SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K-12(g)3/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: November 15, 2000
INTERSPACE ENTERPRISES, INC.
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(New name of registrant as specified in its charter)
(successor registrant under Sec. 12(g)3 of the Securities Exchange Act of 1934)
Marathon Marketing Corp.
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(Prior name of corporation pre-merger)
Colorado 0-28465 84-1283938
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
incorporation pre-merger)
pre-merger)
Colorado 0-28465 84-1283938
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
incorporation post-merger)
post-merger)
7825 Fay Avenue, #200, La Jolla, California 92037
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(NEW ADDRESS)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858)456-3539
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
The Company is a successor registrant pursuant to Section 12(g) 3 of the
Securities Exchange Act of 1934, by virtue of a statutory merger of the Parent,
InterSpace Enterprises, Inc., a Delaware corporation, and its wholly owned
subsidiary, Marathon Marketing Corp., a Colorado corporation, with Marathon
Marketing Corp. being the survivor, but changing its name to InterSpace
Enterprises, Inc. There was no change to the issued and outstanding shares of
InterSpace Enterprises, Inc., and all shares of Marathon Marketing Corp. were
retired by virtue of the merger.
On April 17, 2000, InterSpace Enterprises, Inc. completed a Share Exchange
Agreement with shareholders of Marathon Marketing Corp. in which InterSpace
Enterprises, Inc., a Delaware corporation, acquired all 672,000 shares
outstanding of the Registrant for the purposes of accomplishing a Merger of
Marathon Marketing Corp. and InterSpace Enterprises, Inc. The Merger was
subsequently completed.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
None.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 5. OTHER EVENTS
InterSpace Enterprises, Inc. is the developer, owner, and operator of
PlanetLotto.com, a sweepstakes that utilizes the internet to conduct an
international lottery. The Company's business model combines secure online
wagering as a distribution vehicle with a web cast of the weekly drawing and a
simultaneous television game show broadcast in the largest international markets
to create the world's first international lottery gaming brand with global
consumer recognition.
Worldwide lottery revenues exceeded $124 billion in 1998 according to industry
journal, Lottery Insider. Lottery sales outside of the United States and Canada
exceeded $80 Billion last year and there is continued overall growth in the
popularity of lottery gaming throughout the world. People on every populated
continent buy lottery tickets and worldwide sales have grown for over 10 years.
The lottery market throughout the world is fragmented due to the physical
limitations imposed by the traditional lottery system that limits ticket sales
to brick-and-mortar outlets within the state or nation hosting the lottery. With
the unprecedented shift toward global connectivity via the Internet, the
logistical limitations to the development of an international lottery have been
overcome. The online security, multiple language, and secure transaction
technologies required to conduct a global Internet based lottery are fully
developed and widely utilized to conduct millions of online transactions each
day.
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Games of chance have proven to be readily adaptable to the online environment
and highly popular with consumers. According to a study conducted by Bear
Stearns, the number of e-gaming sights has risen to more than 650 and continues
to grow. The study listed online gaming industry revenues of $1.2 billion in
1999 and projected potential growth of over $3 billion by 2002. Sweepstakes have
proven to be the most popular games of chance online with lotto sites among the
most visited of all sites on the internet. Industry analysis by PC Data Online
listed freelotto.com as the 23rd most popular site on the internet in February
2000 with iwon.com at 25th, iwin.com at 41st, and luckysurf.com at 50th.
InterSpace Enterprises, Inc. intends to exploit online gaming by seeking a form
of global lottery partnership with foreign governments and major corporate
sponsors that will revolutionize the way people around the world purchase
lottery tickets and follow the results of their lottery wagering. By combining
the ease of internet access and secure online e-commerce technology, the Company
allows players in the world's largest markets to purchase tickets in the
PlanetLotto global lottery, get information on upcoming PlanetLottoShow
television programs and follow the live draw of lottery numbers through streamed
video content on the PlanetLotto.com website. As a global lottery,
PlanetLotto.com will hold a weekly drawing of a minimum of $10 million to as
high as $1 billion, based on ticket sales. Tickets will be purchased employing
the most secure technologies available at a cost of $2 (US).
FUNDING REQUIREMENTS
The Company is currently seeking the funding needed to develop and implement
PlanetLotto.com into the company's target markets throughout Asia, the Middle
East, and Europe. The requested investment will be used largely for advertising,
marketing, equipment, software, and to increase the sales and support staff as
needed. The Company will also utilize a small portion of the proceeds for
salaries and provide adequate operating capital.
DESIGNED PROGRAMS
The Host Nation Program is designed to encourage national governments to
officially sanction PlanetLotto gaming through a multi-year lottery license
program. In return, the host nation shall receive 10% of the lottery sales
revenue generated within the country for the life of the lottery license
administered through the independent auditor program. Additionally, a government
will receive a portion of the lottery winnings through taxation and a through
the Global Alliance Network when someone within the country wins a jackpot.
