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As filed with the Securities and Exchange Commission on June 15, 2001
Registration No. 333-58492
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 To
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FanZ Enterprises, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 711212 35-2123462
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
FanZ Enterprises, Inc.
3020-I Prosperity Church Road
Suite 293
Charlotte, North Carolina 28269-7197
(317) 815-1128
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(Address and Telephone Number of Principal Executive Offices)
FanZ Enterprises, Inc.
3020-I Prosperity Church Road
Suite 293
Charlotte, North Carolina 28269-7197
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(Address of Principal Place of Business or Intended Principal Place of Business)
FanZ Enterprises, Inc. With a Copy to: Benesch, Friedlander, Coplan &
3020-I Prosperity Church Road Aronoff LLP
Suite 293 2300 BP Tower
Charlotte, North Carolina 28269-7197 200 Public Square
(317) 815-1128 Cleveland, Ohio 44114-2378
Attn: J. Roe Hitchcock (216) 363-4500
Attn: Leslie A. Drockton, Esq.
and
James M. Hill, Esq.
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this registration statement becomes effective.
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. [ ]
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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Preliminary Prospectus dated June 15, 2001
FanZ Enterprises, Inc.
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Up to 2,500,000 shares of Common Stock
$.01 par value per share
We are a start-up Delaware corporation organized for the purpose of controlling
and managing (i) a professional multi-car motorsports operation that will
participate in NASCAR sanctioned events, and (ii) a related merchandising
operation.
We will be selling a minimum of 1,000,000 of our shares and a maximum of
2,500,000 of our shares in a direct participation "Grass Roots" offering. The
shares will be sold by our officers and directors or, where required by state
law, through licensed broker-dealers. Each subscriber must purchase a minimum of
twenty-five (25) shares at an aggregate purchase price of $250.00. All proceeds
of this offering will be deposited in an escrow account. The proceeds will be
invested by the Escrow Agent in the Firstar U.S. Treasury Money Market Fund and
will bear interest at the rate then prevailing under that fund. We intend to
break escrow once subscriptions for the minimum number of our shares (1,000,000)
are received and accepted and will continue to sell our shares until all shares
offered are sold or nine months from the date of this Prospectus. If we are
unable to sell at least 1,000,000 shares before this offering ends, we will
return all funds, with interest, to subscribers promptly after the termination
of this offering. We may decide to cease selling efforts prior to such date if
we determine that it is no longer beneficial to continue this offering.
Minimum Maximum
Per Share Total Total
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Public Price $10.00 $10,000,000.00 $25,000,000.00
Discounts/Commissions (1)(2)(3) $.50 (4) $500,000.00 (4) $1,250,000.00 (4)
Proceeds to FanZ Enterprises, $9.50 (4) $9,500,000.00 (4) $23,750,000.00 (4)
Inc.
(1) We have decided not to use an underwriter for the distribution of our
shares; however, in Arizona, Florida, North Carolina and Texas we will be
required to sell our shares through licensed broker-dealers. See "Plan of
Distribution" beginning on page 54.
(2) The commissions shown do not include legal, accounting, printing, escrow
fees, and related costs incurred in connection with this offering. These
expenses are estimated at $747,060.
(3) The Broker/Dealer Agreement provides that the broker shall be entitled
to a commission equal to the greater of:
(i) $140,000 in the event that between 1,000,000 and 2,499,999
shares of our common stock are sold in this offering, or
$190,000 in the event that 2,500,000 shares of our common
stock are sold in this offering; or
(ii) 5% of the money raised by us from the sale of our common stock
in Arizona, Florida, North Carolina and Texas.
(4) This table shows the maximum amount the broker/dealer could earn
assuming all of our shares were sold in Arizona, Florida, North
Carolina and Texas. Up to Two Hundred Thousand Dollars ($200,000) of
this fee will be paid by Stillwater Capital Advisors, LLC. However, we
do not anticipate that all of our shares will be sold in these states
since we are registered and offering shares in thirty-seven (37)
states.
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This is an initial public offering and prior to this there has been no public
market for the securities of FanZ Enterprises, Inc., nor can assurance be given
that a market will develop.
Proposed Trading Symbol on the OTC Bulletin Board: ("FANZ"). There is no
assurance that this trading symbol will be assigned to our shares.
Our auditor's opinion includes a going concern qualification which means that
there is substantial doubt as to our ability to continue as a going concern.
Individuals should not invest in this offering unless they can afford to lose
their entire investment. Investing in shares of our common stock involves a high
degree of risk and shares of our common stock are highly speculative. See "Risk
Factors," beginning on page 3, to read about risks you should carefully consider
before purchasing our shares of common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is subject to completion and/or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. The securities may not be sold nor may
offers to buy be accepted until the registration statement becomes effective.
This prospectus is not an offer to sell or the solicitation of an offer to buy
these securities. There cannot be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
NOTICE FOR VIRGINIA RESIDENTS
This offering was approved in Virginia on the basis of a limited offering
qualification where offers and sales could only be made to proposed investors
based on their meeting an investor suitability standard as an accredited
investor as defined in Rule 501 of Regulation D. We did not have to demonstrate
compliance with some or all of the merit regulations of Virginia as found in the
"Virginia Securities Rules."
The date of this Prospectus is June 15, 2001
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FANZ Enterprises, Inc.
Offering of up to 2,500,000 Shares of Common Stock
PROSPECTUS
June 15, 2001
TABLE OF CONTENTS
Page
Summary.................................................................................. 1
Risk Factors............................................................................. 2
Forward Looking Statements............................................................... 11
Use of Proceeds.......................................................................... 11
Determination of Offering Price.......................................................... 13
Dilution................................................................................. 13
Capitalization........................................................................... 15
Description of Business.................................................................. 16
Plan of Operation........................................................................ 30
Description of Property.................................................................. 36
Directors, Executive Officers, Promoters and Control Persons............................. 37
Security Ownership of Certain Beneficial Owners and Management........................... 39
Executive Compensation................................................................... 40
Summary Compensation Table............................................................... 41
Plan of Distribution..................................................................... 41
Legal Proceedings........................................................................ 44
Description of Securities................................................................ 44
Certain Relationships and Related Transactions........................................... 47
Market for Common Equity and Related Stockholder Matters................................. 48
Legal Matters............................................................................ 48
Experts.................................................................................. 48
Disclosure of Commission Position on Indemnification for Securities Act Liabilities...... 48
Index to Financial Statements............................................................ F-I
We intend to become a reporting company and will file all reports and other
information as required under the Securities Exchange Act of 1934, as amended,
with the Securities and Exchange Commission. The public may read and copy, at
certain prescribed rates, such material at the Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20439. The SEC maintains a web site, which
you can access at www.sec.gov, that contains reports, proxy, other information
statements and other information regarding all issuers that file electronically.
We anticipate that our common stock will be traded through the OTC Bulletin
Board, a quotation service that collects and redistributes market maker quotes
in over-the-counter securities.
We have a fiscal year that ends January 31 and we intend to furnish our
stockholders with annual reports containing audited financial information and,
for the first three quarters of each year, quarterly reports containing
unaudited financial information. Also, we will provide, at no cost to each
person who has received a Prospectus, a copy of any information that is
incorporated herein by reference. To request such information, call (317)
815-1128 or e-mail J. Roe Hitchcock at jroe@fanzenterprises.com or write to:
FanZ Enterprises, Inc.
5419 Cayman Drive
Suite 100
Carmel, IN 46033
Attn: J. Roe Hitchcock, Chief Executive Officer
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DEALER PROSPECTUS DELIVERY OBLIGATION
Until _____, 2001 (____ days after the commencement of this Offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
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SUMMARY
The following summary highlights certain information found in more detail
elsewhere in this Prospectus. Before you decide to buy our common stock, in
addition to the following summary, you are urged to read the entire Prospectus
carefully, especially the risks of investing in our common stock as discussed
under "Risk Factors." (See "Risk Factors" beginning on page 3.)
SUMMARY, ADDRESS AND PHONE NUMBER
We are a Delaware corporation formed on October 20, 2000. Our sole stockholder
is Jackson Roscoe Motorsports, LLC a Delaware limited liability company formed
on October 20, 2000. Our executive offices are located at 3020-I Prosperity
Church Road, Suite 293, Charlotte, North Carolina 28269-7197 and our telephone
number is (317) 815-1128. Our registered statutory office is located at 1209
Orange Street, Wilmington, Delaware 19801.
We were formed for the purpose of controlling and managing a professional
multi-car motorsports operation that will participate in NASCAR sanctioned
events. It is contemplated that we will initially enter one team in the Winston
Cup Series and intend to have a minimum of two race teams competing in NASCAR
sanctioned races within one year of the closing of this offering. It is our
intention to originate up to a total of five teams.
We will conduct our operations through two wholly-owned subsidiaries: FanZ
Racing, Inc. and FanZ Merchandising, Inc.; both are Delaware corporations formed
to own and manage our racing and merchandising operations, respectively. We are
a start-up organization and currently have no racing or merchandising operations
and do not own any of the assets necessary to conduct our racing and
merchandising operations. However, we intend to use the proceeds of this
offering to develop our racing and merchandising businesses. As we are a
start-up entity, we have no history of earnings, have stockholder's equity of
$156,914 and have an accumulated deficit in the amount of $2,408,105 as of April
30, 2001. The loss is primarily related to the recognition of a non-cash charge
of $2,064,919 for stock options granted, the expenses incurred in the start up
of our operations and the development and implementation of our business plan.
Additionally, due to our dependence on raising equity in this offering, our lack
of working capital and income sources as well as risks associated with a
start-up business, our auditor's opinion contains a going-concern qualification.
Currently, Jackson Roscoe Motorsports, LLC owns 10,000,000 shares of our common
stock representing all of our issued and outstanding shares of common stock.
Jackson Roscoe Motorsports originally purchased 100 shares of our common stock;
however, on May 15, 2001, we effected a 100,000 for 1 stock split. On February
28, 2001, we granted an option to purchase 500,000 shares of our common stock at
a price of $3.00 per share to Michael J. Wurtsbaugh, our proposed Chief
Financial Officer. The numbers of shares subject to this option was not affected
by the stock split. If we issue the minimum number of shares of our common stock
(1,000,000) in this offering, and assuming the full exercise of the options
granted to Michael J. Wurtsbaugh, Jackson Roscoe Motorsports, LLC would own
approximately 86.95%, Michael J. Wurtsbaugh would own approximately 4.35% and
the public stockholders would own approximately 8.70%. If we issue the maximum
number of shares of our common stock (2,500,000) in this offering, and assuming
the full exercise of the options granted to Michael J. Wurtsbaugh, Jackson
Roscoe Motorsports, LLC would own approximately 76.92%, Michael J. Wurtsbaugh
would own approximately 3.85% and the public stockholders would own
approximately 19.23%. Additionally, we intend to reserve shares of our common
stock representing 10% of the issued and outstanding shares of our common stock,
after giving effect to this offering, to be issued in connection with the
exercise of stock options to be issued to our officers, directors, employees and
consultants under our stock option plans. (See "Description of Securities"
beginning on page [58].) Any issuance of shares of our common stock upon the
exercise of stock options will dilute all stockholders on a pro rata basis. We
intend to offer our stockholders a number of owner privileges that may result in
taxable income to the stockholders.
THE OFFERING
Securities offered: A minimum of 1,000,000 shares of our common stock and
a maximum of 2,500,000 shares of our common stock.
(See "Description of Securities" beginning on page 59.)
Authorized Capital 20,000,000 shares of common stock, $.01 par value per
Stock: share, and 10,000 shares of preferred stock, $.01 par
value per share. All of the preferred shares are
issued and outstanding and are owned by Jackson
Roscoe Motorsports, LLC.
Common Stock
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Outstanding Before
the Offering: 10,000,000 shares, all of which are owned by Jackson
Roscoe Motorsports, LLC.
Common Stock
Outstanding After
the Offering: 11,000,000 shares (assuming the minimum offering of
1,000,000 of our shares are sold) or 12,500,000
shares (assuming the maximum offering of 2,500,000 of
our shares are sold). We have granted an option to
purchase 500,000 shares of our common stock to
Michael J. Wurtsbaugh and intend to reserve an amount
equal to 10% of our issued and outstanding shares
after giving effect to this offering to be issued
under stock option plans for the benefit of our
officers, directors, employees and consultants.
Use of Proceeds: We plan to use the net proceeds of this offering to
originate up to five race teams that will compete in
NASCAR sanctioned races and to establish our
merchandising operations. The proceeds will be used
as follows: acquiring assets, marketing and
advertising, establishing an office and a multi-car
facility, hiring personnel and consultants, paying
organizational expenses, obtaining working capital
and other general corporate purposes.
Trading Symbol: Proposed OTC Bulletin Board ("OTCBB") trading symbol
for the common stock is "FANZ." There is no assurance
that this trading symbol will be assigned to our
shares.
Risk Factors: The shares of our common stock being offered are
speculative and involve a high degree of risk and
should not be purchased by investors who cannot
afford the complete loss of their entire investment.
(See "Risk Factors" beginning on page 3.)
RISK FACTORS
You should carefully consider the possibility that your entire investment may be
lost. As such, you are encouraged to evaluate the following risk factors and all
other information contained in this Prospectus before purchasing our common
stock. Our common stock involves a high degree of risk. Any of the following
risks could adversely affect our business, financial condition and results of
operations, and could result in complete loss of your investment.
FanZ Enterprises, Inc. Has No Operating History And Financial Results Are
Uncertain
We were only recently organized, have no operating history and must be
considered in the development stage. We have no history of earnings or profits
and there is no assurance that we will operate profitably in the future. There
is no meaningful historical financial data upon which to base planned operating
expenses. As a result of this limited operating history, it is difficult to
accurately forecast our potential revenue. Our business model contemplates that
we will develop a racing operation into which we will reinvest a majority of the
profits, if any, from our racing operations, and also a merchandising operation
that will be our primary source of profits. Our success is dependent on our
ability to develop both of these operations. We have not entered into any
definitive arrangements with any sponsors, drivers, crew chiefs, suppliers,
distributors or manufacturers and intend to pursue these arrangements upon
successful completion of this offering.
At this time we have no racing or merchandising operations and intend to use the
proceeds of this offering to first develop the racing business and then the
merchandising business. It is our intention to use a portion of the proceeds to
acquire assets necessary to run the racing operations as well as hire crew
chiefs, drivers and other personnel. Jackson Roscoe Motorsports, LLC has entered
into a consulting arrangement with Eddie Sharp for our benefit. Mr. Sharp's
NASCAR experience is discussed in the "Description of Business" section
beginning on page 19. We will continue to enter into consulting arrangements
with experienced NASCAR personnel to assist in assembling our racing operations.
We have identified several potential candidates with NASCAR experience to manage
our racing operations. We are in preliminary negotiations with these candidates
and it is our intention to enter into employment agreement(s) with individual(s)
that will be contingent upon the successful completion of this offering. We have
not purchased any of the assets necessary to operate either the racing or
merchandising operations and we have not had any definitive discussions with any
potential drivers, crew chiefs or other personnel and intend to start these
discussions upon completion of this offering.
We Intend To Invest A Majority Of The Profits From Our Racing Operations Back
Into Our Racing Business
In order to field competitive racing teams, attract and maintain personnel, and
maximize sponsorship return on investment , our business model contemplates that
we will
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reinvest a majority of the profits, if any, of the racing operations back into
the racing business. One of the keys to implementing this is our ability to
attract sponsors for our teams. While we believe that we will be able to attract
sponsors, we have not had any definitive discussions with potential sponsors.
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As of April 30, 2001, We Have An Accumulated Deficit of $2,408,105 And May
Operate At A Loss Through The Fiscal Year Ended January 31, 2002
Because we are a start-up company and have not yet commenced operations, as of
April 30, 2001, we have an accumulated deficit of $2,408,105 due to a non-cash
charge of $2,064,919 for stock options granted, start-up costs and expenses
incurred in the development and implementation of our business plan. We financed
operations with capital contributions from Jackson Roscoe Motorsports, LLC. We
do not expect to be fully operational until some time during the 2002 racing
season, therefore, we may not generate any significant revenue this fiscal year
and may operate at a loss through January 31, 2002.
Our Auditor's Opinion Contains A Going Concern Qualification
The auditor's opinion to our financial statements indicates that it was prepared
on the assumption that we continue as a going concern. See "Report of
Independent Certified Public Accountants" on page F-2. The auditor notes that
our dependence on raising equity, the fact that we are a start-up company with
no existing operations, our lack of current working capital and income sources,
as well as inherent risks associated with a start-up business, raise substantial
doubt about our ability to continue as a going concern. We believe that upon
successful completion of this offering we will have sufficient working capital
to be able to implement our business plan and generate revenues which will lead
to the elimination of such qualification from our audited statements. However,
there can be no assurance that we will ever achieve profitability or that a
stream of revenue can be generated or sustained in the future.
Despite the fact that there is a going concern qualification, we have agreed to
pay Stillwater Capital Advisors, LLC, an entity that is majority owned by
Messrs. Hitchcock and McDonald, a consulting fee of $750,000 and Messrs.
Hitchcock, McDonald and Wurtsbaugh annual salaries equal to $275,000 in the
aggregate starting upon the completion of this offering. None of these
individuals have received any salary from the Company to date, and no salaries
are accruing on the Company's books. In addition, Mr. Wurtsbaugh will be
entitled to severance equal to one times his annual salary upon termination of
his employment with us without cause or upon a change of ownership. Mr.
Wurtsbaugh will be entitled to such severance regardless of our overall
performance.
We Will Have Broad Discretion In The Use Of The Net Proceeds From This Offering,
And We Might Use Them Ineffectively
We will have broad discretion over how we use the net offering proceeds, and we
could spend the proceeds in ways with which you might not agree. We cannot
assure you that we will use these proceeds effectively. We plan to use the
proceeds from this offering for:
- creating up to five race teams to compete in NASCAR sanctioned
races and establishing our merchandising operations,
- establishing our marketing services organization,
- organizational expenses,
- marketing and advertising,
- office and motorsport facilities,
- personnel and consultants, and
- working capital and general corporate purposes.
Our Existing Stockholder Will Be Able To Exercise Control of Our Common Stock
And May Make Decisions That Are Not In The Best Interest Of All Stockholders
At the completion of this offering, Jackson Roscoe Motorsports, LLC will own
approximately 86.95% of our issued and outstanding shares of common stock
(assuming the minimum offering of 1,000,000 of our shares and the full exercise
of the options granted to Michael J. Wurtsbaugh) or approximately 76.92%
(assuming the maximum offering of 2,500,000 of our shares and the full exercise
of the options granted to Michael J. Wurtsbaugh) and 100% of our issued and
outstanding shares of preferred stock. See "Security Ownership of Certain
Beneficial Owners and Managers" beginning on page 51. Accordingly, Jackson
Roscoe Motorsports, LLC, which is controlled by J. Roe Hitchcock and Frederick
L. McDonald II, will be able to control
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the election of directors and all other matters subject to stockholder votes.
This concentration of ownership may have the effect of delaying or preventing a
change in control of FanZ Enterprises, Inc., even if this change in control
would benefit stockholders.
We Might Only Sell The Minimum Number Of Shares, Or Less Than The Minimum Number
Of Shares, And Therefore May Not Be Able To Assemble All Five Racing Teams
We can have a closing and accept subscriptions for the sale of shares to
investors if at least 1,000,000 shares have been sold, which is the minimum
number of shares that may be sold in this offering. In the event such minimum
amount, or any amount which is significantly less than the maximum amount of
2,500,000 shares offered in this offering are sold, we may not be able to
assemble all five of our racing teams and/or establish our merchandising
operations.
We may also be unsuccessful in selling at least 1,000,000 shares in this
offering, particularly because our officers and directors are selling the shares
in a direct participation "Grass Roots" offering, and in certain cases where
required by state law, through a licensed broker-dealer, without the use of an
underwriter. If we fail to sell at least 1,000,000 shares in this offering, we
will be unable to accept any subscriptions in this offering from the Escrow
Agent. We could also decide, in our discretion, to not have a closing. Although
your funds will be returned to you promptly by our escrow agent, with interest,
you will not have the use of these funds for other purposes during the time
period that your funds were held in escrow, which could be in excess of nine
months.
The Shares You Purchase In This Offering Will Be Immediately And Significantly
Diluted
The initial public offering price is substantially higher than the net tangible
book value of each outstanding share of our common stock. There currently are
10,000,000 shares of our common stock issued and outstanding (after giving
effect to the 100,000 for 1 stock split which occurred on May 15, 2001) and held
of record by Jackson Roscoe Motorsports, LLC. Purchasers of our common stock in
this offering will experience immediate and substantial dilution. See "Dilution"
beginning on page 16. Dilution represents the difference between the price of
a share sold in this offering and the pro forma net tangible book value per
share after this offering. The dilution will be $9.08 per share or 91% of the
offering price per share if the minimum number of 1,000,000 shares are sold in
this offering and $7.99 or 80% of the public offering price per share if the
maximum number of 2,500,000 shares are sold in this offering. This represents a
risk to our investors as additional issuances of common stock under outstanding
stock options and stock option plans will dilute your ownership further.
As of the date of this prospectus, we have an aggregate of 10,000,000 shares of
our common stock issued and outstanding. We have also granted options to
purchase 500,000 shares of our
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common stock at $3.00 per share to Michael J. Wurtsbaugh, a consultant for FanZ
Enterprises, Inc. and our proposed Chief Financial Officer, in connection with
the closing of this offering, which shares are subject to a Non-Qualified Stock
Option Agreement. In addition, as of the date of this prospectus, we will
reserve an amount of shares equal to 10% of our issued and outstanding common
stock after giving effect to the closing of this offering to be issued upon the
exercise of stock options available for grant under our stock option plans.
While the stock option plans will be subject to stockholder approval upon
completion of this offering, once the plans are approved all of such shares may
be issued without any action or approval by our stockholders. The issuance of
these shares would dilute the percentage ownership of our common stock held by
all of our stockholders. See "Security Ownership of Certain Beneficial Owners
and Management" beginning on page 51.
Relationship With NASCAR
To be successful, we need to create and maintain a good working relationship
with the sanctioning body of our racing events, NASCAR. Our merchandising
operations will need to enter into licensing agreements with NASCAR in order to
use the NASCAR trademarks. While we believe we can create a good working
relationship with NASCAR and enter into licensing agreements, we have not had
any definitive discussions with NASCAR management and may not be able to
establish or maintain such a relationship. We do not have any contractual
relationship with NASCAR and may not be able to enter into licensing agreements
on terms acceptable to us.
Our Racing Operations Will Face Competition For Marketing And Advertising
Dollars
NASCAR competes for entertainment dollars and we will compete for marketing and
advertising dollars with other sports such as football, baseball, basketball,
hockey, tennis and golf and with other entertainment and recreational
activities. While NASCAR has been one of the fastest growing sports in the
country in recent years, there can be no assurance that such growth rates will
be maintained. In the event that fan interest declines, NASCAR might not be as
attractive to the television industry, which could have an adverse effect on our
operations.
Racing events that our teams will enter compete not only with other sports and
recreational events scheduled on the same dates, but also with other racing
events sanctioned by various racing bodies such as Championship Auto Racing
Teams, Inc., the United States Auto Club, the Indy Racing League, the National
Hot Rod Association, Sports Car Club of America, the International Motor Sports
Association, the Automobile Racing Club of America, Formula 1, American
Sportscar Association and others. Racing events sanctioned by different
organizations often are held on the same dates, at different tracks, in
competition with the NASCAR events.
How successful we are in competing for marketing and advertising dollars could
also depend upon the success of our individual teams. There can be no assurance
that our teams will be competitive or qualify for each, or any, NASCAR
sanctioned event entered. If we are not as successful competitively, we could
have a more difficult time attracting and maintaining sponsors, quality drivers
and crews. We will compete with well-established teams and there can be no
assurance that we will be able to create or maintain a competitive position.
Our promotional programs must compete for limited marketing and advertising
dollars against other specialty advertising programs and media such as
television, radio, newspapers, magazines, and billboards. We will compete
principally on the basis of the current popularity of motorsports, the appeal of
our teams, the appeal of our products, and the cost, design and delivery
schedules of our products. There can be no assurance that once we are
operational we will be able to compete successfully.
