As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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UPROAR INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 13-3919458
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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240 West 35th Street
9th Floor
New York, New York 10001
(212) 714-9500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Kenneth D. Cron
Chairman and Chief Executive Officer
Uproar Inc.
240 West 35th Street
9th Floor
New York, New York 10001
(212) 714-9500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Alexander D. Lynch, Esq. Robert D. Marafioti, Esq. Marc S. Rosenberg, Esq.
Babak Yaghmaie, Esq. Executive Vice President, Cravath, Swaine & Moore
Brobeck, Phleger & Harrison LLP General Counsel and Secretary Worldwide Plaza
1633 Broadway, 47th Floor Uproar Inc. 825 Eighth Avenue
New York, New York 10019 240 West 35th Street New York, New York 10019-7475
(212) 581-1600 9th Floor (212) 474-1000
New York, New York 10001
(212) 714-9500
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of each class of Proposed maximum aggregate Amount of
securities to be registered offering price registration fee(1)
Common stock, par value $0.01 per share .. $100,000,000 $26,400
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
P R O S P E C T U S
[LOGO]
Shares
Uproar Inc.
Common Stock
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We are selling shares of our common stock. The underwriters named in
this prospectus may purchase up to 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 admitted for trading with the European Association
of Securities Dealers' Automated Quotation system, or EASDAQ, under the symbol
"UPRO". On December 20, 1999, the last reported sale price of the common stock
on EASDAQ was [euro] 35.50, or $35.75, per share. We will apply to have the
common stock included for quotation on the Nasdaq National Market under the
symbol "UPRO".
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Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 8.
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.
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Per Share Total
Initial public offering price ................. $ $
Underwriting discounts ........................ $ $
Proceeds, before expenses, to Uproar .......... $ $
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
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Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit Capital Corporation
, 2000.
[Description of graphics on inside front, gatefold and back cover pages of
prospectus]
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.
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TABLE OF CONTENTS
Page
-----
Prospectus Summary ................................................................... 4
Risk Factors ......................................................................... 8
Forward-Looking Statements; Market Data .............................................. 20
Price Range of Common Stock .......................................................... 21
Use of Proceeds ...................................................................... 22
Dividend Policy ...................................................................... 22
Capitalization ....................................................................... 23
Dilution ............................................................................. 24
Selected Consolidated Financial Data ................................................. 25
Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Business ............................................................................. 32
Management ........................................................................... 47
Certain Transactions ................................................................. 53
Principal Stockholders ............................................................... 54
Description of Capital Stock ......................................................... 55
Shares Eligible for Future Sale ...................................................... 58
United States Tax Consequences to Non-United States Holders .......................... 60
Underwriting ......................................................................... 63
Legal Matters ........................................................................ 65
Experts .............................................................................. 65
Where You Can Find Additional Information ............................................ 65
Index to Consolidated Financial Statements ........................................... F-1
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Until , 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.
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Our common stock is currently quoted on EASDAQ in euros. Conversions into
United States dollars are calculated using the noon buying rate for cable
transfers in foreign currencies as certified by the Federal Reserve Bank of New
York on the date the relevant price was quoted. The noon buying rate for
December 20, 1999 was [euro] 0.993 per United States $1.00.
3
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 4.7 million in November 1999. Our unique
user audience has similarly grown from 1.3 million in November 1998 to 3.5
million in November 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, a leading Internet audience
measurement service, in October 1999, our users in the United States spent an
average of 15.6 minutes per usage day on our sites and we were ranked as the
fifth stickiest network of Web sites on the Internet. In addition, we were
ranked by Media Metrix among the five stickiest networks 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 176 as of
September 30, 1999. Similarly, the number of advertising impressions served
over our Web sites increased from 70.7 million in December 1998 to 261 million
in October 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.
4
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.
5
The Offering
Common stock offered... shares
Common stock outstanding after
this offering......... 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"
EASDAQ Symbol............ "UPRO"
This information is based on our shares of common stock outstanding as of
September 30, 1999. This information:
o excludes 2,468,632 shares subject to options outstanding as of September
30, 1999 with a weighted average exercise price of $15.64; and
o assumes no exercise of the underwriters' over-allotment option.
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As used in this prospectus, UPROAR and the UPROAR logo are service marks,
the registration of which 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.
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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. 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.
6
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.
Period ended
Year Ended December 31,
December 31, -----------------------------------------------------
1995 1996 1997 1998
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Statement of Operations Data:
Revenues ................................. $ 43,365 $ 59,698 $ 348,709 $ 1,632,969
Cost of revenues ......................... -- (40,781) (216,586) (760,376)
---------- ----------- ------------- -------------
Gross profit ............................. 43,365 18,917 132,123 872,593
Operating expenses:
Sales and marketing ..................... -- 166,806 1,087,058 3,770,866
Product development ..................... 33,190 389,346 772,744 849,486
General and administrative .............. 70,182 187,362 2,092,394 2,337,023
Amortization of intangible assets ....... -- -- -- --
---------- ----------- ------------- -------------
Loss from operations ..................... (60,007) (724,597) (3,820,073) (6,084,782)
Foreign exchange gain (loss) ............. (2,233) 49,946 (85,439) 57,401
Interest income (expense), net ........... 4,326 (27,829) 82,349 205,751
Provision for income taxes ............... -- (4,909) (5,582) (9,020)
---------- ----------- ------------- -------------
Net loss ................................. $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650)
========== =========== ============= =============
Basic and diluted net loss per share ..... $ (0.10) $ (0.33) $ (0.85) $ (0.79)
========== =========== ============= =============
Weighted average number of shares
outstanding ............................. 569,178 2,129,042 4,517,464 7,348,556
========== =========== ============= =============
Nine Months Ended
September 30,
-----------------------------------
1998 1999
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(unaudited)
Statement of Operations Data:
Revenues ................................. $ 911,253 $ 5,274,896
Cost of revenues ......................... (525,230) (1,690,692)
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Gross profit ............................. 386,023 3,584,204
Operating expenses:
Sales and marketing ..................... 1,860,913 13,531,320
Product development ..................... 529,985 1,676,920
General and administrative .............. 1,195,503 5,105,128
Amortization of intangible assets ....... -- 4,553,728
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Loss from operations ..................... (3,200,378) (21,282,892)
Foreign exchange gain (loss) ............. 36,400 (136,374)
Interest income (expense), net ........... 106,164 177,131
Provision for income taxes ............... (4,000) (44,324)
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Net loss ................................. $ (3,061,814) $ (21,286,459)
============= =============
Basic and diluted net loss per share ..... $ (0.45) $ (2.00)
============= =============
Weighted average number of shares
outstanding ............................. 6,781,044 10,649,857
============= =============
The following table is a summary of our balance sheet at September 30,
1999. The as adjusted data reflect the sale of shares of common stock
offered hereby at an assumed initial public offering price in the United States
of $ per share after deducting the estimated underwriting discount and
estimated offering expenses payable by us.
September 30, 1999
-------------------------
Actual As Adjusted
---------- ------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ................................ $22,554 $
Working capital .......................................... 32,370
Total assets ............................................. 55,849
Total indebtedness, including current maturities ......... 174
Total stockholders' equity ............................... 52,061
7
RISK FACTORS
You should consider carefully the risks described below before making an
investment decision. Any of the following risks could adversely affect our
business and financial results. In that case, the trading price of our common
stock could decline and you could lose all or part of your investment.
Financial Risks
We have a history of losses since our inception, we expect future losses and we
cannot assure you that we will ever be profitable in the future.
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 and to
develop our business generally. Even if we do achieve profitability, we may not
sustain profitability on a quarterly or annual basis in the future. At
September 30, 1999, our accumulated deficit was approximately $31.7 million. 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
this investment, 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, and the rate at which we incur these losses
may increase from current levels.
Because we have only been in business for a short period of time, there is
limited information upon which you can evaluate our business.
Uproar was founded in February 1995 and uproar.com was launched in
September 1997. Accordingly, you can only evaluate our business based on our
limited operating history. As a young company, we face risks and uncertainties
relating to our ability to successfully implement our business plan. These
risks include our ability to:
o increase awareness of the Uproar brand and continue to build user
loyalty;
o expand our content and services;
o attract a larger audience to our Web sites;
o attract a large number of advertisers from a variety of industries;
o maintain our current, and develop new, strategic relationships;
o respond effectively to competitive pressures; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition would be materially
adversely affected.
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 and to limit the value of quarter-to-quarter comparisons.
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;
8
o our ability to attract and retain advertisers;
o the expiration or termination of our strategic relationship with
Pearson Television and others;
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 disruption or impairment of the Internet;
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 seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off the
Internet;
o changes in government regulation of the Internet; and
o general economic and market conditions.
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.
The development of our brand is essential to our future success.
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 cannot assure you that we will be
successful in building or maintaining our brand.
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 we fail to promote our brand successfully or 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 and this could adversely affect
our business, financial condition and results of operations.
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 nine months ended September 30, 1999, we derived approximately
$939,700, or 17.8% of our revenues, from these arrangements. In the year ended
December 31, 1998, we derived approximately $365,000, or 22.0% 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
9
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 business and financial results may suffer.
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 and
the models we adopt may prove to not be the most profitable. Advertising based
on impressions, or the number of times an advertisement is delivered to users,
currently 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 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. Our advertising revenues could be adversely
affected if we are unable to adapt to new forms of Internet advertising or we
do not adopt the most profitable form.
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.
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 additional 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
Internet 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, our business and financial results may suffer.
We plan to increase our advertising sales department to support our growth.
Our business, results of operations and financial condition will be
materially adversely affected if we do not develop and maintain an effective
advertising sales force. On September 30, 1999, our advertising sales
department had 26 members. In October 1999, we hired an executive vice
president to manage our sales and marketing efforts and it can take a
relatively long time for a manager to begin to achieve desired results. We need
to increase substantially our advertising sales department in the near future
to support our planned growth. Our ability to increase our sales department
involves a number of risks and uncertainties, including:
10
o the competition we face in hiring and retaining advertising sales
personnel;
o our ability to integrate, train and motivate additional advertising
sales and support personnel;
o our ability to manage a multi-location advertising sales organization;
and
o the length of time it takes new advertising sales personnel to become
productive.
Seasonal factors may affect our quarterly operating results.
User traffic on Web sites typically declines during the summer and
year-end vacation and holiday periods. These general seasonal declines in user
traffic may affect us and may, over time, cause our growth rate and total
revenues to fluctuate.
We face risks associated with international operations.
We currently operate in the United States, Hungary, Germany and the United
Kingdom. We intend to continue to expand into additional international markets
and to spend significant financial and managerial resources to do so.
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 difficulties and costs of staffing and managing international
operations;
o differing technology standards;
o potentially adverse tax consequences;
o wage and price controls;
o political instability;
o social unrest;
o uncertain demand for electronic commerce;
o uncertain protection for 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 business, results of operations and financial condition.
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 successfully. In addition, our
currency exchange losses 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 may not be able to generate substantial revenues from electronic
commerce.