The Global Alliance Network is designed to allow sanctioning governments to
share in the benefits of a floating jackpot. When an individual within a
participating country wins the current jackpot, 5% is allocated to the
government of the country in which the individual resides. Additionally, 4% of
the jackpot will be distributed to a government-sponsored charity and 1% will be
allocated to the public school system of the country, for a total of 10% to the
Global Alliance Network. A significant projected benefit to the Company of the
Global Alliance Network is increased participation from the member nations.
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Management intends to continue to obtain additional licenses and/or permits for
the PlanetLotto lottery from as many jurisdictions as is commercially
reasonable. In keeping with the good corporate image that the Company intends to
project, the Company will initially focus its lottery operations on the
international markets where online gaming is allowed, and will make every effort
to comply with applicable laws and regulations. The Company also will post
appropriate notices and install checks and procedures on its web site designed
to prevent bets from being accepted from within any jurisdiction that expressly
prohibit lotteries. Additionally, the company will prohibit lottery ticket sales
to residents in the United States and Canada, until a relationship can be forged
between the company and these jurisdictions or until the current regulatory
issues are otherwise favorably resolved.
PlanetLotto, Inc. It is anticipated that the lottery operations will be
conducted in a separate foreign corporation, to be named PlanetLotto, Inc. The
company has retained legal counsel to review the respective gaming and tax laws
and the internet infrastructure of various jurisdictions throughout the world to
determine the most advantageous domicile for PlanetLotto, Inc. The Company has
also requested that its counsel analyze and determine the most advantageous tax
structure for the relationship between the company and PlanetLotto, Inc. in an
effort to legitimately reduce its tax burden. It is anticipated that
PlanetLotto, Inc. will be formed as a wholly owned subsidiary of the Company.
The Company is currently developing the PlanetLottoShow.com web site. The
production and exclusive distribution of the PlanetLottoShow.com, the very first
international weekly online game show, enhances interest in and excitement about
the Company's global lottery and other gaming products. The online game show
will be simultaneously broadcast in targeted television markets throughout the
world. Although these game shows will vary in content to reflect the taste of
each market, each game show will be contestant driven, with games that reflect
the local market and culture. A key marketing element of the game shows is the
placement of winners into an international pool of game show winners, one from
each of the respective markets. Contestant winners will be randomly selected to
compete in the annual PlanetLotto Playoffs broadcast, for a grand prize worth
millions of dollars. Management believes the prospect of winning millions of
dollars in our annual prize will drive viewership to each of the game shows on a
weekly basis. The Company is currently negotiating for the production and
distribution of the PlanetLottoShow. The Company has retained counsel to
represent the Company in the negotiations for the production and distribution of
the Show and is also in the process of retaining the services of a scriptwriter
to produce a test pilot for the program.
The Company is currently in the development stage regarding the
PlanetLottoShow.com web site. The PlanetLottoShow.com web site is designed to
compliment and interface with the Company's international game shows. The game
shows drive viewers to the web site for free registration to become a contestant
on the show and informs viewers of the overall opportunity of becoming a
multi-millionaire in the annual show simply by registering to become a
contestant in their local area. The web site also generates interest in other
regional shows through short video clips. These clips are intended to induce
viewers to crossover and sign up to become a contestant on shows outside of
their geographical regions, to promote diversity and provide further interest in
the PlanetLotto brand and all related products. Management believes that the
creation of these game shows, combined with the traffic generated by viewers
intending to register to become contestants, will build the foundation for the
web site and make PlanetLottoShow.com one of the most visited sites on the
internet. These game shows will direct potential contestants to the Company's
PlanetLottoShow.com web site, where they can register to become a contestant on
any one of the televised worldwide PlanetLotto shows. The contestant selection
process will be determined by a "lottery style" random selection and the lucky
contestant will be informed of their selection via e-mail. By driving worldwide
television viewership to a web site, the Company will create additional global
appeal and greatly reinforce branding of their game show concept.
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PlanetLotto Branded Merchandise. The Company will offer a wide variety of
branded products including apparel, personal items, and sports and recreational
equipment through its web sites, its television programming, and through its
international marketing alliances.
Interspace Enterprises, Inc. intends to become a leading Global Internet Lottery
by developing the PlanetLotto product line, which will consist of three main
elements:
* PlanetLotto.com, a global Internet lottery website
* PlanetLottoShow, an internationally televised game show
* PlanetLottoShow.com, a website that is intensely interactive with the TV
game show
To date, no current lottery company has combined these elements into its
marketing strategy to promote ticket sales and attract new lottery players and
website visitors. Through the creation of a global internet lottery, InterSpace
Enterprises believes that it can develop this specialized, narrow lottery market
into a massive internet lottery web site that rivals even the largest of sites
in terms of internet traffic. InterSpace Enterprises' strategy is predicated
upon utilizing the internet in addition to the customer base of many of the
world's current regional and national lotteries to create the largest jackpot
payouts in history.