Our Merchandising Operations Will Face Competition In The Motorsports
Collectible And Consumer Products Market
We will compete with major domestic and international companies in the
motorsports collectible and consumer products market, some of which have greater
market recognition and substantially greater financial, technical, marketing,
distribution, and other resources than we will possess. Since there are no
significant barriers to entry into the collectible and consumer products
industries, emerging companies may increase their participation in these
motorsports markets. Our ability to compete successfully depends on a number of
factors both within and outside our control, including: the success of our
teams; the quality, features, pricing, and diversity of our products; the
quality of our customer services; our ability to recognize
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industry trends and anticipate shifts in consumer demands; our success in
designing and marketing new products; the availability of adequate sources of
manufacturing capacity and the ability of our third-party manufacturers to meet
delivery schedules; our efficiency in filling customer orders; the continued
popularity of the motorsports personalities with whom we have licensing
arrangements (currently, we have no such licensing arrangements); our ability to
renew existing licensing arrangements and enter into new licensing arrangements;
our ability to develop and maintain effective marketing programs that enable us
to sell our products to motorsports enthusiasts; product introductions by our
competitors; the number, nature, and success of our competitors in a given
market; and general market and economic conditions.
Our operating results will depend to a significant extent on our ability to
develop and introduce new product designs on a timely basis which compete
effectively on the basis of price and which address customer requirements. The
success of new designs depends on various factors, including the success of our
teams, the popularity of drivers and crews we represent, new product selection,
successful sales and marketing efforts, timely and quality production and
delivery of new designs and consumer acceptance of new designs. There can be no
assurance that any new designs will receive or maintain substantial market
acceptance. If we are unable to design, develop and introduce competitive
products on a timely basis, our operating results could be adversely affected.
Our Operations Will Be Dependent On The Success Of Our Racing Teams
Our ability to fully implement our business plan and the success of our
operations will be dependent upon the success of our racing teams. If our racing
teams fail to qualify for races or finish poorly in races on a routine basis,
the success of our operations could be adversely impacted. Teams that fail to
qualify do not generate any substantial purse revenue, and may experience a
reduction in fan interest and/or sponsorship appeal. We do not currently have
any definitive arrangements with drivers or crew members.
We Will Be Dependent On Key Personnel
Our success depends upon the availability and performance of our officers and
senior management and other key personnel. Since our inception we have relied
heavily upon the expertise and energies of a relatively small core of
executives, none of whom have had any experience in running a public company and
none of whom are currently full-time employees. These executives must hire
qualified employees and properly develop and manage the operations for us to be
successful. While our business plan contemplates hiring consultants and
experienced racing personnel to assemble and manage our operations, neither of
our two existing officers has any experience in owning or operating a
professional motorsports operation. We currently have an employment agreement
with Michael J. Wurtsbaugh, our proposed Chief Financial Officer and Secretary,
which will take effect upon completion of this offering, and are in negotiations
with candidates to manage FanZ Racing, Inc. and FanZ Merchandising, Inc. In the
interim, we have entered into a consulting agreement with Michael J. Wurtsbaugh
pursuant to which he will provide us with his consulting services until his
employment agreement is effective. Jackson Roscoe Motorsports, LLC has entered
into a consulting arrangement with Eddie Sharp to assist us in assembling our
racing operations. Eddie Sharp is currently the President of Sharp Racing, Inc.
and has extensive NASCAR experience. We do not currently have any employment
agreements or contracts with drivers or crewmembers. Upon completion of this
offering, we intend to hire additional personnel which will include someone with
prior experience in a public company to serve as our director of finance. The
loss of the services of one or more of our key personnel could have a material
adverse effect on our operations. Although we intend to hire additional
personnel upon completion of this offering, there can be no assurance that we
will be able to attract and retain experienced personnel, or personnel with
racing experience, on acceptable terms.
We May Incur Liability For Personal Injuries
Racing events can be dangerous to participants and to spectators. We will
maintain insurance policies that provide coverage within limits that in our
judgment are sufficient to protect us from material financial loss due to
liability for personal injuries sustained by, or death of, our personnel or
spectators in the ordinary course of our business. Our insurance may not be
adequate or available at all times and in all circumstances. In the event that
damages for injuries sustained by our participants or spectators exceed our
liability coverage or the insurance company denies coverage, our financial
condition, results of operations and cash flows could be adversely affected to
the extent claims and associated expenses exceed insurance recoveries.
Our Operations Will In Part Be Dependent On Licensing Arrangements
We will market our collectible and consumer products pursuant to licensing
arrangements with race car drivers, crew chiefs, car owners, race car sponsors,
and automobile manufacturers, including our own. We will also need to complete
the standard NASCAR licensing application and enter into a licensing arrangement
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with NASCAR to enable us to use the NASCAR logo. These licensing arrangements
are typically limited in scope and duration and typically authorize the sale of
specified licensed products for a specific period of time. The success of any of
our licensing arrangements depends on many factors, including the reasonableness
of license fees in relationship to revenue generated by sales of licensed
products and the continued popularity and availability of licensees. The
termination, cancellation, or inability to enter into or renew any licensing
arrangements could have a material adverse effect on our merchandising
operations. While we believe that we will be able to enter into licensing
arrangements, we currently have none and we may not be able to enter into any
licensing arrangements on terms acceptable to us. If we are unable to enter into
these licensing arrangements, we would not be able to fully develop our
merchandising operations, which would have an adverse impact on our operations.
Our Merchandising Operations Will Be Subject To Rapid Market Changes and
Seasonality
The markets for our products will be subject to rapidly changing customer
tastes, a high level of seasonality and competition, and a constant need to
create and market new product designs. Demand for motorsports collectible and
consumer products is influenced by the popularity of certain teams, cultural and
demographic trends, marketing and advertising expenditures, and general economic
conditions. Because these factors can change rapidly, customer demand also can
shift quickly. In many cases, new motorsports collectible and consumer products
can be successfully marketed for only a limited time. We may not always be able
to respond to changes in customer taste and demand because of the amount of time
and financial resources that may be required to bring new product designs to
market. An inability to respond quickly to market changes could have an adverse
impact on our operations. The second and third calendar quarters of each year
generally have higher sales of motorsports products due to the introduction of
new race car models for the racing season beginning in February. Seasonal
fluctuations in quarterly sales may require us to take temporary measures,
including increased personnel, borrowings and other operational changes, and
result in unfavorable quarterly earnings comparisons.
Our Merchandising Operations Will Be Dependent On Third Parties For
Manufacturing
We will have third parties manufacture our motorsports collectibles and consumer
products which we anticipate will include hats, clothing, glassware, die-cast or
miniature cars, toys and other similar items. As a result, any difficulties
encountered by the third-party manufacturers that result in product defects,
production delays, cost overruns, or the inability to fulfill orders on a timely
basis, could have a material adverse effect on our operations.
We do not currently have any contracts with third-party manufacturers. Although
we believe that we will be able to secure acceptable arrangements with such
third-party manufacturers, our operations would be adversely affected if we
could not establish relationships with suppliers. We do not currently have an
inventory of merchandise and will not until this offering is completed and we
develop our merchandising operations.
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Risks Related To The Business Of Fanz Enterprises, Inc. Including Our Ability To
Attract Sponsors
In general, in order for us to succeed in today's competitive market, we must be
able to attract sources of revenue. A professional motorsports racing operation
relies principally on three separate, but related, revenue sources for the
funding of racing activities that include sponsorship monies, race purse
winnings and special race bonus opportunities. There is no guarantee that we
will be able to attract or obtain any or all of these sources of revenue.
Since our racing operations will be primarily funded through sponsorship
dollars, our ability to attract sponsors to fund racing operations will be a
significant factor in our success. Our business model is based on the assumption
that in order to be competitive, we will reinvest a majority of any income
generated by our racing operations, and merchandising operations will be our
main source of profits. The market for sponsorship money is very competitive as
we will compete with other motorsports teams that compete in NASCAR sanctioned
events, and even other professional sports, for sponsorship money. Although we
have had preliminary discussions with potential sponsors, we have not entered
into any definitive agreements with sponsors and may not be able to attract any
sponsors to fund our teams.
Payment Upon Dissolution, Liquidation Or Winding Up
Upon our dissolution, liquidation, or winding up, holders of any of our secured
debt will be paid in full first, and then all other unsecured creditors will be
paid in full. Any balance remaining will be used first to repay the holders of
our preferred stock the amount of their liquidation preference plus any
accumulated and unpaid dividends prior to and in preference to any distribution
to our other stockholders. The amount of the liquidation preference for the
preferred stock is $600,000 and such shares are entitled on an annual basis to a
10% cumulative dividend. Any remaining balance would then be distributed to our
holders of common stock on a pro rata basis. However, it is possible that after
payment of our creditors and holders of our preferred stock, there will be no
funds available to distribute to our common stockholders.
Our Shares Could Become A "Penny Stock"
Our shares could become subject to the penny stock rules if we fail to develop
our business plan or are not successful in generating revenue. The SEC has
adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00, other than securities registered on national
securities exchanges or quoted on Nasdaq, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or quotation system. Prior to a transaction in a penny stock, a
broker-dealer is required to:
- deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of
risks in the penny stock market;
- provide the customer with current bid and offer quotations for
the penny stock;
- explain the compensation of the broker-dealer and its
salesperson in the transaction;
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- provide monthly account statements showing the market value of
each penny stock held in the customer's account; and
- make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction.
These requirements may have the effect of reducing the level of trading activity
in the secondary market for a stock that becomes subject to the penny stock
rules. If our shares become subject to the penny stock rules, investors may find
it more difficult to sell their shares.
FanZ Enterprises, Inc. Will Need Additional Financing Which May Not Be
Available, Or Which May Dilute The Ownership Interests Of Investors
Our future success will depend on our ability to raise additional funds,
particularly if we raise only the $10,000,000 minimum, and our ability to raise
future sponsorship money, which includes attracting sponsors for our racing
teams. No commitments to provide additional funds have been made by management
and no agreements with sponsors have been entered into. If additional money is
needed, there is no assurance that funds will be available from any source or,
if available, that they can be obtained on terms acceptable to us. If not
available, our operations could be severely limited, and we may be unable to
implement our business plan.
Our Common Stock Has No Prior Market, And The Price May Decline After This
Offering
There is no public market for our common stock, and no assurance can be given
that a market will develop or that any stockholder will be able to liquidate his
or her investment without considerable delay, if at all. The market price of our
common stock may decline below the offering price. If a market should develop,
the price may be highly volatile. In addition, an active public market for our
common stock may not develop or be sustained.
We Have No Agreements With Any Underwriters, And We May Not Be Able To Attract
Market Makers
There is currently no public trading market for the shares being offered. The
development of a public trading market depends upon not only the existence of
willing buyers and sellers, but also on market makers. We hope that a number of
broker-dealers may become market makers for our shares. Under these
circumstances, the market bid and asked prices for the shares may be
significantly influenced by decisions of the market makers to buy or sell the
shares for their own account, which may be critical for the establishment and
maintenance of a liquid public market in the shares.
Market makers are not required to maintain a continuous two-sided market and are
free to withdraw firm quotations at any time. Additionally, in order to be
traded on the OTCBB we need to have at least one registered and active market
maker. We currently have no market makers. No assurance can be given that any
market making activities of any market makers will commence. To facilitate the
sale of our common stock, we intend to have our common stock traded on the OTC
Bulletin Board. There can be no assurance, however, that a market for our common
stock will ever develop.
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The Value Of The Owner Privileges May Result In Taxable Dividend Income To You
We intend to provide our stockholders with a number of owner privileges as more
fully described in the section titled "Description of Business" beginning on
page 18. The owner privileges that we intend to provide to our stockholders, may
result in taxable dividend income to our stockholders. If the owner privileges
are treated as taxable dividend income, a stockholder could incur a tax
liability as a result of his or her ownership of our common stock without
receiving any cash from us to pay such tax. We have not obtained any legal
opinions or treasury rulings on the tax treatment of the owner privileges that
we intend to provide. The stockholders may also incur expenses in consulting
with their tax advisor as to the treatment of the owner privileges.
Investors May Face Significant Restrictions On The Resale Of Our Common Stock
Due To State Blue Sky Laws
Each state has its own securities laws, often called "blue sky laws," which (i)
limit sales of securities to the residents of such state unless the security is
registered in such state or qualifies for an exemption from registration and
(ii) govern the reporting requirements for broker-dealers doing business
directly or indirectly in the state. There may be significant state blue-sky law
restrictions on the ability of investors to sell, and on purchasers to buy, our
common stock. Accordingly, investors should consider the secondary market for
our common stock to be a limited one. Investors may be unable to resell their
stock, or may be unable to resell it without significant expense. We have not
registered our shares in the following states: Alaska, Hawaii, Idaho, Montana,
Nebraska, New Mexico, North Dakota, Rhode Island, South Dakota, Utah, Vermont,
Washington and Wyoming. Accordingly, no sales of the Company's common shares can
be made in those states or to residents of those states.
FORWARD LOOKING STATEMENTS
This prospectus includes "forward-looking statements." These statements involve
known and unknown risks, uncertainties and other factors that could cause actual
results, financial performance, operating performance or achievements expressed
or implied by such forward-looking statements not to occur or be realized. Such
forward-looking statements generally are based upon our best estimates of future
results, performance or achievement, based upon current conditions.
Forward-looking statements may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "believe," "estimate,"
"anticipate," "continue," or similar terms, variations of those terms or the
negative of those terms. Potential uncertainties include, among other things,
the matters described in this "Risk Factors" section beginning on page 3 of this
prospectus and other sections of this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy or completeness of the forward-looking statements after the
date of this prospectus.
USE OF PROCEEDS
The gross proceeds to us from the sale of up to 2,500,000 shares of our common
stock will be $10,000,000 (if the minimum number of 1,000,000 shares are sold)
or $25,000,000 (if the maximum number of 2,500,000 shares are sold).
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We expect to use the gross proceeds from this offering, listed in the order of
priority, as follows:
PURPOSE MINIMUM MAXIMUM
SUBSCRIPTION(1) PERCENTAGE SUBSCRIPTION(2) PERCENTAGE
Commissions to Broker $300,000 (3) 3.00% (3) $1,050,000 (3) 4.20% (3)
Offering Expenses $747,060 7.47% $747,060 2.99%
Purchase of Assets $3,000,000 30.00% $10,000,000 40.00%
Personnel (4) $2,000,000 20.00% $5,000,000 20.00%
Marketing and Advertising $1,845,000 18.45% $3,945,000 15.78%
Consulting Fee to Stillwater (5) $750,000 7.50% $750,000 3.00%
Licensing $350,000 3.50% $1,000,000 4.00%
Working Capital $1,007,940 10.08% $2,507,940 10.03%
Totals $10,000,000 100% $25,000,000 100%
========== ===== ========== =====
*(1) Assumes sale of 40% of the stock being offered
(2) **Assumes sale of 100% of the stock being offered
(3) This is the maximum amount the broker/dealer could earn and these
numbers assume that all of the shares are sold in Arizona, Florida,
North Carolina and Texas, but does not include up to an additional Two
Hundred Thousand Dollars by Stillwater Capital Advisors, LLC. However,
we do not anticipate that all of our shares will be sold in these states
since we are registered and offering shares in thirty-seven (37) states.
(4) Includes annual salaries to be paid to Messrs. Hitchcock, McDonald and
Wurtsbaugh in the amount of $50,000, $50,000 and $175,000,
respectively.
(5) Stillwater Capital Advisors, LLC is a limited liability company which
is majority owned by Messrs. Hitchcock and McDonald, our current
officers and directors. Neither Messrs. Hitchcock nor McDonald are
responsible for the day-to-day operations of Stillwater Capital
Advisors, LLC. This fee includes up to $200,000 of the broker/dealer
commissions identified above.
In addition, to the proceeds from this offering, we have received $500,100 from
Jackson Roscoe Motorsports, LLC. These funds have been used to fund our
organizational, marketing and advertising expenses. We also intend to seek
sponsorship funds, which will be used to offset a portion of the marketing,
advertising and personnel costs and purchase of assets incurred in connection
with the establishment of our racing operations.
We will utilize the funds from this offering, assuming the minimum number of
shares are sold, to start one team that will compete in the Winston Cup Series
and intend to have a minimum of two teams competing in NASCAR sanctioned events
within one year of the closing of this offering. It is our intention to
eventually originate up to a total of five race teams assuming the maximum
number of shares are sold. We will utilize a portion of our proceeds to acquire
certain assets that will allow us to develop the various racing teams.
Specifically, we will need to purchase various parts for our race cars such as
screws, shocks, bolts, transmissions, gears, tires, etc. We will need to
purchase engines either through direct purchase or through an engine-leasing
program from one of the other NASCAR teams or develop an in-house
engine-building program. We will also purchase certain raw materials, such as
various metals and alloys, to manufacture our race cars. Various race shop
equipment will also be purchased including miscellaneous shop tools, engine and
chassis dynameters testing equipment, timing devices, shock building equipment
and testing, welding equipment, fabrication equipment, paint booths, etc. Also,
a tractor and trailer will need to be acquired or leased for each race team in
order to transport the race cars, equipment, tires, etc. to each racing event
and all testing sessions.
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We will purchase or lease real property to house our corporate headquarters and
motorsport facilities, and will purchase general office equipment for our
corporate headquarters such as computers, facsimile machines, copy machines and
other office equipment and supplies. (See "Description of Property" beginning on
page 47.)
The foregoing represents our present intentions and best estimate with respect
to the allocations of the proceeds of this offering based upon our present plans
and business conditions. However, no assurances can be given that unforeseen
events or changed business or industry conditions will not result in the
application of the proceeds of this offering in a manner other than as described
herein. Consequently, future events, including changes in our business plan and
economic, competitive or industry conditions, may make shifts in the allocation
of funds necessary or desirable.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no trading market for our shares of
common stock. Consequently, the initial public offering price of our shares of
common stock was arbitrarily determined. The factors considered in determining
the offering price included our financial condition and prospects as well as the
general condition of the securities market. The offering price is not an
indication of and is not based upon the actual value of FanZ Enterprises, Inc.
The offering price bears no relationship to the book value, assets or earnings
of FanZ Enterprises, Inc. or any other recognized criteria of value. The
offering price should not be regarded as an indicator of the future market price
of the securities.
DILUTION
Our net tangible book value at April 30, 2001 is $156,914 or $.02 per share of
common stock. Net tangible book value per share represents the amount of total
tangible assets less liabilities, divided by 10,000,000 (the number of shares of
our common stock outstanding as of April 30, 2001 after giving effect to a
100,000 for 1 stock split effected on May 15, 2001.) These figures, and the
figures throughout this section, do not assume the exercise of Mr. Wurtsbaugh's
options to purchase 500,000 shares of our Common Stock.
Minimum Offering
After giving effect to the 100,000 for 1 stock split which occurred on May 15,
2001, and the sale of 1,000,000 shares, in the event that the minimum number of
shares offered in this offering are sold, the as adjusted net tangible book
value at April 30, 2001 would be $10,156,914 or $.92 per share before deducting
offering expenses. This represents an immediate increase in net tangible book
value of $.90 per share to the existing stockholder, and an immediate dilution
of $9.08 per share to new investors. The tables below illustrate this per share
dilution.
Maximum Offering
After giving effect to the 100,000 for 1 stock split which occurred on May 15,
2001, and the sale of 2,500,000 shares, in the event that the maximum number of
shares offered in this offering are sold, the as adjusted net tangible book
value at April 30, 2001 would be $25,156,914 or $2.01 per share before deducting
offering expenses. This represents an immediate increase in net tangible book
value of $1.99 per share to the existing stockholder, and an immediate dilution
of $7.99 per share to new investors. The tables below illustrate this per share
dilution.
Minimum Maximum
------- -------
Assumed public offering price of common stock offered in this $10,000,000 $25,000,000
offering before deduction of offering expenses
Net tangible book value per share before offering $.02 $.02
Increase in book value per share attributable to new investors $.90 $1.99
As adjusted net tangible book value per share after offering $.92 $2.01
Increase per share to previous investors $.90 $1.99
Dilution per share to new investors $9.08 $7.99
Percentage that new investors' shares are diluted 91% 80%
The following table summarizes the relative investments of investors in this
offering and our current stockholder, assuming a per share offering price of
$10.00, before deduction of offering expenses:
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Minimum Stockholders(1) Investors
------- --------------- ---------
Number of shares of common stock purchased 10,000,000(2) 1,000,000
Percentage of outstanding common stock after offering 90.91% 9.09%
Gross consideration paid $100,100 $10,000,000
Percentage of consideration paid .99% 99.01%
Average consideration per share of common stock $.01 $10.00
Maximum
-------
Number of shares of common stock purchased 10,000,000(2) 2,500,000
Percentage of outstanding common stock after the offering 80% 20%
Gross consideration paid $100,100 $25,000,000
Percentage of consideration paid .40% 99.6%
Average consideration per share of common stock $.01 $10.00
(1) Includes Jackson Roscoe Motorsports, LLC.
(2) After giving effect to the 100,000 for 1 stock split effected May 15,
2001.
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CAPITALIZATION
The following table sets forth our capitalization at April 30, 2001, as
adjusted, to give effect to the sale of the minimum number of 1,000,000 shares
of our common stock and to give effect to the maximum number of 2,500,000 shares
of our common stock, at an assumed public offering price of $10.00 per share,
net of estimated offering costs and after application of the net proceeds of
such sale (1).
Actual Minimum Maximum
------ ------- -------
April 30, 2001
Common Stock, $.01 par value per share; 20,000,000
shares authorized; 10,000,000 shares issued and
outstanding; 11,000,000 shares issued and
outstanding, as adjusted assuming the minimum number
of shares are sold; 12,500,000 shares issued and
outstanding, as adjusted assuming the maximum number
of shares are sold
Preferred stock, $.01 par value per share; 10,000 shares $100,000 $110, 000 $125, 000
authorized; 10,000 shares issued and outstanding
100 100 100
Additional paid-in capital 11,597,859 26,532,859
Accumulated Deficit (2,408,105) (2,408,105)
Total Stockholder's Equity (Deficit) $156,914 $9,299,854 $24,249,854
(1) Assumes discounts/commissions are $140,000 for the minimum offering and
$190,000 for the maximum offering.
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DESCRIPTION OF BUSINESS
BUSINESS OF ISSUER
We are a Delaware corporation formed on October 20, 2000 to control and manage a
multi-car motorsports operation that will participate in NASCAR sanctioned
events. We currently have no full-time employees. However, we have a consulting
agreement with Michael J. Wurtsbaugh, our proposed CFO and Secretary, and have
entered into an employment agreement with Michael J. Wurtsbaugh which will
become effective upon the closing of this offering. Pursuant to the terms of his
consulting agreement, Mr. Wurtsbaugh shall, in exchange for consulting services
provided by him, be entitled to purchase up to 500,000 shares of our common
stock in accordance with that certain Option Agreement dated February 28, 2001.
As a consultant, Mr. Wurtsbaugh has devoted significant time and energy to the
preparation of the Company's registration statement, the start-up of operations
and the pursuit of sponsors. The terms and conditions of Mr. Wurtsbaugh's
employment agreement are set forth in the section entitled "Executive
Compensation" beginning on page 53.
Jackson Roscoe Motorsports, LLC has entered into a consulting arrangement with
Eddie Sharp to help us in the planning and implementation of our racing and
merchandising operations. Eddie Sharp has over five years of NASCAR experience
and has worked at the Winston Cup and the Automobile Racing Club of America
levels. As a consultant, Mr. Sharp has devoted significant time and energy to
the development of our business plan as it relates to our racing operations.
Eddie Sharp is the President of Sharp Racing, Inc. and owns the facility we
intend to lease initially.
It is contemplated that we will initially enter the Winston Cup Series with one
race team and intend to have two race teams competing in NASCAR sanctioned
events within one year of the closing of this offering. It is our intention to
ultimately originate up to a total of five race teams that will compete in
NASCAR sanctioned races, including teams in the Winston Cup, Busch Series Grand
National Division ("Busch Series") and Craftsman Truck Series, depending on the
amount of capital raised through this offering. As a start-up company, we have
no history of earnings, have a stockholder's equity of $156,914, have an
accumulated deficit of $2,408,105 as of April 30, 2001, due to a non-cash charge
of $2,064,919 for stock options granted, start-up costs and expenses incurred in
the development and implementation of our business plan.
