<PAGE>
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-93315
P R O S P E C T U S
[GRAPHIC OMITTED]
2,500,000 Shares
Uproar Inc.
Common Stock
$33.88 per share
---------------------
We are selling 2,500,000 shares of our common stock. The underwriters
named in this prospectus may purchase up to 375,000 additional shares of our
common stock to cover over-allotments.
This is an initial public offering of our common stock in the United
States. Our common stock is currently listed with the European Association of
Securities Dealers' Automated Quotation system, or EASDAQ, under the symbol
"UPROrs". We have applied to have the common stock offered by this prospectus
included for quotation on the Nasdaq National Market and on EASDAQ under the
symbol "UPRO".
---------------------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<CAPTION>
Per Share Total
----------- --------------
<S> <C> <C>
Initial public offering price ................. $ 33.88 $84,700,000
Underwriting discount ......................... $ 2.20 $ 5,505,500
Proceeds, before expenses, to Uproar .......... $ 31.68 $79,194,500
</TABLE>
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about March
22, 2000.
---------------------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit SoundView
March 16, 2000.
<PAGE>
[A fold-out; the front inside cover shows colored circles of varying sizes; the
uproar.com logo in the largest circle with the following text: "The
entertainment capital of the Web!"; the following language running across the
top of the page: "A World of Games, Game Shows, and Entertainment!"; and the
following language flowing across the bottom of the page: "LET THERE BE FUN!".
The fold-out inside cover contains page shots from the uproar.com Web site
across the page, with the following accompanying text from left to right:
"GAMES"; "PRIZEPOINT INCENTIVE CURRENCY"; "A GLOBAL NETWORK"; "UPROAR STORE";
and "ONLINE GAME SHOWS"; Across the bottom of the page, the following text
appears in block print, below the respective shots: "Whether it's multi-player
games like the well-known, branded Family Feud, Bingo Blitz or Puzzle-A-Go-Go,
or single-player crossword puzzles and arcade games, Uproar's entertainment
engages users."; "PrizePoints are an incentive currency used to enter drawings,
win prizes and cash"; "Play in 14 languages. More than 36,000 affiliate Web
sites."; and "Play, win or . . . Buy at the Uproar Store. Differentiated
products that complement our entertainment content and appeal to our
audience."; Within colored circles of varying sizes on the fold-out are the
following logos: "Uproar.com"; "BINGO Blitz"; "mental state"; "GAMESCENE";
"PICTURE THIS"; "amused.com"; "PRIZEPOINT ENTERTAINMENT"; "PUZZLE-A-GO-GO";
"100%"; and "TRIVIA free for all"; The following text runs across the top of
the page: "Games and Game Shows at Uproar.com Provide a Daily Dose of Fun!"; On
the right side of the page, a large and a small screen shot of "Family Feud"
and one of "Sports Trivia Blitz."]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ................................................................... 5
Risk Factors ......................................................................... 9
Forward-Looking Statements; Market Data .............................................. 21
Price Range of Common Stock .......................................................... 22
Use of Proceeds ...................................................................... 23
Dividend Policy ...................................................................... 23
Capitalization ....................................................................... 24
Dilution ............................................................................. 25
Selected Consolidated Financial Data ................................................. 26
Management's Discussion and Analysis of Financial Condition and Results of Operations 27
Business ............................................................................. 34
Management ........................................................................... 49
Related Party Transactions ........................................................... 56
Principal Stockholders ............................................................... 58
Description of Capital Stock ......................................................... 60
Shares Eligible for Future Sale ...................................................... 64
United States Tax Consequences to Non-United States Holders .......................... 66
Underwriting ......................................................................... 69
Legal Matters ........................................................................ 71
Experts .............................................................................. 71
Change In Independent Accountants .................................................... 71
Where You Can Find Additional Information ............................................ 71
Index to Consolidated Financial Statements ........................................... F-1
</TABLE>
-------------------------
Until April 10, 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
-------------------------
3
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4
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
the "Risk Factors" section and the consolidated financial statements and the
notes thereto, before deciding to invest in our common stock.
Our Company
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our registered users have
grown from 96,000 in January 1998 to 5.2 million in December 1999. Our unique
user audience has similarly grown from 1.2 million in October 1998 to 3.6
million in December 1999. Moreover, Media Metrix, a leading Internet audience
measurement service, estimates that the number of unique pages viewed on our
consolidated network of Web sites grew from 43.6 million in December 1998 to
106.1 million in December 1999. Our sites are very sticky, which means that our
users consistently spend significantly more time per visit on our sites than
the industry average. According to Media Metrix, in December 1999, our users in
the United States spent an average of 17.1 minutes per usage day on our sites
and we were the fifth stickiest consolidated network of Web sites on the
Internet, as defined by average minutes spent per usage day. In addition,
according to Media Metrix, we were among the top five stickiest consolidated
networks of Web sites in each month during 1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. We believe that our large user base
and the stickiness of our sites provide advertisers with an attractive platform
to reach their target audiences. As a result, the number of advertisers and
sponsors on our network has grown from 99 as of December 1998 to 256 as of
December 31, 1999. Similarly, the number of advertising impressions served over
our Web sites increased from 70.7 million in December 1998 to 327 million in
December 1999. Because we attract a large, diversified user base and can
segment it based upon information we collect, such as geography, age and
gender, we believe we will be able to target advertisements to particular
demographic profiles specified by our advertisers.
We believe that our technology platform is integral to maintaining the
entertaining and engaging nature of our content. We have made significant
investments in developing and implementing a technology platform to support our
interactive multi-user game shows and games. We believe that our Web sites are
among a few in the world that enable large numbers of users to simultaneously
play interactive multi-player game shows and games. Moreover, we have designed
our technology platform to easily accommodate our growing user base and to take
advantage of emerging technology trends such as alternative access devices,
interactive television platforms and broadband distribution services.
Our Market Opportunity
As a result of the growing popularity of the Internet, an increasing
number of users are looking beyond traditional media, such as radio and
television, to the Internet as a source of entertainment. Game shows are among
the most popular and long-lived programs on television in both the United
States and worldwide. They were among the first entertainment formats to be
successfully adapted to television from radio. Moreover, new game shows are
frequently developed and introduced in order to capitalize on the popularity of
the format and to draw larger audiences to television.
Games and game shows are particularly well suited for online entertainment
content, especially with the development of higher bandwidth distribution
channels, and can be easily adapted to the Internet. We believe that online
games and game shows are a compelling entertainment medium for a mass user
audience because they:
o provide users with an opportunity to win prizes;
o allow users to access entertaining content according to their own
schedule from any location; and
o enable users to participate interactively in the games and game shows and
to compete against other users.
5
<PAGE>
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
o enhancing our content;
o aggressively expanding our audience;
o further monetizing our audience and building additional revenue streams;
o capitalizing on the popularity of our PrizePoint rewards program;
o continuing to expand internationally; and
o pursuing strategic acquisitions and alliances.
Recent Developments
On February 2, 2000, we sold 1,265,372 shares of our common stock to a
strategic investor, Trans Cosmos USA, Inc., for approximately $25.0 million. We
intend to establish a joint venture with Trans Cosmos USA to produce a local
language version of our flagship entertainment site, uproar.com, in Japan.
Trans Cosmos USA is a subsidiary of Trans Cosmos, Inc., which is headquartered
in Tokyo, Japan.
-------------
As used in this prospectus, UPROAR and the UPROAR logo are service marks.
The registration of the Uproar service mark has been applied for and is pending
in the United States and in other markets in which we register our marks. The
UPROAR service mark is registered in Germany and the United Kingdom. We have
also applied for the registration of numerous other trademarks in the United
States and those applications are pending. Those marks include BINGO BLITZ,
BLOWOUT BINGO, GAMESCENE, LET THERE BE FUN, MENTAL STATE, PRIZEPOINT,
PRIZEPOINTS and TRIVIA BLITZ. All other trademarks and service marks used in
this prospectus are the property of their respective owners.
6
<PAGE>
The Offering
Common stock offered..... 2,500,000 shares
Common stock outstanding after
this offering........... 27,737,320 shares
Use of proceeds.......... We intend to use the proceeds of this offering to
fund our marketing activities, expand our sales
force, enhance our products and services, expand our
business internationally, enter into distribution
and affiliate arrangements with other Web sites,
potentially make strategic investments and
acquisitions, and for general corporate purposes.
Proposed Nasdaq National Market
Symbol.................. "UPRO"
Current EASDAQ Symbol.... "UPROrs"
We have applied to list the shares of common stock offered by this
prospectus with the European Association of Securities Dealers' Automated
Quotation System, or EASDAQ, under the symbol "UPRO". The shares of our common
stock that are already listed on EASDAQ now trade under the symbol "UPROrs",
the "rs" indicating that these shares are restricted securities in the United
States.
This information is based on our shares of common stock outstanding as of
December 31, 1999 and gives effect to 1,265,372 additional shares of common
stock issued to a strategic investor at approximately $19.76 per share on
February 2, 2000. This information:
o excludes 5,904,408 shares subject to options outstanding as of December
31, 1999 with a weighted average exercise price of $8.52; and
o assumes no exercise of the underwriters' over-allotment option.
-------------
Uproar Inc. was incorporated in Delaware on December 16, 1999 and is the
successor to Uproar Ltd., a Bermuda limited liability company that was formed
on July 7, 1997, and redomesticated into Delaware on January 26, 2000. Our
principal executive offices are located at 240 West 35th Street, 9th Floor, New
York, New York 10001. Our telephone number at that location is (212) 714-9500.
Information contained on our Web sites does not constitute part of this
prospectus. References in this prospectus to "Uproar," "we," "our," and "us"
refer to Uproar Inc., its predecessor Uproar Ltd., and its subsidiaries.
-------------
You should rely only on the information contained in this prospectus.
Uproar has not authorized anyone to provide you with different information.
Uproar is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
7
<PAGE>
Summary Consolidated Financial and Operating Data
The following table sets forth summary consolidated financial and
operating data for our business. You should read this information together with
the consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus. The pro forma data give effect to the
sale of 1,265,372 shares of common stock at approximately $19.76 per share on
February 2, 2000 and the application of the net proceeds from that sale.
<TABLE>
<CAPTION>
Period ended
December 31,
1995
--------------
<S> <C>
Statement of Operations Data:
Revenues ................................... $ 43,365
Cost of revenues ........................... --
----------
Gross profit ............................... 43,365
Operating expenses:
Sales and marketing ....................... --
Product and technology development ........ 33,190
General and administrative ................ 70,182
Amortization of intangible assets ......... --
----------
Loss from operations ....................... (60,007)
Foreign exchange gain (loss) ............... (2,233)
Other income (expense), net ................ 4,326
Provision for income taxes ................. --
----------
Net loss ................................... $ (57,914)
==========
Basic and diluted net loss per share ....... $ (0.05)
==========
Weighted average number of common
shares outstanding ........................ 1,138,356
==========
Pro forma basic and diluted net loss per
share ..................................... $ (.02)
Pro forma weighted average number of
shares outstanding ........................ 2,403,728
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1997 1998 1999
--------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................... $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................... (40,781) (216,586) (760,376) (2,533,294)
----------- ------------- ------------- -------------
Gross profit ............................... 18,917 132,123 872,593 7,858,233
Operating expenses:
Sales and marketing ....................... 166,806 1,087,058 3,770,866 28,065,956
Product and technology development ........ 389,346 772,744 849,486 3,701,393
General and administrative ................ 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ......... -- -- 9,303 6,086,198
----------- ------------- ------------- -------------
Loss from operations ....................... (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............... 49,946 (85,439) 57,401 (119,996)
Other income (expense), net ................ (27,829) 82,349 205,751 337,680
Provision for income taxes ................. (4,909) (5,582) (9,020) (28,000)
----------- ------------- ------------- -------------
Net loss ................................... $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
=========== ============= ============= =============
Basic and diluted net loss per share ....... $ (0.17) $ (0.42) $ (0.40) $ (1.77)
=========== ============= ============= =============
Weighted average number of common
shares outstanding ........................ 4,258,084 9,034,928 14,697,112 21,909,456
=========== ============= ============= =============
Pro forma basic and diluted net loss per
share ..................................... $ (0.13) $ (0.37) $ (0.37) $ (1.67)
Pro forma weighted average number of
shares outstanding ........................ 5,523,456 10,300,300 15,962,484 23,174,828
</TABLE>
The following table is a summary of our balance sheet at December 31,
1999. The pro forma data give effect to the sale of 1,265,372 shares of common
stock at approximately $19.76 per share on February 2, 2000 and the application
of the net proceeds from that sale. The pro forma as adjusted data reflect the
sale of 2,500,000 shares of common stock offered hereby at an initial public
offering price in the United States of $33.88 per share after deducting the
estimated underwriting discount and estimated offering expenses payable by us
and the application of the net proceeds of that sale.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ----------- ------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $15,136 $40,131 $117,826
Working capital .......................................... 18,555 43,550 121,245
Total assets ............................................. 42,816 67,811 145,506
Total indebtedness, including current maturities ......... 154 154 154
Total stockholders' equity ............................... 37,204 62,199 139,894
</TABLE>
8
<PAGE>
RISK FACTORS
You should consider carefully the risks described below before making an
investment decision.
Financial Risks
We have a history of losses since our inception, we expect future losses and
may not be profitable in the future.
Since our inception in February 1995, we have not been profitable. If our
revenues do not increase substantially, we may never become profitable. We have
not generated enough revenues to exceed the substantial amounts we have spent
to create, launch and enhance our Web sites, to promote awareness of our Web
sites and to develop our business generally. At December 31, 1999, our
accumulated deficit was approximately $49.1 million. Even if we do achieve
profitability, we may not sustain profitability on a quarterly or annual basis
in the future.
It is our intention to invest the proceeds of this offering and cash
generated from operations to build our business and increase our market share.
Despite these investments, our market share may grow more slowly than we
anticipate or may even decrease in the future. In addition, our expenses may
increase faster than we expect. As a result, we expect to continue to generate
substantial losses for the foreseeable future. Moreover, the rate at which we
incur these losses may increase from current levels.
Because we have only recently introduced many of our products and services, you
have limited information upon which you can evaluate our business.
Uproar was founded in February 1995 and we launched our flagship
entertainment site, uproar.com, in September 1997. We launched the other sites
that comprise our network throughout 1998 and 1999. Accordingly, you can only
evaluate our business based on our limited operating history. Our operating
results for any particular quarter may not be indicative of future operating
results. You should not rely on quarter-to-quarter comparisons of our results
of operations as an indication of our future performance. As a young company in
the new and rapidly evolving online entertainment market, we face risks and
uncertainties relating to our ability to successfully implement our business
plan. These risks include our ability to:
o expand our content and services;
o attract a larger audience to our Web sites;
o maintain our current, and develop new, strategic relationships; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks and uncertainties, we
will not be able to successfully implement our business plan and our stock
price will decline.
We may fail to meet market expectations because of fluctuations in our
quarterly operating results, which would cause our stock price to decline.
Although we intend to steadily increase our spending and investment to
support our planned growth, our revenues, and some of our costs, will be much
less predictable. This is likely to result in significant fluctuations in our
quarterly results. Because of our limited operating history and the emerging
nature of our industry, we anticipate that securities analysts and investors
will have difficulty in accurately forecasting our results. It is possible that
our operating results in some quarters will be below market expectations. In
this event, the price of our common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
o the number of users on, and the frequency of their use of, our Web sites;
o our ability to attract and retain advertisers;
9
<PAGE>
o the expiration or termination of our strategic relationships, including
our relationships with Pearson Television and Cable & Wireless;
o the expiration or termination of partnerships with Web sites and Internet
service providers, or ISPs, which can result from mergers or other
strategic combinations as Internet businesses continue to consolidate;
o our ability to offer on a timely and affordable basis merchandise that
appeals to our users' preferences;
o system outages, delays in obtaining new equipment or problems with
planned upgrades;
o our ability to successfully expand our online entertainment offerings
beyond the games and game show sector;
o the introduction of new or enhanced services by us or our competitors;
o changes in our advertising rates or advertising rates in general, both
on and off the Internet; and
o changes in general economic and market conditions, including seasonal
trends, that have an impact on the demand for Internet advertising.
We may not be able to adjust our operating expenses in order to offset any
unexpected revenue shortfalls.
Our operating expenses are based on our expectations of our future
revenues. These expenses are relatively fixed, at least in the short term. We
intend to expend significant amounts in the short term, particularly to expand
our advertising sales department and to build brand awareness. We may be unable
to adjust spending quickly enough to offset any unexpected revenue shortfall.
If we fail to substantially increase our revenues, then our financial condition
and results of operations would be materially adversely affected.
If we do not continue to develop and enhance our brand, we will not be able to
maintain or increase our customer base or our revenues.
Enhancing the Uproar brand is critical to our ability to expand our user
base and our revenues. We believe that the importance of brand recognition will
increase as the number of entertainment Web sites grows. In order to attract
and retain users and advertisers, we intend to increase our expenditures for
creating and maintaining brand loyalty. We use a combination of television,
print and Web-based advertising to promote our brand. If we fail to advertise
and market our brand effectively, we will lose users and our revenues will
decline.
Our success in promoting and enhancing the Uproar brand will also depend
on our success in providing high quality content, features and functions that
are attractive and entertaining to users of online game shows and multi-player
games. If visitors to our Web sites or advertisers do not perceive our services
to be of high quality, the value of the Uproar brand could be diminished, we
will lose users and our revenues will decline.
We have derived a portion of our revenues from reciprocal advertising
agreements, or barter, which do not generate cash revenue.
We derive a portion of our revenues from reciprocal advertising
arrangements, or barter, under which we exchange advertising space on our Web
sites, or provide game content or other services for third-party Web sites,
predominantly for advertising space on other Web sites rather than for cash
payments. In the year ended December 31, 1999, we derived approximately
$1,418,000, or 14% of our revenues, from these arrangements. In the year ended
December 31, 1998, we derived approximately $365,000, or 22%, of our revenues,
from these arrangements. We expect that barter will continue to account for
some of our revenues in the foreseeable future. The Securities and Exchange
Commission, together with the Financial Accounting Standards Board, or FASB,
have recently begun to examine revenues recognized by Internet companies from
barter transactions. This review may result in limitations on revenues which
may be derived from these transactions. If such rules are implemented, our
financial results may suffer.
10
<PAGE>
Our advertising pricing model, which is based heavily on the number of
advertisements delivered to our users, may not be successful.
Different pricing models are used to sell advertising on the Internet. The
models we adopt may prove to not be the most profitable. Currently, advertising
based on impressions, or the number of times an advertisement is displayed on
our Web sites, comprises substantially all of our revenues. To the extent that
we do not meet the minimum guaranteed impressions that we are required to
deliver to users under many of our advertising contracts, we defer recognition
of the corresponding revenues until we achieve the guaranteed impression
levels. To the extent that minimum guaranteed impression levels are not
achieved, we may be required to provide additional impressions after the
contract term, which would reduce our advertising inventory in subsequent
periods.
In addition, since advertising impressions may be delivered to a user's
Web browser without regard to user activity, advertisers may decide that a
pricing model based on user activity is preferable. We cannot predict which
pricing model, if any, will emerge as the industry standard. As a result, we
cannot accurately project our future advertising rates and revenues. If we are
unable to adapt to new forms of Internet advertising or we do not adopt the
most profitable form, our advertising revenues could be adversely affected.
We may not be able to track the delivery of advertisements on our network in a
way that meets the needs of our advertisers.
It is important to our advertisers that we accurately measure the delivery
of advertisements on our network and the demographics of our user base.
Presently, no measurement standards have been widely accepted to measure the
effectiveness of Internet-based advertising. Companies may choose to not
advertise on our Web sites or may pay less for advertising if they do not
perceive our ability to track and measure the delivery of advertisements to be
reliable. We depend on third parties to provide us with many of these
measurement services. If they are unable to provide these services in the
future, we would need to perform them ourselves or obtain them from another
provider. We could incur significant costs or experience interruptions in our
business during the time we are replacing these services. In addition, if
successful, legal initiatives related to privacy concerns could also prevent or
limit our ability to track advertisements.
Our business may suffer if we have difficulty retaining users on our Web sites.
Our business and financial results are also dependent on our ability to
retain users on our Web sites. In any particular month, many of the visitors to
our sites are not registered users and many of our registered users do not
visit our sites. We believe that intense competition has caused, and will
continue to cause, some of our registered users to seek online entertainment on
other sites and spend less time on our sites. It is relatively easy for our
users to go to competing sites and we cannot be certain that any steps we take
will maintain or improve our retention of users. In addition, some new users
may decide to visit our Web sites out of curiosity regarding the Internet and
may later discontinue using Internet entertainment services. If we are unable
to retain our user base, the demand for advertising on our Web sites may
decrease and our revenues may decline.
We must increase our advertising sales department to support our growth.
We need to increase substantially our advertising sales department in the
near future to support our planned growth. On December 31, 1999, our
advertising sales department had 23 members. In October 1999, we hired an
executive vice president to manage our enhanced sales and marketing efforts and
it can take a relatively long time for a sales and marketing manager to begin
to achieve desired results. Our ability to increase our sales department and
improve its results involves a number of risks and uncertainties, including:
o strong competition in hiring and retaining advertising sales personnel;
o our ability to efficiently integrate, train and motivate additional
advertising sales and support personnel;
o our ability to manage an advertising sales organization with offices
throughout the United States and in Europe; and
11
<PAGE>
o the length of time it takes new advertising sales personnel to become
productive.
If we do not successfully increase our advertising sales department, our
ability to support our planned growth could be impeded.
We face risks associated with international operations.
We currently operate in the United States, Hungary, Germany and the United
Kingdom. We intend to establish a joint venture to expand into Japan, and plan
to continue to expand into additional international markets. We anticipate
spending significant financial and managerial resources to support these
expansions.
Our business internationally is subject to a number of risks. These
include:
o linguistic and cultural differences;
o inconsistent regulations and unexpected changes in regulatory
requirements;
o differing technology standards that would affect the quality of the
presentation of our games to our users;
o potentially adverse tax consequences;
o wage and price controls;
o political instability and social unrest;
o uncertain demand for electronic commerce;
o uncertain protection of our intellectual property rights; and
o imposition of trade barriers.
We have no control over many of these matters and any of them may
adversely affect our ability to conduct our business internationally.
Currency fluctuations and exchange control regulations may adversely affect our
business.
Our reporting currency is the United States dollar. Our customers outside
the United States, however, are generally billed in local currencies. Our
accounts receivable from these customers and overhead assets will decline in
value if the local currencies depreciate relative to the United States dollar.
To date, we have not tried to reduce our exposure to exchange rate fluctuations
by using hedging transactions. Although we may enter into hedging transactions
in the future, we may not be able to do so effectively. In addition, any
currency exchange losses that we suffer may be magnified if we become subject
to exchange control regulations restricting our ability to convert local
currencies into United States dollars.
We have limited experience in offering electronic commerce services to our
users and we may not be able to successfully compete or effectively manage the
growth of our electronic commerce business.
We have limited experience in providing electronic commerce services to
our users. We only recently introduced our online store, shopping.uproar.com,
and hired our electronic commerce manager. Some of our competitors may already
be in a better position to provide these services to their users because of
their greater technological, financial and marketing resources. Also, these
competitors may have the support of, or relationships with, important
electronic commerce participants, which could adversely affect the extent of
support that those electronic commerce market participants would provide to us
in the future.
We carry inventory on the majority of products that we sell on our Web
sites. As a result, it will be important to our success in electronic commerce
that we accurately predict the changing trends in consumer preferences for the
goods sold on our sites and do not overstock unpopular products. If demand for
one or
12
<PAGE>
more of the products falls short of our expectations, excess inventory and
outdated merchandise could accumulate, potentially resulting in reduced
merchandise capacity and inventory write-downs due to damage, theft, reduced
selling prices and obsolescense. As a consequence, we may be required to take
inventory markdowns, which could reduce our gross margins.
We sell numerous third-party products on our Web sites. With respect to
those products, we compete with numerous electronic commerce merchants and the
Web sites of companies that manufacture the products we offer. In selling
products over the Internet, we also compete with stores and companies that do
not distribute their products through the Internet. Many of our Internet and
non-Internet competitors are larger than we are, enjoy greater economies of
scale than are available to us, have substantially greater resources than we
have and may be able to offer more products or more attractive prices than we
can.
Risks Associated with Our Advertisers and Strategic Partners
We depend on a small group of advertising customers.
In the year ended December 31, 1999, MyPoints accounted for 14.2% of our
revenues. No other customer accounted for more than 10.0% of our revenues. Our
top five customers, in the aggregate, accounted for approximately 40.0% of our
revenues during that period. Yahoo! accounted for 20.7% of our 1998 revenues in
connection with development services performed in that year. In 1998, our top
advertiser, Microsoft Inc. and associated companies, accounted for
approximately 11.8% of our total revenues and our top five customers, including
Yahoo! and Microsoft, accounted for approximately 44.1% of revenues. If we lose
one or more of our top customers and do not attract additional customers, we
may not generate sufficient revenues to offset this loss of revenues and our
net income will decrease.
Our relationship with Pearson Television may not be successful.
In January 1999, we entered into an agreement with Pearson Television
under which we were granted exclusive rights to provide Internet games in the
English language based on the television games Family Feud, Match Game, 100%
and Password. Our rights under this agreement will expire in September 2001
unless Pearson elects to extend them. In addition, Pearson may terminate this
agreement if Mr. Simon, our Chief Financial Officer, ceases to be employed by
us in a senior management capacity. If Pearson terminates or does not renew the
agreement, it will have the rights to distribute Internet games either directly
or through one of our competitors. Pearson retains the trademark rights for
these shows. The termination of this relationship would have a material adverse
effect on our business, results of operations and financial condition. Even if
Pearson were willing to renew the contract, it may not be willing to do so on
terms that are favorable to us. As a result, we might not be able to recover
the significant investment of resources and our management's time we made in
developing these Internet games.
As part of our agreement with Pearson, we have guaranteed minimum royalty
payments of $200,000 per broadcast year, for two broadcast years, to Pearson
pertaining to these Internet games. In the event that one or more of these
games is not financially successful for us, we are still obligated to make
minimum royalty payments to Pearson.
Risks of Our Business Model
Competition in the online entertainment industry is intense and a failure to
adequately respond to competitive pressure could result in lower revenues.
There are many companies that provide Web sites and online destinations
targeted to audiences seeking various forms of entertainment content. All of
these companies compete with us for visitor traffic, advertising dollars and
electronic commerce sales. This competition is intense and is expected to
increase significantly in the future as the number of entertainment-oriented
Web sites continues to grow. Our success will be largely dependent upon the
perceived value of our content relative to other available entertainment
alternatives, both online and elsewhere.
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Increased competition could result in:
o price reductions and lower profit margins;
o lower advertising rates;
o loss of visitors or visitors spending less time on our sites;
o reduced page views or advertising impressions; and
o loss of market share.
Many of our existing and potential competitors, in comparison to us, have:
o longer operating histories;
o greater name recognition in some markets;
o larger customer bases; and
o significantly greater financial, technical and marketing resources.
These competitors may also be able to:
o undertake more extensive marketing campaigns for their brands and
services;
o adopt more aggressive advertising pricing policies;
o use superior technology platforms to deliver their products and
services; and
o make more attractive offers to potential employees, distribution
partners, product manufacturers, inventory suppliers, advertisers and
third-party content providers.
Our competitors may develop content that is better than ours or that
achieves greater market acceptance. Sony Station, for example, currently has
the exclusive right to the online versions of the television game shows
Jeopardy and Wheel of Fortune and the board game Trivial Pursuit. In addition,
new competitors may emerge and acquire significant market share.
We also compete with traditional forms of media, like newspapers,
magazines, radio and television for advertisers and advertising revenue. If
advertisers perceive the Internet or our Web sites to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budgets to our Web sites.
Our plans to expand our entertainment business beyond our core game show sites
may not be successful.
Almost all of our experience to date is with online games and game shows.
Because we have only limited experience with businesses beyond our core gaming
sites, we cannot predict whether we will be able to successfully expand into
other online entertainment businesses. Expanding our business will require us
to expend significant amounts of capital to be able to contend with competitors
that have more experience than we do in these businesses and may also have
greater resources to devote to these businesses. Also, our management may have
to divert a disproportionate amount of its attention away from our day-to-day
core business and devote a substantial amount of time expanding into new areas.