SECURITY and TECHNOLOGY
The Company will successfully address several security and technology issues
specific to lottery gaming in order to insure a high level of public confidence
in PlanetLotto.com:
* Secure l28bit (SSL) encryption technology prevents fraudulent activities
such as lottery ticket duplication,
* Password systems control access to different levels of the website for
participants, game competitors, vendors and advertisers,
* Real-time interactivity with the PlanetLotto game show television program,
* Webcasting functionality for real time broadcasting on television,
* The technology to track each participant in order to pay the proper
"click-through" advertising partner or other partners,
* All draws will be filmed and broadcast over the internet and any vital part
of the process will be monitored with live cameras accessible by anyone who
chooses to view it through the website,
* Hosting and back-end data base management will be off-loaded to a major
telecommunications company focused on international data transmission.
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Management believes the foundation of a successful lottery is the integrity of
the entire lottery operation, a key element of which is its auditing system. The
Company will retain the services of an international accounting firm to provide
these auditing services. The auditors' responsibilities will include independent
audits of all of the Company's lottery machinery, lottery security and direct
observance of all of the Company's live draws. In addition, the auditors will
directly oversee the jackpot allocation funds, including all of the direct,
escrow and trust accounts of the Company, the jackpot winners, the charities,
the host nation and the Global Alliance. Random audits of all of these
operations will be performed on a continual basis to ensure the transparency of
all of the Company's lottery operations. The Company intends to utilize today's
current lottery methodologies to ensure draw security on a weekly basis. On the
evening of the PlanetLotto draw, through a random drawing of capsules, two
independent auditors and two lottery security staff will determine which machine
and ball set to use and which set will be the alternate. The selected ball set
will then be loaded on the draw machine by security personnel and one of the
independent auditors. One auditor and at least one security staff person will
have the ball sets in view at all times. Pre-tests will also be conducted.
Security cameras will then record the pre-tests results, and the security staff
and independent auditors will review the results of the pre-test. If any one
number is drawn more than a certain specified number of times, additional
testing will take place or the ball set will be rejected prior to the actual
draw. The balls will then be reloaded after the final test to prepare for the
live PlanetLotto show. The jackpot pool closure will occur two hours before the
live draw, at which time no more wagers will be allowed for that night's draw.
The Company's security staff will carefully verify that the Internet pool has
closed prior to performing the live draw.
The Company will go to great lengths to ensure the randomness of the PlanetLotto
draws and eliminate any possibility of a breach of security that could
jeopardize the integrity of the Company. Management will maintain two separate
draw machines and four sets of balls. One machine, one primary ball set and one
alternative ball set will be randomly selected prior to each PlanetLotto draw.
All draw-related activities will be recorded on both video and audiotape. An
independent statistician will review all results of pre-test draws and actual
draws to further ensure ongoing randomness. The statistician and the Company's
internal audit office will keep track of draw results to ensure that no number
is drawn more often than it should be. An independent auditor will monitor all
draw activities to make absolutely sure that all procedures approved by the
Company are followed. Any breach of procedure will be reported to the director
of security. At least once a month, each solid rubber ball in all four sets will
be weighed and measured down to 1/1000 of a gram to ensure consistency in weight
and measures. When not in use, the lottery draw equipment will be locked and
sealed in a room which will be monitored by video surveillance equipment, motion
detectors and door alarms 24 hours a day. Access to the draw room will also
require two keys, one of which will be in the possession of the independent
auditor.
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TARGET MARKET
The Company has analyzed and refined the traditional lottery system to create an
internet model that overcomes the limitations of its offline competitors.
Through an international marketing campaign, the Company feels it can bring the
vision of a truly global internet lottery to reality. The focus within the
Company's marketing department will be in positioning the Company as the leader
of lottery based gaming by continuing to affiliate and co-market with
established Fortune 100 Corporations. The PlanetLotto Marketing plan
incorporates a three-tiered rollout, with separate marketing campaigns specific
to each market.
Phase I: Latin America
1998 Lottery Sales - $4.1 Billion
The Company's marketing methods within Latin America will be a mix of an
aggressive radio campaign, utilizing the top radio Disk Jockeys as
"spokespersons" for the lottery, and an aggressive billboard campaign targeting
the top cities within Latin America. PlanetLotto intends to develop strategic
alliances with cyber cafes, a primary source of internet access in Latin
America. A coordinated event sponsorship campaign specifically geared toward
soccer and tailored to regional and national leagues will complete the first
phase of marketing.
Phase II: Asia/Middle East/ Australia & N.Z -
1998 Lottery Sales - $16 Billion
An Internet and Radio campaign will be utilized for the second phase of the
marketing campaign. The banners will utilize a variety of styles and slogans to
generate sufficient click through rates. Additional search engine optimization,
and strategic linking will also effectively generate significant traffic to the
PlanetLotto site. The radio campaign will include a consistent format, utilizing
the top radio Disk Jockeys as "spokespersons" for the lottery. A coordinated
event sponsorship campaign, specifically geared toward soccer and tailored to
regional and national leagues, will complete the second phase of marketing.
Phase III: Europe - 1998 Lottery Sales -
$61.6 Billion
An Internet exclusive campaign will be utilized for the final phase of the
marketing campaign. The banners will utilize a variety of styles and slogans to
generate sufficient click through rates. Additional search engine optimization,
and strategic linking will also effectively generate significant traffic to the
PlanetLotto site.