Since the introduction of electronic commerce, the number of Web sites
that sell products to consumers has increased rapidly. We expect this number to
increase given the relative ease with which new electronic commerce Web sites
can be developed. We believe that the primary competitive factors for
electronic commerce are:
11
o customers' security concerns;
o brand recognition;
o Web site content;
o ease of use;
o price;
o merchandising capability;
o fulfillment speed;
o customer service and support; and
o reliability.
The nature of the Internet as an electronic marketplace may make it more
competitive than traditional retailing environments and increased online
competition may result in reduced operating margins.
We have limited experience in providing electronic commerce services to
our users and only recently hired our electronic commerce manager. Some of our
competitors may 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 these electronic commerce market participants may provide
to us in the future.
We carry inventory on the majority of products sold 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
more of the products falls short of our expectations, we may be required to
take inventory markdowns, which could reduce our gross margins. In addition, to
the extent that demand for the products increases over time, we may be forced
to increase inventory levels. Any increase would subject us to additional
inventory risks.
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 customers.
In the nine months ended September 30, 1999, About.com accounted for 12.2%
of our revenues. No other customer accounted for more than 10.0% of our
revenues. Our top five customers, in the aggregate, accounted for 39.5% 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, our
business, results of operations and financial condition could be materially
adversely affected.
Our relationship with Pearson Television may not be successful.
In January 1999, we entered into an agreement with Pearson Television,
pursuant to 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
12
2001 unless Pearson elects to extend them. In addition, Pearson may terminate
the agreement if Mr. Simon, our Chief Financial Officer, ceases to be employed
by us in a senior management capacity. If these rights are not renewed, Pearson
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
investment we made in developing these Internet games.
As part of our agreement with Pearson, we have guaranteed minimum royalty
payments to Pearson pertaining to these Internet games. In the event that one
or more of these games is not financially successful for us, we still are
obligated to make the royalty payments to Pearson.
We depend on relationships with third party content providers that may prove to
be costly and inconsistent.
Because our business competes with the wide array of entertainment
alternatives available to consumers, it is important that we establish
relationships with media content providers with a high degree of brand
identification. Our future success depends in large part on these
relationships. Because most of our agreements with these third parties are not
exclusive, our competitors may seek to use the same parties as we do and
attempt to adversely impact our relationships with these parties. We might not
be able to maintain these relationships or replace them on financially
attractive terms. We intend to seek additional relationships in the future. Our
business, results of operations and financial condition could be materially
adversely affected if the parties with which we have these relationships do not
adequately perform their obligations, reduce their activities with us, choose
to compete with us or provide their services to a competitor.
A portion of the users who visit our Web sites come from third-party Web
sites with which we have nonexclusive, short-term relationships. Because these
Web sites may not themselves attract significant numbers of users, we may not
receive a significant number of additional users from these relationships. Some
of our major strategic alliances require us to make minimum guaranteed
payments, even if the relationships are not profitable.
We currently have agreements that limit our ability to enter into other
advertising or sponsorship agreements or other strategic relationships. We may
in the future enter into more of these agreements. We currently have agreements
with advertisers, electronic commerce market participants or other third
parties that require us to exclusively feature these parties in particular
sections or on particular pages of our Web sites. Many companies we may pursue
for strategic relationships also offer competing services. As a result, these
companies may be reluctant or unable to enter into strategic relationships with
us.
Risks of Our Business Model
We may not be able to compete successfully.
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.
Increased competition could result in:
o lower advertising rates;
o lower profit margins;
o loss of visitors or visitors spending less time on our sites;
13
o reduced page views or advertising impressions; and
o loss of market share.
Any one of these could materially adversely affect our business, results
of operations and financial condition.
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 undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies, use superior technology platforms to deliver their products
and services and 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 business may suffer and our financial condition and results of
operations will be adversely affected.
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.
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.
14
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 business, results of operations and financial condition
could 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. Our
business would be materially adversely affected if the Internet advertising
market develops more slowly than we expect, or if we are unsuccessful in
increasing our advertising revenues. We expect that revenues from Internet
advertising will make up a significant amount of our revenues for the
foreseeable future.
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 may not be able to adapt as Internet technologies and customer demands
continue to evolve.
To be successful, 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. We may not be able to hire the necessary
personnel or adapt to these changes in a timely manner or at all.
Regulatory and legal uncertainties could harm our business.
The legal and regulatory environment that pertains to the Internet is
uncertain and may change. 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 user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
o libel and defamation;
o copyright, trademark and patent infringement; and
o other claims based on the nature and content of Internet materials.
15
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.
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 certain components of our
products that could result in additional development costs and/or the possible
loss of revenue.
User concerns and government regulations regarding privacy may adversely affect
our business.
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.
Some of our advertisers operate online casinos.
In the nine months ended September 30, 1999, 18.6% of our revenue was from
advertising that promoted offshore casino sites. The Congress of the United
States is currently 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 necessarily
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 such sites by United States residents.
Accordingly, it is possible that we could be liable for criminal or civil
penalties if we do 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 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. If we do not manage growth effectively, our
16
business, results of operations and financial condition would be materially
adversely affected. We expect that the number of our employees, including
management-level employees, will continue to increase for the foreseeable
future. 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 must also maintain close coordination among our
technical, accounting, finance, marketing, sales and editorial organizations.
We depend on our key personnel.
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. The loss of the services of these
individuals or other key employees would have a material adverse effect on our
business, results of operations and financial condition. 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 technical performance of our Web sites is critical to our business and to
our reputation.
The computer systems that support our Web sites are designed and
maintained by us at significant expense. We may not be able to successfully
design and maintain our systems in the future. 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.
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 business, results of operations and financial condition.
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. These interruptions 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/or license agreements with our employees,
customers, partners and others to protect
17
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. The laws of some foreign countries are uncertain or do not
protect intellectual property rights to the same extent as do the laws of the
United States. 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. We may incur substantial expenses in defending against these
third-party infringement claims, regardless of their merit. Successful
infringement claims against us may result in substantial monetary liability or
may materially disrupt the conduct of our business.
We are subject to the risks of integrating and funding joint ventures,
acquisitions and alliances.
As part of our strategy, we seek to enter into alliances or joint ventures
with, and may seek to acquire, complementary businesses, technologies, services
or products, some of which may be significant. These relationships may require
significant management attention and, in some cases, additional working
capital. We do not know if we will be able to complete any future joint
ventures, acquisitions or alliances. To finance future transactions, it may be
necessary for us to raise additional funds through public or private
financings. 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. If we are unable to integrate or implement
any joint venture, acquisition or alliance effectively, our business, results
of operations and financial condition could be materially adversely affected.
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:
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 shares may experience extreme price and volume fluctuations.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile. In addition, 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. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects.
18
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
particular 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, which could have a material adverse
effect upon our business, financial condition and results of operations.
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, including ways with which stockholders may disagree.
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
suffer.
You will suffer immediate and substantial dilution.
The initial public offering price per share in the United States will
significantly exceed our net tangible book value per share. 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.
19
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, International Data Corporation, or 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 any such 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.
20
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
and from January 1, 1999 until November 30, 1999, 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. 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.
Highest Reported Price
----------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- ------------
1997
Fourth Quarter (from September 19) ATS 43.00 $ 3.44 12.5
1998
First Quarter ATS 39.50 $ 3.09 12.8
Second Quarter 55.00 4.44 12.4
Third Quarter 71.50 5.72 12.5
Fourth Quarter 220.00 18.64 11.8
1999
First Quarter [euro] 25.88 $ 29.21 0.886
Second Quarter 31.00 33.01 0.939
Third Quarter 26.30 26.84 0.980
Fourth Quarter (until November 30, 1999) 33.00 33.27 0.992
Lowest Reported Price
---------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- -----------
1997
Fourth Quarter (from September 19) ATS 37.50 $ 3.05 12.3
1998
First Quarter ATS 38.45 $ 3.00 12.8
Second Quarter 43.50 3.35 13.0
Third Quarter 52.50 4.10 12.8
Fourth Quarter 64.25 5.59 11.5
1999
First Quarter [euro] 17.40 $ 20.09 0.866
Second Quarter 26.00 27.17 0.957
Third Quarter 17.20 18.20 0.945
Fourth Quarter (until November 30, 1999) 20.00 21.41 0.934
Our common stock was approved for trading 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. 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. On December 20, 1999, the last
reported price of our common stock on EASDAQ was [euro] 35.50, or $35.75. The
noon buying rate for December 20, 1999 was [euro] 0.993 per United States $1.00.
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
------------- ----------------- ------------ ------------- ----------------- -----------
1999
Third Quarter (from July 8) [euro] 27.20 $ 27.76 0.980 [euro] 18.50 $ 19.25 0.961
Fourth Quarter 38.35 38.97 0.984 20.00 21.62 0.925
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.
21
USE OF PROCEEDS
The net proceeds we will receive from the sale of the common shares
offered by us are estimated to be
$ million, assuming an initial public offering price in the United States of
$ 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 $ million.
We intend to use the proceeds of this offering:
o to fund our marketing activities;
o to expand our advertising sales force;
o to enhance our products and services;
o to expand our business internationally;
o to enter into distribution and affiliate arrangements with other Web
sites; and
o 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.
We have not determined the amount of net proceeds to be used for each of
the specific purposes indicated. Accordingly, our management will have
significant flexibility in applying the net proceeds of the offering.
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.
22
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
o on an actual basis; and
o on an as adjusted basis to reflect our sale of shares of common stock
at an initial public price in the United States of $ per share, after
deducting underwriting discounts and the estimated offering expenses
payable by us.
You should be read this information together with our supplemental
consolidated financial statements and the notes to those statements appearing
elsewhere in this prospectus.
As of September 30, 1999
---------------------------
Actual As Adjusted
------------ ------------
(in thousands)
Capital lease obligations ................. $ 174 $
Stockholders' equity:
Shares of common stock, $.01 par value;
28,000,000 shares authorized; 11,835,530
shares of common stock issued and
outstanding (actual); issued and
outstanding (as adjusted) .............. 592
Additional paid-in capital .............. 83,221
Other comprehensive loss ................ (40)
Accumulated deficit ..................... (31,711)
---------
Total stockholders' equity .............. 52,061
---------
Total capitalization .................... $ 52,235 $
========= ============
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It does
not include:
o 2,468,632 shares subject to options outstanding as of September 30,
1999 at a weighted average exercise price of $15.64 per share; and
o shares subject to the underwriters' overallotment option.
23
DILUTION
Our net tangible book value as of September 30, 1999 was $39.9 million, or
$3.50 per share of our common stock. Net tangible book value per share is
determined by dividing the amount of our total tangible assets less total
liabilities by the number of shares of common stock outstanding, as of
September 30, 1999. Assuming our sale of the shares offered in this
offering at an assumed initial public offering price in the United States of
$ per share and after deducting underwriting discounts and estimated
offering expenses, and the application of the estimated net proceeds, our net
tangible book value as of September 30, 1999 would have been $ , or $
per share of common stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution:
Assumed initial public offering price in the United States per share ..... $
Net tangible book value per share as of September 30, 1999 ............ $
Increase attributable to new investors ................................
