SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERSPACE ENTERPRISES, INC.
(Name of Small Business Issuer as Specified in its charter)
Colorado 84-1283938
-------- ----------
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Classification Identification No.)
organization) Code Number)
7825 Fay Avenue, #200
La Jolla, California 92037
(858) 456-3539
(Address, including ZIP Code, and telephone number of principal executive
offices and principal place of business)
Andrew P. Patient
7825 Fay Avenue, #200
La Jolla, California 92037
(858) 456-3539
(Name, address and telephone number of agent for service.)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
W. Andrew Stack, Esq.
9123 Spinning Leaf Cove
Austin, Texas 78735
(918) 633-2830
Approximate date of proposed distribution and sale to the public: Any time after
the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, pleases check the following box and
list the Securities Act registration statement number of the earlier
registration 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. [ ]
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each Maximum Proposed Proposed Amount of
class of amount to be aggregated maximum registration fee
securities to be registered offering price aggregate (1)(2)
registered per unit (1)(2) offering price
(1)(2)
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Common stock, 25,000,000(3) $0.09 $2,250,000 $537.75
par value
$0.0001 per
share
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Common stock, 28,196,991(4) $0.09 $2,537,729 $606.52
par value
$0.0001 per
share
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Options to 7,000,000(5) $0.09 $630,000 $150.57
purchase common
stock, par value
$0.0001 par value
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended.
(2) Estimated pursuant to rule 457(c)
(3) This amount represents common shares that the Company reasonably expects
to sell within two years of the effective date of this registration
statement pursuant to Rule 415, from which sale the Company expects to
receive monetary benefit.
(4) This amount represents common shares to be registered and sold by
certain selling shareholders described in the registration statement
from which the Company will receive no monetary benefit.
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(5) This amount represents options to purchase common shares to be
registered by certain selling shareholders described in the registration
statement from which the company will receive monetary benefit upon
exercise.
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 SPECIFICALLY STATING THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PART I-INFORMATION REQUIRED IN PROSPECTUS
Item 1: Front of Registration Statement and Outside Front Cover of Prospectus
(1) Registrant's Name. Interspace Enterprises, Inc.
(2) Title and amount of securities. All of the shares of common stock,
$0.0001 par value, (the "Common Stock") offered hereby (the "Offering") are
being sold by certain shareholders who are registering 28,196,991 shares issued
under the terms of a debenture and the conversion of said debenture into common
shares of the company, and options to purchase 7,000,000 shares issued to
certain investors, all of which carried certain piggyback registration rights.
In addition, the company is shelf registering an additional 25,000,000 shares of
common stock, an amount which it reasonably believes may be sold within the next
two years. This prospectus may be used only in connection with the resale of
61,196,991 shares of common stock of Interspace Enterprises, Inc. by the selling
stockholders listed on page 13 of this prospectus.
(3) Offering price of the securities. The company is offering 25,000,000
shares of common stock for cash. Such offering will be made at the then
applicable market rate. Because our stock is highly volatile, it is impossible
to determine the price at which these shares will be sold. For purposes of this
registration statement, we have calculated the offering price at $0.09 per
share, the average trading price on February 5, 2002. On February 5, the low
and high bid prices for the common stock on the Bulletin Board were $0.085 and
$0.095, respectively.
(4) Our common stock is traded on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board under the symbol "ITET."
(5) INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. INVESTORS
SHOULD CAREFULLY CONSIDER THE RISK FACTORS OUTLINED IN THIS PROSPECTUS BEGINNING
ON PAGE 7 BEFORE MAKING A DECISION TO INVEST IN OUR COMPANY.
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(7) Neither the Securities and Exchange Commission nor any state securities
commission has approved or disproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
(8) The information in this prospectus is not complete and may be changed.
The corporation may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
(9) The date of this Prospectus is February 6, 2002.