If we are unable to effectively expand our business or manage any such
expansion, our financial results will suffer and our stock price will decline.
Risks Related to the Internet Industry
Our revenues depend on the continuing growth of the Internet.
Our future success is dependent on the increased use of the Internet. We
cannot assure you that the market for Internet services will continue to grow
or become sustainable.
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The Internet may not continue as a viable commercial marketplace because of
many factors, including:
o the inadequate development of the necessary infrastructure;
o a lack of development of complementary products such as high speed modems
and high speed communication lines; and
o delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and volume of traffic. We cannot
assure you that the Internet infrastructure will be able to support the demands
placed on it by this continued growth. In addition to the Internet's uncertain
ability to expand to accommodate increasing traffic, critical issues concerning
the use of the Internet, including security, reliability, cost, ease of
deployment and administration and quality of service, remain unresolved. A
number of states, for example, have recently permitted telephone companies to
charge increased rates for consumers connecting to the Internet. Concerns
regarding these issues may affect the growth of the use of Internet. If the
Internet fails to continue as a viable marketplace, or develops more slowly
than expected, our growth will slow or stop and our business and financial
results will suffer.
We will only be able to execute our business plan if Internet advertising
increases.
Consumer usage of the Internet is relatively new and the success of the
Internet as an advertising medium will depend on its widespread adoption. The
adoption of Internet advertising, particularly by those entities that have
historically relied on traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally relied
on other advertising media may be reluctant to advertise on the Internet. These
businesses may find Internet advertising to be less effective than traditional
advertising media for promoting their products and services. Many potential
advertising and electronic commerce partners have little or no experience using
the Internet for advertising purposes. Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising. We
expect that revenues from Internet advertising will make up a significant
amount of our revenues for the foreseeable future. If the Internet advertising
market develops more slowly than we expect, or if we are unsuccessful in
increasing our advertising revenues, our revenues will not grow as we expect
and our business will suffer.
If we are not able to adapt as Internet technologies and customer demands
continue to evolve, we may become less competitive and our business will
suffer.
We must adapt to rapidly evolving Internet technologies by continually
enhancing our existing services and introducing new services to address our
customers' changing demands. We expect to incur substantial costs in modifying
our services and infrastructure and in recruiting and hiring experienced
technology personnel to adapt to changing technology affecting providers of
Internet services. If we cannot hire the necessary personnel or adapt to these
changes in a timely manner or at all, we will not be able to meet our users'
demands for increasingly sophisticated entertainment and we will become less
competitive. As a result, our revenues would decline and our business will
suffer.
Changes in government regulation could adversely affect our business.
Changes in the legal and regulatory environment that pertains to the
Internet could result in a decrease in our revenues and an increase in our
costs. New laws and regulations may be adopted. Existing laws may be applied to
the Internet and new forms of electronic commerce. New and existing laws may
cover issues like:
o sales and other taxes;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
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o libel and defamation; and
o copyright, trademark and patent infringement.
Customer uncertainty and new regulations could increase our costs and
prevent us from delivering our products and services over the Internet. It
could also slow the growth of the Internet significantly. This could delay
growth in demand for our products and limit the growth of our revenues.
Our games and game shows are subject to gaming regulations that are subject to
differing interpretations and legislative and regulatory changes that could
adversely affect our ability to grow our business.
We operate online games of skill and chance that are regulated in many
jurisdictions and, in some instances, we reward prizes to the participants. The
selection of prize winners is sometimes based on chance, although none of our
games requires any form of monetary payment. The laws and regulations that
govern our games, however, are subject to differing interpretations in each
jurisdiction and are subject to legislative and regulatory change in any of the
jurisdictions in which we offer our games. If such changes were to happen, we
may find it necessary to eliminate, modify or cancel components of our products
that could result in additional development costs and the possible loss of
revenue.
User concerns and government regulations regarding privacy may result in a
reduction in our user traffic.
Web sites sometimes place identifying data, or cookies, on a user's hard
drive without the user's knowledge or consent. Our company and many other
Internet companies use cookies for a variety of different reasons, including
the collection of data derived from the user's Internet activity. Any reduction
or limitation in the use of cookies could limit the effectiveness of our sales
and marketing efforts. Most currently available Web browsers allow users to
remove cookies at any time or to prevent cookies from being stored on their
hard drive. In addition, some privacy advocates and governmental bodies have
suggested limiting or eliminating the use of cookies. For example, the European
Union recently adopted a privacy directive that may limit the collection and
use of information regarding Internet users. These efforts may limit our
ability to target advertising or collect and use information regarding the use
of our Web sites, which would reduce our revenues. Fears relating to a lack of
privacy could also result in a reduction in the number of our users.
If Congress adopts legislation that bans online offshore casino gambling, we
will lose revenues derived from some of our advertisers and, if we do not take
appropriate measures to comply with the law, may be subject to legal penalties.
In the year ended December 31, 1999, approximately 14.5% of our revenue
was from advertising that promoted offshore casino sites. The Congress of the
United States is considering legislation that would render unlawful offshore
casino gambling offered online in the United States. If this legislation is
enacted in a form similar to the bill pending in Congress, we would need to
terminate or modify our current agreements with offshore casino site
advertisers, which would result in a corresponding loss of revenue.
In addition, such legislation could impose penalties on United
States-based companies that are deemed to aid in the operation of offshore
online casinos or encourage the use of those sites by United States residents.
Accordingly, it is possible that we could be liable for criminal or civil
penalties if we did not take proper measures to terminate or modify our
agreements with online casino sites.
We may be liable for the content we make available on the Internet.
We make content available on our Web sites and on the Web sites of our
advertisers and distribution partners. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence, copyright or trademark infringement. We
could also be exposed to liability for third-party content accessed through the
links from our sites to other Web sites. We may incur
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<PAGE>
costs to defend ourselves against even baseless claims and our financial
condition could be materially adversely affected if we are found liable for
information that we make available. Implementing measures to reduce our
exposure to this liability may require us to spend substantial resources and
limit the attractiveness of our service to users.
Other Risks Impacting Our Business
We may not effectively manage our growth.
In order to execute our business plan, we must grow significantly. This
growth will place a significant strain on our personnel, management systems and
resources. We expect that the number of our employees, including
management-level employees, will continue to increase for the foreseeable
future. Also, we have recently hired some of our key employees, including our
Chief Executive Officer, Chief Operating Officer, Executive Vice President of
Product Marketing, Executive Vice President of Sales and Marketing and
Executive Vice President of Merchandising. These individuals do not have
significant experience working with us or together as our management team.
We must continue to improve our operational and financial systems and
managerial controls and procedures. We will need to continue to expand, train
and manage our workforce. We anticipate expanding our team of financial
management personnel and are currently attempting to recruit a Chief Financial
Officer. We must also maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial organizations. If we do not
effectively manage this growth, we will not be successful in executing our
business plan.
The loss of our key personnel would impede our future success, and we may have
difficulty attracting and retaining highly-skilled employees.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Kenneth D. Cron, our Chairman of the board
of directors and Chief Executive Officer, and Christopher R. Hassett, our
President and Chief Operating Officer. Our future success also depends on our
ability to attract, retain and motivate highly-skilled employees. Competition
for employees in our industry is intense. We may be unable to attract,
assimilate or retain other highly qualified employees in the future. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly-skilled
employees with appropriate qualifications. The employment agreements that we
have with our key management personnel provide for at-will employment and any
of our management personnel can terminate their employment with us at any time.
The loss of the services of these individuals or other key employees, and the
failure to attract and retain other highly qualified employees, would have a
material adverse effect on our ability to continue to develop and effectively
manage our business. We do not maintain key person life insurance policies on
any of our key management personnel.
The technical performance of our Web sites is critical to our business and to
our reputation.
The computer systems that support our Web sites are largely designed and
maintained by us at significant expense. We may not be able to successfully
design and maintain our systems in the future. We also license communications
infrastructure software that we utilize in Uproar 2000 from Tibco Software,
Inc. The license agreement with Tibco does not contain a defined termination
date. If the Tibco license is terminated, we would likely suffer a disruption
in our business and a replacement system could be difficult to identify and
obtain. Any system failure, including network, software or hardware failure,
that causes an interruption in our service or a decrease in responsiveness of
our Web sites, could result in reduced user traffic and reduced revenue. We
have in the past experienced slower response times and interruptions in service
because of equipment or software down time related to the high volume of
traffic on our Web sites and our need to deliver frequently updated information
to our users. We cannot assure you that we will be able to expand our systems
to adequately accommodate our growing user base. We could also be affected by
computer viruses, electronic break-ins from unauthorized users, or other
similar disruptions or attempts to penetrate our online security systems. Any
secure provider system disruption or failure, security breach or other damage
that interrupts or delays our operations could harm our reputation and cause us
to lose users, advertisers and sponsors and adversely affect our business and
operations.
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<PAGE>
We currently maintain production servers in New York City and London and
plan to include a facility in California in the future. Our domestic data
centers are operated at facilities provided by Level 3 Communications and
Digital Telemedia. Our London data center is operated by PSI Net. Our
operations depend on these facilities' ability to protect their and our systems
against damage from fire, power loss, water, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. Any
disruption in the Internet access provided by our servers could have a material
adverse effect on our ability to deliver high-quality content to, and produce
fast response times for, our users.
Our users depend on Internet service providers, online service providers
and other Web site operators for access to our Web sites. These providers have
had interruptions in their services for hours and, in some cases, days, due to
system failures unrelated to our systems. Any future interruptions would be
beyond our control to prevent and could harm our reputation and adversely
affect our business.
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others.
We do not currently maintain patents on our technology and others may be
able to develop similar technologies in the future. We regard our copyrights,
service marks, trademarks, trade secrets and other intellectual property as
critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and license agreements with our employees,
customers, partners and others to protect our intellectual property rights.
Unauthorized use of our intellectual property by third parties may adversely
affect our business and our reputation. It may be possible for third parties to
obtain and use our intellectual property without authorization. Furthermore,
the validity, enforceability and scope of protection of intellectual property
in Internet-related industries is uncertain and still evolving. Our multi-user
games run on proprietary software systems developed by us at significant
expense. Nonetheless, we do not maintain patents on our technology and others
may be able to develop similar technologies in the future.
We cannot be certain that our products do not or will not infringe valid
patents, copyrights, trademarks or other intellectual property rights held by
third parties. We may be subject to legal proceedings and claims from time to
time relating to the intellectual property of others in the ordinary course of
our business. Disputes concerning the ownership of rights to use intellectual
property could be costly and time consuming to litigate, may distract
management from other tasks of operating our business, and may result in our
loss of significant rights and the loss of our ability to effectively operate
our business.
Any joint ventures, acquisitions and alliances we make could be disruptive to
our business and be dilutive to our investors.
As part of our business strategy, we pursue alliances or joint ventures
with, and may attempt to acquire, complementary businesses, technologies,
services or products, some of which may be significant. We recently agreed to
establish a joint venture to produce a local language version of our flagship
entertainment site, uproar.com, in Japan. These relationships may require
significant management attention and, in some cases, additional working
capital. If we form a joint venture with or acquire a company, we could have
difficulty in assimilating its operations and assimilating and retaining its
key personnel. These difficulties could disrupt our business and disrupt our
management and employees.
It may also be necessary for us to raise additional funds to finance
future transactions. Any equity or debt financings, if available at all, may
adversely impact our operations and, in the case of equity financings, may
result in dilution to existing stockholders.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
We will likely need to raise additional funds in the future. Any required
additional financing may not be available on terms favorable to us, or at all.
If adequate funds are not available on acceptable terms, we may be unable to:
18
<PAGE>
o fund our expansion;
o successfully promote our brand;
o develop or enhance our services;
o respond to competitive pressures; or
o take advantage of acquisition opportunities.
If additional funds are raised by our issuing additional equity
securities, stockholders may experience dilution of their ownership interest
and, if approved by our stockholders, the newly issued securities could have
rights superior to those of the shares of common stock sold in this offering.
If additional funds are raised by our issuing debt, we may be subject to
limitations on our operations.
Our stock price has experienced, and is likely to continue to experience,
extreme price and volume fluctuations.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile. The stock market has from time to time
experienced significant price and volume fluctuations that have affected the
market prices for the securities of technology companies, particularly Internet
companies. We cannot predict the extent to which investor interest will lead to
the development of an active trading market in the United States or how liquid
that market might become. As a result, investors in our common stock may
experience a significant decrease in the value of their common stock regardless
of our operating performance or prospects.
If our stock price is volatile, we may become subject to securities litigation
which is expensive and could result in a diversion of resources.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been brought
against that company. Many companies in the Internet industry have been subject
to this type of litigation in the past. We may also become involved in this
type of litigation. Litigation is often expensive and diverts management's
attention and resources.
We may use the proceeds of this offering ineffectively or in ways with which
you may not agree.
Our management will have significant flexibility in applying the net
proceeds of this offering as well as over the timing of our expenditures. You
may disagree with the way our management decides to spend these proceeds. If we
do not apply the funds we receive effectively, our accumulated deficit will
increase and we may lose significant business opportunities.
Shares eligible for public sale after this offering could adversely affect our
stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also
might make it difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in
management is delayed or prevented, the market price of our common stock could
decline.
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You will suffer immediate and substantial dilution.
The initial public offering price per share in the United States will
significantly exceed our pro forma net tangible book value per share as of
December 31, 1999 of $2.04. Accordingly, investors purchasing shares in this
offering will suffer immediate and substantial dilution of their investment.
We do not plan to pay dividends in the foreseeable future, and, as a result,
stockholders will need to sell shares to realize a return on their investment.
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Consequently, you will need to sell your shares of
common stock in order to realize a return on your investment and you may not be
able to sell your shares at or above the price you paid for them.
20
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FORWARD LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. These
forward-looking statements are usually accompanied by words such as "believes,"
"anticipates," "plans," "expects" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This prospectus contains information concerning Uproar and the Internet
market generally. Some of this information is forward-looking in nature and is
based on a variety of assumptions regarding the ways in which this market will
develop. These assumptions have been derived from information currently
available to us and to the third party market observers quoted herein,
including Media Metrix, IDC and Forrester Research. They include the following
general underlying expectations:
o no catastrophic failure of the Internet will occur;
o the number of people online and the total number of hours spent online
will increase significantly over the next five years;
o government regulations will not prohibit or materially and adversely
affect our business;
o the total value of online advertising and electronic commerce will
increase significantly over the next five years; and
o Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions is incorrect, actual
market results may differ from those predicted. While we do not know what
impact these differences may have on our business, our future business, results
of operations and financial condition, and the market price of our shares of
common stock may be materially adversely impacted.
----------------
Some of the Internet usage data presented in this prospectus is derived
from statistics published by Media Metrix, an independent provider of Web
measurement services. Media Metrix draws its data from a sample of over 50,000
Web users that have installed a tracking meter on the computers they use to
access the Web, including those in their places of residence and places of
work. The meter records computer activity by individual, by date, time and
duration and page-by-page viewing of the Web. If the computer has been inactive
for more than 30 minutes the meter requires users to indicate again who is at
the computer. Media Metrix defines "unique visitors per month" as the actual
number of unduplicated users who visit a given Web site or group of sites at
least once in a given month, and "average minutes per usage day" as the average
number of minutes spent on the site or category during the day, per visiting
person.
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PRICE RANGE OF COMMON STOCK
Global instrument certificates, or GICs, representing interests in our
common stock, were approved for trading on the Sonstiger Handel of the Vienna
Stock Exchange between September 19, 1997 and November 30, 1999. From September
19, 1997 until December 31, 1998, the GICs were quoted in Austrian Schillings,
or ATS, and from January 1, 1999 until November 30, 1999, the date on which we
withdrew from the trading facility for the GICs provided by the Vienna Stock
Exchange, the GICs were quoted in euros. The following table sets forth, for
the periods indicated, the high and low sale prices as originally reported by
the Vienna Stock Exchange and as converted into United States dollars, for the
GICs. All prices have been adjusted to reflect a 2-for-1 split of our common
stock effected February 18, 2000. Conversions into United States dollars are
calculated using the noon buying rate, per United States $1.00, for cable
transfers in foreign currencies as certified by the Federal Reserve Bank of New
York on the date each relevant price was quoted.
<TABLE>
<CAPTION>
Highest Reported Price
----------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- ------------
<S> <C> <C> <C>
1997
Fourth Quarter (from September 19) ATS 21.50 $ 1.72 12.5
1998
First Quarter ATS 19.75 $ 1.54 12.8
Second Quarter 27.50 2.22 12.4
Third Quarter 35.75 2.86 12.5
Fourth Quarter 110.00 9.32 11.8
1999
[GRAPHIC OMITTED]
First Quarter 12.94 $ 14.60 0.886
Second Quarter 15.50 16.51 0.939
Third Quarter 13.30 13.57 0.980
Fourth Quarter (until November 30) 16.50 16.63 0.992
<CAPTION>
Lowest Reported Price
---------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- -----------
<S> <C> <C> <C>
1997
Fourth Quarter (from September 19) ATS 18.75 $ 1.52 12.3
1998
First Quarter ATS 19.23 $ 1.50 12.8
Second Quarter 21.75 1.67 13.0
Third Quarter 26.25 2.05 12.8
Fourth Quarter 32.13 2.80 11.5
1999
[GRAPHIC OMITTED]
First Quarter 8.70 $ 10.05 0.866
Second Quarter 13.00 13.58 0.957
Third Quarter 8.60 9.10 0.945
Fourth Quarter (until November 30) 10.00 10.71 0.934
</TABLE>
<PAGE>
Our common stock was listed on the European Association of Securities
Dealers' Automated Quotation system, or EASDAQ, on July 8, 1999. The following
price table sets forth, for the periods indicated, the high and low sale
prices, as originally reported by EASDAQ and as converted into United States
dollars, for our common stock. All prices have been adjusted to reflect a
2-for-1 split of our common stock effected February 18, 2000. Conversions into
United States dollars are calculated using the noon buying rate, per United
States $1.00, for cable transfers in foreign currencies as certified by the
Federal Reserve Bank of New York on the date each relevant price was quoted.
<TABLE>
<CAPTION>
Highest Reported Price Lowest Reported Price
---------------------------------------------- ---------------------------------------------
As converted Conversion As converted Conversion
As reported to U.S. dollars Rate As reported to U.S. dollars Rate
------------- ----------------- ------------ ------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Third Quarter (from July 8) 13.60 $ 13.88 0.980 9.25 $ 9.63 0.961
Fourth Quarter 25.78 25.99 0.992 10.00 10.71 0.934
2000
First Quarter (until March 16) 50.50 48.51 1.041 19.90 19.38 1.027
</TABLE>
The liquidity and trading patterns of securities quoted on the Vienna
Stock Exchange and EASDAQ may be substantially different from those of
securities quoted on the Nasdaq National Market. EASDAQ is a relatively new
quotation system and we are one of only a small number of issuers that quotes
its shares on EASDAQ. Historical trading prices, therefore, may not be
indicative of the prices at which our common stock will trade in the future.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of the common shares
offered by us are estimated to be
$77.7 million, at an initial public offering price in the United States of
$33.88 per share and after deducting the estimated underwriting discount and
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds will be $89.6 million.
We intend to use the proceeds of this offering in the following ways:
o approximately $41.2 million to fund our marketing activities;
o approximately $7.0 million to expand our advertising sales force;
o approximately $9.3 million to enhance our products and services;
o approximately $8.6 million to expand our business internationally;
o approximately $6.2 million to enter into distribution and affiliate
arrangements with other Web
sites; and
o approximately $5.4 million for general corporate purposes.
In addition, as part of our strategy, we seek to enter into alliances or
joint ventures with, and may acquire, complementary businesses, technologies,
services or products, some of which may be significant. We may use some of the
net proceeds for these alliances, joint ventures or acquisitions. We currently
do not have commitments or agreements with respect to any such transactions.
Actual expenditures may vary substantially from these estimates. The
amounts and timing of our actual expenditures will depend on numerous factors,
including the status of our product development efforts, marketing and sales
activities and the growth of our distribution and affiliate arrangements. We
may find it necessary to use portions of the proceeds for other purposes.
Until this money is used, we intend to invest the net proceeds in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain any future earnings to finance the operation and expansion of
our business and do not anticipate paying any cash dividends in the foreseeable
future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
o on an actual basis;
o on a pro forma basis after giving effect to the sale of 1,265,372
additional shares of our common stock at $19.76 per share on February 2,
2000 and the application of the net proceeds of that sale; and
o on a pro forma as adjusted basis to reflect our sale of 2,500,000 shares
of common stock at an initial public price in the United States of $33.88
per share, after deducting underwriting discounts and the estimated
offering expenses payable by us, and the application of the net proceeds
of that sale.
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents ....................... $ 15,136 $ 40,131 $ 117,826
========= ========= =========
Capital lease obligations ....................... $ 154 $ 154 $ 154
Stockholders' equity:
Shares of preferred stock, $.01 par value;
48,000,000 shares authorized, none issued and
outstanding, actual and as adjusted .......... -- -- --
Shares of common stock, $.05 par value;
112,000,000 shares authorized; 23,971,948
shares issued and outstanding (actual);
25,237,320 shares issued and outstanding (pro
forma); 27,737,320 shares issued and outstand-
ing (pro forma as adjusted) .................. 1,199 1,262 1,387
Additional paid-in capital .................... 85,193 110,125 187,695
Accumulated other comprehensive loss .......... (38) (38) (38)
Accumulated deficit ........................... (49,150) (49,150) (49,150)
--------- --------- ---------
Total stockholders' equity .................... 37,204 62,199 139,894
--------- --------- ---------
Total capitalization .......................... $ 37,358 $ 62,353 $ 140,048
========= ========= =========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. It does
not include:
o 5,904,408 shares subject to options outstanding as of December 31, 1999
at a weighted average exercise price of $8.52 per share; and
o 375,000 shares subject to the underwriters' over-allotment option.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $51.5
million, or $2.04 per share of our common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the pro forma number of shares of common stock
outstanding at that date assuming the sale of 1,265,372 additional shares of
our common stock at approximately $19.76 per share after deducting related
expenses. Assuming our sale of the 2,500,000 shares offered in this offering at
an initial public offering price in the United States of $33.88 per share and
after deducting underwriting discounts and estimated offering expenses, and the
application of the estimated net proceeds, our pro forma net tangible book
value as of December 31, 1999 would have been $129.2 million, or $4.66 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $2.62 per share to existing stockholders and an
immediate dilution of $29.22 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price in the United States per share ............ $ 33.88
Pro Forma net tangible book value per share as of December 31, 1999 .......... $ 2.04
Increase attributable to new investors ....................................... 2.62
------
Pro Forma net tangible book value per share after the offering .................. 4.66
--------
Dilution per share to new investors ............................................. $ 29.22
--------
</TABLE>
These tables summarize on a pro forma basis, as of December 31, 1999, the
total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ --------------------------- Average Price Per
Number Percent Amount Percent Share
------------ --------- --------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 25,237,320 91.0% $114,431,638 57.5% $ 4.53
New investors ................. 2,500,000 9.0 84,700,000 42.5 33.88
---------- ----- ------------ -----
Total ...................... 27,737,320 100.0% $199,131,638 100.0%
========== ===== ============ =====
</TABLE>
Total consideration includes non-cash proceeds of $24.7 million.
These tables and calculations do not include:
o the exercise of 5,904,408 stock options outstanding as of December 31,
1999 at a weighted average exercise price of $8.52; and
o 375,000 shares subject to the underwriters' over-allotment option.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to these
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1997 and 1998 and
the consolidated balance sheet data as of December 31, 1998 are derived from
our consolidated financial statements, which have been audited by KPMG Hungaria
Kft., independent accountants, and the selected consolidated statement of
operations for the year ended December 31, 1999 and the consolidated balance
sheet as of December 31, 1999 are derived from our consolidated financial
statements, which have been audited by KPMG LLP, independent accountants, and
are included in this prospectus. The selected consolidated statement of
operations data for the period ended December 31, 1995 and for the year ended
December 31, 1996 and the consolidated balance sheet data as of December 31,
1995, 1996 and 1997 are derived from our consolidated audited financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
Period ended
December 31,
1995
--------------
<S> <C>
Statement of Operations Data:
Revenues ................................ $ 43,365
Cost of revenues ........................ --
----------
Gross profit ............................ 43,365
Operating expenses:
Sales and marketing .................... --
Product and technology development ..... 33,190
General and administrative ............. 70,182
Amortization of intangible assets ...... --
----------
Loss from operations .................... (60,007)
Foreign exchange gain (loss) ............ (2,233)
Other income (expense), net ............. 4,326
Provision for income taxes . ............ --
----------
Net loss ................................ $ (57,914)
==========
Basic and diluted net loss
per share .............................. $ (0.05)
==========
Weighted average number of common
shares outstanding ..................... 1,138,356
==========
Pro forma basic and diluted net loss per
share .................................. $ (.02)
Pro forma weighted average number of
shares outstanding ..................... 2,403,728
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1997 1998 1999
--------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................ $ 59,698 $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................ (40,781) (216,586) (760,376) (2,533,294)
----------- ------------- ------------- -------------
Gross profit ............................ 18,917 132,123 872,593 7,858,233
Operating expenses:
Sales and marketing .................... 166,806 1,087,058 3,770,866 28,065,956
Product and technology development ..... 389,346 772,744 849,486 3,701,393
General and administrative ............. 187,362 2,092,394 2,327,720 8,919,011
Amortization of intangible assets ...... -- -- 9,303 6,086,198
----------- ------------- ------------- -------------
Loss from operations .................... (724,597) (3,820,073) (6,084,782) (38,914,325)
Foreign exchange gain (loss) ............ 49,946 (85,439) 57,401 (119,996)
Other income (expense), net ............. (27,829) 82,349 205,751 337,680
Provision for income taxes . ............ (4,909) (5,582) (9,020) (28,000)
----------- ------------- ------------- -------------
Net loss ................................ $ (707,389) $ (3,828,745) $ (5,830,650) $ (38,724,641)
=========== ============= ============= =============
Basic and diluted net loss
per share .............................. $ (0.17) $ (0.42) $ (0.40) $ (1.77)
=========== ============= ============= =============
Weighted average number of common
shares outstanding ..................... 4,258,084 9,034,928 14,697,112 21,909,456
=========== ============= ============= =============
Pro forma basic and diluted net loss per
share .................................. $ (0.13) $ (0.37) $ (0.37) $ (1.67)
Pro forma weighted average number of
shares outstanding ..................... 5,523,456 10,300,300 15,962,484 23,174,828
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
------ -------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $ 48 $ 268 $ 2,342 $ 7,036 $15,136
Working capital .......................................... 82 (261) 2,465 6,444 18,555
Total assets ............................................. 122 422 3,071 9,111 42,816
Total indebtedness, including current maturities ......... -- 512 -- 41 154
Total stockholders' equity ............................... 95 (163) 2,782 7,727 37,204
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes to those statements and other
financial information appearing elsewhere in this prospectus.
Overview
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our business was originally
formed in February 1995 as E-Pub Services Limited, a corporation organized
under the laws of Ireland. From February 1995 through July 1997, we focused on
developing our technology, raising capital and recruiting personnel and did not
generate significant revenues. In July 1997, we formed Uproar Ltd., a
corporation organized under the laws of Bermuda, which became the parent of
E-Pub Services Limited. In September 1997, we launched our Web sites uproar.com
and uproar.co.uk. Uproar Inc. was incorporated in Delaware on December 16,
1999. On January 26, 2000, Uproar Ltd. redomesticated from Bermuda to Delaware
and was merged with Uproar Inc. on January 27, 2000.
We have only a limited operating history for you to use as a basis for
evaluating our business. You must consider the risks and difficulties
frequently encountered by early stage companies like ours in new and rapidly
evolving markets, including the Internet advertising market.
We are subject to industry trends that affect Internet providers
generally, including seasonality and user inactivity. User traffic on Web sites
has typically declined during the summer and year-end vacation and holiday
periods. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third quarters of
each year.