Net tangible book value per share after the offering .....................
Dilution per share to new investors ...................................... $
---------
These tables summarizes, as of September 30, 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:
Shares Purchased Total Consideration
-------------------------- ---------------------------- Average Price Per
Number Percent Amount Percent Share
------------ ----------- -------------- ----------- ------------------
Existing stockholders ......... 11,385,530 % $88,613,171 % $ 7.31
New investors .................
Total ...................... 100.0% $ 100.0% $
===== =========== ===== =======
Total consideration includes an in-kind contribution of $24.7 million.
These tables and calculations do not include:
o the exercise of 2,468,632 stock options outstanding as of September 30,
1999 at a weighted average exercise price of $15.64; and
o shares subject to the underwriters' overallotment option.
24
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 period ended December 31, 1995 and for the
years ended December 31, 1996, 1997 and 1998, and the consolidated balance
sheet data as of December 31, 1995, 1996, 1997 and 1998 are derived from our
consolidated financial statements, which have been audited by KPMG Hungaria
Kft., independent accountants, and are included in this prospectus. The
unaudited consolidated financial statements have been prepared on substantially
the same basis as the audited consolidated financial statements and include all
adjustments, consisting of normal recurring adjustments, which we consider
necessary for a fair presentation of the financial position and results of
operations for those periods. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for any other nine-month period or for the year ending December 31,
1999.
Period ended
Year Ended December 31,
December 31, -----------------------------------------------------
1995 1996 1997 1998
-------------- --------------- ----------------- -----------------
Statement of Operations Data:
Net revenues ............................... $ 43,365 $ 59,698 $ 348,709 $ 1,632,969
Cost of revenues ........................... -- (40,781) (216,586) (760,376)
---------- ----------- ------------- -------------
Gross profit ............................... 43,365 18,917 132,123 872,593
Operating expenses:
Sales and marketing ....................... -- 166,806 1,087,058 3,770,866
Product development ....................... 33,190 389,346 772,744 849,486
General and administrative ................ 70,182 187,362 2,092,394 2,337,023
Amortization of intangible assets ......... -- -- -- --
---------- ----------- ------------- -------------
Loss from operations ....................... (60,007) (724,597) (3,820,073) (6,084,782)
Foreign exchange gain (loss) ............... (2,233) 49,946 (85,439) 57,401
Interest income (expense), net ............. 4,326 (27,829) 82,349 205,751
Provision for income taxes . ............... -- (4,909) (5,582) (9,020)
---------- ----------- ------------- -------------
Net loss ................................... $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650)
========== =========== ============= =============
Basic and diluted net loss
per share ................................. $ (0.10) $ (0.33) $ (0.85) $ (0.79)
========== =========== ============= =============
Weighted average number of shares out-
standing .................................. 569,178 2,129,042 4,517,464 7,348,556
========== =========== ============= =============
Nine Months Ended
September 30,
-----------------------------------
1998 1999
----------------- ----------------
(unaudited)
Statement of Operations Data:
Net revenues ............................... $ 911,253 $ 5,274,896
Cost of revenues ........................... (525,230) (1,690,692)
------------- -------------
Gross profit ............................... 386,023 3,584,204
Operating expenses:
Sales and marketing ....................... 1,860,913 13,531,320
Product development ....................... 529,985 1,676,920
General and administrative ................ 1,195,503 5,105,128
Amortization of intangible assets ......... -- 4,,553,728
------------- -------------
Loss from operations ....................... (3,200,378) (21,282,892)
Foreign exchange gain (loss) ............... 36,400 (136,374)
Interest income (expense), net ............. 106,164 177,131
Provision for income taxes . ............... (4,000) (44,324)
------------- -------------
Net loss ................................... $ (3,061,814) $ (21,242,135)
============= =============
Basic and diluted net loss
per share ................................. $ (0.45) $ (2.00)
============= =============
Weighted average number of shares out-
standing .................................. 6,781,044 10,649,857
============= =============
December 31,
------------------------------------------- September 30,
1995 1996 1997 1998 1999
------ -------- ---------- ---------- --------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ................................ $ 48 $ 268 $ 2,342 $ 7,036 $22,554
Working capital .......................................... 82 (261) 2,405 6,444 32,315
Total assets ............................................. 122 422 3,071 9,111 55,849
Total indebtedness, including current maturities ......... -- 512 -- 41 174
Total stockholders' equity ............................... 95 (163) 2,782 7,727 52,061
25
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. On December 16, 1999, we reincorporated in Delaware as Uproar
Inc.
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 September 30, 1999, we had an accumulated deficit of $31.7
million. These losses have been funded primarily through the issuance of shares
of our equity securities. On July 8, 1999, we raised approximately $30.7
million through the issuance of 1,416,000 shares of our stock which presently
trade on EASDAQ. In January 1999, we raised an aggregate of approximately $9.6
million through two private issuances of 521,680 shares of our common stock.
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 third-party distribution arrangements under which third parties
distribute our games on their Web sites and sell advertising in
connection with the use of our games in return for which we generally
receive 50.0% of the revenue generated in connection with the game; and
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.
26
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; and
o our ability to target user audiences for our advertisers.
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 CPM advertising revenues ratably in the period in which 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 CPC
advertising revenues 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. We recognize revenues from our affiliate
distribution arrangements ratably in the period in which our games are
displayed on a third party's Web site.
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
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 or at the time we deliver content to the third party for inclusion
in its service. We recognize barter costs when our advertisements are displayed
by the third-party to its users. Barter costs are recorded either as 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% of revenues for the year ended December 31,
1998 and approximately 17.8% of revenues for the nine months ended September 30,
1999. We anticipate that barter revenues will account for a decreasing
percentage of our revenues in the future.
27
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 1,222,160 shares of common stock and the assumption of an additional 62,040
options exercisable into 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 1,000,000 shares of our common stock in exchange
for intangible assets and for advertising services to be provided over a
thirty-month period commencing April 1, 1999 and cash of $124,599. In
accounting for the transactions, we have recorded the intangible assets at
$16.7 million and the prepaid advertising services at $8.0 million, their
estimated fair values. During the nine-month period ended September 30, 1999,
amortization of intangible assets totaled $4.5 million and amortization of
prepaid advertising services amounting to $390,000 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 200,000 additional shares of our common stock and, if Pearson meets
further targets between September 2000 and August 2001, we will issue an
additional 200,000 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 nine-month period ended September 30, 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.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Revenues
Revenues for the nine months ended September 30, 1999 increased to $5.3
million from $911,000 for the nine months ended September 30, 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;
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 nine months ended September 30, 1999, we derived revenues of
approximately $940,000, or 17.8% of revenues, from barter transactions. During
the nine months ended September 30, 1998, we derived $365,000, or 22.0% of
revenues, from barter transactions.
In the nine months ended September 30, 1999, only one advertiser,
About.com, which accounted for 11.7%, accounted for more than 10.0% of our
revenues.
28
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 revenue sharing arrangements relating to our co-branded properties with
our strategic alliances; and
o costs of goods sold in our affinity merchandising program.
Cost of revenues for the nine months ended September 30, 1999 increased to
$1.7 million from $525,000 for the nine months ended September 30, 1998. The
increase in cost of revenues was primarily attributable to $574,000 related to
expenses associated with prizes, $455,000 related to Internet connection costs
and $340,000 related to revenue sharing arrangements, which included a minimum
guaranteed payment of $200,000 to Pearson Television. Our gross profit
increased to $3.6 million for the nine months ended September 30, 1999 from
$386,000 for the nine months ended September 30, 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 nine months ended September 30, 1999
increased to $13.5 million from $1.9 million for the nine months ended
September 30, 1998. The increases in sales and marketing expenses were
primarily attributable to $8.9 million in advertising, public relations and
other promotional expenditures, and $4.0 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.
Product Development. Product 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 nine months ended September 30, 1999
increased to $1.7 million from $530,000 for the nine months ended September 30,
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.
29
General and Administrative. General and administrative expenses consist
primarily of:
o salaries and benefits;
o insurance and recruiting fees;
o costs for general corporate functions, including finance, accounting
and facilities; and
o fees for professional services.
General and administration expenses for the nine months ended September
30, 1999 increased to $5.1 million from $1.2 million for the for the nine
months ended September 30, 1998. The increase was primarily attributable to
$1.6 million in professional fees, $970,000 in salaries and benefits associated
with hiring of additional personnel and $543,000 in travel related costs.
Twelve Months Ended December 31, 1998, 1997 and 1996
Revenues
Revenues increased to $1.6 million for the year ended December 31, 1998
from $349,000 for the year ended December 31, 1997 and from $60,000 for the
year ended December 31, 1996. The increase for each period 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 and from $41,000 for
the year ended December 31, 1996. The increase in our cost of revenues in each
period was primarily due to higher costs associated with prizes.
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 and from $167,000 for the year ended December 31, 1996.
The increase for each period was primarily due to an increase in advertising,
public relations and other promotional expenditures, and salaries for sales and
marketing personnel, and to a lesser extent, barter expenses in the year ended
December 31, 1998.
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 and from $389,000 for the year ended December 31, 1996. The increase
for each period was primarily attributable to increased staffing levels
required to develop proprietary software components used to create our service
and the higher salaries paid to these employees resulting from our relocation
of the employees from Budapest to New York.
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 and from $187,000 for the year ended December 31,
1996. The increase for the year ended December 31, 1997 was due primarily to
salaries and benefits associated with hiring additional personnel and for the
year ended December 31, 1998 primarily due to higher facilities costs and fees
for professional services.
Liquidity and Capital Resources
To date, we have primarily financed our operations through the sale of our
equity securities. As of September 30, 1999, we had approximately $22.6 million
in cash and cash equivalents, an increase of $15.5
30
from December 31, 1998. Net cash used in operating activities was $631,000,
$2.7 million, $5.1 million and $22.2 million for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1999, respectively.
Net cash used in operating activities resulted primarily from our net operating
losses, offset by:
o depreciation and amortization;
o increases in accounts payable and accrued expenses; and
o deferred revenues.
Net cash used in investing activities was $109,000, $274,000 and $973,000
for the years ended December 31, 1996, 1997 and 1998, respectively, as we
enhanced and developed our technical infrastructure. During the nine months
ended September 30, 1999, net cash used in investing activities increased to
$2.8 million.
Net cash provided by financing activities was $961,000, $5.1 million,
$10.8 million and $40.6 million for the years ended December 31, 1996, 1997 and
1998, and the nine months ended September 30, 1999, respectively. Net cash
provided by financing consisted primarily of proceeds from the sale of shares
of our common stock. On July 8, 1999, we raised approximately $30.7 million
through the issuance of 1,416,000 shares or our common stock which presently
trade on EASDAQ. In January 1999, we raised an aggregate of approximately $9.6
million through two private issuances of 521,680 shares of our common stock.