We believe that a tremendous opportunity exists to provide a unique and exciting
opportunity for existing NASCAR fans, as well as attract new fans to the sport.
We will utilize a network of dedicated racing fans and attract new fans to
NASCAR to serve as part owners in our operations. We will be able to offer each
stockholder a unique economic and racing opportunity to be part owner of what we
hope will be a "top-tier NASCAR racing team" and actually participate in what we
believe is the number one spectator sport in the country. By "top-tier," we mean
a racing team that finishes annually among the top twenty (20) teams in racing
points and race purse winnings. This network of stockholders will further allow
us the opportunity to offer potential sponsors a built-in owner fan base that
will support and consume the various sponsors' products and/or services. It is
believed that this fan base will be a competitive advantage in our attempt to
attract top quality sponsorship monies to fund our racing operations. To date,
there are no other motorsports operations with such an owner fan base.
We will actively manage and control substantially all of our merchandising
opportunities directly rather than the traditional industry practice of
utilizing third-party agents to manage and promote merchandising operations.
This should provide greater control over the quality and success of our
merchandising operations. Although current management has no substantial
experience merchandising licensed products, upon completion of this offering, we
intend to hire individuals with this type of experience.
Summary of Opportunity
We will offer new and dedicated motorsports fans the opportunity to both own a
piece of what management believes will ultimately be a successful motorsports
operation and participate economically in the business. We believe such an
opportunity will prove appealing to these fans' love of auto racing. In
addition, we believe our unique ownership opportunity and integrated business
approach, coupled with the
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increasing media exposure of NASCAR, will allow us to
attract new fans to the exciting sport of NASCAR racing. We will utilize the
investment funds from the stockholders to start and/or purchase as many as five
race teams to compete in NASCAR sanctioned races, including the Winston Cup,
Busch Series and Craftsman Truck Series. We believe this wide network of
owner/investors enhances the success rate for obtaining top quality sponsors
which should further the opportunity for success of our racing and merchandising
operations. We believe most sponsors will find this captive stockholder network
a very attractive audience to market their respective products and services. In
addition to the economic opportunity of ownership, we intend to offer each
stockholder a variety of owner privileges. Our owner privileges may consist of
some or all of the following:
- Autographed picture of one of our drivers and crew chiefs.
- At each Winston Cup and Busch Series race in which we qualify we
intend to randomly select twenty (20) stockholders that will be
eligible to be chosen to participate in the non-over-the-wall
pit crew. The non-over-the-wall pit crew will perform pit crew
functions behind a wall separating it from the race car pit. We
will pick four out of the twenty (20) stockholders to actually
participate in the non-over-the-wall pit crew for each team's
honorary pit crews.
- An annual 10% discount on all racing merchandise purchased
trackside at the merchandise trailers. - Free access to all of FanZ
Racing, Inc.'s driver, crew and owner web pages with direct e-mail
response from each respective team member.
- Free webcasts from our racing team facility highlighting the
pre-race preparation of one of the race cars.
- Initial input into driver and crew chief selection for our racing
operations.
We anticipate providing the owner privileges to stockholders on an annual basis,
however, some or none of the aforementioned owner privileges may be provided if
we are unsuccessful in establishing our merchandising operations or if we fail
to participate or qualify in races. We intend to run our teams on a limited
schedule until sponsorship funds are obtained. We anticipate running a full
schedule during the second half of the 2002 racing season, although, there can
be no assurance that this will occur. While we will actively pursue drivers and
crew chiefs suggested by our stockholders, we may be unsuccessful in attracting
such personnel to our racing operations.
We anticipate holding an annual stockholders' meeting and luncheon. We
anticipate holding this meeting in our team facility once we have established a
permanent facility or a race related venue. The stockholders will have exclusive
access to the drivers, crewmembers and racing personnel and our facilities
during this meeting and luncheon.
Sponsorship Appeal
We believe the combination of racing and merchandising operations and network of
stockholder/fans offered by us will be a unique opportunity for sponsors
evaluating participation in NASCAR sanctioned racing. Overall, the entire NASCAR
sponsorship opportunities should be extremely appealing as a marketing and
advertising tool for most major companies whose products and services are
purchased or consumed by the general public. The facts that make the sponsorship
of a NASCAR racing operation appealing to companies are summarized as follows:
- Nearly one-third of the U.S. adult population, 63 million in
total, consider themselves NASCAR fans. Of the 63 million, 24
million (or 38%) are avid fans who search out NASCAR (or
television, attend races, and/or buy NASCAR products).(1)
- NASCAR attendance has grown each year for eighteen (18)
consecutive years(2) with attendance almost doubling since 1990.(3)
- NASCAR attendance growth for the Winston Cup Series has
outpaced any other sport. From 1990 to 1998, the Winston Cup
fan base increased from 3.3 million to 6.3 million, which
represents a 91% attendance growth rate.
- 40% of NASCAR fans over the age of 18 are women, making the
NASCAR fan base one of the most gender-neutral in professional
sports.(4)
- ------------------
1 Edgar, Dunn, and Company, "The 2000 NASCAR Board Study" cited in "Real
Results. This is NASCAR," 2001.
2 1990-1999 Goodyear Attendance Reports cited in "Real Results. This is
NASCAR," 2001.
3 Id.
17
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- 64% of NASCAR fans have attended college and 41% earn over
$50,000 per annum, creating a valued marketing segment for most major
consumer and service companies.(5) The chart below shows the audience
income by sector.
- 78% of NASCAR fans are between the ages of 18 and 54. This
demographic group is the
[GRAPH]
Audience Income(5)
Under $20,000 14%
$20-30,000 18%
$30-50,000 27%
$50-75,000 21%
$75,000-100,000 11%
$100,000 & Over 9%
one sponsors value most.(6)
- 72% of NASCAR fans consciously purchase products and services
based on a specific company's involvement in NASCAR. This conversion
ratio is twice the rate of audience brand loyalty that is experienced
by the National Football League ("NFL") and allows NASCAR to offer
America's most brand loyal fans. The graph below shows the percent of
the audience that consciously purchases products based on the
manufacturer's involvement in the sport.(7)
- ------------------
4 "Real Results, This is NASCAR," 2001.
5 Id.
6 Id.
7 1997 Performance Research Study cited in "Real Results, This is NASCAR," 2000.
18
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AUDIENCE BRAND LOYALTY TO SPONSORS(4)
NASCAR 72%
Tennis 52%
Golf 47%
NBA 38%
MLB 38%
NFL 36%
Olympics 28%
- 40% of NASCAR Fans will switch to a product if it is a NASCAR
sponsor.(8)
- 70% of the NASCAR Winston Cup races will be broadcast on
network television.(9)
- Over 250 million fans worldwide tuned into NASCAR events in
1999.(10)
Unlike most other sports, NASCAR teams, drivers and owners continuously promote
the sponsor at each race. It is not uncommon for the winning driver of each race
to officially thank the sponsors who ultimately are responsible for his or her
"ride."
We believe that our operations will create a very favorable investment
opportunity for most major companies, as it provides sponsors direct access to
the most diverse and passionate fans in the sporting universe. In addition to
the broad appeal of NASCAR, as highlighted above, we believe our stockholder
base will provide potential sponsors with an immediate loyal foundation of fans
and potential consumers that are anticipated to be loyal to the sponsor's
products. This network of stockholder/owners is unique to NASCAR and should
provide the impetus for us to attract a high quality group of primary and
associate sponsors to our racing operations. Additionally, we intend to maintain
a close working relationship with each of our major sponsors by developing a
comprehensive marketing and promotional strategy promoting each sponsor at our
trackside merchandising venues, as well as through a variety of retail and mass
merchant outlets. Some of the specific attractions beyond the prominent display
of corporate colors and logos on each race car, driver and team uniforms,
equipment and transporter that we intend to offer to sponsors include:
- active "show car" program for each team that will operate
continuously throughout the year displaying and promoting at the
respective sponsors' locations;
- client hospitality tents will be prominently promoted at
trackside venues at events with driver, crew and owner participation;
- employee entertainment packages for selected racing venues that
will include driver and crew participation and involvement as a
motivational tool to valued employees;
- promotional tie-ins may be developed, promoted and implemented
at selected trackside venues, as well as through various national and
regional multimedia by our drivers, crew chiefs and owners;
additionally, promotional tie-ins may be employed throughout each
sponsors' distribution channels;
- trackside sampling events may be established at selected sponsor
tents to highlight new and promotional sponsor products and services;
sampling events may be utilized to test market the various sampled
products with NASCAR fans and media;
- product and service endorsements may be established for each
primary sponsor and selected associate sponsors featuring our drivers,
crew chiefs and owners;
- advertising space during the weekly webcast from the team's
facility;
- database marketing to the investor list; and
- additional advertising and potential product promotion at our
permanent race facility, once it is established, in and around
Charlotte, North Carolina.
- --------------------
8 "Real Race Gear," NASCAR** Source: Fortune;, 2001.
9 Bear Sterns & Company Equity Research (hereinafter "Bear Sterns")
"Motorsports," page 26, 2001.
10 "Real Race Gear," 2001.
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26
We believe that sponsors will be attracted to our teams because they will have
both direct and indirect access to our stockholders. We will establish a privacy
policy which allows us to share stockholder information with our sponsors only
if our stockholders affirmatively opt-in to this program. Information about
stockholders who do not opt-in to our program will not be disclosed. In addition
to any direct access our sponsors will have, they will be able to advertise on
our website, through our catalogue, or other promotional programs, as well as
the traditional methods of advertising space on our car and on team uniforms.
History of the Industry
William H. G. France was a mechanic who migrated from New York to Daytona in the
early 1940's. He organized races on the beach in Daytona that eventually led to
more races and purses. He founded NASCAR in 1948 to organize and promote stock
car racing on racetracks throughout the southeastern United States. Other than
the creation of NASCAR, we believe the ascension of France's son, Bill Jr., to
the leadership role of NASCAR in 1972 is likely the most important event in
NASCAR's history. As the rule maker, promoter, ambassador and salesman, Bill Jr.
has set the standard by which all other forms of motorsports are measured and
compared. NASCAR's popularity during the 1970's and 1980's grew primarily on a
regional level, while Bill Jr. continued to work toward a vision of national
recognition for the sport of NASCAR.
In November of 2000, Bill Jr. stepped down as President of NASCAR, and was
replaced in that position by Mike Helton, who had been serving as NASCAR's
Senior Vice-President and Chief Operating Officer for the previous two years.
Despite the health problems that caused him to step-down as President, Bill Jr.
continues to influence the future of NASCAR as chairman of the Board of
Directors for NASCAR.
Current Status of NASCAR
Although NASCAR began with a southeastern motor racing focus, the sport, through
NASCAR's efforts, has grown to be a nationally recognized sport and is currently
promoting races in 22 of the 50 states throughout America from New Hampshire to
California and Oregon.11 Today, millions of fans each year pack NASCAR venues
across the country for what we believe is the most exciting form of motorsports
entertainment. In 1998, NASCAR celebrated its 50th anniversary by earning the
distinction as the fastest growing sport in the country. In an exclusive "Street
& Smith's Sports Business Journal" survey, NASCAR ranked ahead of every other
sports property in marketability and sponsor service. NASCAR's ascent to join
the "Big Four" (football, baseball, basketball and hockey) - now the "Big Five"
- - of professional sports is a recent testament to the sport's success and
popularity. Attendance at NASCAR Winston Cup races has doubled since 1990 and 17
of the 20 best attended sporting events of 1999 were NASCAR Winston Cup races.
Television ratings for NASCAR are second only to the National Football League
("NFL"), and while ratings for most sports properties have leveled off or
declined, NASCAR's televised ratings have climbed 33% in the first half of
2001.(12) In 2000, NASCAR licensed product retail sales topped $1.26 billion,
which equates to a growth rate of 1400% during the decade.(13) We believe NASCAR
is not only the most popular form of auto racing, but also one of the most
popular professional sports in all of America. Annually, more than 250 million
fans worldwide watch televised NASCAR races with over 10 million fans coming out
to the various tracks to see, in person, the NASCAR Winston Cup Series, NASCAR
Busch Series Grand National Division and NASCAR Craftsman Truck Series.(14)
In November of 1999, NBC, Fox and Turner Sports reportedly agreed to pay $2.4
billion over six years, beginning in 2001, for broadcasting rights to NASCAR's
Winston Cup racing series. Sources have reported that the $2.4 billion will be
distributed as follows:
- 25% will go to the tracks earmarked for race purses;
- 10% will go directly to NASCAR; and
- 65% will go to the tracks that host the races.
Under this agreement the networks will televise more than 70% of NASCAR Winston
Cup races.(15)
- ------------------
11 Bear Sterns at pages 57-60.
12 Id. at page 25.
13 "Real Results, This is NASCAR," 2001.
14 "Real Race Gear," 2001.
15 Bear Sterns at pages 26.
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NASCAR has grown to the top of the sports rankings in terms of its estimated
economic impact. The graph below shows the Top 10 Professional Events in 2000,
followed by their estimated economic impact. It should be noted that 8 out of
the top 10 are motorsports and 7 out of the 10 are NASCAR races.
- ------------------------------ ------------------------------------------ ----------------------------------------
Event Location Estimated economic impact*
- ------------------------------ ------------------------------------------ ----------------------------------------
Indianapolis 500 Indianapolis Motor Speedway,
Indianapolis $336.6 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Daytona 500* Daytona International Speedway,
Daytona Beach, Fla. $240 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Brickyard 400* Indianapolis Motor Speedway,
Indianapolis $219.5 million
- ------------------------------ ------------------------------------------ ----------------------------------------
SuperBowl XXXIV Georgia Dome, Atlanta $215 million
- ------------------------------ ------------------------------------------ ----------------------------------------
SAP United States Grand Prix Indianapolis Motor Speedway,
Indianapolis $170.8 million
- ------------------------------ ------------------------------------------ ----------------------------------------
DirecTV 500* Texas Motor Speedway,
Forth Worth $165.2 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Goracing.com 500* Bristol (Tenn.) Motor Speedway $119.6 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Food City 500* Bristol (Tenn.) Motor Speedway $80.5 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Kentucky Derby Churchill Downs
Louisville, Ky. $60 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Winston 500* Talladega (Ala.) Superspeedway $42.4 million
- ------------------------------ ------------------------------------------ ----------------------------------------
Street & Smith's Sports Business Journal, January 15-21, 2001, page 22. (*Based
on a formula from the National Association of Sports Commissions; Sources:
National Association of Sports Commissions, Sports Business Journal Research,
Smith Travel Research, International Association of Conventions & Visitor Bureau
Foundation)
NASCAR oversees a variety of racing programs throughout the United States that
serve as proving grounds for young drivers and mechanics to gain experience and
improve their racing skills. It is our intention to participate in the top two
or three racing series as part of our business plan. The number one series is
the Winston Cup series of which we will focus our primary efforts. The other top
racing series within the NASCAR network are the Busch Series Grand National
Division and the Craftsman Truck Series. Ultimately, we believe that
participation in both of these series is important in the overall business plan
in order to develop a form of "farm team" system, similar to Major League
Baseball. Our participation in multiple NASCAR series promotes consistency among
the team members and drivers that is essential for success in Winston Cup
racing.
Team Profiles
As NASCAR continues to grow and expand into the future, the manner in which
drivers, crew chiefs, crews and car owners communicate and operate is changing.
Historically, NASCAR ownership has been from two primary sources (i) individual
owners that grew up in the racing industry and view ownership as a means to
continue to participate in the sport, or (ii) from wealthy individuals that
enjoy motorsports and can afford to spend monies to experience the thrill of
owning a racing operation. Concurrently, this sport has grown in terms of (i)
competition and funding from sponsors, and (ii) race purses, therefore, owning
and operating a top-tier NASCAR Winston Cup racing operation has become much
more business oriented. As a result, the advent of the multi-car team has only
recently become popular.
The management of the multi-car team remains in an organizational structure in
which each team, including the driver and crew chief, are individually given
incentives and operate fairly autonomously from the other teams within the
multi-car operation. The era of the multi-car team has become almost a necessity
in order to pool financial resources, share information and fully utilize
expensive capital expenditures over a number of teams. Additionally, we believe
recruiting, managing and maintaining the best and brightest people has become
essential for the success
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of any top-tier racing operation. Identifying and recruiting top drivers for the
cars, crew chiefs, crewmembers, mechanics, fabrication specialists, engine
builders, and other specialists are all essential ingredients to operating a
successful racing operation. Management believes the future opportunity in
NASCAR ownership will rely upon the owner's racing knowledge and experience
along with the ability to successfully manage and operate a business with
multiple divisions, or teams, that happen to be in the racing industry.
Revenue Sources
A NASCAR racing operation relies principally on three separate, but related,
revenue sources for the funding of its racing activities: (i) sponsorship
monies, (ii) race purse winnings and (iii) special race bonus opportunities.
Sponsorship Monies: The primary funding source for any NASCAR racing operation
is sponsorship monies from primary sponsors and a host of associate sponsors.
The types and amounts of these sponsors are identified in the following chart:
--------------------------- ---------------------------- ------------------------
Series Type of Sponsor Cost
--------------------------- ---------------------------- ------------------------
Winston Cup Primary Sponsor $5 - $15 million
--------------------------- ---------------------------- ------------------------
Major Associate 500,000 - 2.5 million
--------------------------- ---------------------------- ------------------------
Busch Series Primary Sponsor 1.5 million - 3 million
--------------------------- ---------------------------- ------------------------
Major Associate 250,000 - 1 million
--------------------------- ---------------------------- ------------------------
Craftsman Truck Primary Sponsor 1 million - 1.8 million
--------------------------- ---------------------------- ------------------------
Major Associate 100,000 - 500,000
--------------------------- ---------------------------- ------------------------
We believe a top-tier NASCAR team that is competitive and has the opportunity to
run competitively and finish in the top 15 each week takes a minimum investment
of $6 million annually. Traditionally, the most successful teams have had annual
budgets that exceeded $12 million. According to Speedway Illustrated the average
annual cost for a company to be a primary sponsor of a top Winston Cup Car is
$10 - $15 million. In addition to the primary and major associate sponsors
identified above, there are several other levels of sponsorship on the car.
Obtaining high quality and well-capitalized sponsorships for each team fielded
by our racing operations is the top priority for management. Management believes
that the unique, built-in stockholder network provided by us should be very
attractive to potential primary and associate sponsors.
When DuPont started sponsoring Jeff Gordon's #24 Car in the Winston Cup in 1992,
its automotive refinishing business segment represented approximately $500
million in revenues. By the end of 1997, DuPont generated $1 billion from the
same business segment. DuPont attributes $100 million or 20% of that gain to its
sponsorship of Jeff Gordon. In fact, DuPont reports that for every $5 it spends
on sponsoring the team, it earns $1 (that equates to a three to four year
payback period). Although we may not start with a driver as famous as Gordon,
this is a compelling illustration for sponsors.
Race Purse Winnings: As the sport has grown, NASCAR has become a nationally
recognized sporting event that is seen by millions of fans. As a result, winning
purses have also grown substantially. In 2000, the top teams that competed in at
least 33% of the races, earned in excess of $3 million from race winnings alone,
while the less successful teams, that are not as competitive, earned as little
as $621,000. The chart below shows the Winston Cup Drivers in order of points,
their statistics and respective purses for the 2000 season.
Pos. Driver Points Starts Wins Top 5 Top 10 Winnings
1 Bobby Labonte 5130 34 4 19 24 $4,041,750
2 Dale Earnhardt 4865 34 2 13 24 $3,701,390
3 Jeff Burton 4836 34 4 15 22 $5,121,350
4 Dale Jarrett 4684 34 2 15 24 $5,225,500
5 Ricky Rudd 4575 34 0 12 19 $2,385,400
6 Tony Stewart 4570 34 6 12 23 $3,200,190
7 Rusty Wallace 4544 34 4 12 20 $3,037,720
8 Mark Martin 4410 34 1 13 20 $2,763,540
9 Jeff Gordon 4361 34 3 11 22 $2,703,590
10 Ward Burton 4152 34 1 4 17 $2,385,330
11 Steve Park 3934 34 1 6 13 $2,052,830
12 Mike Skinner 3898 34 0 1 11 $1,985,590
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13 Johnny Benson 3716 33 0 3 7 $1,627,870
14 Matt Kenseth * 3711 34 1 4 11 $2,150,760
15 Joe Nemechek 3534 34 0 3 9 $1,907,280
16 Dale Earnhardt, Jr * 3516 34 2 3 5 $2,610,400
17 Terry Labonte 3433 32 0 3 6 $2,043,090
18 Ken Schrader 3398 34 0 0 2 $1,530,840
19 Sterling Marlin 3363 34 0 1 7 $1,819,640
20 Jerry Nadeau 3273 34 1 3 5 $2,038,670
21 Bill Elliot 3267 32 0 3 7 $2,447,790
22 Jimmy Spencer 3188 34 0 3 5 $1,858,760
23 John Andretti 3169 34 0 2 2 $1,964,400
24 Jemery Mayfield 3156 32 0 0 12 $2,090,500
25 Robert Pressley 3055 34 2 6 1 $1,427,820
26 Kenny Wallace 2874 34 0 1 1 $1,723,970
27 Michael Waltrip 2797 34 0 1 1 $1,689,420
28 Kevin Lepage 2795 32 0 1 3 $1,679,190
29 Elliot Sadler 2762 33 0 0 1 $1,578,360
30 Bobby Hamilton 2715 34 0 0 2 $1,619,770
31 Dave Blaney 2656 33 0 0 2 $1,272,690
32 Chad Little 2634 27 0 0 1 $1,418,880
33 Rick Mast 2366 29 0 0 2 $1,156,430
34 Wally Dallenbach 2344 30 0 0 1 $1,169,070
35 Brett Bodine 2145 29 0 0 0 $1,020,660
36 Darrell Waltrip 1981 29 0 0 0 $1,246,280
37 Scott Pruett 1879 28 0 0 1 $1,135,850
38 Stacy Compton 1857 27 0 0 0 $1,069,650
39 Mike Bliss 1748 25 0 0 1 $953,948
40 Ted Musgrave 1614 18 0 0 0 $827,216
41 Kyle Petty 1441 19 0 0 1 $894,911
42 Kenny Irwin 1440 17 0 1 1 $949,436
43 Robby Gordon 1309 17 0 1 2 $620,781
44 Ricky Craven 1175 16 0 0 0 $636,562
45 Geoff Bodine 1039 14 0 0 0 $704,981
*Rookie
The 2000 Drivers Standings were excerpted from the NASCAR.com website on June
15, 2001.
No prize money is guaranteed unless a team actually qualifies for the race.
Television revenues are an indirect revenue component. In November of 1999, NBC,
Fox and Turner Sports reportedly agreed to pay $2.4 billion over six years,
beginning in 2001, for broadcasting rights to NASCAR's Winston Cup racing
series. Under the terms of the agreement, the drivers and teams will participate
in a portion of the earnings through increases in race purses. The chart below
shows the 2001 Season year-to-date drivers by points, their respective
statistics and purse winnings as of June 15, 2001 for the drivers that have
competed in at least 33% (or five) races this season.
Pos. Driver Points Starts Wins Top 5 Top 10 Winnings
1 Jeff Gordon 1996 14 3 9 9 $3,739,390
2 Dale Jarrett 1970 14 3 6 8 $2,299,880
3 Sterling Marlin 1869 14 0 4 8 $1,291,230
4 Ricky Rudd 1866 14 0 4 10 $1,750,520
5 Tony Stewart 1791 14 1 5 7 $1,582,950
6 Rusty Wallace 1768 14 1 3 6 $2,134,550
7 Johnny Benson 1755 14 0 2 7 $1,164,380
8 Steve Park 1748 14 1 5 7 $1,564,490
9 Kevin Harvick * 1655 13 1 2 6 $1,441,810
10 Bobby Labonte 1613 14 0 3 5 $1,616,850
11 Dale Earnhardt, Jr 1611 14 0 3 6 $2,199,320
12 Bobby Hamilton 1600 14 1 2 5 $1,084,870
13 Matt Kenseth 1560 14 0 0 2 $915,944
14 Mark Martin 1512 14 0 2 5 $1,520,240
15 Jimmy Spencer 1503 14 0 1 5 $1,029,600
23
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16 Bill Elliott 1454 14 0 1 2 $1,403,030
17 Jeff Burton 1436 14 1 2 4 $1,538,620
18 Elliott Sadler 1426 14 1 1 1 $1,065,350
19 Ward Burton 1411 14 0 1 2 $1,287,340
20 Jeremy Mayfield 1401 14 0 4 6 $1,480,300
*Rookie
The 2001 Drivers Standings were excerpted from the NASCAR.com website on June
15, 2001.
