significant
liability for damages. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention. Any claims from third parties may also result in limitations
on our ability to use the intellectual property subject to these claims unless
we are able to enter into agreements with the third parties making these claims.
NEW LAWS OR GOVERNMENT REGULATIONS COULD DECREASE THE DEMAND FOR OUR SERVICES OR
INCREASE OUR COST OF DOING BUSINESS.
Since we are an Internet-based business, any new law or regulation
pertaining to the Internet, or the application or interpretation of existing
laws, could decrease the demand for our services or increase our cost of doing
business. These laws or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. Furthermore, the
growth and development of electronic commerce may prompt more stringent consumer
protection laws that may impose additional burdens on electronic commerce
companies as well as companies like us that provide electronic commerce
services. Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing.
Various state and local legislatures have already proposed to impose
additional taxes on the sale of products and services through the Internet or
the income derived from such sales. Such proposals, if adopted, could
substantially impair the growth of electronic commerce and adversely affect our
opportunity to become profitable.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the Untied States
Congress. However, this legislation, known as the Internet Tax Freedom Act,
imposes only a three-year moratorium, which commenced October 1, 1998 and ends
on October 21, 2001, on state and local taxes on (i) electronic commerce where
such taxes are discriminatory and (ii) Internet access unless such taxes were
generally imposed and actually enforced prior to October 1, 1998. It is possible
that the tax moratorium could fail to be renewed prior to October 21, 2001.
Failure to renew this legislation would allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could adversely affect our
ability to become profitable.
EXPOSURE UNDER REVENUE-SHARING CONTRACTS WITH THIRD PARTIES MAY SUBJECT US TO
LIABILITIES.
As part of our business, we have entered into, and plan to continue to
enter into, agreements with other Internet companies, under which we will be
entitled to receive a share of revenues from the purchase of goods and services
by users of our web sites. In addition, we plan to enter into agreements with
merchants, under which we will be entitled to receive a share of revenues from
the purchase of goods and services by users of our web sites. Such arrangements
may expose us to additional legal risks and uncertainties, including
8
<PAGE>
potential liabilities to consumers of such products and services. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to indemnify us for all liability that may
be imposed. Some of the risks that may result from these arrangements with
businesses engaged in electronic commerce include:
o Potential liabilities for illegal activities that may be conducted by
participating merchants;
o Product liability or other tort claims relating to goods or services sold
through third-party commerce sites;
o Consumer fraud and false or deceptive advertising or sales practices;
o Breach of contract claims relating to merchant transactions; and
o Claims relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from electronic commerce transactions.
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could cause a strain on our finances,
damage our reputation and distract the attention of our management.
COLLECTION OF PERSONAL INFORMATION ABOUT OUR USERS IN THE FUTURE MAY SUBJECT US
TO POTENTIAL LIABILITY FOR INVASION OF PRIVACY.
Although we have a policy against using personal information, current
computing and Internet technology allows us to collect personal information
about our users. We may decide in the future to compile and provide such
information to our corporate customers and electronic commerce partners. If we
begin collecting such information, we may face potential liability for invasion
of privacy for compiling and providing to our corporate customers and electronic
commerce partners information based on questions asked by users and visitors on
our web sites. Because we may not obtain permission from users to distribute
this information, we may potentially face liability for invasion of privacy.
OUR OFFICERS AND DIRECTORS MAY BE ABLE SIGNIFICANTLY TO INFLUENCE MATTERS
REQUIRING STOCKHOLDER APPROVAL BECAUSE THEY OWN A LARGE PERCENTAGE OF OUR
OUTSTANDING SHARES.
Our executive officers and directors beneficially own in the aggregate
approximately 42.8% of our outstanding common stock. These stockholders may be
able to exercise control over all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing an acquisition or change in control of
Predict It, which could significantly reduce our stock price.
REGISTRATION OF ADDITIONAL SHARES IN THE FUTURE MAY REDUCE THE MARKET FOR OUR
COMMON STOCK.
The shares registered by this prospectus have not previously been
registered. Assuming that no existing options are exercised and that the
Series A preferred stock is not converted, there would be a total of
11,982,402 shares (including 500,000 shares of common stock currently being held
in escrow pending Predict It achieving certain milestones) outstanding as of the
date of this prospectus. The 13,189,152 shares being registered represent 100%
of the outstanding shares of our common stock, 100% of the shares of our common
stock underlying our Series A Preferred Stock and 11.9% of the shares issued
upon exercise of certain of our options. Future sales of significant numbers of
shares of our common stock in the public market could have a depressing effect
on the prevailing market price of the common stock, which might also diminish
our ability to raise capital through subsequent offerings of securities. If we
decide to pay preferred dividends in shares of our common stock, this could also
depress the market for our common stock if the recipients of those common stock
dividends were to sell those newly issued shares.
WE ARE LISTED ON THE OTC ELECTRONIC BULLETIN BOARD, WHICH CAN BE A VOLATILE
MARKET.
Our common stock is quoted on the OTC Electronic Bulletin Board, a NASD
sponsored and operated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced as an alternative to the NQB Pink
sheets for trading over-the-counter securities. It is a more limited trading
market than the NASDAQ SmallCap, and timely, accurate quotations of the price of
our common stock may not always be
9
<PAGE>
available. You may expect trading volume to be low in such a market.
Consequently, the activity of only a few shares may affect the market and may
result in wide swings in price and in volume.
Our common stock may be subject to the requirements of Rule 15g-9,
promulgated under the Securities Exchange Act of 1934, as amended, if the price
of our common stock remains below $5.00 per share. Under such rule,
broker-dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock. Generally, the Commission
defines a penny stock as any equity security not traded on an exchange or quoted
on NASDAQ that has a market price of less than $5.00 per share. The required
penny stock disclosures include the delivery, prior to any transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
with it. Such requirements could severely limit the market liquidity of the
securities and the ability of purchasers to sell their securities in the
secondary market. Our common stock was initially quoted on the OTC Bulletin
Board at $3.50 per share, but as of February 8, 2000 the share price was $1.625,
and we cannot be certain that the price per share will not remain below $5.00
per share.
SINCE THE MARKET FOR STOCKS OF INTERNET COMPANIES HISTORICALLY HAS EXPERIENCED
EXTREME PRICE AND VOLUME FLUCTUATIONS, OUR SHARES MAY EXPERIENCE EXTREME PRICE
AND VOLUME FLUCTUATIONS.
The market for the stocks of Internet-related companies has experienced
extreme price and volume fluctuations. Therefore, the market price of our common
stock may be volatile and may decline. In the past, securities class action
litigation has often been instituted against companies following periods of
volatility in the market price of their securities. If instituted against us,
regardless of the outcome, litigation could result in substantial costs and a
diversion of our management's attention and resources.
EXERCISE OF EXISTING OPTIONS AND WARRANTS WILL DILUTE OUR COMMON STOCK AND MAY
MAKE IT MORE DIFFICULT TO RAISE CAPITAL.
The exercise of 1,995,975 existing options and 625,000 warrants will dilute
our common stock and may depress the market price of our common stock in any
market that may develop for such securities. In such event, raising capital may
become more difficult.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our certificate of incorporation and bylaws and provisions of
applicable Delaware law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. For instance,
certain provisions of our certificate of incorporation and by-laws, and the
significant amount of common stock held by our executive officers, directors and
affiliates, could together have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change management. In
addition, our board of directors may issue up to 5,000,000 shares of preferred
stock and may determine the price and the terms, including preferences and
voting rights, of those shares without stockholder approval. Although we have no
current plans to issue additional shares of our preferred stock, any such
issuance could, among other things:
o discourage bids for our common stock at a premium over the market price; or
o adversely affect the market price of, and the voting and other rights of the
holders of, our common stock; or
o have the effect of delaying, deferring or preventing an acquisition or a
change in control of Predict It.
IF OUR SYSTEMS OR MATERIAL THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT, THEN
WE MAY LOSE REVENUES AND INCUR SIGNIFICANT COSTS.
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
10
<PAGE>
The failure of our internal systems, or any material third-party systems, to be
Year 2000 compliant would have a material adverse effect on our business. All of
our systems were designed subsequent to October 1997, well after the Year 2000
compliance problem was identified. Accordingly, all of the systems we have
developed use four digits to identify the year rather than two digits. We also
contacted our third-party vendors, licensors and providers of hardware, software
and services regarding their Year 2000 readiness. While we expect that our
precautionary measures have reduced or eliminated any significant impact of Year
2000 issues, we cannot be sure that this will be the case. In addition, we
cannot be certain that any Year 2000 problems that may be experienced by our
customers or suppliers will not have a negative impact on Predict It. As of
February 8, 2000, we have not experienced any material system failures that
could be attributable to Year 2000 non-compliance. See the "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance" section of this prospectus for a more detailed discussion.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our business or state other
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of identifying
them. These forward-looking statements reflect the current views of our
management; however, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed in, or implied by, these statements, including the following:
o the success or failure of our efforts to implement our business strategy;
and
o the other factors discussed under the heading "Risk Factors" and
elsewhere in this prospectus.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. For a
discussion of important risks of an investment in our securities, including
factors that could cause actual results to differ materially from results
referred to in the forward-looking statements, see the "Risk Factors" section.
You should carefully consider the information set forth under the caption the
"Risk Factors" Section. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in or incorporated by reference in this
prospectus might not occur.
AVAILABLE INFORMATION
We will file reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied, at the Public Reference Room of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Northeast Regional Office of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at the Midwest
Regional Office of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. Our
Commission filings will also be available to the public from the Commission's
web site at http://www.sec.gov.
We have filed a registration statement with the Commission on Form SB-2,
under the Securities Act of 1933, with respect to the securities described in
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules filed with the registration statement. For
further information about us, and our common stock described by this prospectus,
reference is made to the registration statement and to the exhibits and
schedules filed with it. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance where a copy of such contract or
other document has been filed as an exhibit to the registration statement,
reference is made to the copy so filed, each such statement being qualified in
all respects by such reference. Any document we file may be read and copied at
the Public Reference Room.
11
<PAGE>
PREDICT IT
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999. On April 28, 1999,
Predict It Corp. merged with and into WDC Development, Inc. WDC Development was
the surviving corporation and it changed its name to "Predict It Inc." The post-
merger business of Predict It Inc. is the pre-merger business of Predict It
Corp. and its predecessors. On June 30, 1999, through a wholly-owned Delaware
subsidiary of Predict It Inc., we purchased Virtual Stock Exchange, Inc., a
Delaware corporation. We maintain our principal business operations at 694
Eighth Avenue, 5th floor, New York, NY 10036. Our telephone number is
212-217-1200, and our web sites include http://www.predictit.com,
http://www.sports.predictit.com, http://www.predictit.net and
http://www.VirtualStockExchange.com. The information in our web sites is not
incorporated by reference into this prospectus.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
stockholders of our common stock. However, we will receive $58,876.25 from our
stockholders upon the exercise of stock options registered in this Registration
Statement. The proceeds will be used for general corporate purposes to grow
Predict It's business.
PRICE RANGE OF COMMON STOCK
Our common stock is currently quoted on the OTC Electronic Bulletin Board
under the symbol "PRIT." There was no active market for Predict It's securities
until April 28, 1999(1). The following table sets forth the high and low bid
price information for the common stock as quoted on the OTC Electronic Bulletin
Board for the periods indicated. The quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
HIGH BID LOW BID
-------- -------
<S> <C> <C>
October 1, 1998 through December 31, 1998............................... $ 0 $ 0
January 1, 1999-March 31, 1999.......................................... $ 1.50 $ 0
April 1, 1999-June 30, 1999............................................. $ 4.25 $ 1.87
July 1, 1999-September 30, 1999......................................... $ 2.93 $ 1.03
October 1, 1999-December 31, 1999....................................... $ 2.09 $ 1.25
</TABLE>
On February 8, 2000, the closing bid price as quoted by the OTC Electronic
Bulletin Board for our common stock was $1.375. As of February 8, 2000, there
were approximately 25 holders of record of our common stock.
There is no public trading market for any of our preferred stock or
options.
- ------------------
(1) Prior to the reverse merger, Predict It Inc. (then named WDC Development,
Inc.) was listed on the OTC Electronic Bulletin Board from November 1998
through April 27, 1999.
12
<PAGE>
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
presently intend to retain any earnings for use in the business and do not
anticipate paying cash dividends in the foreseeable future. Any future cash
dividends will be at the discretion of the board of directors and will depend on
our earnings, financial condition, cash flows, capital requirements and other
considerations that the board of directors may consider relevant. Our Series A
Preferred Stock does not pay any dividends.
CAPITALIZATION
The following table sets forth, as of September 30, 1999 the capitalization
of Predict It Inc. The following table should be read in conjunction with the
financial statements and notes thereto of Predict It Inc., Virtual Stock
Exchange, Inc. and the unaudited pro forma financial statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
ACTUAL
------------------
<S> <C>
Current liabilities:
Accounts payable and accrued expenses............................................. $ 847,655
Long-term liabilities:..............................................................
Capital lease obligations......................................................... 14,679
Notes payable, stockholders....................................................... 100,000
Accrued interest.................................................................. 12,000
----------
974,334
----------
Preferred stock, $.01 par value, 5,000,000 shares authorized, 1,000,000 shares
Series A issued and outstanding at September 30, 1999 (stated at liquidation
preference)....................................................................... 3,000,000
Common stock, $.01 par value, 25,000,000 shares authorized, 11,200,000 shares issued
and outstanding at September 30, 1999 (exchange of 500,000 shares held in
escrow)........................................................................... 112,000
Additional paid-in capital........................................................ 2,957,563
Deficit........................................................................... (2,054,027)
Unearned compensation.......................................................... (835,555)
----------
3,179,981
----------
$4,154,315
----------
----------
</TABLE>
SELECTED FINANCIAL DATA
On April 28, 1999, Predict It Corp. merged with and into WDC Development,
Inc. WDC Development was the surviving corporation and changed its name to
"Predict It Inc." In the merger, all of the outstanding capital stock of Predict
It Corp. was converted into shares of common stock of the surviving corporation.
For accounting purposes, the merger has been treated as a recapitalization of
Predict It Corp. Financial statements prior to the merger are those of Predict
It Corp. The financial statements give retroactive effect to the conversion of
Predict It Corp. capital stock into Predict It Inc. common stock to reflect the
recapitalization.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we purchased 100% of the outstanding stock of Virtual Stock Exchange,
Inc., a Delaware corporation. In exchange, we issued to the 3 stockholders of
Virtual Stock Exchange an aggregate of 2,700,000 shares of our common stock,
representing approximately 23% of our outstanding common stock. Of the shares
issued, 500,000 shares will be held in escrow with 50% of such shares to be
released in January 2000, and the remaining 50% of which to be released in
January 2001, as long as the number of registered users and page views of the
combined activities exceeds certain specified amounts.
13
<PAGE>
Set forth below is selected financial data of Predict It Inc. as of
December 31, 1998, September 30, 1998, the period September 2, 1997 (inception)
through December 31, 1997, the year ended December 31, 1998, and the nine month
periods ended September 30, 1999 and 1998. The statements of operations and
balance sheet data as of and for the nine months ended September 30, 1999 and
1998 have been derived from the unaudited books and records of Predict It Inc.
The statements of operations and the balance sheet data as of and for the period
September 2, 1997 through December 31, 1997 and for the year ended December 31,
1998 have been derived from the audited financial statements of Predict It Inc.
included elsewhere in this prospectus. The selected financial data for the nine
months ended September 30, 1999 and 1998 include, in the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position and results of operations of Predict It
Inc. for such periods. The results of operations for the nine months ended
September 30, 1999 are not necessarily an indication of results for a full
fiscal year. Also set forth below are summary unaudited pro forma financial data
of Predict It Inc. The unaudited pro forma as adjusted statements of operations
data for the nine months ended September 30, 1999 and for the year ended
December 31, 1998 are presented as if the acquisition of Virtual Stock Exchange,
Inc. had occurred as of the beginning of the periods presented. The unaudited
pro forma as adjusted financial data has been prepared based on the audited and
unaudited financial statements of Virtual Stock Exchange, Inc.,which are
included elsewhere in this prospectus. The unaudited pro forma as adjusted
financial data is not intended to be an indication of the results that would
have occurred for the periods indicated or which may be realized in the future.
The selected financial data and summary unaudited pro forma as adjusted
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Predict It Inc. and Virtual Stock
Exchange, Inc. and the notes thereto included elsewhere in the prospectus.
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
HISTORICAL ACQUISITION OF VIRTUAL
------------------------------------------------------- STOCK EXCHANGE, INC.
SEPTEMBER 2, ---------------------------
1997 NINE MONTHS
(INCEPTION) NINE MONTHS ENDED ENDED
THROUGH YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER
DECEMBER 31, DECEMBER 31, ------------------------ DECEMBER 31, 30,
1997 1998 1998 1999 1998 1999
------------- ------------- --------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
User fees........................ $ 7,712 $ 6,202 $ 3,461 $ 24,173 $ 10,558
Advertising...................... 6,000 6,000 93,209 56,736 152,302
--------- --------- --------- ----------- ------------ ------------
13,712 12,202 96,670 80,909 162,860
--------- --------- --------- ----------- ------------ ------------
Costs and expenses:
Site development/maintenance..... 177,783 148,244 160,698 227,243 327,725
Selling, general and
administrative(2)............. $ 21,402 340,698 191,915 1,368,828 503,679 1,465,279
Amortization of Intangibles(1)... 122,338 489,352 367,014
Interest expense (income)........ 3,000 3,000 (30,338) 9,768 (23,050)
--------- --------- --------- ----------- ------------ ------------
21,402 521,481 343,159 1,621,526 1,230,042 2,136,968
--------- --------- --------- ----------- ------------ ------------
Net Loss before income tax......... $ (21,402) $(507,769) $(330,957) $(1,524,856) $ (1,149,133) $ (1,974,108)
--------- --------- --------- ----------- ------------ ------------
--------- --------- --------- ----------- ------------ ------------
Net loss per share--basic and
diluted.......................... $ (.04) $ (.21) $ (.18) $ (.17) $ (.25) $ (.20)
--------- --------- --------- ----------- ------------ ------------
--------- --------- --------- ----------- ------------ ------------
Weighted average number of shares
outstanding...................... 488,412 2,381,327 1,784,508 8,790,775 4,581,327 9,890,775
--------- --------- --------- ----------- ------------ ------------
--------- --------- --------- ----------- ------------ ------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital (deficit)......................................................... $ 45,118 $ 858,156
Total assets...................................................................... 198,894 4,154,315
Long term debt...................................................................... 0 114,679
Total liabilities................................................................... 72,729 974,334
---------- -----------
---------- -----------
Accumulated deficit................................................................. (529,171) (2,054,027)
---------- -----------
---------- -----------
Total stockholders' equity.......................................................... 126,165 3,179,981
---------- -----------
---------- -----------
</TABLE>
- ------------------
(1) Represents amortization expense related to goodwill resulting from the
acquisition of Virtual Stock Exchange, which is being amortized over a
period of three years.
(2) Includes the impact of employment agreements entered into upon the
consummation of the acquisition of Virtual Stock Exchange, representing
additional costs of $114,000 and $57,000 for the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively.
15
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Predict It Inc. provides user-generated prediction services on the
Internet. The innovative patent-pending system objectively measures, identifies
and ranks users, who are known as analysts, based on their prediction
performance in event categories such as sports, finance, politics, and
entertainment. The Predict It system then compensates these analysts when other
Predict It analysts seek out their opinions. The Predict It web site lends
itself to any set of events whose outcomes can be measured objectively and which
occur with some regularity. Currently, Predict It offers predictive services for
sports and finance, but we plan to expand our product offerings into additional
product categories, including politics and entertainment. Predict It Inc. is
publicly traded on the OTC Electronic Bulletin Board under the symbol "PRIT."
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999 as a strategic move to
better communicate the scope and nature of our products and services. The
Predict It brand was introduced on the Internet in March 1999. Our business
strategy is largely advertising-based, but is unique in that our revenue is
shared with users whose information is consumed by other users.
On April 28, 1999, Predict It completed a reverse merger with WDC
Development, Inc. in which we merged with and into WDC Development. WDC
Development was the surviving corporation and changed its name to "Predict It
Inc." The post-merger business of Predict It Inc. is identical to the pre-merger
business of Predict It Corp. and its predecessors. For accounting purposes, the
merger has been treated as a recapitalization of Predict It Corp. For tax
purposes, the merger was a tax-free exchange of equity securities. The
historical activities of WDC Development were limited to capital raising
activities, all of which were completed at or prior to the merger.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we acquired Virtual Stock Exchange, Inc., a company engaged in predictive
stock market simulations through its web site, www.VirtualStockExchange.com. The
acquisition was made in connection with our expansion into the area of financial
predictive services. As a result of the acquisition, we have recognized
approximately $1,468,000 of goodwill on our Balance Sheet. The goodwill is being
amortized over a three-year period.
On December 8, 1999, certain existing shareholders made a bridge loan to us
in the aggregate amount of $1,000,000. The loan was evidenced by 1-year
promissory notes in the aggregate amount of $1,000,000 plus interest, which
shall accrue at a rate of 10% per year, compounded annually. In conjunction with
the bridge loan, we issued warrants to purchase an aggregate of 625,000 shares
of our common stock at an exercise price of $1.60 per share.
RESULTS OF OPERATIONS--9 MONTHS ENDED SEPTEMBER 30, 1999 VS. 9 MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES
Revenues increased to $96,670 for the nine months ended September 30, 1999,
from $12,202 for the nine months ended September 30, 1998. The increase in
revenues was primarily due to the fact that we did not commence significant
revenue generating activities in 1998 until the second quarter. In addition, the
acquisition of Virtual Stock Exchange has significantly increased Predict It's
membership, enabling us to receive favorable advertising rates. Revenue for the
nine months ended September 30, 1999 was from advertising revenues ($93,209) and
analyst subscriptions ($3,461).
SITE DEVELOPMENT AND MAINTENANCE EXPENSE
Site development and maintenance expense consist primarily of web site
hosting, maintenance expenses and amortization related to capitalized software
costs. Site development and maintenance expense was approximately $161,000 for
the nine months ended September 30, 1999 which includes approximately
16
<PAGE>
$28,000 of amortization expense related to capitalized software costs and
$63,117 in web site hosting and maintenance costs. Site development costs
incurred during the nine months ended September 30, 1998 were approximately
$148,000, including $4,000 of amortization expense related to capitalize
software costs and $14,000 in web hosting and maintenance costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling general and administrative costs increased $1,176,000 from $192,000
for the nine months ended September 30, 1998 to $1,368,000 for the nine months
ended September 30, 1999. Staffing costs increased from $75,000 to $608,000. The
increase is attributable to our increase in personnel from 3 to 20 full-time
individuals. Operating costs increased from $19,750 in the nine months ended
September 30, 1998 to $88,623 in the nine months ended September 30, 1999
primarily due to rent and insurance expenses. Professional fees for the nine
months ended September 1999 and 1998 were $447,376 and $58,787, respectively.
The increase is primarily due to professional fees resulting from increased
regulatory filing expenses and consulting fees for public relations.
AMORTIZATION OF INTANGIBLES
Amortization expense for the nine months ended September 30, 1999 was
$122,000 representing the amortization of the registered user base acquired from
Virtual Stock Exchange.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 VS. SEPTEMBER 2, 1997
(INCEPTION) THROUGH DECEMBER 31, 1997
REVENUES
Revenues increased to $13,700 for the year ended December 31, 1998, from $0
for the period September 2, 1997 (Inception) to December 31, 1997. The increase
in revenues occurred due to the fact that we commenced revenue generating
activities in 1998. Advertising revenue increased to $6,000 and analyst
subscription revenue increased to $7,700 for the year ended December 31, 1998,
from $0 for the period from inception to December 31, 1997.
SITE DEVELOPMENT AND MAINTENANCE EXPENSE
Site development and maintenance expense consist primarily of web site
hosting, maintenance expenses and amortization related to capitalized software
costs. Site development and maintenance expense was $178,000 for the year ended
December 31, 1998 which includes $90,000 of amortization expense related to
capitalized software costs, $65,000 paid to a former source provider for the
transition to a new web site and $23,000 in web site hosting and maintenance
costs. Included in the $90,000 of amortization expense is approximately $49,000
of unamortized software costs which were deemed to be impaired, and written off,
as a result of rebuilding the site through a new provider. Site development
costs in 1997 were capitalized until the launch of our website in April 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased $320,000 from $21,000
in 1997 to $341,000 in 1998. Staffing costs increased from $9,000 to $141,000.
The increase is attributable to having three employees in 1998 as compared to
one in 1997. Operating costs increased from $3,000 in 1997 to $44,000 in 1998
primarily due to increased rent and moving costs as a result of our moving into
new office space in the third quarter of 1998. Professional fees for consulting,
legal and accounting services increased from $9,000 to $95,000. Marketing
expenses increased from $0 in 1997 to $45,000 in 1998 due to Internet
advertising of $23,000 and $20,000 in travel and entertainment.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the private
placement of our preferred stock and the sale of our common stock. As of
September 30, 1999, we had approximately $1,626,000 in cash. We have entered
into an agreement with Vision Consulting to develop Version 3 pursuant to which
we are obligated to pay Vision Consulting $750,000. On December 8, 1999, we
received a bridge loan from Keith Rosenbloom, a then-serving director and an
exisiting stockholder, and Dawntreader Fund I LP, Robert O'Sullivan, Falk Family
Foundation, Michael Falk, Commonwealth Associates, L.P., Robert Priddy and Asia
World Holdings Ltd., existing stockholders. The bridge loan was evidenced by
promissory notes in
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the aggregate of $1,000,000, plus interest accruing at a rate of 10% per year,
payable by Predict It on December 8, 2000. We believe that our existing cash
balances will be sufficient to meet anticipated cash requirements for the next
twelve months. We may, nonetheless, seek additional financing to support our
activities during the next twelve months or thereafter. We cannot be sure,
however, that additional capital will be available to us on reasonable terms, if
at all, when needed or desired.
Our capital requirements depend on numerous factors, including (i) market
acceptance of Predict It's services; (ii) the amount of resources we devote to
investments in our product development; and (iii) the resources we devote to
sales and marketing.
We anticipate that we will continue to evaluate possible investments in
business, products and technologies, and plans to expand its sales and marketing
programs while conducting more aggressive brand promotions.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities. As
of the date of this registration statement, we have not experienced any
interruptions or problems arising from Year 2000 non-compliance.
STATE OF READINESS
As of December 31, 1999, we had completed our assessment of the Year 2000
readiness of our operating, financial and administrative systems, including the
hardware and software that support our systems. Our assessment plan consisted
of: (i) quality assurance testing of our internally developed proprietary
software; (ii) contacting third-party vendors and licensors of material
hardware, software and services that are both directly and indirectly related to
the delivery of our services to our users; (iii) contacting vendors of
third-party systems; (iv) assessing repair and replacement requirements;
(v) implementing repair or replacement; and (vi) creating contingency plans in
the event of Year 2000 failures.
RISKS
As a result of our assessment, we are not aware of any Year 2000 compliance
problems relating to our systems that would have a material adverse effect on
our business, results of operations and financial condition, without taking into
account our efforts to avoid or fix such problems. Our primary product, Version
3 of our database, and web application has been developed by Vision Consulting.
We tested this product in October 1999 and we found no indication that the
product will not be Year 2000 compliant. As of February 8, 2000, we have not
experienced any material problems resulting from Year 2000 non-compliance.