Our principal commitments consist of obligations under capital and
operating leases. 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.
31
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 from 96,000 in January 1998 to 4.7 million in November 1999. Our unique
user audience has similarly grown from 1.3 million in November 1998 to 3.5
million in October 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, a leading Internet audience
measurement service, in October 1999, our users in the United States spent an
average of 15.6 minutes per usage day on our sites, and we were ranked as the
fifth stickiest network of Web sites on the Internet. In addition, we were
ranked by Media Metrix among the five stickiest networks in each month during
1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. Online advertisers typically pay on
the basis of the number of advertising impressions shown. The number of
impressions is a function of the number of users on our Web sites, the amount
of time that they stay on our Web sites, the frequency with which we change our
advertising displays and the number of Web sites on our network. 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 176 as of September 30, 1999. Similarly, the number of
advertising impressions served over our Web sites increased from 70.7 million
in December 1998 to 261 million in October 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.
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. International Data Corporation, or IDC, a market
research firm, estimates that the number of Internet users worldwide will grow
from 142 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, a market research firm, Internet advertising
spending worldwide will increase from $1.5 billion in 1998 to $15.3 billion by
2003.
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
32
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, worldwide consumer
electronic commerce revenues are expected to increase from $12.4 billion in
1998 to approximately $75.0 billion 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.
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. According to Nielsen Media Research, television game shows
consistently are among the most popular syndicated television programs. Nielsen
estimates that the top five game shows drew an average audience of
approximately 6.5 million people per show in the United States during the
1998/1999 television season.
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 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 4.7 million in November 1999. Our unique user audience has
similarly grown to 3.5 million in November 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 November 1999 we
were ranked third among networks in stickiness, as measured by average minutes
per user per usage day spent on our network. We have been ranked among the five
stickiest sites by Media Metrix 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
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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.
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 4.7 million people as of November
30, 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 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, Internet Movie Database and Lycos. These parties promote
our games and game shows on their respective Web sites under revenue sharing
arrangements. 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 3,200 members as of September
30, 1998 to approximately 31,800 members as of September 30, 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.
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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 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 the first quarter of 2000, we intend to launch 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.
35
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 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 350 products. We believe our audience will be 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.
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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, 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.
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.
Telefonica Interactiva. In November 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.
Cable and Wireless Communications. Pursuant to our agreement with Cable
and Wireless Communications, we developed custom multi-player games for the
Cable and 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 and Wireless.
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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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 November 1999, Media Metrix reported that Uproar was the
fifth stickiest network, reaching over 3.5 million unique visitors in that
month. According to Media Metrix, in October 1999, the median age of these
visitors was 32, of whom 43% were male and 57% 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. We currently plan to direct all of our
traffic to our new site, Uproar 2000, during the first quarter of 2000. 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 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.
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 November 30, 1999, there were 36 different
single-user and
38
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 31,800 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.
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
39
commonly found on other online stores. We currently sell approximately 350
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 November 30, 1999, we had a sales organization of 32 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 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,
Advertisers
We had 176 advertisers and sponsors on our Web sites during the nine
months ended September 30, 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
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These advertisers, in the aggregate, accounted for approximately 39.0% of
total revenues in the nine months ended September 30, 1999 and 8.0% of total
revenues for the year ended December 31, 1998.
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 24-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.
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. Our success
will be largely dependent upon the perceived value of our content relative to
other available entertainment alternatives, both online and elsewhere. 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;
41
o loss of visitors;
o reduced ad impressions; and
o loss of market share.
Any one of these could materially adversely affect our business, results of
operations and financial condition.
Our ability to compete successfully depends on many factors. These factors
include:
o the quality of the content provided by us and our competitors;
o how easy our services are to use compared to those of our competitors;
o the success of our sales and marketing efforts; and
o the performance of our technology.
Our primary direct competitors for online game shows and similar
entertainment include Gamesville/Lycos, Mplayer.com, Sony Station, Pogo and
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.
Some of our competitors and potential new competitors have:
o longer operating histories;
o greater name recognition in some markets; and
o significantly greater financial and marketing resources.
These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies, use superior technology platforms to deliver their products
and services and 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. It is also
possible that new competitors may emerge and acquire significant market share.
This could also have a material adverse effect on our business, results of
operations and financial condition.
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 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.
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
42
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 (the "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 nine months ended September 30, 1999, 18.6% 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. Although we do not believe that such
legislation would apply to us, and that we would take all reasonable measures
to comply with such legislation, it is possible that we could be deemed liable
and would have to pay civil or criminal penalties.
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 certain 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 ("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 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
44
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.
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 September 30, 1999, we had 144 full-time employees, of whom 26
worked in sales, 20 in marketing, 75 in production and technology; 4 in
merchandising; and 19 in finance and administration. Of these employees, 100
are primarily resident in the United States and 44 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
Uproar Inc., a New York corporation and one of our wholly-owned
subsidiaries, was named in an action "Burgos v. Ellwell Associates, LLC and
E-Pub Inc." relating to an alleged personal injury. E-Pub Inc. is the former
name of Uproar Inc. This case is currently in the discovery stage and a trial
date has not yet been set. There is a motion pending with respect to our
potential liability to our co-defendant, Ellwell Associates.
46
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:
Name Age Position
- --------------------------------- ----- ---------------------------------------------------------------
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 ................ 34 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 ........... 35 Director
Esther Dyson .................... 48 Director
Catherine V. Mackay ............. 32 Director
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.
47
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.
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 six members, three of whom
are independent. We will appoint two independent directors to each of our audit
and compensation committees within 60 days after the completion of this
offering.
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 September 30, 1999, options to purchase 58,000 of these
shares were outstanding.
Under the automatic option grant program of our Stock Incentive Plan, each
individual who first joins the board of directors after the closing of this
offering as a nonemployee member of the board will also receive an option grant
for 15,000 shares of our common stock at the time of his or her commencement of
service on the board. In addition, as of January 1, 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 2,500 shares of our common
stock.
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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 1998 for services
rendered in all capacities during 1998.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
Other Annual Securities
Name and Principal Position Salary Bonus Compensation Underlying Options
- ------------------------------------------------ ---------- -------- -------------- -------------------
Kenneth D. Cron(1)
Chairman and Chief Executive Officer .......... $ -- $ -- $-- --
Christopher R. Hassett(2)
President and Chief Operating Officer ......... -- -- -- --
Michael K. Simon(3)
Chief Financial Officer ....................... 122,495 -- -- 41,000
David A. Becker(4) ............................. 114,537 5,250 -- 200,000
- ------------
(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 Year
We did not grant any stock options for the year ended December 31, 1998 to
our Chief Executive Officer and our other most highly-compensated officers
whose salary and bonus exceeded $100,000. We have never granted any stock
appreciation rights.
Aggregated Option Exercises in the Year Ended December 31, 1998 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, 1998 by our Chief Executive Officer and our most highly
compensated executive officers whose salary and bonus exceeded $100,000. 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.
Number of Value of
Securities Underlying Unexercised
Unexercised Options at In-the-Money Options
December 31, 1998 at December 31, 1998
Shares Acquired Value ------------------------------ -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ----------------- ---------- ------------- --------------- ------------- --------------
Kenneth D. Cron ................ -- $ -- -- -- $ -- $ --
Christopher R. Hassett ......... -- -- -- -- -- --
Michael K. Simon ............... 342,000 465,250 -- 41,000 -- 480,506
David A. Becker ................ -- -- -- 200,000 -- 2,343,930
49
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 Chief Executive Officer, and Mr. Simon, our Chief Financial
Officer.
We entered into an employment agreement with Mr. Cron in September 1999.
His employment agreement provides for compensation solely in the form of
options to acquire our common stock. Pursuant to this agreement, we have
granted Mr. Cron options to acquire 800,000 shares of our common stock, of
which options to acquire 400,000 shares have vested and are currently
exercisable, and options to acquire the remaining 400,000 shares will have
vested and become exercisable by September 6, 2001. In the event Mr. Cron is
terminated by us without cause, or he chooses to terminate his employment with
us, the stock options that have not been exercised will remain outstanding and
continue to vest pursuant to their terms. Mr. Cron is also entitled to
participate in our stock option plans as well as all health and other benefit
plans provided by us to our executive employees.
Mr. Cron's employment continues on an at-will basis. His employment
agreement prohibits him from competing with us for a period of one year from
the date of his termination of employment if he is terminated by us for cause
or if he chooses to terminate his employment with us without good reason. We
have agreed to indemnify Mr. Cron for all liabilities relating to his status as
officer or director 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 our stock option plans as well as 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 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.
To date, 2,700,000 shares of our common stock have been authorized for
issuance under our stock option plans. The stock option plan share reserve will
be automatically increased on the first trading day of July each calendar year,
beginning in July 2000, 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 June, but no annual increase will exceed 200,000 shares.
However, in no event may any one participant in the Stock Incentive Plan
receive option grants or direct stock issuances for more than 1,000,000 shares
in the aggregate per calendar year.
Outstanding options under the predecessor plan will be 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
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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: (1) the
discretionary option grant program under which eligible individuals in Uproar's
employ or service (including officers, non-employee board members and
consultants) may be granted options to purchase shares of Uproar's common
stock, (2) the stock issuance program under which such individuals may be
issued shares of common stock directly, through the purchase of such shares or
as a bonus tied to the performance of services and (3) the automatic option
grant program under which option grants will automatically be made at periodic
intervals to eligible non-employee board members.
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 will exercise any
administrative discretion with respect to the automatic option grant program
for the nonemployee board members.
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, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested options under the
discretionary option grant and all unvested shares under the stock issuance
programs will immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor corporation or
otherwise continued in effect. The compensation committee may grant options and
issue shares under those programs which will accelerate
o in an acquisition even if the options and repurchase rights are
assumed,
o in connection with a hostile change in control effected through a
successful 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 following an acquisition
or hostile change in control.
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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 after the closing of this
offering as a nonemployee member of the board will receive an option grant for
15,000 shares of our common stock at the time of his or her commencement of
service on the board. In addition, as of January 1, 2000, and thereafter, at
each 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 such will be granted an option to
purchase 2,500 shares of our common stock. Each automatic grant 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. Each 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. 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 included as part
of each grant made 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. Options with such a limited stock appreciation right may
be surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our outstanding voting stock. In return for the
surrendered option, the optionee will be entitled to a cash distribution from
us in an amount per surrendered option share equal to the highest price per
share of common stock paid in connection with the tender offer less the
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.
52
CERTAIN TRANSACTIONS
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 1,000,000 shares to Pearson. We also agreed to
issue to Pearson an additional 200,000 shares between September 1999 and August
2000 and 200,000 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 merger agreement with PrizePoint, we issued approximately
1,220,000 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.
In 1996, Michael Simon was granted an option to purchase 242,000 shares at
a price of $0.92 per share and an option to purchase 100,000 shares of our
common stock at $1.53 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 $1.05 per share and $1.75 per share,
respectively. In 1998, Mr. Simon exercised these options.