Out of the 24 teams that qualified for the full schedule in 2000, the lowest
purse winnings were $1.4 million.
SPECIAL RACE BONUS OPPORTUNITIES: Special race bonus opportunities are becoming
larger and more prevalent as various companies recognize the media exposure that
is available in the NASCAR venues. For example, R.J. Reynolds' Sports Marketing
Enterprises sponsors the "No Bull 5" driver bonus program, which offers one of
five qualified drivers the opportunity to win a $1 million bonus should they win
at a race that is tied into the "No Bull 5" program.
Racing Qualifications
NASCAR mandates, manages and monitors the qualifications at every NASCAR
sanctioned event. In addition to filing ownership forms with NASCAR, to
participate in a NASCAR sanctioned event, each car must be driven by a driver
who has NASCAR experience and all cars must undergo a NASCAR technical
inspection. Prior to qualifying at each race, all of the participating cars must
undergo a pre-race technical inspection by the NASCAR officials. A number of
race cars also will be selected to undergo a further technical inspection at the
conclusion of the race to ensure the selected cars participated within all of
the NASCAR technical guidelines during the race. NASCAR specifications exist for
the entire race car (including aerodynamic elements such as length of spoilers
and air dams, engine characteristics, fuel, chassis setup, shocks, tires, etc.)
and typically vary by manufacturer (such as Ford, General Motors, Dodge and
Pontiac). These specifications can change between races as NASCAR technical
officials attempt to maintain equality of competition between race teams and
manufacturers. Teams, drivers and owners that are caught violating NASCAR
guidelines typically receive penalties ranging from economic fines to loss of
points gained unfairly in the Winston Cup Champion points race, to suspensions
from future NASCAR sanctioned events.
After passing the NASCAR technical inspection, a car has one attempt to achieve
one of the top 36 qualifying speeds of all the cars in order to qualify. The
fastest qualifying speed is awarded the pole position for the respective race.
The pole position starts on the inside of the front row and leads the rest of
the qualifying field to the green flag indicating the beginning of each race.
Drivers and team owners covet the pole position due to the notoriety received by
the respective pole winner sponsors. Pole winners also receive a monetary award
called the "Bud Pole Award" which is sponsored by Anheuser-Busch. Additionally,
winning a pole award at any NASCAR Winston Cup event throughout the season
automatically qualifies the driver to participate in a non-points race at the
beginning of the following season in Daytona that pays the participants prize
money based on finishing position. A non-points race does not offer owners' or
drivers' points to the participants, but offers cash prizes for participants.
The significance of owners' and drivers' points is discussed below.
After the pole position, the next 35 race cars earn their starting spots
according to the fastest qualifying speeds. In addition to the 36 fastest
qualifiers for each race, NASCAR reserves seven provisional positions bringing
the total to 43 cars that participate in each event. Positions 37 through 43 of
each race are provisional starters. The 43rd spot in a Winston Cup race is
awarded to a past champion of the Winston Cup Series (if entered in the race and
not otherwise qualified). The 43rd spot in a Busch Series race is awarded to a
past champion of the Busch Series (if entered in the race and not otherwise
qualified). If there is no past champion, or if no past champion needs a
provisional, the next team in owners' points is given the provisional. Owners'
points are accumulated by teams throughout the year based on finishing position
and are important for earning provisionals. Drivers' points do not have any
impact on provisionals but are important for earning end of the year honors and
prizes for the drivers. During the first four races of each season, provisionals
are awarded based on the final owners' points standings of the previous year. At
the fifth race, the current year's owners' points become the reference point.
Each existing team starts the season with four provisionals and earns one more
after their 8th, 16th, and 24th, attempted race. However, any team that takes a
provisional and is in the top 25 in the owners' points is not charged with a
provisional. If a Winston Cup driver is 35th or higher in the Winston Cup
standings he cannot take a provisional in the Busch Series, unless he is a past
champion in that series.
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FanZ Racing Strategy
Our racing strategy is to capitalize upon the evolution of NASCAR through a
multi-team business organization. We believe that a more participative
management structure, in which the teams of a multi-car operation are
compensated and given incentives based on not only their individual performance,
but also the overall team performance, could provide us a higher probability for
success. We believe that multi-car race teams experience several benefits
compared to the single car teams. These benefits include:
- a single fabrication shop that will support all teams;
- a single paint facility that can support all the teams;
- a reduced safety stock in terms of parts, tools per team;
- increased labor efficiency;
- less capital equipment per team;
- limited temporary labor during start-up;
- more research and development coverage;
- less facility costs per team; and
- economies of scale to justify an in-house engine program.
We believe these benefits will add up to a significant savings for a multi-car
race team. For example, two Winston Cup Teams that were spending $7.5 million to
operate could save up to 5% of their operating expenses by consolidating the
teams in one operation. We believe that capital expenditures could be reduced by
20-30% depending upon whether an in-house engine program were in place.
Furthermore, it is our intent to maximize the success of our racing operations
by reinvesting the majority of the profits of the racing operation back into the
racing business. This reinvestment strategy will allow us to maximize our
sponsors' return on investments and our success by investing in state-of-the-art
equipment and capital expenditures as well as through the recruitment and
maintenance of the top personnel in all aspects of the racing operations.
To accomplish this goal, we will seek to hire experienced people in the
motorsports business, specifically from the existing NASCAR participants, to
serve as management of our racing operations. These individuals will be
responsible for the day-to-day management of the racing operations in order to
provide our racing operations with the best opportunity to attract the top
talent among drivers, crew chiefs and the other racing professionals. Although
qualified individuals with NASCAR experience are sought after by many owners, we
believe that our unique business opportunity will attract top quality
individuals with NASCAR experience. We believe this strategy will provide our
racing operations with the greatest opportunity for success and create the
potential for becoming one of the premier motor sports operations in NASCAR.
ANTICIPATED START-UP TIMELINE: Upon completion of this offering we will need to
undertake a variety of initiatives in order to successfully launch our racing
operations. It is anticipated that a minimum of ninety (90) days will be
required to assemble our racing operations. This process involves three primary
phases:
- the hiring of experienced crew chief(s) and racing management
personnel,
- the hiring of the crew and the remainder of the race team, and
- the complete assembly and preparation of car(s) for racing.
Upon completion of this offering, our management, and other racing professionals
to be hired by us on a consulting or full-time basis, will begin to assemble the
proper personnel to staff the racing operations.
Initial Phase of Racing Start-up Operations: During the initial thirty (30)
days, we will need to recruit a top-tier Winston Cup crew chief. By "top-tier,"
we mean a crew chief that has at least five years of experience as a Winston Cup
crew chief, has worked with one of the top twenty (20) teams currently competing
in the Winston Cup series and is capable of managing all aspects of the pit crew
including car set-up and design decisions. Through our numerous contacts in the
Winston Cup racing community, we initially identified several potential
candidates for the crew chief position, although we have not had any significant
discussions with any of these candidates. In addition to the crew chief, we will
seek to hire several engineers who will assist in the building, testing and
completion of race cars and begin assembling a skeleton crew of personnel which
we have preliminarily identified through our experience and contacts in the
industry.
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In conjunction with the recruiting, management will also focus their efforts on
acquiring key assets for the racing operations. The key assets include the
selection of a car manufacturer, the ordering and procurement of a minimum of
six race cars for each Winston Cup racing team, the purchase of basic tools and
equipment including the outfitting of the shock room, the fabrication shop and
the paint booths. We will focus our attention on the selection of the available
race engine options during this initial period. Our emphasis will be to seek to
procure a relationship with one of the top engine building programs for Winston
Cup racing in the hopes of negotiating an acceptable engine leasing program for
the first year of operations. We will also begin negotiations to either lease or
purchase a race car transporter and will investigate the economic merits of both
new and used transporters. Securing a transporter is critical to ensuring that
each respective race team will have adequate transportation vehicles to
transport the race cars and equipment to the testing sessions and race event
locations.
It is anticipated that most of the above items will be procured initially
utilizing the existing facility of Sharp Racing, Inc. in Concord, NC. Jackson
Roscoe Motorsports, LLC has entered into a non-binding letter of intent with
Sharp Racing, Inc. to house our racing operations on a temporary basis. Sharp
Racing, Inc. is owned by Eddie Sharp, a consultant of Jackson Roscoe
Motorsports, LLC. We are investigating the options for leasing additional
interim and long-term space to house all of our racing equipment and race cars.
SECOND PHASE OF RACING START-UP OPERATIONS: During the next thirty (30) to sixty
(60) days, the management of FanZ Racing, Inc. will focus their efforts on
recruiting and hiring key remaining staff members who will make up the nucleus
of the initial racing operations. Specifically, we will interview and hire, at a
minimum, five fabrication shop employees, two engineers and three mechanics who
will comprise the nucleus of full-time racing shop personnel. In addition to the
personnel, the management of FanZ Racing, Inc. will monitor the progress of the
race car procurement process, finalize the details of an engine leasing or
purchase program, the construction and procurement of the various equipment that
is needed for the pit crew, and continue to search for and review various
facility options noted above.
FINAL PHASE OF RACING START-UP OPERATIONS: The final thirty (30) to sixty (60)
days of the start-up process will see the management of FanZ Racing, Inc. and
shop employees focus on fine tuning the various race cars, including all aspects
of the cars (from chassis design, body fabrication, shock building and testing,
etc.) A significant amount of time during this period will be used to focus on
training and developing the crews and shop employees, assigning duties and
responsibilities of the race teams and qualifying day setup. The race car
transporter(s) should arrive during this period and will be equipped and stocked
to ready the transport for race and testing periods. At the conclusion of the
first ninety (90) days to one hundred fifty (150) following this offering,
critical decisions will be made by our racing and executive management teams as
to the preparation of a testing schedule and the number, timing and location of
races in which to participate during the first year of operations. While we
anticipate that the organizational process for our racing operations will be
completed during this ninety-day period, there can be no assurance that we will
be fully operational at the end of such period due to unforeseen delays or
complications.
Traditional NASCAR Merchandising
Historically, NASCAR drivers and team owners have turned to outside companies,
such as Action Performance Companies, Inc. (NASDAQ: ACTN), to manage and operate
the merchandising opportunities tied to the success and popularity of both the
sport and the individuals. Typically, a driver or team owner would sell
exclusive license deals with professional marketing and licensing companies
and/or receive a privately negotiated royalty for the use of their team name,
likeness or similar trait that is prominently displayed on a very wide variety
of merchandise (including shirts, hats, coats, children's clothing, toys,
die-cast scaled replicas of motorsports vehicles, computer programs, cups,
umbrellas, vehicle stickers, keychains and other traditional souvenirs, etc.).
Drivers, as a group, are typically much more concerned about their racing
careers and focus their attention on improving their racing careers and
generally lack the time, desire or merchandising expertise to handle the
in-house merchandising opportunities that are ever present with the national
NASCAR fan base. Likewise, team owners have historically been either former race
car drivers and crew chiefs or independently wealthy entrepreneurs and business
executives that are either (i) focused exclusively on the success of their
respective racing operations and lack the desire, time and/or merchandising
expertise to effectively manage the myriad of merchandising opportunities or
(ii) are substantially committed to managing and operating their respective
non-racing related business(s) which does not allow them the time or management
attention to manage the merchandising side of the racing business. The
merchandising opportunities are almost endless in terms of products and services
and apply to everything from adult and children's clothing to corporate related
gifts depicting various auto racing teams and drivers. We believe the
merchandise is primarily manufactured by offshore sources due to lower labor and
material costs. Distribution of the products typically comes from a variety of
channels including specialty retailers, mass merchants, trackside merchandise
sale trailers, via electronic commerce through a variety of racing related web
sites, promotional programs for corporate sponsors, grocery chains, etc. As a
result, merchandising is a full time business that requires the necessary time
and management resources to effectively capitalize upon the demand from
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NASCAR race fans, corporate sponsors, etc.
FANZ MERCHANDISING STRATEGY: This part of our business strategy is unique and
vastly different from how most NASCAR team owners have traditionally managed and
capitalized upon the merchandising opportunities that exist. We believe that a
tremendous opportunity exists to professionally manage, market and distribute
substantially all of the related merchandise for our racing operations. Our plan
is to require the use of our merchandising operations by all of our race teams
unless a driver or crew chief is already party to a merchandising contract. The
Company will enter into commercially competitive contracts with its drivers and
crew chiefs that will allow them to share in the merchandising revenues. We
expect to leverage and capitalize upon our infrastructure and professional
expertise to more efficiently manage merchandising operations for other
competing companies/teams, as an additional means to enhance revenues. We will
seek merchandising arrangements with outside drivers, crew chiefs and their
sponsors that will utilize our merchandising operation as their merchandising
arm. We will actively seek to manage and control a significant part of our
merchandising opportunities directly, which should provide greater control over
the quality and success of our merchandising operations. However, we may also,
on a limited basis, enter into arrangements with third parties where it is
economically beneficial to do so. In order to effectively distribute and market
all of the various merchandise offerings, the management of our merchandising
operations intends to utilize the following distribution and sales channels.
WEB SITE MERCHANDISING: We intend to utilize the web page of our racing
operations in a "pull strategy" to offer a broad selection of merchandise to
fans and other visitors to our web page. By "pull strategy" we mean that once
visitors have entered our web site, we will seek to pull them over to our
merchandising site. Our merchandising arm will oversee the development of the
electronic commerce layout and mechanics to browse, select and purchase products
off our home page.
WEB CAST MERCHANDISING: We intend to utilize a "push strategy" in our efforts to
attract and promote our merchandise utilizing a weekly series of electronic web
casts from our shop floor. By "push strategy" we mean that once visitors have
entered our web site, we will push merchandise in the form of banner ads,
commercials and other promotions. It is our intention that during the racing
season, our merchandising operations will establish a specific time each week
during the racing season in which it will offer to all stockholders free of
charge and other fans for a small fee a web cast that will involve at least one
team. The stockholders and fans will be able to dial into the racing operations
web page and actually watch and listen to the driver, crew and team members
prepare the car and it's components for the race, including a preliminary race
strategy. As part of this telecast via the internet, our merchandising
operations will offer banner ads for its sponsors as well as promote a wide
variety of team merchandise for all of our racing teams and sponsors through
specially discounted prices.
MAGAZINE MERCHANDISING: We intend to utilize a proprietary direct mail catalog
to our stockholders. The proprietary catalog will offer the complete line of
merchandise offerings for all of our teams and sponsors, including various
promotional and special offers for our stockholders. We also anticipate
utilizing various auto racing and NASCAR-licensed magazine publications to
further promote our merchandise offerings as well as our racing web page and web
casts.
DISTRIBUTION MERCHANDISING: We intend to market selected promotional items and
merchandise through the more traditional distribution channel of specialty
retailers, mass merchants and major toy and hobby stores throughout the world
directly or through a wholesale distributor network.
NASCAR-LICENSED TELEVISION MERCHANDISING: We intend to aggressively pursue the
various network and cable auto racing and NASCAR-licensed television broadcasts
throughout the racing season, as well as in the off-season, featuring our teams'
and their respective sponsors' merchandise and collectibles and will work
closely with our racing operations to utilize the various drivers and crew
chiefs to gain exposure from negotiated appearances and interviews on these
telecasts.
MOBILE TRACKSIDE SOUVENIR TRAILERS: We intend to lease and/or operate a fleet of
tractor trailers that will travel to NASCAR sanctioned events and prominently
display and promote each respective team's merchandise including the driver,
crew chief and sponsor's products, promotional merchandise and souvenirs. We
also intend to utilize the mobile fleet of tractor trailers to make special
merchandise promotional appearances at the various sponsor locations.
FANZ MERCHANDISING, INC.'S GIFT SHOP: Once we have established a permanent
facility, it is our intention to have a fully stocked gift shop which will be
open to the public on a regular basis, offering the complete line of merchandise
and products for our racing operations, all of the respective teams and their
related sponsors. We will actively promote and advertise the opportunity for
stockholders, fans, sponsors, sponsor employees and customers and
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general racing enthusiasts to visit our facility to see the home of our teams,
drivers and team members and to purchase related merchandise.
FanZ Merchandising Organization
In order to pursue our merchandising operations we will need to hire experienced
management as well as a merchandising, marketing and operations staff. Our
merchandising operations will initially be dependent on our race teams becoming
operational and obtaining sponsors for each of the teams. Upon the successful
completion of this offering, we will need to engage a merchandising staff to
develop and market products supporting our race teams and related sponsors. The
development of our merchandising operations will include product development and
sourcing, marketing the products and race teams through various distribution
channels including trackside promotional merchandise trailers and promoting the
sponsors through promotional events such as "Show Cars" which are replicas of
the actual race teams' cars that are used to draw fans to a sponsor's place of
business. Initially we expect to engage in each of these activities on a very
limited basis in connection with the promotion of our own teams and estimate the
expense associated with the above activities to approximate $600,000. These
expenses include roughly $300,000 in first year employment expenses and roughly
a $300,000 investment in the merchandising business. In the first year of
operations, employment includes a President and assistant and a number of
marketing managers ranging from zero in the first month to two at the end of the
first twelve months. The $300,000 used to invest in the merchandising business
may involve purchasing product or developing relationships with suppliers to
develop our product and/or hiring consultants. We expect to fully develop our
merchandising operations during the 2002 racing season.
NASCAR Sponsorship
We believe sponsorship is the heart and soul of the success of NASCAR racing and
is an integral part of our business plan. One of the primary drawing cards for a
potential sponsor's interest in NASCAR is the very broad appeal to an extremely
wide audience of NASCAR fans.
Management believes that NASCAR provides sponsors access to the most diverse and
passionate fans in the sporting universe. NASCAR is being embraced by large
national and multi-national corporations that until recently had ignored the
sport as too regional, too downscale and too "country" to risk national funding
expenditures. Today NASCAR's teams are sponsored by companies such as Kodak,
Circuit City, Gatorade, Kellogg's, McDonald's, MCI WorldCom and True Value to
name a few. Ten years ago, the sport's top sponsors were mostly tobacco and beer
companies and their subsidiaries. Individual teams are also attracting new
benefactors outside racing's traditional categories including Lowe's, Phillips,
M&Ms, BellSouth, Hot Wheels(TM) and K-Mart. For sponsors, we believe NASCAR may
be the best buy in sports, primarily because "speed sells." NASCAR fans spend
freely to support companies and brands that back their favorite drivers and
teams. Sales of Hot Wheels cars jumped 30% after the brand became Kyle Petty's
primary sponsor.(16) A primary sponsor for the Winter Cup Series will pay, on
average, between $5 million and $15 million to splash its logo across the car's
hood and television panel (the back of the trunk) and across the chest on the
driver's uniform.(17) Associate sponsors in the Winston Cup Series pay between
$500,000 and $2.5 million for various portions of a race car's visual area
including the B-post (between the two side windows), behind the rear wheels and
the rear quarter panels.(18) We have identified a list of over three hundred
(300) potential preliminary sponsor candidates, which we have begun to pursue
and intend to continue pursuing upon completion of this offering.
FanZ Sponsorship Strategy
Like our merchandising strategy, our sponsorship business strategy is different
from how most NASCAR team owners have traditionally pursued sponsorship
opportunities. We intend to develop a marketing services area that will support
and coordinate marketing programs with our sponsors. Depending upon the sponsor,
this group may have as many as three people per race team dedicated to
maximizing sponsor exposure and return on their sponsorship investment.
The employees in this group will interface directly with the sponsor to develop
advertising and promotional programs. This group will also be available to
develop promotions that will increase the sponsor's exposure to racing fans. Our
plan is to hire personnel who have extensive marketing experience. It is
management's belief that our network of stockholders will allow us the
opportunity to offer potential sponsors a built in fan base that will support
and consume the various sponsors products
- ------------------
16 Roy S. Johnson; "Speed Sells"; Johnson, Roy. S; Sells," FORTUNE MAGAZINE, 56,
April 12, 1999.
17 Bear Sterns at page 34.
18 Id.*
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and/or services and that this gives us a competitive advantage over other teams.
Web Site Operations
We intend to oversee the development of a centralized web site for both our
racing and merchandising operations. The web site will be utilized as a
strategic tool to promote our teams and sponsors as well as links to personal
web pages for all of our drivers, crew chiefs and team managers. In addition,
the web site will be utilized as a critical part of our electronic commerce
focus to advertise, sell and promote all of our merchandise, promotional items
and souvenirs. We anticipate that the web page will contain a chat room that
will offer the ability to communicate with one of the drivers, crew chiefs,
crewmembers, team owners or other racing personnel on a daily basis for a
designated hour of each day. It is our intention that a number of our personnel
will participate in the chat room, and a monthly schedule will be available on
the web page to allow stockholders, fans and general racing enthusiasts to
participate in the chat room of their choice. We anticipate that a series of
electronic web casts will be made from our shop floor each week during the
racing season and broadcast via the Internet. We will establish a specific time
each week during the racing season in which we will offer to all interested fans
and racing enthusiasts a web cast that will involve at least one of our teams,
as its driver and crew chief go through the pre-race preparation for the
respective week's race. It is our intention that the fan(s) will have the
ability to dial into our web page and actually watch and listen to the driver,
crew and team members prepare the car and its components for the race, including
a preliminary race strategy. A complete listing of racing information, news,
race facts and human interest stories will be available at all times on the web
page to afford stockholders and fans the most access to all of our drivers, crew
chiefs, team owners and the racing personnel and their families.
NASCAR Support
Although we have no contractual agreements with NASCAR, we believe that NASCAR
will support us in our racing and merchandising plans. This is based on the fact
that NASCAR is privately held and prospers from the success of the promotion of
its racing operations. We believe NASCAR is extremely aggressive and committed
to cross-marketing and promotional events to keep the NASCAR name prominently in
the face of the American public. At the forefront of NASCAR's support is the
recent television contract that substantially increases the number of races that
will be televised. Management believes that the television monies received under
this contract will benefit the entire NASCAR community in the form of larger
race purses and additional compensation to the track owners. Currently, NASCAR
has five NASCAR-licensed television shows and five licensed radio shows that
offer insights into the sport. In addition, seven licensed publications exist
including consumer and automotive aftermarket magazines and an extensive
publishing program with Harper Collins Publishers for books on the sport and its
participants. NASCAR maintains a year-round ongoing public relations blitz to
keep the NASCAR name in the public eye with coverage in major newspapers and
magazines including The New York Times, Los Angeles Times, Sports Illustrated,
USA Today, Forbes, Fortune, Business Week, Time and TV Guide. NASCAR is also
aggressively pursuing "e-advertising" and marketing programs with NASCAR Online
(web site www.nascar.com) leading the pack in cyberspace with 4.6 million unique
users per month. NASCAR Online is referred to as a "sticky" site, which means
users tend to stay on for longer periods of time. It is our understanding that
users of this site stay on-line an average of almost 9.1 minutes and amass
nearly 43 million page views per month, which puts the on-line site in the top
five of all sports sites on the Internet. We intend to compete with other racing
operations in this market with our websites: www.fanzenterprises.com, www.
fanzenterprises.net, www.fanzmerchandising.com, and, www.fanzmerchandising.net.
FanZ Diversity
We are dedicated to the concept of diversity. Through our unique ownership
opportunity and operating strategy, we will actively and directly target
potential new NASCAR fans. This includes appeal to younger ("Generation-X,"
"Generation Y" and "Echo-Boom") generations, a proactive strategy for minority
ownership and direct participation in our corporate management, staff, racing
and merchandising operations, as well as targeted sponsorship opportunities. Our
strategy is harmonious with that of NASCAR's, in increasing the diversity in its
fan base. We will attempt to use companies owned by minorities and/or women as
much as possible to provide goods and services to us.