We have incurred net losses and negative cash flows from operations since
our inception. At December 31, 1999, we had an accumulated deficit of 49.1
million. These losses have been funded primarily through the issuance of shares
of our equity securities. On July 8, 1999, we raised approximately $30.3
million through the issuance of 2,832,000 shares of our common stock which are
presently listed on EASDAQ. In January 1999, we raised an aggregate of
approximately $9.6 million through two private issuances of 1,043,360 shares of
our common stock. On February 2, 2000, we raised approximately $25.0 million
through the sale of 1,265,372 shares of our common stock to a strategic
investor.
We intend to continue to invest heavily in marketing and brand
development, content enhancement and technology and infrastructure development.
As a result, we believe that we will continue to incur net losses and negative
cash flows from operations for the foreseeable future. Moreover, the rate at
which these losses will be incurred may increase from current levels.
Advertising Revenues
Since July 1997, substantially all of our revenues have been derived from
the sale of online advertising. In December 1999, we also began to derive
revenues from our online affinity merchandising program.
Our advertising revenues are predominantly derived from:
o advertising arrangements under which we receive revenues based on the
number of times an advertisement is displayed on our services, commonly
referred to as cost per thousand impressions, or CPMs.
We also derive revenues from:
o sponsorship arrangements under which advertisers sponsor a game show,
game or portion of one of our Web sites in exchange for which we receive a
fixed payment;
o strategic partner arrangements under which our strategic partners offer
co-branded versions of our games on their Web sites and display
advertising in connection with the use of the games, in return for which
we receive revenues from the related advertising; and
27
<PAGE>
o advertising arrangements under which we receive revenues based on the
number of times users click on an advertisement displayed on our services,
commonly referred to as cost per click, or CPCs.
Our revenues from advertising are therefore affected by:
o the number of unique users visiting our Web sites during a given period;
o the amount of time that users actually spend on our Web sites, commonly
referred to as the "stickiness" of our sites;
o the number of advertisements delivered to a user while on our Web sites;
o our ability to target user audiences for our advertisers; and
o the success of our strategic partnerships.
We intermittently rotate advertisements on the pages of our Web sites where our
users tend to spend long amounts of time. As a result, we believe a more
accurate measurement of our potential to generate advertising revenue is the
number of unique users that visit our sites and the amount of time they spend
on our sites, rather than the number of registered users or page views.
We price our advertisements based on a variety of factors, including:
o whether payment is dependent upon guaranteed minimum impression or click
levels;
o whether the advertising is targeted to specific audiences; and
o the available inventory of impressions or clicks associated with a
specific game or game show that will display the specific advertisement.
Since we are able to vary the size of advertising banners we display on a
single page, we are able to charge more for "super-sized" banners than for more
traditional banners.
We recognize advertising revenues which are priced on a cost per thousand
impression, or CPM, basis as the advertisement is displayed, provided that no
significant obligations remain and collection of the resulting receivable is
probable. To the extent minimum guaranteed impression levels are not met, we
defer recognition of the corresponding revenues until guaranteed levels are
achieved. We recognize advertising revenues derived on a cost per click, or
CPC, basis as users click or otherwise respond to the advertisements. To the
extent minimum guaranteed click levels are not met, we defer recognition of the
corresponding revenues until guaranteed levels are achieved. In the case of
contracts requiring actual sales of advertised items, we may experience delays
in recognizing revenues pending receipt of data from that advertiser.
We recognize sponsorship advertising revenue ratably in the period in
which the sponsor's advertisement is displayed and costs associated with
customizing the advertisements received from sponsors are expensed as incurred.
We recognize revenues from our strategic partner arrangements ratably in the
period in which our games are displayed on a third party's Web site. In those
situations where we are responsible for selling the advertising, billing and
collections, we record the advertising revenues, and payments to our strategic
partners are recorded as cost of revenues. We are obligated to pay our
strategic partners their fee regardless of whether we ultimately collect the
advertising revenue. In those situations where our strategic partners are
responsible for selling the advertising, billing and collections, we recognize
revenue only to the extent of our share of net revenues.
If a payment is received prior to the time that we recognize revenue, we
record that payment as deferred revenues.
Barter
We also engage in barter transactions in an effort to enhance our
marketing efforts and improve our reach to potential new users. Under these
arrangements, we deliver game content, including prizes, to a third party, or
display on our Web sites advertisements promoting the third party's goods and
services in exchange for its agreement to run advertisements promoting our Web
sites. Revenues and costs from barter arrangements are recorded at the
estimated fair value of the advertisements or services we provide, unless the
fair value of the
28
<PAGE>
goods or services we receive can be determined more objectively. We recognize
barter revenue at the time we deliver the third party's advertisement or
product to our users. We recognize barter costs when our advertisements are
displayed by the third-party to its users. Barter costs are recorded either as
sales and marketing expenses or as costs of revenue. The breakdown of costs is
dependent upon the nature of the goods or services received by the third party.
Although our revenues and related costs will be equal at the conclusion of the
barter transaction, the amounts may not be equal in any particular quarter.
Barter revenues were approximately 22.4% and 13.6% of revenues for the years
ended December 31, 1998 and 1999, respectively. We anticipate that barter
revenues will account for a decreasing percentage of our revenues in the
future.
Online Affinity Merchandising Revenues
We expect to generate electronic commerce revenues from our recently
introduced online affinity merchandising program. These revenues are derived
from the sale of products directly by us to our users and, to a lesser extent,
from the associated shipping and handling fees. Revenues and cost of goods from
the sales of products are recognized at the time of shipment from our warehouse
or directly from the supplier. Although revenues from our online affiliate
merchandising program have been insignificant to date, we anticipate that these
revenues will contribute a greater percentage of our revenues in the future.
Acquisition of PrizePoint
In June 1999, we acquired PrizePoint Entertainment Corporation for a total
of 2,444,320 shares of common stock and the assumption of 124,080 options
exercisable into an additional 124,080 shares of our common stock. The
acquisition was accounted for as a pooling-of-interests.
Pearson Agreement
In January 1999, we entered into an agreement with Pearson Television
under which Pearson acquired 2,000,000 shares of our common stock in exchange
for intangible assets, advertising services to be provided over a thirty-month
period commencing April 1, 1999, and cash of $124,599. We recorded the $16.7
million difference between the value of the shares issued and the fair value of
the advertising services and cash received as an intangible asset on our
balance sheet to be amortized over the 33-month life of the agreement. The $8.0
million advertising contribution was recorded as a pre-paid advertising asset
that is being amortized over the period the ads are being shown, from April
1999 through September 2001.
Under our agreement with Pearson, we have the obligation to pay Pearson a
royalty for the rights and license to use the licensed game show formats, equal
to a percentage of gross advertising and other revenue generated from the use
of the licensed games. Additional royalties are due to Pearson for a percentage
of net revenues generated by the licensed game shows, subject to a mimimum of
$200,000 per broadcast year. The initial payment made in July 1999, which
relates to the broadcast year from September 1999 to September 2000, was
recorded as a prepayment and $50,000 was expensed in cost of revenues in the
fourth quarter of 1999.
The intangible assets recorded as a result of the transaction with Pearson
represent the benefits of the association with Pearson during the length of the
agreement, or thirty-three months, resulting from the use of Pearson's
intellectual property and our association with them. The market value of the
common stock issuable to Pearson was determined based upon the share price
quoted on the Vienna Stock Exchange at the date the agreement was signed. The
intangible assets were valued as the difference between the value of the shares
issued and the fair value of the advertising services received. The fair value
of the advertising services received was based on rate card information
provided by Pearson and our estimate of the value of the advertising and
promotional services. During the year ended December 31, 1999, amortization of
intangible assets totaled $6.1 million and amortization of prepaid advertising
services amounting to $1.3 million was recorded as advertising expense.
Should Pearson meet discernible television distribution targets between
September 1999 and August 2000 for its game shows in the United States, we will
issue 400,000 additional shares of our common stock and, if Pearson meets
further targets between September 2000 and August 2001, we will issue an
additional 400,000
29
<PAGE>
shares of our common stock. We have not included the financial impact of the
issuance of any of the additional shares in our statement of operations for the
year ended December 31, 1999 because we do not, at this time, believe that the
achievement of these targets by Pearson is probable since the relevant game
shows are not being syndicated by Pearson.
Cable & Wireless Agreement
In December 1999, we entered into an agreement with Cable & Wireless, the
largest cable television franchise owner in the United Kingdom. The agreement
provides for Cable & Wireless to display up to 14 Uproar game shows on an
Interactive service offered via its digital cable television, which Cable &
Wireless launched in October 1999.
We pay Cable & Wireless a fee, for which Cable & Wireless guarantees
placement within the service, which is accounted for in cost of revenues. The
agreement provides that Cable and Wireless is entitled to additional fees equal
to a percentage of net advertising and sponsorship revenue generated through
the sale of advertising associated with our games placed in Cable & Wireless's
digital interactive service. Such amounts are accounted for in cost of
revenues. Sales, marketing and product and technology development costs are
borne by us and recognized in the period incurred. To the extent that this
arrangement generates revenues, our net revenue would increase accordingly. As
of January 31, 2000, we have not recorded any revenue from this agreement.
Telefonica Agreement
In September 1999, we entered into an agreement with Telefonica
Interactiva de Contenidos, a Spanish corporation, to establish and develop our
products and the Uproar media property in the Spanish and Portuguese languages.
Revenues generated in connection with the Telefonica deal consist of fees
for exclusivity of distribution and for development and support obligations we
have assumed. We performed our obligations under the contract for the fourth
quarter of 1999 and, accordingly, recognized $125,000 of revenue in the fourth
quarter of 1999. Telefonica is also required to pay a royalty based on net
advertising and sponsorship revenue it generates through the sale of
advertising on Web sites, including our games, during the term of the
agreement. Advertising revenue will be recognized for this advertising and
sponsorship revenue during the period in which the advertising is delivered. No
such revenue has been recorded through December 31, 1999. Sales and marketing
costs are borne by Telefonica. Product and technology development costs
associated with the agreement are our responsibility and are recorded in the
period the costs are incurred.
Recent Strategic Investor
On February 2, 2000, we completed the sale of 1,265,372 shares of our
common stock to Trans Cosmos USA, Inc. for approximately $25.0 million. We
intend to establish a joint venture with Trans Cosmos to produce a local
language version of our flagship site, uproar.com, in Japan. Under the proposed
terms of the agreement, we would contribute our intellectual property to the
joint venture along with $500,000 in cash, and Trans Cosmos would contribute
$4.5 million in cash. In addition, we would receive an annual license fee from
the joint venture.
Results of Operations
Year Ended December 31, 1999 and 1998
Revenues
Revenues for the year ended December 31, 1999 increased to $10.4 million
from $1.6 million for the year ended December 31, 1998. The increase in
revenues was primarily due to our ability to generate significantly higher
advertising and sponsorship revenues, primarily as a result of:
o expanding our sales department;
30
<PAGE>
o increasing the number of impressions available on our sites by adding
game shows;
o increasing our number of unique users, which has enabled us to deliver an
increased level of advertising impressions; and
o increasing our branding and marketing efforts.
During the year ended December 31, 1999, we derived revenues of
approximately $1.4 million or 13.6% of revenues, from barter transactions.
During the year ended December 31, 1998, we derived $365,000, or 22.4% of
revenues, from barter transactions.
In the year ended December 31, 1999, only one advertiser, MyPoints, which
accounted for 14.2% of our revenues, accounted for more than 10.0% of our
revenues.
Cost of Revenues. Cost of revenues include:
o Internet connection costs;
o prizes;
o depreciation of equipment and software used to host our sites;
o royalties relating to our co-branded properties with our strategic
partners; and
o costs of goods sold in our affinity merchandising program.
Cost of revenues relating to our strategic partner arrangements are
recorded as an expense in the period in which the related revenues are
recorded. Minimum distribution payments, where applicable, are recorded ratably
over the period of the relevant agreement.
Cost of revenues for the year ended December 31, 1999 increased to $2.5
million from $760,000 for the year ended December 31, 1998. The increase in
cost of revenues was primarily attributable to $846,000 related to expenses
associated with prizes, $824,000 related to Internet connection costs,
depreciation costs of equipment and software of $600,000 and $250,000 of
royalties. Our gross profit increased to $7.9 million for the year ended
December 31, 1999 from $873,000 for the year ended December 31, 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of:
o advertising costs, including the costs of online and print
advertisements;
o salaries and commissions for sales and marketing personnel;
o public relations costs;
o referral fees in connection with acquisition of new users through our
affiliate program; and
o other marketing-related expenses.
Sales and marketing expenses for the year ended December 31, 1999
increased to $28.1 million from $3.8 million for the year ended December 31,
1998. The increases in sales and marketing expenses were primarily attributable
to $23.4 million in advertising, public relations and other promotional
expenditures, and $3.5 million in salaries and commissions for sales and
marketing personnel. We believe that sales and marketing expenses will continue
to increase in absolute dollars for the foreseeable future as we:
o continue our branding strategy;
o continue to expand our direct sales force;
o hire additional marketing personnel; and
o increase expenditures for marketing and promotion.
31
<PAGE>
Product and Technology Development. Product and technology development
expenses include:
o personnel costs for computer software and Web site programmers,
designers, editors and project managers;
o fees paid to writers and graphic artists; and
o the administrative costs relating to our product development facilities.
Product development expenses for the year ended December 31, 1999
increased to $3.7 million from $850,000 for the year ended December 31, 1998.
The increase in product development expenses was primarily attributable to
increased staffing levels required to develop proprietary software components
used to create our service. We have, to date, expensed all product development
costs as incurred. We believe that increased investments in new and enhanced
features and technology are critical to attaining our strategic objectives and
remaining competitive. Accordingly, we intend to continue recruiting and hiring
experienced product development personnel and to make additional investments in
product development. We anticipate that product expenditures will continue to
increase in absolute dollars in future periods.
General and Administrative. General and administrative expenses consist
primarily of:
o salaries and benefits;
o fees for professional services;
o insurance and recruiting fees; and
o costs for general corporate functions, including finance, accounting and
facilities.
General and administration expenses for the year ended December 31, 1999
increased to $8.9 million from $2.3 million for the year ended December 31,
1998. The increase was primarily attributable to $2.1 million in professional
fees, $2.6 million in salaries and benefits associated with hiring of
additional personnel and $812,000 in travel-related costs.
Year Ended December 31, 1998 and 1997
Revenues
Revenues increased to $1.6 million for the year ended December 31, 1998
from $349,000 for the year ended December 31, 1997. The increase in revenues
was due primarily to our ability to generate higher advertising and sponsorship
revenues. In the year ended December 31, 1998, two of our customers, Yahoo! and
Microsoft, each accounted for greater than 10.0% of our revenues. Yahoo! and
Microsoft accounted for 20.7% and 11.8% of our revenues, respectively, for the
year ended December 31, 1998.
Cost of Revenues
Cost of revenues increased to $760,000 for the year ended December 31,
1998 from $217,000 for the year ended December 31, 1997. The increase in cost
of revenues was primarily attributable to $243,000 related to Internet
connection costs, and $225,000 associated with prizes and depreciation costs of
equipment and software of $127,000.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $3.8
million for the year ended December 31, 1998 from $1.1 million for the year
ended December 31, 1997. The increase in sales and marketing expenses were
primarily attributable to $1.6 million in advertising, public relations and
other promotional expenditures, $1.5 million in salaries for sales and
marketing personnel, and $365,000 in barter expenses.
Product Development. Product development expenses increased to $849,000
for the year ended December 31, 1998 from $773,000 for the year ended December
31, 1997. The increase in product development expenses was primarily
attributable to increased staffing levels.
32
<PAGE>
General and Administrative. General and administrative expenses increased
to $2.3 million for the year ended December 31, 1998 from $2.1 million for the
year ended December 31, 1997. The increase in general and administrative
expenses was attributable to $710,000 in salaries and benefits associated with
hiring additional personnel, $560,000 in professional fees and $260,000 for
operating lease rental costs.
Liquidity and Capital Resources
To date, we have primarily financed our operations through the sale of our
equity securities. As of December 31, 1999, we had approximately $15.1 million
in cash and cash equivalents, an increase from $7.0 million as of December 31,
1998. Net cash used in operating activities was $2.7 million, $5.1 million and
$29.1 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash used in operating activities resulted primarily from our
net operating losses, offset by:
o depreciation and amortization; and
o increases in accounts payable and accrued expenses.
Net cash used in investing activities was $274,000, $973,000 and $5.5
million for the years ended December 31, 1997, 1998 and 1999, respectively, as
we purchased equipment to enhance and develop our technical infrastructure.
Net cash provided by financing activities was $5.1 million, $10.8 million
and $42.8 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash provided by financing activities consisted primarily of
proceeds from the sale of shares of our common stock. On July 8, 1999, we
raised approximately $30.3 million through the issuance of 2,832,000 shares or
our common stock which are presently listed on EASDAQ. In January 1999, we
raised an aggregate of approximately $9.6 million through two private issuances
of 1,043,360 shares of our common stock. On February 2, 2000, we raised
approximately $25.0 million through the sale of 1,265,372 shares of our common
stock to a strategic investor.
Our principal commitments consist of obligations under capital and
operating leases. In addition, we have committed to invest approximately
$500,000 in cash in our Japanese joint venture with Trans Cosmos. We expect our
capital expenditures will increase significantly in the future as we make
technological improvements to our system and technical infrastructure.
We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception consistent with the growth in
our operations and staffing. We anticipate that this will continue for the
foreseeable future. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, and plan to expand our
sales and marketing programs and conduct more aggressive brand promotions.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. If we issue debt securities, our fixed obligations will increase
and we may become subject to covenants that would restrict our operations. We
cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
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BUSINESS
Overview
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our registered users have
grown to 5.2 million in December 1999. Our unique user audience has similarly
grown to 3.6 million in December 1999. Moreover, Media Metrix, a leading
Internet audience measurement service, estimates that the number of unique
pages viewed on our consolidated network of Web sites grew to 106.1 million in
December 1999. Our sites are very sticky, which means that our users
consistently spend significantly more time per visit on our sites than the
industry average. According to Media Metrix, we were among the top five
stickiest consolidated networks of Web sites in each month during 1999, as
defined by average minutes spent per usage day.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. We believe that our large user base
and the stickiness of our sites provide advertisers with a highly attractive
platform to reach their target audience. As a result, the number of advertisers
and sponsors on our network has grown from 99 as of December 1998 to 256 as of
December 31, 1999. Similarly, the number of advertising impressions served over
our Web sites increased from 70.7 million in December 1998 to 327 million in
December 1999.
Industry Background
The Internet
The Internet has emerged as a mass communications and commerce medium that
millions of people worldwide use to share information, communicate and conduct
business electronically. IDC, a market research firm, estimates that the number
of Internet users worldwide will grow from 159 million in 1998 to 502 million
by the end of 2003. The relatively lower costs of publishing content on the
Internet and the availability of powerful new tools for the development and
distribution of content have led to its rapid growth.
Internet Advertising
The Internet has also become an attractive medium for advertisers.
According to Forrester Research, Internet advertising spending worldwide will
increase from $3.3 billion in 1999 to $33.0 billion by 2004.
The unique interactive nature of the Internet allows advertisers to:
o reach broad global audiences from anywhere in the world;
o gather demographic information and target their messages to specific
groups of consumers;
o change their advertisements frequently in response to market factors,
current events and consumer feedback; and
o more accurately track the effectiveness of their advertising messages.
Electronic Commerce
The growing adoption of the Internet also represents a significant
opportunity to sell goods and services over the Internet. This is commonly
referred to as electronic commerce. According to IDC, spending on the Internet
is expected to increase from $50.4 billion in 1998 to approximately $1.3
trillion in 2003. As electronic commerce grows, companies are expected to
increasingly use the Internet to reach their customers.
The Uproar Opportunity
As a result of the growing popularity of the Internet, an increasing
number of users are looking beyond traditional media, such as radio and
television, to the Internet as a source of entertainment.
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Game shows are among the most popular and long-lived programs on
television in both the United States and worldwide. They were among the first
entertainment formats to be successfully adapted to television from radio.
Moreover, new game shows are frequently developed and introduced in order to
capitalize on the popularity of the format and to draw larger audiences to
television. We believe that television game shows consistently are among the
most popular syndicated television programs.
Games and game shows are particularly well suited for online entertainment
content, especially with the development of higher bandwidth distribution
channels, and can be easily adapted to the Internet. We believe that online
games and game shows are a compelling entertainment medium for a mass user
audience because they:
o provide users with an opportunity to win prizes;
o allow users to access entertaining content according to their own
schedule from any location; and
o enable users to participate interactively in the games and game shows and
to compete against other users.
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network and
derive higher costs per thousand impressions, or CPMs.
The Uproar Network
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. As a result, our registered
users have grown to 5.2 million in December 1999. Our unique user audience has
similarly grown to 3.6 million in December 1999. Moreover, Media Metrix
estimates that the number of unique pages viewed on our consolidated network of
Web sites grew from 43.6 million in December 1998 to 106.1 million in December
1999. Due to the engaging nature of our game shows and interactive games, our
sites are very sticky, which means that our users consistently spend
significantly more time per visit on our sites than the industry average.
According to Media Metrix, in December 1999 our consolidated network of Web
sites was the fifth stickiest on the Internet, as measured by average minutes
spent per usage day. We were among the top five stickiest consolidated network
of Web sites in each month in 1999. Our network consists of the following Web
sites:
o uproar.com o uproar.co.uk o gamescene.com
o prizepoint.com o uproar.de o amused.com
o shopping.uproar.com o euro.uproar.com o mentalstate.com
We believe that our success in attracting users and advertisers to date
has been due to a number of factors, including:
Our Engaging Online Game Shows and Interactive Games
We are committed to providing our user audience with a variety of engaging
game shows and interactive games. We are focused on creating formats that we
believe will have lasting appeal to a broad-based audience and on adapting to
the Internet formats which have proven appeal in other media. We currently
provide our audience with eight multi-user games, 36 single-user arcade games
and two daily puzzles. We recently launched our online version of the game
shows Family Feud and 100%. Pursuant to our agreement with Pearson Television,
a leading provider of syndicated television game shows, we have exclusive
rights to create online versions of leading Pearson properties, including
Family Feud, Match Game, Password and 100%. These game shows have proven to be
extremely popular and appeal to a broad audience on television. Our users
frequently spend more time on our sites than on a typical Web site. We believe
the length of time spent by users on our site, or our site's stickiness, is a
validation of the engaging nature of our game and game show formats and is
highly appealing to our advertising customers.
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Our Large Audience of Registered Users with Targetable Demographics
As a result of the mass appeal of our games and game shows, our database
of registered users has grown to approximately 5.2 million people as of
December 31, 1999. We believe that our broad user base is comprised of a cross
section of the general population visiting the Web. We design our games and
game shows to attract specific demographic profiles desired by online
advertisers. For example, our CNN/SI Trivia Blitz game attracts an audience
that is more than 90% male, whereas Picture This attracts a predominately
female audience. We expend a substantial amount of time and resources to better
understand the demographics of our audience. For example, to receive prizes,
contestants must register and provide us with detailed demographic information.
We are able to use this registration information to select which advertising
will be shown to each individual player during a game. We believe these are
important factors in attracting advertisers to our Web sites and improving our
cost per thousand impressions, or CPMs.
Our Cost-Effective Customer Acquisition Strategy and Broad Distribution Channel
We have developed a cost-effective channel for the distribution of our
game shows and games. Our distribution channel consists of:
o promotional agreements with prominent, high-traffic Web sites;
o affiliate arrangements with other Web sites; and
o our relationships with Pearson and Cable & Wireless.
We have entered into promotional agreements with several high-traffic Web
sites in order to expand and diversify our user base. Currently, we have
alliances with CNN and Internet Movie Database. These parties promote our games
and game shows on their respective Web sites for fees as prescribed in the
agreements. In these alliances we have created unique, Uproar-branded or
co-branded games to appear on the third party's Web site.
We also distribute our single player game content to a variety of Web
sites through our affiliate program in order to reach as wide an audience as
possible. Under this program, Uproar-branded games are delivered to third-party
affiliates and made available on their Web sites free of charge. We typically
pay a small referral fee to affiliate sites for each registered user we obtain
through their sites. This arrangement provides us with a cost-efficient means
of increasing our registered user base by expanding our reach across the
Internet. Our affiliate network has grown from approximately 15,200 members as
of December 31, 1998 to approximately 36,100 members as of December 31, 1999.
As part of our strategic relationship with Pearson, our site uproar.com is
actively promoted to Pearson's television audience through promotional spots
and in-show exposure. We have also entered into a relationship with Cable &
Wireless under which we will provide content for its developing digital
television cable network in the United Kingdom.
In addition to promotional and affiliate relationships, we use extensive
television, radio, print and outdoor advertising to reach new users. In October
1999, we began a branding campaign which consisted of television advertising.
We incurred significant expenses in connection with our branding campaign and
intend to incur significant costs in the future to maintain and expand our user
base and brand recognition. However, we believe that our affiliate distribution
network will continue to serve as a cost-efficient method of acquiring new
users, contributing to lower overall new user acquisition costs.
Our Technology Platform
We believe that our technology platform is integral in providing our
audience with a rich and engaging entertainment experience. As a result, we
have made and expect to continue to make significant investments in developing
and implementing a technology platform to support our interactive multi-user
game shows and games. We believe that our Web sites are among the few in the
world that enable very large numbers of users to simultaneously play
interactive multi-player games and game shows. We believe that our technology
platform is critical to maintaining the entertaining and engaging nature of our
content. Moreover, we have designed our technology platform to accommodate our
growing base of users and to take advantage of
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emerging technology trends such as alternative access devices, interactive
television platforms and broadband distribution services.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
Enhancing Our Content
We will seek to enhance our network by adding other entertainment formats
in addition to games and game shows that have proven their appeal to a broad
audience in traditional media. We believe that providing our users with a
richer and more compelling entertainment experience is critical to our future
success as more people turn to the Internet as a medium for entertainment. In
addition, we intend to continue to enhance our content by improving our
existing, and creating new, games and game shows. For example, in 1999 we
introduced online versions of two popular television game shows, Family Feud
and 100%. We intend to launch online versions of two other popular game shows,
Match Game and Password, in 2000. We believe that by enhancing our game and
game show content, we will:
o further differentiate our brand from competing sites;
o provide users with a more comprehensive and satisfying entertainment
experience; and
o attract a broader audience to our Web sites; and
o compel our users to visit our sites more often and remain there longer.
In January 2000, we launched Uproar 2000. This enhanced version of our
current site uproar.com, has a new interface that we believe our users will
find more attractive and easier to use. Uproar 2000 incorporates our reward
currency, PrizePoints, into all games and game shows.
Aggressively Expanding Our User Audience
We intend to continue to aggressively expand our user base by promoting
our brand name. We believe that establishing a readily recognizable brand name
is critical to attracting a larger user base and deriving additional
advertising revenues. We intend to continue to build our brand through:
o extensive Internet, television, print and outdoor advertising;
o additional promotional and syndication opportunities;
o public relations programs; and
o new strategic alliances.
We also intend to continue to pursue additional affiliate opportunities to
further expand our user base more cost-effectively. We have developed a number
of our games for distribution through our affiliate program. We intend to seek
similar opportunities continually in order to enlarge the community of Internet
users that visit our Web site for entertainment and to increase our revenue
opportunities.
Further Monetizing Our Audience and Building Additional Revenue Streams
Our large and growing user base provides us with a platform from which we
can derive additional revenues. We intend to capitalize on our ability to
target our advertising placement to specific demographics within our large
audience of users in order to attract more advertisers to our network and to
derive higher costs per thousand impressions, or CPMs, and, consequently,
higher revenues. In addition, we intend to significantly expand our sales and
marketing efforts by hiring additional sales and marketing personnel to reach a
larger base of advertisers and sponsors.
We also intend to expand our revenue base beyond advertising to include
affinity merchandising. We recently introduced an online store,
shopping.uproar.com, that is linked to our new site, Uproar 2000. We sell
products that are both appealing to our existing audience and that are
differentiated from items commonly found on other online stores. We currently
sell approximately 460 products. We believe our audience will be
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predisposed to purchase products that complement the entertainment content that
we publish. For example, we sell a hand-held Tiger Electronics version of
Family Feud, one of our online game shows. We believe that differentiated
products will tend to have higher gross profit margins over more readily
available products. Therefore, we attempt to select those products that have
the most attractive combination of appeal to our audience and gross profit
margin opportunities.