In 1997, we created an option program under which employees and directors
were granted options to purchase in the aggregate up to 500,000 shares at an
exercise price of $4.42 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 41,000 $4.42 per share
Thompson B. Barnhardt 16,000 $4.42 per share
Esther Dyson 16,000 $4.42 per share
In 1999, we acquired PrizePoint Entertainment. 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:
Name PrizePoint Shares Uproar Shares Price Per Uproar Share
- ------------------------------- ------------------- --------------- -----------------------
Kenneth D. Cron 41,254 21,660 $ 11.54
Christopher R. Hassett 716,667 376,529 $ 1.67
Francis G. Blot 218,500 114,780 $ 0.02
The Uproar shares listed for Mr. Hassett include 65,560 shares owned by his
spouse; the Uproar shares listed for Mr. Blot include 38,340 shares owned by
his spouse.
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 800,000 $18.85 per share
Christopher R. Hassett 343,348 $18.85 per share
Michael K. Simon 50,000 $18.85 per share
Francis G. Blot 80,000 $18.85 per share
Shannon King 100,000 $18.85 per share
Robert D. Marafioti 250,000 $21.62 per share
Jeffrey L. Strief 350,000 $21.62 per share
The options listed for Mr. Blot include 35,000 options granted to his spouse.
53
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of November 30, 1999 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 November 30, 1999, but excludes shares of common stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 11,835,920 shares of common stock outstanding as of November 30,
1999, and shares of common stock to be outstanding after the completion of
this offering.
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
------------------------ --------------------
Name of Beneficial Owner Number Percent Number Percent
- ----------------------------------------------- ------------ --------- -------- --------
Kenneth D. Cron (1) ........................... 419,500 3.4% %
Christopher R. Hassett (2) .................... 548,273 4.6
Michael K. Simon (3) .......................... 693,310 5.8
David A. Becker (4) ........................... 200,000 1.7
Thompson B. Barnhardt (5) ..................... 12,000 *
Esther Dyson (6) .............................. 75,120 *
Catherine V. Mackay (7) ....................... 1,000,000 8.4
Pearson Television, Inc. (8) .................. 1,000,000 8.4
All directors and executive officers as a group
(10 persons) ................................. 3,215,151 25.1
- ------------
* Indicates less than one percent of the common stock.
(1) Includes 400,000 shares issuable upon the exercise of currently exercisable
stock options.
(2) Includes (a) 171,744 shares issuable upon the exercise of currently
exercisable stock options, (b) 34,500 shares owned by Mr. Hassett's spouse
and (c) 20,000 shares underlying options owned by Mr. Hassett's spouse.
(3) Includes 55,750 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 200,000 shares issuable upon the exercise of currently exercisable
options. Mr. Becker's address is 87 Remsen Street, #3, Brooklyn, NY 11201.
(5) Includes 12,000 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 12,000 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 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.
(8) The address of Pearson Television, Inc. is 1330 Avenue of the Americas, New
York, NY 10019
54
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 consists of 28,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share.
Common Stock
As of November 30, 1999, there were 11,835,920 shares of common stock
outstanding and held of record by stockholders. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the shares of
common stock in this offering, there will be shares of common stock
outstanding upon the closing of this offering.
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 10,000,000 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.
55
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.
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 certain 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, certain 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 DGCL, our directors shall not be personally liable to Uproar or
our stockholders for monetary damages for any breach of fiduciary
56
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.
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.
57
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Upon
completion of this offering, we will have outstanding an aggregate of 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.
11,835,530 of the remaining 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.
Lock-Up Agreements
All of our officers, directors and most 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.
Subject to the provisions of Rules 144, 701 and Regulation S, restricted
shares totaling will be available for sale in the public market 180 days
after the date of this prospectus.
In connection with our agreement with Pearson, Pearson has agreed not to
transfer or dispose of, directly or indirectly, any of the 1,000,000 shares of
our common stock issued to it under the agreement until at least January 14,
2000. On and after January 14, 2000, Pearson will be able to sell up to 500,000
of those shares and on and after January 14, 2001, Pearson will be able to sell
the remaining entire number of shares that were issued to it under the
agreement.
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 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.
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 certain
restrictions, including the holding period, contained in Rule 144.
58
Registration Rights
Beginning in January 2001, Pearson, or its transferees, will be entitled
to request that we register up to 1,000,000 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 September 30, 1999, options to purchase 2,468,632 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.
59
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 certain
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 as, if as 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 certain deductions and credits 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 certain 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.
60
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 certain
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
61
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 certain 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 certain 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.
62
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. ..............
Bear, Stearns & Co. Inc. ...............
Banc of America Securities LLC .........
Wit Capital Corporation ................
----------
Total .................................
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain 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 Wit Capital Corporation 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 $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ 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 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
certain 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 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,
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 certain 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 certain other 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 admitted for trading
on EASDAQ under the symbol "UPRO". The initial price to public of the common
stock in the United States will be determined by negotiation among the
underwriters and Uproar. In addition to prevailing market conditions, among the
factors that may be considered in
63
determining the price to public of the common stock are Uproar's historical
financial performance, estimates of Uproar's business potential and its
prospects, the price of Uproar's shares on EASDAQ, an assessment of the
Uproar's management and the consideration of the above factors in relation to
the market valuations of companies in similar businesses.
Uproar has applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "UPRO".
The following table shows the underwriting discounts and commissions to be
paid 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 ......... $ $
Total ............. $ $
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 certain 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 an Internet
Web site maintained by Wit Capital. In addition, pursuant to an e-Dealer
Agreement, all dealers purchasing shares from Wit Capital in the offering
similarly have agreed to make a prospectus in electronic format available on
Web sites maintained by each of the e-Dealers. Other information contained on
any of these web sites does not constitute part of this prospectus.
Wit Capital, a member of the National Association of Securities Dealers,
Inc. will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 160 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with us or any of our founders or significant stockholders.
We estimate that our total expenses for this offering will be $1.5
million.
We have agreed to indemnify the underwriters against certain 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.
64
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
KPMG Hungaria Kft. independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1996, 1997 and 1998 as set
forth in their reports. We have included our financial statements and schedule
in the prospectus and elsewhere in the registration statement in reliance on
KPMG Hungaria Kft.'s report, given on their authority as experts in accounting
and auditing. With the approval of our board of directors and stockholders, we
changed our auditors during 1998 to KPMG Hungaria Kft. from Coopers & Lybrand
in Dublin, Ireland, to benefit from time and cost savings in relocating
auditing procedures to the operational center in Hungary. We received
unqualified audit reports from Coopers & Lybrand during the period it served as
auditor.
The audited financial statements of PrizePoint 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 the firm as experts in giving
the reports.
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 to 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.
Companies approved for trading 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
65
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.
66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
December 31, 1996, 1997, 1998, and September 30, 1999 (unaudited)
Table of Contents
Independent Auditors' Report .......................................... F-2
Consolidated Balance Sheets ........................................... F-3
Consolidated Statements of Operations ................................. F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Loss F-5
Consolidated Statements of Cash Flows ................................. F-6
Notes to the Consolidated Financial Statements ........................ F-7
F-1
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheets of Uproar
Inc. and subsidiaries (formerly Uproar Limited) as of December 31, 1997 and
1998, and the consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the years ended December 31, 1996, 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 Limited)
and subsidiaries and as of and for the year ended December 31, 1998 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 Limited) as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for the years ended December 31, 1996,
1997 and 1998 in conformity with generally accepted accounting principles.
(Signed) KPMG Hungaria Kft.
August 4, 1999, except for note 19(b)
which is as of December 16, 1999
F-2
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Balance Sheets
As of December 31, 1997, 1998 and September 30, 1999 (unaudited)
December 31,
---------------------------------- September 30,
1997 1998 1999
--------------- ---------------- ----------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ............................... $ 2,342,227 $ 7,035,645 $ 22,554,286
Accounts receivable -- net of allowance for doubtful
accounts of $0, $0, and $70,000, respectively ......... 248,670 551,036 1,871,317
Prepaid advertising ..................................... 76,556 201,327 11,208,492
Other current assets .................................... 27,602 24,689 452,703
------------ ------------- -------------
Total current assets ................................. 2,695,055 7,812,697 36,086,798
------------ ------------- -------------
Property and equipment, net .............................. 303,478 1,111,966 3,382,114
Intangible assets, net ................................... 13,955 47,357 12,166,856
Other long term assets ................................... 59,210 138,685 417,645
Prepaid advertising, long term portion ................... -- -- 3,796,004
------------ ------------- -------------
Total assets ......................................... $ 3,071,698 $ 9,110,705 $ 55,849,417
============ ============= =============
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligation ............. $ -- $ 25,949 $ 102,777
Trade accounts payable .................................. 144,806 855,866 2,154,547
Accrued expenses ........................................ 135,646 471,906 1,384,890
Other current liabilities ............................... 9,181 15,188 74,865
------------ ------------- -------------
Total current liabilities: ........................... 289,633 1,368,909 3,717,079
------------ ------------- -------------
Long term portion of capital lease obligation ............ -- 15,134 70,973
Stockholders' equity:
Common stock, $.05 par value, 28,000,000 shares
authorized; 5,731,840 shares, 8,873,140 shares and
11,835,530 shares issued and outstanding at December
31, 1997, 1998 and September 30, 1999 respectively . 447,032 643,860 591,777
Additional paid-in capital .............................. 6,898,378 17,470,939 83,220,878
Accumulated deficit ..................................... (4,594,048) (10,424,698) (31,711,157)
Accumulated other comprehensive income (loss) ........... 30,703 36,561 (40,133)
------------ ------------- -------------
Total stockholders' equity ........................... 2,782,065 7,726,662 52,061,365
------------ ------------- -------------
Total liabilities and stockholders' equity ........... $ 3,071,698 $ 9,110,705 $ 55,849,417
============ ============= =============
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-3
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Operations
Years Ended December 31, 1996, 1997, 1998
and the nine months ended September 30, 1998 and 1999 (unaudited)
Year ended Nine months ended
December 31, September 30,
------------------------------------------------ ----------------------------------
1996 1997 1998 1998 1999
-------------- --------------- --------------- --------------- -----------------
(Unaudited)
Revenues .............................. $ 59,698 $ 348,709 $ 1,632,969 $ 911,253 $ 5,274,896
Cost of revenues ...................... (40,781) (216,586) (760,376) (525,230) (1,690,692)
---------- ------------ ------------ ------------ -------------
Gross profit .......................... 18,917 132,123 872,593 386,023 3,584,204
---------- ------------ ------------ ------------ -------------
Sales and marketing ................... 166,806 1,087,058 3,770,866 1,860,913 13,531,320
Product and technology
development .......................... 389,346 772,744 849,486 529,985 1,676,920
General and administrative ............ 187,362 2,092,394 2,327,720 1,195,503 5,105,128
Amortization of intangible assets ..... -- -- 9,303 -- 4,553,728
---------- ------------ ------------ ------------ -------------
Total operating expenses .............. 743,514 3,952,196 6,957,375 3,586,401 24,867,096
---------- ------------ ------------ ------------ -------------
Loss from operations .................. (724,597) (3,820,073) (6,084,782) (3,200,378) (21,282,892)
Other income (expenses):
Foreign exchange gain (loss) ......... 49,946 (85,439) 57,401 36,400 (136,374)
Interest and other income ............ 1,497 97,717 205,751 106,163 177,131
Interest expense ..................... (29,326) (15,368) -- -- --
---------- ------------ ------------ ------------ -------------
Income (loss) before income taxes...... (702,480) (3,823,163) (5,821,630) (3,057,815) (21,242,135)
Provision for income taxes ............ 4,909 5,582 9,020 4,000 44,324
---------- ------------ ------------ ------------ -------------
Net loss .............................. $ (707,389) $ (3,828,745) $ (5,830,650) $ (3,061,815) $ (21,286,459)
========== ============ ============ ============ =============
Basic and diluted loss per share ...... $ (0.33) $ (0.85) $ (0.79) $ (0.45) $ (2.00)
Weighted average number of
common shares outstanding ............ 2,129,042 4,517,464 7,348,556 6,781,044 10,649,857
========== ============ ============ ============ =============
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-4
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended December 31, 1996, 1997 and 1998
and the nine months ended September 30, 1999 (unaudited)
Additional
Common Stock
----------------------------- Paid-in
Shares Amount Capital
-------------- ------------- --------------
Balance at December 31, 1995 ........... 2,000,000 $ 155,511 $ --
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 700,000 54,651 589,867
Stockholder receivable ................. (195,318)
-----------
Balance at December 31, 1996 ........... 2,700,000 210,162 394,549
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 2,000,000 157,526 4,558,161
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 887,300 69,138 366,420
Exercise of stock options .............. 144,540 10,206 139,042
Stock compensation expense ............. 1,244,888
-----------
Balance at December 31, 1997 ........... 5,731,840 447,032 6,898,378
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 2,379,180 144,253 9,522,211
Exercise of stock options .............. 762,120 52,575 1,047,246
Stock compensation expense ............. 3,104
-----------
Balance at December 31, 1998 ........... 8,873,140 643,860 17,470,939
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Re-denomination of currency of
common stock .......................... (230,883) 230,883
Acquisition and retirement of shares (380) (19) (19,361)
Sale of common stock ................... 2,937,680 177,564 64,858,386
Exercise of warrants ................... 21,680 1,084 248,916
Stock compensation expense ............. 420,164
Exercise of stock options .............. 3,410 171 10,951
--------- ----------- -----------
Balance at September 30, 1999
(unaudited) ........................... 11,835,530 $ 591,777 $83,220,878
========== =========== ===========
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
----------------- --------------- ---------------
Balance at December 31, 1995 ........... $ (57,914) $ (2,192) $ 95,405
Comprehensive loss: ....................