FanZ Management
Although our executive officers have extensive experience in developing,
managing, financing and operating various business interests in a wide variety
of industries and possess in excess of thirty two (32) years experience in the
management, marketing, finance and operations of various private and public
companies, they do not have NASCAR experience; therefore, we are recruiting
experienced managers to manage and oversee the operations of FanZ Racing, Inc.
and FanZ Merchandising, Inc. Our strategy is to enter into consulting
arrangements with
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individuals and professional firms experienced in NASCAR racing and
merchandising, to further assist us in assembling our operations. We realize the
importance of attracting a talented management team for both the racing and
merchandising operations.
The organizational structure will consist of a small corporate staff at FanZ
Enterprises, Inc. comprised of J. Roe Hitchcock, Frederick L. McDonald II,
Michael J. Wurtsbaugh and a director of finance to oversee our finance and
accounting functions as well as several administrative and executive assistants
for coordination of sponsors and other important customers. The FanZ Racing,
Inc. operations will be managed and directed by its President. We are currently
pursuing individuals who possess an extensive background and experience in
managing and operating a professional NASCAR racing operation as well as
individuals with management experience in public companies. The President of
FanZ Racing, Inc. will have full and complete responsibility to hire the crew
chiefs and team managers for each respective team in addition to the various
engineering, engine, fabrication, etc. professionals for each respective
discipline. The FanZ Merchandising, Inc. operations will be managed by its
President. We are currently pursuing individuals who possess an extensive
background in all operational aspects of merchandising and retailing. Other key
personnel in the merchandising operations will be a seasoned buyer who has
extensive experience and contacts for sourcing various products offshore, as
well as a top marketing and advertising executive who will be responsible for
the promotional efforts and strategies in professionally managing the variety of
merchandising opportunities for each respective team and their primary and
associate sponsors. After our organization is fully operational, our
merchandising operations will look for opportunities to manage the merchandising
operations for other drivers and team owners.
To attract and retain top talent for both operations, we intend to offer a
competitive financial package including the opportunity for stock options to key
operational managers.
Available Information and Reports to Securities Holders
We have filed with the SEC a registration statement on Form SB-2 with respect to
the common stock offered by this prospectus. 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
a part of the registration statement. For further information with respect to us
and our common stock, see the registration statement and the exhibits and
schedules thereto. Any document we file may be read and copied at the SEC's
Public Reference Room located at 450 Fifth Street N.W., Washington, D.C. 20549,
and the public reference rooms in New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the SEC are also available to the public from
the SEC's web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information and
periodic reporting requirements of the Exchange Act and, accordingly, we will
file periodic reports, proxy statements and other information with the SEC. Such
periodic reports, proxy statements and other information will be available for
inspection and copying at the SEC's public reference rooms, and the web site of
the SEC referred to above.
PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and accompanying notes and the other financial information appearing
elsewhere in this prospectus. Also, due to our limited operating history, the
financial information presented is for the period October 20, 2000 (date of
inception) through April 30, 2001. Our fiscal year end is January 31.
Results of Operations
For the three month period ending April 30, 2001, we recorded an operating loss
of $2,343,130 and for the approximately six month period from October 20, 2000
(date of inception) through April 30, 2001 cumulative losses totaled $2,408,105.
This deficit is largely attributable to a non-cash charge of $2,064,919 for
stock options granted, with the remainder attributed to start-up expenses and
costs related to the development and implementation of our business plan. We did
not generate any revenues during this period. Our business plan projects that we
may continue to operate at a loss through fiscal year ending January 31, 2002.
Further, there can be no assurance that we will ever achieve profitability or
that a stream of revenue can be generated and sustained in the future.
For the current fiscal year, we anticipate incurring a loss as a result of
organizational expenses, non-cash charges associated with stock options granted,
expenses incurred as a result of
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establishing the race teams and expenses associated with setting up our
infrastructure to begin implementing our business plan. We anticipate that until
these procedures are completed, we will not generate revenues, and may continue
to operate at a loss thereafter, depending upon the performance of the business.
Capital Expenditures
For the period ended April 30, 2001, we expended $13,000 on capital expenditures
related to web site development costs. As part of the business plan, we plan on
starting with one Winston Cup team and intend to have two professional
motorpsports race teams competing in NASCAR sanctioned events within one year of
the closing of this offering. A minimum of $4.5 million in capital expenditures
will be required for tools, racing equipment, motors, race cars and other
equipment and the personnel costs to recruit and employ the necessary racing
personnel to effectively establish these teams. These costs will be incurred in
the first three months after the proceeds from this offering are received. The
anticipated capital expenditure budget may be reduced if we are successful in
attracting sponsorship monies for the teams.
Expenditures Related to Facilities
We expended no amounts on facilities for the period ended April 30, 2001. Our
overall strategy in regards to real estate and facilities is controlled growth
with flexibility to expand as our operations develop in order to address sponsor
goals, maintain control over our operations and foster the sharing of
information amongst our organizations.
Base Rent
*1. Entity Type of Space Per Sq. Ft. (usable)
- ----------------------------------------------------------------------------------------------------------------
Racing Industrial; sprinkled w/ loading docks (10-15% office) $3.00-$5.00
Merchandising Warehouse; sprinkled w/ loading docks (10% office) $3.00-$5.00
Management/
Administration Office (combined w/ above or free-standing) $5.00-$20.00
Our space requirements will also depend upon the goals of our primary sponsors.
Sponsors often desire to use racing facilities to hold business meetings,
team-building seminars and conferences. Sponsor goals and funding commitments to
provide such facilities will impact the timing of our decision to construct a
new facility.
As a start-up organization with rapid projected growth, our initial goals are to
attempt to lease with maximum flexibility. This involves leases that are
short-term in duration and offer option periods to extend the base lease term.
This strategy will allow us to start-up our racing operations, procure
sponsorship and begin racing. As we form and stabilize our operations, we will
consider designing and building facilities to maximize our operations. With
limited merchandising projected in our first year of operation, it is
anticipated that space can be shared or sub-leased. The assumptions for space
are as follows:
-------------------------------- -------------------- ------------------
Stand Alone Additional
(Square Feet) (Square Feet)
-------------------------------- -------------------- ------------------
Winston Cup 40,000 30,000
-------------------------------- -------------------- ------------------
Busch Grand National 30,000 20,000
-------------------------------- -------------------- ------------------
Craftsman Truck 25,000 20,000
-------------------------------- -------------------- ------------------
Although we currently have a letter of intent for only 6,000 square feet, within
the first full year of operation we intend to secure facilities sufficient to
meet our anticipated needs for space.
As the number of racing teams is projected to increase, we will be faced with
the following alternatives:
- purchase and/or lease existing facilities; or
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- acquire land and construct our own facility.
Once we have successfully implemented our business plan and secured additional
financing to obtain new facilities, we intend to acquire, construct or lease a
much larger facility to house all of our operations. We anticipate that the
facility will house our racing and merchandising operations, corporate
headquarters, as well as to house corporate retreats for the sponsors and will
contain, among other things, an observation deck overseeing the shop floor of
our racing operations, a theater area which can be utilized by our racing teams
and for presentations by our sponsors, a dining area that can be utilized to
entertain existing and prospective sponsors and their customers and employees, a
gift shop offering the latest merchandising products and souvenirs, a
company-wide health and fitness facility for the drivers, crew and other
employees, and eventually a racing museum housing our key assets.
Less flexibility is required with the merchandising facilities due to the very
general use nature of warehouse space and limited build-out and relocation
costs. Our strategy in housing merchandising operations is to procure
intermediate term space for a period of two to five years.
Capital Resources and Liquidity
On April 30, 2001, we had total assets of $429,907 and stockholder's equity of
$156,914, in comparision to total assets of $146,035 and a stockholder's deficit
of $14,875 on January 31, 2001. Subsequent to January 31, 2001, we raised an
additional $450,000 in equity through the combination of issuance of $400,000 of
preferred stock and additional capital of $50,000 contributed by Jackson Roscoe
Motorsports, LLC with respect to our common stock, to fund additional expenses
related to this offering. The $450,000 was contributed in the form of a Demand
Note that has been satisfied in cash.
To develop our business plan, we intend to recruit and employ a variety of
racing personnel including drivers, crewmembers, crew chiefs, engine builders,
fabricators, engineers, etc. to operate and manage our racing operations. The
recruiting and hiring of the racing personnel will begin immediately upon
raising the minimum subscription amount of $10,000,000. Currently we have a
consulting agreement with Michael J. Wurtsbaugh and receive the benefit of a
consulting agreement between Eddie Sharp and Jackson Roscoe Motorsports, LLC. In
exchange for the provision of consulting services, Mr. Wurtsbaugh was granted
options to purchase shares of the Company's common stock. This grant, as set
forth earlier, appears as a deficit on our books.
FanZ Racing-Team Start-up Costs
The racing operations will require an initial start-up budget of approximately
$3.5 million to form each Winston Cup team and approximately $1.2 million to
form each Busch Series team. The initial start-up budgets reflect costs
estimated to assemble the required personnel and equipment in order to be "race
ready," and be in a position to attempt to qualify for a race. The detail of the
budgets for each respective team is detailed below.
Estimated Winston Cup Start-up Budget (Per Team)
Expense Category Amount
Personnel Payroll (1) $775,000
Motor Program (2) 750,000
Parts (3) 225,000
Facility Rent (Race/Fab Shop) (4) 150,000
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Estimated Winston Cup Start-up Budget (Per Team)
Expense Category Amount
10 Winston Cup Cars (5) 1,000,000
NASCAR Fees (6) 35,000
Insurance (7) 50,000
Utilities (8) 50,000
Shop Equipment (9) 250,000
Research & Development (10) 200,000
Miscellaneous (Supplies/Maintenance) (11) 50,000
Total Cash Outlays Start-Up $3,535,000
Notes
(1) The Personnel Payroll includes the annual salary and bonus for the Crew
Chief, Car Chief, Shop Foreman, Paint & Body Specialists, Tire Specialist, Gear
& Transmission Specialist and Fabricators.
(2) Motor program expenditures are between $1.1 million and $2.5 million per
annum. This reflects a down payment in order that the team can start utilizing
the motors in the testing program at various tracks.
(3) Includes initial Tires & Wheels, Suspension & Brakes, Paint & Decals and
Gears & Transmissions and other components necessary to get the team started.
(4) Assures 40,000 sq. ft. facility. This amount will cover upfront rental
expenses, some tenant expenses and the first several months of occupancy
expenses.
(5) Generally, a Winston Cup Team has anywhere from 10 - 15 cars at a time.
Assumes 10 cars will allow the team to start testing at various tracks and
racing the full season.
(6) Entry fees for at least 75% of the first year NASCAR season.
(7) Insurance for the first several months.
(8) Utilities for the first several months.
(9) The Shop Equipment that will be purchased will start the operation.
(10) Includes the initial testing at various tracks, Wind Tunnel Testing and
engine and set up development.
(11) Miscellaneous includes the initial supplies and any maintenance that would
be required.
Estimated Busch Series Start-up Budget (Per Team)
Expense Category Amount
Personnel Payroll (1) $315,000
Motor Program (2) 225,000
Parts (3) 85,000
Facility Rent (Race/Fab Shop) (4) 65,000
6 Busch Grand National Cars (5) 300,000
NASCAR Fees (6) 20,000
Insurance (7) 25,000
Utilities (8) 25,000
Shop Equipment (9) 60,000
Research & Development (10) 75,000
Miscellaneous (Supplies/Maint) (11) 25,000
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Expense Category Amount
Total Cash Outlays Start-Up $1,220,000
Notes
(1) The Personnel Payroll includes the annual salary and bonus for the Crew
Chief, Paint & Body Specialists, Tire Specialist, Gear & Transmission Specialist
and Fabricators. It should be noted that once the fabrication department is
established for the Winston Cup Team, the fabrication department can handle the
Busch team without additional personnel.
(2) Motor Program expenditures are between $500,000 to $1.0 million per annum.
This reflects a down payment in order that the team can start utilizing the
motor in the testing program at various tracks.
(3) Parts include initial tires & wheels, suspension & brakes, paint & decals
and gears & transmissions and other components necessary to get the team
started.
(4) The space requirement is assumed to be 30,000 sq. ft. This amount will cover
upfront rental expenses, some tenant improvements and the first several months
of occupancy expenses.
(5) Generally a Busch Series team has anywhere from 6 - 8 cars at a time.
Assumes 6 cars will allow the team to start testing at various tracks and racing
the full season.
(6) Entry fees for most of the first year NASCAR season with credentials for the
sponsors for the races.
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(7) Insurance for the first several months.
(8) Utilities for the first several months.
(9) The Shop Equipment that will be purchased will start the operation. If an
existing team is already completed, this number will go down dramatically as
there will be one Shop for all of the teams.
(10) The Research & Development includes the initial testing at various tracks,
Wind Tunnel Testing and engine and set up development.
(11) Miscellaneous includes the initial supplies and any maintenance that would
be required.
The foregoing budgets could be scaled back somewhat by reducing the number of
cars purchased per team, among other things, in the event that only the minimum
($10,000,000) is raised in this offering. While we believe that the minimum
proceeds from this offering, together with sponsorship funds of at least $2.5
million, will be sufficient to satisfy our cash requirements during the twelve
(12) months following the consummation of this offering to commence our racing
and merchandising operations, there can be no assurance that sponsorship funds
will be available right away or at all. Initially, it may be difficult for us to
attract sponsors in light of the fact that we have no racing or merchandising
operations. Upon closing of this offering, it is our intention to start with at
least one team competing in the Winston Cup series for which we will seek
sponsors to defray the costs of starting and operating this team. This team
could begin racing on a limited schedule at select venues with or without a
primary sponsor as a means of attracting a sponsor. We will phase in additional
teams as our budget and sponsorships will allow with an aggressive campaign for
sponsorship of the 2002 racing season with the intention of having at least two
teams racing in NASCAR sanctioned events within one year of the closing of this
offering.
FanZ First-Year Expenses
In addition to racing start-up costs, we will need to hire corporate staff for
FanZ Enterprises, Inc. to provide centralized human resources, accounting,
bookkeeping, travel, administrative assistance and other general corporate
services. We expect to have a Chief Executive Officer, President, Chief
Financial Officer, Director of Finance and a number of assistants ranging from
zero in the first month to three in the twelfth month. We expect our cumulative
company expenses including overhead expenses and start-up costs previously
presented in estimated Winston Cup and Busch Series start-up budgets in the
first twelve months of operations to be as follows:
Employment Expense (1) 2,626,000
Motor Programs 2,872,000
Lease Expense/Depreciation (2) 1,100,000
Parts (3) 1,188,500
Research & Development 265,000
Travel Expenses 1,246,500
NASCAR Fees & Insurance 76,000
Repairs & Maintenance (4) 470,000
Utilities (5) 37,000
Tooling & Supplies 282,000
Miscellaneous 66,000
----------
10,229,000
Notes:
(1) The Employment Expense is for the entire racing staff of the Busch Series
and Winston Cup teams (at the end of the first year that represents 20 people
and two drivers). The driver compensation assumes a share of the race purse
winnings. The race purse winnings assume that we will participate and qualify in
most of the races in each schedule.
(2) Represents the amortization of the capital expenditures. The engines and
cars are assumed to have relatively short valuable lives (2 years) while the
shock dynometers have relatively long lives (15 years). No distinction is made
for whether an item is leased or capitalized.
(3) Parts includes: Tires & Wheels, Gears & Transmissions, and Raw Materials &
Sheet Metal.
(4) Repairs & Maintenance represent the operating expenses related to
maintaining the equipment and the cars and motors.
(5) Utilities includes waste & garbage disposal.
Merchandising Operations (Start-up)
In order to pursue our merchandising operations we will need to hire management
as well as a merchandising, marketing and operations staff. Our merchandising
operations will initially be dependent on our race teams becoming operational
and obtaining sponsorship for each of the teams. Upon the successful launch of
our race
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teams, we will need to engage a merchandising staff to develop and market
products supporting our race teams and related sponsors. This includes product
development and sourcing, marketing the products and race teams through various
distribution channels including trackside promotional merchandise trailers and
promotional events such as "Show Cars," which are replicas of race cars in order
to draw fans to a sponsor's place of business. We expect to engage in each of
these activities on a limited basis until we are fully operational at an
estimated expense of approximately $600,000. We expect to fully develop our
merchandising operations during the first full racing season.
Summary
We believe that the proceeds from the minimum subscription of this offering,
together with projected cash flows from operations (including sponsorship monies
in excess of $5 million for a Winston Cup team) will be sufficient to satisfy
contemplated cash requirements for our initial racing and merchandising
operations for at least twelve (12) months from the closing of this offering. In
the event that plans change, assumptions prove to be inaccurate, or if the
proceeds of this offering prove to be insufficient to fund operations and fully
implement our business plan, we could be required to seek additional financing
from sources not currently anticipated. We have no current commitments or
arrangements with respect to, or immediate sources of, additional financing and
it is not anticipated that any existing stockholders or lenders will provide any
portion of future financing. Additionally, no assurances can be given that any
additional financing, when needed, will be available or available on acceptable
terms. Any inability to obtain additional financing when required could have a
material adverse effect on our operations, including requiring us to curtail
some of our business initiatives.
DESCRIPTION OF PROPERTY
Jackson Roscoe Motorsports, LLC has entered into a letter of intent agreement
with Sharp Racing, Inc. to lease its racing shop and racing equipment in the
greater-Charlotte area, contingent upon the successful subscription for the
minimum amount of shares of this offering. Upon the closing of this offering,
the letter of intent will be assigned to us and we will negotiate to enter into
a lease with Sharp Racing, Inc. The annual gross rent under this letter of
intent is $60,000 for the approximately 6,000 square foot facility and existing
tools and equipment. Sharp Racing is owned 100% by Eddie Sharp, a Consultant of
Jackson Roscoe Motorsports, LLC and one of the candidates that we are in
negotiations with to join the FanZ Racing, Inc. management team. The letter of
intent terms are believed to be at or below market rates for the same or similar
facilities and equipment. The facility is located in Concord, North Carolina,
home of a substantial amount of the race teams that compete in the Winston Cup
and Busch Series Grand National Division. The facility is approximately 6,000
square feet and is believed to be adequate to allow us to establish our initial
racing operations. We believe that we will need additional interim space to
house all of our racing operations. It is not anticipated that additional space
will be difficult to secure given the vast amount of race shops that exist in
the area. We will lease office space for our executive management and
merchandising operations in the greater Charlotte area until a permanent
facility is located. It is our intention to relocate into a single facility that
will house all of our racing and merchandising operations including space for
our executive management once our business plan has been successfully
implemented.
Once we have successfully implemented our business plan and secured additional
financing to obtain new facilities, we intend to acquire, construct or lease a
much larger facility to house all of our operations. The
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facility is envisioned to house our racing and merchandising operations,
corporate headquarters, as well as to house corporate retreats for the sponsors
and fans and will contain, among other things, an observation deck overseeing
all of the racing operations shop floor, a theater area which can be utilized by
our racing teams and for presentations by our sponsors, a dining area that can
be utilized to entertain existing and prospective sponsors and their customers
and employees, a gift shop offering the latest merchandising products and
souvenirs, a company-wide health and fitness facility for the drivers, crew and
other employees, and eventually a racing museum housing our key assets.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the name, age and position of each of our
Directors and Executive Officers:
Name Age Position
- ---- --- --------
J. Roe Hitchcock 39 Chief Executive Officer, Treasurer and
Director
Frederick L. McDonald II 34 President and Director
J. Roe Hitchcock. Mr. Hitchcock has served as an officer and director of FanZ
Enterprises, Inc. since its inception. He is currently a Member of Jackson
Roscoe Motorsports, LLC, and Stillwater Capital Advisors, LLC, a financial
consulting firm. Prior to founding Jackson Roscoe Motorsports, LLC in October
2000, Mr. Hitchcock co-founded Cornerstone Equity Partners, LLC in May 2000, a
private equity partnership specializing in making controlling equity investments
in various manufacturing and distribution businesses. Prior to the founding of
Cornerstone, Mr. Hitchcock, during 1998, was an investment executive with
Questor Partners Fund, a $1.2 billion private equity fund, founded by Jay Alix
and Dan Lufkin, focused on making controlling equity investments in
operationally and/or financially challenged companies with revenues of $100
million to $2 billion. Prior to serving with Questor, Mr. Hitchcock served from
1994 to 1997 as the Chief Executive Officer of Education Galore, Inc., an
educational retail business. Prior to Education Galore, Mr. Hitchcock from 1990
to 1993, served as an investment executive with the Oxford Investment Group, a
private equity investment firm making controlling equity investments. Prior to
the Oxford Investment Group, Mr. Hitchcock served as a Senior Accountant with
Arthur Andersen from 1984 to 1988. Mr. Hitchcock holds an MBA from the Harvard
Graduate School of Business Administration and a B.S. in Finance and Accounting
from Indiana University where he graduated Summa Cum Laude. Mr. Hitchcock is
also a Certified Public Accountant.
Frederick L. McDonald II. Mr. McDonald has served as an officer and director of
FanZ Enterprises, Inc. since its inception. He is currently a Member of Jackson
Roscoe Motorsports, LLC, and Stillwater Capital Advisors, LLC, a financial
consulting firm. Prior to founding Jackson Roscoe Motorsports, LLC in October
2000, Mr. McDonald co-founded Cornerstone Equity Partners, LLC in May 2000.
Prior to founding Cornerstone, Mr. McDonald was, from 1995 to 2000, an
investment executive with Questor Partners Fund, a $1.2 billion private equity
fund founded by Jay Alix and Dan Lufkin, focused on making controlling equity
investments in operationally and/or financially challenged companies with
revenues of $100 million to $2 billion. While at Questor, Mr. McDonald served
for a five month period during 1996 as Schwinn's interim executive management,
until permanent executive management was hired. Prior to Questor, Mr. McDonald
operated from 1991 to 1994 a management and operations consulting firm, Arcana,
Inc., which specialized in operational efficiency studies and strategy
development initiatives for middle market companies. Prior to Arcana, Mr.
McDonald served from 1988 to 1991 as an investment-banking executive and was a
federally licensed broker with Edward Jones & Co. Mr. McDonald has served on the
board of directors of approximately ten privately held companies. Mr. McDonald
holds an MBA/JD from the University of Michigan with distinction and a B.A. in
Banking and Finance from Morehouse College where he graduated with departmental
honors.
In addition to Messrs. Hitchcock and McDonald, Michael J. Wurtsbaugh has agreed
to serve as an Executive Officer and Director of our company upon the closing of
this offering.
Michael J. Wurtsbaugh. Mr. Wurtsbaugh is currently serving as a consultant to
FanZ Enterprises, Inc. and has agreed to serve as our Chief Financial Officer,
Secretary and Director upon the closing of this offering. Mr. Wurstbaugh has
served since 1997 as Vice-President of Finance and Acquisitions and Chief
Investment Officer for the Medve Group, Inc., a St. Louis, Missouri-based
private investment company and fully integrated developer-owner-manager of
commercial real estate on a national basis. Prior to joining the Medve Group,
Inc. (from 1993 to 1997), Mr. Wurtsbaugh was Vice-President/Sr. Relationship
Manager for Mercantile Bank of St. Louis, National Association, in St. Louis,
Missouri. Prior to Mercantile (1986-1993), Mr. Wurtsbaugh was in commercial
banking for regional commercial banks in the Chicago, Illinois Metro market and
was a Bank Liquidation Specialist for the Federal Deposit Insurance Corporation
("FDIC"). Mr. Wurtsbaugh earned an MBA
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from the Graduate School of Business, Eastern Illinois University, Charleston,
Illinois and a B.S. in Finance, with a concentration in Accounting, from Indiana
University, School of Business, Bloomington, Indiana.