MEDIA STRATEGIES
Through the advertising their jackpots, lotteries enjoy a competitive advantage
that separates them from virtually every other industry. A study by the North
American Association of State and Provincial Lotteries (NASPL) in 1996, reported
that North American lotteries spent $400 million ($US) on advertising and
received $34 billion in sales, or $85.00 in sales revenue for every dollar
invested in advertising. Advertising expenditures accounted for 117 percent of
their total revenue. By contrast beverage manufacturers spend 7.6 percent of
their revenue, cosmetics companies 8.8 percent of their revenue, and candy
makers 12.7 of their revenue. Lotteries enjoy a higher return on each
advertising dollar than any other industry.
SALES STRATEGIES
The Company plans to hire sales staff for the generation of advertising and
sponsorship revenue derived from the television game show and websites when the
sites are operational in third quarter 2000.
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COMPETITION
The Company believes that its positioning as a worldwide lottery with the
potential for massive jackpots and its unique multi-media format will focus
attention and give PlanetLotto.com competitive advantage in the marketplace. The
market exclusivity enjoyed by traditional lotteries has created an industry wide
complacency that management believes provides the opportunity for the Company to
penetrate each market and compete directly with the traditional lottery
structure. Management believes that the Company's business model has advantages
that of both traditional lotteries and its internet based competitors in its
features, marketing, production and performance, however, its model is unproven.
COMPETITORS
Online Lotteries
Plus Lotto.com: www.PlusLotto.com
Weekly online lottery based in Liechtenstein
Guaranteed Jackpot - $1,350,000 (US)
Ticket Price: $1.35(US)
1998 FY Sales: $50 Million
Revenue model: Lottery sales, advertising, sponsorship.
In operation since 1995, Plus lotto produced the first online millionaire.
The website is limited an ineffectively marketed. The company has not captured a
significant market share.
Millions2000.com: www.millions2000.com
Location: Content: Annual online lottery based in Liechtenstein
Guaranteed annual Jackpot
Ticket Price: $100 (US) per block ticket purchase
Revenue model: Lottery sales, advertising, sponsorship.
In operation since 1998, Millions2OOO lottery has had difficulty
in capturing market share due to poor marketing and overpricing of
their lottery tickets.
"Free Lottery" business models
The free lottery concept is based upon a pure advertising revenue
model. Players can play in the lottery at no cost, but must first
visit the sponsors of the site in order to be eligible to play.
Although this model is not a direct competitor of PlanetLotto, it
illustrates the power of the lottery phenomenon and the ability to
generate revenues with the promise of large cash prizes.
IWon: www.iwon.com
LOCATION: Irvington, NY
Daily $10,000 sweepstakes and monthly $1 million Sweepstakes.
Revenue model: Advertising, sponsorship, e-commerce.
LuckySurf.com: www.luckysurf.com
Location; South San Francisco, CA
$1 million sweepstakes
Revenue model: Advertising: Sells click-thru's rather than impressions.
Averages purchase conversion rates of 13 percent, and 95 percent retention of
initial advertisers.
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TreeLoot: www.treeloot.com
Location: Overland Park, KS
Simple "clicking" game with instant cash prizes of up to $25,000
Revenue model: Advertising: Sells impressions and targeted impressions.
Profiles approximately 6 million users per year
Uproar: www.uproar.com
Location: New York
Dozens of high quality, multiplayer, quiz-oriented games.
Revenue model: Advertising, licensing properties to other companies to create
co-branded games such as Lycos Trivia 2000.
3.6 million registered users across all its properties.
Webstakes.com: www.webstakes.com
Location: New York
Weekly sweepstakes for prizes such as microwave ovens, high-definition TV, and
cash prizes up to $100,000.
Revenue model: Advertising, sponsorship, syndication, licensing, consulting.
2 million registered users
ITEM 6. RESIGNATION AND APPOINTMENT OF OFFICERS AND DIRECTORS
Directors from InterSpace Enterprises, Inc. now form the Board after the Merger
of companies. The business experience of the Directors is disclosed herein.
DANIEL P. MURPHY, PRESIDENT/CHIEF EXECUTIVE OFFICER, CHAIRMAN.
Mr. Murphy is a co-founder, President/Chief Executive Officer, and Chairman of
the Board of the Company. His primary responsibility is to develop and maintain
the Company vision, oversee all areas and Company departments, approve all
financial obligations, seek business opportunities and strategic alliances with
other organizations, and plan, develop and establish policies and objectives of
business organization in accordance with board directives and Company charter.
Mr. Murphy, educated at the University of California, San Diego (UCSD) in the
field of Urban Studies and Planning, has an entrepreneurial background in
marketing, sales and business development arising through his tenure as the
Principal of a wholesale belt manufacturing company from 1990 to 1992. Mr.
Murphy was in charge of all aspects of business operations including
advertising, marketing, administration, sales, manufacturing and design. Mr.
Murphy also has experience in operations management.
ALEJANDRO TRUJILLO, CHIEF TECHNOLOGY OFFICER, DIRECTOR.