Item 2: Inside Front and Outside Back Cover Pages of Prospectus
TABLE OF CONTENTS
PART I: INFORMATION REQUIRED IN PROSPECTUS
Item 1: Front and Outside Front Cover of Registration Statement 3
Item 2: Inside Front and Outside Back Cover Pages of
Registration Statement 4
Item 3: Summary Information 5
Item 4: Use of Proceeds 12
Item 5: Determination of Offering Price 12
Item 6: Dilution 13
Item 7: Selling Shareholders 13
Item 8: Plan of Distribution 15
Item 9: Litigation Proceedings 15
Item 10: Director, Executive Officers, Promoters and Control Persons 15
Item 11: Security Ownership of Certain Beneficial Owners 17
Item 12: Description of Securities 18
Item 13: Interest and Named Experts and Counsel 18
Item 14: Disclosure of Commission Position on Indemnification 19
Item 15: Organization Within the Last Five Years 19
Item 16: Description of Business 20
Item 17: Management's Discussion and Analysis of Plan of Operation 36
Item 18: Description of Property 37
Item 19: Certain Relationships and Related Transactions 37
Item 20: Market for Common Equity and Related Stockholders Matters 37
Item 21: Executive Compensation 38
Item 22: Financial Statements 39
Item 23: Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 56
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PART II: INFORMATION NOT REQUIRED IN REGISTRATION STATEMENT
Item 24: Indemnification of Directors and Officers 56
Item 25: Other Expenses of Issuance and Distribution 57
Item 26: Recent Sales of Unregistered Securities 57
Item 27: Exhibits 57
Item 28: Undertakings 58
Signatures
Item 3: Summary Information and Risk Factors
FORWARD-LOOKING STATEMENTS
This Registration Statement contains statements that constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Prospectus are
forward-looking statements. Forward-looking statements are typically identified
by the words "believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. Although such forward-looking statements (and the assumptions upon
which they are based) reflect Interspace Enterprises, Inc.'s current reasonable
judgment regarding the direction of its business, actual results will almost
always vary, sometimes materially. Interspace Enterprises, Inc. undertakes no
obligation to release publicly any revisions to any such forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated results. The information contained in
this Prospectus, including without limitation the information under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," identifies important factors that could affect
actual results, and Interspace Enterprises, Inc.'s forward-looking statements
are expressly qualified in their entirety by such factors.
PROSPECTUS SUMMARY
This summary highlights information about the Offering and Interspace
Enterprises, Inc. that we believe will be important to you. You should read the
entire prospectus including the financial statements for a complete
understanding of our business and this Offering.
The Company
InterSpace Enterprises, Inc., a Delaware corporation, was formed on June
30, 1998. Following incorporation, the InterSpace Delaware founders, developed
a preliminary business plan for the PlanetLotto lottery and game show, raised
seed capital, and began to negotiate with various foreign governments to host
the PlanetLotto lottery. For the purposes of becoming a publicly traded
company, InterSpace Enterprises acquired all of the outstanding shares of common
stock of Marathon Marketing Corporation, a Colorado corporation. After
acquiring all of the Marathon Marketing common stock, InterSpace Delaware merged
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into its subsidiary on April 17, 2000, changing its name to InterSpace
Enterprises, Inc. Thereafter, the Company has begun to implement the business
plan and carry on the business activities previously initiated by Interspace
Delaware. The Company assumed, performed and became responsible for all assets,
contracts, liabilities, obligations and agreements of InterSpace Delaware as a
result of the Merger. Additionally, the company made the necessary filings to
become a fully reporting 12(g) publicly traded company and subsequently received
approval to begin trading of its common stock on the NASD Over-The-Counter
Bulletin Board market under the symbol "ITET".
Interspace Enterprises, Inc. is the exclusive marketer of the
planetlotto.com lottery, hosted and operated by the International Lottery in
Liechtenstein Foundation, under the rules and regulations of the Government of
Liechtenstein. The Company's lottery will be marketed predominantly through
Internet marketing channels. The Company's web site, www.planetlotto.com, will
be marketed as potentially the single largest online lottery, with the ability
to draw massive player interest and produce weekly jackpots previously
unimaginable online. The web site also web casts our weekly PlanetLotto draw,
which can be viewed live through the web site, via streaming video. The
Company's principal revenue stream is derived directly from a portion of the
proceeds of every transaction on the Planetlotto.com web site.
The Offering
We are registering 26,371,658 Shares of Common stock previously sold under
Rule 144 under which certain piggyback registration rights were granted. In
addition, we are registering 7,000,000 options to purchase common stock of
Interspace on a 1 for 1 conversion basis. Interspace is also shelf registering
25,000,000 shares of common stock.
SUMMARY OF CERTAIN INFORMATION
This summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety. When used
with reference to periods after the Stock Distribution (as defined below), the
terms the "Company" mean Interspace Enterprises, Inc.
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INTERSPACE ENTERPRISES, INC. Owner of www.planetlotto.com. A
Colorado corporation.