We are heavily dependent on a significant number of third-party vendors to
provide both network services and equipment. A significant Year 2000-related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on its technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations. We do not believe that the costs involved in ensuring
that our internal systems are Year 2000 compliant are significant because all of
our internal mission-critical hardware and enterprise software vendors and
systems are certified Year 2000 compliant. These material vendors are as
follows:
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VENDOR RELATIONSHIPS THAT INCLUDE A SUPPORT CONTRACT
<TABLE>
<CAPTION>
VENDOR PRODUCT YEAR 2000 COMPLIANCE STATUS
- ---------------------------------------- ---------------------------- ----------------------------------------
<S> <C> <C>
Cisco Systems........................... Routers & switches Received statement of compliance
Sun Microsystems........................ Ultra 10/Enterprise 250/450 Received statement of compliance
Server Hardware
SunMicrosystems......................... Solaris 7 Operating System Received statement of compliance
Oracle.................................. Oracle 8.X Database Received statement of compliance
Veritas................................. Volume manager/Net back- Received statement of compliance
Up/File system/Database
Edition Software
ATG..................................... Dynamo 4.1.0 Received statement of compliance
Application Server
Foundry Networks........................ ServerIron Received statement of compliance
Hardware Load Balancer
Red Hat................................. Linux 6.0 Received statement of compliance
Operating System
S&P Comstock............................ Provides datafeed Received statement of compliance
Sportsticker............................ Provides datafeed Problem identified and resolved
programmatically by Predict It
</TABLE>
VENDORS THAT DO NOT INCLUDE A SUPPORT CONTRACT
<TABLE>
<CAPTION>
VENDOR PRODUCT YEAR 2000 COMPLIANCE STATUS
- ---------------------------------------- ---------------------------- ----------------------------------------
<S> <C> <C>
Apache.................................. Apache 1.3X Received statement of compliance
web Server Software
OpenBSD................................. Version 2.6 Received statement of compliance
Operating System
3rd Party Network Dependancies
Bell Atlantic........................... Provides office T-1 line Awaiting statement of compliance
Frontier Global......................... Hosts company website Received statement of compliance
</TABLE>
Most of our computer hardware is new, but in the event any of our hardware
malfunctions, we will replace it. We do not expect to incur material costs to
replace any such defective hardware. Our internal office network is supported by
Microsoft NT and related products including Microsoft office. These products are
certified Year 2000 compliant. Our financial accounting system is outsourced,
and by December 31, 1999 we had received assurances from our third-party vendors
that the supporting systems were Year 2000 compliant. By December 31, 1999, we
had also received assurances from the lessor of our corporate headquarters that
our offices were Year 2000 compliant.
Our servers are hosted at Frontier Global Center, which has provided us
with a Year 2000 Compliance Statement.
As of February 8, 2000, our systems have performed consistently with their
performance prior to the year 2000 and we have not experienced any material
problems resulting from Year 2000 non-compliance. However, we still cannot be
certain that we will not discover Year 2000 compliance problems in our systems
that will require substantial revision. We also cannot be sure that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time consuming and
expensive. In addition, we also cannot be sure that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside of our control are Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systematic failure beyond
our control, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent
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us from delivering our services to our customers, decrease the use of the
Internet or prevent users from accessing our web sites, which could result in
our inability to service our users and could materially impair our success.
WORST CASE SCENARIO AND CONTINGENCY PLAN
Our reasonably likely worst-case scenario is that our Version 3 products
and our Oracle database fail in the year 2000, resulting in loss of data, which
would damage the value of our information and may damage the Predict It brand.
Our failure to fix or replace our internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material, adverse effect on
our business, results of operations, and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our internally
developed proprietary system could result in claims of mismanagement,
misrepresentation, or breach of contract and related litigation, which could be
costly and time consuming to defend.
To protect against the failure of our Version 3 and Oracle database in the
year 2000, we have implemented Raid 0+1 Oracle mirroring and striping for fail
over and an Oracle Replication Server, nightly back-ups, and an archive log so
that we can recover all data up to the time of a potential system failure caused
by Year 2000 failure. In the event of a Year 2000 failure we will be required to
devote resources to correct it. Due to our skilled in-house developers and the
strength of our existing vendor relationships, we believe we will be able to
respond promptly to any failures that may still occur. According to third party
Year 2000 certifications, our third party vendors are also Year 2000 compliant.
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BUSINESS
PREDICT IT
BACKGROUND
Predict It Corp., the immediate predecessor to Predict It Inc., was
incorporated under the laws of the State of Delaware on August 11, 1998 as
SPORTSCAPPERS, INC. Predict It Corp. was the successor to the business of
SPORTSCAPPERS, INC., a Colorado corporation incorporated in September 1997,
which merged in August 1998 into SPORTSCAPPERS, INC., a Delaware corporation. We
changed our name to "Predict It Corp." on January 4, 1999. On April 28, 1999,
Predict It Corp. merged with and into WDC Development, Inc. WDC Development was
the surviving corporation and changed its name to "Predict It Inc." The post-
merger business of Predict It Inc. is the pre-merger business of Predict It
Corp. and its predecessors. For accounting purposes, the merger has been treated
as a recapitalization of Predict It Corp. For tax purposes, the merger was a
tax-free exchange of equity securities. On June 30, 1999, through a wholly-owned
Delaware subsidiary of Predict It, we purchased Virtual Stock Exchange, Inc., a
Delaware corporation. On December 8, 1999, we received a bridge loan in the
aggregate amount of $1,000,000 from certain existing shareholders and one of our
former directors.
The historical activities of WDC Development were limited to capital
raising activities, all of which were completed at or prior to the merger.
Accordingly, in the following discussion, all references to our business relates
to the business of Predict It Corp. and its predecessors prior to the merger and
Predict It Inc. following the merger with WDC Development.
OVERVIEW
Our business is the development of interactive products, which are
distributed through the Internet. The Predict It product allows users to
participate actively by predicting the outcome of events and evaluating the
results of their participation with those of other Predict It users. The Predict
It product also lends itself to calculating predictions for any set of events
whose outcome can be measured objectively. Our initial product offering,
"Predict It Sports," allows users to pick and exchange predictions on sporting
events with fellow users. Our database then calculates the accuracy of these
predictions and allows users to view those results. Our system, unlike chat
rooms, bulletin boards and stock tracking systems, enables users to quickly find
and view the predictions of the best analysts, who in turn earn money each time
their predictions are viewed. Users may post predictions and view the
predictions of others free of charge.
On December 8, 1999, we received a bridge loan in the aggregate amount of
$1,000,000 from Keith Rosenbloom, a then-serving director and an existing
stockholder, and certain other existing stockholders. The bridge loan was
evidenced by promissory notes from Predict It in the aggregate amount of
$1,000,000, plus interest accruing at 10% per year, payable by Predict It on
December 8, 2000.
On November 18, 1999, we introduced a redesigned web site,
www.sports.predictit.com, enabling users to gain access to global events using
up-to-the-minute information, increased research capabilities, and additional
features.
On July 16, 1999, we introduced the Predict It Network web site, which we
plan to use to integrate all of our current and future products, including
Predict It Sports and Virtual Stock Exchange, with products that we may acquire.
This will allow us to integrate additional products and services that we may
develop or acquire. In addition, we built the Predict It Network web site so
that, as the number of users increases, all of our users will be able to access
our web sites at one time. Our Predict It Network web site is located at
www.predictit.net.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we acquired 100% of the stock of Virtual Stock Exchange, Inc., a Delaware
corporation. In exchange, we issued 2,700,000 shares of our common stock,
representing approximately 22.5% of our outstanding common stock. Of the shares
issued, 500,000 shares will be held in escrow with 50% of such shares to be
released in January 2000 and the remaining 50% to be released in January 2001,
as long as the number of registered users and page views for the combined
entities exceeds certain specified amounts. Virtual Stock Exchange's business is
an interactive
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web site where individuals create and manage hypothetical stock portfolios,
conduct mock trading, and compete with other members for prize money, generally
not to exceed $1,000 per month, based on their portfolio performance. The web
site also provides quotes and research on United States financial markets
through links to other sites, and a forum for individuals to exchange ideas with
other members on a variety of investment topics. Virtual Stock Exchange operates
www.VirtualStockExchange.com, which services over 100,000 registered members and
generates in excess of 4.5 million page views per month. Consumers may access
Virtual Stock Exchange directly via its web site or through other web sites,
including Crosswalk.com, Planetdirect.com and Collegestudent.com.
We market our product by entering into partnerships with relevant industry
and news content providers. We earn revenue principally by the sale of
advertisements either by us directly or on a revenue sharing basis with our
partners. Unlike other businesses on the Internet, our strategy is to provide
unique, compelling and user-generated content that encourages repeat visits to
our web sites and those of our partners.
INDUSTRY BACKGROUND
The Internet has emerged as a mass-market global medium for communications,
information and online commerce, enabling millions of users to obtain and share
information, and interact and conduct business electronically. Industry analyst
International Data Corporation estimates that the number of Internet users was
approximately 97 million at the end of 1998 and will reach approximately
320 million by the end of 2002, representing a compound annual growth rate of
approximately 35%. The growth in Internet usage is being driven by several
factors, including an increasing base of computers in the home and in the
workplace, advancements in the performance and speed of personal computers,
improvements in network infrastructure, more convenient, faster and cheaper
access to the Internet and increased public awareness of benefits of using the
Internet.
In addition to its benefits for individuals, the Internet provides
businesses with a new method for delivering product information, as well as
marketing and selling products and services. As the Internet has grown, many
businesses have recognized the Internet as an important vehicle for
communicating with customers and changing traditional business processes and
practices. As businesses have turned to the Internet as a new way to reach
consumers, they have developed web sites designed to hold users' attention for
extended time periods. More recently, new technology has enabled commercial
transactions to be conducted over the Internet, creating the opportunity for
business-to-consumer and business-to-business electronic commerce. According to
International Data Corporation, worldwide electronic commerce revenue was
approximately $32 billion in 1998 and is expected to grow to more than $425
billion in 2002, representing a compound annual growth rate of approximately
90%.
We believe that the creation of web sites designed to hold users' attention
for extended time periods is an emerging market opportunity. Properly developed,
these consumer-friendly web sites may alter the way businesses interact with
their customers. Nevertheless, significant shortcomings in the way users
interact with the Internet must be overcome for this market opportunity to be
fully realized. In short, web sites need new ways to encourage visits and
increase repeat visits to their sites.
THE PREDICT IT SOLUTION
We believe that one of the major problems with the Internet is that every
web site is competing to become the most visited web site on the Internet.
Building brand loyalty and attracting visits to a web site has become
increasingly costly, with intense competition and constant upgrades and
enhancements required by web developers who are trying to keep up with
competitors by adding new content to keep users at the site for extended periods
and to create demand for users to return to the site.
The answer for many of these web sites has been to incorporate the content
of other, third party, web-sites, in order to increase speed to market for new
features and enhancements to the site. By incorporating the content of other,
third party, web sites, these web sites are able to maintain their business
focus of growing their membership bases and attracting new users to their sites.
Predict It provides a solution for these content sites by providing its
customers with a comprehensive, ready to use product, that can be incorporated
within the customers website without altering the overall look and feel of their
own web site. This allows
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web sites to attract new users and retain existing users without having to hire
new staff, install new software or buy new hardware. We believe that the Predict
It solution is well positioned to benefit from this trend.
In short, Predict It will offer its users:
o A comprehensive, ready to use product, designed to hold users' attention
and encourage repeat visits by providing content that retains the look
and feel of the customer's existing site;
o New revenue opportunities;
o Detailed reports on usage patterns and registered users; and
o Reliability, performance and scalability.
PRODUCTS AND SERVICES
Our initial product is Predict It Sports, which was originally introduced
as SportsCappers in March 1998 and re-introduced in September 1998. Predict It
Sports is a sports information service that contains content and quantitative
opinions on sporting events that are user-generated. It permits tracking of the
accuracy of members' sports predictions and displays them in a manner that
encourages competition and motivates repeat visits to the site. The service
caters to sports fans that want to exercise their competitive nature by
competing against other users. The site documents the performance of registered
users and allows viewing of prior and future predictions of top performers based
on their historical success. Entering predictions is free to anyone who visits
the site and wishes to participate. In addition, as an added incentive to
encourage repeat site utilization, registered users share in a unique revenue
structure that pays registered users each time their predictions are viewed.
Incentive payments are presently paid at the rate of $10 per 1,000 pages viewed,
so that more money is earned each time a user's prediction is viewed. This
encourages usage by some of the very best amateur analysts and makes the site a
compelling destination for sports enthusiasts. We believe that our service is
more appealing to users of other sports information services since our service
caters to sports fans who want to exercise their sports expertise by competing
against other sports enthusiasts. Our site now focuses on football, basketball,
hockey and baseball, and has the potential to expand into other global sports
markets by extending coverage to international sports, including rugby, cricket
and track and field.
The Predict It Sports product is the first of several sites to be developed
using the Predict It concept. Other usages may include financial information,
current events, and entertainment. According to Intelligent Worldwide, an
industry analyst, 71% of online users look for general news, 59% access
entertainment information, 50% look for sports information, and 40% use the web
to monitor stocks or other investments. The potential of these markets presents
opportunities for us to expand our Predict It database of information.
On November 10, 1999, we entered into a three-year agreement with an
on-line content provider, pursuant to which we have agreed to design, produce,
host, operate, maintain and support different versions of the content provider's
online sports prediction service.
On November 18, 1999, we introduced a redesigned web site,
www.sports.predictit.com, enabling users to gain access to global events using
up-to-the-minute information, increased research capabilities, and additional
features.
On July 16, 1999, we introduced the Predict It Network web site, which we
plan to use to integrate all of our current and future products, including
Predict It Sports and Virtual Stock Exchange, with products that we may acquire.
This will allow us to integrate additional products and services that we may
develop or acquire. In addition, we built the Predict It Network web site so
that, as the number of users increases, all of our users will be able to acess
our web sites at one time. Our Predict It Network web site is located at
www.predictit.net.
On June 30, 1999, through a wholly-owned Delaware subsidiary of Predict It
Inc., we purchased Virtual Stock Exchange, Inc., a Delaware corporation. Virtual
Stock Exchange's business is an interactive Internet application where
individuals create and manage hypothetical stock portfolios, conduct mock
trading, and compete with other members for prize money, generally not to exceed
$1,000 per month, based on their portfolio performance. The web site also
provides quotes and research on United States financial markets through links to
other sites, and a forum for individuals to exchange ideas with other members on
a variety
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of investment topics. Virtual Stock Exchange operates
www.VirtualStockExchange.com, which services over 100,000 registered members and
generates in excess of 4.5 million page views per month. Consumers may access
Virtual Stock Exchange directly via its web site or through other web sites,
including Crosswalk.com, Planetdirect.com and Collegestudent.com. Messrs. Cheng
and Yen, the principle founders of Virtual Stock Exchange, have signed
employment agreements with us and have joined our management as Vice President
of Business Development and Director of Technology, respectively. Please see the
"Executive Compensation and Other Information" section for an additional
description of the employment contracts of Messrs. Cheng and Yen.
PREDICT IT DATA SYSTEM
Predict It has developed a patent-pending database system (which includes
data-model, system architecture, SQL calls, mathematical formulae and
user/administration interface) which lends itself to any set of events whose
outcome can be measured objectively. The initial product on our patent-pending
database system, Predict It Sports, enables users to enter predictions on
sporting events. Our system then stores the user's predictions, allowing other
users access to the entered prediction. Upon conclusion of the sporting event
being predicted, our system calculates/tabulates the accuracy of the predictions
and allows other users to view the entries and the results. Our system ranks the
top analysts based on the accuracy of their predictions, and this information is
made available to other users. The logical structures underlying our system can
be modified for expansion into other areas of interest (politics, for example),
based upon modifications to our database to include the underlying information
for the subject matter of the new area in which our system would be used.
PREDICT IT SYSTEM FEATURES
FOR USERS
o Live Demo. Anonymous users navigating the system see live data. Seeing current
games and current user records encourages participation.
o Easy Registration. A two-tier registration system makes it easy for users to
get started. The first tier registration, which gives users total access,
requires only the user's nickname, email address and password. To receive
their earnings payments, users must complete the more personal name, address
and telephone fields.
o Intuitive Pick Entry. The layout of the pick entry page makes it easy for
novice sports fans to participate.
o Advanced Research Capability. The cornerstone of the Predict It concept is the
up-to-the-minute reporting system, which allows users to find the top
performers in any category over any period of time. Users can gather further
information by viewing the details associated with anyone's record to see how
these top performers accomplished their impressive track records.
o Up-to-the-minute Earnings Reports. Earnings are calculated and posted to
users' accounts immediately following each event for which predictions were
posted.
o User Registration Management. These controls allow users easily to change
their email address, password and contact information.
FOR PUBLISHERS
o Branding. Publishers incorporate their site's logo, design and functionality
together with the Predict It product to create a custom menu so the users feel
as though they are still in the publisher's site. In addition, our products
can be customized to the publisher's specifications, providing enhanced
branding opportunities.
o Advertising Management. Using the DoubleClick Dart system, publishers have
access to a powerful and flexible advertising management system, which can be
used independently of or in conjunction with the publishers' existing
advertising management system.
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FOR INTERNAL ADMINISTRATORS
o Easy Expansion into New Sports. All of the world's major sports leagues are
already loaded into the database and can be activated within seconds. If a
real time feed is not incorporated or is not available for that sport, all of
the tools exist to manually input the events and results.
o Up-to-the-minute information. We have signed contracts with SportsTicker,
owned in part by ESPN, and PC Quote, to provide the latest information to the
users of our sports and financial products.
SYSTEM INTEGRITY CONTROLS
o Pick Entry. The system traps for and eliminates all of the possible ways that
users may attempt to enter picks on events already underway.
o Earnings. The system controls for users who may repeatedly access their own
picks or the picks of their friends in an attempt artificially to increase
earnings balances.
CUSTOMERS AND DISTRIBUTORS
We generate revenues from advertising sold on our site and on our partners'
sites. We optimize our revenues by entering into partnerships with other web
sites to attract advertisers to specific market niches. In this way, we can
expand our opportunities to reach more users who will view the services that we
offer.
Consequently, our strength lies in our ability to generate revenue through
our partner relationships with limited marketing and advertising expenditures.
Our partner relationships allow us to attract visits to our web sites and those
of our partners based on the strength of our partners' marketing and advertising
efforts. In return for providing our partners with content and their ability to
increase their advertising revenue, we generally share 50% of our partners'
advertising revenue that our Predict It service generates from our partners' web
sites. We believe that this creates an attractive opportunity for establishing
partner relationships since we provide our partner with free content and
increased advertising revenue opportunities and because our product encourages
users to make repeat visits to our partners' sites.
Our current partners are:
o SportsWorld (Broadcast.com);
o SportServer (Nando Media/McClatchey Newspapers);
o DBC Sports (Data Broadcasting Corporation);
o The Sports Network;
o The Sports Daily;
o SportsFeed;
o Silly Sports;
o Gaming Guide;
o Bettors World;
o Bettors Luck;
o Sport Hits;
o The Daily Spread;
o SH Goddess;
o MLB Fans
o Tornado Report
o Sports Rumble
o Aces Sports
o Alpha Sim Interactive
o YourPortal.com (Acceleration Software)
o EnterSports
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o Los Angeles Times
o web On-Site
o CMP Media
o Scoops Wrestling
o Investorlinks
o Planetdirect
o Crosswalk
o Collegestudent.com
o CanesHockey.com
o CBS SportsLine
o Scrum.com
Each web page of our web sites is designed to optimize potential
advertising opportunities without diminishing the overall user experience. The
layout generally is configured to allow for 2 larger and 4 smaller
advertisements. This design allows the site to generate a high potential cost
per thousand without alienating the viewer. We anticipate that the bulk of
advertising to be priced on a cost per thousand basis. At present, our rates are
$20, with discounts for volume purchases. In certain circumstances, we may elect
to accept advertising purchases on a cost-per-click or cost-per-lead basis or
barter basis. We may use this rate structure when the potential revenue is
projected to be greater than a cost per thousand basis or if excess inventory is
available. Through September 30, 1999, we have not entered into any barter
arrangements.
As the Internet advertising market matures, online advertising decisions
will increasingly be made on the ability of a web site to reach certain
demographics desired rather than on the ability to deliver bulk viewers. We
believe that we are in a position to take advantage of this opportunity because
of the nature of our products and services. Our initial target market of United
States and international sports information and financial markets represents an
attractive demographic for potential advertisers since the sports and finance
areas have historically generated substantial users with favorable demographics.
COMPETITION
The market for Internet users and advertisers is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
The number of web sites on the Internet competing for consumer's attention and
spending has proliferated and we expect that competition will continue to
intensify.
We compete directly or indirectly for advertisers, viewers, members and
content providers with competitors that fall within the following two
categories:
o Providers of fantasy sports games such as Small World Sports and Wall
Street Sports; and
o Syndicated content offering providers such as Pick' Em Sports.
We believe that other competitive sites that provide for online sports
pools, sweepstakes, and competition in financial market predictions present an
opportunity for us since our products and services can be used as tools for
individuals who are avid participants at these other sites. By providing a
source of knowledge to viewers, we believe that our products and services will
encourage users of these sites to visit our sites to view the predictions of our
members.
We anticipate that the number of direct and indirect competitors will
increase in the future. This could result in price reductions for advertising,
reduced margins, greater operating losses or loss of market share, any of which
would materially adversely affect our business, results of operations and
financial condition.
We also compete for visitors with many Internet content providers and
Internet service providers, including web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service providers, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as America
Online, CNET, CNN/Time Warner, Excite, Infoseek, Lycos, Microsoft,
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Netscape and Yahoo!. We also compete with the foregoing companies, as well as
traditional forms of media such as newspapers, magazines, radio and television,
for advertisers and advertising revenues. We believe that the principal
competitive factors in attracting advertisers includes the amount of visits to
our web site, brand recognition, customer service, the demographics of our
members and viewers, our ability to offer targeted audiences and the overall
cost-effectiveness of the advertising medium we offer. We believe that the
number of Internet companies relying on web-based advertising revenue will
increase substantially in the future. Accordingly, we will likely face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.
Many of our existing and potential competitors, including web directories
and search engines and large traditional media companies, have longer operating
histories in the web market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we have
currently. Our competitors may be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. Advertisers may perceive Internet content providers and Internet
service providers, including web directories, search engines, shareware
archives, sites that offer professional editorial content, commercial online
services and sites maintained by Internet service providers as more desirable
web sites for placement of advertisements.
In addition, substantially all of our current advertising customers and
partners also have established collaborative relationships with certain of our
competitors or potential competitors, and other frequently-visited web sites.
Accordingly, we cannot be certain that we will be able to grow our membership
base, usage levels and advertiser customer base at historical levels or retain
our current members, usage levels or advertiser customers. Advertisers may find
other web sites more attractive if web usage grows at a faster rate on the web
sites of competitors and thus, our partners may decline to renew their
agreements with us. We may not be able to compete successfully against our
current or future competitors and competition could have a material adverse
effect on our business, results of operations and financial condition.
TECHNOLOGY
As of February 8, 2000, our public web site, www.Predictit.com, which
features the Predict It Sports service, is currently hosted and maintained by
Frontier Global Center. Frontier Global Center provides a guaranteed 99.7%
uptime and monitors all aspects of the servers on a twenty-four hour basis using
a pager gateway with a 15-minute reponse time in off-hours. Frontier Global
Center provides an on-call telephone line answered 24 hours a day by on-duty
engineers and maintains UPS systems capable of maintaining power on battery for
several hours.
Predict It services are written in Java using an Oracle database and run on
a Unix platform. The system was designed using state-of-the-art technology and
is fully scalable with respect to anticipated increases in traffic.
INTELLECTUAL PROPERTY
Predict It seeks to protect its proprietary rights, but its actions may be
inadequate to protect its patents, trademarks or other proprietary rights to
prevent others from claiming violations of their proprietary rights. Predict It
has one patent application on file with the United States Patent and Trademark
Office. Predict It enters into confidentiality agreements with its employees,
consultants and distributors, and generally controls access to and distribution
of its proprietary information. Despite Predict It's efforts to protect its
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use its proprietary information. The steps Predict It has
taken may not prevent misappropriation of its proprietary information. Third
parties may infringe or misappropriate Predict It's proprietary rights, which
could have a material adverse effect on Predict It's business, results of
operations and financial condition. The validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving.
27
<PAGE>
Furthermore, third parties may assert infringement claims against Predict
It. Claims relating to infringement of the trademarks and other intellectual
property rights of third parties and any resultant litigation, should it occur,
could subject Predict It to significant liability for damages and could result
in the invalidation of Predict It's proprietary rights. In addition, even if
Predict It prevails, any litigation could be time-consuming and expensive to
defend, and could result in the diversion of management's time and attention,
any of which could materially adversely affect Predict It's business, results of
operations and financial condition. Any claims from third parties may also
result in limitations on Predict It's ability to use the trademarks and other
intellectual property subject to those claims unless Predict It enters into
agreements with the third parties responsible for those claims. However, such
third-party agreements may be unavailable on commercially reasonable terms.
We seek to protect our copyrights, service marks, trademarks, trade dress
and trade secrets through a combination of laws and contractual restrictions,
such as confidentiality agreements. For example, we attempt to register our
trademarks and service marks in the United States and internationally. However,
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are made available online.
We currently own a number of Internet domain names, including
PredictIt.com, SportsCappers.com Predictit.net, and VirtualStockExchange.com.
Domain names generally are regulated by Internet regulatory bodies. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. We, therefore, may be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary rights.
NEW AND EXISTING REGULATION ON THE INTERNET
We are subject to the same federal, state and local laws as other companies
conducting business on the Internet. Today, there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Currently, applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
started a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business or could create uncertainty
in the marketplace. This could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs, or could otherwise harm our business. In addition, because we
offer our services to users worldwide, foreign jurisdictions may claim that we
are required to comply with their laws. In some jurisdictions, we may be
required to collect value-added taxes on our fees. Our inadvertent failure to
comply with foreign laws could subject us to penalties ranging from fines to
bans on our ability to offer our services.
EMPLOYEES
As of February 8, 2000, we had 27 full time employees, including 7 in sales
and business development, 16 in product development/technology and 4 in
corporate and administrative functions. From time to time, we also employ
independent contractors to support our engineering, marketing, sales and support
and administrative organizations. We depend on our key personnel to manage our
business effectively in a rapidly changing market. For a more detailed account
of our key personnel, please see the "Risk Factors" and "Management" sections.
FACILITIES
We are headquartered in New York City, where we lease approximately
4,900 square feet at 694 Eighth Avenue, 5th Floor, New York, New York. The term
of this lease is 6 years, 2 months and the average monthly payment over the term
of the lease is $12,935. We believe that our existing facilities are adequate to
28
<PAGE>
meet our current and foreseeable requirements or that suitable additional or
substitute space will be available as needed.
LEGAL PROCEEDINGS
Predict It is not a party to any material legal proceedings.
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers, directors and key employees as of February 8, 2000:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITION AND OFFICES HELD
- ---------------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Andrew Merkatz................................ 31 President and Director
Desmond Glass................................. 30 Controller
Robert Jacobs................................. 38 Senior Vice President of Business Development
Geordie Pace.................................. 35 Senior Vice President of Product Development
Alana Oldham.................................. 30 Chief Technology Officer
Gary Cheng.................................... 25 Vice President of Business Development
and Director
Howard Yen.................................... 25 Director of Technology
Andrew Weissman............................... 32 Secretary and Director
Ajmal Khan.................................... 38 Director
Carol Lee..................................... 41 Director
</TABLE>
Andrew Merkatz, age 31, became the President of Predict It as of May 17,
1999. Immediately prior to joining Predict It, from 1998 to 1999, Mr. Merkatz
was the Vice President of Corporate Development and Finance for FLOORgraphics,
Inc., an out-of-home media company based in Princeton, New Jersey. Between 1995
and 1998, he was the Chief Financial Officer and Chief Operating Officer of
SiteSpecific, Inc., a New York-based Interactive Marketing Agency that he
assisted in founding in 1995. Mr. Merkatz began his career in 1990 as a Private
Equity Analyst for Interlaken Capital, Inc., in Greenwich, Connecticut. He
received his B.A. in Economics from the University of Pennsylvania and his
M.B.A. from Harvard University Graduate School of Business Administration.