As a co-founder, Director and Chief Technology Officer of the Company, Mr.
Trujillo's primary responsibility is to plan and implement the technical
development of the company. Mr. Trujillo, educated at the University of
California, San Diego (UCSD) in the field of Cognitive Science, has an extensive
background within the programming and Internet industry. During his tenure as
the Vice President of Production of an emerging multimedia corporation, Mr.
Trujillo handled all aspects of his division, including project management,
coordinator, and operations management.
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ANDREW PATIENT, CHIEF FINANCIAL OFFICER AND SECRETARY.
As the Chief Financial Officer and Secretary, Mr. Patient's primary
responsibility is to direct and coordinate financial programs to provide for new
or continuing operations in order to maximize return on investments. Mr. Patient
is a Certified Public Accountant and Canadian Chartered Accountant. His
experience includes seven years of public accounting experience in both the U.S.
and Canada working with clients from small owner-operated businesses to large
multi-national public companies. Mr. Patient has spent the last two and a half
years serving as Chief Financial Officer of a publicly-traded multimedia company
where he was an integral part of structuring and preparing private placement
offerings, raising capital and taking the Company public. Mr. Patient has
in-depth experience with investor relations and shareholder communications as
well as a strong background in all financial aspects of business, including
budgeting, projections, cash flow management, financing alternatives, internal
controls and financial reporting.
MAURICIO TELLEZ, SENIOR VICE PRESIDENT, GLOBAL ALLIANCES
Mr. Tellez's primary responsibility is to seek business opportunities and
strategic alliances with other national governments and organizations. Mr.
Tellez received a Bachelor of Science in Political Science/International
Relations from University of California, Los Angeles (UCLA). Mr. Tellez has held
several increasingly senior sales positions in the field of developing strategic
alliances, channel management and international sales. Over the years he has
held area sales and management positions in Pitney-Bowes Corporation, a Fortune
100 Company and Rentas y Ventas de Tijuana S.A. de C.V. More recently he held
the position of Regional Director for Latin America for Datron World
Communications. This position has solidified his expertise in managing and
promoting the intricacies of international sales and overseeing the regional
channel management network. Mr. Tellez was instrumental in negotiating and
obtaining the Company's lottery license.
DOUGLAS ABBOTT, SENIOR VICE PRESIDENT; BUSINESS DEVELOPMENT
Mr. Abbott's primary responsibility is to develop strategic alliances and secure
corporate sponsorships for the game show and the PlanetLotto websites. Doug
Abbott graduated from San Diego State University in 1983 with a Bachelor of Arts
in Applied Arts and Sciences in Advertising. Mr. Abbott joined the Company in
September 1998 as Executive Producer in charge of television programming. He
moved to his current position, Senior Vice President of Programming in February
1999. Mr. Abbott has an extensive background in the entertainment industry,
including more than twelve years in numerous supervisory positions in
advertising agencies, and film and video production.
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BRETT COHEN, SENIOR VICE PRESIDENT; PUBLIC RELATIONS.
Ms. Cohen's primary responsibility is to build and maintain positive global
awareness for the company through the public relations department. Ms. Cohen has
extensive public relations experience through the conception, design,
development and management of global special events for Presidents and CEOs
through her association with the Young Presidents' Organization. Regions of
responsibility included Eastern and Western Europe, Africa, South America, the
Middle East and the United States where she lead on-site management and public
relation operations in 22 countries. Ms. Cohen served as project liaison to
internal teams, corporate sponsors and speakers including industry experts, CEOs
and Heads of State. She was previously the head of marketing and public
relations for Southern Methodist University and has a ten-year background in
public relations, marketing and journalism. Ms. Cohen holds a Bachelors degree
from Columbia University.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIALS, & EXHIBITS
Financial Statements - FYE December 31, 1999 (audited)
Consolidated Financial Statements as
of March 31, 2000 (unaudited)
Exhibits - 10.1 Agreement and Plan of Merger
10.2 Certificate of Merger
10.3 Articles of Correction-Statement of Merger
10.4 Certificate of Ownership and Merger
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 2000 InterSpace Enterprises, Inc.
By:/s/Daniel P. Murphy
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President
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INTERSPACE ENTERPRISES, INC.
Financial Statements
For the year ended December 31,1999
Prepared By
SIEGEL o SMITH
Certified Public Accountants
& Financial Advisors
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INTERSPACE ENTERPRISES, INC.
Financial Statements
C O N T E N T S
December 31, 1999
Independent Auditors' Report . . . . . . . . . . . . . . . . . . .F-1
Consolidated Balance Sheet as of December 31, 1999 . . . . . . . F-2
Consolidated Statement of Operations For The Years Ended
December 31, 1999 . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Stockholders' Equity For The Years Ended
December 31, 1999 . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows For The Years Ended
December 31, 1999 . . . . . . . . . . . . . . . F-5
Notes to the Consolidated Financial Statements . .. . . F-6-F-10
Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2000 F-11
Balance Sheet . . . . . . . . . . . . . . . F-12
Statement of Operations . . . . . . . . . . . . F-13
Statement of Changes in Stockholders' Equity . . . . . F-14
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
SIEGEL * SMITH
Certified Public Accountants Financial Advisors
2120 Jimmy Durante Blvd. Suite 107
Member American Institute of Del Mar, California 92014
Certified Public Accountants Telephone 858-792-8606
Facsimile 858-792-8608
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
InterSpace Enterprises, Inc.