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MANAGEMENT It is expected that all current Senior
management of the Company who have
extensive experience in the business
will remain in their current capacities
with the Company. For information
regarding employment agreements with
certain senior management of the
Company, see page 15.
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SHARES OUTSTANDING 111,490,556 as of January 23, 2002
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RISK FACTORS Stockholders should carefully consider
the risk factors associated with
investing in our common stock. A
detailed description of the associated
risks are contained in the Section
titled "Risk Factors" beginning on
page 7.
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TRADING MARKET Nasdaq Over-The-Counter Bulletin Board
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STOCK TICKER SYMBOL "ITET" is the current symbol of the
Company
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TRANSFER AGENT AND REGISTRAR Executive Registrar and Transfer
Agency, Inc.
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DIVIDEND POLICY The Company has no current plans to
declare or issue a dividend.
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PRINCIPAL OFFICE 7825 Fay Avenue, Suite 200
La Jolla, California 92037
(858) 456-3539
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Risk Factors
OUR SECURITIES ARE HIGHLY SPECULATIVE. YOU SHOULDN'T PURCHASE THEM UNLESS YOU
CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO PURCHASE OUR SECURITIES.
An investment in this Offering is highly speculative and involves a high
degree of risk. Prior to the purchase of any Shares, a prospective investor
should carefully consider the following risk factors, as well as other
information contained in this Offering Circular, including the financial
statements and notes contained elsewhere in this document. The Shares should
not be purchased by persons who cannot afford the loss of their entire
investment. This Prospectus contains certain forward-looking statements. Our
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain of the factors set forth under
"Risks Factors" and elsewhere in this Prospectus.
FACTORS AFFECTING THE COMMON STOCK
Possible Volatility of Stock Price. Trading prices are influenced by many
factors, including the depth and liquidity of the market for the Common Stock,
quarterly variations in operating results, announcements of new publications,
acquisitions or technological innovations by Interspace Enterprises, Inc. or its
competitors, Interspace Enterprises' dividend policy, the possibility of future
sales of Common Stock by Interspace Enterprises, Inc. or its significant
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stockholders, the operating and stock price performance of other companies that
investors may deem comparable to Interspace Enterprises, Inc., changes in
financial estimates by securities analysts, investor perception of Interspace
Enterprises, Inc. and the prospects for its businesses, and general economic and
stock market conditions.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. If such sales reduce the market
price of the Common Stock, Interspace Enterprises, Inc. ability to raise
additional capital in the equity markets could be adversely affected.
It is Unlikely that our Company Will be Able to Continue as a Going Concern
Without a Significant Improvement in Our Financial Condition, Which has
Constrained our Ability to Finance Acquisitions, Web and Internet Development
and Other Operating Expenses as Needed.
Our ability to continue operations is dependent upon our continued sale of
our securities for funds to meet our cash requirements, and as a result, our
ability to continue as a going concern is doubtful.
Unless we are able to generate sufficient revenue or raise additional funds
when needed, it is likely that we will be unable to continue our planned
activities, including our acquisition and expansion strategy even if we are
making progress towards implementing our business plan and attracting new
players. The longer the duration of the business plan implementation, the more
unlikely it is that we will be able to raise such funds on favorable terms to us
or at all, or that any funds raised will be sufficient to complete
implementation of the business plan to the point where revenues will be
sufficient to sustain our operations and meet our expenses. There is no
assurance that the business plan, if and when fully implemented, and additional
financing from the sale of our common stock will improve our financial
condition.
We may not be able to obtain additional financing on favorable terms to us,
if at all. If adequate funds are not available, or are not available on terms
favorable to us, we may not be able to effectively continue or complete the
implementation of our business plan.
Penny Stocks. Because Our Shares Are 'Penny Stocks,' You May Be Unable to
Resell Them in The Secondary Market. A "penny stock" is an equity security with
a market price of less than $5 per share which is not listed on the NASDAQ or
another national securities exchange. Due to the extra risks involved in an
investment in penny stocks, federal securities laws and regulations require
broker/dealers who recommend penny stocks to persons other than their
established customers and accredited investors to make a special written
suitability determination for the purchaser, provide them with a disclosure
schedule explaining the penny stock market and its risks, and receive the
purchaser's written agreement to the transaction prior to the sale. These
requirements limit the ability of broker/dealers to sell penny stocks. Also,
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because of the extra requirements, many broker/dealers are unwilling to sell
penny stocks at all. As a result, you maybe unable to resell the stock you buy
as a result of this offering and could lose your entire investment.