Desmond Glass, age 30, joined Predict It in September 1999 as its
Controller. Prior to that, between May 1996 and 1999, Mr. Glass worked at
Primedia, where he served as Controller of Automobile Magazine and the Modern
Bride Group. Prior to serving as a Controller at Primedia, Mr. Glass worked in
the acquisition department at Primedia, where Mr. Glass performed financial due
diligence for acquisition candidates. Between 1994 and 1996, Mr. Glass held a
senior position within the internal audit department of Capital Cities/ABC.
Prior to his affiliation with ABC, between 1990 and 1994, Mr. Glass worked at
Deloitte & Touche LLP, where he was responsible for clients in the financial and
manufacturing industries. Mr. Glass is a member of the Institute of Chartered
Accountants and attained his Bachelor of Commerce degree from University College
Dublin, Ireland.
29
<PAGE>
Robert Jacobs, age 38, has served as Vice President of Business Development
for Predict It since July 1998 and as Senior Vice President of Business
Development since June 1999. Between 1990 and 1998, Mr. Jacobs was employed by
Bergen Brunswig Corporation, holding several sales and management positions of
increasing responsibility. Prior to Bergen Brunswig, Mr. Jacobs was a Director
of LaRae Enterprises, a private investment banking firm focusing primarily on
mergers and acquisitions. Mr. Jacobs received a B.A. in Psychology from UCLA.
Geordie Pace, age 35, joined Predict It in June 1999 as its Senior Vice
President of Product Development. Prior to that, Mr. Pace worked at PaceKim
Partners, the Internet consulting agency that he co-founded in 1998. Between
1997 and 1998, Mr. Pace was Director of Production and Technology for CKS New
York (now USWEB/CKS), where he was responsible for creating interactive
strategies for such clients as Audi, Duracell, and W.W. Grainger. Between 1996
and 1997, Mr. Pace served as Associate Creative Director and Director of
Production at SiteSpecific Inc., a New York-based Interactive Marketing Agency
that was acquired by CKS in 1997.
Alana Oldham, age 30, has served as our Chief Technology Officer since July
1999. Between June 1998 and July 1999, Ms. Oldham served as the Director of
Technology of Pixelpark, an international e-commerce Internet agency which is a
subsidiary of Bertelsmann AG. At Pixelpark, Ms. Oldham built strategic and
technical teams and created e-business solutions for clients such as Proctor &
Gamble, The Museum of Modern Art and Radio Shack. Prior to joining Pixelpark,
Ms. Oldham served as a technology innovator for companies, including THINK New
Ideas, where she was a technical producer from August 1995 to March 1996, and
Sun Microsystems where she was a programmer from October 1993 to September 1994.
Gary Cheng, age 25, joined Predict It in July 1999 as its Vice President of
Business Development and as a Director. Between 1997 and July 1999, Mr. Cheng
served as the President of Virtual Stock Exchange, a New York-based stock market
simulation, message board and prediction company, which he co-founded in 1997.
Between August 1996 and 1997, Mr. Cheng served as a consultant at Systems &
Computer Technology Corporation, where he helped develop and launch their Web
for Faculty and Advisors product. Mr. Cheng holds a B.S. in Electrical
Engineering from Cornell University.
Howard Yen, age 25, joined Predict It in July 1999 as its Director of
Technology. In 1997, Mr. Yen focused primarily on all technical aspects of
Virtual Stock Exchange. Between 1995 and 1996, Mr. Yen worked as a software
designer at theglobe.com, which is a large portal on the Internet. Mr. Yen
helped build theglobe.com's proprietary chat system. In 1996, he worked as an
Internet Consultant with Siegel & Gale, a subsidiary of Saatchi & Saatchi, which
is an advertising agency. Mr. Yen holds a B.S. in Electrical Engineering from
Cornell University.
Andrew Weissman, age 32, has been the Secretary and a Director of Predict
It since 1998. Since June 1998, Mr. Weissman has been a Senior Vice President
with the Dawntreader Fund I LP, which is a venture capital fund focused on early
stage Internet companies. Between November 1997 and June 1998, Mr. Weissman was
the President of Virtuosity Press, a start-up company formed to acquire the
copyrights to out-of-print and out-of-stock books. Between October 1997 and
1998, Mr. Weissman was Senior Counsel at America Online, and was responsible for
structuring and negotiating content distribution, marketing and
e-commerce-related transactions with AOL's largest distributors. He has also
practiced media and corporate law in Washington, D.C. and New York City, and
holds a B.A. in Economics from Wesleyan University and a J.D., magna cum laude,
from Georgetown University.
Ajmal Khan, age 38, has served as a Director of Predict It since 1999. In
1989, Mr. Khan founded Verus Capital Corp., a diversified investment group, and
has served as its President since its inception. He has been involved in
successfully structuring and syndicating North American real estate and
corporate acquisitions. Verus' principal activities involve the ownership of
hotels, venture capital financing, corporate acquisitions, and several
franchising and licensing joint ventures. Since February 1999, Mr. Khan has
served as a Director of Wattage Monitor, Inc., which provides electric rate
information over the Internet. Since October of 1998, Mr. Khan has served as a
Director of Advanced Bodymetrics, Inc., a publicly-traded high-tech company
dedicated to developing sports wristwatches that are able to monitor and display
various functions of the human body. Since July of 1998, Mr. Khan has also
served as a Director of iParty Corp., a publicly-traded company dedicated to
providing information and services with respect to coordinating parties
30
<PAGE>
and events. Since June 1999, Mr. Khan has also served as a Director of On2.com
Inc., a publicly-traded company that develops broadband video compression.
Carol Lee, age 41, has served as a Director of Predict It since 1999. Since
1990, Ms. Lee has been employed at The Prospero Group, a real estate investment
company, where she has served as President since 1999. Between 1990 and 1998,
Ms. Lee served as Vice President of Prospero. Ms. Lee holds a Bachelor of
Commerce from the University of British Columbia and an M.B.A. from Harvard
University.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the last five years, none of the directors, executive officers or
control persons of Predict It have been:
o A party to a bankruptcy proceeding;
o Convicted in a criminal proceeding;
o Subject to any order, judgment or decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
o Found to have violated a federal or state securities or commodities law.
DIRECTOR COMPENSATION
Compensation of Directors consists solely of reimbursement of their
expenses for attending meetings.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to our Chief
Executive Officer and all of our executive officers who received compensation in
excess of $100,000 for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------
AWARDS
-----------------------
ANNUAL COMPENSATION SECURITIES PAY-OUTS
--------------------------------------- RESTRICTED UNDERLYING -----------------------
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAY-OUTS COMPENSATION
- ---------------------------- ---- ---------------- ----- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew P. Merkatz(1) ....... 1999 $ 87,499.95 0 0 0 945,475 0 0
Chief Executive Officer 1998 $ 0 0 0 0 0 0 0
and Director
Robert Jacobs............... 1999 $ 102,500.04 0 0 0 27,250 0 0
1998 $ 39,023.48 0 0 0 81,750 0 0
</TABLE>
- ------------------
(1) Mr. Merkatz became our President and Chief Executive Officer on May 19,
1999.
31
<PAGE>
OPTION GRANTS IN 1999
Set forth below is information on grants of stock options for our executive
officers for the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
% OF TOTAL OPTIONS
NUMBER OF GRANTED TO EMPLOYEES EXERCISE PRICE
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE
- ------------------------------------------ --------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Andrew P. Merkatz......................... 537,198 30% $ 2.00 5/18/02
Andrew P. Merkatz......................... 168,006 9.3% $ 2.62 5/18/02
Andrew P. Merkatz......................... 9,421 .5% $ 1.75 5/18/02
Andrew P. Merkatz......................... 15,971 .8% $ 2.00 5/18/02
Andrew P. Merkatz......................... 214,879 12% $ 3.75 5/18/04
Desmond Glass............................. 70,000 3.9% 1.50 9/27/02
Alana Oldham.............................. 120,000 6.7% 2.00 7/27/02
Geordie Pace.............................. 15,000 .8% 1.50 9/27/02
Geordie Pace.............................. 100,000 5.5% 2.30 6/3/02
</TABLE>
COMPENSATION ARRANGEMENTS
On May 17, 1999, we entered into an Employment Agreement with Mr. Merkatz.
Mr. Merkatz's initial employment term expires on May 17, 2002. Mr. Merkatz
currently receives a base salary of $140,000 per year, which is subject to
review by management, and any merit increases will be subject to our company
policy. Under the terms of the agreement, Mr. Merkatz is eligible to receive a
bonus for services rendered, subject to the discretion of our Compensation
Committee. Upon executing his employment agreement, Mr. Merkatz received options
to purchase 537,198 shares of common stock at an exercise price of $2.00 per
share. Such options vest in equal portions over three years and have
anti-dilution protection. As a result of this anti-dilution protection, upon the
consummation of the Virtual Stock Exchange acquisition, Mr. Merkatz received an
option to purchase 168,006 shares of our common stock at an exercise price of
$2.62 per share, vesting in accordance with the above option. Also as a result
of the anti-dilution protection, and as a result of our issuance of additional
stock options to our employees, on August 18, 1999 and November 18, 1999,
Mr. Merkatz received options to purchase 9,421 shares of our common stock at an
exercise price of $1.75 per share, and 15,971 shares of our common stock at an
exercise price of $2.00 per share, respectively, vesting in accordance with the
above options. In addition, Mr. Merkatz received a performance-based option to
purchase 214,879 shares of our common stock at an exercise price of $3.75 per
share which is scheduled to vest as follows: (i) 50% of the performance-based
option shall vest on May 1, 2000 if the number of registered users of Predict It
exceeds 312,500 by such date and the page views of Predict It for April 2000
exceed 25,000,000; and (ii) the remaining 50% of the performance-based option
shall vest on May 1, 2001 if the number of registered users of Predict It
exceeds 937,500 by such date and the page views of Predict It for April 2001
exceed 85,714,275. However, in the event the performance-based goals for the
May 1, 2000 vesting schedule are not met by such date, then if by May 1, 2001
the number of registered users of Predict It exceeds 1,125,000 and the page
views of Predict It for April 2001 exceed 102,857,130, then the whole
performance-based option shall vest on May 1, 2001. Such option does not have
anti-dilution protection. In the event we terminate Mr. Merkatz's employment for
any reason other than "for cause," Mr. Merkatz will be entitled to 180 days
advance written notice of the termination and 30 days' salary.
On May 1, 1999, we entered into a Consulting Agreement with Verus Capital
Corp., one of our stockholders, for a two-year term ending April 30, 2001. Under
the agreement, Verus receives $10,000 per month plus authorized out-of-pocket
expenses for providing Predict It with consulting and advisory services relating
to its business. We have the right to terminate the agreement "for cause" and
Verus is restricted during the term of the agreement, and for two years
thereafter, from competing directly or indirectly with us by engaging in any
competitive business or by rendering any services to any competitor of ours,
except in a limited capacity as a passive investor in a publicly-traded company.
On June 9, 1999, we entered into an Employment Agreement with Geordie Pace.
Currently, Mr. Pace's base salary is $115,000 per year, which is subject to
review by management, and any merit increases will be subject to our company
policy. In addition to his base salary, Mr. Pace shall be eligible to receive an
annual bonus of up to $30,000 upon meeting certain conditions. Mr. Pace has been
granted an option to purchase
32
<PAGE>
100,000 shares of common stock at an exercise price of $2.30 per share. Such
option will vest over three years with one-third of the shares exercisable on
June 9, 2000 and one-sixth of the shares exercisable every six months
thereafter. Mr. Pace is an at-will employee. In the event we terminate
Mr. Pace's employment for any reason other than "for cause" Mr. Pace will be
entitled to 30 days' salary and accrued vacation and bonus.
On June 30, 1999, we entered into an Employment Agreement with Howard Yen.
Mr. Yen's initial employment term expires on June 30, 2002. Mr. Yen currently
receives a base salary of $75,000 per year, which is subject to review by
management, and any merit increases will be subject to our company policy. Under
the terms of the agreement, Mr. Yen is eligible to receive a bonus up to $15,000
upon meeting certain conditions. In the event we terminate Mr. Yen for any
reason other than "for cause" Mr. Yen will be entitled to 30 days advance
written notice and 6 months' salary.
On June 30, 1999, we entered into an Employment Agreement with Gary Cheng.
Mr. Cheng's initial employment term expires on June 30, 2002. Mr. Cheng
currently receives a base salary of $75,000 per year, which is subject to review
by management, and any merit increases will be subject to our company policy.
Under the terms of the agreement, Mr. Cheng is eligible to receive a bonus up to
$15,000 upon meeting certain conditions. In the event we terminate Mr. Cheng for
any reason other than "for cause," Mr. Cheng will be entitled to 30 days advance
written notice and 6 months' salary.
STOCK OPTION PLAN
On April 28, 1999, upon completion of the reverse acquisition, our 1999
Stock Option Plan became effective. As of June 24, 1999, our 1999 Stock Option
Plan was amended to reserve a total of 1,500,000 shares of common stock, subject
to the approval of our stockholders.
OUR 1999 STOCK OPTION PLAN
Under our 1999 Stock Option Plan, key employees, officers, consultants and
directors are given an opportunity to acquire our shares. Our 1999 Stock Option
Plan provides for discretionary option grants, under which key employees,
officers, and consultants may be granted options to purchase our shares of
common stock at an exercise price not less than 85% of the fair market value of
our shares on the grant date. The options granted under our 1999 Stock Option
Plan may be either incentive stock options designed to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory
options not intended to satisfy such requirements. Options may be granted to
eligible individuals in our employ or service or in the service of any
subsequent corporation.
As of June 24, 1999, our 1999 Stock Option Plan was amended to reserve a
total of 1,500,000 shares of common stock for issuance over the ten-year term of
our 1999 Stock Option Plan. Currently, there are 1,500,000 reserved shares of
our common stock which remain available for issuance.
Options have maximum terms of ten years from the grant date. Options are
not assignable or transferable other than by will or by the laws of inheritance.
The option may be exercised only by the optionee. The optionee will not have any
rights with respect to our shares of common stock underlying the options until
the options are exercised and the option price is paid for the purchased shares.
Our Board of Directors has the authority to cancel outstanding options in return
for the grant of new options for the same or a different number of shares with
an exercise price based on the lower fair market value of our common stock on
the new grant date. However, our Board of Directors may terminate our 1999 Stock
Option Plan at any time. Our 1999 Stock Option Plan terminates on April 28,
2009.
If we are acquired by merger, consolidation or asset sale, or there is a
hostile change in control, each option granted under the 1999 Stock Option Plan
may be accelerated, and all unvested shares issued under the 1999 Stock Option
Plan may be immediately vested.
33
<PAGE>
RELATED PARTY TRANSACTIONS
On May 1, 1999, we entered into a Consulting Agreement with Verus for a
two-year term, ending April 30, 2001. Under the agreement, Verus receives
$10,000 per month plus authorized out-of-pocket expenses for providing us with
consulting and advisory services relating to our business. Verus is one of our
stockholders and Ajmal Khan, one of our directors, is the President and founder
of Verus.
On December 8, 1999, Keith Rosenbloom, who was serving as a director at
such time and who is an existing shareholder, made a bridge loan to Predict It
in the amount of $15,000. In addition, on December 8, 1999, one of our
shareholders, Commonwealth Associates, L.P., of which Keith Rosenbloom is
Director of Merchant Banking, made a bridge loan to us in the amount of $86,250.
Both loans were evidenced by promissory notes for an aggregate amount of
$101,250, plus interest in the amount of 10% per year. In conjunction with the
bridge loans, we issued warrants to Mr. Rosenbloom and Commonwealth to purchase
an aggregate of 63,281 shares of our common stock.
For information concerning employment and consulting agreements with, and
compensation of Predict It's executive officers and directors, see the
"Management--Employment and Consulting Contracts" section.
We believe that the terms of the foregoing transaction are no less
favorable to us than could have been obtained from non-affiliated third parties,
although no independent appraisals were obtained.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of February 8, 2000 as follows:
o By each person who is known by Predict It to beneficially own more than
5% of Predict It's common stock, fully diluted;
o By each of Predict It's directors;
o By each officer named under the "Management--Executive
Compensation--Summary Compensation Table"; and
o By all executive officers and directors as a group.
Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. The
percentages set forth in the table assume 11,982,402 (including 500,000 shares
being held in escrow pending Predict It achieving certain milestones) shares of
common stock outstanding as of February 8, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENTAGE OF
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- ------------------------------------------------------------------------ ------------------- --------------------
<S> <C> <C>
Dawntreader Fund I LP .................................................. 2,571,402 (2) 21.4%
188 West 22nd Street,
11th Floor
New York, NY 10011
Gary Cheng ............................................................. 1,261,683 (3) 10.5%
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Howard Yen ............................................................. 1,261,683 (3) 10.5%
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
GEM France ............................................................. 918,381 7.6%
712 Fifth Avenue
7th Floor
New York, NY 10019
Thomas Courts .......................................................... 675,982 (4) 5.6%
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Andrew Merkatz ......................................................... 0 (5) *
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Andrew Weissman ........................................................ 2,571,404 (6) 21.4%
c/o Dawntreader Fund I LP
188 West 22nd Street,
11th Floor
New York, NY 10011
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENTAGE OF
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- ------------------------------------------------------------------------ ------------------ --------------------
<S> <C> <C>
Carol Lee .............................................................. 0 *
c/o The Prospero Group 517-1177
West Hastings Street
Vancouver, B.C.
Canada V6E 2K3
Robert Jacobs .......................................................... 27,250 (7) *
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Ajmal Khan ............................................................. 10,000 (8) *
c/o Verus Capital Corp.
1177 W. Hastings Street, Suite 2000
Vancouver, British Columbia
Canada V6E2K3
Alana Oldham ........................................................... 0 (9) *
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Desmond Glass .......................................................... 0(10) *
c/o Predict It Inc.
694 Eighth Avenue
New York, NY 10036
All Executive Officers and Directors
as a group (9 persons) ............................................... 5,132,020 42.8%
</TABLE>
- ------------------
* Represents less than one (1%) percent
(1) Rule 13d-3 under the Securities exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has,
or shares, voting power and/or investment power with respect to such
securities. Rule 13d-3 also includes as a beneficial owner of a security
any person who has the right to acquire beneficial ownership of such
security within sixty days through means, including, the exercise of any
options, warrant or conversion of a security. Any securities not
outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class by any other person.
(2) Includes an immediately exercisable warrant to purchase 156,250 shares of
common stock at an exercise price of $1.60 per share.
(3) Includes 233,645 shares of common stock which are being held in escrow
pending Predict It's achievement of certain milestones.
(4) Includes the following: (i) an immediately exercisable option to purchase,
for a period of 5 years, 125,000 shares of common stock at an exercise
price of $.30 per share; and (ii) an option to purchase, for a period of
one year, 100,000 shares of common stock, vesting in equal quarterly
amounts, at an exercise price of $.60 per share, 75,000 of which shall vest
on February 15, 1999.
(5) Mr. Merkatz holds an option to purchase 537,198 shares of our common stock
at an exercise price of $2.00 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter in one-sixth increments. This option is subject to anti-dilution
protection. Mr. Merkatz also holds an option to purchase 168,006 shares of
our common stock at an exercise price of
(Footnotes continued on next page)
36
<PAGE>
(Footnotes continued from previous page)
$2.62 per share, vesting in accordance with the above option. In addition,
Mr. Merkatz holds an option to purchase 9,421 shares of our common stock at
an exercise price of $1.75 per share, vesting in accordance with the above
options. Mr. Merkatz also holds an option to purchase 15,971 shares of our
common stock at an exercise price of $2.00 per share, vesting in accordance
with the above options. Mr. Merkatz also holds an option to purchase
214,879 shares of common stock at an exercise price of $3.75 per share, of
which one-third shall vest on May 19, 2000 and the remaining two-thirds
shall vest every 6 months thereafter in one-sixth increments upon attaining
certain targets. This option is not subject to anti-dilution protection.
(6) Represents shares of common stock that are held by Dawntreader Fund I LP
of, which Mr. Weissman is Senior Vice President. Mr. Weissman disclaims
beneficial ownership of such shares.
(7) Represents an option to purchase 81,750 shares of common stock at an
exercise price of $.245 per share, of which 27,250 options vested on
July 19, 1999. Does not include an option to purchase 27,250 shares of
common stock at an exercise price of $2.30 per share, of which one-third
shall vest on June 24, 2000 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
(8) Represents shares of common stock held by Verus Capital Corp., of which
Mr. Khan is founder and President. Mr. Khan disclaims beneficial ownership
of such shares.
(9) Ms. Oldham holds an option to purchase 120,000 shares of common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
July 26, 2000 and the remaining two-thirds shall vest every 6 months
thereafter in one-sixth increments.
(10) Mr. Glass holds an option to purchase 70,000 shares of common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6 months
thereafter in one-sixth increments.
SELLING SECURITY HOLDERS
The following table shows for our stockholders the following information:
o The number of shares of our common stock beneficially owned by them as of
February 8, 2000 and covered by this prospectus; and
o The number of shares of common stock to be retained after this offering,
if any.
<TABLE>
<CAPTION>
COMMON STOCK(1)
------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
OWNED PRIOR TO AND BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER REGISTERED IN THE OFFERING AFTER THE OFFERING
- --------------------------------------------------------------------- -------------------------- ------------------
<S> <C> <C>
Tom Courts........................................................... 725,982(2) 25,000
Dawntreader Fund I LP................................................ 2,415,152 0
Keith M. Rosenbloom.................................................. 466,682(3) 0
Robert Jacobs........................................................ 109,000(4) 81,750
Paul Yahnke.......................................................... 225,421 0
GEM France........................................................... 918,381 0
Snowmass Technologies LLC............................................ 81,697 0
Falk Family Foundation............................................... 70,841 0
Michael S. Falk...................................................... 70,841 0
Robert A. O'Sullivan Family Trust.................................... 16,664 0
Robert L. Priddy..................................................... 141,676 0
Gary N. Mansfield.................................................... 16,664 0
Ron Moschetta........................................................ 49,999 0
Commonwealth Associates, L.P......................................... 416,683 0
Navigator Holdings Corp.............................................. 546,600(5) 0
Sprott Capital S.A................................................... 546,600(5) 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK(1)
------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
OWNED PRIOR TO AND BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER REGISTERED IN THE OFFERING AFTER THE OFFERING
- --------------------------------------------------------------------- -------------------------- ------------------
<S> <C> <C>
Century Capital Corp................................................. 382,716 0
Perth Management Corp................................................ 525,992(6) 0
Rock Capital Corp.................................................... 365,575 0
Salter Street Management Corp........................................ 516,815(7) 0
National Day Corporation............................................. 512,936(8) 0
Asia World Holdings, Ltd............................................. 380,830 0
Bright Outlook Consultants, Ltd...................................... 370,575 0
Pyrennes Investments Limited......................................... 522,118(9) 0
Verus Capital Corp................................................... 49,243(10) 0
Harold W. Gorden..................................................... 10,000 0
Mid-Continental Securities Corp...................................... 7,500 0
Howard Yen........................................................... 1,261,683(11) 0
----------
Gary Cheng........................................................... 1,261,683(11) 0
----------
Scott Appleby........................................................ 176,634 0
----------
John B Lowy.......................................................... 7,500 0
Vision Consulting International Inc.................................. 282,402 0
Alan M. Bass......................................................... 2,500 0
Sharon Brasure....................................................... 10,000 0
Leanne Donovan....................................................... 1,211 0
Robert Felch......................................................... 428 0
Jerry Gruenbaum...................................................... 1,850 0
Craig Hickok......................................................... 1,250 0
David G. Irwin....................................................... 2,500 0
Denise Johnson....................................................... 1,950 0
Jason E. Johnson..................................................... 1,950 0
K.D. Johnson......................................................... 1,950 0
Maile Johnson........................................................ 1,950 0
Aimee Masure......................................................... 1,250 0
James M. McCully..................................................... 1,000 0
Judith McCully....................................................... 1,000 0
Marla McCully........................................................ 500 0
Thomas Shakespear.................................................... 1,211 0
Stephen M. Siedow.................................................... 222,500 0
---------- --------
Total.............................................................. 13,683,085 106,750
</TABLE>
- ------------------
(1) We assume no purchase in this offering by any stockholder listed above of
any shares of our common stock and that each stockholder will sell all of
its shares being registered hereby.
(2) Includes the following: (i) an immediately exercisable option to purchase,
for a period of 5 years, 125,000 shares of common stock of an exercise
price of $.30 per share; and (ii) an option to purchase, for a period of
one year, 100,000 shares of common stock at an exercise price of $.60 per
share, of which 75,000 shares shall become exercisable on February 15,
2000.
(3) Includes 49,999 shares of common stock that are directly owned and 416,683
shares of common stock that are held by Commonwealth Associates, of which
Mr. Rosenbloom is Director of Merchant Banking. Mr. Rosenbloom disclaims
beneficial ownership of the stock held by Commonwealth Associates.
(4) Includes (i) an option to purchase 81,750 shares of common stock at an
exercise price of $.245 per share, of which 27,250 shares became
exercisable on July 19, 1999, and (ii) an option to purchase 27,250 shares
of common stock at an exercise price of $2.30 per share.
(5) Includes 163,884 shares of our common stock underlying 163,884 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(Footnotes continued on next page)
38
<PAGE>
(Footnotes continued from previous page)
(6) Includes 157,704 shares of our common stock underlying 157,704 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(7) Includes 154,953 shares of our common stock underlying 157,704 shares of
Series A Preferred Stock convertible at any time at the option of the
holder.
(8) Includes 153,789 shares of our common stock underlying 153,789 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(9) Includes 156,543 shares of our common stock underlying 156,543 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(10) Includes 49,243 shares of our common stock underlying 49,243 shares of
Series A Preferred Stock, convertible at any time at the option of the
holder.
(11) Includes 500,000 shares of our common stock held in escrow pending the
achievement of certain milestones.
39
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses, and fees of registering the common stock,
but our stockholders will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of shares of their common stock.
Our stockholders may sell our common stock at market prices prevailing at
the time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, which may change. Our stockholders may
sell some or all of their common stock through:
o Ordinary brokers' transactions, which may include long or short sales;
o Transactions involving cross or block trades or otherwise on the NASDAQ
SmallCap Market;
o Purchases by brokers, dealers or underwriters as principal and resale by
those purchasers for their own accounts under this prospectus;
o Market makers or into an existing market for the common stock;
o Transactions in options, swaps or other derivatives; or
o Any combination of the selling options described in this prospectus, or
by any other legally available means.
In addition, our stockholders may enter into hedging transactions with
broker-dealers, who may engage in short sales of our common stock in the course
of hedging the positions they assume. Finally, our stockholders may enter into
options or other transactions with broker-dealers that require the delivery of
our common stock to those broker-dealers. Subsequently, the shares may be resold
under this prospectus.
In their selling activities, our stockholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and its rules and regulations,
including Regulation M, which may limit the timing of purchases and sales of our
common stock by our stockholders.