7825 Fay Avenue, Suite 200
La Jolla, CA 92037
We have audited the accompanying balance sheet of InterSpace Enterprises, Inc.,
(A development stage company) as of December 31, 1999, and the related
statements of operations, stockholders* equity, and cash flows year ended and
from June 30, 1998, date of inception, through December31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterSpace Enterprises, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended and from June 30 1998, date of inception, through December
31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note K to the financial
statements, the Company has suffered recurring losses from operations and has a
net working capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Managements plans in regard to these matters
are also described in Note K. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Siegel * Smith
Siegel * Smith
Del Mar, California
May 22, 2000
F-1
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INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheets
December 31, 1999
ASSETS
Current Assets
Cash $ 10,223
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Total current assets 10,223
Fixed Assets
Computer and office equipment 9,299
Accumulated depreciation (1,968)
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Total fixed assets 7,331
---------
Total Assets $ 17,554
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 147,737
Accrued payroll liabilities 110,527
Accrued liabilities 800
Current portion long term liabilities 719
---------
Total current liabilities 259,783
Long Term Liablities 2,227
Stockholders' Equity
Common stock 40,002
Accounts receivable subscribed (5,000)
Additional paid in capital 402,438
Accumulated deficit - during development stage (681,896)
----------
Total stockholders' equity (244,456)
----------
Total liabilities and Stockholders' Equity $ 17,554
See Accompanying Notes to Financial Statements
F-2
<PAGE>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Operations
Year Ended December 31, 1999 and the Period June 30, 1998, Date of
Inception, to December 31, 1999
From Inception
Year Ended June 30, 1998
December 31, Through
1999 December 31, 1999
------------ --------------
Revenues
Sales $ - $
------------ --------------
Total Revenue -
Research and Development 5,059
Administrative and Selling Expenses
License fees 31,990 40,000
Consulting 70,100 73,575
Depreciation and amortization 1,660 1,968
Legal and professional 141,061 151,316
Marketing and promotion 85,163 85,163
Office expense 31,076 35,124
Other administrative expenses 44,518 47,538
Rent 3,651 5,046
Salaries 203,199 235,507
------------ -------------
Total 612,418 675,237
------------ -------------
Net loss before tax (612,418) (680,296)
Income Taxes
State income tax 800 1,600
------------ -------------
Net loss $ (613,218) $(681,896)
============ =============
See Accompanying Notes to Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
From June 30, 1998, Date of Inception, to December 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Add.Paid Accts Rec Accumulated
Date Description Shares Dollars Shares Dollars in Subscribed Deficit Total
Capital
------------------------------------------------------------------------------------------------------------------------------------
Beginning - - - - - - -
Balance
June 30, 1998 Shares issued 3,475,000 $3,475 $3,475
to founders
Nov 24, 1998 Shares issued 120,000 $ 120 $59,880 $60,000
for cash
Nov 24, 1998 Shares issued 5,000 $ 5 $ 2,495 $ 2,500
for services
Nov 24, 1998 Land contract 2,500,000 $2,359,700 $(68,678) $(68,678)
Dec 31, 1998 Net loss
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 2,500,000 $2,359,700 3,600,000 $3,600 $ 62,375 $(68,678) $2,356,997
====================================================================================================================================
Shares issued for cash 183,200 $ 183 $220,307 $(5,000) $215,490
Shares issued for service 242,000 242 $155,758 $156,000
Nov 2, 1999 Land Rescission (2,500,000) (2,359,700) (25,000) (25) $(2,359,725)
Nov 18, 1999 Reincorporating $36,002 $(36,002) $ -
Dec 31, 1998 Net loss (613,218)(613,218)
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 0 $ - 4,000,200 $ 40,002 $402,438 $(5,000) (681,896)(244,456)
====================================================================================================================================
See Accompanying Notes to Financial Statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Cash Flows
For the Year Ended December 31, 1999 and
From June 30, 1998, Date of Inception, Through December 31, 1999
<S> <C> <C>
From Inception
Year Ended June 30, 1998
December 31, To December 31
1999 1999
------------------ ----------------
Cash Flows from Operating Activities
Net loss $(613,218) $(681,896)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,660 1,968
Stock for services 158,475 161,950
Changes in:
Accounts receivable 3,000 3,000
Accounts payable 147,737 147,737
Accrued payroll liabilities 91,684 110,527
State tax payable 800 800
--------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (209,862) (255,914)
Cash Flows from Investing Activities
Purchase of computer equipment (5,815) (6,353)
Notes receivable (3,000)
---------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (5,815) (9,353)
Cash Flows from Financing Activities
Notes payable 9,200
Sale of common stock 212,990 275,490
Repayment of notes (9,200) (9,200)
---------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 203,790 275,490
Net Increase in Cash (11,887) 10,223
Cash, beginning of the year 22,110 0
----------------------------------------------------------------------------------------------------
Cash, December 31, 1999 10,223 $ 10,223
====================================================================================================
Supplemental Non Cash Investing and Financing Activities:
Acquisition of computer equipment for a note $ 2,946 $ 2,946
Supplemental Information:
Interest paid $ - $ -
Taxes paid $ 800 $ 800
See Accompanying Notes to Financial Statements
F-5
</TABLE>
<PAGE>
InterSpace ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31,1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
InterSpace Enterprises, Inc. (the "Company") was originally incorporated in the
State of Nevada on June 30, 1998. The Company reincorporated as a Delaware
Corporation on November 17, 1999. The Company plans to develop a website
"PlanetLotto.com", incorporating a global lottery combined with an interactive
half-hour game show. International viewers will have the potential of winning
prizes and will be able to watch a weekly game show tailored to meet the needs
of diverse international participants. Guests may enter any weekly jackpot by
purchasing a $2.00 (US) entry and selecting their lucky numbers. Guests may also
purchase PlanetLotto.com merchandise online. All transactions will be secured
through an established online credit card transaction company. All ticket
purchases will be confirmed via e-mail.