Capitalizing on the Popularity of Our PrizePoint Rewards Program
Our PrizePoint program rewards our users with points earned by playing
online games. Our users can enter their points into a drawing for prizes. The
more points a player enters into a drawing, the greater his or her chances to
win a prize. We believe that the PrizePoint program significantly enhances the
entertainment value of our games and game shows by enabling our users to
compete to win points. Moreover, in order to be eligible to receive prizes
awarded under the program, our users must complete an online registration form
that allows us to better measure the demographics of our user audience and to
provide our advertisers with targeted advertising opportunities. We intend to
capitalize on the popularity of our PrizePoint reward program by integrating
the products and services of our affiliate merchandising partners into our
PrizePoint reward system.
Continuing to Expand Internationally
We believe that our games and game shows will be popular in international
markets. In December 1998, we launched our local Web site in Germany in
cooperation with Bertelsmann, a leading German media company, which features
game shows and puzzles in German. We also own and operate a Web site designed
for the United Kingdom market. In February 1998, we launched our
euro.uproar.com, which provides game content in 14 languages. Combined, these
sites provide local language content in a number of European countries,
including Austria, Belgium, Denmark, Holland, Finland, France, Germany, Italy,
Luxembourg, Norway, Portugal, Spain, Switzerland and Sweden.
We recently entered into an exclusive distribution and co-branding
agreement with Telefonica Interactiva, a leading provider of Internet access
and local content and services in the Spanish- and Portuguese-speaking world.
Under the agreement, our co-branded site will be the exclusive game content
provider of the Telefonica site, including the Terra Network sites. The
agreement is for a period of three years and provides for the payment of
certain minimum fees to us. We believe that our relationship with Telefonica
provides us with a unique opportunity to expand into the Spanish- and
Portuguese-speaking markets, including Spain, Brazil, Mexico, Chile and Peru.
We believe that introducing localized versions of our games and game shows
will provide us with many of the same opportunities for revenue as those in the
United States. We intend to continue to create localized games and game shows
in international markets.
Pursuing Strategic Acquisitions and Alliances
We plan to continue to expand our user base, revenues and competitive
position through strategic acquisitions and alliances. In 1999, we acquired
PrizePoint Entertainment Corporation, which offers single-player games of skill
and chance in which players compete to win points that can be entered into
drawings for prizes. In 1999, we also entered into a strategic alliance with
Pearson Television to enhance the breadth of our content, and a strategic
alliance with Telefonica Interactiva to expand our reach into the Spanish- and
Portuguese-speaking markets.
We believe that these acquisitions and alliances have significantly
enhanced our presence in our markets and have enabled us to reach a broader
base of users and advertisers. We intend to aggressively seek other
opportunities to acquire or form alliances with other companies that will
complement our network.
Alliances and Strategic Relationships
We have entered into a number of contracts that forge alliances and
strategic relationships designed to enhance and expand our brand name, promote
our Web sites, provide us with high quality, brand-identified new content and
create new revenue opportunities. These agreements are summarized below.
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Pearson Television, Inc. We entered an agreement with Pearson Television
in January 1999 that provides us with exclusive rights to create and produce
English language online versions of Pearson's game shows Family Feud, Match
Game, Password and 100%. These rights expire in September 2001, at which time
Pearson has an option to renew the contract for an additional three years. In
addition, Pearson may terminate the agreement if Mr. Simon, our Chief Financial
Officer, is not employed by us in a senior management capacity. For the term of
the agreement, Pearson will provide advertising and promotion for uproar.com on
the United States syndicated versions of these games, consisting of:
o inclusion of a 10-second commercial at the end of each of the television
game shows;
o mention of uproar.com at the close of each television program;
o inclusion of uproar.com in the closing credits of each of the television
programs; and
o inclusion of uproar.com in all written sales materials, press
advertising, press kits and media guides.
In 1999, we introduced online versions of two of Pearson's popular
television game shows, Family Feud and 100%. We intend to launch online
versions of two other popular television game shows, Match Game and Password,
in 2000.
We issued Pearson 2,000,000 shares in January 1999 in exchange for the
rights to its online games, $8.0 million in advertising services and $124,599
in cash. The value of the shares we issued to Pearson was $24.8 million. We
recorded the $16.7 million difference between the market value of the shares
issued and the fair value of the advertising services and cash received as an
intangible asset on our balance sheet which will be amortized over the 33-month
life of the agreement. As part of our agreement with Pearson, we have
guaranteed minimum royalty payments of $200,000 per broadcast year for two
broadcast years to Pearson. In the event that one or more of these games is not
financially successful for us, we still are obligated to make these minimum
royalty payments to Pearson.
Telefonica Interactiva. In September 1999, we entered into an exclusive
distribution and co-branding agreement with Telefonica Interactiva, a leading
provider of Internet access and local-language content and services in the
Spanish- and Portuguese-speaking world. Under the agreement, a co-branded
Spanish and Portuguese site will become the exclusive game content provider on
the Telefonica Web site including the Terra Network sites. In addition,
Telefonica plans to incorporate our PrizePoint rewards program into our
co-branded site, as well as its offline activities. We believe that our
agreement with Telefonica will significantly enhance our international presence
by expanding our reach into the Spanish- and Portuguese-speaking markets served
by Telefonica, including Spain, Brazil, Mexico, Chile and Peru.
To date, revenues generated in connection with the Telefonica deal consist
of fees paid to us by Telefonica for our obligation to work exclusively with
Telefonica in the Spanish- and Portuguese- language markets, and for
Telefonica's right to use our name in connection with the launch of its portal
services. These fees will total $2.9 million over 3 years to be paid quarterly,
including an aggregate of $500,000 in the first year, $800,000 in the second
year and $1,600,000 in the final year. Telefonica is also required to pay a
portion of the net advertising and sponsorship revenue generated by our
products distributed within their service during the term of the agreement.
Advertising revenue will be recognized for Uproar's share of advertising and
sponsorship revenue during the period in which the advertising is delivered.
Cable & Wireless Communications. Pursuant to our agreement with Cable &
Wireless Communications, we developed custom multi-player games for the Cable &
Wireless interactive digital television network that was launched in the United
Kingdom in October 1999. The agreement was signed in December 1998 and is in
effect for a period of three years. We expect to create a number of new games
during the term of this agreement. We share the net revenues generated by the
games with Cable & Wireless.
We pay an annual subscription fee to Cable & Wireless for this service. In
addition, we will pay Cable & Wireless a percentage of the net advertising
revenue our products generate on its service.
CNN. In September 1998, we entered an agreement with CNN to produce
co-branded trivia games that are distributed on cnn.com. We update the games
daily with questions based on current news and events. CNN promotes the games
with links from its home page, and receives a small referral fee from Uproar
for each new registered user the games generate. The agreement is currently on
a month-to-month basis.
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Recent Strategic Investor. In February 2000, we completed the sale of
1,265,372 shares of our common stock to Trans Cosmos USA, Inc. for
approximately $25.0 million. Approximately $63,000 of the net proceeds will be
allocated to common stock and the remainder, or approximately $24,937,000, will
be added to additional paid-in capital. We intend to establish a joint venture
with Trans Cosmos to produce a local language version of our flagship site,
uproar.com, in Japan. Under the proposed terms of the agreement, we would
contribute our intellectual property to the joint venture along with $500,000
in cash, and Trans Cosmos would contribute $4.5 million in cash. In addition,
we would receive an annual license fee from the joint venture.
Game and Game Show Programming
We launched uproar.com, our flagship entertainment site for the United
States market in September 1997. Since then, we have been focused on expanding
the offerings available on our site with programming designed to appeal to
broad audiences and encourage them to remain on the site for longer periods of
time than users typically spend on other Internet sites. We believe that our
site provides an attractive platform for our advertisers to reach their desired
target demographics. In December 1999, Media Metrix reported that over 3.6
million unique users visited our consolidated network of Web sites in that
month. The median age of these visitors was 33, of whom 45.2% were male and
54.8% were female.
In December 1999, we began introducing a preview of our new version of
uproar.com, called Uproar 2000. By introducing our PrizePoint incentive
currency, we believe we will improve our ability to attract, retain and
monetize a growing Internet audience. The following is a description of some of
the available programming on our network of Web sites.
Multi Player Games
Family Feud is a game produced by us under license from Pearson Television
and is designed to replicate many of the elements of the popular television
game show bearing the same name. We launched Family Feud in December 1999. The
game integrates graphics and sounds that are reminiscent of the television
show. Players are given the opportunity to match their responses to questions
against those provided by survey respondents. Players compete to be listed on a
leader board and are ultimately rewarded for accurate responses with
PrizePoints.
Bingo Blitz is our version of the classic bingo game. Bingo Blitz allows
participants to compete against thousands of other players for prizes. Each
player is provided with three bingo cards to mark. The first player to submit a
card with the correct pattern covered wins a prize. Prizes range in value from
$2.00 to $25.00. We believe that the game's animated graphics and the user's
ability to earn prizes further enhance its entertainment value.
Blow Out Bingo is a variation of bingo in which the prize offered is
progressively increased after each game that does not have a winner. As the
prize grows, it tends to attract additional players. Once we award a winner,
the prize is returned to its starting amount and the process starts again.
Premier Bingo is another variation of bingo in which different prizes are
offered depending on the ball in the sequence in which a winner achieves bingo.
The earlier in the game a player achieves bingo, the more valuable the prize.
There are five variations of Premier Bingo with prizes falling in specific
categories: finance, home and family, computers, travel and consumer
electronics. We believe that each form of Premier Bingo attracts a different
user demographic. We therefore target advertising based on the type of Premier
Bingo a user is playing.
Puzzle A-Go-Go is a version of the popular game, "hangman," which has been
enhanced for multi-player competition. This game show format was launched in
December 1997. Players compete in groups of three in real time to guess letters
in a hidden phrase. The first player to identify the phrase wins the game.
Winners are eligible for prizes that are typically given away each hour.
Picture This is a game combining popular culture trivia and images of
celebrities. Participants compete against one another in groups of five within
a virtual living room. As players answer questions, portions of a
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celebrity's image are gradually revealed. The first player to correctly
identify the name of the celebrity wins. Picture This was originally launched
in December 1997 as a co-branded and co-promoted product with People Magazine.
Currently, we exclusively own and operate the game show for an unlimited
duration.
Single Player Games
We publish a wide selection of single-user games ranging from crossword
puzzles to arcade games. These games are designed to provide an alternative to
our multi-user games and enhance the overall scope of entertainment that we
provide to our users. As of December 31, 1999, there were 36 different
single-user and arcade games and two daily puzzles available on our Web sites.
We create, develop, and own most of these games, while we license others from
third parties. We created the arcade games such as Fill-It, Battle Rocks, and
Laser Wheel that are available on prizepoint.com. We license 12 games from the
Clevermedia Network that we publish on our site gamescene.com.
Humor
Amused.com is a site featuring humor, entertainment and links to
third-party Web sites. Subtitled the Center for the Easily Amused, CNN has
referred to it as the "ultimate guide to wasting time." Amused.com features
chat rooms, trivia, and online anecdotes, some of which are contributed by the
visitors to the site. This site is designed to attract a younger audience than
our other sites, and we believe it offers advertisers an opportunity to target
teens and college students.
Affiliate Programming
We launched Trivia Blitz in August 1997 as a game to be distributed by
third-party Web sites. Approximately 36,100 sites have joined our affiliate
network. Trivia Blitz promotes the Uproar brand and attracts new players to our
sites. We publish a variety of Trivia Blitz games with editorial content in
subjects including general trivia, sports, popular music, and current news and
events. We also publish Trivia Blitz games in Spanish, German, Danish, and
Italian to serve some of our international markets. Players that do well in the
Trivia Blitz games are encouraged to register with us in order to qualify for
prize drawings. If a player registers, we pay the affiliate partner a small
referral fee, which serves as a revenue source for the partner. We believe our
affiliate program offers third-party Web sites an attractive combination of
engaging content and a revenue opportunity, while providing us with registered
users at low cost.
PrizePoints
Players earn points called "PrizePoints" on our Uproar 2000 and
prizepoint.com sites. Players can accumulate PrizePoints over time and use them
to enter drawings to win prizes and cash. The larger the number of PrizePoints
that a player enters into a particular drawing, the greater the player's
chances of winning the drawing. We consider PrizePoints an incentive currency
in a manner that is similar to airline frequent flyer points. Uproar players
have an incentive to earn, collect and accumulate PrizePoints. We believe
that our users will consistently return to our sites to try to accumulate
additional PrizePoints. In addition, we can alter the rate at which PrizePoints
are awarded to encourage behavior on our sites that improves the commercial
performance of the site.
We initially awarded PrizePoints only on our site, prizepoint.com. In
December 1999, we expanded our PrizePoint program to include Uproar 2000. We
intend to further expand this program and award PrizePoints on all of our
properties, including our international Web sites. In addition, we intend to
award PrizePoints in our affiliate network games.
International Programming
Uproar.co.uk is our Web site for the United Kingdom market. Launched in
September 1997, the Web site offers sites that are essentially the same as our
United States site, but the content is selected with consideration for United
Kingdom cultural and language differences. As in the United States, players
compete in a variety of game shows for fun and cash prizes.
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Uproar.de, our German language site, was launched in December 1998 in
cooperation with Bertelsmann. This relationship allowed us to expand rapidly
into the German market. Today, we independently own and operate uproar.de.
Uproar.de features the multi-player game shows Mission Brain Attack and Berti's
Buro, plus three versions of the Trivia Blitz application. The games are
designed to match the cultural and language requirements of the German-language
audience.
Euro.uproar.com offers Bingo Blitz in 11 languages and offers our audience
the opportunity to play against a worldwide player base.
Affinity Merchandising and Electronic Commerce
We recently introduced an online store, shopping.uproar.com, that is
linked to our Uproar 2000 site. We strive to sell products that are both
appealing to our existing audience and are differentiated from items commonly
found on other online stores. We currently sell approximately 460 products
selected by our internal team of merchants. We believe our audience will have a
preference for products that complement our entertainment content. For example,
we sell a hand-held Tiger Electronics version of Family Feud, one of our online
game shows. We believe that differentiated products will tend to have higher
gross margins in the future over more readily available products. Therefore, we
attempt to select those products that have the most attractive combination of
appeal to our audience and higher gross margin opportunities.
We have a contract with Digital River to build and operate the online
store. We select the products sold on our store and have approval over the look
and feel of shopping.uproar.com. Digital River's systems, however, are used to
implement searching, shopping cart functions and customer electronic mail
notifications on the site. In addition, Digital River's systems are used to
communicate to a third-party credit card processing service and to our
warehousing facility. Digital River also runs a customer service center on our
behalf that operates 24 hours, seven days a week. The customer service center
is accessible via electronic mail and a toll-free telephone line. Under our
agreement, we pay Digital River a fee per transaction processed.
We take title and warehouse the majority of the items that we sell on
shopping.uproar.com. We have a contract with DSS to supply us with warehousing
facilities. DSS handles all aspects of operating the warehouse, including
accepting shipments from our suppliers, downloading orders electronically from
Digital River and packing products for shipment to our customers.
Advertising Sales
As of December 31, 1999, we had a sales organization of 21 professionals
in the United States and two professionals in the United Kingdom.
Sales Organization
Our sales organization is dedicated to maintaining close relationships
with top advertisers and leading advertising agencies. It is structured on a
regional basis and is focused solely on selling advertising on our Web sites.
Our sales organization consults regularly with advertisers and agencies on
design and placement of
their Web-based advertising, provides customers with advertising measurement
analysis and focuses on providing a high level of customer service
satisfaction.
Advertising Programs and Products
Currently, we enter into agreements with our advertisers and advertising
agencies under which they pay for a guaranteed number of impressions for a
fixed fee. These agreements range from one month to one year. Advertising on
our Web sites currently consists primarily of banner-style advertisements,
buttons and sponsorships from which viewers can connect directly to the
advertiser's own Web site. Our standard cost per thousand impressions, or CPMs,
for banner advertisements varies depending on the location of the
advertisements on the site and the extent to which the advertisements are
targeted to a particular audience.
We also offer our advertising customers other direct marketing and
advertising solutions in order to build brand awareness, generate leads and
drive traffic to an advertiser's site. These include newsletter sponsorships,
opt-in electronic mail programs under which users must affirmatively check a
box to indicate interest, and fixed-fee game sponsorships.
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Advertisers
We had 256 advertisers and sponsors on our Web sites during the year ended
December 31, 1999. The following is a selected list of our current advertising
customers, which are representative of our customer base:
About.com Disney Gillette MSN
Ask Jeeves eHow Golden Palace MyPoints
CoolSavings.com FreeShop.com Mail.com
These advertisers, in the aggregate, accounted for approximately 40.5% of
total revenues in the year ended December 31, 1999.
Marketing and Brand Awareness
We use multiple advertising media like television, print and Web-based
advertising in order to:
o build our brand;
o increase traffic; and
o raise our profile among potential advertisers.
Our television advertisements have appeared on broadcast television in
several large markets in the United States, including New York, San Francisco,
Chicago and Los Angeles. In addition to advertising on television, we advertise
in print, use outdoor advertising and have a significant presence in targeted
online media. We also have an extensive public relations campaign. Our
strategic and content partners also typically provide us with advertising
support.
Technology and Infrastructure
We maintain a 27-member technical staff in New York. This technical staff
is responsible for developing our Web sites and game programming and for
managing the distribution of our content through our domestic Web sites. We
also maintain a 23-member technical staff in Budapest, Hungary. The Budapest
technical team is responsible for providing international support for our
content, as well as developing country-specific content and managing the
technical infrastructure for our international Web sites.
Our technical staff strives to create a comfortable and compelling user
experience for as large an audience of visitors as possible. This involves
developing reliable, secure, and scalable Web sites using industry-standard
technologies. Our game content and certain elements of our server systems use
the Java programming language. We also make extensive use of Microsoft Web
server technology, as well as the Windows NT Server operating system.
Some of our most popular interactive games involve simultaneous,
multi-player activity. In order to create a seamless user experience in this
type of environment, we have developed a highly scalable, distributed server
system capable of delivering real time interactivity between a large number of
simultaneous users in a multi-player environment.
Our business is based on the delivery of banner advertising within pages
viewed by users of our Web sites and our advertising customers require timely
and accurate reporting of actual advertising delivered on our sites. We have
contracted with AdForce, Inc. to serve our advertising and provide the
corresponding reporting.
We distribute our programming from data centers in New York and London. We
are currently expanding our data center operations to include a facility in
California. Our domestic data centers are operated at facilities provided by
Level 3 Communications and Digital Telemedia. Our data center in London is
operated at facilities provided by PSI Net.
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Competition
Many companies provide Web sites targeted to audiences seeking various
forms of entertainment content. We compete with all of these companies for
visitor traffic, advertising dollars and electronic commerce. This competition
is intense and is expected to increase significantly in the future as the
number of entertainment-orientated Web sites continues to grow. We believe that
our competitive advantage to date has been largely dependent upon:
o the perceived value of our content relative to other available
entertainment alternatives, both online and elsewhere; and
o the fact that we are one of the few online entertainment properties
capable of delivering real time interactivity between a large number of
simultaneous users.
We continue to pursue developing advantages over our competition based on
the quality of our products, the effectiveness of our marketing programs and
the continuous development of the Uproar brand.
Our primary direct competitors for online game shows and similar
entertainment include:
o Gamesville/Lycos;
o Mplayer.com;
o Sony Station;
o Pogo; and
o Zone.com.
Some of our competitors maintain game show style formats similar to those
offered by us. Sony Station, for example, currently has the exclusive right to
the online versions of the television game shows Jeopardy and Wheel of Fortune
and the board game Trivial Pursuit. Other competitors primarily offer "extreme"
games similar to many arcade and video games. We do not actively participate in
that segment of the market. Many competitors offer a wide variety of online
single-player games.
We also compete indirectly with many providers of content and services
over the Internet, including search engines and entertainment content sites. In
addition, we compete with traditional forms of media, like newspapers,
magazines, radio and television for advertisers and advertising revenue. If
advertisers perceive the Internet or our Web site to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to our Web sites.
The online entertainment market does not have substantial barriers to
entry. Increased competition could result in:
o lower advertising rates;
o price reductions and lower profit margins;
o loss of visitors;
o reduced ad impressions; and
o loss of market share.
Government Regulation and Legal Environment
General. There are an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
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application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition.
Liability for Information Retrieved from Our Web sites and from the
Internet. Content may be accessed on any of our Web sites or on the Web sites
of our affiliates, and this content may be downloaded by users and subsequently
transmitted to others over the Internet. This could result in claims against us
based on a variety of theories, including defamation, obscenity, negligence,
copyright or trademark infringement or other theories based on the nature,
publication and distribution of this content. These types of claims have been
brought, sometimes successfully, against providers of Internet services in the
past. We could also be exposed to liability with respect to third-party content
that may be posted by users in chat rooms offered on our Web sites. It is also
possible that if any information provided on our Web sites contains errors or
false or misleading information, third parties could make claims against us for
losses incurred in reliance on such information. Our sites contain numerous
links to other Web sites. As a result, we may be subject to claims alleging
that, by directly or indirectly providing links to other Web sites, we are
liable for copyright or trademark infringement or the wrongful actions of third
parties through their respective Web sites.
The Communications Decency Act of 1996, or CDA, was enacted in the United
States to prohibit the transmission over the Internet of indecent, obscene or
offensive content. Although selected parts of the CDA have been deemed
unconstitutional, provisions protecting providers of Internet services from
claims related to third-party content remain effective. Under the CDA, a
provider of Internet services will generally not be treated as a publisher or
speaker of any information available on its service but provided by a
third-party content provider unless the provider of Internet services exerts
editorial control over the content or embraces the content as its own. Our
activities may not permit us, in every instance, to take advantage of this safe
harbor provision. Although we attempt to reduce our exposure to this potential
liability through, among other things, provisions in our affiliate agreements,
user policies and disclaimers, the enforceability and effectiveness of such
measures are uncertain.
Our general liability insurance may not cover all potential claims to
which we are exposed and may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on our business, results of operations and financial condition. Even to
the extent that these claims do not result in liability to Uproar, we could
incur significant costs in investigating and defending against these claims.
Potential liability for information disseminated through our Web sites could
lead us to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources and limit the
attractiveness of our service to users.
Online Content Regulations. Several United States federal and state
statutes prohibit the transmission of indecent, obscene or offensive content
over the Internet to particular groups of persons. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and
advertisements available on our Web sites. Legislation regulating online
content could dampen the growth in use of the Internet generally and decrease
the acceptance of the Internet as an advertising and electronic commerce
medium.
Legislation Prohibiting Online Gambling. Congress is currently considering
legislation that seeks to ban Internet gambling activities. One pending bill
has already been approved by the Senate and would prohibit a gambling-related
business from using the Internet to facilitate wagering. If enacted into law in
its current form, the bill would likely subject those who display advertising
for unlawful Internet gambling sites to criminal penalties. We do not engage in
gambling activities ourselves but we do accept advertising from online gambling
sites. For the year ended December 31, 1999, approximately 14.5% of our
revenues were derived from gambling sites. If these sites are outlawed or
substantially curtailed, our business could suffer. The pending legislation may
impose liability on United States companies that are deemed to assist in the
operation of offshore illegal gambling sites. If Congress ultimately passes
this legislation in a form that prohibits us from accepting advertising from
gambling sites, we would take all reasonable measures to comply with the
legislation and our advertising revenues would decline.
Regulation of Sponsors of Contests and Sweepstakes. Contests and games of
chance are subject to the gambling, lottery and disclosure laws of various
jurisdictions in which we offer our contests and games.
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Although we have been advised by counsel that our contests and games are in
compliance with the laws of all jurisdictions in which we offer them, the laws
or the way they are interpreted and enforced may change from market to market.
A game sponsor, for example, cannot require the consumer to make a payment, buy
its product or provide a substantial benefit, collectively called
"consideration," as a condition of entering its game of chance, or in some
instances, its contest of skill. If consideration were interpreted differently
in a particular jurisdiction, we may find it necessary to eliminate, modify or
cancel components of our products that could result in additional development
costs and/or the possible loss of revenue.
Privacy Concerns. The United States Federal Trade Commission, or FTC, is
considering adopting regulations regarding the collection and use of personal
identifying information obtained from individuals when accessing Web sites,
with particular emphasis on access by minors. These regulations may include
requirements that companies establish procedures to, among other things:
o give adequate notice to consumers regarding information collection and
disclosure practices;
o provide consumers with the ability to have personal identifying
information deleted from a company's database;
o provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
o clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's Web site; and
o obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
These regulations may also include enforcement and redress provisions.
Moreover, our business model is in part based upon our ability to obtain
registration information about our users and to use this information for
targeted advertising. If new regulations are adopted that limit or eliminate
our ability to use this information, our business, results of operations and
financial condition could be materially adversely affected. Even in the absence
of these regulations, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. The FTC's
regulatory and enforcement efforts alone may adversely affect the ability to
collect demographic and personal information from users, which similarly could
have an adverse effect on our ability to provide highly targeted opportunities
for advertisers.
It is also possible that "cookies," or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become subject to laws
limiting or prohibiting their use. A number of Internet commentators, advocates
and governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of our use of cookies could limit the effectiveness of our
targeting of advertisements, which could have a material adverse effect on our
business, results of operations and financial condition.
The European Union, or EU, has adopted a directive that imposes
restrictions on the collection and use of personal data. Under the directive,
EU citizens are guaranteed rights to access their data, rights to know where
the data originated, rights to have inaccurate data rectified, rights to
recourse in the event of unlawful processing and rights to withhold permission
to use their data for direct marketing. The directive could, among other
things, affect companies that collect information over the Internet from
individuals in EU member countries, and may impose restrictions that are more
stringent than current Internet privacy standard in the United States. In
particular, companies with offices located in EU countries will not be allowed
to send personal information to countries that do not maintain adequate
standards of privacy. The directive does not, however, define what standards of
privacy are adequate. As a result, the directive may adversely affect our
activities because we engage in data collection from users in EU member
countries.
Data Protection. Legislative proposals have been made by the United States
government that would afford broader protection to owners of databases of
information such as stock quotes and sports scores. This
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protection already exists in the EU. If enacted, this legislation could result
in an increase in the price of services that provide data to Web sites and
could create potential liability for unauthorized use of this data. Either of
these possibilities could have a material adverse effect on our business,
results of operations and financial condition.
Internet Taxation. A number of legislative proposals have been made at the
United States federal, state and local level, and by certain European
governments, that would impose additional taxes on the sale of goods and
services over the Internet and certain states have taken measures to tax
Internet-related activities. Although the United States Congress recently
placed a three-year moratorium on state and local taxes on Internet access or
on discriminatory taxes on electronic commerce, existing state or local laws
were expressly excepted from this moratorium. Further, once this moratorium is
lifted, some type of federal and/or state taxes may be imposed upon Internet
commerce. This legislation, or other attempts at regulating commerce over the
Internet, may substantially impede the growth of commerce on the Internet and,
as a result, materially adversely affect our opportunity to derive financial
benefit from those activities.
Domain Names. Domain names are Internet "addresses." The current system
for registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
We have registered several domain names. We may seek to register additional
domain names, although there is no assurance we will successfully obtain the
registrations and third parties may bring claims for infringement against us
for the use of any of our domain names or other trademarks. Our domain names
may lose their value, or we may not have to obtain entirely new domain names in
addition to or in lieu of its current domain names if reform efforts result in
a restructuring in the current system.
Jurisdictions. Due to the global nature of the Internet, it is possible
that, although our transmissions over the Internet originate primarily in the
United States and the United Kingdom, the governments of other states and
countries might attempt to regulate our transmissions or prosecute us for
violations of their laws. These laws may be modified, or new laws enacted, in
the future. Any of these developments could have a material adverse effect on
our business, results of operations and financial condition. In addition, as
our service is available over the Internet in multiple states and countries,
these jurisdictions may claim that we are required to qualify to do business as
a foreign corporation in each of these states or countries. We are qualified to
do business only in Delaware, New York, California, the United Kingdom and
Hungary, and our failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties and
could result in our inability to enforce contracts in those jurisdictions. Any
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on our business, results of
operations and financial condition.