Those of our stockholders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2 (11) of the Securities Act of 1933. In addition, the broker-dealers'
commissions, discounts, or concessions may qualify as underwriters' compensation
under the Securities Act of 1933. If any broker-dealer or any of our
stockholders qualify as an "underwriter," they will be subject to the prospectus
delivery requirements of Section 153 of the Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents, our
stockholders may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between our stockholders and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or distribution of our
common stock.
In addition to selling their common stock under this prospectus, our
stockholders may:
o Transfer their common stock in other ways not involving market makers or
established trading markets, including by gift, distribution or other
transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We have advised our stockholders that, during the time each is engaged in
distribution of their common stock, each must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. They must do all of the
following under those rules:
o Not engage in any stabilization activity in connection with our common
stock;
o Furnish each broker who may be offering our common stock on behalf of our
stockholders the number of copies of this prospectus required by each
broker; and
o Not bid for or purchase any of our common stock or attempt to induce any
person to purchase any of our common stock, other than as permitted under
the Securities Exchange Act of 1934.
40
<PAGE>
Any of our stockholders who may be "affiliated purchasers," as defined in
Regulation M, have been further advised that they must coordinate their sales
under this prospectus with each other and us for the purposes of Regulation M.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing:
o The name of any such broker-dealers;
o The number of securities involved;
o The price at which such securities are to be sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
o That such broker-dealers did not conduct any investigation to verify the
information set out in this Prospectus, as supplemented; and
o Other facts material to the transaction.
We cannot be sure that any of our stockholders will sell any of our common
stock.
We have agreed to keep the registration statement relating to the offering
and sale by our stockholders continuously effective until the earlier of the
sale of all their common stock or 12 months from the date of this prospectus.
DESCRIPTION OF THE CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of our common
stock, par value $.01 per share, and 5,000,000 shares of our preferred stock,
par value $.01 per share as set forth below.
Our Amended and Restated Certificate of Incorporation, By-laws and the
Registration Rights Agreement described below are included as exhibits to the
Registration Statement of which this prospectus forms a part.
COMMON STOCK
Our authorized common stock consists of 25,000,000 shares of common stock.
As of February 8, 2000, we had issued and outstanding 11,982,402 shares of
common stock (including 500,000 shares of common stock that are being held in
escrow pending Predict It achieving certain milestones). As of February 8, 2000,
there were approximately 25 holders of record of our common stock. In addition,
we have reserved the following shares of common stock:
o 1,000,000 shares of our common stock for conversion of our issued and
outstanding Series A Preferred Stock;
o 1,500,000 shares of our common stock under our 1999 Stock Option Plan;
and
o 206,750 shares of our common stock for existing options.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of our stockholders. Subject to
preferences that may be applicable to any outstanding shares of our preferred
stock, the holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par
value $.01 per share. As of February 8, 2000, 1,000,000 shares of our Series A
Preferred Stock were issued and outstanding, held by approximately 15 registered
holders. The holders of our Series A Preferred Stock have no voting power except
as is expressly provided under Delaware law. Each share of our Series A
Preferred Stock is convertible into one share of our common stock at the option
of the holders of Series A Preferred Stock.
41
<PAGE>
Pursuant to our articles of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue shares of our
preferred stock in one or more series and to fix the designation, powers,
preferences, privileges and relative participating, optional or special rights
of such stock, and the qualifications, limitations or restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, any or all of which may be greater than the rights
of the common stock. Our board of directors, without stockholder approval, may
issue preferred stock with voting, conversion of other rights that could
adversely affect the voting power and other rights of the holder of our common
stock. Therefore, our preferred stock may be issued quickly, with terms that may
delay or prevent a change in control or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock and may adversely affect the
voting and other rights of the holders of common stock.
REGISTRATION RIGHTS
In connection with our acquisition of Virtual Stock Exchange, Messrs.
Cheng, Yen and Appleby, who received in the aggregate 2,700,000 shares of our
common stock (including 500,000 shares of common stock that are being held in
escrow pending Predict It achieving certain milestones) pursuant to such
acquisition, are entitled to certain rights with respect to the registration of
such shares under the Securities Act. They are entitled to certain demand
registration rights pursuant to which they may require Predict It to file a
registration statement under the Securities Act at our expense with respect to
all or a portion of the shares of common stock held by either of them, their
affiliates and permitted transferees, and we are required to use commercially
reasonable efforts to effect such registration. If Predict It proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders (other than a registration
of our securities filed on Form S-4 or S-8 of the Securities Act), Messrs.
Cheng, Yen and Appleby are entitled to certain "piggy back" registration rights
pursuant to which they may require us to include all or a portion of their
shares in such registration. In addition, pursuant to his employment agreement,
Mr. Merkatz is entitled to certain "piggy back" registration rights pursuant to
which he may require us to include all or a portion of his shares in such
registration. All of these registration rights are subject to certain conditions
and limitations, among them the right of an underwriter of an offering to limit
the number of shares included in such registration, and our right not to effect
a demand registration during the period starting with the fourteenth day
immediately preceding the date of an anticipated filing by us of, and ending on
a date ninety (90) days following the effective date of, a registration
statement pertaining to this offering.
OPTIONS
We have issued 28 options to purchase an aggregate of 1,995,975 shares of
our common stock representing the following:
o an option to purchase 125,000 shares of our common stock at an
exercise price of $.30 per share, which vested as of January 11,
1999;
o an option to purchase 100,000 shares of our common stock at an
exercise price of $.60 per share, vesting in quarterly amounts over
a period of one year, commencing April 28, 1999;
o an option to purchase 537,198 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, in one-sixth increments commencing May 19, 1999;
o an option to purchase 214,879 shares of common stock at an exercise
price of $3.75 per share, of which one-third shall vest on May 19,
2000 and the remaining two-thirds shall vest every 6 months
thereafter, commencing as of May 19, 1999 in one-sixth increments;
o an option to purchase 100,000 shares of our common stock at an
exercise price of $2.30 per share, of which one-third shall vest on
June 4, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, commencing as of June 24, 1999 in one-sixth increments;
o an option to purchase 40,000 shares of our common stock at an
exercise price of $2.30 per share, of which one-third shall vest on
June 4, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, commencing as of June 24, 1999 in one-sixth increments;
42
<PAGE>
o an option to purchase 27,250 shares of our common stock at an
exercise price of $2.30 per share, of which one-third shall vest on
June 24, 2000 and the remaining two-thirds shall vest every
6 months thereafter, commencing as of June 24, 1999 in one-sixth
increments;
o an option to purchase 10,000 shares of our common stock at an
exercise price of $2.30 per share, of which one-third shall vest on
November 23, 1999 and the remaining two-thirds shall vest every
6 months thereafter, commencing as of June 24, 1999 in one-sixth
increments;
o an option to purchase 81,750 shares of our common stock at an
exercise price of $.245 per share, vesting over 3 years, commencing
as of July 19, 1999;
o an option to purchase 168,006 shares of our common stock at an
exercise price of $2.62 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, in one-sixth increments.
o an option to purchase 30,000 shares of common stock at an exercise
price of $2.00 per share, of which one-third shall vest on July 21,
2000 and the remaining two-thirds shall vest every 6 months
thereafter, commencing as of July 27, 1999 in one-sixth increments;
o an option to purchase 120,000 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
July 26, 2000 and the remaining two-thirds shall vest every
6 months thereafter, commencing as of July 27, 1999 in one-sixth
increments;
o an option to purchase 4,000 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
July 26, 2000 and the remaining two-thirds shall vest every
6 months thereafter, commencing as of July 27, 1999 in one-sixth
increments;
o an option to purchase 25,000 shares of common stock at an exercise
price $2.00 per share, of which one-twelfth shall vest on
January 27, 2000 and the remaining eleven-twelfths shall vest every
3 months thereafter, commencing as of July 27, 1999 in one-twelfth
increments;
o an option to purchase 9,421 shares of our common stock at an
exercise price of $1.75 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, in one-sixth increments.
o an option to purchase 70,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6
months thereafter, in one-sixth increments, commencing as of
September 27, 1999;
o an option to purchase 35,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6
months thereafter, in one-sixth increments, commencing as of
September 27, 1999;
o three options to purchase 15,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6
months thereafter, in one-sixth increments, commencing as of
September 27, 1999;
o two options to purchase 10,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6
months thereafter, in one-sixth increments, commencing as of
September 27, 1999;
o two options to purchase 5,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
September 27, 2000 and the remaining two-thirds shall vest every 6
months thereafter, in one-sixth increments, commencing as of
September 27, 1999;
o an option to purchase 20,000 shares of our common stock at an
exercise price of $1.50 per share, of which one-third shall vest on
October 15, 2000 and two-thirds shall vest every 6 months
thereafter, in one-sixth increments, commencing as of October 15,
1999;
o an option to purchase 15,971 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
May 19, 2000 and the remaining two-thirds shall vest every 6 months
thereafter, in one-sixth increments;
o an option to purchase 15,000 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
November 19, 1999 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments;
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<PAGE>
o an option to purchase 20,000 shares of our common stock at an
exercise price of $2.00 per share, of which one-third shall vest on
November 19, 1999 and the remaining two-thirds shall vest every 6
months thereafter in one-sixth increments;
o two options to purchase 25,000 shares of our common stock at an
exercise price of $1.375 per share, of which one-third shall vest on
January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
o an to purchase 20,000 shares of our common stock at an exercise
price of $1.375 per share, of which one-third shall vest on
January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
o four options to purchase 15,000 shares of our common stock at an
exercise price of $1.375 per share, of which one-third shall vest on
January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
o an option granted to purchase 7,500 shares of our common stock at an
exercise price of $1.375 per share, of which one-third shall vest on
January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
o an option granted to purchase 5,000 shares of our common stock at an
exercise price of $1.375 per share, of which one-third shall vest on
January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
o an option granted to purchase 10,000 shares of our common stock at
an exercise price of $1.375 per share, of which one-third shall vest
on January 20, 2001 and the remaining two-thirds shall vest every
6 months thereafter in one-sixth increments.
WARRANTS
We have issued warrants to purchase an aggregate of 625,000 shares of our
common stock representing the following:
o a warrant to purchase 156,250 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o a warrant to purchase 9,375 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o a warrant to purchase 53,906 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o two warrants to purchase 6,640 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o a warrant to purchase 1,562 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o a warrant to purchase 31,250 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004;
o a warrant to purchase 46,875 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004; and
o a warrant to purchase 312,500 shares of our common stock at an
exercise price of $1.60 per share, exercisable immediately and
expiring on December 8, 2004.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Predict It's Common Stock is
Continental Stock Transfer & Trust, Inc. As neither the convertible preferred
stock nor the options is registered, Predict It acts as its own Transfer Agent
and Registrar as to such securities.
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 11,982,402 (including 500,000 shares that are being held
in escrow pending Predict It achieving certain milestones) shares of common
stock outstanding, of which 9,000,000 shares are freely tradeable without
restriction or further registration under the Securities Act of 1933. However,
any shares purchased by an affiliate of ours will be subject to the resale
limitations of Rule 144 under the Securities Act
44
<PAGE>
of 1933. An affiliate is a person who has a control relationship with us. The
remaining shares of common stock are held by us. Rule 144 provides that a person
who has satisfied a one-year holding period for any restricted shares may sell
within any three-month period an amount of restricted shares that does not
exceed the greater of:
o one percent of that class of outstanding shares; or
o the average weekly trading volume of that class of securities during
the four calendar weeks prior to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
In addition, under Rule 144, persons who are not affiliated with us and who have
held their restricted shares for at least two years are not subject to the
quantity limitations or the manner of sale restrictions.
In addition, 1,000,000 shares of our common stock underlying the shares of
Series A Preferred Stock will, upon conversion of the Series A Preferred Stock,
be freely tradeable without restriction or further registration. Also, 206,750
shares of our common stock underlying the options will, upon exercise of the
options, be freely tradeable without restriction or further registration.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by our counsel, Camhy Karlinsky & Stein LLP, New York, New
York. An attorney formerly affiliated with Camhy Karlinsky & Stein LLP may be
deemed to have beneficial ownership of 2,571,402 shares of our common stock,
although such beneficial ownership is disclaimed.
EXPERTS
This registration statement includes the financial statements of Predict It
Inc., as of December 31, 1998, for the period from September 2, 1997 (inception)
through December 31, 1997 and for the year ended December 31, 1998, and the
financial statements of Virtual Stock Exchange, Inc. as of December 31, 1998 and
for the period from January 7, 1997 (inception) through December 31, 1997 and
for the year ended December 31, 1998, which have been audited by Richard A.
Eisner and Company, LLP, independent certified public accountants. These
financials have been included herein in reliance upon the audit reports
appearing elsewhere herein, given upon the authority of said firm as experts in
accounting and auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation and by-laws provide that we shall
indemnify all directors and officers of ours to the fullest extent permitted by
Delaware Law. Under such provisions, any director or officer, who in his
capacity as such is made or threatened to be made, party to any suit or
proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of Predict It. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and persons controlling Predict It pursuant to the foregoing
provision, or otherwise, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
We maintain directors' and officers' liability insurance providing
aggregate coverage of $5,000,000.
45
<PAGE>
PREDICT IT INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------------------------------------------------------------------------------------------------------- ----
<S> <C>
PREDICT IT INC.
Financial Statements
Independent auditors' report............................................................................ F-2
Balance sheets as of December 31, 1998 and September 30, 1999 (unaudited)............................... F-3
Statements of operations for the period from September 2, 1997 (inception) through December 31, 1997,
the year ended December 31, 1998 and the nine months ended September 30, 1998 (unaudited) and
September 30, 1999 (unaudited)........................................................................ F-4
Statements of changes in stockholders' equity for the period from September 2, 1997 (inception) through
December 31, 1997, the year ended December 31, 1998 and the nine months ended September 30, 1999
(unaudited)........................................................................................... F-5
Statements of cash flows for the period from September 2, 1997 (inception) through December 31, 1997,
the year ended December 31, 1998 and the nine months ended September 30, 1998 (unaudited) and
September 30, 1999 (unaudited)........................................................................ F-6
Notes to financial statements........................................................................... F-7
VIRTUAL STOCK EXCHANGE, INC.
Financial Statements
Independent auditors' report............................................................................ F-15
Balance sheets as of December 31, 1998 and June 30, 1999 (unaudited).................................... F-16
Statements of operations for the period from January 7, 1997 (inception) through December 31, 1997, the
year ended December 31, 1998 and the six months ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited)........................................................................................... F-17
Statements of changes in stockholders' equity (Capital Deficiency) for the period from January 7, 1997
(inception) through December 31, 1997, the year ended December 31, 1998 and the six months ended
June 30, 1999 (unaudited)............................................................................. F-18
Statements of cash flows for the period from January 7, 1997 (inception) through December 31, 1997, the
year ended December 31, 1998 and the six months ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited)........................................................................................... F-19
Notes to financial statements........................................................................... F-20
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited pro forma statements of operations for the nine months ended September 30, 1999 and for the
year ended December 31, 1998 and the notes thereto.................................................... F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Predict It Inc.
New York, New York
We have audited the accompanying balance sheet of Predict It Inc. as of
December 31, 1998 and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended and for the period
from September 2, 1997 (inception) through December 31, 1997. 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, the financial statements enumerated above present fairly, in all
material respects, the financial position of Predict It Inc. as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended and for the period from September 2, 1997 (inception) through December 31,
1997 in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
April 28, 1999
With respect to Note I, June 9, 1999,
Note C June 30, 1999 and
Note E, July 6, 1999
F-2
<PAGE>
PREDICT IT INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ --------------
(CONSOLIDATED)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $113,772 $1,625,927
Accounts receivable............................................................... 36,739
Prepaid expenses and other current assets......................................... 4,075 169,824
-------- ----------
Total current assets................................................................ 117,847 1,832,490
Capitalized software costs, net of accumulated amortization of $5,374 and
$33,647........................................................................ 59,121 675,848
Property and equipment, net of accumulated depreciation of $5,253 and $20,089..... 12,798 203,367
Registered user base, net of accumulated amortization of $122,338................. 1,345,716
Other assets...................................................................... 9,128 96,894
-------- ----------
$198,894 $4,154,315
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................. $ 72,729 $ 847,655
Long-term liabilities:
Capital lease obligations......................................................... 14,679
Notes payable, stockholders....................................................... 100,000
Accrued interest.................................................................. 12,000
-------- ----------
72,729 974,334
-------- ----------
Commitments (Notes E and I)
Stockholders' equity:
Series A convertible preferred stock, $.001 par value, 1,000,000 shares
authorized, 250,000 shares issued and outstanding in 1998...................... 250
Series B convertible preferred stock, $.001 par value, 1,000,000 shares
authorized, 183,338 shares issued and outstanding in 1998...................... 183
Common stock, $.001 par value, 2,000,000 shares authorized, 315,256 shares issued
and outstanding in 1998........................................................ 317
Preferred stock, $.01 par value, 5,000,000 shares authorized, 1,000,000 shares
Series A issued and outstanding at September 30, 1999 (stated at liquidation
preference).................................................................... 3,000,000
Common stock, $.01 par value, 25,000,000 shares authorized, 11,200,000 shares
issued and outstanding at September 30, 1999 (exchange of 500,000 shares held
in escrow)..................................................................... 112,000
Additional paid-in capital........................................................ 654,586 2,957,563
Deficit........................................................................... (529,171) (2,054,027)
Unearned compensation............................................................. (835,555)
-------- ----------
126,165 3,179,981
-------- ----------
$198,894 $4,154,315
-------- ----------
-------- ----------
</TABLE>
See notes to financial statements
F-3
<PAGE>
PREDICT IT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 2,
1997
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
------------ ------------ --------- -----------
(UNAUDITED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
User fees............................................. $ 7,712 $ 6,202 $ 3,461
Advertising........................................... 6,000 6,000 93,209
---------- --------- -----------
13,712 12,202 96,670
---------- --------- -----------
Costs and expenses:
Site development/maintenance.......................... 177,783 148,244 160,698
Selling, general and administrative................... $ 21,402 340,698 191,915 1,368,828
Amortization of acquired intangible................... 122,338
Interest expense (income)............................. 3,000 3,000 (30,338)
-------- ---------- --------- -----------
21,402 521,481 343,159 1,621,526
-------- ---------- --------- -----------
Net loss................................................ $(21,402) $ (507,769) $(330,957) $(1,524,856)
-------- ---------- --------- -----------
-------- ---------- --------- -----------
Net loss per share--basic and diluted................... $ (.04) $ (.21) $ (.18) $ (.17)
-------- ---------- --------- -----------
-------- ---------- --------- -----------
Weighted average number of shares outstanding........... 488,412 2,381,327 1,784,508 8,790,775
-------- ---------- --------- -----------
-------- ---------- --------- -----------
</TABLE>
See notes to financial statements
F-4
<PAGE>
PREDICT IT INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
SERIES A SERIES B STOCK
SERIES A CONVERTIBLE CONVERTIBLE PAR
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK VALUE
PAR VALUE $.01 PAR VALUE $.01 PAR VALUE $.001 PAR VALUE $.001 $.001
---------------------- ----------------------- ------------------ ------------------ --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
---------- -------- --------- ---------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash and equipment
($6,700)................. 94,500
Issuance of common stock
for cash................. 40,500
Net loss for the period
September 2, 1997
(inception) through
December 31, 1997........
--------
Balance at December 31,
1997..................... 135,000
Issuance of common stock
for cash................. 165,000
Issuance of common stock
as settlement for accrued
interest................. 578
Issuance of common stock
for nonemployee
services................. 14,678
Issuance of preferred
stock for cash........... 250,000 $250
Issuance of preferred
stock for cash........... 183,338 $ 183
Net loss for the year
ended December 31,
1998.....................
-------- ---- -------- ------ --------
Balance at December 31,
1998..................... 250,000 250 183,338 183 315,256
Issuance of preferred
stock for cash........... 149,726 150
Net loss for the nine
months ended
September 30, 1999.......
Grant of options to
employee by
stockholder..............
Recapitalization in
connection with merger
into WDC................. 5,000,000 $ 50,000 (250,000) (250) (333,064) (333) (315,256)
Sale of preferred and
common stock, net of
issuance costs........... 4,000,000 40,000 1,000,000 $3,000,000
Issuance of shares in
connection with
acquisition, exclusive of
500,000 shares held in
escrow................... 2,200,000 22,000
Unearned compensation
relating to grant of
stock options............
Amortization of unearned
compensation.............
---------- -------- --------- ---------- -------- ---- -------- ------ --------
Balance at September 30,
1999 (unaudited)......... 11,200,000 $112,000 1,000,000 $3,000,000 0 $ 0 0 $ 0 0
---------- -------- --------- ---------- -------- ---- -------- ------ --------
---------- -------- --------- ---------- -------- ---- -------- ------ --------
<CAPTION>
ADDITIONAL
PAID-IN UNEARNED
AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
for cash and equipment
($6,700)................. $ 95 $ 9,905 $ 10,000
Issuance of common stock
for cash................. 41 29,959 30,000
Net loss for the period
September 2, 1997
(inception) through
December 31, 1997........ $ (21,402) (21,402)
------ ---------- ----------- ----------
Balance at December 31,
1997..................... 136 39,864 (21,402) 18,598
Issuance of common stock
for cash................. 165 99,835 100,000
Issuance of common stock
as settlement for accrued
interest................. 1 657 658
Issuance of common stock
for nonemployee
services................. 15 14,663 14,678
Issuance of preferred
stock for cash........... 249,750 250,000
Issuance of preferred
stock for cash........... 249,817 250,000
Net loss for the year
ended December 31,
1998..................... (507,769) (507,769)
------ ---------- ----------- ----------
Balance at December 31,
1998..................... 317 654,586 (529,171) 126,165
Issuance of preferred
stock for cash........... 249,850 250,000
Net loss for the nine
months ended
September 30, 1999....... (1,524,856) (1,524,856)
Grant of options to
employee by
stockholder.............. 5,729 5,729
Recapitalization in
connection with merger
into WDC................. (317) (49,100) 0
Sale of preferred and
common stock, net of
issuance costs........... (141,502) 2,898,498
Issuance of shares in
connection with
acquisition, exclusive of
500,000 shares held in
escrow................... 1,298,000 1,320,000
Unearned compensation
relating to grant of
stock options............ 940,000 $ (940,000) 0
Amortization of unearned
compensation............. 104,445 104,445
------ ---------- ----------- ---------- ----------
Balance at September 30,
1999 (unaudited)......... $ 0 $2,957,563 $(2,054,027) $ (835,555) $3,179,981
------ ---------- ----------- ---------- ----------
------ ---------- ----------- ---------- ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PREDICT IT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 2,
1997
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------------
1997 1998 1998 1999
------------ ------------ ----------- --------------
(UNAUDITED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(21,402) $ (507,769) $(330,957) $ (1,524,856)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 1,122 95,210 19,687 156,227
Stock issued for services............................. 14,678 14,678
Compensation expense related to option grants......... 5,729
Amortization of unearned compensation................. 104,445
Changes, net of effects of acquisition, in:
Accounts receivable................................ (29,795)
Prepaid expenses and other assets................ (13,203) (6,870) (249,591)
Accounts payable and accrued expenses............ 3,007 69,722 17,544 757,384
-------- ---------- --------- ------------
Net cash used in operating activities................... (17,273) (341,362) (285,918) (780,457)
-------- ---------- --------- ------------
Cash flows from investing activities:
Cost incurred to develop software..................... (15,925) (134,275) (53,855) (645,000)
Purchase of computer equipment........................ (11,318) (7,252) (160,272)
Acquisition costs, net of cash acquired............... (34,051)
-------- ---------- --------- ------------
Net cash used in investing activities................... (15,925) (145,593) (61,107) (839,323)
-------- ---------- --------- ------------
Cash flows from financing activities:
Issuance of common and preferred stock, net........... 33,267 600,658 350,658 3,148,498
Loans from related parties............................ 60,000 60,000
Loan repayments to related parties.................... (60,000) (60,000)
Payments on capital lease obligation.................. (16,563)
-------- ---------- --------- ------------
Net cash provided by financing activities............... 33,267 600,658 350,658 3,131,935
-------- ---------- --------- ------------
Net increase in cash.................................... 69 113,703 3,633 1,512,155
Cash--beginning of period............................... 69 69 113,772
-------- ---------- --------- ------------
Cash--end of period..................................... $ 69 $ 113,772 $ 3,702 $ 1,625,927
-------- ---------- --------- ------------
-------- ---------- --------- ------------
Supplemental disclosure of cash flow information:
Interest paid during the period....................... $ 3,000 $ 3,000
Supplemental disclosures of noncash investing and
financing activities:
Issuance of common stock for equipment................ $ 6,700
Issuance of common stock as settlement for accrued
interest........................................... $ 658 $ 658
Issuance of common stock for business combination..... $ 1,320,000
Granting of stock options............................. $ 940,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE A--THE COMPANY AND OPERATIONS
On April 28, 1999, Predict It Corp. ("PIC"), which was formed in August
1998 in connection with the reincorporation of Sportscappers, Inc. (which was
incorporated on September 2, 1997), was merged with and into WDC Development,
Inc. ("WDC"), a non-operating public shell company. In connection with the
merger, each of the common and preferred shares of PIC were exchanged for
5.5659453 shares of WDC's common stock, resulting in the issuance of 5,000,000
common shares of WDC. Immediately prior to the merger, the existing shareholders
of WDC held 4,000,000 common shares and 1,000,000 preferred shares. Accordingly,
upon completion of the merger, the shareholders of PIC owned 55.55% of the
outstanding common shares of WDC and the premerger shareholders of WDC owned
44.45% of the outstanding common shares of WDC. The 1,000,000 shares of
preferred stock owned by premerger shareholders of WDC are nonvoting and
convertible into 1,000,000 shares of common stock of WDC. Upon completion of the
merger, WDC's Board of Directors consisted of three members from PIC and two
members from WDC. WDC's assets at the date of the merger consisted of $2,898,498
in cash, representing the proceeds remaining from $3,000,000 received on April
28, 1999 in exchange for the issuance of 1,000,000 shares of preferred stock and
$37,200 received in February and March 1999 in exchange for the issuance of
3,720,000 shares of common stock. Following the merger, WDC changed its name to
Predict It Inc. (the "Company").
The merger has been accounted for as a recapitalization of PIC together
with the issuance of 3,720,000 common shares and 1,000,000 preferred shares in
exchange for net proceeds of $2,898,498. The remaining 280,000 common shares of
WDC outstanding at the date of the merger are recorded by a charge to additional
paid-in capital for their par value of $2,800. Retroactive effect has been given
to the recapitalization in the accompanying financial statements and all per
share amounts and numbers of shares have been adjusted to reflect the exchange
ratio.
The Company, which was in the development stage during 1997 and part of
1998 develops and distributes interactive Internet applications. The Company's
"prediction exchange" allows users to pick and exchange predictions with other
users. The Company's initial product offering, "Predict It! Sports", (originally
launched as Sportscappers in March 1998 and relaunched in September 1998) allows
users to pick and exchange predictions on sporting events with fellow users. The
database engine then calculates the accuracy of these predictions and allows
users to view the entries. Users may post predictions and view the predictions
of others free of charge. Revenues are principally earned by the sale of
advertisements either directly or on a revenue sharing basis with other websites
through which the product is marketed. In addition, through November 1998, users
were charged a transaction fee for accessing the predictions. Revenue is shared
with the users each time their predictions are viewed.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION:
Transaction fees from users were recognized as revenue at the time
predictions were accessed by users. Advertising revenue has been earned from
both fixed fee arrangements under which fees are based on the number of
occasions a user views an advertisement ("impression"). Revenue based on number
of impressions is recognized (i) at the time the guaranteed number of
impressions occur or (ii) as impressions occur over the term of the contract,
where the contract provides for the Company to earn a portion of the contract
revenues based on the number of impressions which occur as a percentage of the
guaranteed number of impressions. Revenue applicable to the portion of
guaranteed impressions which have not occured at the balance sheet date is not
recognized. Any revenues which may be earned under fixed fee arrangements
are recognized in the month the ads are exhibited.