DEVELOPMENT STAGE OPERATIONS
Since inception, June 30, 1998, the Company has devoted significantly all of its
efforts to development of a web site, obtaining capital resources and obtaining
lottery licenses.
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include cash on hand and in banks.
ACCOUNTING METHOD
The Company uses the accrual method of accounting, which recognizes income as it
is earned and expenses as they are incurred.
EQUIPMENT AND DEPRECIATION
Property and equipment are carried at historical cost. Depreciation is computed
using the straight-line method over the useful life of the asset. Asset lives
are five years for equipment and software. Total depreciation from June 30,1998,
date of inception, through December 31, 1999 was $1,968, which represents $1,660
for the current calendar year and approximately $308 for the period of inception
through December 31, 1998. The Company uses the modified accelerated cost
recovery method for income tax purposes.
F-6
<PAGE>
InterSpace ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
INCOME TAXES
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred
income taxes reflect the net tax effects of temporary differences between the
financial statement carrying amounts and tax rates in effect in the years in
which the differences are expected to reverse. The Company has a net operating
loss ("NOL") as of December 31,1999 of approximately $700,000 for federal
purposes and $350,000 for State tax purposes. This NOL will be gin to expire in
the year 2013 if not previously utilized.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123) prescribes a fair value method at accounting for
stock based compensation plans and for transactions in which stock options or
other equity instruments are exchanged for goods or services. The Company
adopted this accounting standard at inception. Accordingly, the fair value of
the equity instruments issued is used to account for the payment of services
rendered. Also, in accordance with SFAS No. 123, the Company has footnote
disclosure with respect to stock-based non-employee compensation. The cost of
stock based compensation is measured at the grant date on the value of the award
and recognizes this cost over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair market valued of the stock as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
NOTE B - RESCISSION OF LAND PURCHASE CONTRACT
During 1998 the Company had a land purchase contract with NetRom, Inc.,
("NetRom"). The Company previously issued 1,000,000 shares of preferred stock,
to NetRom, in exchange for the rights to acquire 35 acres of land which NetRom
was awaiting transfer of title. The land, known as Hills of Bajamar is located
near Ensenada, Mexico. The original value of the land was determined to be
$2,359,700. This contract was rescinded on November 2, 1999 by action of the
Board of Directors. The preferred shares have now been cancelled and there are
no preferred shares outstanding.
NOTE D - INCOME TAXES
Income tax expense of $800 represents the minimum California franchise tax for
the year ended December 31,1999. The deferred income taxes consisted of the
following as of December 31,1999 and 1998.
F-7
<PAGE>
InterSpace ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31,1999
NOTE D - INCOME TAXES-CONTINUED
1999 1998
Deferred tax asset:
NOL $106,200 $68,700
-------------------------------------------------------------------------------
Total deferred tax asset 106,200 68,700
Less: Valuation allowance (106,200) (68,700)
-------------------------------------------------------------------------------
Net $ - $ -
========================================================
Deterred tax assets relates to the Company's net operating loss for the years
ended December 31,1999 and 1998. A valuation allowance has been provided against
this deterred tax asset as it more likely than not that the deferred tax asset
will not be realized.
NOTE E - PREFERRED STOCK
The Company has authorized 5,000,000 shares of $0.01 par value preferred stock.
As of December 31, 1999 no shares were issued and outstanding 1,000,000 shares
were issued and outstanding as of December 31, 1998. However, in November 1999
the transaction was rescinded, see Note B.
NOTE F - COMMON STOCK
The Company has authorized 20,000,000 shares of $0.01 par value common stock. On
December 31,1999 there were 4,000,200 shares issued and outstanding. During the
year, the Company sold 183,2OO shares totaling $220;490 and 242,000 shares for
service valued at $156,000. In addition, 25,000 shares previously issued in 1998
were cancelled by the Company during 1999.