Intellectual Property and Proprietary Rights
We do not currently maintain patents on our technology and others may be
able to develop similar technologies in the future. We regard our copyrights,
service marks, trademarks, trade secrets and other intellectual property as
critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers, partners and others to protect our intellectual property rights.
Despite our precautions, it may be possible for third parties to obtain and use
our intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving.
We are pursuing the registration of our trademarks in the United States,
Germany, Italy, Norway, Sweden and the United Kingdom. We may not be able to
secure adequate protection for our trademarks in the United States and other
countries. To date, we do not believe that any oppositions have been filed.
We also currently hold trademark registrations in the United States,
United Kingdom, Germany, Sweden, Norway, Finland, Denmark and Iceland.
Effective trademark protection may not be available in all the countries in
which we conduct business. Policing unauthorized use of our marks is also
difficult and expensive. In addition, it is possible that our competitors will
adopt product or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to customer confusion.
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We currently license an advertising serving system from AdForce. This
system delivers and tracks advertising impressions and click-throughs in all of
our Web sites. If the AdForce system is no longer available or our license is
terminated, we would be likely to suffer a disruption in our business, which
could materially adversely affect our results of operations. In addition, a
replacement system could be costly to license and install.
We also license communications infrastructure software that we utilize in
Uproar 2000 from Tibco Software, Inc. Tibco granted this license to us without
charge until February 2000, at which time we will begin to pay Tibco a
licensing fee. The license agreement with Tibco does not contain a defined
termination date. If the Tibco license is terminated, we would likely suffer a
disruption in our business, which could materially adversely affect our results
of operations. In addition, a replacement system could be difficult to identify
and obtain.
Our inability to effectively protect our trademarks and service marks
would have a material adverse effect on our business, results of operations and
financial conditions. We also intend to continue to license technology from
third parties. The market in which we operate is continually and rapidly
evolving, and we may need to license additional technologies to remain
competitive. In addition, we may fail to successfully integrate any licensed
technology into our services. Our inability to obtain any of these licenses
could delay product and service development until alternative technologies can
be identified, licensed and integrated.
Employees
As of December 31, 1999, we had 157 full-time employees, of whom 23 worked
in sales, 19 in marketing, 82 in production and technology; 9 in merchandising;
and 17 in finance and administration. Of these employees, 107 are primarily
resident in the United States and 50 in Europe. From time to time, we employ
independent contractors to support our research and development, marketing,
sales and editorial departments. None of our personnel are represented under
collective bargaining agreements. We consider our relations with our employees
to be good.
Facilities
Our executive offices are located in approximately 29,000 square feet of
office space in New York, under a lease that expires in August 2005. We also
lease approximately 8,900 square feet of office space in San Francisco under a
lease that expires in November 2004 and approximately 6,300 square feet of
office space in Budapest under a lease that expires in October 2001, unless we
choose to extend it to October 2003. In addition, we lease small sales offices
in London, Chicago and Los Angeles.
Legal Proceedings
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth our directors, executive officers and other
key employees, their ages and the positions held by them:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Kenneth D. Cron ................. 43 Chairman of the Board of Directors and Chief Executive Officer
Christopher R. Hassett .......... 37 President, Chief Operating Officer and Director
Michael K. Simon ................ 35 Chief Financial Officer and Director
Francis G. Blot ................. 37 Executive Vice President, Product Marketing
Shannon King .................... 43 Executive Vice President, Merchandising
Robert D. Marafioti ............. 52 Executive Vice President, General Counsel and Secretary
Jeffrey L. Strief ............... 44 Executive Vice President, Marketing and Sales
Thompson B. Barnhardt ........... 36 Director
Esther Dyson .................... 48 Director
James J. Geddes, Jr. ............ 49 Director
Catherine V. Mackay ............. 32 Director
</TABLE>
Kenneth D. Cron joined us as our Chief Executive Officer and as a director
in September 1999. In December 1999, Mr. Cron was appointed the Chairman of our
board of directors. From September 1978 to June 1999, Mr. Cron worked at CMP
Media where, as the President of Publishing, he had responsibility for the
company's United States businesses, including its print publications, trade
show conferences and online services. He was also a director of CMP Media. Mr.
Cron earned a B.A. from the University of Colorado.
Christopher R. Hassett joined us as our President, Chief Operating
Officer, and as a director in July 1999, subsequent to our acquisition of
PrizePoint Entertainment. Mr. Hassett was PrizePoint's co-founder and Chief
Executive Officer from March 1998 to June 1999. Prior to that, Mr. Hassett
founded Pointcast, serving as its Chairman and Chief Executive Officer from
November 1992 to October 1997. In 1996, Mr. Hassett was recognized as Business
Week's entrepreneur of the year and as C Net's person of the year. Mr. Hassett
earned a B.S. in electrical engineering from the University of Lowell.
Michael K. Simon is our founder. He was the Chairman of our board of
directors from July 1999 to December 1999 and served as our Chief Executive
Officer from February 1995 to September 1999. Since November 1999, Mr. Simon
has served as our Chief Financial Officer. Prior to founding Uproar, Mr. Simon
was the Managing Director of Ablaksoft Kft., a Hungarian software company, from
April 1993 to February 1995. He earned an M.B.A. from Washington University in
St. Louis and a B.S. in Electrical Engineering from the University of Notre
Dame.
Francis G. Blot joined us as our Executive Vice President, Product
Marketing, in July 1999, subsequent to our acquisition of PrizePoint
Entertainment. Mr. Blot co-founded PrizePoint in March 1998 and served as its
Vice President of Marketing from March 1998 to June 1999. From June 1994 to
March 1998, Mr. Blot was Vice President of Business Development at Pointcast,
where he was responsible for, among other things, its electronic commerce
business. Prior to that, Mr. Blot worked in business and product development
positions for Prodigy for nearly seven years. Mr. Blot earned a B.S. in
electrical engineering from SUNY Utica.
Shannon King joined us as our Executive Vice President of Merchandising in
August 1999. From April 1984 to August 1999, Ms. King served as Executive Vice
President of Merchandising for The Sharper Image, where she was responsible for
all merchandising for that company's 85-store retail chain, catalog and
wholesale business. Ms. King earned a Master's in international business from
the American Graduate School of International Management and a B.A. in
international business and politics from the University of Colorado.
Robert D. Marafioti joined us in October 1999 as Executive Vice President,
General Counsel and Secretary. From October 1988 through June 1999, he worked
for CMP Media, where he served as Executive Vice President, General Counsel and
Secretary. Mr. Marafioti received a B.A. from Yale University and a J.D. from
Columbia School of Law.
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Jeffrey L. Strief joined us as our Executive Vice President of Marketing
and Sales in October 1999. From May 1985 to June 1999, Mr. Strief worked for
CMP Media, where he served as Executive Vice President of the Business
Technology Group with responsibility for InformationWeek and other technology
publications and Internet services. Mr. Strief earned a B.A. in marketing from
California State University Fullerton.
Thompson B. Barnhardt joined our board of directors in February 1995.
Since November 1999, he has been President of BiznesPolska.pl, an Internet
publishing company. From June 1994 to October 1999, Mr. Barnhardt was President
of New World Publishing, Inc., a publisher of several English-language business
journals in Central Europe. Mr. Barnhardt earned an M.B.A. from the University
of Virginia Darden Graduate School of Business Administration and a B.A. in
economics from the University of Virginia.
Esther Dyson joined our board of directors in April 1997. Ms. Dyson has
been the Chairman of EDventure Holdings, publisher of the newsletter Release
1.0, since 1983. She is the author of Release 2.0, an acclaimed book about
cyberspace. Ms. Dyson is a director of four software companies: Graphisoft,
Languageware.net, Scala Business Solutions and Thinking Tools. She is also a
director of Medscape, a healthcare Web site, PRT Group, a systems integrator,
and WPP Group, a multimedia company. Ms. Dyson holds a B.A. from Harvard
College.
James J. Geddes, Jr. joined our board of directors in February 2000 as a
result of our agreement with Trans Cosmos USA, Inc. He has worked for Trans
Cosmos since August 1994 in various capacities. Mr. Geddes is currently Senior
Managing Director of Trans Cosmos and a member of its board. Mr. Geddes earned
a B.S.E.E. from the University of Maryland.
Catherine V. Mackay joined our board of directors in September 1999 as the
result of our agreement with Pearson Television. She has worked for Pearson
Television Enterprises since March 1995 in various capacities. Ms. Mackay is
currently President of Pearson Television Enterprises, the division of Pearson
Television that operates all of its Internet, interactive television,
merchandising and music publishing activities. Prior to joining Pearson
Television Enterprises, Ms. Mackay worked for Cie Generale des Eaux, from
January 1994 to August 1995. Ms. Mackay earned an M.B.A. from INSEAD and a B.A.
from Oxford University.
Composition of the Board of Directors
Our board of directors currently consists of seven members, four of whom
are outside directors. The directors are elected by our stockholders at the
annual meeting of our stockholders. Each of our directors holds office until
the next annual meeting of stockholders and until the director's successor is
elected and qualified, or until the director's earlier death, resignation or
removal. We will appoint independent directors to each of our audit and
compensation committees after the completion of this offering in compliance
with the rules promulgated by the Securities and Exchange Commission and The
Nasdaq Stock Market, Inc.
Board Committees
The audit committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the recommendation of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices.
The compensation committee of the board of directors recommends, reviews
and oversees the salaries, benefits, and stock option plans for our employees,
consultants, directors and other individuals compensated by us. The
compensation committee will also administer our compensation plans.
Director Compensation
In the past, we have compensated our directors with stock options from
time to time. As of December 31, 1999, our directors held options to purchase
96,000 shares for compensation for services.
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Under the automatic option grant program of our Stock Incentive Plan, each
individual who first joins the board of directors as a nonemployee member of
the board will also receive an option grant for 30,000 shares of our common
stock at the time of his or her commencement of service on the board. In
addition, as of February 4, 2000, and at each subsequent annual meeting of
stockholders beginning with the 2001 annual meeting, each individual who has
served as a nonemployee board member for at least 6 months and is to continue
to serve as a nonemployee member of the board of directors will be granted an
option to purchase 5,000 shares of our common stock.
No executive officer of Uproar serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of Uproar's board of directors or compensation committee.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our other highly-compensated executive
officers whose annual salary and bonus exceeded $100,000 in 1999 for services
rendered in all capacities during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards --
Other Annual Securities
Name and Principal Position Salary Bonus Compensation Underlying Options
- ------------------------------------------- ---------- --------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Kenneth D. Cron(1) ........................ 1998 $ -- $ -- $ -- --
Chairman and Chief Executive Officer 1999 -- -- -- 1,600,000
Christopher R. Hassett(2) ................. 1998 -- -- -- --
President and Chief Operating Officer 1999 162,950 -- -- 686,978
Michael K. Simon(3) ....................... 1998 122,495 -- -- 82,000
Chief Financial Officer 1999 150,000 -- 2,950 100,000
David A. Becker(4) ........................ 1998 108,717 32,800 -- --
1999 150,000 35,820 -- --
</TABLE>
- ------------
(1) Kenneth D. Cron joined us as our Chief Executive Officer in September 1999
and became Chairman of our board of directors in December 1999. Mr. Cron
is not entitled to receive an annual salary or bonus from us.
(2) Christopher R. Hassett joined us as our Chief Operating Officer and as a
director in July 1999. He currently also serves as our President. Mr.
Hassett is not entitled to receive an annual salary or bonus from us.
(3) Mr. Simon served as our Chief Executive Officer until September 1999 and as
our Chairman until December 1999.
(4) Mr. Becker was our President and Chief Operating Officer until August 1999.
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 to our Chief Executive Officer and to each of our most highly
compensated executive officers, whose salary and bonus exceeded $100,000 in
1999. The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair market
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. The percentage of total options granted to employees in the last fiscal
year is based on options to purchase an aggregate of 5.3 million shares of
common stock granted under our option plans. We have never granted any stock
appreciation rights.
51
<PAGE>
<TABLE>
<CAPTION>
Percent of
Number of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Underlying Granted to Price Per of Stock Price Appreciation
Options Employees Share Expiration for Option Term
Name Granted In 1999 ($) Date 5% 10%
- -------------------------------- ------------ ------------ ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cron ................ 1,600,000 30.0% $ 9.43 9/9/09 $9,483,731 $24,033,636
Christopher R. Hassett ......... 686,978 12.9 9.43 9/9/09 4,071,947 10,319,112
Michael K. Simon ............... 100,000 1.9 9.43 9/9/09 592,733 1,502,102
David A. Becker ................ -- -- -- -- -- --
</TABLE>
Aggregated Option Exercises in the Year Ended December 31, 1999 and Year-End
Option Values
The following table sets forth information concerning the value realized
upon exercise of stock options and the number and value of unexercised options
held as of December 31, 1999 by our Chief Executive Officer and our most highly
compensated executive officers whose salary and bonus exceeded $100,000 in
1999. The values set forth below were calculated based on the fair market value
of the shares underlying the options on the date of exercise, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options at In-the-Money Options
December 31, 1999 at December 31, 1999
Shares Acquired Value ------------------------------ -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ----------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cron ................ -- $-- 800,000 800,000 $10,439,106 $10,439,100
Christopher R. Hassett ......... -- -- 343,489 343,489 4,482,743 4,482,148
Michael K. Simon ............... -- -- 109,759 72,241 1,863,392 1,403,135
David A. Becker ................ -- -- 400,000 -- 8,105,553 --
</TABLE>
Employment Agreements
In the United States, we typically enter into employment agreements only
with senior executive officers. We have entered into employment agreements with
Mr. Cron, our Chairman of the Board and Chief Executive Officer; Mr. Hassett,
our President and Chief Operating Officer; Mr. Simon, our Chief Financial
Officer; Mr. Marafioti, our Executive Vice President and General Counsel; and
Mr. Strief, our Executive Vice President of Marketing and Sales.
We entered into employment agreements with each of Messrs. Cron and
Hassett in September 1999 and with each of Messrs. Marafioti and Strief in
October 1999. Each employment agreement provides for compensation solely in the
form of options to acquire our common stock.
Pursuant to the agreement with Mr. Cron, we have granted him options to
acquire 1,600,000 shares of our common stock, of which options to acquire
800,000 shares have vested and are currently exercisable, and options to
acquire the remaining 800,000 shares will have vested and become exercisable by
September 6, 2001. Pursuant to the agreement with Mr. Hassett, we have granted
him options to acquire 686,978 shares of our common stock, of which options to
acquire 343,489 shares have vested and are currently exercisable, and options
to acquire the remaining 343,489 shares will have vested and become exercisable
by September 6, 2001. In the event of the termination of employment of Mr. Cron
or Mr. Hassett for any reason other than termination by us for cause, or in the
event of a change of control of Uproar, all stock options that have not been
exercised will immediately vest.
Pursuant to the agreement with Mr. Marafioti, we have granted him options
to acquire 500,000 shares of our common stock, of which options to acquire
62,498 shares have vested and are currently exercisable, and options to acquire
the remaining 437,502 shares will have vested and become exercisable by
September 25, 2001. Pursuant to the agreement with Mr. Strief, we have granted
him options to acquire 700,000 shares of our common stock, of which options to
acquire 87,498 shares have vested and are currently exercisable, and options to
acquire the remaining 612,502 shares will have vested and become exercisable by
September 25, 2001. In the event of the termination of employment of Mr.
Marafioti or Mr. Strief by reason of his resignation for good reason or his
termination by us without cause, or in the event of a change of control of
Uproar, all stock options that have not been exercised by them will immediately
vest.
52
<PAGE>
Messrs. Cron, Hassett, Marafioti and Strief are also entitled to
participate in all health and other benefit plans provided by us to our
executive employees. The employment of each continues on an at-will basis. The
employment agreement of each of the executives prohibits him from competing
with us for a period of one year from the date of termination if we terminate
his employment for cause or if he resigns without good reason. We have agreed
to indemnify each of the four executives for all liabilities relating to their
status as officers or directors to the extent permitted by the laws of the
State of Delaware.
We entered into an employment agreement with Mr. Simon in December 1999.
His employment agreement provides for compensation in the form of an annual
salary and bonus. In addition, beginning on March 31, 2000, at the end of each
calendar quarter during the term of the agreement, we will grant Mr. Simon
options to acquire 15,000 shares of our common stock, which will vest and be
exercisable upon termination of the agreement. Mr. Simon is also entitled to
participate in all health and other benefit plans provided by us to our
executive employees.
Mr. Simon's employment under the agreement will end on the earliest of (1)
December 2001, (2) the date on which our agreement with Pearson is modified so
that the termination of Mr. Simon's employment with us no longer triggers
Pearson's right to terminate our agreement with Pearson, or (3) the termination
of the Pearson Agreement. In the event Mr. Simon's employment is terminated by
us without cause, or he chooses to terminate his employment with us for good
reason, all stock options previously granted to him will accelerate and vest in
full.
In Europe, consistent with standard market practices, we typically enter
into employment agreements with all of our employees.
Stock Option Plans
Stock Incentive Plan
The Stock Incentive Plan is intended to serve as the successor equity
incentive program to our 1999 Share Option/Share Issuance Plan. The Stock
Incentive Plan became effective upon its adoption by the board of directors. We
anticipate that it will be ratified by the stockholders within a reasonable
time after board approval.
As of February 22, 2000, 5,400,000 shares of our common stock were
authorized for issuance under the Stock Incentive Plan. The Stock Incentive
Plan share reserve will be automatically increased on the first trading day of
each calendar year, beginning with the year 2001, by a number of shares equal
to 1% of the total number of shares of common stock outstanding on the last
trading day of the immediately preceding calendar year, but no annual increase
will exceed 400,000 shares. In no event may any one participant in the Stock
Incentive Plan receive option grants or direct stock issuances for more than
2,000,000 shares in the aggregate per calendar year.
Outstanding options under the predecessor plan have been incorporated into
the Stock Incentive Plan and no further option grants will thereafter be made
under that predecessor plan. The incorporated options will continue to be
governed by their existing terms, unless our compensation committee extends one
or more features of the Stock Incentive Plan to those options. However, except
as otherwise noted below, the outstanding options under that predecessor plan
contain substantially the same terms and conditions summarized below for the
discretionary option grant program under the Stock Incentive Plan.
The Stock Incentive Plan has three separate programs:
o the discretionary option grant program under which employees,
non-employee directors and consultants may be granted options to purchase
shares of Uproar's common stock;
o the stock issuance program under which employees, non-employee directors
and consultants may be issued shares of common stock directly, either for
immediate purchase of such shares or as a bonus tied to the performance of
services; and
o the automatic option grant program under which non-employee directors
will receive periodic option grants.
53
<PAGE>
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine:
o which eligible individuals are to receive option grants or stock
issuances,
o the time or times when such option grants or stock issuances are to be
made,
o the number of shares subject to each such grant or issuance,
o the exercise or purchase price for each such grant or issuance,
o the status of any granted option as either an incentive stock option or a
non-statutory stock option under the federal tax laws,
o the vesting schedule to be in effect for the option grant or stock
issuance and
o the maximum term for which any granted option is to remain outstanding.
Neither the compensation committee nor the board of directors will exercise any
administrative discretion with respect to the automatic option grant program
for the non-employee directors.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. Options may also
be exercised through a same-day sale program without any cash outlay by the
optionee.
In the event that we are acquired in a stockholder-approved merger or
asset sale, each outstanding option under the discretionary option grant
program will automatically vest in full, except to the extent the option is
assumed by the acquiring company or replaced with a cash incentive program, and
each unvested share issued under the stock issuance program will automatically
vest in full except to the extent our repurchase rights with respect to the
issued shares are assumed by the acquiring company. The compensation committee
may grant options and issue shares under those programs which will vest:
o in the event of an acquisition even if the options and repurchase rights
are assumed,
o in the event of a change in control effected through a tender offer for
more than 50% of our outstanding voting stock or by proxy contest for the
election of board members, or
o upon a termination of the individual's service whether following an
acquisition or change in control or in the absence thereof.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from Uproar equal to
the fair market value of the vested shares subject to the surrendered option
less the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of our common stock. Currently no
stock appreciation rights are outstanding under the predecessor plan.
The compensation committee has the authority to cancel outstanding options
under the discretionary option grant program, including options incorporated
from the predecessor plan, in return for the grant of new options for the same
or different number of option shares with an exercise price per share based
upon the fair market value of the common stock on the new grant date.
Under the automatic option grant program of the Stock Incentive Plan, each
individual who first joins the board of directors as a nonemployee director
will receive an option grant for 30,000 shares of our common stock at the time
of his or her commencement of service on the board. Each such option will vest
in a series of 3 annual installments upon the optionee's completion of each
year of service over the 3-year period measured from the grant date. In
addition, as of February 4, 2000, and thereafter at each annual meeting of
stockholders beginning with the 2001 annual meeting, each individual who has
served as a nonemployee director for at least 6 months and is to continue to
serve as such will be granted an option to purchase 5,000 shares of our common
stock. Each such option will vest in a series of 4 equal quarterly installments
upon the optionee's completion of each quarter of service over the 1-year
period measured from the grant date. Each option under the automatic option
grant program will have an exercise price equal to the fair market value per
share of our common stock on the grant date and will have a maximum term of 10
years, subject to earlier termination following the optionee's cessation of
board service.
54
<PAGE>
However, each outstanding option will immediately vest upon an acquisition or
change in control or the death or disability of the optionee while serving as a
board member.
Limited stock appreciation rights will automatically be granted under the
automatic option grant program, and may be granted to one or more officers as
part of their option grants under the discretionary option grant program, which
will give option holders the right, in the event of a hostile tender offer for
more than 50% of our outstanding voting stock, to surrender their vested
options for a cash distribution from us in an amount equal to the excess of the
tender-offer price of the shares subject to the surrendered options over the
aggregate exercise price payable for such share.
The board may amend or modify the Stock Incentive Plan at any time,
subject to required stockholder approval. The Stock Incentive Plan will
terminate no later than ten years from the effective date of the Plan.
55
<PAGE>
RELATED PARTY TRANSACTIONS
Sale of Common Stock
On February 2, 2000, we sold 1,265,372 shares of common stock for
approximately $25.0 million to Trans Cosmos USA, Inc. As a result of this
transaction, Trans Cosmos now owns more than 5% of our stock. In addition, we
agreed to appoint a Trans Cosmos representative, Mr. Geddes, to our board of
directors.
Strategic Relationships and Acquisitions
In January 1999, we entered into a strategic relationship with Pearson
Television that provides us with rights to create and produce English-language
versions of television game show formats owned by Pearson. In connection with
this arrangement, we issued 2,000,000 shares to Pearson. We also agreed to
issue to Pearson an additional 400,000 shares between September 1999 and August
2000 and 400,000 shares between September 2000 and August 2001 if Pearson meets
television distribution targets for its game shows in the United States as
stated in our January 1999 agreement with Pearson. In addition, we agreed to
appoint a Pearson representative, Ms. Mackay, to our board of directors. Ms.
Mackay's term will expire at the annual stockholders' meeting in 2001.
Under the Pearson agreement, we pay Pearson a 50.0% royalty on all net
revenues we receive that are directly related to our online development and
implementation of the Pearson game shows. These net revenues exclude:
o a royalty of 15.0% of gross revenues, payable annually to Pearson;
o Web site maintenance costs of $120,000 a year;
o prize costs up to the greater of $10,000 per month for each game or 5%
of gross revenues;
o music and talent costs, including copyright, clearance and related
expenses for rights for use in the online game shows;
o direct marketing costs;
o costs of game show question research and development;
o costs of measuring online traffic and usage;
o registration and filing fees related to gaming; and
o sales commissions of 15.0%.
We agreed to pay Pearson a guaranteed minimum amount under the agreement
of $400,000, of which $200,000 was already paid and $200,000 is payable in July
2000.
The Pearson agreement also provides that, if the English language
television versions of Family Feud and/or 100% do not reach 70.0% of United
States households during the September 1999 to September 2000 and September
2000 to September 2001 television seasons, as measured by Nielsen Media
Research, then Pearson will grant us exclusive worldwide Internet rights for
the next television game show that Pearson syndicates in the United States for
either one or two television broadcast years, depending on how many years the
70.0% threshold was not reached. The television show would be added to the list
of shows covered by our agreement. If Pearson had no new syndicated game show,
we would gain worldwide Internet rights to Pearson's game show, Password, and
Password would be added to the list of shows covered by our agreement.
In December 1998, pursuant to the agreement, Pearson purchased $100,000
worth of online promotion from us at a cost per thousand impressions of $20.00;
Pearson purchased an additional $100,000 worth of online promotion from us
during the first quarter of 1999, but at a discounted cost per thousand
impressions of $6.67.
The initial term of the agreement expires on September 30, 2001, after
which Pearson may renew the agreement for an additional three years. In
addition, following the expiration or termination of the initial term,
56
<PAGE>
Pearson has the right to obtain from us an exclusive license for up to 18
months to use the software we develop in connection with the Pearson game shows
for a fee of $300,000 and to have us host Internet versions of the Pearson game
shows for a fee of $180,000 during this period.
In 1999, we acquired PrizePoint Entertainment Corporation. The following
table sets out the number of PrizePoint shares that the following officers and
directors of PrizePoint purchased, the number of our shares into which they were
converted and the equivalent per share price:
<TABLE>
<CAPTION>
Name PrizePoint Shares Uproar Shares Price Per Uproar Share
- ------------------------------- ------------------- --------------- -----------------------
<S> <C> <C> <C>
Christopher R. Hassett 716,667 753,040 $ 0.30
Francis G. Blot 218,500 229,560 $ 0.01
</TABLE>
The Uproar shares listed for Mr. Hassett include 184,400 shares owned by his
spouse; the Uproar shares listed for Mr. Blot include 69,000 shares owned by
his spouse.
Under the merger agreement with PrizePoint, we issued approximately
2,440,000 shares of our common stock to PrizePoint stockholders, including Mr.
Hassett, our President and Chief Operating Officer, and his family members. In
addition, we appointed Mr. Hassett to our board of directors. Mr. Hassett's
term will expire at the annual stockholders' meeting in 2001.
Option Grants
In 1999, we established our 1999 Share Option/Share Issuance Plan. The
exercise price of all options granted under that Plan in 1999 was equal to the
fair market value of the shares on the date of grant. The following directors
and officers have been granted options under this program:
Name Options Purchase Price
- -------------------------- ----------- -----------------
Kenneth D. Cron 1,600,000 $9.43 per share
Christopher R. Hassett 686,978 $9.43 per share
Michael K. Simon 100,000 $9.43 per share
Francis G. Blot 223,360 $9.43 per share
Shannon King 200,000 $9.43 per share
Robert D. Marafioti 500,000 $10.82 per share
Jeffrey L. Strief 700,000 $10.82 per share
The options listed for Mr. Blot include 93,760 options granted to his spouse.
In 1997, we created an option program under which employees and directors
were granted options to purchase in the aggregate up to 100,000 shares at an
exercise price of $2.21 per share. That price was above the fair market value
of the shares at the time this program was created. We granted the following
directors and executive officers options under this program:
Name Options Purchase Price
- ------------------------- --------- ----------------
Michael K. Simon 82,000 $2.21 per share
Thompson B. Barnhardt 32,000 $2.21 per share
Esther Dyson 32,000 $2.21 per share
In 1996, Michael Simon was granted an option to purchase 484,000 shares at
a price of $0.46 per share and an option to purchase 200,000 shares of our
common stock at $0.77 per share. The exercise price of these options was above
the fair market value of the shares at the time of grant and the expiration
date of the options was December 31, 1997. In December 1997, our board of
directors extended the expiration date of these options to June 30, 1998, and
increased the exercise price to $0.53 per share and $0.88 per share,
respectively. In 1998, Mr. Simon exercised these options.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 29, 2000 and as adjusted to
reflect the sale of the shares of common stock in this offering, for
o each person who we know to beneficially own 5% or more of our common
stock;
o each executive officer named in the Summary Compensation Table;
o each of our directors; and
o all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o Uproar Inc., 240 West 35th Street, 9th Floor, New York, New York
10001.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options held by such person that are exercisable
within 60 days of February 29, 2000, but excludes shares of common stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 25,409,880 shares of common stock outstanding as of February 29,
2000, and 27,909,880 shares of common stock to be outstanding after the
completion of this offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
------------------------ -----------------------
Name of Beneficial Owner Number Percent Number Percent
- ----------------------------------------------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Kenneth D. Cron (1) ........................... 843,320 3.2% 843,320 2.9%
Christopher R. Hassett (2) .................... 1,036,547 4.0 1,036,547 3.7
Michael K. Simon (3) .......................... 1,218,156 4.8 1,218,156 4.3
David A. Becker (4) ........................... 260,000 1.0 260,000 0.9
Thompson B. Barnhardt (5) ..................... 26,000 * 26,000 *
Esther Dyson (6) .............................. 158,240 * 158,240 *
James J. Geddes, Jr. (7) ...................... 1,742,172 6.9 1,742,172 6.2
Catherine V. Mackay (8) ....................... 2,000,000 7.9 2,000,000 7.2
Pearson Television, Inc. (9) .................. 2,000,000 7.9 2,000,000 7.2
Trans Cosmos USA, Inc. (10) ................... 1,742,172 6.9 1,742,172 6.2
All directors and executive officers as a group
(10 persons) ................................. 7,893,991 31.1 7,893,991 28.3
</TABLE>
- ------------
* Indicates less than one percent of the common stock.