F-7
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
2. COMPUTER EQUIPMENT:
Computer equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over an estimated useful
life of three years.
3. SOFTWARE COSTS:
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" issued in March 1999
and adopted by the Company, qualifying costs incurred during the application
development stage, consisting of external direct costs of materials and services
and payroll and related benefits for employees who devoted time in connection
with obtaining or developing internal use software are capitalized. All other
costs incurred in connection with internal use software are expensed as
incurred. Capitalized software costs are being amortized on a straight-line
basis over an estimated useful life of two years. Amortization expense for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
was approximately $90,000 and $28,000, respectively, and has been included in
site development/maintenance in the accompanying statements of operations.
Amortization for the year ended December 31, 1998, includes approximately
$49,000 for the write off of unamortized software costs which were deemed to be
impaired as a result of rebuilding the site through use of a new provider. Also,
site development/maintenance expense in 1998 includes compensation of $64,678
paid to the former source provider related to the transition to the new website.
4. LOSS PER SHARE:
Basic and diluted net loss per share is computed based on the weighted
average number of common shares outstanding for the periods and gives
retroactive effect to the shares issued in the recapitalization. Potential
common shares resulting from exercise of options are not included in the
calculation of diluted net loss per share as their effect would be
anti-dilutive.
5. STOCK-BASED COMPENSATION:
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees." Under the provisions
of APB No. 25, compensation arising from the grant of stock options is measured
as the excess, if any, of the quoted market price of the Company's common stock
at the date of the grant over the amount an employee must pay to acquire the
stock.
6. ADVERTISING EXPENSE:
Advertising is expensed as incurred. Advertising expense amounted to
approximately $0 (1997), $23,000 (1998), $19,000 (9 months--1998) and $184,000
(9 months--1999).
7. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
8. COMPREHENSIVE INCOME:
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
stockholders' equity during a period from nonowner sources. Comprehensive loss
for the periods presented is the same as net loss.
9. SEGMENT INFORMATION:
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 requires public
companies to report financial and descriptive information about their reportable
operating segments. The Company identifies its operating segments based on how
management internally evaluates separate financial information, business
activities and management responsibility. The Company believes that its
operations constitute a single, reportable segment.
10. UNAUDITED FINANCIAL STATEMENTS:
The financial information presented as of September 30, 1999 and for the
nine-month periods ended September 30, 1999 and 1998 is unaudited, but in the
opinion of management contains all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such financial
information. Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
NOTE C--ACQUISITION
On June 30, 1999, the Company acquired Virtual Stock Exchange, Inc.
("VSE"), a company which develops and distributes interactive internet
applications where users manage hypothetical stock portfolios and conduct mock
trading. VSE's stockholders exchanged all of their outstanding common stock for
2,700,000 shares of the Company's common stock, including 500,000 shares to be
held in escrow with 50% of such shares being released in January 2000 and the
remaining 50% to be released in January 2001, upon the Company attaining certain
specified amounts of registered users and page views as of December 31, 1999 and
December 31, 2000, respectively. If the milestones are not achieved, the shares
will be returned to the Company and cancelled. The acquisition is being
accounted for by the purchase method. The 2,200,000 shares issued in the
acquisition have been valued at $.60 per share representing fair value based on
the proceeds received on the issuance of shares in connection with the WDC
transaction on April 28, 1999 which coincides with the time when the terms of
the acquisition was agreed to. The 500,000 shares held in escrow to the extent
issued will be accounted for as compensation based on the value of the shares
issued at such dates. The accounts of VSE, including its results of operations,
have been included in the accompanying financial statements from the date of
acquisition.
In connection with the acquisition, the Company entered into three-year
employment agreements with two former stockholders of VSE which provide for
aggregate annual base salaries of $150,000 and annual aggregate bonuses not to
exceed $30,000.
F-9
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
The $1,368,000 purchase price has been allocated as follows:
<TABLE>
<S> <C>
Cash............................................................................ $ 13,949
Accounts receivable............................................................. 6,944
Computer equipment.............................................................. 35,913
Registered user base (a)........................................................ 1,468,054
Other assets.................................................................... 3,924
----------
Total assets.................................................................. 1,528,784
----------
Accounts payable and accrued expenses........................................... 17,542
Capital lease obligations....................................................... 31,242
Notes payable--stockholders..................................................... 100,000
Accrued interest................................................................ 12,000
----------
Total liabilities............................................................. 160,784
----------
$1,368,000
----------
----------
</TABLE>
- ------------------
(a) Being amortized on a straight-line basis over three years
The following unaudited pro forma information for the year ended December
31, 1998 and the nine months ended September 30, 1999 give effect to the
acquisition as though it occurred at January 1, 1998 and reflects the effect of
amortization of the acquired intangibles over a 3-year period and compensation
under the employment agreement with two former stockholders of VSE.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------- ------------
<S> <C> <C>
Pro forma revenue.............................................................. $ 162,860 $ 80,909
Pro forma net loss............................................................. $(1,974,108) $ (1,149,133)
Pro forma net loss per share--basic and diluted................................ $ (.20) $ (.25)
Pro forma weighted average number of shares outstanding........................ 9,890,775 4,581,327
</TABLE>
NOTE D--RELATED PARTY TRANSACTIONS
During 1998, the Company borrowed and repaid $60,000 from two of its
stockholders at rates of 12%--15%. Interest expense related to such loans
amounted to $3,000 in 1998. At September 30, 1999, VSE has outstanding loans
payable to two stockholders in the amount of $100,000 at an interest rate of 8%.
Interest is payable semi-annually beginning January 1, 2000 and the principal is
due on June 1, 2002. Interest expense for the nine months ended September 30,
1999 was $2,000.
F-10
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE E--LEASE AGREEMENTS
On July 6, 1999, the Company entered into a six year and two months lease
for office space expiring August 2005 which provides for average monthly
payments over the term of the lease of approximately $13,000. Future minimum
lease payments under the lease at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
- -------------
<S> <C>
2000............................................................................ $114,629
2001............................................................................ 148,974
2002............................................................................ 153,447
2003............................................................................ 158,052
2004............................................................................ 162,792
Thereafter...................................................................... 153,391
--------
$891,285
--------
--------
</TABLE>
The Company had two month to month agreements to sublease office space
through September 1999. Rent expense was approximately $14,000 (1998), $800
(1997), $6,000 (9 months--1998) and $29,000 (9 months--1999). Other assets in
the accompanying balance sheets include security deposits for the leases of
approximately $6,870 (1998) and $86,000 (1999). Prepaid expenses at
September 30, 1999 includes approximately $72,000 of prepaid rent.
NOTE F--STOCK OPTIONS
On April 28, 1999, upon completion of the merger with WDC, the Company
adopted the 1999 Stock Option Plan which provides for option grants to key
employees, officers and consultants to purchase up to 1,500,000 shares of common
stock at an exercise price not less than 85% of the fair market value on the
grant date. The options, which will have maximum terms of ten years, may be
either incentive stock options, which must be granted at no less than 100% of
market value or nonstatutory options. The plan terminates after ten years.
In October 1998 and January 1999, PIC granted options to purchase shares of
Series B Preferred stock to two officers at exercise prices equivalent to the
estimated fair value of the stock at date of grant. Upon the merger into WDC,
the options were converted, based on the exchange ratio, into options to
purchase 81,750 and 125,000 shares of the Company's common stock at exercise
prices of $.245 and $.30 per share, respectively. The options for 125,000
shares, which expire in January 2004, are exerciseable upon grant and the
options for the 81,750 shares which expire in October 2003 become exerciseable
in three equal installments on July 19, 1999, 2000 and 2001. Additionally, in
January 1999, one of such officers was granted an option by a major shareholder
to purchase shares of Series B preferred stock, which upon the merger into WDC,
was converted into an option to purchase 104,167 shares of the Company's common
stock from such shareholder at an exercise price of $.245 per share.
Compensation expense of $5,729 was charged to operations in the nine-month
period ended September 30, 1999 in connection with such grant.
See Note I for additional grants of stock options.
F-11
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE F--STOCK OPTIONS--(CONTINUED)
Activity related to stock options during the nine months ended September
30, 1999 and the year ended December 31, 1998, including options described in
Note F and Note I:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------- ------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................................... 81,750 $ 0.25
Granted.............................................................. 1,690,754 2.05 81,750 $ 0.25
--------- ------
Outstanding at end of period......................................... 1,772,504 $ 1.97 81,750 $ 0.25
--------- ------ ------ ------
--------- ------ ------ ------
Exercisable.......................................................... 152,250 $ .29
--------- ------
--------- ------
</TABLE>
As set forth in Note B[5], the Company applies APB No. 25 in accounting for
its stock option incentive plans and, accordingly, recognizes compensation
expense for the difference between the fair value of the underlying common stock
and the exercise price of the option at the date of grant. Pro forma information
regarding net income and earnings per share is required by Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation" determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. The weighted average fair value
of options granted in 1998 and 1999 was approximately $.17 and $1.69,
respectively. Such fair value was determined using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%,
volatility of 70%, risk free interest rates of 4.62%-5.88%, and expected lives
of three to five years. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the vesting period of the
options. Had the Company elected to recognize compensation expense based on SFAS
123, pro forma net loss and net loss per share for the year ended December 31,
1998 and the nine months ended September 30, 1999 would have been approximately
$(513,000) and $(1,804,000) and $(.22) and $(.21), respectively.
NOTE G--INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires deferred tax assets and liabilities to be
recognized for the future tax consequences attributable to net operating loss
carryforwards and for differences between the financial statement carrying
amounts and tax bases of assets and liabilities. Deferred tax assets are
reduced, if necessary, by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
The Company elected to be taxed as an S corporation under the Internal
Revenue Code and accordingly, the Company was not subject to federal, state or
local corporate income taxes as taxable income or loss flowed through directly
to its stockholders. The Company terminated its S corporation status during
August 1998 when it issued preferred stock and accordingly, effective at such
time, the Company's income tax status was converted from a S corporation to that
of a C corporation.
As of September 30, 1999 and December 31, 1998, respectively, the Company
has a net operating loss carryforward of approximately $1,695,000 and $170,000
which expires in 2019, the utilization of which may be subject to limitations as
a result of changes in stock ownership.
F-12
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE G--INCOME TAXES--(CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset and liability are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforward......................................... $ 780,000 $ 78,000
Less valuation allowance................................................ (233,666) (78,000)
--------- --------
Net deferred tax asset.................................................... 546,334 0
Deferred tax liability:
Excess of book basis over tax basis of registered user base............. (546,334)
--------- --------
Net....................................................................... $ 0 $ 0
--------- --------
</TABLE>
The following presents the income tax benefit and related increase in the
valuation allowance. For periods prior to August 1998, when the Company was
taxed as an S corporation the amounts are pro forma as if the Company was
taxable as a C corporation:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred:
Federal..................................................... $ (6,000) $(142,000) $ (90,000) $(519,000)
State....................................................... (4,000) (81,000) (51,000) (182,000)
--------- --------- --------- ---------
Total income tax benefit................................. (10,000) (223,000) (141,000) (701,000)
Valuation allowance........................................... 10,000 223,000 141,000 701,000
--------- --------- --------- ---------
Income tax benefit............................................ $ 0 $ 0 $ 0 $ 0
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE H--PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue 5,000,000 shares of authorized preferred stock in one or
more series and to fix the designation, powers, preferences, privileges and
rights of such stock, and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences. The 1,000,000 shares of Series A
Preferred Stock, which was issued for $3,000,000 by WDC prior to the merger has
a liquidation preference of $3.00 per share or $3,000,000, is nonvoting, does
not provide for any dividend and is convertible into 1,000,000 shares of common
stock on a share for share basis.
NOTE I--COMMITMENTS
1. EMPLOYMENT AGREEMENTS:
In May 1999, the Company executed a three year employment agreement with
its President. The agreement provides for an annual salary of $140,000, subject
to increases at the discretion of the Compensation Committee of the Board of
Directors. The agreement also provides for a discretionary performance bonus as
determined by the Board. In connection with the employment agreement, the
Company granted options to the President to purchase 537,158 shares of common
stock at an exercise price of $2.00 per share which price was less than the
market value on date of grant. The options vest in equal annual installments
over three years and have anti-dilution protection. As a result of the
anti-dilution protection, upon the consummation of the Virtual Stock Exchange
acquisition, the President was granted options to purchase an additional 168,006
shares of common
F-13
<PAGE>
PREDICT IT INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
NOTE I--COMMITMENTS--(CONTINUED)
stock at an exercise price of $2.62 per share and, in August 1999, as a result
of the Company's grant of stock options to employees he was granted options to
purchase an additional 9,421 shares at an exercise price of $1.75 per share. All
such options vest in equal annual installments over three years. Compensation
expense of approximately $940,000 related to the option grants has been deferred
and will be charged to operations ratably over the vesting period. Compensation
expense charged to operations for the nine months ended September 30, 1999 was
$15,668. In addition, the President was granted five year performance based
options to purchase 214,879 shares of common stock of the Company at an exercise
price of $3.75 per share. Vesting of the options occurs as to 50% on May 1, 2000
and 50% on May 1, 2001 based on the number of registered users and page views
exceeding certain targets by such dates.
On June 9, 1999, the Company entered into a three-year employment agreement
with an employee which provides for an annual base salary of $115,000 and an
annual bonus not to exceed $20,000. In addition, the employee was granted an
option to purchase 100,000 shares of common stock at an exercise price of $2.30.
The option will vest in equal annual installments over three years.
2. CONSULTING AND OTHER AGREEMENTS:
On April 28, 1999, the Company entered into an agreement with the Company's
current Chairman (formerly the President and Chief Executive Officer), in
connection with his resignation. The agreement provides for payments aggregating
$62,500 and also provides for an option to purchase 100,000 shares of common
stock at $.60 per share which exercise price represented the fair value of the
common stock at date of grant. Accordingly, the option which was granted for
services to be rendered as Chairman did not result in a charge to operations for
the nine months ended September 30, 1999. The option vests quarterly through May
2000.
On May 1, 1999, the Company executed a two year consulting agreement with
Verus Capital Inc. ("Verus"), a stockholder of the Company, to provide business
advisory and consulting services for a monthly fee of $10,000. Consulting fees
of $50,000 were charged to operations for the nine-month period ended
September 30, 1999.
NOTE J--SUBSEQUENT EVENT
In January 2000, the Company's Board of Director's agreed to settle with a
consultant for development work performed to launch Version 3 of the Company's
web site. The Company issued 178,954 shares of its common stock in full
settlement of amounts owed to the consultant.
On December 8, 1999, the Company entered into a loan agreement with certain
existing shareholders in the amount of $1,000,000. The loan is for a one year
term with interest at 10% compounded annually. In connection with the loan
agreement, the Company issued five year stock warrants to purchase 625,000
shares of common stock at $1.60 per share.
In November 1999, the Company entered into a three year advertising
agreement with an on-line content provider (the "provider"). The Company will
design, produce, host, operate, maintain and support three different versions of
the Company service on behalf of the provider. The provider will then sell
advertising on the co-branded versions. The agreement provides for annual
payments to the provider of $250,000. The Company shall receive net advertising
revenue, as defined, generated in association with the agreement up to the
$250,000 (the "annual recoupment") during the twelve month periods immediately
following the launch. If the net advertising revenue satisfies the annual
recoupment during any of the twelve month periods, the parties will share net
advertising revenue on a 50/50 basis until the next anniversary of the launch
date. In addition, the provider will promote the co-branded web site within its
network over the three year term. The agreement also provides for the Company to
pay expenses related to the marketing platform outside of the provider's network
up to a maximum of $250,000 over the three year term.
In October 1999, the Company issued 103,448 shares of its common stock in
partial settlement of outstanding payables to a third party vendor of $150,000.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Virtual Stock Exchange, Inc.
New York, New York
We have audited the accompanying balance sheet of Virtual Stock Exchange, Inc.
as of December 31, 1998 and the related statements of operations, changes in
stockholders' equity (capital deficiency) and cash flows for the year then ended
and for the period from January 7, 1997 (inception) through December 31, 1997.
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, the financial statements enumerated above present fairly, in all
material respects, the financial position of Virtual Stock Exchange, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended and for the period from January 7, 1997 (inception) through
December 31, 1997 in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
July 27, 1999
F-15
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
--------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 39,570 $ 13,949
Accounts receivable, net.......................................................... 16,532 6,944
--------- ---------
Total current assets.............................................................. 56,102 20,893
Capitalized software costs, net of accumulated amortization of $13,500 and
$18,000........................................................................ 4,500
Computer equipment, net of accumulated depreciation of $3,281 and $9,220.......... 19,374 35,913
Other assets...................................................................... 3,647 3,924
--------- ---------
$ 83,623 $ 60,730
--------- ---------
--------- ---------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses............................................. $ 1,303 $ 17,542
Accrued interest.................................................................. 12,000
Capitalized lease obligation--current portion..................................... 6,187 13,529
--------- ---------
Total current liabilities......................................................... 7,490 43,071
Capitalized lease obligation...................................................... 6,964 17,713
Notes payable--stockholders....................................................... 100,000 100,000
Accrued interest.................................................................. 8,000
--------- ---------
122,454 160,784
--------- ---------
Commitments
Capital deficiency:
Common stock, $10 par value, 1,500 shares authorized, 100 shares in 1998 and 107
shares in 1999 issued and outstanding.......................................... 1,000 1,070
Additional paid-in capital........................................................ 17,000 103,284
Accumulated deficit............................................................... (56,831) (204,408)
--------- ---------
(38,831) (100,054)
--------- ---------
$ 83,623 $ 60,730
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements
F-16
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 7, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
---------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenue:
User fees............................................. $ 19,149 $ 16,461 $ 15,082 $ 7,097
Advertising........................................... 50,736 10,949 59,093
-------- -------- -------- ---------
19,149 67,197 26,031 66,190
-------- -------- -------- ---------
Costs and expenses:
Site development/maintenance.......................... 25,305 49,460 35,504 167,027
Selling, general and administrative................... 10,663 48,981 16,032 39,451
Interest expense, net................................. 2,000 6,768 2,000 7,288
-------- -------- -------- ---------
37,968 105,209 53,536 213,766
-------- -------- -------- ---------
Net loss................................................ $(18,819) $(38,012) $(27,505) $(147,576)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
F-17
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE $10 ADDITIONAL
---------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for services.................... 100 $1,000 $ 17,000 $ 18,000
Net loss for the period January 7, 1997 (inception)
through December 31, 1997........................... $ (18,819) (18,819)
---- ------ -------- --------- ---------
Balance at December 31, 1997............................. 100 1,000 17,000 (18,819) (819)
Net loss for the year ended December 31, 1998.......... (38,012) (38,012)
---- ------ -------- --------- ---------
Balance at December 31, 1998............................. 100 1,000 17,000 (56,831) (38,831)
Issuance of common stock for services.................... 7 70 86,284 86,354
Net loss for the six months ended June 30, 1999........ (147,577) (147,577)
---- ------ -------- --------- ---------
Balance at June 30, 1999 (unaudited)..................... 107 $1,070 $103,284 $(204,408) $(100,054)
---- ------ -------- --------- ---------
---- ------ -------- --------- ---------
</TABLE>
See notes to financial statements
F-18
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 7, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
---------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.............................................. $(18,819) $(38,012) $(27,505) $(147,576)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization...................... 4,969 11,812 5,906 10,438
Issuance of common stock for services.............. 86,354
Changes in:
Accounts receivable.............................. (16,532) (5,497) 9,588
Other assets..................................... (3,647) (2,840) (277)
Accrued expenses and accrued interest............ 2,625 6,678 4,042 20,239
-------- -------- -------- ---------
Net cash used in operating activities................... (11,225) (39,701) (25,894) (21,234)
-------- -------- -------- ---------
Cash flows from investing activities:
Purchase of computer equipment........................ (2,414) (6,242)
-------- -------- -------- ---------
Cash flows from financing activities:
Loans from stockholders............................... 50,000 50,000
Repayments on capital lease obligations............... (848) (4,387)
-------- -------- -------- ---------
Net cash provided by financing activities............... 50,000 49,152 (4,387)
-------- -------- -------- ---------
Net increase (decrease) in cash......................... 36,361 3,209 (25,894) (25,621)
Cash--beginning of period............................... 36,361 36,361 39,570
-------- -------- -------- ---------
Cash--end of period..................................... $ 36,361 $ 39,570 $ 10,467 $ 13,949
-------- -------- -------- ---------
-------- -------- -------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period....................... $ 768
Supplemental disclosures of noncash investing and
financing activities:
Issuance of common stock for services................. $ 18,000 $ 86,354
Purchase of equipment through capital lease........... $ 13,999 $ 22,478
</TABLE>
See notes to financial statements
F-19
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND FOR THE PERIODS ENDED
JUNE 30, 1999 AND JUNE 30, 1998 IS UNAUDITED)
NOTE A--THE COMPANY AND OPERATIONS
Virtual Stock Exchange, Inc. ("VSE"), which was formed in January 1997,
develops and distributes interactive internet application where individuals
create and manage hypothetical stock portfolios, conduct mock trading, and
compete with other members for prize money based on their portfolio performance.
The web site also provides quotes and research on U.S. financial markets through
links to other sites and provides a forum for individuals to exchange ideas with
other members on a variety of investment topics.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] REVENUE RECOGNITION:
The Company offers a basic service which, starting in 1998, is free to
users. In addition, starting in 1998, the Company offers users a premium service
as an upgrade to the basic service, for a monthly user fee. User fees are
recognized as revenue pro rata over the subscription period.
Advertising revenue is earned from both fixed fee arrangements and fees
based on the number of occasions a user views an advertisement ("impression").
Revenues under fixed fee arrangements, which provide for ads being shown
month-to-month are recognized in the month the ads are exhibited. Revenue based
on number of impressions is recognized at the time the guaranteed number of
impressions occur, and thereafter in the period the impressions occur.
[2] COMPUTER EQUIPMENT:
Computer equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over an estimated useful
life of three years.
[3] SOFTWARE COSTS:
In accordance with Statement of Position 98-1, of the American Institute of
Certified Public Accountants "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" issued in March 1998 and adopted by the
Company, qualifying costs incurred during the application development stage,
consisting of external direct costs of materials and services incurred and
payroll and related benefits for employees who devoted time in connection with
obtaining or developing internal use software were capitalized. All other costs
incurred in connection with internal use software are expended as incurred.
Capitalized software costs are being amortized on a straight-line basis over an
estimated useful life of two years.
Amortization expense for the year ended December 31, 1998 and the period
from January 7, 1997 through December 31, 1997 was approximately $9,000 and
$4,500, respectively and has been included in site development/maintenance in
the accompanying financial statements. Amortization expense for the six months
ended June 30, 1999 and 1998 was $4,500 for each period.
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[5] UNAUDITED FINANCIAL STATEMENTS:
The financial information presented as of June 30, 1999 and for the
six-month periods ended June 30, 1999 and 1998 is unaudited, but in the opinion
of management contains all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of such financial information.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
F-20
<PAGE>
VIRTUAL STOCK EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND FOR THE PERIODS ENDED
JUNE 30, 1999 AND JUNE 30, 1998 IS UNAUDITED)
NOTE C--RELATED PARTY TRANSACTIONS
The Company borrowed an aggregate of $108,000 from its founders at an
interest rate of 8% per annum. Interest expense related to such loans amounted
to $2,000 (1997), $6,000 (1998), $2,000 (6 months--1998) and $4,000
(6 months--1999). Interest is payable semi-annually beginning January 1, 2000
and the principal is due on June 1, 2002.
NOTE D--LEASE AGREEMENT
The Company had a lease for office space that expired on June 30, 1999. The
Company is continuing to lease the space on a month to month basis. Rent expense
was approximately none (1997), $7,000 (1998), $2,000 (6 months--1998) and $4,000
(6 months--1999). Other assets in the accompanying balance sheets include
security deposits for the leases of $3,647.
NOTE E--OBLIGATION UNDER CAPITAL LEASE
Minimum future lease payments under a capital lease agreement for each of
the remaining years and in the aggregate are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
1999................................................................ $ 9,690
2000................................................................ 8,075 $20,220
2001................................................................ 12,948
2002................................................................ 6,611
-------- -------
Total minimum lease payments........................................ 17,765 39,779
Less amounts representing interest.................................. 4,614 8,537
-------- -------
Present value of minimum lease payments............................. 13,151 31,242
Less current portion of capital lease obligation.................... 6,187 13,529
-------- -------
Capital lease obligation, noncurrent................................ $ 6,964 $17,713
-------- -------
-------- -------
</TABLE>
Interest expense on capital lease obligations was approximately $1,000 for
the year ended December 31, 1998 and $3,000 for the six months ended June 30,
1999.
NOTE F--INCOME TAXES
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. The Company is subject to New York City corporate
income tax. Federal and state income taxes on the Company's income are the
responsibility of the individual stockholders.
NOTE G--SUBSEQUENT EVENT
On June 30, 1999, VSE was acquired by Predict It Inc.
F-21
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998
The unaudited pro forma statements of operations for the nine months ended
September 30, 1999 and for the year ended December 31, 1998 are presented as if
the acquisition of Virtual Stock Exchange, Inc. ("VSE"), which was acquired on
June 30, 1999 in a transaction accounted for as a purchase, occurred at the
beginning of the periods presented. The pro forma statements have been prepared
based on the audited and unaudited financial statements of the Company and VSE,
which are included elsewhere in this Registration Statement. These pro forma
financial statements are not intended to be indicative of the results that would
have occurred on the dates indicated or which may be realized in the future.
F-22
<PAGE>
PREDICT IT INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
VIRTUAL
STOCK ADJUSTED
PREDICT IT INC. EXCHANGE, INC. PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
User fees........................................... $ 7,712 $ 16,461 $ 24,173
Advertising......................................... 6,000 50,736 56,736
----------- -------- ------------
13,712 67,197 80,909
----------- -------- ------------
Costs and expenses:
Site development/maintenance........................ 177,783 49,460 227,243
Selling, general and administrative................. 340,698 48,981 $ 114,000(b) 503,679
Amortization of acquired intangible................. 489,352(a) 489,352
Interest expense.................................... 3,000 6,768 9,768
----------- -------- --------- ------------
521,481 105,209 603,352 1,230,042
----------- -------- --------- ------------
Net loss.............................................. $ (507,769) $(38,012) $(603,352) $ (1,149,133)
----------- -------- --------- ------------
----------- -------- --------- ------------
Net loss per share.................................... $ (0.21) $ (.25)
----------- ------------
----------- ------------
Weighted average number of shares outstanding......... 2,381,327 4,581,327(c)
----------- ------------
----------- ------------
</TABLE>
F-23
<PAGE>
PREDICT IT INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VIRTUAL
STOCK ADJUSTED
PREDICT IT INC. EXCHANGE, INC. PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS CONSOLIDATED
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
User fees........................................... $ 3,461 $ 7,097 $ 10,558
Advertising......................................... 93,209 59,093 152,302
----------- ---------- ------------
96,670 66,190 162,860
----------- ---------- ------------
Costs and expenses:
Site development/maintenance........................ 160,698 167,027 327,725
Selling, general and administrative................. 1,368,828 39,451 $ 57,000(b) 1,465,279
Amortization of acquired intangible................. 122,338 244,676(a) 367,014
Interest expense (income)........................... (30,338) 7,288 (23,050)
----------- ---------- --------- ------------
1,621,526 213,766 301,676 2,136,968
----------- ---------- --------- ------------
Net loss.............................................. $(1,524,856) $ (147,576) $(301,676) $ (1,974,108)
----------- ---------- --------- ------------
----------- ---------- --------- ------------
Net loss per share.................................... $ (0.17) $ (0.20)
----------- ------------
----------- ------------
Weighted average number of shares outstanding......... 8,790,775 9,890,775(c)
----------- ------------
----------- ------------
</TABLE>
- ------------------
(1) For period from January 1, 1999 through June 30, 1999.