Net loss .............................. (707,389) (707,389)
Foreign currency translation .......... 232 232
-------------
Total comprehensive loss ............... (707,157)
-------------
Sale of common stock ................... 644,518
Stockholder receivable ................. (195,318)
-------------
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 .............................. (21,286,459) (21,286,459)
Foreign currency translation .......... (76,694) (76,694)
-------------
Total comprehensive loss ............... (21,363,153)
-------------
Re-denomination of currency of
common stock .......................... --
Acquisition and retirement of shares (19,380)
Sale of common stock ................... 65,035,950
Exercise of warrants ................... 250,000
Stock compensation expense ............. 420,164
Exercise of stock options .............. 11,122
-------------
Balance at September 30, 1999
(unaudited) ........................... $ (31,711,157) $ (40,133) $ 52,061,365
============= ========== =============
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
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1997 and
1998 and the nine months ended September 30, 1998 and 1999 (unaudited)
Year ended
December 31,
----------------------------------------------------
1996 1997 1998
--------------- ---------------- -----------------
Cash flows from operating activities
Net loss ............................................. $ (707,389) $ (3,828,745) $ (5,830,650)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 26,070 56,556 183,181
Provision for doubtful accounts ...................... -- -- --
Amortization of prepaid advertising services ......... -- -- --
Stock compensation expense ........................... -- 1,244,888 3,104
Loss on sale of property and equipment ............... -- -- --
Changes in operating assets and liabilities
Accounts receivable ................................ (9,249) (229,821) (302,366)
Prepaid advertising and other current assets ....... 14,049 (66,909) (121,858)
Trade accounts payable ............................. 23,506 115,204 711,060
Income tax payable ................................. 4,541 (2,936) --
Accrued expenses and other current liabilities ..... 17,887 104,521 342,267
Other long term assets ............................. -- (59,210) (79,475)
----------- ------------ -------------
Net cash used in operating activities ................ (630,585) (2,666,452) (5,094,737)
Cash flows from investing activities
Purchase of intangibles .............................. -- (13,955) (42,706)
Purchase of property and equipment ................... (109,486) (260,220) (930,470)
Proceeds from sale of equipment ...................... -- -- --
----------- ------------ -------------
Net cash used in investing activities ................ (109,486) (274,175) (973,176)
Cash flows from financing activities
Proceeds from issuance of common stock ............... 449,200 4,911,005 9,666,464
Proceeds from exercise of stock options and
warrants ........................................... -- 149,248 1,099,821
Proceeds from loan ................................... 511,960 -- --
Principal payments on leases ......................... -- -- (10,812)
----------- ------------ -------------
Net cash provided by financing activities ............ 961,160 5,060,253 10,755,473
Effect of exchange rate on cash ...................... (753) (45,307) 5,858
Net increase in cash and cash equivalents ............ 220,336 2,074,319 4,693,418
Cash and cash equivalents, beginning of period ....... 47,572 267,908 2,342,227
----------- ------------ -------------
Cash and cash equivalents, end of period ............. $ 267,908 $ 2,342,227 $ 7,035,645
=========== ============ =============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ -- $ 41,441 $ --
Taxes paid ........................................... 368 8,518 10,625
Issuance of common stock for advertising ser-
vices and intangibles .............................. -- -- --
Purchase of equipment under capital lease
obligations ........................................ -- -- 41,083
Conversion of debt to common stock ................... -- 435,558 --
Nine Months ended
September 30,
------------------------------------
1998 1999
---------------- ------------------
(Unaudited)
Cash flows from operating activities
Net loss ............................................. $ (3,061,815) $ (21,286,459)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 103,702 5,028,225
Provision for doubtful accounts ...................... -- 70,000
Amortization of prepaid advertising services ......... -- 390,000
Stock compensation expense ........................... -- 420,164
Loss on sale of property and equipment ............... -- 205,698
Changes in operating assets and liabilities
Accounts receivable ................................ (103,514) (1,390,281)
Prepaid advertising and other current assets ....... (368,095) (7,639,183)
Trade accounts payable ............................. 511,984 1,298,681
Income tax payable ................................. (3,968) 21,429
Accrued expenses and other current liabilities ..... 208,898 951,232
Other long term assets ............................. -- (278,960)
------------ --------------
Net cash used in operating activities ................ (2,712,808) (22,209,454)
Cash flows from investing activities
Purchase of intangibles .............................. (39,343) --
Purchase of property and equipment ................... (617,784) (2,779,855)
Proceeds from sale of equipment ...................... -- 27,154
------------ --------------
Net cash used in investing activities ................ (657,127) (2,752,701)
Cash flows from financing activities
Proceeds from issuance of common stock ............... 7,133,395 40,360,695
Proceeds from exercise of stock options and
warrants ........................................... 1,099,821 261,122
Proceeds from loan ................................... -- --
Principal payments on leases ......................... -- (53,118)
------------ --------------
Net cash provided by financing activities ............ 8,233,216 40,568,699
Effect of exchange rate on cash ...................... 54,572 (87,903)
Net increase in cash and cash equivalents ............ 4,917,853 15,518,641
Cash and cash equivalents, beginning of period ....... 2,342,227 7,035,645
------------ --------------
Cash and cash equivalents, end of period ............. $ 7,260,080 $ 22,554,286
============ ==============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ -- $ --
Taxes paid ........................................... 4,022 6,986
Issuance of common stock for advertising ser-
vices and intangibles .............................. -- 24,655,875
Purchase of equipment under capital lease
obligations ........................................ -- 185,785
Conversion of debt to common stock ................... --
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
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(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 our 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.
The Company is a leading provider of 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) Interim financial statements
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1998 and 1999 have been made. Certain information
and footnote disclosures related to these nine month periods normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or eliminated.
(c) 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, 1997, 1998 and September 30, 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. The Company's accounts receivable are
derived from revenue earned from customers located in the United States and
throughout the world.
(d) Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
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.
(e) 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
F-7
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
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) 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
(g) Intangible assets
Intangible assets consist principally of intangible assets arising from
the agreement with Pearson Television to be amortized on a straight-line basis
over the thirty-three month life of the agreement. Other intangible assets
consist of costs incurred in relation to trademarks and license fees. These
assets are amortized over five years, which is the estimated period of benefit,
on a straight-line basis.
(h) 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.
(i) 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."
(j) 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 over a
specified period of time for a fixed fee. Contracts are invoiced monthly in
accordance with delivery of advertising services during the month. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain. To the
extent that minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved. Advertising revenues were approximately 0%, 79%, 74% and 99% of total
revenues for the years ended December 31, 1996, 1997, 1998, and nine months
ended September 30, 1999, respectively.
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,
F-8
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
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%, 0%, 22% and 18% of total revenues for the
years ended December 31, 1996, 1997, 1998, and the nine months ended September
30, 1999, respectively.
In 1996, revenue from one related company accounted for 47% of total
revenues while another accounted for 15% of total revenues. 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%. For the nine months ended September
30, 1999, one advertising customer accounted for 12% while another advertising
customer accounted for 10% of total revenues.
(k) Cost of revenues
Cost of revenues is comprised of prize expenses, Internet service charges,
and a portion of computer equipment and software depreciation.
(l) 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 $55,271, $188,000, $1,847,000 and $7,831,000 in the years ended 1996, 1997
and 1998, and the nine months ended September 30, 1999 respectively.
(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.
(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 loss available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss 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
loss 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 for the years ended
December 31, 1996, 1997, 1998 and nine months ended September 30, 1999 amounted
to 900,000, 1,055,460, 448,600, and 2,468,632 respectively.
F-9
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
(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 Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement, which is effective for fiscal years beginning
after December 15, 1998, requires the Company to capitalize certain
internal-use software costs once certain criteria are met. This statement did
not have any effect on the Company's results of operations, financial position
or cash flows.
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.