In addition to Messrs. Hitchcock, McDonald and Wurtsbaugh, the following
individuals have agreed to serve on our Board of Directors following the
completion of this offering: Mr. Walter B. Bowden, Mr. Arnold Busse, Mr. Anthony
J. Carbone and Mr. Eugene L. McKenzie. We will establish an Audit Committee
after completion of this offering to be comprised of at least two independent
members of the Board of Directors.
Walter B. Bowden. Mr. Bowden is currently the President and CEO of DBT Holding
Company, a bank holding company. Prior to joining DBT Holding Company, Mr.
Bowden served as the Vice President and Chief Financial Officer of Donald L.
Moore, Jr., Inc., a construction company. During this period from 1988-1995, Mr.
Bowden was charged with management duties and served as the primary marketing
person for Donald L. Moore, Jr., Inc. From 1984 to1988, Mr. Bowden served as the
President of Bank South of Savannah. Mr. Bowden graduated from the Stonier
Graduate School of Banking, Rutgers University and earned his bachelors degree
in Economics from the University of Florida.
Arnold G. Busse. From 1990 to present, Mr. Busse has managed his own investments
and served as a consultant for several private companies. Mr. Busse has been
involved in a variety of entrepreneurial ventures, including an educational
retail and wholesale company, an after-market computer hardware concern and a
consumer company involved in the manufacturing of firearms protection equipment.
From 1988 to 1991, Mr. Busse was the President of Cornelius Communication
Company. Prior to that, Mr. Busse was the President of Guarantee Auto Stores, a
$50 million automotive parts and service company which was later sold to
Nationwise Auto Parts. Prior to Guarantee Auto, Mr. Busse served as the
President of Haag Drug Company from 1972 to 1981. While at Haag Drug Company,
Mr. Busse served on the Board of the National Association of Chain Drug Stores.
Mr. Busse began his career as an accountant with Ernst & Young in Indianapolis
after receiving his accounting degree from Valparaiso University. Mr. Busse has
been the President and former Board Member of Southern Drug Stores Assoc.,
Affiliated Drug Stores Corp. and the Indiana Retail Council. Mr. Busse has
previously served on the following boards: The U.S. Division of J. W. Thornton
Company (a high end chocolate manufacturer based in England), National
Association of Chain Drug Stores, Valparaiso University (1976-1999), most
recently as its Vice Chairman, Voluntary Enterprises, Inc., Wishard Hospital
Foundation, Indianapolis Medical Management and Carmel Lutheran Church. Honors
Mr. Busse has received have been the Sagamore of Wabash in Indiana, Kentucky
Colonel and Honorary Attorney General in the State of Indiana. Mr. Busse is the
father-in-law of J. Roe Hitchcock.
Anthony J. Carbone. Mr. Carbone is the managing partner of the law firm of
Richards & O'Neil, LLP as well as the chairperson of the firms E-Commerce Group.
Mr. Carbone has been with Richards & O'Neil, LLP from 1990 to present. Mr.
Carbone has previously served as the President of the New York Chapter of the
Indiana University Kelley School of Business Alumni Association and now sits on
the Board of Directors of the school's alumni organization. Mr. Carbone is a
certified public accountant. Mr. Carbone received his LLM in Taxation in 1985
from New York University School of Law; his J.D. from Syracuse University Law
School in 1981; his M.S. in Accounting from Syracuse University in 1981; and his
B.S. from Indiana University Kelley School of Business in 1978.
Eugene L. McKenzie. Mr. McKenzie is currently the Director of Finance and
Information Technology for the national accounts division of the International
Paper Company's distribution arm, Xpedx. From 1996 to 1999 Mr. McKenzie owned
and operated L&G Holdings, Inc., an entrepreneurial business which acted as a
graphic design and advertising firm. From 1990 to 1996, Mr. McKenzie was a
Financial Manager for Atlantic Richfield Company, an oil and gas company that
was recently acquired by British Petroleum. From 1980 to 1990
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Mr. McKenzie worked as a Senior Manager for Ernst & Young. Mr. McKenzie is a
certified public accountant with an MBA from the University of Denver.
We will also form an active Board of Directors for both FanZ Racing, Inc. and
FanZ Merchandising, Inc. We will utilize strategically selected members of each
Board to assist these operations in developing their business plans and
implementing their operational, sales and financial initiatives as well as to
provide guidance to the management and staff of each of the respective entities.
The composition for each respective board will be slightly different as FanZ
Enterprises, Inc. plans to seek internal and external board members that possess
a significant amount of experience in each respective company's operations. As a
result, FanZ Racing, Inc. will recruit individuals that possess experience,
contacts and relationships directly in the racing industry and FanZ
Merchandising, Inc. will focus on individuals that have substantial experience
in the retail and merchandising industries to assist the company in developing
it's merchandising operations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock of
each person known by us to beneficially own 5% or more of the shares of
outstanding common stock, each of our officers and directors, and all of our
executive officers and directors as a group. Except as otherwise indicated, all
shares are beneficially owned, and investment and voting power is held by the
persons named as owners as of June 14, 2001, and as adjusted to reflect:
- the 100,000 for 1 stock split effected on May 15, 2001; and
- the sale of the maximum number of shares of common stock
(2,500,000) offered by this prospectus.
- the sale of the minimum number of shares of common stock
(1,000,000) offered by this prospectus.
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Percentage Percentage
Percentage Ownership of Ownership of
Amount and Ownership of Common Stock Common Stock
Name and Address of Nature of Common Stock After Offering After Offering
Beneficial Owner Common Stock Before Offering (Minimum Offering)(1) (Maximum Offering)(1)
----------------- ------------- ---------------- --------------------- ---------------------
Jackson Roscoe Motorsports, LLC 10,000,000 97.56% 88.88% 78.43%
5419 Cayman Drive, Suite 100
Carmel, IN 46033
J. Roe Hitchcock 10,000,000(2) 97.56%(2) 88.88% (2) 78.43% (2)
3020-I Prosperity Church Road
Suite 293
Charlotte, NC 28269-7197
Frederick L. McDonald II 10,000,000(2) 97.56%(2) 88.88% (2) 78.43% (2)
3020-I Prosperity Church Road
Suite 293
Charlotte, NC 28269-7197
Michael J. Wurtsbaugh 250,000(3) 2.44%(3) 2.22% (3) 1.96%(3)
3020-I Prosperity Church Road
Suite 293
Charlotte, NC 28269-7197
All Executive Officers and 10,250,000 100% 91.10% 80.39%
Directors as a Group
(3 individuals)
(1) Assumes that Mr. Wurtsbaugh has exercised all of his currently vested
options for 250,000 shares.
(2) Represents shares owned by Jackson Roscoe Motorsports, LLC. Messrs.
Hitchcock and McDonald are the sole members of Jackson Roscoe
Motorsports, LLC.
(3) These shares will be issued to Mr. Wurtsbaugh upon the exercise of
non-qualified stock options granted to Mr. Wurstbaugh on February 28,
2001 at an exercise price of $3.00 per share. The Option Agreement
provides for the issuance of up to 500,000 shares of our common stock
of which only 250,000 of these options are currently exercisable and
therefore reported in the table above. The remaining 250,000 shall vest
in equal annual increments over the four-year period commencing on the
first anniversary of the date of grant.
In addition to the shares of common stock identified in the table above, as of
February 23, 2001, we had 10,000 shares of our preferred stock issued and
outstanding. All of these shares are owned of record by Jackson Roscoe
Motorsports, LLC.
Each of our officers has expressed an interest in purchasing up to 2,500 shares
of our common stock at an aggregate offering price of $25,000 in this offering.
Likewise, a majority of our directors has expressed an interest in purchasing up
to 2,500 shares of our common stock at an aggregate offering price of $25,000 in
this offering.
EXECUTIVE COMPENSATION
We currently have an employment agreement with Michael J. Wurtsbaugh, our
proposed CFO and Secretary, which will take effect upon completion of this
offering, and are in negotiations with prospective candidates for the President
of FanZ Racing, Inc. and FanZ Merchandising, Inc. The table below sets forth the
compensation schedule for our officers which will take effect upon completion of
this offering. We have two incentive compensation plans: (i) the 2001 Stock
Option Plan of FanZ Enterprises, Inc. and (ii) the 2001 Non-
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Employee Director Stock Option Plan of FanZ Enterprises, Inc. that were adopted
by our Board of Directors on May 15, 2001 and are subject to stockholder
approval upon completion of this offering. These plans require us to reserve an
amount equal to 10% of our shares of common stock, after giving effect to this
offering, for issuance upon exercise of options granted under such plans. Both
plans must be approved by our stockholders within twelve (12) months of their
implementation. Directors will also be entitled to a stipend of $5,000 per board
meeting attended and $2,500 per committee meeting attended which is held on a
separate day from the regularly scheduled board meeting.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards
Name and Principal --------------------------------- --------------------------
Position Year Securities Underlying
Salary Options/SAR's
($) (#)
------------------------ --------- --------------------------------- --------------------------
J. Roe Hitchcock, 2001 50,000
Chief Executive
Officer, Treasurer
(1)(2)
------------------------ --------- --------------------------------- --------------------------
Frederick L. McDonald, 2001 50,000
II, President(1)(2)
------------------------ --------- --------------------------------- --------------------------
Michael J. Wurtsbaugh, 2001 175,000 500,000(3)
CFO, Secretary (1)
------------------------ --------- --------------------------------- --------------------------
(1) We intend to implement a bonus plan within ninety (90) days of the
completion of this offering. All of our officers will be entitled to
participate in the bonus plan. Shareholder approval of this plan is not
required, but the plan will be approved by a majority of our
disinterested directors.
(2) J. Roe Hitchcock and Frederick L. McDonald will each devote a minimum
of eighty percent (80%) of their business time to our operations.
(3) All of these shares are subject to a Non-Qualified Option Agreement
dated February 28, 2001 and will be issued upon the exercise of the
option at an exercise price of $3.00 per share. The option is currently
exercisable for 250,000 with the remaining 250,000 vesting in equal
annual increments over a four-year period commencing on the first
anniversary of the date of grant.
The employment agreement with Mr. Wurtsbaugh, who is currently serving as a
consultant to FanZ Enterprises, Inc., has an initial term of three (3) years
from the completion of this offering, with automatic one-year extensions
thereafter. As compensation for his services as CFO and Secretary of FanZ
Enterprises, Inc., Mr. Wurtsbaugh will receive and annual base salary of
$175,000.00, periodic discretionary bonuses, travel expenses and health and
retirement benefits. Upon termination without cause or a change in ownership of
the company, he will be entitled to a severance equal to his annual salary for
one year from the termination date. We also granted to Mr. Wurtsbaugh an option
to purchase, over a period of five years, up to 500,000 shares of the Company's
common stock at $3.00 per share.
The 2001 Non-Employee Director Stock Option Plan affords our directors, who are
not also officers or key employees, the opportunity to purchase shares of our
common stock in increments of 100 shares at the then prevailing fair market
price. We have reserved up to 1% of our authorized common stock for issuance
under this plan.
Upon the closing of this offering, we will purchase Directors' and Officers'
Insurance covering all of our directors and officers. The policy will provide
the maximum coverage available to our directors and officers under Delaware law.
PLAN OF DISTRIBUTION
We will sell a maximum of 2,500,000 shares of our common stock to the public on
a "best efforts" basis. There can be no assurance that any of these shares will
be sold. This is not an underwritten offering. We have not committed to keep the
registration statement effective for any set period of time. The gross proceeds
to us will be $25,000,000 if all the shares offered are sold. No public market
currently exists for our shares of common stock, although we intend to apply to
have our shares quoted on the OTCBB under the symbol ("FANZ").
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Regulation M of the Exchange Act (which replaced Rule 10b-6) may prohibit a
broker-dealer from engaging in any market making activities with regard to a
company's securities. Under Section 242.104 of Regulation M, stabilizing is
prohibited except for the purpose of preventing or retarding a decline in the
market price of a security. We do not plan to engage in any passive stabilizing
activities.
The shares of common stock represented by this offering are being registered
pursuant to Section 12 of the Exchange Act and Section 5 of the Securities Act,
for which an exemption from registration under Section 3 and Section 4 is not
available.
Limited State Registration
We will qualify or register the sale of our shares of common stock in the
following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West
Virginia and Wisconsin. We will not accept subscriptions from investors residing
in states other than those states where we have qualified or registered our
shares. In addition, investors in our common stock will not be permitted to
resell their shares in states where we have not filed a registration statement
or to residents of those states. The shares will be offered or sold through a
registered or licensed broker/dealer in the following states: Arizona, Florida,
North Carolina and Texas.
Broker/Dealer Agreement
We have entered into an agreement with a broker/dealer licensed to sell our
shares in Arizona, Florida, North Carolina and Texas. The Broker/Dealer
Agreement provides that the broker shall be entitled to a commission equal to
the greater of:
(i) $140,000 in the event that between 1,000,000 and 2,499,999
shares of our common stock are sold in this offering, or
$190,000 in the event that 2,500,000 shares of our common
stock are sold in this offering; or
(ii) 5% of the money raised by us from the sale of our common stock
in Arizona, Florida, North Carolina and Texas.
Terms of Sale of the Shares
We will be selling our shares through our officers and directors and, where
required by state law, registered or licensed broker-dealers who will be
offering our shares and distributing this prospectus primarily at the locations
of the 2001 NASCAR sanctioned events and over the Internet.
We will reimburse our officers and directors for expenses incurred in connection
with the offer and sale of our shares, however, no sales commissions will be
paid to any of our officers or directors. Our officers and directors are relying
on Rule 3a4-1 of the Exchange Act as a "safe harbor" from registration as a
broker-dealer in connection with the offer and sales of the shares. In order to
rely on such "safe harbor" provisions provided by Rule 3a4-1, an officer or
director must be in compliance with all of the following:
- he or she must not be subject to a statutory disqualification;
- he or she must not be compensated in connection with such
selling participation by payment of commissions or other
payments based either directly or indirectly on such
transactions;
- he or she must not be an associated person of a broker-dealer;
- he or she must restrict participation to transactions
involving offers and sale of the shares;
- he or she must perform substantial duties for the issuer after
the close of this offering not connected with transactions in
securities, and not have been associated with a broker or
dealer for the preceding 12 months, and not participate in
selling an offering of securities for any issuer more than
once every 12 months; and
- he or she must restrict participation to written
communications or responses to inquiries of potential
purchasers.
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Our officers and directors intend to comply with the guidelines enumerated in
Rule 3a4-1. Each of our officers has indicated that they are willing to purchase
up to 2,500 shares of our common stock at an aggregate offering price of $25,000
in this offering. In addition, certain of our directors have indicated a
willingness to purchase up to 2,500 shares of our common stock at an aggregate
offering price of $25,000 in this offering. Any sale of shares to our officers
and proposed directors will be on the same terms as are offered to the public
investors.
Prospective investors must purchase a minimum of 25 shares at an
aggregate-offering price of $250. Until we have sold at least 1,000,000 shares,
we will not accept subscriptions for any shares. Subscriptions will be revocable
until accepted by the Company. All proceeds of this offering will be deposited
in an escrow account with Firstar Bank, N.A. The proceeds will be invested in
the Firstar U.S. Treasury Money Market Fund and will bear interest at the rate
then prevailing under that fund. We intend to break escrow once subscriptions
for the minimum number of our shares (1,000,000) are received and accepted and
will continue to sell our shares until all shares offered are sold or nine
months from the date of this prospectus. Any shares purchased by our officers or
proposed directors in this offering will count towards the minimum number of
subscriptions required. If we are unable to sell at least 1,000,000 shares
before this offering ends, we will return all funds, with interest, to
subscribers promptly after the end of this offering. We have the right to
completely or partially accept or reject any subscriptions for shares in this
offering, for any reason or no reason. Certain states have required that
investors from those states meet certain financial criteria in order to invest
an amount above the minimum investment. We may decide to terminate this offering
at any time or cease selling efforts at any time prior to such date if our board
of directors determines that there is a better use of funds and management time.
If this offering is not oversubscribed, within a reasonable time after
effectiveness, we plan to accept all subscriptions as soon as reasonably
practicable but in no event until we have received and accepted subscriptions
for the minimum number of shares (1,000,000). If this offering is
oversubscribed, we plan to allocate the shares among subscribers in our
discretion within a reasonable time after effectiveness of this offering. We
anticipate having one or more closings of this offering, the first of which
cannot be held until we are able to sell at least 1,000,000 shares. After that,
we could have multiple closings whenever we receive and accept new
subscriptions.
Investment Procedures
No one may purchase any shares in this offering until it has been declared
effective by the SEC and any applicable state securities commission. Following
the effectiveness of this offering, an investor must complete, date, execute and
deliver to us our subscription agreement together with a check in the amount
corresponding to the cost of the shares to be purchased made payable to "Firstar
Bank, N.A., Escrow Account for FanZ Enterprises, Inc." Once received, we will
forward all funds and a copy of the subscription agreement to our escrow agent
Firstar Bank, N.A. Subscriptions will be revocable until accepted by us.
Internet Sales
We will post a copy of our final prospectus, as filed with the SEC, on our web
site, located on the Internet at www.fanzenterprises.com, www.fanzracing.com,
www.fanzenterprises.net and www.fanzracing.net for investors to view or download
once we have been declared effective with the SEC. We will update the web site
to replace the online prospectus with any post-effective amendments.
If an investor indicates that he or she would like to receive any other
amendments to this prospectus electronically, we will e-mail a notice to the
investor that informs him or her that an amendment to this Prospectus has been
filed with the SEC, which will include a hyperlink to the web site as well as
its Internet address. Additionally, upon request, the investor will receive
paper copies of any or all documents from us.
Prior to effectiveness, no one may purchase any shares in this offering.
Following the effectiveness of this offering, in order to purchase shares in
this offering over the Internet, an investor must complete, date, execute and
deliver to us, either a paper copy of our subscription agreement, together with
either a check in the amount corresponding to the cost of the shares to be
purchased, made payable to "Firststar Bank, N.A., Escrow Account for FanZ
Enterprises, Inc.," or a wire transfer of funds for that amount or
alternatively, electronically, by clicking on the "I have accessed the final
prospectus and I agree to subscribe" button and forwarding the proper payment to
us. An investor may not necessarily be able to purchase all of or any of the
shares that he or she has requested, depending on availability, state blue-sky
laws and our discretion. The address and wire transfer instructions for our
escrow agent is indicated in the subscription agreement. Following the
effectiveness of this offering, subscription agreements will be available as
follows:
- - on the web site where we have posted our final prospectus;
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- unless an investor has specifically requested electronic
delivery of the final prospectus, we will include the
subscription agreement together with a paper copy of the final
prospectus that we send to such investor; and
- an investor can request a paper copy of the subscription
agreement and prospectus by calling us, writing to us, or
e-mailing us at the number or address listed in this
prospectus or on our web site.
On our web sites, www.fanzenterprises.com, www.fanzenterprises.net,
www.fanzracing.com and www.fanzracing.net, we have posted our prospectus that
explains our subscription procedure.
Escrow Agreement
Under the terms of our proposed escrow agreement, proceeds from the sale of our
shares will be deposited into an interest bearing account until the minimum
number of shares (1,000,000) are sold. In the event the proceeds from investors
deposited into the escrow account is insufficient to meet our 1,000,000 share
minimum, proceeds will be returned directly to investors by the escrow agent
with interest. The proceeds for subscriptions for our shares that are placed in
escrow will not be subject to claims by our creditors, affiliates or associates
until the proceeds have been released to us under the terms of the escrow
agreement. We intend to break escrow and conduct an initial closing once we
receive and accept subscriptions for the minimum number of shares offered
(1,000,000).
The securities regulatory authority of any state in which our offering is
registered has the right to inspect and make copies of the records of the escrow
agent relating to the escrowed funds in the manner described in the escrow
agreement.
LEGAL PROCEEDINGS
Neither FanZ Enterprises, Inc., nor any of its subsidiaries are parties to any
pending legal proceeding or litigation, and none of our property is the subject
of a pending legal proceeding.
DESCRIPTION OF SECURITIES
The following is a description of the material terms of our capital stock. This
summary is subject to and qualified in its entirety by our Restated Certificate
of Incorporation and Bylaws, and by the applicable provisions of Delaware law.
Capital Stock
Our authorized capital stock consists of 20,000,000 shares of common stock, par
value $.01 per share and 10,000 shares of preferred stock, par value $.01 per
share.
Common Stock
General. We have 20,000,000 authorized shares of common stock, par value $.01
per share, 10,000,000 of which are issued and outstanding. All shares which are
the subject of this Prospectus, when issued and paid for under this offering,
will be validly issued, fully paid and non-assessable.
Voting Rights. Each share of our common stock entitles the holder to one vote,
either in person or by proxy, at meetings of stockholders. Our board of
directors is elected annually at each annual meeting of the stockholders. The
holders are not permitted to vote their shares cumulatively. Accordingly, the
holders of more than fifty percent (50%) of our voting power can elect all of
our directors.
Dividend Policy. All shares of common stock are entitled to participate ratably
in dividends when, as, and if declared by our board of directors out of the
funds legally available to distribute dividends, after all accrued and unpaid
dividends on the preferred stock have been paid. Any such dividends may be paid
in cash, property or
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additional shares of common stock. We have not paid any dividends since our
inception and presently anticipate that all earnings, if any, will be retained
for development of our business. We expect that no dividends on the shares of
common stock will be declared in the foreseeable future. Any future dividends
will be subject to the discretion of our board of directors and will depend
upon, among other things, our future earnings, operating and financial
condition, capital requirements, general business conditions and other pertinent
facts. There can be no assurance that any dividends on the common stock will
ever be paid.
Miscellaneous Rights and Provisions. Holders of common stock have no preemptive
or other subscription rights, conversion rights, redemption or sinking fund
provisions. In the event of the liquidation or dissolution, whether voluntary or
involuntary, of FanZ Enterprises, Inc., each share of common stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of FanZ Enterprises, Inc. after satisfaction of all liabilities,
including the payment of the liquidation preference of $600,000 plus accrued and
unpaid dividends on the preferred stock.
Shares Eligible For Future Sale. Upon completion of this offering, we will have
a minimum of 11,000,000 shares of common stock outstanding if the minimum number
of shares offered in this offering are sold, or 12,500,000 shares of common
stock outstanding if the maximum number of shares offered in this offering are
sold. Of these shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares purchased by an "affiliate" of FanZ Enterprises, Inc., and those held
by Jackson Roscoe Motorsports, LLC, which will be subject to the limitations of
Rule 144 adopted under the Securities Act. In general, a person who has a
control relationship with FanZ Enterprises, Inc. is defined as an "affiliate."
All of the remaining shares are deemed to be "restricted securities" as that
term is defined in Rule 144 under the Securities Act.
In general, under Rule 144, commencing 90 days after the date of this
Prospectus, a person, including an affiliate or persons whose shares are
aggregated, who has owned restricted shares of common stock beneficially for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
outstanding shares of the same class or the average weekly trading volume of our
common stock on all exchanges and/or reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. A
person who has not been an affiliate of FanZ Enterprises, Inc. for at least the
three months immediately preceding the sale and who has beneficially owned
shares of common stock for at least two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
Transfer Agent. The transfer agent for our common stock will be American Stock
Transfer and Trust Company.
Lock-up Agreement. Jackson Roscoe Motorsports, LLC will hold in the aggregate
upon completion of this offering 10,000,000 shares of our issued and outstanding
common stock and Michael J. Wurtsbaugh will have the right to acquire 500,000
shares of our common stock at an exercise price of $3.00 subject to certain
limitations. These shares of common stock (other than the restrictions
applicable to Mr. Wurtsbaugh's shares under the Non-Qualified Option Agreement)
are not subject to any contractual restriction on the sale of any such shares,
other than a Lock-up Agreement. In addition, any shares purchased by Messrs.
Hitchcock, McDonald or Wurtsbaugh in this offering will also be subject to the
terms of the Lock-up Agreement. Beginning on the day this offering is completed,
they are prohibited by the terms of the Lock-up Agreement from selling,
transferring or pledging all of their shares of common stock , although they
retain all of the voting rights attendant on these shares.