F-24
<PAGE>
PREDICT IT INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Represents amortization expense of intangible resulting from the
acquisition, which is being amortized over a period of 3 years.
(b) Represents the impact of employment agreements with two former
stockholders of VSE entered into upon consummation of the acquisition.
(c) Does not include 500,000 shares held in escrow which are issuable to
former VSE stockholders upon certain conditions being met.
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's articles of incorporation eliminate the personal liability
of directors to the registrant or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Delaware law. The
registrant's articles of incorporation and by-laws provide that the registrant
shall indemnify its officers and directors to the extent permitted by Delaware
law, which authorizes a corporation to indemnify directors, officers, employees
or agents of the corporation in non-derivative suits if such party acted in good
faith and in a manner such party reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Delaware General Corporation Act further provides that indemnification shall
be provided if the party in question is successful on the merits or otherwise.
The Company also has insurance policies which covers acts by directors and
officers of the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses, payable in
connection with the sale of the common stock being registered hereby. Except for
the Commission's registration fee, all expenses are estimated.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------- -----------
<S> <C>
SEC registration fee................................................. $ 1,235.07
Printing and engraving expenses...................................... $ 80,000.00
Legal fees and expenses.............................................. $100,000.00
Auditors' accounting fees and expenses............................... $100,000.00
-----------
Miscellaneous expenses............................................... $ 5,942.40
-----------
Total.............................................................. $287,177.47
-----------
-----------
</TABLE>
In addition, holders of the shares being registered under this registration
statement will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of the shares offered.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 20, 2000, we issued to each of Lee Nesser and Sherri Holloway,
employees, options to purchase 25,000 shares of our common stock at an exercise
price of $1.375 per share. In addition, we issued to Justin Model, an employee,
an option to purchase 20,000 shares of our common stock at an exercise price of
$1.375 per share. We also issued to each of Kristina Frantz, John Pavlakis,
Abraham Liu and Helene Kim, employees, options to purchase 15,000 shares of our
common stock at an exercise price of $1.375 per share. We also issued to
Yitzchok Aaronson, an employee, an option to purchase 7,500 shares of our common
stock at an exercise price of $1.375 per share. We also issued to Nomi Altabef,
an employee, an option to purchase 5,000 shares of our common stock at an
exercise price of $1.375 per share. Furthermore, we issued to Deborah Margulies,
an employee, an option to purchase 10,000 shares or our common stock at an
exercise price of $1.375 per share. In connection with these issuances of stock
options, we relied on the statutory exemptions provided by Section 4(2) of the
Securities Act of 1933, because these issuances did not involve public
offerings.
On December 8, 1999, we issued to Keith Rosenbloom, who was serving as a
director at such time and who is an existing shareholder, and various other
existing shareholders, including Dawntreader Fund I LP, Robert O'Sullivan, Falk
Family Foundation, Michael Falk, Commonwealth Associates, L.P., Robert Priddy
and Asia World Holdings Ltd., immediately exercisable warrants to purchase an
aggregate of 625,000 shares of our common stock at an exercise price of $1.60
per share. In connection with these issuances to one of our former directors and
certain existing stockholders, we relied on the statutory exemptions provided by
Section 4(2) of the Securities Act of 1933, because these issuances did not
involve public offerings.
On November 19, 1999, we issued to Andrew P. Merkatz, our President and
Chief Executive Officer, an option to purchase 15,971 shares of our common stock
at an exercise price of $2.00 per share. We also issued to Harry Charles, an
employee, an option to purchase 15,000 shares of our common stock at an exercise
price of $2.00 per share. In addition, we issued to Kossi Kpante, an employee,
an option to purchase 20,000 shares of our
II-1
<PAGE>
common stock at an exercise price of $2.00 per share. In connection with these
issuances to our employees, we relied on the statutory exemptions provided by
Section 4(2) of the Securities Act of 1933, because these issuances did not
involve public offerings.
On October 15, 1999, we issued to Kenneth Su, an employee, an option to
purchase 20,000 shares of our common stock at an exercise price of $1.50 per
share. In connection with this issuance of stock options to an employee, we
relied on the statutory exemptions provided by Section 4(2) of the Securities
Act of 1933, because this issuance did not involve a public offering.
On October 14, 1999, we issued to Vision Consulting International Inc.
103,448 shares of our common stock in exchange for services rendered. In
connection with this issuance, we relied upon the statutory exemptions provided
by Section 4(2) of the Securities Act of 1933, because this issuance did not
involve a public offering.
On September 27, 1999, we issued to Desmond Glass, our Controller, an
option to purchase 70,000 shares of our common stock at an exercise price of
$1.50 per share. We also issued to Drew Ruscil, an employee, an option to
purchase 35,000 shares of our common stock at an exercise price of $1.50 per
share. In addition, on September 27, 1999, we issued to each of Bill Levine,
Brian Stack and Geordie Pace, all employees, options to purchase 15,000 shares
of our common stock at an exercise price of $1.50 per share. Furthermore, on
September 27, 1999, we issued to each of Jihan Kim and Miranda Langan, both
employees, options to purchase 10,000 shares of our common stock at an exercise
price of $1.50 per share. Finally, on September 27, 1999, we issued to each of
Waisum Tam and Brendan McGovern, both employees, options to purchase 5,000
shares of our common stock at an exercise price of $1.50 per share. In
connection with these issuances of stock options to our employees, we relied on
the statutory exemptions provided by Section 4(2) of the Securities Act of 1933,
because these issuances did not involve public offerings.
On August 18, 1999, we issued to Andrew Merkatz, our President and Chief
Executive Officer, an option to purchase 9,421 shares of our common stock at an
exercise price of $1.75 per share. In connection with this issuance of stock
options, we relied on the statutory exemptions provided by Section 4(2) of the
Securities Act of 1933, because this issuance did not involve a public offering.
On July 27, 1999, we issued to Miranda Langan, an employee, an option to
purchase 30,000 shares of our common stock at an exercise price of $2.00 per
share. On July 27, 1999, we also issued to Alana Oldham, an employee, an option
to purchase 120,000 shares of our common stock at an exercise price of $2.00 per
share. In addition, on July 27, 1999, we issued to Joanne Van Wranken, an
employee, an option to purchase 4,000 shares of our common stock at an exercise
price of $2.00 per share. Finally, on July 27, 1999, we issued to Peter Norris,
an employee, an option to purchase 25,000 shares of our common stock at an
exercise price of $2.00 per share. In connection with these issuances of stock
options to our employees, we relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because these issuances did not
involve public offerings.
On June 30, 1999, we acquired Virtual Stock Exchange, Inc. from its 3
stockholders, and in exchange for the business of Virtual Stock Exchange, we
issued to them an aggregate of 2,700,000 shares of our common stock. In
connection with private exchange of our common stock for a privately-held
business, we relied on the statutory exemption provided by Section 4(2) of the
Securities Act of 1933, because these issuances did not involve public
offerings.
On June 30, 1999, we issued to Andrew Merkatz, our President and Chief
Executive Officer, an option to purchase 168,006 shares of our common stock at
an exercise price of $2.62 per share. In connection with the issuance of this
stock option, we relied on the statutory exemption provided by Section 4(2) of
the Securities Act of 1933 because this issuance did not involve a public
offering.
On June 24, 1999, we issued to Robert Jacobs, an employee, an option to
purchase 27,250 shares of our common stock at an exercise price of $2.30 per
share. On June 24, 1999, we also issued to Brendan McGovern, an employee, an
option to purchase 10,000 shares of our common stock at an exercise price of
$2.30 per share. In addition, on June 24, 1999, we issued to Geordie Pace, an
employee, an option to purchase 100,000 shares of our common stock at an
exercise price of $2.30 per share. Finally, on June 24, 1999, we issued to Jihan
Kim, an employee, an option to purchase 40,000 shares of our common stock at an
exercise price of $2.30 per share. In connection with these issuances of stock
options to our employees, we relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because these issuances did not
involve public offerings.
II-2
<PAGE>
On April 28, 1999, we completed a merger with Predict It Corp. pursuant to
which we acquired the business of Predict It Corp. In connection with the
merger, we converted all of the outstanding capital stock of Predict It Corp.
into an aggregate of 5,000,000 shares of our common stock. In connection with
the exchange of Predict It Corp. stock, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because these issuances
did not involve public offerings. On April 28, 1999, we completed an offering of
1,000,000 shares of our Series A Preferred Stock to several institutional
investors. We raised $3,000,000 from that offering, which was made pursuant to
the exemption from registration provided by Rule 506 of Regulation D,
promulgated under the Securities Act of 1933 as an offering solely to accredited
investors not involving any public offering.
On March 4, 1999, we completed an offering of 713,600 shares of our common
stock to several institutional investors. We raised $7,136 from that offering
which was made pursuant to the exemption from registration provided by Rule 504
of Regulation D, promulgated under the Securities Act of 1933 as an offering
solely to accredited institutional investors not involving any public offering.
On February 25, 1999, we completed an offering of 25,000 shares of our
common stock to 2 individuals and 1 entity in return for consulting services
provided to us. The offering was made pursuant to the exemption from
registration provided by Rule 504 of Regulation D, promulgated under the
Securities Act of 1933 as an offering solely to accredited investors not
involving any public offering.
On February 19, 1999, we completed an offering of 3,006,400 shares of our
common stock to several institutional investors. We raised $30,064 from that
offering which was made pursuant to the exemption from registration provided by
Rule 504 of Regulation D, promulgated under the Securities Act of 1933 as an
offering solely to institutional accredited investors not involving any public
offering.
On January 11, 1999, our predecessor, Predict It Corp., issued to Tom
Courts, our former President and Chief Executive Officer, an option to purchase
22,458 shares of Series B Preferred Stock at an exercise price of $1.6697 per
share. In connection with the issuance of a stock option to our former President
and Chief Executive Officer, we relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because the issuance did not involve
a public offering. In connection with the reverse acquisition of Predict It
Corp., the option was converted into an option to acquire 125,000 shares of our
common stock at an exercise price of $.30 per share. The option is exercisable
at any time and expires on January 11, 2004.
On October 3, 1998, Predict It Corp. issued to Robert Jacobs, an employee,
an option to purchase 14,678 shares of Series B Preferred Stock at an exercise
price of $1.3636 per share. In connection with the issuance of a stock option to
an employee, we relied on the statutory exemption provided by Section 4(2) of
the Securities Act of 1933, because the issuance did not involve a public
offering. In connection with the reverse acquisition of Predict It Corp., the
option was converted into an option to acquire 81,750 shares of our common stock
at an exercise price of $.245 per share. The option is exercisable in three
equal amounts on each of July 19, 1999, July 19, 2000 and July 19, 2001.
On January 15, 1996, we issued 255,000 shares of our common stock to the
three original members of the Board of Directors. We raised $255 from that
issuance. In connection with the original issuance of stock to our initial Board
members, we relied on the statutory exemption provided by Section 4(2) of the
Securities Act of 1933, because these issuances did not involve public
offerings.
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between Predict It Corp. and WDC Development, Inc.*
2.2 Agreement and Plan of Merger and Reorganization by and among the Registrant, PII Acquisition Corp.,
Virtual Stock Exchange, Inc., Gary Cheng, Howard Yen and Scott Appleby*
3.1 Certificate of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
4.1 Certificate of Designation of Series A Preferred Stock*
4.2 Specimen of Registrant's Common Stock*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.3 Registration Rights Agreement by and among the Registrant, Gary Cheng, Howard Yen and Scott Appleby*
4.4 Form of Promissory Note, dated December 8, 1999.**
4.5 Form of Warrant, dated December 8, 1999**
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP*
10.1 1999 Stock Option Plan*
10.2 Employment Agreement between Registrant and Andrew Merkatz*
10.3 Employment Agreement between Registrant and Howard Yen*
10.4 Transition Agreement between Registrant and Tom Courts*
10.5 Employment Agreement between Registrant and Gary Cheng*
10.6 Employment Agreement between Registrant and Geordie Pace*
10.7 Agreement by and between the Registrant and Vision Consulting International Inc.*
10.8 License and Promotion Agreement by and between Registrant and SportsLine USA, Inc.**
23.1 Consent of Camhy Karlinsky & Stein LLP**
23.2 Consent of Richard A. Eisner & Company, LLP**
24 Power of Attorney*
</TABLE>
- ------------------
* previously filed
** filed herewith
ITEM 28. UNDERTAKINGS.
1. To file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered may be reflected in the form of
prospectus filed with the Commission under Rule 424(b) if, in aggregate,
the changes in the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution.
2. That, for the purpose of determining liability under the Securities Act
or 1933, it shall treat each post-effective amendment as a new registration
statement of the securities offered, and treat the offering of the securities at
that time as an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the termination of
the offering.
To the extent that indemnification for liabilities arising under the
Securities Act or 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the provisions described in Item 15, or
otherwise, the company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities, other
than the payment by the company of expenses incurred or paid by a director,
officer of controlling person of the company in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the shares being registered hereby, the company will,
unless, in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by the company against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON THE 10TH DAY OF FEBRUARY, 2000.
PREDICT IT INC.
By: /s/ ANDREW MERKATZ
---------------------------------
Andrew Merkatz
President, Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- ------------------
<C> <S> <C>
/s/ ANDREW MERKATZ* President and Director (Principal Executive February 10, 2000
- ------------------------------------------ Officer)
Andrew Merkatz
/s/ DESMOND GLASS Controller (Principal Accounting Officer) February 10, 2000
- ------------------------------------------
Desmond Glass
/s/ ANDREW MERKATZ* Director February 10, 2000
- ------------------------------------------
Tom Courts
/s/ ANDREW MERKATZ* Director February 10, 2000
- ------------------------------------------
Andrew Weissman
/s/ ANDREW MERKATZ* Director February 10, 2000
- ------------------------------------------
Ajmal Khan
/s/ ANDREW MERKATZ* Director February 10, 2000
- ------------------------------------------
Keith Rosenbloom
/s/ ANDREW MERKATZ* Director February 10, 2000
- ------------------------------------------
Carol Lee
- ------------------------------------------
* By power of attorney
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between Predict It Corp. and WDC Development, Inc.*
2.2 Agreement and Plan of Merger and Reorganization by and among the Registrant, PII Acquisition Corp.,
Virtual Stock Exchange, Inc., Gary Cheng, Howard Yen and Scott Appleby*
3.1 Certificate of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
4.1 Certificate of Designation of Series A Preferred Stock*
4.2 Specimens of Registrant's Common Stock*
4.3 Registration Rights Agreement by and among the Registrant, Gary Cheng, Howard Yen and Scott Appleby*
4.4 Form of Promissory Note, dated December 8, 1999**
4.5 Form of Warrant, dated December 8, 1999**
5.1 Opinion and Consent of Camhy Karlinsky & Stein LLP*
10.1 1999 Stock Option Plan*
10.2 Employment Agreement between Registrant and Andrew Merkatz*
10.3 Employment Agreement between Registrant and Howard Yen*
10.4 Transition Agreement between Registrant and Tom Courts*
10.5 Employment Agreement between Registrant and Gary Cheng*
10.6 Employment Agreement between Registrant and Geordie Pace*
10.7 Agreement by and between the Registrant and Vision Consulting International Inc.*
10.8 License and Promotion Agreement by and between Registrant and SportsLine USA, Inc.**
23.1 Consent of Camhy Karlinsky & Stein LLP**
23.2 Consent of Richard A. Eisner & Company, LLP**
24 Power of Attorney*
</TABLE>
- ------------------
* previously filed
** filed herewith
<PAGE>
PROMISSORY NOTE
- -------------- New York, New York
10% December 8, 1999
FOR VALUE RECEIVED, the undersigned, PREDICT IT INC., a Delaware corporation
("Maker"), promises to pay to the order of ____________________ ("Payee"), at
New York City, New York, or such other place as Payee may from time to time
designate by written notice to Maker, in lawful money of the United States of
America, the sum of Two Hundred Fifty Thousand Dollars ($250,000), plus interest
from the date of this Note on the unpaid balance. All principal and interest is
to be paid without setoff or counterclaim as set forth below. Maker further
agrees as follows:
Section 1. Interest Rate and Conversion Right.
(a) Interest shall accrue at a rate equal to ten percent (10%) per
annum, compounded annually.
(b) Interest shall be computed on the basis of a year of 365 days for
the actual number of days elapsed. After maturity (whether by acceleration or
otherwise, and before as well as after judgment), all unpaid principal and
interest shall bear interest until it is paid at three percent (3%) in excess of
the rate otherwise applicable to the unpaid balance under this Note.
(c) At the options of the Payee, interest on the Note may be paid in
shares of common stock of the Company, which shares shall be valued at $1.60 per
share.
(d) All agreements between Maker and Payee are expressly limited so
that in no contingency or event whatsoever shall the amount paid or agreed to be
paid to Payee for the use, forbearance, or detention of the indebtedness
evidenced by this Note exceed the maximum amount permissible under applicable
law. If from any circumstance Payee should ever receive as interest an amount
which would exceed the highest lawful rate, such amount as would be excessive
interest shall be applied to the reduction of the principal amount owing under
this Note and not to the payment of interest.
(e) At the options of the Payee, upon the first round of financing of
the Maker which occurs subsequent to the date hereof, this Note or any portion
of the principal amount thereof, and the interest related thereto may, at any
time and from time to time until this Note is satisfied in full, be converted
into the securities of the Maker which are sold in such financing. Such
securities shall be treated, upon conversion of this Note, as fully paid and
nonassessable. The amount of such securities which shall be received upon such
conversion
<PAGE>
shall be equal to a fraction, the numerator of which is the dollar amount of the
principal and interest being satisfied by the conversion, and the denominator of
which is the per security purchase price which is paid by the investors in such
financing.
Section 2. Payments.
(a) Interest on this Note is due and payable semi-annually (June 8,
2000 and December 8, 2000). The principal amount owing under this note is due
and payable on December 8, 2000.
(b) Maker shall have the right to prepay this Note in full or in part
at any time, without premium or penalty. All prepayments shall be applied first
to accrued interest and then to principal.
Section 3. Rank.
This Note shall rank be as a senior obligation of Maker and all other
obligations of Maker shall be subordinated to this Note, regardless of whether
such obligations are presently existing or are subsequently incurred.
Section 4. Default.
It shall be an event of default ("Event of Default"), and the entire
unpaid principal of this Note, together with accrued interest, shall become
immediately due and payable, at the election of Payee, upon the occurrence of
any of the following events:
(a) any failure on the part of Maker to make any payment under this
Note when due, whether by acceleration or otherwise, and the continuation of
such failure for a period of five (5) days after written notice thereof from
Payee.
(b) any failure on the part of Maker to keep or perform any of the
terms or provisions (other than payment) of this Note or any amendment thereof,
which failure is not cured within ten (10) days and the continuation of such
failure for more than ten (10) days after written notice thereof from Payee.
(c) Maker shall commence (or take any action for the purpose of
commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute.
(d) A proceeding shall be commenced against Maker under any bankruptcy,
reorganization, arrangement, readjustment of debt, moratorium or similar law or
statute and
2
<PAGE>
relief is ordered against it, or the proceeding is controverted but is not
dismissed within sixty (60) days after the commencement thereof.
(e) Maker consents to or suffers the appointment of a receiver, trustee
or custodian to any substantial part of its assets that is not vacated within
thirty (30) days.
(f) Dissolution, termination of existence, or insolvency of Maker.
(g) Maker consents to or suffers an attachment, garnishment, execution
or other legal process against any of its assets that is not released within
thirty (30) days.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts of the
State of New York and of any federal court located in such State in connection
with any action or proceeding arising out of or relating to this Note, any
document or instrument delivered pursuant to, in connection with, or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. Maker waives, to the full extent permitted by law, any objection
which it may now or hereafter have to the laying of venue of any action or
proceeding arising out of or relating to this Note brought in the State of New
York, and further irrevocably waives, to the full extent permitted by law, any
claim that any such action or proceeding brought in such State has been brought
in an inconvenient forum. In any such action or proceeding, Maker waives, to the
full extent permitted by law, personal service of any summons, complaint, or
other process and agrees that service thereof may be made on Maker by certified
or registered U.S. mail or by personal delivery. Within thirty (30) days after
such service, or such other time as may be mutually agreed upon in writing by
the attorneys for the parties to such action or proceeding Maker shall appear or
answer such summons, complaint, or other process. Should Maker so served fail to
appear or answer within such thirty (30)-day period or such extended period, as
the case may be, Maker shall be deemed in default and judgment may be entered by
Payee against Maker for the amount as demanded in any summons, complaint, or
other process so served.
Section 6. Waivers.
Maker waives demand, presentment, protest, notice of protest, notice of
dishonor, and all other notices or demands of any kind or nature with respect to
this Note.
(a) Maker agrees that a waiver of rights under this Note shall not be
deemed to be made by Payee unless such waiver shall be in writing, duly signed
by Payee, and each such waiver, if any, shall apply only with respect to the
specific instance involved and shall in no way impair the rights of Payee or the
obligations of Maker in any other respect at any other time.
3
<PAGE>
(b) Maker agrees that in the event Payee demands or accepts partial
payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid balance of this
Note at any time in accordance with the terms of this Note.
(c) Maker agrees and acknowledges that Payee may disclose to any other
Obligor confidential information relating to this Note, and waives, to the full
extent permitted by law, any right to privacy or similar right under federal or
state laws which Maker may have with respect to such disclosures.
(d) In any action or proceeding arising out of or relating to this
Note, Maker waives (to the full extent permitted by law) all right to a trial by
jury or to plead as a defense any statute of limitations or any other similar
law or equitable doctrine.
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its obligations
under this Note in any manner whatsoever (including, without limitation, by the
consolidation or merger of Maker, if a corporation, with or into another
corporation) without the prior written consent of Payee. The Note may be
assigned at any time by Payee. Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
This Note may be altered only by prior written agreement signed by the
party against whom enforcement of any waiver, change, modification, or discharge
is sought. This Note may not be modified by an oral agreement, even if supported
by new consideration.
(a) This Note shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to such state's
principles of conflict of laws.
4
<PAGE>
(b) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(c) This Note and a warrant issued as of the dated hereof, constitutes
a final written expression of all the terms of the agreement between the parties
regarding the subject matter hereof, are a complete and exclusive statement of
those terms, and supersede all prior and contemporaneous agreements,
understandings, and representations between the parties. If any provision or any
word, term, clause, or other part of any provision of this Note shall be invalid
for any reason, the same shall be ineffective, but the remainder of this Note
shall not be affected and shall remain in full force and effect.
(d) The singular includes the plural. If more than one Maker executes
this Note, the term "Maker" shall be deemed to refer to each of the undersigned
Makers as well as to all of them, and their obligations and agreements under
this Note shall be joint and several. If any of the undersigned is a married
person, recourse may be had against his or her separate property for all of his
or her obligations under this Note. The term "Obligor" shall be deemed to refer
to each Maker, endorser, guarantor, or surety of this Note as well as to all of
them. The term "Payee" shall include the initial party to whom payment is
designated to be made and, in the event of an assignment of this Note, the
successor assignee or assignees, and, as to each successive additional
assignment, such successor assignee or assignees.
(e) All notices, consents, or other communications provided for in this
Note or otherwise required by law shall be in writing and may be given to or
made upon the respective parties at the following mailing addresses:
Payee:
-------------------------
-------------------------
-------------------------
Maker: Predict It Inc.
694 Eighth Avenue
New York, NY 10036
Attention: Andrew P. Merkatz, President
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
5
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as of the
date first set forth above.
MAKER: PREDICT IT INC.
------------------------------------------------
Andrew P. Merkatz, President and
Chief Executive Officer
6
<PAGE>
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF
ARE RESTRICTED AS DESCRIBED HEREIN.
PREDICT IT INC.
Warrant for the purchase of ________ shares of Common Stock,
$.01 par value per share
No. BL-1
THIS CERTIFIES that, for $1,000 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________ (the "Holder"), is entitled to subscribe for and purchase
from Predict It Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, during the period commencing on the date hereof
(December 8, 1999) and expiring at 5:00 p.m. on December 8, 2004 (the "Exercise
Period"), up to 156,250 shares of the Company's Common Stock, $.01 par value per
share ("the Common Stock"), at a price (the "Exercise Price") per share equal to
$1.60. As used herein, the term "this Warrant" shall mean and include this
Warrant and any Warrant or Warrants hereafter issued as a consequence of the
exercise or transfer of this Warrant in whole or in part. As used herein, the
term "Holder" shall include any transferee to whom this Warrant has been
transferred in accordance with the terms hereof.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
<PAGE>
1. Subject to the provisions of Section 2, vested portions of this
Warrant may be exercised during the Exercise Period, as to the whole or any
lesser number of whole Warrant Shares, by transmission by telecopy of the
Election to Exercise, followed within three (3) business days by the surrender
of this Warrant (with the Election to Exercise attached hereto duly executed) to
the Company at its office at 694 Eighth Avenue, New York, New York 10036, or at
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised (the "Aggregate Exercise
Price"). Alternatively, this Warrant may be exercised in the manner set forth in
the preceding sentence by surrendering this Warrant in exchange for the number
of Warrant Shares equal to the product of (x) the number of shares of Common
Stock as to which this Warrant is being exercised, multiplied by (y) a fraction,
the numerator of which is the Market Price (as defined below) of one share of
Common Stock minus the Exercise Price of one Warrant Share and the denominator
of which is the Market Price per share of Common Stock. Solely for the purposes
of this Section 1 Market Price shall be calculated either (i) on the date on
which the form of election attached hereto is deemed to have been sent to the
Company pursuant to this Section 1 ("Notice Date") or (ii) as the average of the
Market Price for each of the five trading days immediately preceding the Notice
Date, whichever of (i) or (ii) results in a greater Market Price. As used
herein, the phrase "Market Price" at any date shall be deemed to be the last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the average closing sale price as furnished by the NASD through The Nasdaq Stock
Market, Inc. ("Nasdaq") or by the OTC Electronic Bulletin Board or similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not publicly quoted, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. Within five
(5) business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. The Warrant shall vest and be exercisable in full upon issuance.
<PAGE>
4. This Warrant may be assigned to an affiliate of the Holder without
the prior written consent of the Company, so long as such assignment is made in
accordance with applicable securities laws.
5. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
6. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
7. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock, in each case, in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
<PAGE>
number of shares of Common Stock outstanding after giving effect to such action,
and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In the event that the Company shall sell or issue at any
time after the date of issuance of this Warrant and prior to its termination,
shares of Common Stock at a price per share less than the Exercise Price or
Securities convertible into shares of Common Stock with an Exercise Price or
conversion price less than the Exercise Price (a "Dilutive Issuance"), then the
Exercise Price shall be adjusted to a new Exercise Price which is the price per
share or conversion price per share in such Dilutive Issuance.