(1) Includes 800,000 shares issuable upon the exercise of currently
exercisable stock options.
(2) Includes (a) 343,489 shares issuable upon the exercise of currently
exercisable stock options and
(b) 124,000 shares owned by Mr. Hassett's spouse.
(3) Includes 260,000 shares issuable upon the exercise of currently
exercisable stock options.
(4) Includes 260,000 shares issuable upon the exercise of currently
exercisable options. Mr. Becker's address is 87 Remsen Street, #3,
Brooklyn, NY 11201.
(5) Includes 26,000 shares issuable upon the exercise of currently exercisable
stock options. Mr. Barnhardt's address is c/o Biznes Polska.pl Sp zoo.,
Ul. Gornoslaska 7B, Warsaw 00-443.
(6) Includes 32,000 shares issuable upon the exercise of currently exercisable
stock options. Ms. Dyson's address is 104 Fifth Avenue, 20th Floor, New
York, NY 10011.
(7) All shares indicated as owned by Mr. Geddes are included because of Mr.
Geddes' affiliation with Trans Cosmos USA, Inc. Mr. Geddes disclaims
beneficial ownership of all shares owned by Trans Cosmos
58
<PAGE>
USA, Inc. Mr. Geddes' address is c/o Trans Cosmos USA, Inc., 777 108th
Avenue NE, Suite 2300, Bellevue, Washington 98004-5149.
(8) All shares indicated as owned by Ms. Mackay are included because of Ms.
Mackay's affiliation with Pearson Television, Inc. Ms. Mackay disclaims
beneficial ownership of all shares owned by Pearson Television, Inc. Ms.
Mackay's address is c/o Pearson Television, Inc., 1330 Avenue of the
Americas, New York, NY 10019.
(9) The address of Pearson Television, Inc. is 1330 Avenue of the Americas,
New York, NY 10019.
(10) The address of Trans Cosmos USA, Inc. is 777 108th Avenue NE, Suite 2300,
Bellevue, Washington 98004-5149.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock and relevant provisions of
our certificate of incorporation as will be in effect upon the closing of this
offering and the bylaws as will be in effect upon the closing of this offering
are summaries and are qualified by reference to our certificate of
incorporation and the bylaws, copies of which have been filed with the
Securities and Exchange Commission as exhibits to our Registration Statement of
which this prospectus forms a part. The description of the common stock
reflects changes to our capital structure that will occur upon the closing of
the offering in accordance with the terms of our certificate of incorporation.
Our authorized capital stock currently consists of 112,000,000 shares of
common stock, par value $.01 per share, and 48,000,000 shares of preferred
stock, par value $.01 per share.
Common Stock
As of February 29, 2000, there were 25,409,880 shares of common stock
outstanding and held of record by stockholders. After giving effect to the
issuance of the shares of common stock in this offering, there will be
27,909,880 shares of common stock outstanding upon the closing of this offering
assuming that the underwriters do not exercise their over-allotment option.
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
those dividends, if any, as may be declared by the board of directors out of
legally available funds, subject to any preferential dividend rights of any
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common
stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by us in the
offering will be, when issued in consideration for payment, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future.
Preferred Stock
Upon the closing of the offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 48,000,000 shares of preferred stock in one or more series
and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, including sinking fund provisions, redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. We have no present plans to issue
any shares of preferred stock.
Global Instrument Certificate Units
Some of our stockholders continue to hold interests in our shares in the
form of undivided interests, or GIC Units, in global instrument certificates,
or GICs, issued by Oesterreichische Kontrollbank Aktiengesellschaft, or OeKB,
with each GIC Unit representing one share. OeKB holds the shares and all rights
thereunder in trust for the GIC holders. OeKB, as legal owner of the shares,
votes at stockholder meetings only in accordance with the instructions of GIC
Unit holders, provided these have been received by OeKB in compliance with the
terms and conditions of the GIC arrangements.
GIC Units will be converted to the underlying shares on written
application by the GIC Unit holders to the OeKB. The OeKB charges a fee to the
GIC Unit holders for conversion according to the provisions applied by the OeKB
from time to time. The OeKB will not automatically convert the GICs in respect
of shares that it currently holds on behalf of GIC Unit holders to our shares
of common stock.
60
<PAGE>
We withdrew from the trading facility for the GICs provided by the Vienna
Stock Exchange on November 30, 1999. As a result, the GIC Units are no longer
tradable on the Vienna Stock Exchange.
Registration Rights
In our agreement with Pearson Television in January 1999, we granted
Pearson rights to register the shares of common stock that it acquired under
that agreement. Twice during the three-year period beginning in January 2001,
Pearson is entitled to require us to register all or any portion of its shares.
This type of registration right is known as a "demand" registration right. In
addition, during the five-year period commencing in January 2001, Pearson is
entitled to require us to register all or any portion of its shares when we
register shares of our common stock for our own account or for the account of
other stockholders. This type of registration right is known as a "piggyback"
registration right.
These registration rights are subject to certain conditions and
limitations, including:
o the right of the underwriters in any underwritten offering to limit the
number of shares of common stock held by Pearson to be included in any
demand or piggyback registration; and
o our right to refuse to effect a registration pursuant to Pearson's demand
registration rights during the twelve-month period following the effective
date of a registration statement in connection with which Pearson
exercised any piggyback registration rights, or at any time when another
registration statement of ours, other than a Form S-4 or S-8, is
reasonably foreseen by our board of directors to be filed within 30 days
of a registration demand, has been filed and not yet become effective, or
has been effective for less than six months prior to a registration
demand.
We are generally required to bear all of the expenses of registering
Pearson's shares of common stock, other than underwriting discounts and
commissions. Subject to the lock-up provisions contained in the Pearson
agreement, registration of any of the shares of common stock held by Pearson
would result in those shares becoming freely tradable without restriction under
the Securities Act of 1933, as amended, immediately after the effectiveness of
the registration We have agreed to indemnify Pearson in connection with the
registration of its shares of common stock under the terms of our agreement
with Pearson.
In connection with our sale of 1,265,372 shares of our common stock to a
strategic investor, Trans Cosmos USA, Inc., in February 2000, we granted that
strategic investor piggyback registration rights, subject to conditions and
limitations including the right of the underwriters in any written offering to
limit the number of shares of common stock held by Trans Cosmos to be included
in such piggyback registration. We also granted Trans Cosmos the right to
require us to file a registration statement on Form S-3 under the Securities
Act with respect to the shares of common stock it acquired from us. However, we
are not obligated to file this registration statement if:
o Form S-3 is not available;
o Trans Cosmos proposes to sell its common stock for an aggregate price of
less than $2.0 million;
o our Chief Executive Officer provides Trans Cosmos with a certificate
stating that, in the judgment of the Board of Directors, the registration
would be seriously detrimental to us and our stockholders, which would
allow us, once in any 12 month period, to defer the registration for up to
90 days;
o the registration would require us to qualify to do business in any
particular jurisdiction or to provide a second consent of service of
process; or
o we have filed two effective Form S-3 registrations for the strategic
investor.
We are generally required to bear all of the expenses of registering Trans
Cosmos common stock, other than underwriting discounts and commissions and
legal fees of the strategic investor. Registration of any of the shares of
common stock held by Trans Cosmos would result in those shares becoming freely
tradable without restriction under the Securities Act immediately after
effectiveness of the registration. We have agreed to indemnify Trans Cosmos in
connection with the registration of its shares of common stock under the terms
of the registration rights agreement.
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Anti-Takeover Effects of Certain Provisions of Delaware Law and Uproar's
Certificate of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (as amended from time to time, the "DGCL"). Subject to certain
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the board of directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other takeover
or change in control attempts with respect to Uproar and, accordingly, may
discourage attempts to acquire Uproar.
In addition, provisions of the certificate of incorporation and bylaws,
which provisions will be in effect upon the closing of the offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, or DGCL, our directors
shall not be personally liable to Uproar or our stockholders for monetary
damages for any breach of fiduciary duty as directors of Uproar. Under the
DGCL, the directors have a fiduciary duty to Uproar which is not eliminated by
this provision of the certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to Uproar, for acts
or omissions which are found by a court of competent jurisdiction to be not in
good faith or which involves intentional misconduct, or knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director:
(1) for any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) arising under Section 174 of the DGCL; or
(4) for any transaction from which the director derived an improper
personal benefit.
The DGCL provides further that the indemnification permitted thereunder shall
not be deemed exclusive of any other rights to which the directors and officers
may be entitled under the corporation's bylaws, any agreement, a vote of
stockholders or otherwise. The Certificate eliminates the personal liability of
directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and
provides that Uproar shall fully indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of Uproar, or is or was serving at the request of Uproar as a director
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
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Our bylaws permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions, regardless of whether the DGCL would permit indemnification. We have
obtained liability insurance for our officers and directors.
At present, we are not the subject of pending litigation or proceeding
involving any director, officer, employee or agent as to which indemnification
will be required or permitted under the certificate. We are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be American
Stock Transfer & Trust Company, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market, or
the perception that such sales could occur, could adversely affect prevailing
market prices of our common stock. Upon completion of this offering, we will
have outstanding an aggregate of 27,909,880 shares of our common stock,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, all shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining 25,409,880 of
shares of our common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended, or are subject to transfer restrictions under Regulation S.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act, which rules are summarized below. Subject to lock-up agreements
described below and the provisions of Rules 144 and 701, these 25,409,880
shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
- ------------------ -----------------------------------------------------------------
<S> <C>
15,126,607 After the date of this prospectus
7,733,760 After 90 days from the date of this prospectus subject, in some
cases, to volume limitations
2,763,320 As of July 8, 2000 subject, in some cases, to volume limitations
4,427,298 After 180 days from the date of this prospectus subject, in some
cases, to volume limitations
</TABLE>
EASDAQ Shares
We have applied to list the shares of common stock offered by this
prospectus with the European Association of Securities Dealers' Automated
Quotation System, or EASDAQ, under the symbol "UPRO", so that these shares will
be tradable on EASDAQ on the date of this prospectus or as soon thereafter as
practicable pending regulatory approval by EASDAQ and the Belgian Banking and
Finance Commission. The shares of our common stock that are already listed on
EASDAQ will not be registered in the United States and now trade under the
symbol "UPROrs", the "rs" indicating that these shares are restricted
securities in the United States. To be sold in the United States, these shares
must either be registered with the Securities and Exchange Commission or must
be qualified for sale under an exemption from registration under United States
securities laws. Once these shares or any other shares of our common stock
become eligible for public trading in the United States, they also will be
eligible to trade on EASDAQ under the symbol "UPRO", indicating that the shares
are not restricted securities in the United States.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o 1% of the number of common shares then outstanding, which will equal
approximately 279,099 shares immediately after this offering; or
o the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
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Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory share plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with restrictions,
including the holding period, contained in Rule 144.
Lock-Up Agreements
All of our officers, directors and some of our stockholders have signed
lock-up agreements under which they agreed not to transfer or dispose of,
directly or indirectly, any shares or any securities convertible into or
exercisable or exchangeable for common stock, for a period of 180 days after
the date of this prospectus. Transfers or dispositions can be made sooner:
o with the prior written consent of Salomon Smith Barney;
o in the case of certain transfers to affiliates;
o as a bona fide gift; or
o to any trust.
Pearson has agreed not to transfer or dispose of, directly or indirectly,
any of the shares of our common stock issued to it under our agreement with
Pearson until at least 180 days after the date of this prospectus. On and after
that date, Pearson will be able to sell the entire number of shares that were
issued to it under the agreement.
Registration Rights
Beginning in January 2001, Pearson, or its transferees, will be entitled
to request that we register up to 2,000,000 shares of our common stock. After
this offering, Trans Cosmos, or its transferees, will be entitled to request
that we register up to 1,265,372 shares of our common stock under the
Securities Act of 1933, as amended, as described in more detail in "Description
of Capital Stock -- Registration Rights."
Stock Plans
At December 31, 1999, options to purchase 5,904,408 shares were issued and
outstanding under our stock option plans and otherwise. All of these shares
will be eligible for sale in the public market from time to time, subject to
vesting provisions and Rule 144 volume limitations applicable to our
affiliates.
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UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States
federal income and estate tax consequences of the ownership and disposition of
the common stock applicable to Non-United States Holders of this common stock.
For the purpose of this discussion, a Non-United States Holder is any holder
that for United States federal income tax purposes is not a United States
person. The following discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, and administrative and judicial
interpretations thereof, all as in effect on the date hereof, and all of which
are subject to change, possibly with retroactive effect. We have not and will
not seek a ruling from the Internal Revenue Service with respect to the United
States federal income and estate tax consequences described below and, as a
result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
For purposes of this discussion, the term United States person means:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or
any political subdivision thereof;
o an estate whose income is included in gross income for United States
federal income tax purposes regardless of its source; or
o a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
This discussion does not consider:
o United States state and local or non-United States tax consequences;
o specific facts and circumstances that may be relevant to a particular
Non-United States Holder's tax position, including, if the Non-United
States Holder is a partnership, that the United States tax consequences of
holding and disposing of our common stock may be affected by
determinations made at the partner level;
o the tax consequences for the shareholders or beneficiaries of a
Non-United States Holder;
o special tax rules that may apply to certain Non-United States Holders,
including, without limitation, banks, insurance companies, dealers in
securities and traders in securities who elect to apply a mark-to-market
method of accounting; or
o special tax rules that may apply to a Non-United States Holder that holds
our common stock as part of a "straddle", "hedge", or "conversion
transaction".
Dividends
If we pay a dividend, any dividend paid to a Non-United States Holder of
common stock generally will be subject to United States withholding tax either
at a rate of 30% of the gross amount of the dividend or such lower rate as may
be specified by an applicable tax treaty. Dividends received by a Non-United
States Holder that are effectively connected with a United States trade or
business conducted by the Non-United States Holder or, if an income tax treaty
applies, are attributable to a permanent establishment, or in the case of an
individual, a "fixed base" in the United States, as provided in that treaty
("U.S. trade or business income"), are generally not subject to such
withholding tax if the Non-United States Holders files the appropriate U.S.
Internal Revenue Service Form with the payor. However, such U.S. trade or
business income, net of deductions and credits, is taxed at the same graduated
rates applicable to United States persons. Any U.S. trade or business income
received by a Non-United States Holder that is a corporation may also, under
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as specified by an applicable income tax treaty.
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Dividends paid on or prior to December 31, 2000 to an address in a foreign
country are presumed, absent actual knowledge to the contrary, to be paid to a
resident of such country for purposes of the withholding discussed above and
for the purposes of determining the applicability of a tax treaty rate. For
dividends paid after December 31, 2000:
o a Non-United States Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
o in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide information,
including a United States taxpayer identification number; and
o look-through rules will apply for tiered partnerships.
A Non-United States Holder of common stock that is eligible for a reduced
rate of withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the IRS.
Gain on Disposition of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his common stock unless:
o the gain is U.S. trade or business income (which gain, in the case of a
corporate Non-United States Holder, must also be taken into account for
branch profits tax purposes);
o the Non-United States Holder is an individual who holds his or her common
stock as a capital asset (generally, an asset held for investment
purposes) and who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale or
disposition occurs and certain other conditions are met;
o the Non-United States Holder is subject to tax pursuant to the provisions
of the United States tax law applicable to certain United States
expatriates; or
o Uproar is or has been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or the holder's
holding period for its common stock.
Generally, a corporation is a "United States real property holding
corporation" if the fair market value of its "United States real property
interests" equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business. We believe that Uproar has not been and is not currently,
and we do not anticipate it becoming, a "United States real property holding
corporation" for United States federal income tax purposes. The tax relating to
stock in a "United States real property holding corporation" will not apply to
a Non-United States Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the common stock,
provided that the common stock was regularly traded on an established
securities market.
Backup Withholding and Information Reporting
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the Internal Revenue Service may
make its reports available to tax authorities in the recipient's country of
resident.
Dividends paid to a Non-United States Holder at an address within the
United States may be subject to backup withholding at a rate of 31% if the
Non-United States Holder fails to establish that it is entitled to an exemption
or to provide a correct taxpayer identification number and other information to
the payer. Backup withholding will generally not apply to dividends paid to
Non-United States Holders at an address outside the United States on or prior
to December 31, 2000 unless the payer has knowledge that the payee is a United
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States person. Under recently finalized Treasury Regulations regarding
withholding and information reporting, payment of dividends to Non-United
States Holders at an address outside the United States after December 31, 2000
may be subject to backup withholding at a rate of 31% unless such Non-United
States Holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the United States office of a broker
or through a non-United States branch of a United States broker is subject to
information reporting and backup withholding at a rate of 31% unless the holder
certifies its non-United States status under penalties or perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a Non-United States Holder of common stock outside the United
States to or through a non-United States office of a non-United States broker
will not be subject to backup withholding but will be subject to information
reporting requirements if the broker is:
o a United States person;
o a "controlled foreign corporation" for United States federal income tax
purposes; or
o a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a United States trade or business
unless the broker has documentary evidence in its files of the holders'
Non-United States status and other conditions are met, or the holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
generally will apply to a payment of the proceeds of a disposition of common
stock by or through a foreign office of a foreign broker not subject to the
preceding sentence.
In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certifications procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-United States Holders should consult their tax
advisors regarding the effect, if any, of those final Treasury Regulations on
an investment in the common stock. Those final Treasury Regulations are
generally effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
Estate Tax
An individual Non-United States Holder who owns common stock at the time
of his death or had made a particular lifetime transfer of an interest in
common stock will be required to include the value of that common stock in such
holder's gross estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
The foregoing discussion is a summary of the principal federal income and
estate tax consequences of the ownership, sale or other disposition of common
stock by Non-United States Holders. Accordingly, investors are urged to consult
their own tax advisors with respect to the income tax consequences of the
ownership and disposition of common stock, including the application and effect
of the laws of any state, local, foreign or other taxing jurisdiction.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
Number of
Underwriter Shares
- ------------------------------------------ ------------
Salomon Smith Barney Inc. ................ 843,750
Bear, Stearns & Co. Inc. ................. 843,750
Banc of America Securities LLC ........... 281,250
SoundView Technology Group, Inc. ......... 281,250
Sands Brothers & Co., Ltd. ............... 150,000
Sanders Morris Harris .................... 100,000
-------
Total ................................... 2,500,000
=========
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the shares (other than those covered
by the over-allotment option described below) if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., Bear, Stearns & Co.
Inc., Banc of America Securities LLC and SoundView Technology Group, Inc. are
acting as representatives, propose to offer some of the shares directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $1.32 per share. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.10 per share on sales to certain other dealers. If all of the
shares are not sold at the initial offering price, the representatives may
change the public offering price and the other selling terms. The
representatives have advised us that the underwriters do not intend to confirm
any sales to any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to 375,000 additional shares
of common stock at the initial public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters will reserve up to 117,000 shares of our
common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our customers and
suppliers and individuals associated or affiliated with our directors, officers
and employees, customers and suppliers. This directed share program will be
administered by Salomon Smith Barney Inc. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus. We have agreed to
indemnify the underwriters against liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with sales of the
directed shares.
Uproar, its officers and directors, and some of our stockholders have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock. Salomon Smith Barney
Inc., in its sole discretion, may release any of the securities subject to
these lock-up agreements at any time without notice.
Prior to this offering there has been no public market for our common stock
in the United States. The common stock is currently listed on EASDAQ under the
symbol "UPROrs". The initial price to public of the common stock in the United
States will be determined by negotiation among us and the underwriters. In
addition to prevailing market conditions, among the factors that may be
considered in determining the
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price to public of the common stock are our historical financial performance,
estimates of our business potential and its prospects, the price of our shares
on EASDAQ, an assessment of the our management and the consideration of the
above factors in relation to the market valuations of companies in similar
businesses.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "UPRO".
The following table shows the underwriting discounts and commissions we
will pay to the underwriters by Uproar in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.
Paid by Uproar
------------------------------
No Exercise Full Exercise
------------- --------------
Per share ......... $ 2.20 $ 2.20
Total ............. $5,505,500 $6,331,325
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format is being made available on a Web site
maintained by Wit SoundView's affiliate, Wit Capital Corporation. In addition,
all dealers purchasing shares from Wit SoundView in this offering have agreed
to make a prospectus in electronic format available on Web sites maintained by
each of these dealers. Other information contained on any of these Web sites
and any information contained on any other Web site maintained by Wit Capital
is not part of the prospectus or the registration statement, has not been
approved or endorsed by Uproar or any underwriter and should not be relied upon
by investors.
We estimate that our total expenses for this offering will be $1.5
million.
We have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
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LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon for
Uproar by Brobeck, Phleger & Harrison LLP, New York, New York. Various legal
matters in connection with the offering will be passed upon for the
underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Uproar Inc. and subsidiaries as
of December 31, 1999 and the year then ended have been included herein and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Uproar Inc. and subsidiaries as
of December 31, 1998 and each of the years in the two-year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG Hungaria Kft., independent certified public
accountants, appearing elsewhere herein, and upon the authority of that firm as
experts in accounting and auditing.
The audited financial statements of PrizePoint Entertainment corporation as
of December 31, 1998 and for the period from PrizePoint's inception, March 4,
1998, to December 31, 1998, incorporated into the financial statements included
in this prospectus, were audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of that firm
as experts in giving the reports.
CHANGE IN INDEPENDENT ACCOUNTANTS
On August 28, 1998, we changed our auditors to KPMG Hungaria Kft. from
Coopers & Lybrand in Dublin, Ireland. The decision to change independent
accountants from Coopers & Lybrand, Dublin, to KPMG Hungaria Kft., was
recommended by our audit committee and approved by our board of directors.
We believe, and have been advised by the successor to Coopers & Lybrand,
Dublin, PricewaterhouseCoopers LLP, Dublin, that it concurs in such belief
that, for the period from February 1995 (inception) through the date of the
change in accountants, Coopers & Lybrand, Dublin, did not have any disagreement
with us on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Coopers & Lybrand, Dublin, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report on our financial statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules thereto, under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information about us and the shares of common stock to be sold in the
offering, please refer to the registration statement and the exhibits and
schedules, thereto.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in our files in the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C., 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at
1-800-SEC-1330 for further information about the public reference rooms.
Uproar's Securities and Exchange Commission filings, including the registration
statement, are also available to you on the Securities and Exchange
Commission's Internet site (http://www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and
will file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited interim consolidated
financial data for the first three quarters of each fiscal year.
71
<PAGE>
Companies listed on EASDAQ are required to publish relevant financial and
other information regularly and to keep the public informed of all events
likely to affect the market price of their securities. Price-sensitive
information is available to investors in Europe through the EASDAQ-Reuters
Regulatory Company Reporting System and other international information
providers. Investors who do not have direct access to such information should
ask their financial advisors for the terms on which such information will be
provided to them by these financial advisors. We will ensure that a summary of
our quarterly and annual financial statements will be provided to stockholders
in Europe across the EASDAQ Company Reporting System, or ECR System. A hard
copy of the annual report will be provided to stockholders promptly after it
becomes available. Complete quarterly statements will either be sent by us to
our stockholders or will be available upon request from the us at our executive
offices. Copies of all documents filed by us with EASDAQ are also available for
inspection at the offices of EASDAQ, 56 Rue de Colonies, Bte.15, B-1000
Brussels, Belgium.
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
December 31, 1997, 1998 and 1999
Table of Contents
<TABLE>
<S> <C>
Independent Auditors' Reports ......................................... F-2
Consolidated Balance Sheets ........................................... F-4
Consolidated Statements of Operations ................................. F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Loss F-6
Consolidated Statements of Cash Flows ................................. F-7
Notes to Consolidated Financial Statements ............................ F-8
Report of Independent Public Accountants .............................. F-22
</TABLE>
F-1
<PAGE>
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheet of Uproar Inc.
and subsidiaries (formerly Uproar Ltd.) as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Uproar Inc.
and subsidiaries, (formerly Uproar Ltd.) as of December 31, 1999, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
(Signed) KPMG LLP
New York, New York
February 4, 2000
F-2
<PAGE>
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheet of Uproar Inc.
and subsidiaries (formerly Uproar Ltd.) as of December 31, 1998, and the
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for the years ended December 31, 1997 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of PrizePoint Entertainment Corporation, a Delaware corporation, a
company acquired during 1999 in a transaction accounted for as a pooling of
interests, as discussed in note 3. Such financial statements are included in
the financial statements of Uproar Inc. (formerly Uproar Ltd.) and subsidiaries
as of and for the year ended December 31, 1998 and reflect 23% and 0% of total
consolidated assets and revenues respectively. Those financial statements were
audited by other auditors whose unqualified report has been furnished to us and
our opinion, insofar as it relates to amounts included for PrizePoint
Entertainment Corporation, is based solely upon the report of the other
auditors.
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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Uproar Inc. and subsidiaries,
(formerly Uproar Ltd.) as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
(Signed) KPMG Hungaria Kft.