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 1.22 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
F-10
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(3) PrizePoint acquisition -- (Continued)
retired. All outstanding PrizePoint preferred shares were converted 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 ..................... (4,602,027) (4,399,357)
PrizePoint ................. (1,228,623) (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,
--------------------------- September 30,
1997 1998 1999
----------- ------------- --------------
Computer equipment .................... $ 188,695 $ 963,053 $3,009,067
Purchased software .................... 36,872 162,768 508,290
Furniture and fixtures ................ 165,073 247,184 550,689
--------- ---------- ----------
390,640 1,373,005 4,068,046
Less accumulated depreciation ......... (87,162) (261,039) (685,932)
--------- ---------- ----------
$ 303,478 $1,111,966 $3,382,114
========= ========== ==========
Depreciation expense for 1996, 1997, 1998, and for the nine months ended
September 30, 1999 was $26,070, $56,556, $173,878 and $474,497 respectively.
F-11
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(5) Intangible assets, net
Intangible assets consist of the following:
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- --------------
Intangible benefits of Pearson Agreement ......... $ -- $ -- $ 16,673,875
Patents .......................................... 3,510 3,510 3,510
Trademarks ....................................... 7,505 6,345 6,310
Licenses ......................................... 2,940 45,622 44,823
Other ............................................ -- 1,183 1,369
-------- -------- ------------
13,955 56,660 16,729,887
Less accumulated amortization .................... -- (9,303) (4,563,031)
-------- -------- ------------
$ 13,955 $ 47,357 $ 12,166,856
======== ======== ============
(6) Other current assets
Other current assets consist of the following:
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- --------------
Prepaid insurance ................. $ 27,602 $ 19,864 $ 225,832
Prepaid professional fees ......... -- -- 226,871
Other ............................. -- 4,825 --
-------- -------- ---------
$ 27,602 $ 24,689 $ 452,703
======== ======== =========
(7) Prepaid advertising
December 31,
-------------------------- September 30,
1997 1998 1999
----------- ------------ --------------
Prepaid advertising ............................... $ 76,556 $ 201,327 $ 7,412,496
Prepaid Pearson advertising -- note 14(b) ......... -- -- 3,795,996
-------- --------- ------------
$ 76,556 $ 201,327 $ 11,208,492
======== ========= ============
Long term portion of prepaid Pearson
advertising -- note 14(b) ........................ $ -- $ -- $ 3,796,004
======== ========= ============
Non-Pearson prepaid advertising as of September 30, 1999 consists of
amounts paid for media buys in connection with a brand marketing campaign,
which ran in October and November, 1999.
(8) Other long term assets
Other long term assets consist of the following:
December 31,
-------------------------- September 30,
1997 1998 1999
----------- ------------ --------------
Security deposits ......... $ 59,210 $ 125,035 $ 141,349
Restricted cash ........... -- 13,650 276,296
-------- --------- ---------
$ 59,210 $ 138,685 $ 417,645
======== ========= =========
F-12
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(9) Accrued expenses
Accrued expenses consist of the following:
December 31,
-------------------------- September 30,
1997 1998 1999
------------ ----------- --------------
Advertising ..................... $ -- $ 33,825 $ 850,764
Severance ....................... -- -- 167,394
Prizes and awards ............... -- 59,638 104,191
Commission and salaries ......... 21,020 95,675 82,953
Deferred revenue ................ -- 30,000 --
Interest ........................ 22,698 -- --
Bonus ........................... 46,400 91,757 --
Legal fees ...................... -- 57,642 17,000
Fees and other expenses ......... 20,528 65,460 44,581
Other accruals .................. 25,000 37,909 118,007
--------- --------- ----------
$ 135,646 $ 471,906 $1,384,890
========= ========= ==========
Accrued advertising consists of uninvoiced online banner advertising
purchased by and delivered to the Company.
(10) Other current liabilities
December 31,
------------------------ September 30,
1997 1998 1999
---------- ----------- --------------
Unemployment taxes payable ......... $ -- $ -- $ 4,860
Employee contributions ............. -- -- 11,329
Income taxes payable ............... -- -- 21,429
Other payables ..................... 9,181 15,188 37,247
------- -------- --------
$ 9,181 $ 15,188 $ 74,865
======= ======== ========
(11) Stockholders' equity
During 1996 700,000 shares of common stock were sold in a private
placement. Net proceeds to the Company were $644,518.
During 1997, 2,000,000 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 twenty shares, which resulted in the issuance of 887,300 shares.
E-Pub Services Limited was the predecessor company to Uproar Limited.
During 1997, 5,587,300 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.
During 1998, 2,379,180 shares of common stock were sold in private
placements. Net proceeds to the Company were $9,666,464.
F-13
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(11) Stockholders' equity -- (Continued)
In January 1999, 500,000 shares of common stock were sold in a private
placement. Net proceeds to the Company totaled $9,344,654.
In January 1999, 1,000,000 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 sold was $24,780,474.
See Note 14(b).
In January 1999, 21,680 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 $230,883 transfer from common
stock to additional paid-in capital. All prior period stock transactions have
been restated to reflect the impact of the stock split.
In June 1999, 21,680 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 1,416,000 shares on the
EASDAQ stock exchange. Net proceeds to the Company totaled $30,660,822.
(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 the first nine
months of 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 $894,790. This amount is recorded as compensation
expense over the vesting periods, and amounted to $3,104 and $420,164 for the
year ended December 31, 1998 and nine months ended September 30, 1999,
respectively.
During 1999, the Company established the Uproar Limited 1999 Share
Option/Share Issuance Plan (the "1999 Plan"). The 1999 Plan authorizes the
Company to grant its employees, its non-employee directors and its consultants
options to purchase 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 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 $0, $1,244,888, $3,104, and $420,164 for the periods ended
December 31, 1996, 1997, 1998 and September 30, 1999 respectively. Had
compensation cost been determined in accordance with the provisions of
Statement of Financial 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-14
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(12) Stock compensation plan -- (Continued)
December 31,
---------------------------------------------------- September 30,
1996 1997 1998 1999
-------------- ---------------- ---------------- -----------------
Net Loss
As reported ................................ $ (707,389) $(3,828,745) $(5,830,650) $(21,286,459)
Proforma ................................... (707,389) (3,890,803) (6,678,354) (22,364,461)
Basic loss per share
As reported ................................ $ (0.33) $ (0.85) (0.79) $ (2.00)
Proforma ................................... (0.33) (0.86) (0.91) (2.10)
Weighted average shares outstanding ......... 2,129,042 4,517,464 7,348,556 10,649,857
Option pricing model assumptions:
Expected dividend yield .................... 0% 0% 0% 0%
Average option life ........................ -- 2.5 years 2 years 2.5 years
Volatility ................................. 0% 70% 70% 60%
Risk free interest rate .................... 0% 3% 3% 6%
Stock option activity during the periods indicated is as follows:
Weighted
Number of Average
Options Exercise Price
------------- ---------------
Outstanding, December 31, 1996 .......... 900,000 $ 1.47
Granted ................................. 300,000 4.85
Exercised ............................... (144,540) 1.28
--------
Outstanding, December 31, 1997 .......... 1,055,460 2.45
Granted ................................. 164,600 4.64
Exercised ............................... (762,120) 1.53
Cancelled ............................... (9,340) 4.88
---------
Outstanding, December 31, 1998 .......... 448,600 4.77
Granted ................................. 2,039,175 18.21
Exercised ............................... (3,410) 3.29
Cancelled ............................... (15,733) 11.94
---------
Outstanding, September 30, 1999 ......... 2,468,632 $ 15.64
=========
At September 30, 1999 the weighted-average exercise price and average remaining
contractual life of outstanding options was $15.64 and 9.58 years remaining,
respectively. 415,995 shares are available for grant and 646,987 shares are
exercisable at September 30, 1999.
F-15
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(13) Income taxes
The Company's income tax expense is comprised of the following:
Year Ended December 31,
------------------------------ September 30,
1996 1997 1998 1999
-------- -------- -------- --------------
Current income tax expense
Bermuda ......................... $ -- $ -- $ -- $ --
Rest of the world ............... 4,909 5,582 9,020 44,324
------ ------ ------ -------
Total income tax expense ......... $4,909 $5,582 $9,020 $44,324
====== ====== ====== =======
Year Ended December 31,
------------------------------------------------- September 30,
1996 1997 1998 1999
------------- --------------- --------------- ----------------
Sources of loss before income tax
Bermuda ......................... -- $ (32,739) $ (89,514) $ (8,104,597)
Rest of the world ............... (702,480) (3,790,424) (5,732,116) (13,137,538)
-------- ------------ ------------ -------------
Loss before income taxes ......... $ (702,480) $ (3,823,163) $ (5,821,630) $ (21,242,135)
========== ============ ============ =============
The components of the net deferred tax asset as of December 31, 1997, 1998
and September 30, 1999 consist of the following:
December 31,
--------------------------------- September 30,
1997 1998 1999
-------------- ---------------- -----------------
Net operating loss carryforwards ......... $ (424,339) $ (1,939,221) $ (6,765,334)
---------- ------------ -------------
(424,339) (1,939,221) (6,765,334)
Less valuation allowance ................ 424,339 1,939,221 6,765,334
---------- ------------ -------------
Deferred tax assets, net ................. $ -- $ -- $ --
========== ============ =============
The operating loss carryforwards are comprised of the losses incurred in
the UK and US subsidiaries. The Bermudan company enjoyed tax-free status and
the only other subsidiary, which is in Hungary, is profitable. As at September
30, 1999, the Company has net operating loss carryforwards for income tax
purposes of approximately $19,974,000, which expire in various amounts through
2019. The deferred tax asset has been fully reserved because the Company
believes it is more likely than not that the deferred tax assets will not be
recovered.
(14) Significant agreements
(a) Cable and Wireless
On December 22, 1998, the Company entered into a development agreement,
and signed head terms of a carriage agreement, with Cable & Wireless
Communications ("CWC"), the largest cable television franchise owner in the UK.
The agreement provides for CWC to distribute 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. A full carriage agreement was signed in September
1999, which provides for the Company to have an anchor position within the
games and entertainment channel on the CWC service and to participate in
promotion opportunities on the service. The Company pays CWC a carriage fee for
which CWC guarantees
F-16
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(14) Significant agreements -- (Continued)
placement within the service. In addition, the agreement provides that CWC is
entitled to a portion of advertising revenue from the games 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.
(b) Pearson Television
On January 13, 1999, the Company entered into an agreement with Pearson
Television Limited ("Pearson"), whereby Pearson acquired 1,000,000 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. During
the nine month period ended September 30, 1999, amortization of intangible
assets totaled $4,547,420 and amortization of prepaid advertising services
amounting to $390,000 was recorded as advertising expense.
Should Pearson meet certain television distribution targets for its game
shows in the United States, they will be granted 200,000 additional common
shares between September 1999 and August 2000 and a further 200,000 shares
between September 2000 and August 2001. See note 15.
Also, in consideration of a license fee, payable from related revenue,
Uproar acquired a license to exploit certain Pearson game shows. Net revenues
generated by the game shows are split between the Company and Pearson based on
a pre-determined formula.