In no event shall any such adjustment be made pursuant to this Section 7(b) if
it would increase the Exercise Price in effect immediately prior to such
adjustment. Upon each adjustment of the Exercise Price pursuant to this Section
7(b), the holder of this Warrant shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment. In addition, in no event shall
the following issuances of shares of Common Stock trigger the dilution
provisions of this Section 7(b): (i) the issuance or sale of options to purchase
securities, and the issuance of the securities underlying such options, to
employees, consultants and directors of the Company, pursuant to a stock option
plan approved by the board of directors of the Company; (ii) the issuance of
securities or options, and the issuance of the securities underlying such
options, pursuant to employment agreements approved by the Board of Directors;
(iii) securities issued pursuant to a public offering of the Company's
securities by means of a registration statement which is declared effective by
the Securities and Exchange Commission; (iv) securities issued in connection
with a material acquisition which has been approved by the Board of Directors of
the Company; (v) securities issued in connection with any stock split, stock
dividend, or recapitalization of the Company;(vi) Common Stock issued upon
conversion of any shares of preferred stock of the Company; or (vii) the
issuance of securities which have, pursuant to the provisions of this Section
7(b), already triggered or been exempted from triggering a reduction in the
Conversion Price.
(c) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 7, the number of Warrant Shares issuable upon the
exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(d) For the purpose of this Warrant, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company as amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or
<PAGE>
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
(e) In case of any consolidation of the Company with, or
merger of the Company into, another corporation (other than a consolidation or
merger which does not result in any reclassification or change of the
outstanding Common Stock), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of this Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of shares of Common
Stock for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 7. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(f) No adjustment in the number of Warrant Shares shall be
required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this Section 7(f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 7 shall be made to the nearest
one-thousandth of a share.
(g) In any case in which this Section 7 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
the record date, the Warrant Shares, if any, issuable upon such exercise over
and above the Warrant Shares, if any, issuable upon such exercise prior to such
adjustment; provided, however, that the Company shall deliver to the Holder a
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(h) Whenever there shall be an adjustment as provided in this
Section 7, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of this Warrant if such Warrant were exercisable on the date of
such notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
8. In case at any time the Company shall propose:
<PAGE>
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation or merger; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company,
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up.
9. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance, other than applicable
transfer taxes. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
any certificate in a name other than that of the Holder and the Company shall
not be required to issue or deliver any such certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
10. Unless registered, the Warrant Shares issued upon exercise of the
Warrants shall be subject to a stop transfer order and the certificate or
certificates evidencing such Warrant Shares shall bear the following legend:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH
SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A
WARRANT, DATED DECEMBER 8, 1999, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
11. (a) If the Company at any time after the date hereof proposes to
register any of its Common Stock under the Securities Act (other than a
registration on Form S-4 or S-8 or any successor or other forms promulgated for
similar purposes, or a registration for an employee plan or Rule 145
transaction), whether or not for sale for its own account, pursuant to a
registration statement on which it is permissible to register the Warrant Shares
for sale to the public under the Securities Act of 1933, as amended (the
"Securities Act"), it will each such time give written notice at least thirty
(30) days prior to filing any registration statement under the Securities Act to
all Holders of the Warrant Shares of its intention to do so and of such Holders'
rights under this Section 11. Upon the written request of any such Holder made
within twenty (20) days after the receipt of any such notice (which request
shall specify the number of Warrant Shares intended to be disposed of by such
Holder), the Company will use its best efforts to effect the registration under
the Securities Act of all Warrant Shares which the Company has been so requested
to register by the Holders thereof; provided, that (i) if, at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with the
proposed registration of the securities to be sold by it, the Company may, at
its election, give written notice of such determination to each Holder of
Warrant Shares and, thereupon, shall be relieved of its obligation to register
any Warrant Shares in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith), and (ii)
if such registration involves an underwritten offering, all Holders of Warrant
Shares requesting to be included in the Company's registration must sell their
Warrant Shares to the underwriters selected by the Company on the same terms and
conditions as apply to the Company, with such differences, including any with
respect to indemnification and liability insurance, as may be customary or
appropriate in combined primary and secondary offerings. If a registration
requested pursuant to this Section 11 involves an underwritten public offering,
any Holder of Warrant Shares requesting to be included in such registration may
elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration.
(b) If a registration pursuant to this Section 11 involves an
underwritten offering and the managing underwriter advises the Company in
writing that, in its good faith opinion, the amount of securities requested to
be included in such registration exceeds the amount which can be sold in
<PAGE>
such offering, so as to be likely to have a material adverse effect on such
offering as contemplated by the Company (including the price at which the
Company proposes to sell such securities), then the Company will include in such
registration first, all securities proposed by the Company to be sold for the
Company's own account, second the amount of Warrant Shares requested to be
included in such registration by the Holders which, in the good faith opinion of
such managing underwriter, can be sold without causing a material adverse effect
on the offering, with such amount of Warrant Shares to be allocated pro rata
among all requesting Holders and all other holders of the Company's securities
who have similar "piggyback"registration rights for warrant shares on the basis
of the relative aggregate number of Warrant Shares (or similar warrant shares)
then owned by such Holders (and other holders), and third, any amount of other
securities ("Other Securities") of the Company held by all other security
holders which the Company has agreed to register which, in the good faith
opinion of such managing underwriter, can be sold without causing a material
adverse effect on the offering, with such amount of Other Securities to be
allocated pro rata among such other holders on the basis of the relative number
of shares of Other Securities owned by such other holders.
(c) The Company will pay all registration expenses in
connection with each registration of Warrant Shares requested pursuant to this
Section 11, less any fees and commissions of any underwriters. The Company shall
not pay any legal fees for any Holders in connection with such registrations.
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: December 8, 1999
PREDICT IT INC.
By:
-----------------------------------
Name: Andrew Merkatz
Title: President
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________________________________ hereby
sells, assigns, and transfers unto __________________ a Warrant to purchase
__________ shares of Common Stock, $.01 par value per share, of Predict It Inc.
(the "Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint attorney to transfer such Warrant on
the books of the Company, with full power of substitution.
Dated:
Signature
------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
To: Predict It Inc.
694 Eighth Avenue
New York, New York 10036
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_______ Warrant Shares covered by the within Warrant and tenders payment
herewith [in the amount of $_________] [in the amount of __________
Warrant Shares] in accordance with the terms thereof, certifies that he
owns this Warrant free and clear of any and all claims, liens and/or
encumbrances and requests that certificates for such securities be issued
in the name of, and delivered to:
------------------------------------------------
------------------------------------------------
------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name
of, and delivered to, the undersigned at the address stated below.
Dated: Name:
------------------------ ----------------------------------
(Print)
Address:
-----------------------------------------------------------------
--------------------------------
(Signature)
<PAGE>
"RTC" means the material omitted has been filed with the Securities and
Exchange Commission with an application requesting confidential treatment.
LICENSE AND PROMOTION AGREEMENT
This License and Promotion Agreement (this "Agreement") is entered into as of
November 9th 1999 (the "Effective Date") by and between SportsLine USA, Inc.
("SPLN"), a Delaware corporation with its principal place of business at 6340 NW
5th Way, Fort Lauderdale, Florida 33309 and PredictIt, Inc. ("Company"), a
Delaware corporation with its principal place of business at 694 8th Ave., 5th
Floor, New York, NY 10036 and recites and provides as follows:
RECITALS
1. SPLN and/or its affiliates operate certain sports-oriented online
services distributed via various platforms including but not limited to
on the World Wide Web (the "Web") portion of the Internet including the
CBS SportsLine service (the "SportsLine Service"), the Vegas Insider
service (the "Vegas Insider Service"), and tips.sports.com (the "Tips
Service").
2. Company operates an end user generated online sports prediction-service
(the "Company Service") distributed via various platforms including but
not limited to on the Web at URL http://www.predictit.com.
3. For purposes of this Agreement, "Internet" shall mean a global network
of interconnected computer networks, each using the Transmission
Control Protocol/Internet Protocol (and/or such other standard network
interconnection protocols as may be adopted from time to time), which
is used to transmit content that is directly or indirectly delivered to
a computer or other digital electronic device for display to an
end-user, whether delivered through online browsers, commercial online
services, offline browsers (a browser that allows users to access a
site without requiring an online connection) or through push
technology, electronic mail, broadband distribution (high bandwidth
above 56kb), satellite, wireless or otherwise.
4. Company agrees to design, produce, host, operate, maintain and support
three different co-branded private label versions of the Company
Service on behalf of SPLN and its affiliates in accordance with the
terms and conditions of this Agreement (each, a "Co-Branded Service";
and collectively the "Co-Branded Services").
AGREEMENT
NOW THEREFORE, for and in consideration of the mutual terms and conditions set
forth herein, and other good and valuable consideration, the adequacy of which
are hereby acknowledged, the parties agree as follows:
1. Recitals. The Recitals are incorporated herein by reference.
2. Term. This Agreement shall commence on the Effective Date and shall
continue for a period of three (3) years from the date of launch of the
first Co-Branded Company Service, unless earlier terminated as provided
herein (the "Term"). For purposes of the foregoing, the date of launch
shall be the date on which the first Co-Branded Service is generally
available to end users (the "Launch Date"). SPLN and Company shall use
commercially reasonable efforts to ensure that all Co-Branded Services
are generally available to end users no later than ninety (90) days
after the Effective Date.
3. Co-Branded Service.
------------------
a) Design ,Creation and Maintenance of Co-Branded Services. Company
shall design, develop and maintain the
following three (3) versions of the Co-Branded Service:
i) A version co-branded for the SportsLine Service (the
"SportsLine Co-Branded Service") which shall be accessible at
the second level domain sportsline.com (or other second level
domain designated in the sole and exclusive discretion of
SPLN) under a "predictit" tertiary domain (i.e.,
predictit.sportsline.com) or other third level domain
CONFIDENTIAL AND PROPRIETARY
-1-
<PAGE>
mutually agreed upon between the parties. The SportsLine
Co-Branded Service shall each have the "look and feel" of the
SportsLine Service as designated by SPLN in its sole
discretion, with mutually agreed upon Company and SPLN
co-branding. All navigation within the pages of the SportsLine
Co-Branded Service shall link only to other pages within the
SportsLine Co-Branded Service (i.e., all links will stay
in-channel on the "sportsline.com" domain) or to the
SportsLine Service. SPLN shall have the option of designing
and hosting an intermediate "jump page" on its servers which
shall provide information about the SportsLine Co-Branded
Service and provide links for SportsLine Service end users to
register for and log-in to the SportsLine Co-Branded Service.
Company will launch the SportsLine Co-Branded Service only
upon final written approval from SPLN. Company shall be solely
responsible for all programming content of the SportsLine
Co-Branded Service subject to the SportsLine Service Content
Standards attached hereto as Exhibit A and subject to change
with prior written notice to Company. SPLN shall have the
right to demand immediate removal of any content on the
SportsLine Co-Branded Service that it (or CBS) finds
objectionable in its sole discretion. SPLN shall have the
right to approve and modify, in the sole and exclusive
discretion of SPLN, the SportsLine Co-Branded Service end user
terms of service.
ii) A version co-branded for the Vegas Insider Service (the "Vegas
Co-Branded Service") which shall be accessible at the second
level domain vegasinsider.com (or other second level domain
designated in the sole and exclusive discretion of SPLN) under
a "predictit" tertiary domain (i.e.,
predictit.vegasinsider.com or other third level domain
mutually agreed upon between the parties). The Vegas
Co-Branded Service shall have the "look and feel" of the Vegas
Insider Service as designated in the sole and exclusive
discretion of SPLN with mutually agreed upon Company and SPLN
co-branding. All navigation within the pages of the Vegas
Co-Branded Service shall link only to other pages within the
Vegas Co-Branded Service (i.e., all links will stay in-channel
on the "vegasinsider.com" domain) or to the Vegas Insider
Service. SPLN shall have the option of designing and hosting
an intermediate "jump page" on its servers which shall provide
information about the Vegas Co-Branded Service and provide
links for Vegas Insider Service end users to register for and
log-in to the Vegas Co-Branded Service. Company will launch
the Vegas Co-Branded Service only upon final written approval
from SPLN. Company shall be solely responsible for all
programming content of the Vegas Co-Branded Service subject to
the Vegas Insider Service Content Standards attached hereto as
Exhibit B and subject to change with prior written notice to
Company. SPLN shall have the right to demand immediate removal
of any content on the Vegas Co-Branded Service that it finds
objectionable in its sole discretion. SPLN shall have the
right to approve and modify, in the sole and exclusive
discretion of SPLN, the Vegas Insider Co-Branded Service end
user terms of service.
iii) A version co-branded for the Tips Service (the "Tips
Co-Branded Service") which shall be accessible at
the second level domain sports.com (or other second level
domain designated in the sole and exclusive discretion of
SPLN) under a "predictit" tertiary domain (i.e.,
predictit.sports.com or other third level domain mutually
agreed upon between the parties). The Tips Co-Branded
Service shall have the "look and feel" of the Tips Service as
designated in the sole and exclusive discretion of SPLN with
mutually agreed upon Company and SPLN co-branding. All
navigation within the pages of the Tips Co-Branded Service
shall link only to other pages within the Tips Co-Branded
Service (i.e., all links will stay in-channel on the
"sports.com" domain) and to the Tips Service. SPLN shall have
the option of designing and hosting an intermediate "jump
page" on its servers which shall provide information about the
Tips Co-Branded Service and provide links for Tips Service end
users to register for and log-in to the Tips Co-Branded
Service. Company will launch the Tips Co-Branded Service only
upon final written approval from SPLN. Company shall be solely
responsible for all programming content of the
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SportsLine Co-Branded Service subject to the Tips Service
Content Standards attached hereto as Exhibit C and subject to
change with prior written notice to Company. SPLN shall have
the right to demand immediate removal of any content on the
Tips Co-Branded Service that it finds objectionable in its
sole discretion. SPLN shall have the right to approve and
modify, in the sole and exclusive discretion of SPLN, the Tips
Co-Branded Service end user terms of service.
iv) "SPLN Materials" shall mean any proprietary images, artwork,
text, graphics (including, without limitation the SportsLine
Service user interface, the Vegas Insider Service user
interface and the Tips Service user interface) or other
information or materials owned, controlled by or licensed to
SPLN and/or its affiliates and provided to Company hereunder.
b) Hosting and Operation. Company shall host the Co-Branded
Services on a 24/7 basis on servers owned by Company at the
domains set forth in sub-section 3(a) above and in conformance
with the Co-Branded Services Operating Standards set forth in
Exhibit F attached hereto.
c) Co-Branded Service Features.
i) At a minimum, the SportsLine Co-Branded Service shall provide
a platform for SportsLine Co-Branded Service end users to (a)
make predictions on upcoming sporting events, and (b) to view
both past and future predictions of other SportsLine
Co-Branded Service end users and end users of other similar
Company Services other than the Co-Branded Company Services
(it being understood that such other end users shall not be
identified according to the Company Service through which they
are participating). In addition, the prediction performance of
each participating end user will be tracked and rated
according to Company's rating system, the results of which
shall be made generally available to all SportsLine Co-Branded
Service end users in a format acceptable to SPLN. Each
SportsLine Co-Branded Service end user will be rewarded by
Company every time such end user's future predictions are
viewed by other end users in the Company System in accordance
with Section 3(c)(iv) below. For purposes of this Agreement,
"Company System" shall mean the aggregate of Co-Branded
Services and other non-SPLN branded Company Services. The
SportsLine Co-Branded Service shall be limited to
"straight-up" (win/lose) prediction types (i.e., no odds or
against the spread predictions) and no wagering line of any
kind may be used in conjunction with the SportsLine Co-Branded
Service. The SportsLine Co-Branded Service shall consist of
all elements and functionality of the Company Service as of
the Effective Date, except as directed by SPLN. In addition,
at no additional cost to SPLN, Company shall integrate into
the SportsLine Co-Branded Service all new features developed
by Company. Revenue from any such additional service features
integrated into the SportsLine Co-Branded Service shall be
shared by the parties in a mutually agreed upon manner,
subject to [RCT] prior written approval.
ii) At a minimum, the Vegas Co-Branded Service shall: provide a
platform for Vegas Insider Co-Branded Service end users to,
(a) make predictions on upcoming sporting events, and (b) to
view both past and future predictions of other similar Vegas
Co-Branded Service end users and end users of other Company
Services other than the Co-Branded Company Services (it being
understood that such other end users shall not be identified
according to the Company Service through which they are
participating). In addition, the prediction performance of
each participating end user will be tracked and rated
according to Company's rating system, the results of which
will be made generally available to all Vegas Co-Branded
Service end users in a format acceptable to Vegas Insider.
Each Vegas Co-Branded Service end user will be rewarded by
Company every time an end user's future predictions are viewed
by other end users in the Company System in
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accordance with Section 3(c)(iv) below. The Vegas Insider
Co-Branded Service shall consist of all elements and
functionality of the Company Service as of the Effective Date,
except as directed by SPLN. In addition, at no additional cost
to SPLN, Company shall integrate into the Vegas Co-Branded
Service all new features developed by Company, subject to SPLN
prior written approval. Revenue from any such additional
service features integrated into the Vegas Co-Branded Service
shall be shared by the parties in a mutually agreed upon
manner.
iii) At a minimum, the Tips Co-Branded Service shall provide a
platform for Tips Co-Branded Service end users to, (a) make
predictions on upcoming sporting events, and (b) to view both
past and future predictions of other similar Tips Co-Branded
Service end users and end users of other Company Services
other than the Co-Branded Company Services (it being
understood that such other end users shall not be identified
according to Company Service through which they are
participating). In addition, the prediction performance of
each participating end user will be tracked and rated
according to Company's rating system, the results of which
will be made generally available to all Tips Co-Branded
Service end users in a format acceptable to SPLN. Each Tips
Co-Branded Service end user will be rewarded by Company every
time an end user's future predictions are viewed by other end
users in the Company System in accordance with Section
3(c)(iv) below. The Tips Co-Branded Service shall consist of
all elements and functionality of the Company Service as of
the Effective Date, except as directed by SPLN. In addition,
at no additional cost to SPLN, Company shall integrate into
the Tips Co-Branded Service all new features developed by
Company, subject to SPLN prior written approval. Revenue from
any such additional service features integrated into the Tips
Co-Branded Service shall be shared by the parties in a
mutually agreed upon manner.
iv) Company shall, at Company's sole expense, compensate end users
of the Co-Branded Services in accordance with the following:
(a) end users of the Co-Branded Services that post predictions
on future sporting events shall earn a credit in the amount of
[RCT] for each other end user of the Company System
(regardless of the service through which the end user is
participating) that draws a page view containing such
predictions. For purposes of calculating such credits, the
maximum credit to which an end user posting predictions is
entitled shall be [RCT] per prediction access. For purposes
of the foregoing, a "prediction access" shall mean a single
page view per calendar day of a posting end users' predictions
within a single sports category (e.g. NFL) by a unique end
user other than the end user whose predictions are viewed
(it being understood that within a single calendar day, any
one page view shall count towards a credit regardless of the
number of page views and the number of predictions posted
within a single category). Once an end user accumulates
credits equivalent to [RCT] or greater. Company shall tender
payment, denominated in US funds, equivalent to the dollar
and cent value of the user's accrued credits for the most
recent period reported. Accrued credits are calculated by
taking the end user's lifetime accrued credits less the value
of any payments previously issued to such end user by Company.
Users who have earned money will receive payment by check
sent through US Mail during the month following the end of the
quarter in which the money was accrued. The Co-Branded
Services shall provide end users of the Co-Branded Services
with an online accounting function for end users of the
Co-Branded Services to view real-time page views of such end
users' predictions and compensation balance and the date on
which the compensation payment will sent to such end user.
Company will provide SPLN with quarterly reporting of all
payments made to end users of the Co-Branded Services.
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d) Co-Branded Service Customer Support. At no additional cost to
SPLN or its affiliates and at no cost to end users, Company
shall provide end users of each Co-Branded Service with the
following customer support services:
i) up-to-date online support information, including
FAQ's; telephone support during Company's regular
business hours as follows: Monday through Friday 9:00
a.m. to 6:00 p.m. Eastern Time. Company will provide
a dedicated phone mail extension for off-hours with a
call back to users provided on next business day.
ii) Email support with email response time by Company to
end users of each Co-Branded Service not to exceed
twenty-four (24) hours from receipt of end user
emails, or next business day during times outside of
the Company's regular business hours.
iii) At no additional cost to SPLN or its affiliates,
Company agrees to increase levels of customer service
(including, without limitation, hours of coverage,
quantity and quality of telephone service
representatives and email response) as necessary and
required to maintain the highest quality end user
experience.
e) Co-Branded Services Back End Technical Support. At no
additional cost to SPLN or its affiliates, Company shall
provide SPLN live emergency technical support via telephone on
a [RCT] basis. Company shall provide SPLN with any names,
phone numbers, email addresses and pager numbers required in
connection with the foregoing.
f) Continuation of Service. In the event that SPLN no longer
wishes to offer the Co-Branded Service to its end users, it
shall have the right to allow this Agreement to expire
pursuant to the terms hereof. In such case, Company shall stop
offering the Co-Branded Services to end users of the
Co-Branded Service upon such expiration, but will continue to
support services for all end users who registered for such
services during the Term prior to the expiration date.
Following the expiration or earlier termination of this
Agreement, SPLN shall have the right, but not the obligation:
i) to maintain a log-in portal or link on the SportsLine
Service, the Vegas Service and the Tips Service or
other service as designated in the sole and exclusive
discretion of SPLN or its affiliates to enable
existing end users to access the Company Service at a
mutually agreed upon version of the Company Service;
and
ii) if SPLN elects to provide such services, Company
shall be responsible for the orderly transfer of all
relevant data for end users at SPLN designated
domains to SPLN such that SPLN and/or its affiliates
can continue the provision of services for such end
users.
g) Services Exclusivity. Company will not provide any [RCT]
or [RCT], or [RCT] with or on behalf of any of the following
parties within the [RCT] market ("Services Competitors")
during the Term. Services Competitors include any [RCT] or
[RCT] (currently including, [RCT] or any affiliates of the
foregoing). Services Competitors may be modified from time
to time based upon mutual agreement.
h) Advertising Exclusivity. Company will not [RCT] or [RCT]
advertising for any [RCT] or [RCT] of any advertising
competitors within the Remnant Inventory on the SportsLine
Co-Branded Service, as defined in Section 5 ("each an
"Advertising Competitor", collectively "Advertising
Competitors") during the Term. Advertising Competitors
include, but is not limited, to: (i) any [RCT] or [RCT]
(including but not limited to
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[RCT]; (ii) the [RCT] related division of any [RCT]
(including but not limited to [RCT]); (iii) the [RCT] related
division of any [RCT] or similar [RCT] (regardless of whether
such service is accessible through the Internet or otherwise);
(iv) any Internet or Web based [RCT] (e.g., [RCT]); and (v)
any [RCT] of [RCT] including but not limited to [RCT] (or
any of their respective affiliates).
i) Communications. Company shall be exclusively responsible for
all communications with end users of the Co-Branded Services.
In the event an end user of the Co-Branded Services contacts
Company or Company receives a communication regarding SPLN, or
otherwise related to the subject matter of this Agreement
(including but not limited to or from end users of the
Co-Branded Services, or parties or organizations considered in
the trade as VIP (e.g., attorneys, the Better Business Bureau,
the United States Postal Service, governmental agencies and
consumer columnists or advocates)), Company shall immediately
forward such communications to SPLN and SPLN may handle such
communication in the sole and exclusive discretion of SPLN.
4. SPLN Obligations.
a) Service Promotion and Integration. Subject to the terms and
conditions herein, SPLN shall promote, or, as applicable,
cause its affiliates to promote, the Co-Branded Services as
set forth in Exhibit D attached hereto. Notwithstanding the
foregoing, SPLN reserves the sole and exclusive right to
provide substitute promotional placements and/or integration
of the Co-Branded Services of comparable value as determined
in cooperation with Company but in all events in the sole and
exclusive discretion of SPLN or its affiliates.
b) Registration Page. SPLN shall set up a fully automated
co-branded registration area on each of the SportsLine
Service, the Vegas Insider Service and the Tips Service
(collectively the "Co-Branded Services Registration Area")
which will allow end users of each respective service to
register for the SportsLine Co-Branded Service, the Vegas
Co-Branded Service and the Tips Co-Branded Service, as
applicable. SPLN or its affiliates shall transmit all such
data collected via the Co-Branded Service Registration Area to
Company as necessary for Company to provide such end users
immediate access to the version of the Co-Branded Service for
which such end user registered.
c) Dedicated Personnel: SPLN will make available to Company the
necessary personnel to oversee the relationship between the
parties as contemplated hereunder.
5. Advertising/Sponsorships: Responsibility for Sales. SPLN and
its affiliates shall have the [RCT] right to sell all
advertising inventory (as of the Effective Date banner ad
space is anticipated to be sized at approximately 468x60
pixels and shall be positioned as a header at the top of each
page of the Co-Branded Services) in each Co-Branded Service,
inclusive of all sponsorship(s) (defined as a non-rotating
advertising placement within the Co-Branded Services). All
advertising inventory shall be sold through the [RCT] and the
participants of which shall be determined in [RCT]
discretion. As used herein [RCT] means a network of Web sites
for which [RCT] or its affiliates is providing advertising
sales services. [RCT] will assign an advertising associate
to [RCT] account to coordinate advertising sales for the
Co-Branded Services. [RCT] will use, and will cause its
affiliates, as applicable, to use commercially reasonable
efforts to sell the advertising and sponsorship inventory
within the applicable Co-Branded Service at the prevailing
market rates, and shall manage all advertising, and
sponsorship
CONFIDENTIAL AND PROPRIETARY
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inventory within the Co-Branded Services through proprietary
[RCT] or third party advertising management software and tools
as determined by [RCT] and its affiliates in their sole
discretion.
a) "Net Advertising Revenue" shall mean the amounts [RCT] by the
selling party for the sale of banner advertising and
sponsorships, other approved advertising or sponsorships
hereunder minus [RCT].
b) Unsold Inventory. Use of unsold advertising and sponsorship
inventory ("Remnant Inventory") in each Co-Branded Service
shall be subject to the following conditions:
i) SportsLine Co-Branded Service. Company and SPLN shall share
Remnant Inventory on a [RCT] basis. [RCT] shall have the right
to sell run-of-site advertising and to serve advertising
promoting [RCT] and its affiliates within its share of Remnant
Inventory. [RCT] shall have the right to sell its share of
Remnant Inventory in collaboration with similar selling by
SPLN with respect to [RCT]-controlled (or [RCT] affiliate
controlled) properties. Company will use commercially
reasonable efforts to sell the Remnant Inventory within the
SportsLine Co-Branded Service at the prevailing market rates.
[RCT] allocation of available Remnant Inventory for sale
shall be based on the rolling [RCT] of Remnant
Inventory in the preceding calendar quarter subject to any
diminishment of available Remnant Inventory resulting from
sales during the current calendar quarter. No Remnant
Inventory may be sold, bartered to or otherwise used for the
benefit of any [RCT], and shall be subject to [RCT]
or, as applicable, [RCT] affiliate advertising guidelines.
In addition, [RCT] shall have the right to remove any
advertisement that [RCT] or its applicable affiliate and/or
[RCT] reasonably finds objectionable. Notwithstanding the
foregoing, no advertising or other promotion within the
SportsLine Co-Branded Service may promote gambling,
pornography, alcohol, any Advertising Competitors or any CBS
competitors or other objectionable advertising without SPLN's
prior written approval.
ii) Vegas Co-Branded Service. [RCT] shall have the right to serve
advertising promoting [RCT] and its affiliates within [RCT]
of Remnant Inventory on the Vegas Co-Branded
Service. [RCT] will have the right to direct [RCT]
to serve advertisements that promote the Vegas Co-Branded
Service and other mutually agreed upon co-branded products or
services on [RCT] of Remnant Inventory within the
Vegas Co-Branded Service.
iii) Tips Co-Branded Service. [RCT] shall have the right to run
internal advertisements on [RCT] of Remnant
Inventory on the Tips Co-Branded Service. [RCT] will have
the right to direct [RCT] to serve advertisements that promote
the Tips Co-Branded Service and other mutually agreed upon
co-branded products or services on [RCT] of
Remnant Inventory within the Tips Co-Branded Service.
c) Reporting. [RCT] will provide [RCT] with reports containing
advertising sales and click through performance in accordance
with Exhibit E attached hereto. [RCT] will provide [RCT] with
reports which contain information containing advertising sales
and traffic performance in accordance with Exhibit E. Delivery
of such reports will be in a mutually agreed upon electronic
format and schedule.