August 4, 1999, except for paragraph 1 of note 19
which is as of December 16, 1999
F-3
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Balance Sheets
As of December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................. $ 7,035,645 $ 15,135,742
Restricted cash ....................................... -- 604,275
Accounts receivable -- net of allowance for doubtful
accounts of $0 and $271,000, respectively ........... 551,036 3,767,769
Prepaid advertising ................................... 201,327 3,861,996
Other current assets .................................. 24,689 744,612
------------- -------------
Total current assets ............................... 7,812,697 24,114,394
------------- -------------
Property and equipment, net ............................ 1,111,966 5,031,429
Intangible assets, net ................................. 47,357 10,649,387
Other long term assets ................................. 138,685 173,426
Prepaid advertising, long term portion ................. -- 2,847,005
------------- -------------
Total assets ....................................... $ 9,110,705 $ 42,815,641
============= =============
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligation ........... $ 25,949 $ 102,777
Trade accounts payable ................................ 855,866 1,390,908
Accrued expenses ...................................... 471,906 3,921,570
Other current liabilities ............................. 15,188 144,399
------------- -------------
Total current liabilities .......................... 1,368,909 5,559,654
------------- -------------
Long term portion of capital lease obligation .......... 15,134 51,681
Stockholders' equity:
Preferred stock, $.01 par value, 48,000,000 shares
authorized, none issued ............................. -- --
Common stock, $.05 par value, 112,000,000 shares
authorized; 17,746,280 and 23,971,948 shares issued
and outstanding at December 31, 1998 and 1999
respectively ........................................ 643,860 1,198,597
Additional paid-in capital ............................ 17,470,939 85,193,156
Accumulated deficit ................................... (10,424,698) (49,149,339)
Accumulated other comprehensive income (loss) ......... 36,561 (38,108)
------------- -------------
Total stockholders' equity ......................... 7,726,662 37,204,306
------------- -------------
Total liabilities and stockholders' equity ......... $ 9,110,705 $ 42,815,641
============= =============
</TABLE>
The balance sheet at December 31, 1998 has been restated to reflect the
acquisition of PrizePoint Entertainment Corporation, which was completed on
June 7, 1999 and accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Operations
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenues ................................... $ 348,709 $ 1,632,969 $ 10,391,527
Cost of revenues ........................... (216,586) (760,376) (2,533,294)
------------ ------------ -------------
Gross profit ............................... 132,123 872,593 7,858,233
------------ ------------ -------------
Sales and marketing ........................ 1,087,058 3,770,866 28,065,956
Product and technology
development ............................... 772,744 849,486 3,701,393
General and administrative ................. 2,092,394 2,327,720 8,919,011
Amortization of intangible assets .......... -- 9,303 6,086,198
------------ ------------ -------------
Total operating expenses ................... 3,952,196 6,957,375 46,772,558
------------ ------------ -------------
Loss from operations ....................... (3,820,073) (6,084,782) (38,914,325)
Other income (expenses):
Foreign exchange gain (loss) .............. (85,439) 57,401 (119,996)
Interest income ........................... 97,717 205,751 535,166
Interest expense .......................... (15,368) -- (7,050)
Other income (expense) .................... -- -- (190,436)
------------ ------------ -------------
Loss before income taxes .................. (3,823,163) (5,821,630) (38,696,641)
Provision for income taxes ................ 5,582 9,020 28,000
------------ ------------ -------------
Net loss .................................. $ (3,828,745) $ (5,830,650) $ (38,724,641)
============ ============ =============
Basic and diluted loss per share . $ (0.42) $ (0.40) $ (1.77)
Weighted average number of
common shares outstanding ............... 9,034,928 14,697,112 21,909,456
============ ============ =============
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Additional
Common Stock
------------------------------ Paid-in
Shares Amount Capital
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 ........... 5,400,000 210,162 394,549
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 4,000,000 157,526 4,558,161
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 1,774,600 69,138 366,420
Exercise of stock options .............. 289,080 10,206 139,042
Stock compensation expense ............. 1,244,888
---------
Balance at December 31, 1997 ........... 11,463,680 447,032 6,898,378
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 4,758,360 144,253 9,522,211
Exercise of stock options .............. 1,524,240 52,575 1,047,246
Stock compensation expense ............. 3,104
---------
Balance at December 31, 1998 ........... 17,746,280 643,860 17,470,939
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Re-denomination of currency of
common stock .......................... 288,858 (288,858)
Acquisition and retirement of shares (760) (38) (19,342)
Sale of common stock ................... 3,875,360 179,064 39,887,305
Issuance of common stock for
intangible assets and advertising
services from Pearson Television
Limited ............................... 2,000,000 69,300 24,586,575
Exercise of warrants ................... 43,360 2,168 247,832
Stock compensation expense ............. 735,489
Exercise of stock options .............. 307,708 15,385 2,573,216
---------- ------- ----------
Balance at December 31, 1999 ........... 23,971,948 $1,198,597 85,193,156
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
----------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 ........... (765,303) (1,960) (162,552)
Comprehensive loss: ....................
Net loss .............................. (3,828,745) (3,828,745)
Foreign currency translation .......... 32,663 32,663
----------
Total comprehensive loss ............... (3,796,082)
----------
Sale of common stock ................... 4,715,687
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 435,558
Exercise of stock options .............. 149,248
Stock compensation expense ............. 1,244,888
----------
Balance at December 31, 1997 ........... (4,594,048) 30,703 2,782,065
Comprehensive loss:
Net loss .............................. (5,830,650) (5,830,650)
Foreign currency translation .......... 5,858 5,858
----------
Total comprehensive loss ............... (5,824,792)
----------
Sale of common stock ................... 9,666,464
Exercise of stock options .............. 1,099,821
Stock compensation expense ............. 3,104
----------
Balance at December 31, 1998 ........... (10,424,698) 36,561 7,726,662
Comprehensive loss:
Net loss .............................. (38,724,641) (38,724,641)
Foreign currency translation .......... (74,669) (74,669)
-----------
Total comprehensive loss ............... (38,799,310)
-----------
Re-denomination of currency of
common stock .......................... --
Acquisition and retirement of shares (19,380)
Sale of common stock ................... 40,066,369
Issuance of common stock for
intangible assets and advertising
services from Pearson Television
Limited ............................... 24,655,875
Exercise of warrants ................... 250,000
Stock compensation expense ............. 735,489
Exercise of stock options .............. 2,588,601
-----------
Balance at December 31, 1999 ........... $ (49,149,339) $ (38,108) $ 37,204,306
============= ========== ==============
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................. $ (3,828,745) $ (5,830,650) $ (38,724,641)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 56,556 183,181 6,954,230
Provision for doubtful accounts ...................... -- -- 270,913
Amortization of prepaid advertising services ......... -- -- 1,338,999
Stock compensation expense ........................... 1,244,888 3,104 735,489
Loss on sale of property and equipment ............... -- -- 189,683
Changes in operating assets and liabilities
Accounts receivable ................................ (229,821) (302,366) (3,487,646)
Prepaid advertising and other current assets ....... (66,909) (121,858) (584,596)
Trade accounts payable ............................. 115,204 711,060 667,411
Income tax payable ................................. (2,936) -- --
Accrued expenses and other current liabilities ..... 104,521 342,267 3,578,875
Other long term assets ............................. (59,210) (79,475) (34,741)
------------ ------------- -------------
Net cash used in operating activities ................ (2,666,452) (5,094,737) (29,096,024)
------------ ------------- -------------
Cash flows from investing activities
Purchase of intangibles .............................. (13,955) (42,706) --
Purchase of property and equipment ................... (260,220) (930,470) (4,965,269)
Increase in restricted cash .......................... -- -- (604,275)
Proceeds from sale of equipment ...................... -- -- 27,154
------------ ------------- -------------
Net cash used in investing activities ................ (274,175) (973,176) (5,542,390)
------------ ------------- -------------
Cash flows from financing activities
Proceeds from issuance of common stock ............... 4,911,005 9,666,464 40,046,989
Proceeds from exercise of stock options and
warrants ........................................... 149,248 1,099,821 2,838,601
Principal payments on capital leases ................. -- (10,812) (72,410)
------------ ------------- -------------
Net cash provided by financing activities ............ 5,060,253 10,755,473 42,813,180
------------ ------------- -------------
Effect of exchange rate on cash ...................... (45,307) 5,858 (74,669)
------------ ------------- -------------
Net increase in cash and cash equivalents ............ 2,074,319 4,693,418 8,100,097
Cash and cash equivalents, beginning of year ......... 267,908 2,342,227 7,035,645
------------ ------------- -------------
Cash and cash equivalents, end of year ............... $ 2,342,227 $ 7,035,645 $ 15,135,742
============ ============= =============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ 41,441 $ -- $ 7,050
Income taxes paid .................................... 8,518 10,625 15,842
Issuance of common stock for advertising
services and intangibles ........................... -- -- 24,655,875
Purchase of equipment under capital lease
obligations ........................................ -- 41,083 185,785
Conversion of debt to common stock ................... 435,558 -- --
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements
(1) Nature of business
The Company was originally formed in February 1995 as E-Pub Services
Limited, a corporation organized under the laws of Ireland. In July 1997, due
to tax matters related to the trading of common shares on the third tier of the
Vienna Stock Exchange, we formed Uproar Ltd., a corporation organized under the
laws of Bermuda. All shareholders in E-Pub Services Limited became shareholders
in Uproar Ltd. by exchanging their shares in E-Pub Services Limited for shares
in Uproar Ltd. at a ratio of 1:1. The transaction was accounted for as a
transaction between companies under common control and therefore there was no
adjustment to the historical basis of the assets and liabilities of E-Pub
Services Limited.
Uproar Inc. was incorporated in Delaware on December 16, 1999. Uproar Ltd.
subsequently domesticated from Bermuda to Delaware and, on January 27, 2000
merged with Uproar Inc. See note 19. Between the date of incorporation and
January 27, 2000, Uproar Inc. had no substantial operations.
The Company provides online game shows and interactive multi-player games
that appeal to a broad audience. The Company seeks to attract a large, quality
audience by offering highly engaging and "sticky" products. Players access the
products free of charge, the Company's revenue primarily being generated
through the sale of advertising. The Company operates in one business segment.
(2) Significant accounting policies and procedures
(a) Principles of consolidation
The consolidated financial statements comprise the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated upon consolidation.
(b) Cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of acquisition to be cash equivalents. Cash
equivalents at December 31, 1998 and December 31, 1999 consist primarily of
money market funds. Financial instruments that potentially subject the Company
to a concentration of credit risk consist of cash and cash equivalents and
accounts receivable. Cash and cash equivalents are deposited with high credit
quality financial institutions.
Restricted cash consists of cash on deposit supporting letters of credit
in favor of lessors for two office leases.
(c) Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and accrued expenses are
carried at cost, which approximates their fair value because of the short-term
maturity of these instruments.
(d) Currency translation and transactions
The reporting currency for the Company is the United States Dollar (USD).
The functional currency for the Company's operations is generally the
applicable local currency. Accordingly, the assets and liabilities of the
subsidiaries whose functional currency is other than the USD are included in
the consolidated financial statements by translating the assets and liabilities
into the reporting currency at the exchange rates applicable at the end of the
reporting year. The statements of operations and cash flows of such non-USD
functional currency operations are translated at the average exchange rate for
the reporting year. Translation gains or losses are accumulated as a separate
component of stockholders' equity. Currency transaction gains or losses arising
from transactions of the Company in currencies other than the functional
currency are included in operations for each reporting period.
F-8
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
(e) Property and equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets as follows:
Years
------
Furniture and fixtures ................... 8
Computer equipment and software .......... 3
(f) Intangible assets
Intangible assets consist principally of intangible assets arising from
the agreement with Pearson Television (note 14(b)) which are being amortized on
a straight-line basis over the period of benefit, the thirty-three month life
of the agreement. Other intangible assets consist of costs incurred for
trademarks and license fees. These assets are amortized over five years, which
is the estimated period of benefit, on a straight-line basis.
(g) Impairment of long-lived assets and long-lived assets to be disposed
of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(h) Stock based compensation
The Company accounts for stock based compensation under the
intrinsic-value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issues to Employees," and
discloses the effect of the difference in applying the fair value based method
of accounting on a pro-forma basis, as required by SFAS No. 123 "Accounting for
Stock-Based Compensation."
(i) Revenue recognition
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees its advertising customers a
minimum number of impressions to be delivered to users of its Web sites or
clicks, over a specified period of time for a fixed fee. Customers are invoiced
monthly in accordance with delivery of advertising services during the month.
Advertising revenues are recognized as the advertisement is displayed or as
users click or otherwise respond to advertisements, provided that no
significant Company obligations remain. To the extent that minimum guaranteed
impressions are not met or clicks, the Company defers recognition of the
corresponding revenues until the guaranteed impressions or clicks are achieved.
Advertising revenues were approximately 79%, 95% and 98% of total revenues for
the years ended December 31, 1997, 1998, and 1999, respectively.
The Company commenced selling merchandise through its Web site in December
1999 and has recognized related revenues of approximately $15,000 for the year
ended December 31, 1999. Such revenues include shipping and handling fees.
Revenue is recognized at the time of shipment from the warehouse or directly
from the supplier. Customers have a right to return product within 21 days
after shipment. The Company provides an allowance for actual sales returns in
the 21 days subsequent to a period end. Through January 28, 2000, the Company
has not experienced any returns.
The Company provides sponsorship advertising on game shows or on a portion
of its Web sites in consideration for a fixed fee. The Company incurs
insignificant costs to customize the advertisements received
F-9
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
from the sponsors which are expensed as incurred. Sponsorship agreements do not
segregate the fees for development of customized features and displaying the
sponsors advertisments on the Web sites, therefore, the entire fee is deferred
and recognized ratably in the period in which the sponsor's advertising is
displayed.
The Company enters into arrangements with third parties whereby the
Company's games are displayed on the third parties' Web sites. The revenues
generated from advertising in connection with the use of the Company's games
are recognized ratably in the period in which the advertising is displayed on
the third party Web site. Generally, the Company is responsible for selling the
advertising, billing and collections and is obligated to pay the third parties
their fees for displaying the games on their Web sites regardless of whether
the Company collects the advertising revenue. In these situations the Company
records the advertising revenues and the payments to the third parties are
recorded as cost of revenues. When the third party sells the advertising and
pays the Company a portion of the advertising revenues, the Company only
recognizes revenue for its portion of gross revenues.
Revenues include barter revenues from the exchange by the Company of
services or advertising space on the Company's Web sites for reciprocal
advertising or promotional services including prizes. Revenues from these
barter transactions are recorded at the estimated fair value of the services or
advertisements delivered, unless the fair value of the goods or services
received is more objectively determinable, and are recognized when the
advertisements are run on the Company's Web sites or services are provided. The
related expense is recorded when it is incurred and classified as sales and
marketing expenses or cost of revenues in accordance with the terms of the
barter agreement.
Barter revenues represented 0%, 22% and 14% of total revenues for the
years ended December 31, 1997, 1998, and 1999, respectively.
In 1997, one advertising customer accounted for 14% of total revenues and
another accounted for 11%. In 1998, one advertising customer accounted for 21%
of total revenues while another customer accounted for 12%. In 1999, one
advertising customer accounted for 14% of total revenues.
(j) Cost of revenues
Cost of revenues is primarily comprised of prize expenses, Internet
connection charges, royalties, merchandise costs and a portion of computer
equipment and software depreciation.
(k) Product development and advertising
Product development costs and advertising costs are expensed as incurred.
Advertising costs, which are included in sales and marketing expenses, amounted
to $188,000, $1,847,000 and $22,739,000 in 1997, 1998, and 1999 respectively.
Prepaid Pearson advertising costs (notes 7 and 14(b)) are being amortized
commencing April 1, 1999 over the thirty-month contractual period the
advertising services are provided to the Company.
(l) Merchandise Inventory
Inventories which are stated at the lower of cost or market, are comprised
of goods available for the online sale of merchandise through the Company's Web
site and are included in other current assets. See
note 6.
(m) Business segment reporting
The Company has determined that it does not have any separately reportable
business segments. However related disclosures about products and services,
geographic areas and major customers are included in note 17.
F-10
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
(n) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(o) Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share". Basic net income per share is computed by dividing the
net income available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing the net income for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, composed of incremental common
shares issuable upon the exercise of stock options and warrants, are included
in net income per share to the extent such shares are dilutive. Common stock
equivalents were not included in loss per share for any periods presented since
they were anitdilutive. Potentially dilutive common stock equivalents,
consisting of stock options, as of December 31, 1997, 1998 and 1999 amounted to
2,110,920, 897,200, and 5,904,408 respectively.
(p) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the useful lives and recoverability of
long-lived assets.
(q) Recent accounting pronouncements
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted these statements effective July 1,
1998 and June 30, 1999, respectively. These statements modified or expanded the
Company's stockholders' equity and segment disclosures and had no impact on the
Company's results of operations, financial position or cash flows.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for fiscal years beginning after June 15, 2000,
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through earnings. If the derivative is an effective hedge, changes in its fair
value will be offset against the change in the fair value of the hedged item in
either other comprehensive income or earnings. The ineffective portion of a
derivative classified as a hedge will be immediately recognized in earnings.
The Company is required to adopt the new statement effective July 1, 2000, and
has not yet determined the effect SFAS No. 133 will have on its results of
operations and financial position. This statement is not required to be applied
retroactively to financial statements of prior periods.
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement did not have any
effect on the Company's results of operations, financial position or cash
flows.
F-11
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(2) Significant accounting policies and procedures -- (Continued)
In 1998, the Company adopted SFAS No. 128, "Earnings Per Share." The
Company has reported on the income statement basic and diluted loss per share
for all periods presented.
(3) PrizePoint acquisition
On June 7, 1999, the Company completed an acquisition of PrizePoint
Entertainment Corporation ("PrizePoint"), a provider of online single-player
games. Under the terms of the acquisition agreement the Company exchanged
approximately 2.44 million shares of its common stock in exchange for all of
the outstanding shares of common stock of PrizePoint. Fractional shares were
acquired for $19,380 and then retired. All outstanding PrizePoint preferred
shares were converted in accordance with their original terms into PrizePoint
common stock immediately prior to the acquisition. The acquisition has been
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the accounts
and operations of PrizePoint for all periods prior to the merger.
Separate revenues and net loss amounts for the year ended December 31,
1998 and three months ended March 31, 1999 are summarized below:
December 31, March 31,
1998 1999
---------------- ---------------
(Unaudited)
Revenues
Uproar ..................... $ 1,632,969 $ 963,418
PrizePoint ................. -- 47,750
------------ ------------
1,632,969 1,011,168
------------ ------------
Net loss
Uproar ..................... (4,602,025) (4,399,357)
PrizePoint ................. (1,228,625) (818,575)
------------ ------------
$ (5,830,650) $ (5,217,932)
============ ============
PrizePoint was formed in March 1998 and recognized revenues beginning in
the first quarter of 1999. Adjustments to eliminate the sale of advertising
between Uproar Inc. and PrizePoint reduced combined net revenue by $12,000 for
the three months ended March 31, 1999.
(4) Property and equipment
December 31,
-------------------------------
1998 1999
------------- ---------------
Computer equipment .................... $ 963,053 $ 4,680,785
Purchased software .................... 162,768 667,335
Furniture and fixtures ................ 247,184 568,493
Construction in progress .............. -- 162,461
---------- ------------
1,373,005 6,079,074
Less accumulated depreciation ......... (261,039) (1,047,645)
---------- ------------
$1,111,966 $ 5,031,429
========== ============
Depreciation expense for 1997, 1998, and 1999 was $56,556, $173,878 and
$882,385 respectively.
F-12
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(5) Intangible assets, net
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
----------- --------------
<S> <C> <C>
Intangible benefits of Pearson Agreement ......... $ -- $ 16,673,875
Patents .......................................... 3,510 3,510
Trademarks ....................................... 6,345 6,283
Licenses ......................................... 45,622 44,823
Other ............................................ 1,183 1,344
-------- ------------
56,660 16,729,835
Less accumulated amortization .................... (9,303) (6,080,448)
-------- ------------
$ 47,357 $ 10,649,387
======== ============
</TABLE>
The intangible benefits of the Pearson agreement include a license to
create and use the English language Internet versions of certain Pearson game
shows and benefits from association with Pearson and their brands during the
thirty-three month term of the agreement.
(6) Other current assets
Other current assets consist of the following:
December 31,
--------------------------
1998 1999
----------- ------------
Prepaid insurance ....................... $ 19,864 $ 178,446
Prepaid license fees .................... -- 150,000
Prepaid data warehouse services ......... -- 22,032
Prepaid rent ............................ -- 85,281
Merchandise inventory ................... -- 172,508
Other ................................... 4,825 136,345
-------- ---------
$ 24,689 $ 744,612
======== =========
(7) Prepaid advertising
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
------------ --------------
<S> <C> <C>
Prepaid advertising ............................... $ 201,327 $ 66,000
Prepaid Pearson advertising -- note 14(b) ......... -- 3,795,996
--------- -----------
$ 201,327 $ 3,861,996
========= ===========
Long term portion of prepaid Pearson
advertising -- note 14(b) ........................ $ -- $ 2,847,005
========= ===========
</TABLE>
F-13
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(8) Other long term assets
Other long term assets consist of the following:
December 31,
---------------------------
1998 1999
------------ ------------
Security deposits ......... $ 125,035 $ 168,657
Other ..................... 13,650 4,769
--------- ---------
$ 138,685 $ 173,426
========= =========
(9) Accrued expenses
Accrued expenses consist of the following:
December 31,
----------------------------
1998 1999
----------- --------------
Advertising ..................... $ 33,825 $ 2,786,020
Severance ....................... -- 94,225
Prizes and awards ............... 59,638 174,008
Commission and salaries ......... 95,675 78,943
Deferred revenue ................ 30,000 154,906
Bonus ........................... 91,757 16,500
Legal and other fees ............ 123,102 256,141
Other accruals .................. 37,909 360,828
--------- -----------
$ 471,906 $ 3,921,570
========= ===========
Accrued advertising consists of uninvoiced online banner advertising
purchased by and delivered to the Company.
(10) Valuation and qualifying accounts
<TABLE>
<CAPTION>
Balance at Provisions Balance
Beginning for Returns End of
of Period and Doubtful Accounts Write-offs Period
------------ ----------------------- ------------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 ......... -- -- -- --
Year ended December 31, 1998 ......... -- -- -- --
Year ended December 31, 1999 ......... -- 270,913 -- 270,913
</TABLE>
(11) Stockholders' equity
During 1997, 4,000,000 shares of common stock were sold in a private
placement. Net proceeds to the Company were $4,715,687.
In accordance with their original terms, during 1997 loan notes totaling
NLG 832,000 ($435,558) were converted to common stock at a rate of NLG 18.756
for every forty shares, which resulted in the issuance of 1,774,600 shares.
E-Pub Services Limited was the predecessor company to Uproar Limited.
During 1997, 11,174,600 common shares in E-Pub Services Limited, representing
100% of the equity ownership, were exchanged at the ratio of 1:1 for the common
shares in Uproar Limited, a company under common control, at that time a
non-operating shell company.
F-14
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(11) Stockholders' equity -- (Continued)
During 1998, 4,758,360 shares of common stock were sold in a private
placement. Net proceeds to the Company were $9,666,464.
In January 1999, 1,000,000 shares of common stock were sold in a private
placement. Net proceeds to the Company totaled $9,344,654.
In January 1999, 2,000,000 shares of common stock were issued to Pearson
Television Limited in exchange for intangible benefits, advertising services
and cash of $124,599. The fair value of the common stock issued was
$24,780,474. See Note 14(b).
In January 1999, 43,360 shares of common stock were sold in a private
placement for $250,000.
On April 1, 1999 the par value of the Company's common stock was changed
from 1 Irish Punt to $0.05. Subsequently the Company effected a 20 for 1 stock
split. The net effect of these transactions was a $288,858 transfer from
additional paid-in capital to common stock. All prior period stock transactions
have been restated to reflect the impact of the stock split.
In June 1999, 43,360 warrants, which had been issued by PrizePoint during
1998, were exercised at an aggregate exercise price of $250,000.
In July 1999 the Company completed the sale of 2,832,000 shares on the
EASDAQ stock exchange. Net proceeds to the Company totaled $30,347,116.
(12) Stock compensation plan
As of December 31, 1998 the Company had one stock-based compensation plan.
The plan authorizes the granting of options to acquire the Company's common
stock to selected key employees, who also may be officers, and to non-employee
directors. Options granted prior to July 1, 1997 were granted with an exercise
price above the common stock's market value at the date of grant and became
fully exercisable on December 31, 1997. The original expiration date of these
options was also December 31, 1997. On December 31, 1997, the exercise price of
these options was increased by 15% and the expiration date was extended to June
30, 1998. Compensation expense for the excess of the market value over the
exercise price, aggregating $1,244,888 was recorded at that time. Generally 50%
of the options granted under this plan vest and become fully exercisable two
years from the date of grant and the remaining 50% vest and become fully
exercisable three years from the date of grant. During 1998 and 1999 the
Company granted options under this plan with exercise prices less than the fair
value of the common stock which resulted in stock compensation expense of
$1,406,623. This amount is recorded as compensation expense over the vesting
periods, and amounted to $3,104 and $735,489 for the years ended December 31,
1998 and 1999, respectively.
During 1999, the Company established the Uproar Ltd. 1999 Share
Option/Share Issuance Plan (the "1999 Plan"). The 1999 Plan authorizes the
Company to grant options to its employees, non-employee directors and
consultants to purchase up to 5,400,000 shares of the Company's common stock,
as well as to issue shares directly to such persons without any intervening
option grants. The exercise period for options granted under the Plan can be no
more than ten years from the date of grant. The Company commenced granting
options under the 1999 Plan in September, 1999 and the exercise price of each
such option was the market value of a share of the Company's common stock on
the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock compensation plans. The compensation cost charged
against income was $1,244,888, $3,104, and $735,489 for the years ended
December 31, 1997, 1998 and 1999 respectively. Had compensation cost been
determined in accordance with the provisions of SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below. The fair values of the options for the pro-forma calculations are
computed using the Black-Scholes method.
F-15
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(12) Stock compensation plan -- (Continued)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Net Loss
As reported ................................ $(3,828,745) $(5,830,650) $(38,724,641)
Proforma ................................... (3,890,803) (6,678,354) 41,520,547
Basic loss per share
As reported ................................ $ (0.42) (0.40) $ (1.77)
Proforma ................................... (0.43) (0.45) (1.90)
Weighted average shares outstanding ......... 9,034,928 14,697,112 21,909,456
Option pricing model assumptions:
Expected dividend yield .................... 0% 0% 0%
Average option life ........................ 2.5 years 2 years 2.5 years
Volatility ................................. 70% 70% 60%
Risk free interest rate .................... 3% 3% 5%
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------------- ---------------
<S> <C> <C>
Outstanding, December 31, 1996 .................... 1,800,000 $ .74
Granted ........................................... 600,000 2.43
Exercised ......................................... (289,080) .64
---------
Outstanding, December 31, 1997 .................... 2,110,920 1.23
Granted ........................................... 329,200 2.32
Exercised ......................................... (1,524,240) .77
Cancelled ......................................... (18,680) 2.44
----------
Outstanding, December 31, 1998 .................... 897,200 2.39
Granted ........................................... 5,337,716 9.64
Options assumed in PrizePoint acquisition ......... 124,080 .07
Exercised ......................................... (307,708) 8.41
Cancelled ......................................... (146,880) 4.76
----------
Outstanding, December 31, 1999 .................... 5,904,408 $ 8.52
==========
</TABLE>
At December 31, 1999, the weighted-average exercise price and average remaining
contractual life of outstanding options was $8.52 and 9.55 years remaining,
respectively. 614,690 shares are available for grants under the 1999 Plan and
2,222,912 shares are exercisable at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------ -------------------------------
Weighted-
Average Weighted-
Number Exercise Remaining Number Average
Outstanding Prices Life in Years Exercisable Exercise Price
- ------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
34,000 $ .01 7.52 14,228 $ .01
78,986 .10 9.27 35,326 .10
911,720 2.21 8.62 695,706 2.21
3,580,458 9.43 9.71 1,273,488 9.43
1,200,000 10.82 9.81 204,164 10.82
33,702 11.15 9.78 -- --
42,882 16.09 9.87 -- --
22,660 17.27 9.96 -- --
--------- ---------
5,904,408 $ .01-17.27 9.55 2,222,912 $ 7.09
========= =========
</TABLE>
F-16
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(13) Income taxes
The Company's income tax expense is comprised of the following:
Year Ended December 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
Current tax expense
United States ................... $ -- $ -- $ --
Foreign ......................... 5,582 9,020 28,000
------ ------ -------
Total income tax expense ......... $5,582 $9,020 $28,000
------ ------ -------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Sources of loss before income tax
United States ................... $ (1,060,562) $ (4,455,439) $ (22,848,393)
Foreign ......................... (2,762,601) (1,366,191) (15,848,248)
------------ ------------ -------------
Loss before income taxes ......... $ (3,823,163) $ (5,821,630) $ (38,696,641)
============ ============ =============
</TABLE>
The components of the net deferred tax asset as of December 31, 1998 and
1999 consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
United States net operating loss carryforwards .......... 2,146,000 10,864,000
Accounts receivable allowances .......................... -- 108,000
Accrued liabilities ..................................... 61,000 374,000
United Kingdom net operating loss carryforwards ......... 137,000 323,000
--------- ----------
2,344,000 11,669,000
Less valuation allowance ................................ (2,344,000) (11,669,000)
---------- -----------
Deferred tax assets, net ................................... $ -- $ --
============ =============
</TABLE>
The net operating loss carryforwards are comprised of the losses incurred
in the UK and US subsidiaries. The Bermudan company enjoys tax-free status and
the only other subsidiary which is in Hungary, has been profitable.
Realization of deferred tax assets is dependent upon future earnings, if
any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes that it is not more likely than not that
these assets will be realized. No income tax benefit has been recorded for all
periods presented because of the valuation allowance.
At December 31, 1999, the US subsidiary has a federal net operating loss
carryforward for income tax purposes of approximately $27,160,000. There can be
no assurance that the Company will realize the benefit of the net operating
loss carryforwards. The federal net operating loss carryforwards are available
to offset future taxable income and expire in various amounts through 2019.