According to the terms of the Lock-up Agreement, it will terminate and the
shares will be freely tradeable upon the occurrence of any of the following:
(i) the fourth anniversary of the completion of this offering;
(ii) the date all funds have been returned to investors if this
offering is terminated; or
(iii) the date the shares become "covered securities" as defined in
Section 18(b)(1) of the Securities Act. These include shares
which are listed as authorized for listing on the New York
Stock Exchange, the Nasdaq National Market, or other national
securities exchanges which the SEC has determined have listing
standards substantially similar to the listing standards
applicable to these securities.
Prior to its termination, 2 1/2% of the shares subject to the Lock-up Agreement
may be released from the restrictions in the Lock-up Agreement on a quarterly
basis commencing two years from the date the offering is completed.
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Lack of Public Market for Our Shares. There has not been a public market for our
common stock and the price of our shares may be very volatile. We are not sure
if and when the shares will start trading, and this may not occur until well
after the first closing of this offering. We could decide not to facilitate the
commencement or continuation of a trading market for the common stock for an
extended period. We cannot predict the extent to which investor interest in our
common stock will lead to the development of an active trading market or how
liquid that market might become. Because no underwriter has sold any shares to
their customers or received options, warrants or shares in this offering, there
is currently little incentive for a financial institution to provide aftermarket
support of the shares. Due to this lack of aftermarket support, the price of our
stock following this offering may decrease, and investors may be unable to
resell their shares at or above the initial public offering price.
Stock Option Plans and Stock Options.
On May 15, 2001, we adopted two stock option plans, the 2001 Stock Option Plan
and the 2001 Non-Employee Director Plan. These plans will be subject to
stockholder approval after completion of their public offering. Administration
of the 2001 Stock Option Plan shall be administered by the Compensation
Committee of the Board of Directors. Under the terms of the 2001 Stock Option
Plan, a maximum of nine percent (9%) of the number of outstanding shares of our
common stock, after giving effect to the completion of this offering, may be
granted to our officers, key employees and consultants. Options granted under
the 2001 Stock Option Plan may be incentive stock options, non-qualified stock
options, or a combination of the foregoing. No incentive stock option may be
granted to a person who is not an employee. The option price per share of any
stock option granted under the plan may not be less than the fair market value
of the common stock on the date of grant. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the 2001 Non-Employee Director Plan, options may be granted
equal to a maximum of one percent (1%) of the number of outstanding shares of
our common stock, after giving effect to the completion of this offering. This
plan will also be administered by the Compensation Committee of the Board of
Directors. The option price of any options granted under the 2001 Non-Employee
Directors Plan shall be the fair market value on the date of grant. Such options
shall generally be exercisable for a term of not more than five years.
In addition to the foregoing plans, on February 28, 2001, we granted an option
to purchase up to 500,000 shares of our common stock at an exercise price of
$3.00 per share to Michael J. Wurtsbaugh, currently a consultant. Mr. Wurtsbaugh
will become our Chief Financial Officer upon completion of this offering. The
option is currently exercisable for 250,000 shares with the remaining vesting
over a four-year period commencing on the first anniversary of the date of
grant.
Preferred Stock
General. We have 10,000 authorized shares of preferred stock, par value $.01 per
share, 10,000 of which are issued and outstanding and held by Jackson Roscoe
Motorsports, LLC.
Voting Rights. The holders of our preferred stock shall not be entitled to any
voting rights except that an affirmative vote of at least two-thirds of the
issued and outstanding shares of preferred stock, voting as a class, shall be
required to amend any provision of our Restated Certificate of Incorporation
that would otherwise adversely affect the rights and preferences of the
preferred stock or authorize the creation of a new class of stock.
Dividend-Policy. The holders of our preferred stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefore, cumulative dividends at the rate of 10% per annum,
in preference to and in priority over any dividends upon the common stock.
Conversion and Liquidation Rights. Our preferred stock is not convertible into
shares of common stock. Upon our dissolution, liquidation, or winding up,
holders of our preferred stock will be entitled to receive, after payment or
provision for payment of all our debts and liabilities, prior to and in
preference to any distribution to our other stockholders including the holders
of common stock, the aggregate amount of $600,000 or $60 per share, plus an
amount equal to all accrued and unpaid dividends thereon to the date of
liquidation.
Redemption. We may redeem, at our option, at any time on or after the date which
is six months from the initial closing of this offering, in whole or in part,
the issued and outstanding preferred shares, at an aggregate redemption price of
$600,000 or $60 per share, out of funds legally available for such payment and
such redemption if not otherwise prohibited by the terms of any senior bank
financing. The holders of our preferred stock shall not be entitled to receive
any accrued and unpaid dividends in payment for their shares in the event we
exercise our right to purchase their shares pursuant to the redemption
provisions of our Restated Certificate of Incorporation. If the
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53
shares of our preferred stock are redeemed, they may not be reissued or
redesignated by our Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 15, 2000, in exchange for $100 in consideration, we issued 100
shares of our common stock to Jackson Roscoe Motorsports, LLC. On December 18,
2000, Jackson Roscoe Motorsports, LLC contributed an additional $50,000 to the
capital of FanZ Enterprises, Inc. for its shares of common stock. On February
23, 2001, Jackson Roscoe Motorsports, LLC contributed an additional $50,000 to
the capital of FanZ Enterprises, Inc., in the form of a Demand Note, for its
shares of common stock. On February 23, 2001, in exchange for $400,000 in
consideration, in the form of a Demand Note, we issued 10,000 shares of our
preferred stock to Jackson Roscoe Motorsports, LLC. As of the date of this
prospectus, the entire amount of the Demand Note has been drawn down. The
interest rate charged on such Demand Note was not a market rate. Any requests
for partial payment on the Demand Note were made in increments of Ten Thousand
Dollars ($10,000). Jackson Roscoe Motorsports, LLC is an entity wholly owned and
controlled by J. Roe Hitchcock and Frederick L. McDonald, II. The preferred
shares are redeemable, at our option, at any time after six months from the
closing of this offering at a price of $600,000 subject to applicable escrow
provisions. Approval by the independent members of our Board of Directors will
be required in order to effect a redemption of the preferred stock.
On January 1, 2001, we entered into an agreement with Stillwater Capital
Advisors, LLC, a Delaware limited liability company, for consulting services
including, among other things, preparation and development of our business plan,
development of a sophisticated financial model, identifying key personnel and
negotiating with a broker/dealer, accountants and attorneys. In addition, up to
$200,000 of this fee may go to the payment of the broker/dealer. J. Roe
Hitchcock, our Chief Executive Officer, Treasurer and a director of FanZ
Enterprises, Inc., and Frederick L. McDonald, II, our President and also a
director of FanZ Enterprises, Inc., are members of Stillwater Capital Advisors,
LLC and together own a controlling interest in Stillwater Capital Advisors, LLC.
Consulting services will be provided to us for a period of twelve (12) months at
a flat fee of $750,000 to be paid in one lump sum payment following the closing
of this offering. We believe that the terms of the consulting agreement are as
favorable to us as those generally available from unaffiliated third parties.
On February 28, 2001, we entered into an Option Agreement with Michael J.
Wurtsbaugh, our proposed CFO, pursuant to which Mr. Wurtsbaugh was granted an
option to purchase up to 500,000 shares of our common stock at $3.00 per share.
The option is exercisable for a period of five years from the date of grant.
FanZ Enterprises, Inc. will donate approximately two and one-half percent (2.5%)
of its yearly pre-tax profit to the Jackson Roscoe Foundation. In any year,
including its first, that we do not generate a profit, no monetary donation will
be made to the Jackson Roscoe Foundation. The Jackson Roscoe Foundation has been
set up in memory of Jackson Roscoe Hitchcock. Jackson was one of the twins born
to Joan and J. Roe Hitchcock, our CEO and Treasurer, on September 13, 1999.
Jackson was diagnosed with transposition of the greater vessels. He lived in the
Riley Children's Hospital in Indianapolis, Indiana for 83 days before he died.
The Jackson Roscoe Foundation will donate money and services to programs and
help families of sick children, specifically the children suffering from
congenital heart diseases. The Jackson Roscoe Foundation will assist various
charitable, medical and research organizations in drawing awareness to the
disease and helping to cure the disease. The Jackson Roscoe Foundation will be a
501(c)(3) corporation and therefore the donations will be a tax-deductible
contribution for the Company. If the Jackson Roscoe Foundation is not granted
tax-deductible status, FanZ Enterprises, Inc. will not make any monetary
contribution to the Jackson Roscoe Foundation, although the founders of the
Company will make contributions regardless. The Jackson Roscoe Foundation will
operate as a totally separate entity distinct from the Company and its
subsidiaries, with its own Board of Directors and officers. Joan Hitchcock will
serve as a member of the Board of Directors of the Jackson Roscoe Foundation.
Jackson Roscoe Motorsports, LLC, an entity controlled by J. Roe Hitchcock and
Frederick McDonald II, has entered into a letter of intent for racing facilities
with Sharp Racing, Inc. Sharp Racing, Inc. is owned by Eddie Sharp, a consultant
of Jackson Roscoe Motorsports, LLC and one of the candidates that we are in
negotiations with to join our management team. Upon the closing of this
offering, Jackson Roscoe Motorsports, LLC will assign the letter of intent to us
and we will negotiate to enter into a lease with Sharp Racing, Inc. The lease is
not contingent upon the hiring of Eddie Sharp by us or our subsidiary, FanZ
Racing, Inc.
We currently only have two directors, Messrs. Hitchcock and McDonald, on our
Board of Directors. Neither of whom are independent directors. At the time of
the transactions with Jackson Roscoe Motorsports, LLC and Stillwater Capital
Advisors, LLC, we lacked sufficient disinterested independent directors to
ratify these transactions. We intend to add additional members to our Board of
Directors following the closing of this offering. Five of these members have
been identified in this prospectus on pages 49 through 51. All of the
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members identified, except Arnold G. Busse, would qualify as independent
directors. We intend to maintain at least two independent directors on our
Board. All future material affiliated transactions and loans will be made or
entered into on terms that are no less favorable to us than those that can be
obtained from unaffiliated third parties. Additionally, all future material
affiliated transactions, and any forgiveness of loans, will be approved by a
majority of our independent directors who do not have an interest in the
transactions and who had access, at our expense, to our legal counsel or
independent legal counsel.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for our securities. Jackson Roscoe
Motorsports, LLC is our sole shareholder. To date, no dividends have been
declared on our common stock.
LEGAL MATTERS
The validity, authorization and issuance of the shares of our common stock
offered hereby will be passed upon for FanZ Enterprises, Inc. by Benesch,
Friedlander, Coplan & Aronoff, LLP of Cleveland, Ohio.
EXPERTS
The consolidated financial statements of FanZ Enterprises and Subsidiaries
included in this prospectus and in the registration statement have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent and
for the period (from October 20, 2000 (inception) to January 31, 2001) set forth
in their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our Certificate of Incorporation provides that we will indemnify our officers
and directors to the fullest extent permitted by the Delaware General
Corporation Law ("DGCL"). Our Certificate of Incorporation provides that we will
indemnify and hold harmless each person who was or is threatened to be made a
party to or is otherwise involved in any threatened proceedings by reason of the
fact that he or she is or was a director or officer of our company or is or was
serving at our request as an officer, director, partner, trustee, employee, or
agent of another entity, against all losses, claims, damages, liabilities and
expenses actually and reasonably incurred or suffered in connection with such
proceeding.
Insofar as indemnification for liabilities arising under the Securities Act, as
amended, 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 SEC such indemnification is against
public policy as expressed in the Securities 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
officer, director or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.
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INDEX TO FINANCIAL STATEMENTS
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Report of Independent Certified Public Accountants F-2
Audited Financial Statements for the period from October 20,
2000 (Inception) to January 31, 2001:
Balance sheet F-3
Statement of loss F-4
Statement of stockholders' deficit F-5
Statement of cash flow F-6
Summary of significant accounting policies F-7-8
Notes to financial statements F-9-13
Unaudited Financial Statements for the three months ended
April 30, 2001:
Balance sheets F-14
Statements of loss F-15
Statements of stockholders' equity (deficit) F-16
Statements of cash flow F-17
Summary of significant accounting policies F-18-20
Notes to financial statements F-21-24
56
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
FanZ Enterprises, Inc.
We have audited the accompanying balance sheet of FanZ Enterprises, Inc. ( a
development stage company) as of January 31, 2001, and the related statements of
loss, stockholder's deficit and cash flow for the period from October 20, 2000
(inception) to January 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FanZ Enterprises, Inc. as of
January 31, 2001, and the results of its operations and cash flows for the
period from October 20, 2000 (inception) to January 31, 2001 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's dependence on raising equity, its lack of working
capital and income sources as well as the inherent risks associated with a
start-up business raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman LLP
Atlanta, Georgia
February 26, 2001
F-2
57
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JANUARY 31, 2001
Assets
Current:
Cash $ 50,100
Deferred offering costs................................................................... 95,935
-----------
Total assets................................................................................. $ 146,035
===========
Liabilities and Stockholder's Deficit
Current:
Accrued expenses.......................................................................... $ 160,910
-----------
Total liabilities............................................................................ 160,910
-----------
Commitments
Stockholder's deficit
Common stock, $.01 par value - 20,000,000 shares authorized;
10,000,000 issued and outstanding (Note 4) .......................................... 100,000
Additional paid-in capital (Note 4) ..................................................... (49,900)
Accumulated deficit during the development stage.......................................... (64,975)
-----------
Total stockholder's deficit.................................................................. (14,875)
-----------
$ 146,035
===========
See accompanying summary of accounting polices and notes to financial
statements.
F-3
58
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSS
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
Revenues.......................................................................................... $ -
General and administrative expenses............................................................... 64,975
------------
Net loss.......................................................................................... $ (64,975)
============
Basic and diluted loss per share (Note 4)......................................................... $ (0.01)
Basic and diluted weighted average shares outstanding (Note 4)................................... 10,000,000
See accompanying summary of accounting polices and notes to financial
statements.
F-4
59
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
Accumulated
Common Stock Deficit
-------------------------- Additional During the
Paid-In Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ----------- ----------
Balance at October 20, 2000 -- $ -- $ -- $ -- $ --
Net loss -- -- -- (64,975) (64,975)
Issuance of common stock 100 1 99 -- 100
Capital contribution -- -- 50,000 -- 50,000
100,000 for 1 stock split (Note 4) 9,999,900 99,999 (99,999) -- --
---------- ---------- ---------- ---------- ----------
Balance at January 31, 2001 10,000,000 $ 100,000 $ (49,900) $ (64,975) $ (14,875)
========== ========== ========== ========== ==========
See accompanying summary of accounting polices and notes to financial
statements.
F-5
60
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
OPERATING ACTIVITIES
Net loss.................................................................................. $ (64,975)
Adjustment to reconcile net loss to cash used in
operating activities:
Change in current assets and liabilities:
Deferred offering costs............................................................. (95,935)
Accrued expenses.................................................................... 160,910
------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES -
------------
FINANCING ACTIVITY
Proceeds from the issuance of stock....................................................... 50,100
------------
NET INCREASE IN CASH......................................................................... 50,100
CASH, BEGINNING OF PERIOD.................................................................... -
------------
CASH, END OF PERIOD.......................................................................... $ 50,100
============
See accompanying summary of accounting polices and notes to financial
statements.
F-6
61
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FanZ Enterprises, Inc. (a development stage company) (the "Company") is a
Delaware corporation which was formed on October 20, 2000 for the purpose of
controlling and managing a multi-car professional motorsports operation that
will participate in NASCAR sanctioned events. The Company has selected a January
31 year end. The Company has two wholly-owned subsidiaries, also development
stage companies. FanZ Racing, Inc. will own and manage the racing operations
while FanZ Merchandising, Inc. will own, manage, market and distribute all of
the related merchandise for the racing operations. As of January 31, 2001, there
were no transactions in either subsidiary and there were no intercompany
accounts to eliminate.
The Company is in the development stage and its activities to date have been
limited to organizational activities including developing and implementing its
business plan, hiring personnel, establishing business strategies and
formulating a strategy to raise equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash approximate fair value because of the short-term
nature of this item.
REVENUE RECOGNITION
Revenues are expected to be generated from a number of sources including
sponsorships, race purse winnings, race bonus opportunities and merchandise
sales. It is expected that sponsorship revenue will be recognized over the
period of the sponsorship agreement; race purse winnings and bonuses will be
recognized when receipt is assured; and merchandise sales will be recognized
upon shipment, less returns and allowances.
STOCK-BASED COMPENSATION
The Company plans to account for its stock option awards to employees and
directors under the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount the employee must pay to acquire the
stock. The Company plans to adopt the disclosure provisions of SFAS
123,"Accounting for Stock-Based Compensation" ("SFAS 123") and disclose the pro
forma amounts of net income (loss) as if the fair value based method of
accounting had been applied.
For options awarded to all others, compensation will be recognized for the fair
value of options granted in accordance with SFAS 123 and related
interpretations.
INCOME TAXES
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis of assets and
liabilities. Deferred tax assets of approximately $26,000 related primarily to
non-deductible accruals have been offset by a valuation reserve since the
utilization of this asset cannot be assured.
F-7
62
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE
Basic and diluted loss per share was computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Basic loss per
share is computed by dividing the net loss available to common shareholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period and excludes the effects of potentially dilutive
common shares. Diluted net loss per share gives effect to all potentially
dilutive common shares outstanding during a period. There were no potentially
dilutive common shares outstanding on January 31, 2001, thus basic and dilutive
loss per share are the same for the period presented.
WEB SITE DEVELOPMENT COSTS
Subsequent to January 31, 2001, the Company began development of its web site
which will be utilized to promote the Company's racing and merchandising
operations. During 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-2, Accounting for Web Site Development Costs. This EITF specifies how an
entity should account for costs incurred to develop a web site.
Costs incurred in the planning stage, regardless of whether the web site
planning activities specifically relate to software, should be expensed as
incurred. Costs incurred in the planning stage include such activities as
identification of the specific goals of the web site, identification of the
target audience, determination of the functionalities, identification of
necessary hardware, identification of necessary web application and
conceptualization of graphics and content, among other things.
Costs incurred in the web site application and infrastructure development stage
and costs incurred to develop graphics should be accounted for in accordance
with Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use if the web site is expected to
be utilized for internal use. Since this is the Company's intent, the
application of SOP 98-1 is appropriate. This statement, in general, requires the
capitalization of costs of developing software for internal use once the
preliminary project stage is completed and prior to the point at which the
project is substantially complete and ready for its intended use. Fees incurred
for web site hosting, which involves the payment of a specific, periodic fee to
an internet service provider in return for hosing the web site, generally would
be expensed over the period of benefit.
Costs incurred during the operating stage including training, administration,
maintenance and other costs to operate an existing web site should be expensed
as incurred. However, costs that provide additional functions or features to the
web site should be accounted for in accordance with SOP 98-1 which requires that
certain costs relating to such upgrades be capitalized if it is probable that
they will result in added functionality.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
63
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of liabilities in the
normal course of business. Since its inception on October 20, 2000, the Company
has been involved in organizational activities. The Company's ultimate ability
to attain profitable operations is dependent upon its obtaining adequate
capitalization to complete its development activities and implementation of its
business plan. The Company has filed a registration statement on Form SB-2 with
the Securities and Exchange Commission which would offer outside investors up to
2,500,000 common shares in a direct participation offering. Monies raised from
this offering will be held in escrow until a minimum of 1,000,000 shares are
sold. There can be no assurances as to if and when this registration statement
may become effective or what the ultimate net proceeds from such an offering
might be.
As a result of the foregoing, these circumstances raise substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. DEFERRED OFFERING COSTS
Deferred offering costs consist of professional fees incurred through January
31, 2001 that are directly related to the public offering described more fully
in Note 4. If the public offering is successful, these costs will be offset
against the proceeds in stockholders' equity. If the public offering is not
successful, these costs will be expensed in full upon that determination.
3. ACCRUED EXPENSES
Accrued expenses as of January 31, 2001 consist of consulting services of
$62,500 (See Note 5) and professional fees of $98,410.
4. STOCKHOLDER'S DEFICIT
ISSUANCE OF COMMON STOCK
On October 20, 2000, the Company issued 100 shares of its $.01 par value stock
to Jackson Roscoe Motorsports, LLC (the "sole stockholder" or the "parent"). The
sole stockholder is owned in its entirety by two directors of the Company. As
consideration for the shares issued, the Company received $1 per share. On
December 18, 2000, the Company received additional consideration for these
shares in the amount of $50,000. Subsequent to January 31, 2001, the Company
received another capital contribution from its sole stockholder in the form of a
$50,000 note receivable. This note has since been satisfied in cash.
F-9
64
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Subsequent to January 31, 2001, the Company increased its authorization of
Common Stock to 20,000,000 shares and affected a 100,000 to 1 split. All share
and per share data have been retroactively adjusted to reflect this split. In
the retroactive presentation, additional paid-in capital as adjusted for the
split resulted in a negative balance in this account; however, when the split
actually occured subsequent to January 31, 2001, the Company had adequate
capital to absorb the effects of the transaction.
PREFERRED STOCK
Subsequent to January 31, 2001, the Company authorized and issued to its sole
stockholder ten thousand (10,000) shares of 10% Cumulative Preferred Stock (the
"Preferred Stock") at $40.00 per share. The par value was $0.01 per share. The
parent, as holder of the shares, is entitled to receive, at the discretion of
the independent Board of Directors, cumulative dividends at the annual rate of
10% ($4.00 maximum) per share, in priority over any dividends payable upon any
of the Common Stock. As consideration, the Company received a $400,000 note
receivable from the sole stockholder. This note has since been satisfied in
cash.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, the holders of Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company that
are available for distribution, an amount in cash equal to $60 per share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation. If the assets of the Company are not
sufficient for this, then the holders of the Preferred Stock shall share ratably
in the distribution of assets.
The Company may redeem the Preferred Stock at any time six months after the
closing of a Qualified Public Offering ("public offering"), in whole or from
time to time, at a redemption price of $60 per share (the "redemption amount").
A Qualified Public Offering in this case is defined as a public offering
registered under the Securities Act of 1933 which ultimately results in gross
proceeds to the Company of at least $10,000,000. The holders of the Preferred
Stock will only be entitled to receive the redemption amount, and not the amount
of any accrued and unpaid dividends.
5. RELATED PARTY TRANSACTION
Effective January 1, 2001, the Company entered into a 12 month agreement for
consulting services with Stillwater Capital Advisors, LLC, a company partially
owned by the shareholders of the parent company. The amount accrued at January
31, 2001 under this agreement was $62,500. The Company is contractually
obligated to Stillwater Capital Advisors, LLC for an additional $687,500. The
Company believes the terms of this agreement to be at arm's length. See Notes 4,
6 and 7 for description of additional related party transactions.
F-10
65
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS
Subsequent to January 31, 2001, the Company entered into a letter of intent to
lease land and property to be used as its principal place of business for annual
rent of approximately $60,000 under a lease term of one year with an option to
renew for three consecutive periods of one year each. The lessor is a consultant
to the Company's parent and the commencement of this lease is contingent upon
the Company's closing of its public offering.
The Company has oral agreements with third party service providers such that if
the public offering is successful, additional fees of $125,000 will be remitted.
7. STOCK OPTIONS
Subsequent to January 31, 2001, the Company adopted two stock option plans: the
2001 Stock Option Plan (the "Plan") and the 2001 Non-Employee Director Stock
Option Plan (the "Non-Employee Plan"). Under the terms of the Plan, a maximum of
9% of the number of outstanding shares of the Company's Common Stock, after
giving effect to the close of Company's public offering, may be granted to its
officers, key employees and consultants. Options granted under this Plan may be
(a) Incentive Stock Options, (b) Non-Qualified Stock Options or (c) a
combination of the foregoing. No Incentive Stock Options may be granted to a
person who is not an employee. The option price per share of any stock option
granted under the Plan shall not be less than the fair market value of the
Common Stock at the date of the grant. In the case of an Incentive Stock Option
grant, the option price per share shall not be less than 110% of the fair market
value of the shares at the date of grant should that employee hold more than 10%
of the total combined voting power of all classes of stock of the Company, its
parent or subsidiaries at the grant date. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the Non-Employee Plan, options may be granted equal to a
maximum of 1% of the number of outstanding shares of the Company's Common Stock,
after giving effect to the close of Company's public offering. The option price
shall be the fair market value at the date of grant, and shall, in general, be
exercisable for a term of not more than five years.