(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. Telefonica will distribute the Uproar Web sites online
for the Spanish and Portuguese language markets from Telefonica's online
properties, in exchange for which Uproar has agreed to pay Telefonica a portion
of the revenue generated on the Uproar Web sites. The agreement term is for an
initial three-year period from the date of the agreement, and then 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), should Pearson
meet certain television distribution targets for its game shows in the United
States, they will be granted 200,000 additional common shares between September
1999 and August 2000 and a further 200,000 shares between September 2000 and
August 2001. Since as of September 30, 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 financial
statements.
F-17
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(15) Commitments and contingencies -- (Continued)
(b) Legal claim
In 1997, E-Pub Inc., a wholly-owned subsidiary, was named in an action
entitled "Burgos v. Ellwell Associates, LLC and E-Pub Inc", relating to an
alleged personal injury. The plaintiff seeks damages of $6 million against
Ellwell Associates, the landlord of the building in which E-Pub Inc's office is
located, and E-Pub Inc.
Through September 30, 1999, certain limited written discovery was
exchanged by the parties. Although the plaintiff has not yet specified the
precise extent and severity of his alleged injuries, the Company has recently
received documentary information suggesting that the plaintiff's injuries no
longer prevent him from gainful employment. Uproar Inc. has asserted a cross
claim against the landlord, seeking to hold the landlord responsible for any
injuries sustained by the plaintiff, and has also asserted a claim against the
plaintiff's employer for similar relief.
Uproar Inc. has denied liability and will vigorously defend the action in
the future. No provision to date has been made in the financial statements,
including those as of September 30, 1999 as Uproar Inc., having taken legal
advice, is unable to estimate the extent of any potential liability with
reasonable accuracy at this time.
(c) Other commitment
In connection with an office lease the Company has a letter of credit
outstanding of approximately $270,000.
(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 $43,598, $105,645, $159,121, and $416,900 for the years ended December 31,
1996, 1997, 1998, and for the nine months ended September 30, 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, 1998 are:
Capital Operating
Leases Leases
----------- -------------
Twelve months ended December 31,
1999 ....................................... $107,984 $ 437,725
2000 ....................................... 74,570 587,585
2001 ....................................... -- 518,141
2002 ....................................... -- 326,194
Thereafter ................................. -- 298,922
-------- ----------
Total minimum lease payments ................ $182,554 $2,168,567
==========
Less amounts representing interest ......... (8,804)
--------
Current portion of capital leases ........... 102,777
--------
Long term capital lease obligation .......... $ 70,973
========
F-18
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(17) Segment reporting
In presenting segment information the Company has applied the provisions
of SFAS No. 131.
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
---------------------------------------------------------
December 31,
---------------------------------------- September 30,
1996 1997 1998 1999
---------- ----------- ------------- --------------
United States ......... $15,888 $332,555 $1,545,663 $5,160,682
England ............... -- 8,727 83,120 114,214
Ireland ............... -- -- -- --
Hungary ............... 25,648 6,612 -- --
Bermuda ............... -- -- -- --
Other ................. 18,162 815 4,186 --
------- -------- ---------- ----------
Total ................. $59,698 $348,709 $1,632,969 $5,274,896
======= ======== ========== ==========
Investment of long-lived assets by geographic area are as follows:
Property and Equipment and Intangible Assets
--------------------------------------------
December 31,
--------------------------- September 30,
1997 1998 1999
----------- ------------- --------------
United States ......... $215,281 $ 962,880 $ 3,123,910
England ............... 20,238 35,399 77,366
Ireland ............... 36,461 20,532 --
Hungary ............... 45,453 108,040 190,978
Bermuda ............... -- 32,472 12,156,716
Other ................. -- -- --
-------- ---------- -----------
Total ................. $317,433 $1,159,323 $15,548,970
======== ========== ===========
The Company has determined that it does not have any separately reportable
business segments.
(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 the first nine
months of 1999.
F-19
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(19) Subsequent events
(a) Incorporation of Uproar GmbH
On October 29, 1999, the Company incorporated a German company, Uproar
GmbH. Uproar GmbH has a relationship with DoubleClick in which DoubleClick is
responsible for the Company's advertising sales in the German market. Uproar
GmbH is a wholly owned subsidiary of Uproar Inc.
(b) Incorporation of Uproar Inc.
On December 16, 1999, Uproar Inc. was incorporated in Delaware. Uproar
Limited will be domesticated to Delaware on or before January 3, 2000 after
which Uproar Inc. will merge into such domesticated corporation. Since both
companies are under common control there will be no adjustment to the
historical basis of the assets and liabilities of Uproar Limited.
F-20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Uproar Inc.
Common Stock
[LOGO]
--------
P R O S P E C T U S
, 1999
--------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit Capital Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated costs and expenses, other
than the underwriting discount, payable by the registrant in connection with
the sale of the common stock being registered.
Amount to
be Paid
---------------
SEC registration fee ................................... $26,400
NASD filing fee ........................................ 10,500
Nasdaq National Market listing fee ..................... 17,500
Legal fees and expenses ................................ 500,000
Accounting fees and expenses ........................... 300,000
Printing and expenses .................................. 170,000
Blue sky fees and expenses ............................. 5,000
Transfer agent and registrar fees and expenses ......... 15,000
Miscellaneous .......................................... 455,600
Total ............................................. $1,500,000
==========
Item 14. Indemnification of Directors and Officers
The registrant's Certificate of Incorporation in effect as of the date
hereof, and the registrant's Certificate of Incorporation to be in effect upon
the closing of this offering (collectively, the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law, as
amended (the "DGCL"), the registrant's directors shall not be personally liable
to the registrant or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the registrant. Under the DGCL, the directors
have a fiduciary duty to the registrant 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 the registrant,
for acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or involving intentional misconduct, for 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. The registrant has
obtained liability insurance for its officers and directors.
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 the registrant 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 the registrant, or is or was serving
at the request of the registrant 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.
II-1
Item 15. Recent Sales of Unregistered Securities
The Registrant has sold and issued the following securities since February
7, 1995 (inception):
1. From February 7, 1995 to September 30, 1999, the Registrant issued and
sold 10,038,160 shares of common stock at prices ranging from $0.08 to
$23.43 per share.
2. In 1997, the Registrant issued 887,300 shares of common stock upon the
conversion of convertible notes.
3. In 1997, the Registrant issued 144,540 shares of common stock upon the
exercise of options at a weighted average exercise price of $0.94.
4. In 1998, the Registrant issued 762,120 shares of common stock upon the
exercise of options at a weighted average exercise price of $1.33.
5. Since December 31, 1998, the Registrant issued 3,410 shares of common
stock upon the exercise of options at an exercise price of $3.29 per
share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act. The recipients of securities in each of these transactions
represented their intention to acquire the securities for investment only and
not with view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationship with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
Number Description
- ---------- --------------------------------------------------------------------------------------------------------------
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation for Uproar Inc.
3.2 Bylaws for Uproar Inc.
3.3 Certificate of incorporation for Uproar Ltd.
3.4 Memorandum of association for Uproar Ltd.
3.5 Bye-laws of Uproar Ltd.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the certificate of incorporation and bylaws defining the rights of
holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2 Employment agreement, dated September 6, 1999, by and between Kenneth D. Cron and the Registrant.
10.3 Lease agreement, as amended, dated April 19, 1999, by and between Nassau Bay Associates, L.P., and the
Registrant.
10.4 Lease agreement, dated November 9, 1999, by and between Golden Van Associates, LLC, and the
Registrant.
10.5 Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
10.6* Agreement and plan of reorganization, dated April 29, 1999, by and between PrizePoint Entertainment
Corporation and the Registrant.
10.7*+ Internet game development agreement, dated January 12, 1999, by and between Pearson Television, Inc.
and the Registrant.
10.8*+ License and services agreement, dated September 29, 1999, by and between Telefonica Interactiva de
Contenidos and the Registrant.
10.9 Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the Registrant.
10.10* Stock Incentive Plan.
16.1* Letter from PricewaterhouseCoopers LLP:
21.1 List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP.
II-2
23.2 Consent of KPMG Hungaria Kft.
23.3 Consent of Arthur Andersen LLP:
24.1 Powers of attorney (see Signature Page).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
+ Confidential treatment request to be filed with the Securities and Exchange
Commission.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on this 21st day of December, 1999.
UPROAR INC.
By: /s/ Kenneth D. Cron
------------------------------------
Kenneth D. Cron
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Uproar Inc. (the
"Company"), hereby severally constitute and appoint Kenneth D. Cron, Chairman
of the Board of Directors and Chief Executive Officer, and Christopher R.
Hassett, Director, President and Chief Operating Officer, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the registration statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, in connection with the registration
under the Securities Act of 1933, as amended, of equity securities of the
Company, and to file or cause to be filed the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on December 21, 1999:
Signature Title(s)
--------- --------
/s/ Kenneth D. Cron
- ------------------------------------- Chairman of the Board of Directors and Chief
Kenneth D. Cron Executive Officer (principal executive officer)
/s/ Christopher R. Hassett President, Chief Operating Officer and Director
- -------------------------------------
Christopher R. Hassett
/s/ Michael K. Simon
- ------------------------------------- Chief Financial Officer and Director (principal
Michael K. Simon accounting and financial officer)
/s/ Thompson B. Barnhardt Director
- -------------------------------------
Thompson B. Barnhardt
Director
- -------------------------------------
Esther Dyson
/s/ Catherine V. Mackay Director
- -------------------------------------
Catherine V. Mackay
II-4
INDEX TO EXHIBITS
Number Description
- ------------ ---------------------------------------------------------------------------------------
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation for Uproar Inc.
3.2 Bylaws for Uproar Inc.
3.3 Certificate of incorporation for Uproar Ltd.
3.4 Memorandum of association for Uproar Ltd.
3.5 Bye-laws of Uproar Ltd.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the certificate of
incorporation and bylaws defining the rights of holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2 Employment agreement, dated September 6, 1999, by and between
Kenneth D. Cron and the Registrant.
10.3 Lease agreement, as amended, dated April 19, 1999, by and between Nassau
Bay Associates, L.P., and the Registrant.
10.4 Lease agreement, dated November 9, 1999, by and between Golden Van Associates,
LLC, and the Registrant.
10.5 Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
10.6* Agreement and plan of reorganization, dated April 29, 1999, by and between
PrizePoint Entertainment Corporation and the Registrant.
10.7*+ Internet game development agreement, dated January 12, 1999, by and between Pearson
Television, Inc. and the Registrant.
10.8*+ License and services agreement, dated September 29, 1999, by and between Telefonica
Interactiva de Contenidos and the Registrant.
10.9 Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the
Registrant.
10.10* Stock Incentive Plan.
16.1* Letter from PricewaterhouseCoopers LLP.
21.1 List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP.
23.2 Consent of KPMG Hungaria Kft.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (see Signature Page).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
+ Confidential treatment request to be filed with the Securities and Exchange
Commission.