Due to the "change in ownership" provisions in Section 382 of the Internal
Revenue Code, the availability of the Company's US net operating loss
carryforwards will be subject to an annual limitation against taxable income in
future periods, which could substantially limit the eventual utilization of
these carryforwards.
(14) Significant agreements
(a) Cable and Wireless
On December 23, 1998, the Company entered into an agreement with Cable &
Wireless Communications ("CWC"), the largest cable television franchise owner
in the UK. The agreement provides for CWC to display
F-17
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(14) Significant agreements -- (Continued)
up to 14 Uproar game shows on an interactive service offered via its digital
cable television which was launched by CWC on October 15, 1999. The agreement
provides for the Company to have an anchor position within the games and
entertainment channel on the CWC service and to participate in promotional
opportunities on the service. The Company pays CWC an annual maintenance fee
which is included in cost of revenues for which CWC guarantees placement within
the service. The amount paid through December 31, 1999 was approximately
$11,000. The agreement provides that CWC is entitled to additional fees equal
to a percentage of net advertising and sponsorship revenue generated by the
Company and arising directly from games displayed upon the interactive service.
The agreement is for an initial three-year period from launch of the Uproar
games on the CWC interactive service, and then automatically continuing with a
provision for a six-month notice of cancellation. Two months of the annual fee
has been paid and recognized as an expense as of December 31, 1999.
(b) Pearson Television
On January 13, 1999, the Company entered into an agreement with Pearson
Television Limited ("Pearson"), whereby Pearson acquired 2,000,000 common
shares of the Company in exchange for intangible assets, advertising services
to be provided over a thirty-month period commencing April 1, 1999 and cash of
$124,599.
The market value of the common shares acquired by Pearson was $24,780,474
of which $24,655,875, net of the $124,599 cash payment was attributable to
intangible assets and prepaid advertising services. In accounting for the
transaction the Company capitalized intangible assets of $16,673,875 and
prepaid advertising services of $7,982,000, their estimated fair value. For the
year ended December 31, 1999, amortization of intangible assets was $6,063,227
and amortization of prepaid advertising services amounting to $1,338,999 was
recorded as advertising expense.
Should Pearson meet certain television distribution targets for its game
shows in the United States, they will be granted 400,000 additional common
shares between September 1999 and August 2000 and a further 400,000 shares
between September 2000 and August 2001. See note 15.
Included in the intangible assets, Uproar acquired a license to create and
use the English language Internet versions of certain Pearson game shows during
the thirty-three month term of the agreement. The Company pays Pearson a
royalty for the rights and license to use the game show formats on its Web
sites, equal to a percentage of gross advertising and other revenue generated
from the use of the licensed Internet games. Additional royalties are due to
Pearson for a percentage of net advertising and other revenues generated by the
licensed game shows, as defined in the agreement, subject to a minimum
guaranteed amount of $400,000 for the term of the agreement. The minimum
guaranteed amount of $400,000 is due in two equal installments on July 15, 1999
and July 15, 2000 and represents the minimum due for each of the two television
broadcast years measured from September 1999 to September 2001. The initial
payment was recorded as a prepayment with $50,000 expensed in the year ended
December 31, 1999.
(c) Telefonica
On September 29, 1999, the Company entered an agreement with Telefonica
Interactiva De Contenidos ("Telefonica"), a Spanish corporation, to establish
and develop Uproar products and the Uproar media property in the Spanish and
Portuguese languages. The agreement requires Uproar to license distribution
rights to Telefonica, and provide services and support to Telefonica for the
operations of the Web sites in exchange for which Telefonica has agreed to pay
Uproar exclusivity fees. Such fees are recognized as revenue ratably over the
related contractual period. Telefonica will display the Uproar Web sites online
for the Spanish and Portuguese language markets from Telefonica's Terra.com Web
sites. Telefonica sells advertising displayed
F-18
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(14) Significant agreements -- (Continued)
with Uproar games on their Web sites and remits a percentage of the revenues to
the Company, which is recognized as revenue by the Company when the
advertisements are displayed. The agreement term is for an initial three-year
period from the date of the agreement, after which it can be extended for an
additional twelve-month period.
(15) Commitments and contingencies
(a) Pearson Television
Under the terms of the Pearson agreement (see note 14(b), should Pearson
meet certain television distribution targets for its game shows in the United
States, they will be granted 400,000 additional common shares between September
31, 1999 and August 2000 and a further 400,000 shares between September 2000
and August 2001. Since, as of December 31, 1999 it is not considered probable
that the distribution target under the Pearson Television agreement will be
met, no accounting has been provided for this transaction in these consolidated
financial statements.
(b) Other commitment
In connection with two office leases the Company has letters of credit
outstanding for approximately $604,275. The cash balances supporting the
letters of credit are reported as restricted cash.
(16) Leases
The Company has several non-cancelable operating leases, primarily for
office space. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
was $105,645, $159,121, and $652,642 for the years ended December 31, 1997,
1998, and 1999 respectively. The interest rate on the capital leases was
approximately 1%.
Future minimum lease payments under non-cancelable leases (with initial or
remaining lease terms in excess of one year) as of December 31, 1999 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -------------
<S> <C> <C>
Year ended December 31,
2000 ....................................... 107,989 822,222
2001 ....................................... 54,228 800,439
2002 ....................................... -- 618,021
2003 ....................................... -- 612,301
2004 ....................................... -- 548,541
Thereafter ................................. -- 90,289
------- -------
Total minimum lease payments ................ $162,212 $3,491,813
==========
Less amounts representing interest ......... (7,754)
--------
Current portion of capital leases ........... 102,777
--------
Long term capital lease obligation .......... $ 51,681
========
</TABLE>
(17) Segment reporting
In presenting segment information the Company has applied the provisions
of SFAS No. 131. The Company has determined that it does not have any
separately reportable business segments.
F-19
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(17) Segment reporting -- (Continued)
The Company attributes revenues to different geographic areas on the basis
of the location of the customer. Revenues by geographic area are as follows:
Revenues
-------------------------------------------
Year ended December 31,
-------------------------------------------
1997 1998 1999
----------- ------------- -------------
United States ......... $332,555 $1,545,663 $ 9,966,057
England ............... 8,727 83,120 246,336
Hungary ............... 6,612 -- --
Germany ............... -- -- 54,134
Other ................. 815 4,186 125,000
-------- ---------- -----------
Total ................. $348,709 $1,632,969 $10,391,527
======== ========== ===========
Included in revenues in the United States for the year ended December 31,
1999 is $15,145 relating to the sale of merchandise through the Company Web
site. There were no such revenues in prior periods.
Investment in long-lived assets by geographic area are as follows:
Property and Equipment and
Intangible Assets
-----------------------------
December 31,
-----------------------------
1998 1999
------------- --------------
United States ......... $ 962,880 $15,394,683
England ............... 35,399 89,496
Ireland ............... 20,532 --
Hungary ............... 108,040 184,618
Germany ............... -- 12,019
Bermuda ............... 32,472 --
---------- -----------
Total ................. $1,159,323 $15,680,816
========== ===========
(18) Pension and other post-retirement plans
Effective January 1, 1998, the Company established a 401(k) salary
deferral plan (the "401(k) Plan") on behalf of its U.S. employees. The 401(k)
Plan is a qualified defined contribution plan and allows employees to defer up
to 15% of their compensation, subject to certain limitations. Under the 401(k)
Plan, the Company has the discretion to match contributions made by the
employee. The Company made no matching contributions in 1998 or 1999.
(19) Subsequent events
On December 16, 1999, Uproar Inc., was incorporated in the state of
Delaware. On January 26, 2000 Uproar Ltd. was redomesticated from Bermuda to
the state of Delaware and became a Delaware corporation. On January 27, 2000,
Uproar Inc. was merged into Uproar Ltd. whereby each ordinary share of the
Bermuda Company became one share of common stock of the Delaware corporation,
which was accounted for as a transaction between companies under common
control. Simultaneous with the merger, Uproar Inc. increased its number of
authorized common stock to 112,000,000, with par value $.01 per share.
F-20
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(19) Subsequent events -- (Continued)
On February 2, 2000, the Company sold 1,265,372 shares of common stock for
net proceeds of approximately $25 million to Trans Cosmos USA, Inc. (TCUI).
Approximately $63,000 of the net proceeds will be allocated to common stock and
the remainder, or approximately $24,937,000, will be added to additional
paid-in capital. The Common Stock Purchase agreement provides that the Company
and TCUI intend to form a Japanese joint venture to produce a
Japanese-localized version of Uproar's Web site, uproar.com. The joint venture
would be owned equally and Uproar and TCUI will contribute to the joint venture
$500,000 and $4,500,000, repectively. Uproar would receive an annual royalty
fee from the joint venture for licensing its intellectual property.
On February 4, 2000 the Company declared a 2-for-1 common stock split for
shareholders of record on February 18, 2000, effected in the form of a stock
dividend. All prior period stock transactions and amounts have been restated to
reflect the impact of the stock split.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PrizePoint Entertainment Corporation:
We have audited the accompanying balance sheet of PrizePoint Entertainment
Corporation (a Delaware corporation) as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (March 4, 1998) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 PrizePoint Entertainment
Corporation as of December 31, 1998, and the results of its operations and its
cash flows for the period from inception (March 4, 1998) to December 31, 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
April 29, 1999
F-22
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 1,870,075 $ 1,244,072
Accounts receivable ................................................ -- 21,250
Prepaid expenses and other current assets .......................... -- 40,054
------------ ------------
Total current assets ............................................. 1,870,075 1,305,376
PROPERTY AND EQUIPMENT, net ......................................... 127,337 366,219
DEPOSITS AND OTHER ASSETS ........................................... 61,239 78,495
------------ ------------
Total assets ...................................................... $ 2,058,651 $ 1,750,090
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 63,457 $ 146,634
Accrued expenses ................................................... 25,867 33,497
Current portion of capital lease obligations ....................... 25,949 102,777
------------ ------------
Total current liabilities ........................................ 115,273 282,908
CAPITAL LEASE OBLIGATIONS ........................................... 15,134 107,513
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares authorized:
Series A Preferred Stock, 645,000 shares designated, issued and
outstanding as of December 31, 1998 and March 31, 1999
(unaudited), respectively; liquidation value of $645,000 ......... 6,450 6,450
Series B Preferred Stock, 495,049 shares designated; 412,541 and
453,795 shares issued and outstanding as of December 31, 1998
and March 31, 1999 (unaudited), respectively; liquidation value of
$2,500,000 and $2,750,000 (unaudited), respectively .............. 4,125 4,538
Common stock, $.01 par value; 10,000,000 shares authorized
1,186,667 shares issued and outstanding as of December 31, 1998
and March 31, 1999 (unaudited), respectively ..................... 11,867 11,867
Additional paid-in capital ......................................... 3,134,425 3,384,012
Accumulated deficit ................................................ (1,228,623) (2,047,198)
------------ ------------
Total stockholders' equity ....................................... 1,928,244 1,359,669
------------ ------------
Total liabilities and stockholders' equity ....................... $ 2,058,651 $ 1,750,090
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-23
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From Inception For the Three
(March 4, Months
1998) to Ended
December 31, March 31,
1998 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES ..................................... $ -- $ 47,750
------------ ----------
COSTS AND EXPENSES:
Direct costs ................................ 353,279 305,385
Selling and marketing expenses .............. 214,290 209,299
General and administrative expenses ......... 675,514 321,535
------------ ----------
Operating loss ........................... . (1,243,083) (836,219)
OTHER INCOME (EXPENSE):
Interest income, net ........................ 14,460 17,644
------------ ----------
Loss before income taxes ................. . (1,228,623) (818,575)
BENEFIT FOR INCOME TAXES .................... -- --
------------ ----------
Net loss ................................. . $ (1,228,623) $ (818,575)
============ ==========
PER SHARE INFORMATION:
Net loss per share--
Basic and Diluted ........................ . $ (1.04) $ (.68)
------------ ----------
Weighted average common shares outstanding--
Basic and Diluted ........................ . 1,186,667 1,186,667
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
F-25
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
----------------------- -----------------------
Shares Par Value Shares Par Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, March 4, 1998 ............ -- $ -- -- $ --
Issuance of common stock ......... -- -- -- --
Issuance of Series A Preferred
Stock ........................... 645,000 6,450 -- --
Issuance of Series B Preferred
Stock ........................... -- -- 412,541 4,125
Net loss ......................... -- -- -- --
------- ------ ------- ------
BALANCE, December 31, 1998 ........ 645,000 6,450 412,541 4,125
Issuance of Series B Preferred
Stock ........................... -- -- 41,254 413
Net loss ......................... -- -- -- --
------- ------ ------- ------
BALANCE, March 31, 1999
(unaudited) ...................... 645,000 $6,450 453,795 $4,538
======= ====== ======= ======
<CAPTION>
Common Stock
-------------------------- Additional Accumulated
Shares Par Value Paid-in Capital Deficit Total
------------- ----------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, March 4, 1998 ............ $ -- $ -- $ -- $ --
Issuance of common stock ......... 1,186,667 11,867 -- -- 11,867
Issuance of Series A Preferred
Stock ........................... -- -- 638,550 -- 645,000
Issuance of Series B Preferred
Stock ........................... -- -- 2,495,875 -- 2,500,000
Net loss ......................... -- -- -- (1,228,623) (1,228,623)
----------- ------- ---------- ------------ ----------
BALANCE, December 31, 1998 ........ 1,186,667 11,867 3,134,425 (1,228,623) 1,928,244
Issuance of Series B Preferred
Stock ........................... -- -- 249,587 -- 250,000
Net loss ......................... -- -- -- (818,575) (818,575)
----------- ------- ---------- ------------ ----------
BALANCE, March 31, 1999
(unaudited) ...................... 1,186,667 $11,867 $3,384,012 $ (2,047,198) $ 1,359,669
=========== ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Three
From Inception Months
(March 4, 1998) to Ended
December 31, March 31,
1998 1999
-------------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (1,228,623) $ (818,575)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization ............................................ 23,156 19,875
Changes in assets and liabilities-
Increase in accounts receivable ........................................ -- (21,250)
Increase in prepaid expenses and other current assets .................. -- (40,054)
Increase in deposits and other assets .................................. (61,239) (17,256)
Increase in accounts payable ........................................... 63,457 83,177
Increase in accrued expenses ........................................... 25,867 7,630
------------ -----------
Net cash used in operating activities ................................ (1,177,382) (786,453)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................................... (98,598) (72,747)
------------ -----------
Net cash used in investing activities .................................. (98,598) (72,747)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations ................................... (10,812) (16,803)
Issuance of Series A Preferred Stock ..................................... 645,000 --
Issuance of Series B Preferred Stock ..................................... 2,500,000 250,000
Issuance of common stock ................................................. 11,867 --
------------ -----------
Net cash provided by financing activities .............................. 3,146,055 233,197
------------ -----------
Net increase (decrease) in cash and cash equivalents ................... 1,870,075 (626,003)
CASH AND CASH EQUIVALENTS, beginning of period ........................... -- 1,870,075
------------ -----------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 1,870,075 $ 1,244,072
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................................. $ -- $ --
Cash paid for income taxes ............................................... -- --
Capital lease obligations ................................................ 56,608 186,010
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PrizePoint Entertainment Corporation ("PrizePoint" or the "Company") was
formed as a Delaware corporation on March 4, 1998. The Company is engaged in
the marketing and promotion forum of games of chance and advertising via its
Internet web site. Individuals or "players" can log on to the Company's site
and earn points for participating in the various product and trivia promotions
offered in the Company's site. Individuals can redeem these points for various
awards. Sponsors provide some of the awards and gifts for the winning
participants in exchange for advertising services.
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.
Revenue Recognition
Revenues are derived from the sale of advertising on the Company's web
site. Advertising revenues are recognized in the period the advertisement is
displayed provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of "impressions", or number of
times that any advertisement is viewed by users on the Company's web sites. To
the extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until guaranteed impression levels
are achieved.
Direct Costs
Direct costs consist primarily of cash prizes paid to participants,
payroll and related expenses for personnel, systems consultants and systems and
telecommunications infrastructures for web site development. To date, all
direct costs have been expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment, net
Property and equipment are recorded at cost and depreciated on the
straight-line method over their estimated useful lives, ranging from three to
five years.
Costs of maintenance and repairs are charged to expense as incurred.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards
for the impairment of long-lived assets and for long-lived assets to be
disposed of. Management has performed a review of all long-lived assets and has
determined that no impairment of the respective carrying value has occurred as
of December 31, 1998.
F-27
<PAGE>
Income Taxes
The Company accounts for its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the estimated future tax effects of events that have
been recognized in the financial statements or income tax returns. Under this
method, deferred tax liabilities and assets are determined based on differences
between the financial accounting and income tax bases of assets and
liabilities, and the use of carryforwards, if any, using enacted tax rates in
effect for the years in which the differences and carryforwards are expected to
reverse and be utilized. Any deferred assets have been reserved for their full
value until the future realizability can be determined.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company adopted the disclosure-only requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees and
to provide pro forma net income (loss) and pro forma earnings per share
disclosures (Note 8) for employee stock options as if the fair value based
method of accounting in SFAS No. 123 had been applied to these transactions.
The Company accounts for nonemployee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more readily determinable.
Basic and Diluted Net Loss Per Common Share
The Company accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." In accordance with SFAS No.
128, basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and diluted earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares and dilutive common equivalent shares outstanding during the
period. Common equivalent shares have been excluded from the calculation of
diluted earnings per share, as their effect is anti-dilutive.
Business and Credit Concentrations
Financial instruments, which subject the Company to concentrations of
credit risk, consist primarily of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses. The carrying amounts of
these instruments approximate fair value. The carrying amount of the Company's
capital leases approximate the fair value of these instruments based upon
management's best estimate of interest rates.
The Company maintains cash with a domestic financial institution. The
Company performs periodic evaluations of the relative credit standing of this
institution. From time to time, the Company's cash balances with this financial
institution may exceed Federal Deposit Insurance Corporation insurance limits.
Unaudited Interim Financial Statements
The unaudited consolidated financial information included herein for the
three months ended March 31, 1999, has been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of the Company, these unaudited financial statements, reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The results of operations for interim periods are not
necessarily indicative of the results expected for a full year.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive
F-28
<PAGE>
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The Company adopted this statement in
1998. The adoption of this statement did not have an impact on the Company's
financial condition or results of operations. Accordingly, the Company's
comprehensive net loss is equal to its net loss for the period from inception
(March 4, 1998) to December 31, 1998.
Additionally, in June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." This statement
establishes standards for the way the public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The Company
adopted this statement in 1998. In the initial year of application, comparative
information for earlier years must be restated. Management has determined that
it does not have any separately reportable business segments.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The Company has expensed all software
development costs and does not expect the adoption of SOP 98-1 to have a
material effect on its financial statements.
2. Property and Equipment, Net
Property and equipment consist of the following at December 31, 1998:
Computer equipment and software ......................... $121,601
Furniture and fixtures .................................. 28,892
--------
150,493
Less- Accumulated depreciation and amortization ......... 23,156
--------
$127,337
========
3. Accrued Expenses
Accrued expenses consist of the following at December 31, 1998:
Accrued Vacation ......... $ 15,835
Accrued Rent ............. 10,032
--------
Total .................. $ 25,867
========
4. Income Taxes
No provision for U.S. federal or state income taxes has been recorded for
the period from inception (March 4, 1998) to December 31, 1998 as the Company
has incurred an operating loss.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets for federal and state income taxes at
December 31, 1998 are as follows:
F-29
<PAGE>
Deferred tax assets, net:
Net operating loss carryforwards ......... $ 493,334
Other .................................... 5,000
----------
498,334
Less- Valuation allowance ................ (498,334)
----------
Deferred tax assets, net ................ $ --
==========
Realization of deferred tax assets is dependent upon future earnings, if
any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes that it is not more likely than not that
these assets will be realized. No income tax benefit has been recorded for the
period from inception (March 4, 1998) to December 31, 1998 as a result of the
valuation allowance.
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $1,229,000. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards are available to
offset future taxable income and expire in 2019 if not utilized.
5. Capital Lease Obligations
At December 31, 1998 the Company was committed under a capital lease
agreement for office equipment. The asset and liability under the capital lease
is recorded at the lower of the present value of minimum lease payments or the
fair market value of the asset. The interest rate on the capital lease was
approximately 1% at December 31, 1998.
Future minimum payments under the capital lease agreements are as follows:
Year ending December 31:
1999 ................................... $28,308
2000 ................................... 16,513
-------
Total minimum lease payments .......... 44,821
Less--
Amounts representing interest ......... 3,738
-------
41,083
Current portion ........................ 25,949
-------
Long-term portion ..................... $15,134
=======
6. Stockholders' Equity
Preferred Stock
The Company's stockholders authorized 5,000,000 shares of preferred stock.
The Company has designated 645,000 shares as Series A Preferred Stock and
495,049 shares as Series B Preferred Stock.
Series A Preferred
On April 1, 1998, the Company sold 645,000 shares of Series A Preferred
Stock for net proceeds of $645,000. The Series A Preferred Stock is convertible
into an equal number of common shares at the holder's option, subject to
adjustment for antidilution, and is automatically converted to common stock in
the event of a public offering of securities of the Company. The holders of
Series A Preferred Stock are entitled to receive dividends as and if declared
by the Board of Directors. In the event of liquidation or dissolution of the
Company, the holders of Series A Preferred Stock are entitled to receive all
accrued dividends, if applicable, plus a liquidation price per share of $1.00.
F-30
<PAGE>
Subject to certain provision, registration rights, as defined in the
Certificate of Designation of Series A Convertible Preferred Stock agreement,
may be exercised after the earlier of (a) the date specified by a vote or
written consent or agreement of holders of at least two-thirds of the shares of
Series A Preferred Stock then outstanding, approving such conversion, or (b)
the effective date of the first registration statement for a public offering of
securities of the Company.
Series B Preferred Stock
On December 8, 1998, the Company sold 412,541 shares of Series B Preferred
Stock for net proceeds of $2,500,000. The Series B Preferred Stock is
convertible into an equal number of common shares at the holder's option,
subject to adjustment for antidilution, and is automatically converted to
common stock in the event of a public offering of securities of the Company.
The holders of Series B Preferred Stock are entitled to receive dividends as
and if declared by the Board of Directors. In the event of liquidation or
dissolution of the Company, the holders of Series B Preferred Stock are
entitled to receive all accrued dividends, if applicable, plus a liquidation
price per share of $6.06. Certain of the Series B Preferred Stock holders also
received warrants to receive 41,254 common shares into Series B Convertible
Preferred Stock of the Company at a purchase price equal to $6.06 per share.
The warrants expire at the earlier of (a) 18 months after the effective date of
the registration statement for an initial public offering by the Company and
with a price per share of not less than $6.06 and (b) 60 months after the first
date set forth above.
Subject to certain provisions, registration rights, as defined in the
Certificate of Designation of Series B Convertible Preferred Stock agreement,
may be exercised after the earlier of (a) the date specified by vote or written
consent or agreement of holders of at least two-thirds of the shares of Series
B Preferred Stock then outstanding, approving such conversion, or (b) the
effective date of the first registration statement for a public offering of
securities of the Company.
Common Stock
The Company issued 1,186,667 common shares to its founders in April 1998
for total proceeds of $11,867.
7. Commitments
Operating Leases
The Company leases office space, equipment security and trash removal
services under operating leases expiring through February 29, 2004. At December
31, 1998, minimum lease commitments under noncancelable leases are as follows:
Equipment/
Year Office Services
- -------------------- ------------ -----------
1999 ............... $ 245,040 $2,225
2000 ............... 293,005 1,781
2001 ............... 299,480 1,194
2002 ............... 305,469 684
2003 ............... 320,818 342
Thereafter ......... 54,190 --
---------- ------
$1,518,002 $6,226
========== ======
Rent expense for the year ended December 31, 1998 was $97,545 for office
space.
Advertising and Sponsorship Contracts
The Company entered into several advertising and sponsorship agreements
with third parties, with terms ranging from one to six months whereby the
Company provides advertising in exchange for cash payments or goods. The goods
are used as awards for winning participants in the Company's online games and
sweepstakes. No revenue was earned on such contracts for the year ended
December 31, 1998.
F-31
<PAGE>
8. Stock Options
On April 1, 1998, in order to promote the interests of the Company and
retain persons necessary for the success of the Company, the Company adopted
its 1998 Stock Option Plan ("Option Plan") covering up to 150,000 shares,
pursuant to which employees (including officers), directors and independent
contractors of the Company and its present or future subsidiaries and
affiliates are eligible to receive incentive and/or nonstatutory stock options.
The Option Plan, which expires within ten years, will be administered by the
Plan Administrator. The selection of participants, allotment of units,
determination of price and other conditions relating to the purchase of options
will be determined by the Plan Administrator. Options granted under the Option
Plan are exercisable for a period of up to 10 years from the date of grant at
an exercise price, which may be less than, equal to or greater than the fair
market value per unit on the date of the grant. Incentive Options, however, may
only be granted to employees, the exercise price per share may not be less than
100% of the fair market value per share of common stock on the option grant
date, and for a stockholder owning more than 10% of the outstanding common
stock, its exercise price may not be less than 110% of the fair market value of
the common stock on the date of the grant.
Pursuant to SFAS No. 123, the Company has elected to account for its
Option Plan under APB Opinion No. 25, under which no compensation expense is
recognized for unit option awards granted at or above fair market value. In
1998, the Company granted 95,000 incentive stock options to various employees.
The option exercise price equals the stock's fair market value at the grant
date, and the options are exercisable over a four-year period, with 25% of
options granted becoming exercisable on the one-year anniversary of the grant
date and the remaining options becoming exercisable at the rate of 1/48 at the
end of each month thereafter. All options will terminate no later than 10 years
from the date of grant. Under SFAS No. 123, compensation cost is measured at
the grant date based on the fair value of the award and is recognized over the
service (or vesting) period. For the year ended December 31, 1998, the
compensation cost for this plan determined in accordance with SFAS No. 123, net
of compensation expense recognized under APB No. 25, is an immaterial amount.
As such the Company's pro-forma net loss has not been presented.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Number Weighted Average Weighted
Outstanding Remaining Average
Exercise Prices at December 31, 1998 Contractual Life Exercise Price
- ----------------- ---------------------- ------------------ ---------------
<S> <C> <C> <C>
$.01 ............ 40,000 9.56 $ .01
$.10............. 55,000 9.95 $ .10
------
95,000
======
</TABLE>
As of December 31, 1998, none of the outstanding options were exercisable.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 4.87 percent; expected dividend yield
of 0 percent; expected life of 5 years; expected volatility of 100 percent.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Weighted Average
Shares Exercise Price
----------- -----------------
<S> <C> <C>
Outstanding at beginning of period ..................... -- $ --
Granted ............................................... 95,000 .06
Cancelled ............................................. --
Terminated ............................................ --
Exercised ............................................. --
------
Outstanding at end of period ........................... 95,000 $ .06
====== =====
Options exercisable at end of period ................... --
======
Weighted average fair value of options granted ......... $ .05
========
</TABLE>
F-32
<PAGE>
9. Subsequent Events
On January 7, 1999, the Company issued additional 41,254 shares of Series
B Preferred stock for $250,000 in proceeds.
On April 29, 1999 the Company entered into a merger agreement with Uproar
Ltd., a Bermuda corporation, which is a provider of online entertainment and
game shows. Under the provisions of the merger agreement, each share of common
and preferred stock of the Company will be converted into and exchanged for
common stock of Uproar Ltd. based upon a stated conversion rate.
F-33
<PAGE>
[The Uproar.com logo running across the top of the page; colored circles of
varying sizes: within the circles are the following logos: "CABLE & WIRELESS";
"PEARSON TELEVISION"; "sky"; "TOWER RECORDS.com"; "Trans Cosmos USA";
"NetCreations"; "ADFORCE"; "avenue a"; and "free serve"; and the following
text: "Partners in . . . Branding, Content, Syndication, Distribution" appears
under the Uproar logo.]
<PAGE>
================================================================================
2,500,000 Shares
Uproar Inc.
Common Stock
[GRAPHIC OMITTED]
--------
P R O S P E C T U S
March 16, 2000
--------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit SoundView
================================================================================