F-11
66
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Subsequent to January 31, 2001, the Company granted 500,000 options to a
consultant, expected to become the Company's Chief Financial Officer, at an
exercise price of $3.00 per share of which 250,000 vest on the grant date and
the remaining vest over a four year period commencing on the first anniversary
of the grant date. In accordance with FAS 123 and related interpretations,
compensation expense for the fair value of these options will be recognized
over the period in which these options are earned. The fair value approach for
valuing stock options was determined using the Black-Scholes option pricing
model given the following assumptions: risk free interest rate of 5.53%;
expected option life of 4 years; and no dividend yield or volatility. Assuming
a fair market value of $10 per share (the projected selling price of shares in
the aforementioned public offering), the Company, therefore, expects to incur
approximately $3,800,000 of non-cash compensation expense in the future. It is
expected that $1,900,000 will be recognized when the options are granted while
the remaining will be recognized over the four year period from the grant date.
The fair value approach to the valuation of these options requires that the
unvested shares be "marked to market" at the end of each reporting period. As
such, if the fair value of the options change in the future, then related
current and future non-cash compensation expense will change accordingly. When
and if the consultant becomes an employee, a new measurement date will be
required resulting in a remeasurement of the value of the unearned options
using the intrinsic value method. This grant is separate and distinct from
either of the stock option plans described above.
8. EMPLOYMENT AGREEMENTS
The Company and its parent are committed to an employment agreement and certain
consulting contracts to multiple key individuals. All were executed subsequent
to January 31, 2001 and the employment agreement requires the close of the
Company's public offering to become effective.
9. SEGMENT INFORMATION
The Company plans to adopt SFAS 131, which establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company expects that it will have two reportable segments: the racing
segment which will operate the race teams and the merchandising segment when
established, will own, manage, market and distribute related merchandise.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash. The Company's cash at January 31, 2001
was not deposited at a financial institution, therefore it was not FDIC insured
at that time. The Company has subsequently opened a bank account at a high
quality financial institution.
F-12
67
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED
FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 2001
F-13
68
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
April 30, January 31,
2001 2001
----------------- ---------------
(unaudited)
Assets
Current:
Cash $ 91,072 $ 50,100
Note receivable................................................................ 150,000 -
Advance to parent.............................................................. 2,500 -
Deferred offering costs........................................................ 173,335 95,935
----------- -----------
Total current assets.............................................................. 416,907 146,035
----------- -----------
Website development costs 13,000 -
----------- -----------
$ 429,907 $ 146,035
=========== ===========
Liabilities and Stockholder's Equity (Deficit)
Current:
Accrued expenses............................................................... $ 272,993 $ 160,910
----------- -----------
Total liabilities................................................................. 272,993 160,910
----------- -----------
Commitments
Stockholder's (equity) deficit
Preferred stock, $.01 par value - 10,000 shares authorized,
10,000 shares issued and outstanding......................................... 100 -
Common stock, $.01 par value - 20,000,000 shares authorized;
10,000,000 issued and outstanding (Note 4)................................... 100,000 100,000
Additional paid-in capital..................................................... 2,464,919 (49,900)
Accumulated deficit during the development stage............................... (2,408,105) (64,975)
----------- -----------
Total stockholder's equity (deficit).............................................. 156,914 (14,875)
----------- -----------
$ 429,907 $ 146,035
=========== ===========
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-14
69
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS
(UNAUDITED)
Period from October
Three months ended 20, 2000 (inception)
April 30, 2001 to April 30, 2001
-------------------- ----------------------
Revenues........................................................................ $ - $ -
Selling, general and administrative expenses.................................... 2,343,130 2,408,105
-------------- ---------------
Net loss........................................................................ $ (2,343,130) $ (2,408,105)
============== ===============
Basic and diluted loss per common share (Note 4)................................ $ (0.23)
==============
Basic and diluted weighted average common shares
Outstanding (Note 4)......................................................... 10,000,000
==============
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-15
70
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO APRIL 30, 2001
Accumulated
Deficit
Common Stock Preferred Stock Additional During the
--------------------------- ---------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------------- ------------- -------------- ------------- ------------- ------------------ -------------
Balance at
October 20, 2000 - $ - - $ - $ - $ - $ -
Net loss - - - - - (64,975) (64,975)
Issuance of common
Stock 100 1 - - 99 - 100
Capital contribution - - - - 50,000 - 50,000
100,000 for 1 stock
split (Note 4) 9,999,900 99,999 - - (99,999) - -
----------- --------- ---------- --------- ---------- ----------- -----------
Balance at
January 31, 2001 10,000,000 100,000 - - (49,900) (64,975) (14,875)
Net loss - - - - - (2,343,130) (2,343,130)
Stock option grant - - - - 2,064,919 - 2,064,919
Additional capital
contribution for
previously issued
common stock - - - - 50,000 - 50,000
Issuance of
preferred
Stock - - 10,000 100 399,900 - 400,000
----------- --------- ---------- --------- ---------- ----------- -----------
Balance at
April 30, 2001
(unaudited) 10,000,000 $ 100,000 10,000 $ 100 $2,464,919 $(2,408,105) $ 156,914
=========== ========= ========== ========= ========== =========== ===========
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-16
71
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
Period from
Three Months October 20, 2000
Ended April 30, (inception) to
2001 April 30, 2001
--------------- ----------------
Operating activities
Net loss..................................................................... $ (2,343,130) $ (2,408,105)
Adjustment to reconcile net loss to cash used in
operating activities:
Non-cash compensation expense.............................................. 2,064,919 2,064,919
Change in current assets and liabilities:
Advance to parent...................................................... (2,500) (2,500)
Deferred offering costs................................................ (77,400) (173,335)
Accrued expenses....................................................... 112,083 272,993
------------- ---------------
Net cash used in operating activities (246,028) (246,028)
Investing activity
Web site development costs................................................ (13,000) (13,000)
------------- ---------------
Financing activity
Proceeds from the issuance of stock.......................................... 300,000 350,100
------------- ---------------
Net increase in cash............................................................ 40,972 91,072
Cash, beginning of period....................................................... 50,100 -
------------- ---------------
Cash, end of period............................................................. $ 91,072 $ 91,072
============= ===============
Supplemental noncash financing information
Notes receivable, net, of $150,000 were obtained in connection with the
issuance of common and preferred stock.
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-17
72
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FanZ Enterprises, Inc. (a development stage company) (the "Company") is a
Delaware corporation which was formed on October 20, 2000 for the purpose of
controlling and managing a multi-car professional motorsports operation that
will participate in NASCAR sanctioned events. The Company has selected a January
31st year end. The Company has two wholly-owned subsidiaries, also development
stage companies. FanZ Racing, Inc. will own and manage the racing operations
while FanZ Merchandising, Inc. will own, manage, market and distribute all of
the related merchandise for the racing operations. As of April 30, 2001, all
material intercompany accounts were eliminated.
The Company is in the development stage and its activities to date have been
limited to organizational activities including developing and implementing its
business plan, hiring personnel, establishing business strategies and
formulating a strategy to raise equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and notes receivable approximate fair value because
of the short-term nature of these items.
REVENUE RECOGNITION
Revenues are expected to be generated from a number of sources including
sponsorships, race purse winnings, race bonus opportunities and merchandise
sales. It is expected that sponsorship revenue will be recognized over the
period of the sponsorship agreement; race purse winnings and bonuses will be
recognized when receipt is assured; and merchandise sales will be recognized
upon shipment, less returns and allowances.
STOCK-BASED COMPENSATION
The Company plans to account for its stock option awards to employees and
directors under the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount the employee must pay to acquire the
stock. The Company plans to adopt the disclosure provisions of SFAS
123,"Accounting for Stock-Based Compensation" ("SFAS 123") and disclose the pro
forma amounts of net income (loss) as if the fair value based method of
accounting had been applied.
For options awarded to all others, compensation is recognized for the fair value
of options granted in accordance with SFAS 123 and related interpretations.
INCOME TAXES
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis of assets and
liabilities. Deferred tax assets of approximately $947,000 related primarily to
net operating losses and non-deductible accruals have been offset by a valuation
reserve since the utilization of this asset cannot be assured.
F-18
73
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE
Basic and diluted loss per common share was computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic
loss per common share is computed by dividing the net loss available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and excludes the effects of
potentially dilutive common shares. Diluted net loss per common share gives
effect to all potentially dilutive common shares outstanding during a period.
There were no potentially dilutive common shares outstanding on April 30, 2001,
thus basic and dilutive loss per common share are the same for the period
presented.
WEB SITE DEVELOPMENT COSTS
During the three months ended April 30, 2001, the Company began development of
its web site which will be utilized to promote the Company's racing and
merchandising operations. During 2000, the Emerging Issues Task Force ("EITF")
issued EITF 00-2, Accounting for Web Site Development Costs. This EITF specifies
how an entity should account for costs incurred to develop a web site.
Costs incurred in the planning stage, regardless of whether the web site
planning activities specifically relate to software, are expensed as incurred.
Costs incurred in the planning stage include such activities as identification
of the specific goals of the web site, identification of the target audience,
determination of the functionalities, identification of necessary hardware,
identification of necessary web application and conceptualization of graphics
and content, among other things.
Costs incurred in the web site application and infrastructure development stage
and costs incurred to develop graphics are accounted for in accordance with
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use if the web site is expected to
be utilized for internal use. Since this is the Company's intent, the
application of SOP 98-1 is appropriate. This statement, in general, requires the
capitalization of costs of developing software for internal use once the
preliminary project stage is completed and prior to the point at which the
project is substantially complete and ready for its intended use. Fees incurred
for web site hosting, which involves the payment of a specific, periodic fee to
an internet service provider in return for hosing the web site, generally are
expensed over the period of benefit.
F-19
74
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Costs incurred during the operating stage including training, administration,
maintenance and other costs to operate an existing web site are expensed as
incurred. However, costs that provide additional functions or features to the
web site are accounted for in accordance with SOP 98-1 which requires that
certain costs relating to such upgrades be capitalized if it is probable that
they will result in added functionality.
In accordance with the above policy, the Company has capitalized $13,000 in web
site development costs for the three months ended April 30, 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. The balance
sheet as of April 30, 2001; the statements of loss for the three months ended
April 30, 2001 and for the period from October 20, 2000 (inception) to April 30,
2001; the statements of stockholder's equity (deficit) for the period from
October 20, 2000 (inception) to April 30, 2001 and the statements of cash flows
for the three months ended April 30, 2001 and for the period from October 20,
2000 (inception) to April 30, 2001, have been prepared without audit. The
balance sheet as of January 31, 2001 has been audited by independent certified
public accountants. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading. It is suggested that
these financial statements and related notes be read in conjunction with the
financial statements and notes thereto for the period from October 20, 2000
(inception) to January 31, 2001 included in this document.
In the opinion of the Company, the statements for the unaudited interim periods
presented included all adjustments that were of a normal recurring nature
necessary to present a fair statement of the financial condition and results of
operations for such interim periods. The results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the entire year.
F-20
75
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of liabilities in the
normal course of business. Since its inception on October 20, 2000, the Company
has been involved in organizational activities. The Company's ultimate ability
to attain profitable operations is dependent upon its obtaining adequate
capitalization to complete its development activities and implementation of its
business plan. The Company has filed a registration statement on Form SB-2 with
the Securities and Exchange Commission which would offer outside investors up to
2,500,000 common shares in a direct participation offering. Monies raised from
this offering will be held in escrow until a minimum of 1,000,000 shares are
sold. There can be no assurances as to if and when this registration statement
may become effective or what the ultimate net proceeds from such an offering
might be.
As a result of the foregoing, these circumstances raise substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. DEFERRED OFFERING COSTS
Deferred offering costs consist of professional, registration and filing fees
incurred through April 30, 2001 that are directly related to the public offering
described more fully in Note 4. If the public offering is successful, these
costs will be offset against the proceeds in stockholders' equity. If the public
offering is not successful, these costs will be expensed in full upon that
determination.
3. ACCRUED EXPENSES
Accrued expenses as of April 30, 2001 primarily consist of consulting services
of $250,000 (See Note 5) and professional fees of $20,000.
4. STOCKHOLDER'S EQUITY (DEFICIT)
Issuance of Common Stock
On October 20, 2000, the Company issued 100 shares of its $.01 par value stock
to Jackson Roscoe Motorsports, LLC (the "sole stockholder" or the "parent"). The
sole stockholder is owned in its entirety by two directors of the Company. As
consideration for the shares issued, the Company received $1 per share. On
December 18, 2000, the Company received additional consideration for these
shares in the amount of $50,000. During the three months ended April 30, 2001,
the Company received another capital contribution from its sole stockholder in
the form of a $50,000 note receivable and which was subsequently satisfied in
cash.
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FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
During the three months ended April 30, 2001, the Company increased its
authorization of common stock to 20,000,000 shares and affected a 100,000 to 1
split on May 15, 2001. All share and per share data have been retroactively
adjusted to reflect this split.
Preferred Stock
During the three months ended April 30, 2001, the company authorized and issued
to its sole stockholder ten thousand (10,000) shares of 10% Cumulative Preferred
Stock (the "Preferred Stock") at $40.00 per share. The par value was $0.01 per
share. The parent, as holder of the shares, is entitled to receive, at the
discretion of the independent Board of Directors, cumulative dividends at the
annual rate of 10% ($4.00 maximum) per share, in priority over any dividends
payable upon any of the Common Stock. As consideration, the Company received a
$400,000 note receivable from the sole stockholder. This note has since been
satisfied in cash.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, the holders of Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company that
are available for distribution, an amount in cash equal to $60 per share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation. If the assets of the Company are not
sufficient for this, then the holders of the Preferred Stock shall share ratably
in the distribution of assets.
The Company may redeem the Preferred Stock at any time six months after the
closing of a Qualified Public Offering ("public offering"), in whole or from
time to time, at a redemption price of $60 per share (the "redemption amount").
A "Qualified Public Offering" in this case is defined as a public offering
registered under the Securities Act of 1933 which ultimately results in gross
proceeds to the Company of at least $10,000,000. The holders of the Preferred
Stock will only be entitled to receive the redemption amount, and not the amount
of any accrued and unpaid dividends.
5. RELATED PARTY TRANSACTION
Effective January 1, 2001, the Company entered into a 12 month agreement for
consulting services with Stillwater Capital Advisors, LLC, a company partially
owned by the shareholders of the parent company. The amount accrued at April 30,
2001 under this agreement was $250,000. The Company is contractually obligated
to Stillwater Capital Advisors, LLC for an additional $500,000. The Company
believes the terms of this agreement to be at arm's length. See Notes 4, 6 and 7
for description of additional related party transactions.
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FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS
During the three months ended April 30, 2001, the Company entered into a letter
of intent to lease land and property to be used as its principal place of
business for annual rent of approximately $60,000 under a lease term of one year
with an option to renew for three consecutive periods of one year each. The
lessor is a consultant to the Company's parent and the commencement of this
lease is contingent upon the Company's closing of its public offering.
The Company has oral agreements with third party service providers such that if
the public offering is successful, additional fees of $125,000 will be remitted.
7. STOCK OPTIONS
During the three months ended April 30, 2001, the company adopted two stock
option plans: the 2001 Stock Option Plan (the "Plan") and the 2001 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan"). Under the terms of the
Plan, a maximum of 9% of the number of outstanding shares of the Company's
Common Stock, after giving effect to the close of Company's public offering, may
be granted to its officers, key employees and consultants. Options granted under
this Plan may be (a) Incentive Stock Options, (b) Non-Qualified Stock Options or
(c) a combination of the foregoing. No Incentive Stock Options may be granted to
a person who is not an employee. The option price per share of any stock option
granted under the Plan shall not be less than the fair market value of the
Common Stock at the date of the grant. In the case of an Incentive Stock Option
grant, the option price per share shall not be less than 110% of the fair market
value of the shares at the date of grant should that employee hold more than 10%
of the total combined voting power of all classes of stock of the Company, its
parent or subsidiaries at the grant date. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the Non-Employee Plan, options may be granted equal to a
maximum of 1% of the number of outstanding shares of the Company's Common Stock,
after giving effect to the close of Company's public offering. The option price
shall be the fair market value at the date of grant, and shall, in general, be
exercisable for a term of not more than five years.
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FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
During the three months ended April 30, 2001, the Company granted 500,000
options to a consultant, expected to become the Company's Chief Financial
Officer, at an exercise price of $3.00 per share of which 250,000 vest on the
grant date and the remaining vest over a four year period commencing on the
first anniversary of the grant date. In accordance with FAS 123 and related
interpretations, compensation expense for the fair value of these options will
be recognized over the period in which these options are earned. The fair value
approach for valuing stock options was determined using the Black-Scholes option
pricing model given the following assumptions: risk free interest rate of 5.53%;
expected option life of 4 years; and no dividend yield or volatility. Assuming a
fair market value of $10 per share (the projected selling price of shares in the
aforementioned public offering), the Company, therefore, incurred $2,064,919 of
non-cash compensation expense during the three months ended April 30, 2001 and
is expected to incur approximately $1,735,000 in future periods. It is expected
that future amounts will be recognized over the four year period from the grant
date. The fair value approach to the valuation of these options requires that
the unvested shares be "marked to market" at the end of each reporting period.
As such, if the fair value of the options change in the future, then related
current and future non-cash compensation expense will change accordingly. When
and if the consultant becomes an employee, a new measurement date will be
required resulting in a remeasurement of the value of the unearned options using
the intrinsic value method. This grant is separate and distinct from either of
the stock option plans described above.
8. EMPLOYMENT AGREEMENTS
The Company and its parent are committed to an employment agreement and certain
consulting contracts to multiple key individuals. All were executed during the
three months ended April 30, 2001 and the employment agreement requires the
close of the Company's public offering to become effective.
9. SEGMENT INFORMATION
The Company plans to adopt SFAS 131, which establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company expects that it will have two reportable segments: the racing
segment which will operate the race teams and the merchandising segment, when
established, will own, manage, market and distribute related merchandise.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash and notes receivable. The Company's cash
is deposited in a high quality FDIC insured financial institution, limiting the
Company's exposure to credit risk. The notes receivable are with the Company's
parent and have been substantially satisfied in due course.
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PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers
Our Restated Certificate of Incorporation provides that the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
DGCL. Under the DGCL, the directors have a fiduciary duty to us which is not
eliminated by this provision of our Restated Certificate of Incorporation and,
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available.
Section 145 of the DGCL empowers a corporation to indemnify its directors and
officers to cover 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:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions which are found by a court of competent
jurisdiction to not be in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL; or
- 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. Our Restated Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the DGCL and provides that we 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 that person is or was our director
or officer, or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. This indemnification shall be against expenses including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the indemnities in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or
permitted under our Restated Certificate of Incorporation or under the
indemnification agreements referred to above. We are not aware of any threatened
litigation or proceeding that may result in a claim for this type of
indemnification.
Item 25. Other Expenses Of Issuance And Distribution
The securities are being registered in connection with the public offering of up
to 2,500,000 shares of our common stock, and all of the following expenses will
be borne by FanZ Enterprises, Inc. The amounts set forth are estimates except
for the SEC registration fee:
Amount To Be Paid
- -----------------
SEC registration fee $ 6,250.00
State Blue Sky Fees $ 67,310.00
Printing and engraving expenses $100,000.00
Attorneys' fees and expenses $210,000.00
Accountants' fees and expenses $ 50,000.00
Transfer agent's and registrar's fees and expenses(1) $303,500.00
Miscellaneous $ 10,000.00
-----------
Total $747,060.00
===========
(1) Transfer Agent fees are based on an estimate of $3,500 for services related
to this offering and one year of transfer agent services for 100,000
stockholders at $.25 per month. This estimate does not include out-of-pocket
expenses incurred by the Transfer Agent.
Item 26. Recent Sales Of Unregistered Securities
On November 15, 2000, we issued 100 shares of our common stock to Jackson Roscoe
Motorsports, LLC for a total consideration of $100,100, $50,000 of which is
represented by a Demand Note. On February 23, 2001 we issued
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10,000 shares of our preferred stock to Jackson Roscoe Motorsports, LLC for
total consideration of $400,000, all of which is represented by a Demand Note.
As of the date hereof, the Demand Note has been paid in full. Both issuances
were private transactions that were exempt from the registration requirements of
the Securities Act, as amended, pursuant to the exemption found in Section 4(2)
of the Securities Act, as amended. On February 23, 2001 we increased the
authorized number of our common shares to 20,000,000. On May 15, 2001, we
authorized a 100,000 for 1 stock split pursuant to which our stockholders
received 100,000 shares of our common stock for every one share of common stock
owned. This split was also exempt from the registration requirements of the
Securities Act, as amended.
Item 27. Exhibits
The following exhibits are filed as part of this Registration Statement.
Exhibit
Page No. No. Description
-------- --- -----------
3(i) ____ Restated Certificate of Incorporation of FanZ Enterprises, Inc., filed with
the Secretary of State of Delaware on February 23, 2001.*
3(i)(a) ____ Certificate of Amendment to Restated Certificate of Incorporation of FanZ
Enterprises, Inc., filed with the Secretary of State of Delaware on June ___,
2001.
3(ii) ____ By-Laws of FanZ Enterprises, Inc. adopted on November 15, 2000.*
4 ____ Specimen Stock Certificate.*
5 ____ Opinion Letter dated April 5, 2001.*
10(i) ____ Form of Subscription Agreement.*
10(ii) ____ 2001 Stock Option Plan of FanZ Enterprises, Inc.
10(iii) ____ 2001 Non-Employee Director Stock Option Plan of FanZ Enterprises, Inc.
10(iv) ____ Employment Agreement between FanZ Enterprises, Inc. and Michael J. Wurtsbaugh.*
=
10(iv)(a) ____ First Amendment to Employment Agreement between FanZ Enterprises, Inc. and
Michael J. Wurtsbaugh.
10(v) ____ Option Agreement between FanZ Enterprises, Inc. and Michael J. Wurtsbaugh.*
10(v)(a) ____ First Amendment to Option Agreement between FanZ Enterprises, Inc. and Michael
J. Wurtsbaugh.
10(vi) ____ Letter of Intent Agreement between Jackson Roscoe Motorsports, LLC and Sharp
Racing, Inc.*
10(vii) ____ Form of Lock-up Agreement.
10(viii) ____ Consulting Agreement between FanZ Enterprises, Inc. and Stillwater Capital
Advisors, LLC.*
10(viii)(a) ____ First Amendment to Consulting Agreement between FanZ Enterprises, Inc. and
Stillwater Capital Advisors, LLC.
10(ix) ____ Consulting Agreement between FanZ Enterprises, Inc. and Michael J. Wurtsbaugh.
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10(x) ____ Consulting Agreement between Jackson Roscoe Motorsports, LLC and Eddie Sharp.
10(xi) ____ Form of Broker/Dealer Agreement
21 ____ Subsidiaries of FanZ Enterprises, Inc.*
23(i) ____ Consent of Certified Public Accountants dated _________, 2001.
23(ii) ____ Consent of Counsel (See Exhibit 5).*
23(iii) ____ Consent of Board Nominees.*
99 ____ Escrow Agreement.*
99(a) ____ First Amendment to Escrow Agreement.
*Previously filed.
Item 28. Undertakings
The Registrant hereby undertakes that it will:
- File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
Include any prospectus required by Section 10(a)(3) of the
Securities Act;
Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
Include any additional or changed material information on the
plan of distribution.
- File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of this offering.
- For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
Insofar as indemnification for liabilities arising under the Securities Act 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 SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
In the event a claim for indemnification against such liabilities (other than
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 its 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
Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
hereunto duly authorized, in the city of Ann Arbor, State of Michigan, on June
15, 2001.
FanZ Enterprises, Inc.
By: /s/ Frederick L. McDonald II
----------------------------
Frederick L. McDonald II, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ J. Roe Hitchcock Chief Executive Officer, (Chief June 15, 2001
- -------------------- Financial Officer, Chief Accounting
J. Roe Hitchcock Officer), Treasurer, Director
/s/ Frederick L. McDonald II President, Director June 15, 2001
- ----------------------------
Frederick L. McDonald II