6. Financial Terms.
a) Promotional Fee. In consideration for the integration of the
Company Co-Branded Services and related promotion as set forth
herein, Company shall pay SPLN a guaranteed, non-refundable
fee of one million dollars ($1,000,000) payable in accordance
with the following:
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i) Annual Fee. Two hundred fifty thousand dollars
($250,000) upon execution of this agreement, and two
(2) payments of two hundred fifty thousand dollars
($250,000) each due and payable on the first and
second anniversaries of the Effective Date,
respectively.
ii) Marketing Fees. SPLN shall invoice Company over the
Term for all expenses and costs related to the Co-Op
Marketing Platform as described in Paragraph 4 of
Exhibit D, subject to a maximum of two hundred fifty
thousand dollars ($250,000).
b) Advertising and Sponsorship Revenue. Commencing on the Launch
Date, and on each anniversary of the Launch Date, Company
shall receive one hundred percent (100%) of Net Advertising
Revenue generated in association with the Co-Branded Services
up to an aggregate maximum of two hundred and fifty thousand
dollars ($250,000) (the "Annual Recoupment") during the twelve
(12) month period immediately following the Launch Date or an
anniversary of the Launch Date, as applicable. Notwithstanding
the foregoing, if Net Advertising Revenue satisfies the Annual
Recoupment during any year of the Term the parties shall share
Net Advertising Revenue on a 50/50 basis until the next
anniversary of the Launch Date at which time Company shall be
entitled to receive one hundred percent (100%) of Net
Advertising Revenue in accordance with this sub-section 6(b).
c) Production Costs. Company shall be solely responsible for all
costs associated with designing, producing, hosting,
operating, maintaining and supporting each Co-Branded Service,
including but not limited to, the provision of hosting
services, procuring system operating software and hardware,
all network and connectivity costs, and providing customer and
technical support as provided herein.
d) Other Revenue. Any other services and/or features offered as
part of the Co-Branded Services shall be on a mutually agreed
upon basis, including but not limited to the financial terms
thereof, and shall be subject to the written approval by SPLN.
e) Payments. [RCT] shall remit payment of amounts due to [RCT]
hereunder within [RCT] days of the end of each calendar
quarter.
7. User Data.
a) User Data. For the purposes of this Agreement, "User Data"
means all [RCT] information (including but not limited to
[RCT] and any other [RCT] collected) submitted by users via
the Co-Branded Service and/or the Co-Branded Service
Registration Area to either party during the Term. The parties
acknowledge that any individual end user of the Internet could
be a user of the Company Service and/or the SportsLine Service
and/or the Vegas Insider Service and/or the Tips Service
through activities unrelated to this Agreement and/or the
Co-Branded Service, and that user data gathered independent of
this Agreement and/or the Co-Branded Service will not be
deemed to be User Data for the purposes of this Agreement.
User Data will be deemed to be the [RCT] of the parties
during the Term, subject to [RCT] prior written approval of
any and all [RCT] database-related activity (to include but
not be limited to the use of user data for direct
communication with end users via email or other intrusive
means of communications) and in accordance with the following
restrictions:
i) User Data shall be used solely for [RCT] own purposes
subject to applicable law, user privacy requests and
mutually agreed upon privacy guidelines which must
permit each party to comply with the commercially
reasonable certification guidelines established by
[RCT] and [RCT] respective privacy certification
authorities.
ii) Company will not sell, disclose, transfer or rent any
User Data to any third party.
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iii) Company shall not use User Data to send unsolicited,
commercial e-mail (i.e., "spam") , absent a Prior
Business Relationship. For purposes of this
Agreement, a "Prior Business Relationship" means that
a user to whom commercial e-mail is being sent has
voluntarily either (i) engaged in a transaction with
Company, or (ii) provided information to Company
through a contest, registration, or other
communication, which included clear notice to the
user that the information provided could result in
commercial e-mail being sent to that user by Company.
iv) Upon the expiration or earlier termination of this
Agreement, all [RCT] rights to the User Data
granted to [RCT] hereunder shall terminate and
automatically revert to [RCT] and [RCT] shall
immediately discontinue the use of the User Data and
thereafter shall no longer use or have the right to
use the User Data.
v) This Section 7 shall survive the expiration or
earlier termination of this Agreement.
8. SPLN Services.
a) SportsLine Service. Other than as expressly provided herein
with respect to promotion and integration of the SportsLine
Co-Branded Service, SPLN shall have sole and absolute
discretion to determine all aspects of the operation of the
SportsLine Service and all matters relating to the content,
structure and sequence of material appearing on the SportsLine
Service. In addition, SPLN shall have sole and absolute
discretion to determine the amount and basis of any fee
charged to subscribers for use of the SportsLine Service, and
SPLN exclusively will bill for and collect all fees charged to
subscribers to use the SportsLine Service. Nothing in this
Agreement shall limit SPLN's rights regarding charges for any
aspect of the SportsLine Service (including any product or
service offered by SPLN, whether alone or in conjunction with
others, through means of the SportsLine Service).
b) Vegas Insider Service. Other than as expressly provided herein
with respect to promotion and integration of the Vegas
Co-Branded Service, SPLN shall have sole and absolute
discretion to determine all aspects of the operation of the
Vegas Insider Service and all matters relating to the content,
structure and sequence of material appearing on the Vegas
Insider Service. In addition, SPLN shall have sole and
absolute discretion to determine the amount and basis of any
fee charged to subscribers for use of the Vegas Insider
Service, and SPLN exclusively will bill for and collect all
fees charged to subscribers to use the Vegas Insider Service.
Nothing in this Agreement shall limit SPLN's rights regarding
charges for any aspect of the Vegas Insider Service (including
any product or service offered by SPLN, whether alone or in
conjunction with others, through means of the Vegas Insider
Service).
c) Tips Service. Other than as expressly provided herein with
respect to promotion and integration of the Tips Co-Branded
Service, SPLN shall have sole and absolute discretion to
determine all aspects of the operation of the Tips Service and
all matters relating to the content, structure and sequence of
material appearing on the Tips Service. In addition, SPLN
shall have sole and absolute discretion to determine the
amount and basis of any fee charged to subscribers for use of
the Tips Service, and SPLN exclusively will bill for and
collect all fees charged to subscribers to use the Tips
Service. Nothing in this Agreement shall limit SPLN's rights
regarding charges for any aspect of the Tips Service
(including any product or service offered by SPLN, whether
alone or in conjunction with others, through means of the Tips
Service).
9. Proprietary Rights and License.
a) SPLN Content and Marks. SPLN and its affiliates shall retain
all right, title, and interest in the SportsLine Service, the
Vegas Insider Service and the Tips Service and related
intellectual
CONFIDENTIAL AND PROPRIETARY
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property, and to their respective logos, trademarks, service
marks, copyrights and all other intellectual property ("SPLN
Intellectual Property"). Subject to the terms and conditions
of this Agreement, SPLN hereby grants to Company a worldwide
license to use VI, SPLN Europe and SPLN's logos, trademarks,
and service marks in connection with Company's performance of
its obligations hereunder during the Term; provided that such
use is in accordance with VI, SPLN Europe and SPLN's
then-current trademark usage guidelines, as applicable.
b) Materials License. SPLN hereby grant, and shall cause its
applicable affiliates to grant, to Company, during the Term, a
non-transferable, non-exclusive, limited license to use the
SportsLine Materials solely as necessary to perform Company's
obligations herein.
c) Proprietary Rights. Company acknowledges and agrees that SPLN
and its affiliates own and shall retain all rights, title and
interest in and to the SportsLine Materials, including,
without limitation, all copies thereof and all rights to
patents, copyrights, trademarks, service marks, trade secrets
and other intellectual property rights inherent therein and
appurtenant thereto.
d) Expiration or Termination. Upon the expiration or earlier
termination of this Agreement, all Company rights to the
SportsLine Materials granted to Company hereunder shall
terminate and automatically revert to SPLN and Company shall
immediately discontinue the use of the SportsLine Materials
and thereafter shall no longer use or have the right to use
the SportsLine Materials.
e) Proprietary Notices. SPLN shall have the right to place
proprietary notices of SPLN and its suppliers on the
Co-Branded Services in accordance with the terms and
conditions of this Agreement.
f) Company Content and Marks. Except for content provided by SPLN
or its affiliates to Company and rights otherwise reserved to
SPLN, Company shall retain all right, title, and interest in
and to the Company Service and related intellectual property,
and Company's logos, trademarks, service marks, copyrights and
all other intellectual property ("Company Intellectual
Property"). Subject to the terms and conditions of this
Agreement, Company hereby grants to SPLN a worldwide license
to use Company's logos, trademarks, and service marks in
connection with SPLN's performance of its obligations
hereunder during the Term; provided that such use is in
accordance with Company's then-current trademark usage
guidelines. In addition, Company hereby grants to SPLN and its
affiliates a world-wide royalty free license to:
i) use, copy, display (privately or publicly), publish
and distribute the Co-Branded Services or any portion
thereof, together with all Company trademarks,
service marks, trade name, and logos related thereto
in any electronic medium and in connection with any
demonstration, promotion or advertisement of the
Co-Branded Services in any medium, whether now known
or hereinafter devised; and
ii) store, process, retrieve, and transmit the Co-Branded
Services, or any portion thereof, through the
SportsLine Service, the Vegas Insider Service, and
the Tips Service..
iii) SPLN's and its affiliates' rights hereunder shall
include, but not be limited to, SPLN's right to offer
end users of the Co-Branded Service the option of
printing and downloading the Co-Branded Service or
any portion thereof as a function of the SportsLine
Service generally. The foregoing licenses shall
terminate immediately upon any expiration or earlier
termination of this Agreement.
g) Approvals. Each party shall notify the other of its intended
use of the other party's' trademarks, logos or any other
associations that it desires to use in its advertising and
promotions and any such use shall be subject to the other
party's prior written consent, which consent shall not be
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unreasonably withheld. The other party shall have seven (7)
days from the date of receipt of such notice to provide the
requesting party with a written response. Failure to respond
will be construed as consent.
10. Representation and Warranties.
a) Each party represents and warrants that:
i) it has full power and authority to enter into this
Agreement and to grant the rights and licenses
granted hereunder;
ii) it will comply with all applicable laws, rules and
regulations governing the services to be performed
hereunder; and
iii) it possesses all copyright, trademark, patent, trade
secret and similar property and other rights which
are necessary for performance of this Agreement.
b) In addition, Company represents and warrants to SPLN that:
i) the Co-Branded Services, and all components thereof,
and all Company Intellectual Property shall be
Company's original creation or duly licensed to
Company and shall not infringe the patent, copyright,
trademark, trade secret or other proprietary right of
any third party;
ii) the SportsLine Co-Branded Service shall be in
compliance with the SPLN Service Content Standards.
iii) the Tips Co-Branded Service shall be in compliance
with the Tips Service Content Standards.
iv) the Vegas Co-Branded Service shall be in compliance
with the Vegas Insider Service Content Standards.
v) the Co-Branded Services shall be in compliance with
the Co-Branded Services Operating Standards attached
hereto as Exhibit F.
vi) all hardware/software used to provide the services
hereunder will prior to, during or after the calendar
year 2000, include or shall include, at no added cost
to SPLN, design and performance so that SPLN shall
not experience abnormally ending and/or invalid
and/or incorrect results from the Co-Branded Service.
The hardware/software used to provide the services
hereunder shall ensure year 2000 computability and
shall include, but not be limited to, date data
century recognition, calculations that accommodate
same century and multicentury formulas and date
values, and date data interface values that reflect
the century;
vii) there is no pending or, to the best of Company's
knowledge, threatened litigation, including court,
administrative or arbitral proceedings, which if
decided adversely to Company would interfere in any
material manner whatever with Company's or SPLN's
rights to use the produce, maintain and distribute
the Services as contemplated hereunder.
11. Confidentiality.
a) For purposes of this Agreement, "Confidential Information"
shall mean all information disclosed by either party to the
other party, including but not limited to the terms and
conditions of this Agreement or any other agreement between
the parties, trade secrets of the parties, any nonpublic
CONFIDENTIAL AND PROPRIETARY
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information relating to a party's product plans, designs,
ideas, concepts, costs, prices, finances, marketing plans,
business opportunities, personnel, research, development or
know-how and any other nonpublic technical or business
information of a party, or such other information as may be
designated as confidential by the disclosing party. Without
limiting the generality of the foregoing, it is expressly
agreed between the parties that the following information will
be deemed to be Confidential Information, even if not
expressly so marked: the capabilities, technical descriptions
and source code (if any) relating to either party's released
or unreleased software products or services; the marketing and
promotion plans of each party's products or services; either
party's financial information and business practices or
policies; and each party's customer lists and customer
information.
b) All Confidential Information shall be treated as confidential
by the receiving party and may not be copied, reproduced,
published, disseminated or otherwise disclosed to any third
party (excluding affiliated companies of SPLN) without the
disclosing party's written consent or unless required by law.
Each party shall use its best efforts to cause any third
parties that may come into possession of any confidential
information to maintain the confidentiality of such
information.
c) Confidential Information shall not include information that:
(i) is now or subsequently becomes generally available to the
public through no fault or breach on the part of the receiving
party; (ii) the receiving party can demonstrate to have had
lawfully in its possession without an obligation of
confidentiality prior to disclosure hereunder; (iii) is
independently developed by the receiving party without the use
of any Confidential Information of the disclosing party as
evidenced by written documentation; or (iv) the receiving
party lawfully obtains from a third party who has the right to
transfer or disclose it and who provides it without any
obligation to maintain the confidentiality of such
information.
d) If this Agreement or any of its terms or any Confidential
Information must be disclosed under any law, rule or
regulation, the disclosing party shall (i) first give written
notice of the intended disclosure to the other party, within a
reasonable time prior to the time when disclosure is to be
made, (ii) redact mutually agreed upon portions of this
Agreement and any other Confidential Information to the
fullest extent permitted under any applicable laws, rules and
regulations, and (iii) submit a request, to be mutually agreed
upon by the parties, that such portions and other provisions
of this Agreement and/or any other Confidential Information
receive confidential treatment under the laws, rules and
regulations of the body or tribunal to which disclosure is
being made or otherwise be held in the strictest confidence to
the fullest extent permitted under the laws, rules or
regulations of any other applicable governing body.
e) Both parties acknowledge that the unauthorized disclosure or
use of Confidential Information could cause irreparable harm
and significant injury, the precise measure of which may be
difficult to ascertain. Accordingly, each party agrees that
the aggrieved party shall have the right to seek injunctive
relief from any breach of the confidentiality obligations of
this Section, in addition to all other rights and remedies to
which it may have. Both parties agree that each has and shall
retain ownership of all of its own Confidential Information,
and that upon the expiration or termination of this Agreement
each party shall return and shall not retain the Confidential
Information of the other party.
f) Upon the expiration of earlier termination of this Agreement,
each party shall return to the other all Confidential
Information of the other party, and shall certify its
compliance with the foregoing under oath if requested by the
other party.
g) This Section 11 shall survive the expiration or earlier
termination of this Agreement.
12. Insurance. Company shall provide and maintain, at its own expense,
general commercial liability
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
insurance, including product liability and advertising injury coverage,
with limits of not less than [RCT] underwritten by companies rated A
or better by A.M. Best, Aa or better by Moody's or AA or better by
Standard & Poors, and shall cause such policy or policies to be
endorsed to state that SPLN is an additional named insured thereunder.
A certificate of insurance evidencing such coverage shall be furnished
to SPLN within thirty (30) calendar days of the full execution of this
Agreement, and within ten (10) calendar days after any renewal or
replacement thereof. Company shall make all such policies available to
SPLN for inspection upon SPLN's request. Such insurance policy or
policies shall provide that the insurer shall not terminate or
materially modify such policy or remove SPLN as additional named
insured without prior written notice to SPLN at least thirty (30)
calendar days in advance thereof. A breach of this Section 12 shall be
deemed a material breach of this Agreement.
13. Indemnification.
a) Indemnification by Company. Subject to the conditions set
forth in sub-section (c) below, Company shall indemnify and
hold harmless SportsLine and its affiliated companies and
their respective officers, directors and employees from and
against, without limitation, any and all claims, costs,
liabilities, obligations, judgments, fines, penalties,
expenses or damages (including reasonable attorneys' fees and
court costs) arising from or related to any cause of action
brought against SLPN or any of its affiliated companies or
their respective officers, directors and employees by any
person or entity that is not a party to this Agreement (other
than Company's affiliated companies or their respective
officers, directors or employees) arising from or related to
(i) the Company Service, (ii) the Co-Branded Services, (iii)
any breach by Company of any representation or warranty set
forth in this Agreement, and (iv) in connection with any of
the foregoing, including, without limitation, claims by end
users with respect to payments due to such end users and any
claim of any regulatory agencies (e.g. FTC claims).
b) Indemnification by SPLN. Subject to the conditions set forth
in sub-section (c) below SPLN shall indemnify and hold
harmless Company and its affiliated companies and their
respective officers, directors and employees from and against,
without limitation, any and all claims, costs, liabilities,
obligations, judgments, fines, penalties, expenses or damages
(including reasonable attorneys' fees and court costs) arising
from or related to any cause of action brought against Company
or any of its affiliated companies or their respective
officers, directors and employees by any person or entity that
is not a party to this Agreement (other than SPLN's affiliated
companies or their respective officers, directors or
employees) arising from or related to any breach by SPLN of
any representation or warranty set forth in this Agreement.
c) Conditions Precedent to Duty of Indemnification.
i) Notice. A party seeking indemnification under this
section shall give prompt written notice to the
indemnifying party of the commencement or assertion
of any claim or action in respect of which such
indemnified party shall seek indemnification
hereunder.
ii) Settlement; Compromise; Admission of Liability. With
respect to any claim or action with respect to which
a party seeks indemnification, such party shall
obtain the prior written approval of the other party
before entering into or making any settlement,
compromise, admission or acknowledgment (whether by
agreement, consent judgment or otherwise) of the
validity of such claim or action, which approval may
be conditioned upon the procuring a release of the
other party and its affiliated companies and their
respective officers, directors and employees and
confidentiality of any such settlement or compromise,
and, in all events, which approval shall not be
unreasonably withheld.
d) Cooperation. The parties hereto shall extend reasonable
cooperation in connection with the defense of any third-party
action pursuant to this section and, in connection therewith,
shall furnish such records, information, and testimony and
attend such conferences, discovery proceedings,
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
hearings, trials, and appeals as may be reasonably requested.
e) Survival. This Section 13 shall survive the expiration or
earlier termination of this Agreement.
14. Limitation Of Liability. NOTWITHSTANDING ANYTHING STATED OR IMPLIED TO
THE CONTRARY HEREIN, EXCEPT WITH A PARTY'S DUTY OF CONFIDENTIALITY
(PURSUANT TO PARAGRAPH 11 ABOVE) AND INDEMNIFICATION (PURSUANT TO
PARAGRAPH 13 ABOVE) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR EXEMPLARY, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOST PROFITS, IN ANY MANNER ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE BREACH OF ANY TERM, COVENANT,
REPRESENTATION, WARRANTY OR OBLIGATION CONTAINED HEREIN, EVEN IF
FORESEEABLE AND/OR ADVISED IN ADVANCE OF THE POSSIBLITY OF SUCH
DAMAGES. This Section 14 shall survive the expiration or earlier
termination of this Agreement.
15. Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, ALL SERVICES
PROVIDED BY EITHER PARTY HEREUNDER, INCLUDING BUT NOT LIMITED TO THE
USE OF HARDWARE AND/OR ANY SOFTWARE, ARE "AS IS' WITHOUT WARRANTY OF
ANY KIND, AND EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, OF ANY KIND WHATSOEVER INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN
ADDITION, NEITHER PARTY SHALL BE RESPONSIBLE FOR THE LOSS OF DATA OR
SERVICES RESULTING FROM DELAYS, NONDELIVERIES, MIDSDELIVERIES, OR
SERVICE INTERRUPTION, NOR FOR THE ACCURACY, QUALITY OR NATURE OF
INFORMATION OBTAINED THROUGH ITS SERVICES, NOR THE CONSEQUENCES ARISING
FROM OR RELATED TO ANY VIRUSES TRANSMITTED THROUGH ITS SERVERS. This
Section 15 shall survive the expiration or earlier termination of this
Agreement.
16. Termination.
a) Except as otherwise expressly provided herein, in the event of
a material breach of this Agreement by either party, the other
party may terminate this Agreement on thirty (30) calendar
days' written notice to the breaching party unless the breach
is corrected within the thirty (30) day period. Termination
under this paragraph shall not affect the right of the
non-breaching party to recover damages from the breaching
party. No expiration or termination of this Agreement shall
affect or impair either party's rights or remedies under this
Agreement that have accrued or arisen as of or prior to such
termination. Following the effective date of termination, no
further obligations of either party to the other shall accrue
under this Agreement, provided that termination shall not
relieve either party of any obligations arising prior to the
effective date of termination.
b) In addition to termination under Section 16(a), SPLN shall
have the right to terminate this Agreement immediately:
i) in the event of a Change of Control of Company to a
[RCT] (including, without limitation Advertising
Competitors and Service Competitors) (for purposes
of the foregoing, a "Change of Control" means (A) the
consummation of a reorganization, merger or
consolidation or sale or other disposition of
substantially all of the applicable party's
assets; or (B) the acquisition by any individual,
entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1933, as amended) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under such Act)
of more than 50% of either (x) the then outstanding
shares of common stock of the applicable party; or
(y) the combined voting power of the then outstanding
voting securities of the applicable party entitled to
vote generally in the election of directors.); and
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
ii) without liability if Company breaches of the
SportsLine Service Content Standards, the Vegas
Insider Service Content Standards, or the Tips
Service Content Standards or any other restrictions
herein relating to gambling, pornography or alcohol.
17. Remedies. Except as otherwise specifically provided herein, the rights
and remedies granted to a party under this agreement are cumulative and
in addition to, and not in lieu of, any other rights or remedies which
the party may possess at law or in equity.
18. Relationship of the Parties. The parties to this Agreement are
independent contractors, and this Agreement shall not be construed to
create a partnership, joint venture, employment or principal agent
relationship between the parties. Each party shall be solely
responsible to compensate any employees, agents or representatives
employed or engaged by it to perform duties under this Agreement and
for all taxes, imposts, duties and all charges of any governmental
authority arising from its or his activities under this Agreement.
Neither SPLN nor Company, nor any person or entity employed by either
SPLN or Company, are authorized to make any warranty concerning the
other party or incur or assume any obligation or liability for the
other party.
19. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed to be given or made when received (or upon
refusal of delivery) by overnight courier, U.S. mail, registered or
certified, first class, postage prepaid, or confirmed facsimile (with a
copy via one of the aforementioned forms of delivery promptly
thereafter) to the following address or addresses or such other address
or addresses as either party may designate in writing to the other in
accordance with this paragraph:
<TABLE>
<S> <C>
If to SPLN: SportsLine USA, Inc. With a copy to: SportsLine USA, Inc.
6340 NW 5th Way 6340 NW 5th Way
Ft. Lauderdale, Florida 33309 Ft. Lauderdale, Florida 33309
Attn: President Attn: VP, Legal & Business Affairs
Facsimile: (954) 351-9175 Facsimile: (954) 351-9175
If to Company: Predict It Corporation
694 8th Avenue, 5th Floor
New York, NY, 10036
Attn: President
Facsimile: 212-217-1201
</TABLE>
20. Force Majeure. Neither party shall be in default of this Agreement if
failure to perform any obligation hereunder is caused by supervening
conditions beyond the party's control, including acts of God, civil
commotion, strikes, labor disputes, governmental demands or
requirements, or a service interruption from an underlying carrier or
service provider.
21. Press Releases. The parties intend to issue a mutually agreed upon
jointly developed press releases at a mutually agreed upon time
following the execution of this Agreement. Neither party will issue any
additional press releases regarding this Agreement or the relationship
between the parties without the prior written consent of the other
party, which shall not be unreasonably withheld.
22. Amendment; Waiver. No amendment to this Agreement shall be valid unless
such amendment is in writing and is signed by the party against whom
enforcement is sought. Any of the terms and conditions of this
Agreement may be waived at any time in writing by the party entitled to
the benefit thereof, but a waiver in one instance shall not be deemed
to constitute a waiver in any other instance. A failure to enforce any
provision of this Agreement shall not operate as a waiver of the
provision or of any other provision hereof.
CONFIDENTIAL AND PROPRIETARY
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23. Severability. In the event that any provision of this Agreement shall
be held to be invalid, illegal or unenforceable in any circumstances,
the remaining provisions shall nevertheless remain in full force and
effect and shall be construed as if the unenforceable portion or
portions were deleted.
24. Interpretation. This Agreement has been negotiated by the parties and
their respective counsel and shall be interpreted without any strict
construction in favor of or against either party.
25. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Florida. Company hereby consents to personal jurisdiction and venue in
a court of competent jurisdiction in Broward County, Florida or other
jurisdiction in which SPLN may have its principal place of business.
26. Assignment. Neither party may assign its rights nor delegate its duties
under this Agreement, in whole or in part, without the other party's
written consent (which will not be unreasonably withheld nor delayed),
except that SPLN may assign its rights or delegate its duties under
this Agreement, in whole or in part, without the Company's consent, to
a SPLN affiliate or in connection with a merger, reorganization or sale
of all, or substantially all, of SPLN's assets.
27. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes
all prior and/or contemporaneous agreements and understandings, written
or oral between the parties with respect to the subject matter hereof.
28. Headings. Section and paragraph headings are for convenience only and
shall not be deemed a part of this Agreement.
29. Execution in Counterparts. This Agreement may be executed by the
parties in counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
SportsLine USA, Inc. PredictIt, Inc.
By: /s/ Michael Levy By: /s/ Bob Jacobs
------------------------------ ---------------------------
Name: Michael Levy Name: Bob Jacobs
Title: President Title: Sr. Vice President
Date: Date:
---------------------------- -------------------------
***** END OF PAGE *****
CONFIDENTIAL AND PROPRIETARY
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The following exhibits have been intentionally omitted:
Exhibit A -- SPLN Service Content Standards
Exhibit B -- Vegas Insider Service Content Standards
Exhibit C -- TIPS Service Content Standards
Exhibit D -- Marketing and Promotional Schedule
Exhibit E -- Usage Reports
Exhibit F -- Co-Branded Services Operating Standards
The Company agrees to furnish supplementally a copy of the omitted
Exhibits upon the Commission's request.
<PAGE>
Exhibit 23.1
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus contained in the Registration Statement on Form SB-2, as
originally filed on August 13, 1999. In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required pursuant
to Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
CAMHY KARLINSKY & STEIN LLP
New York, New York
February 8, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form SB-2 (File No. 333-85163) of our report dated April 28, 1999
(June 9, 1999 as to Note I, June 30, 1999 as to Note C and July 6, 1999 as to
Note E) on the financial statements of Predict It Inc. and of our report dated
July 27, 1999 on the financial statements of Virtual Stock Exchange, Inc. We
also consent to the reference to our firm under the caption "Experts" in the
Prospectus.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 8, 2000