NOTE G - NON-MONETARY TRANSACTIONS
The Company initiated a policy, whereby a fifteen-percent commission is paid for
referrals of investors in the Company's stock. During 1999 the Company paid
$33,260 for referrals.
F-8
<PAGE>
InterSpace ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE H - RELATED PARTY TRANSACTIONS
The Company currently has assumed a liability from an officer of the Company for
approximately $2,900. The Officer used his personal credit to acquire certain
computer equipment on a revolving credit basis. The loan is unsecured and bears
18% interest annually.
The following table represents the annual principal payments due on the
revolving credit over the next five years:
YEAR AMOUNT
2000 $ 719
2001 $ 860
2002 $ 1,010
2003 $ 311
2004 $ -0-
NOTE I - STOCK OPTIONS
Information relating to stock options at December 31, 1999 is as follows:
EXERCISE NUMBER OF
PRICE SHARES EXPIRATION
---------- ---------------- -------------
Employees $0.25 1,225,000 August, 2003
Consultants $2.50 100,000 April, 2000
All stock options issued to employees have an exercise price not less than the
fair market value of the Company's stock on the date of grant, and in accordance
with accounting for such options utilizing the intrinsic value method there is
no related compensation expense.
All of the above options were exercised subsequent to year end as part of
negotiations for additional funding (See Note J)
NOTE J - SUBSEQUENT EVENTS
Subsequent to year end, the Company granted 750,000 common share options to
various officers under its Incentive Option Plan. The plan allows for options to
be granted at an exercise price not less than the fair market value on the date
of grant.
F-9
<PAGE>
InterSpace ENTERPRISES, INC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE J - SUBSEQUENT EVENTS --CONTINUED
In March 2000, the Company entered into significant negotiations with a New
York-based investment group. The Company is currently in the process of
finalizing an agreement to secure additional funding and create a public market
for its common stock.
As part of negotiations to secure additional funding, all outstanding options
were exercised. In accordance with the terms of the option plan, the Company
agreed to accept promissory notes for payment of the exercise price.
NOTE K - GOING CONCERN
At December 31, 1999 the Company had a significant working capital deficit.
Additionally, the Company has recurring losses from operations, and negative
stockholders* equity. These factors raise doubt about the Company continuing as
a going concern.
Management continues to seek capital via the sale of common stock. The Company
is also discussing financing alternatives with a New York based investment
group. There can be no assurance that the Company will be successful in its
efforts to raise adequate capital. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-10
<PAGE>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2000
F-11
<PAGE>
<TABLE>
<CAPTION>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
As of March 31, 2000
<S> <C>
Current Assets
Cash $ 131,808
-----------------------------------------------------------------------------------------
Total current assets 131,808
Fixed Assets
Computer and office equipment 9,299
Accumulated depreciation (2,460)
-----------------------------------------------------------------------------------------
Total fixed assets 6,839
-----------------------------------------------------------------------------------------
TOTAL ASSETS $ 138,647
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 170,992
Accrued payroll liabilities 130,505
Accrued liabilities 800
Note Payable 16,000
Current portion long term liabilities 706
-----------------------------------------------------------------------------------------
Total current liabilities 319,003
Long Term Liabilities 2,080
Common stock, $.01 par value, 20,000,000 shares
authorized, 7,340,200 shares issued and outstanding 73,402
Accounts receivable subscribed (1,231,250)
Additional paid in capital 2,272,588
Accumulated deficit - during development stage (1,297,176)
-----------------------------------------------------------------------------------------
Total stockholders' equity (182,436)
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 138,647
=========================================================================================
F-12
</TABLE>
<PAGE>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Operations (Unaudited)
For the Three Months Ended March 31, 2000
REVENUES
Sales $ -
--------------------------------------------------------------------------------
Total Revenue -
ADMINISTRATIVE AND SELLING EXPENSES
Consulting 126,000
Depreciation and amortization 492
Legal and professional 35,357
License fees 333,000
Marketing and promotion 11,306
Office expense 6,368
Other administrative expenses 16,275
Rent 834
Salaries 84,799
--------------------------------------------------------------------------------
Total 614,431
--------------------------------------------------------------------------------
Net loss $ (614,431)
================================================================================
F-13
<PAGE>
<TABLE>
<CAPTION>
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Unaudited)
For the Three Months Ended March 31, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Additional Paid Accounts Rec Accumulated
Description Shares Dollars Shares Dollars in Capital Subscribed Deficit Total
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 - - 4,672,200 $ 46,722 $ 402,518 $ (5,000) $ (682,745) $ (238,505)
Shares issued for cash 2,199,000 $ 21,990 $1,405,760 $ (1,226,250) $ 201,500
Shares issued for services 469,000 $ 4,690 $ 464,310 $ 469,000
Net loss $ (614,431) $ (614,431)
------------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2000 - - 7,340,200 73,402 2,272,588 (1,231,250) (1,297,176) (182,436)
====================================================================================================================================
</TABLE>
F-14