No Assurance of Continued NASD Listing. Subsequent to this offering, there
are no assurances that a public trading market shall continue to exist for the
common stock of Interspace Enterprises. There can be no assurance that a public
trading market for the common stock will be sustained, although we anticipate
that it will continue on the OTC Bulletin Board. Consequently, there can be no
assurance that a regular trading market, other than Bulletin Board trading, for
our securities will develop in the future. If a trading market does in fact
develop for the securities offered hereby, there can be no assurance that it
will be maintained. If for any reason such securities fail to maintain their
listing on the Bulletin Board, the listing is not maintained, or a public
trading market ceases to exist, holders of our securities may have difficulty in
selling their securities should they desire to do so.
OTHER RISK FACTORS
Development Stage Company. We have just recently emerged from the
development stage, however our operations are subject to all of the risks
inherent in the establishment of a new business enterprise, including the
absence of an operating history. The likelihood of our success must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the formation of a new
business, the development of new technology, and the competitive environment in
which we will operate. In order to achieve profitability, we will need to
successfully complete development of certain products, hire and manage
additional staff for administrative, marketing and sales related functions, and
effectively service clientele. We are just beginning to face the challenges of
moving from a development stage company to an operating company, and no
assurances can be given as to whether such transition will take place smoothly
or the likelihood of success in the transition.
Limited Operating History; Recent Losses; No Assurances of Profitability.
Interspace Enterprises, Inc. was incorporated in 1998 and, has just begun to
generate revenues as of December 20, 2001. Accordingly, we have a very limited
operating history, which makes the prediction of future results difficult or
impossible. We have incurred significant net losses since inception of
approximately of $2,897,298. As of September 30, 2001, we have negative
Shareholders' Equity of approximately $(410,912). We generally are unable to
significantly reduce expenses in the short-term to compensate for any expected
revenue short fall. Accordingly, any significant short fall of revenues in
relation to our expectation would have an immediate adverse effect on our
business, financial conditions and results of operation. There can be no
assurance that we will be profitable in any future period and recent operating
results should not be considered indicative of future financial performance. We
are subject to the risk inherent in the operation of a new business enterprise
and there can be no assurance that we will be able to successfully address these
risks. See "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Requirement of Audited Financial Information for Businesses That May Be
Acquired We are currently subject to the periodic reporting requirements of the
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Exchange Act. Current reports will be required each time a reportable event
occurs relating to our business affairs. Should we contemplate the acquisition
of a significant amount of assets of another company or of the other company
itself, it will be required to provide the Securities and Exchange Commission
with certified financial statements of the company or companies to be acquired.
No assurances can be given that such certified financial statements of a
contemplated acquisition will be available to us. We may, therefore, be
precluded from making such acquisition or acquisitions if the requisite
financial information is unavailable or can only be obtained at excessive cost
to us.
We Are Subject to Risks Associated with Dependence on the Internet and
Internet Infrastructure Development. Our success will depend in large part on
continued growth in, and the use of, the Internet. There are critical issues
concerning the commercial use of the Internet which remain unresolved. The
issues concerning the commercial use of the Internet which we expect to affect
the development of the market for our products and services include:
. security . ease of access
. reliability . quality of service
. cost . necessary increases in bandwidth availability
The adoption of the Internet for information retrieval and exchange, commerce
and communications, particularly by those enterprises that have historically
relied upon traditional means of commerce and communications, generally will
require that these enterprises accept a new medium for conducting business and
exchanging information. These entities likely will accept this new medium only
if the Internet provides them with greater efficiency and an improved arena for
commerce and communication.
We Are Subject to Risk of Computer And Communication Systems Failure Which
May Hinder Our Ability to Operate Successfully. Our success, in particular our
ability to successfully receive and fulfill orders and provide high-quality
customer service, largely depends on the efficient and uninterrupted operation
of our computer and communications systems. We contract with a third party to
host and maintain our Web site. While we contract with a third party to provide
back up web hosting services, our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and other third party events and Acts of God. We carry no
business interruption insurance to compensate us for losses that may occur. In
addition, our security mechanisms or those of our suppliers may not prevent
security breaches or service breakdowns. Despite our implementation of security
measures, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. These events could cause
interruptions or delays in our business, loss of data or render us unable to
accept and fulfill orders.
The Internet May Become Subject to Additional Government Regulation, Which
Could Affect Our Operations or Increase Our Business Costs. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel, contracts and taxation apply to the
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Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.
The success of our service will depend in large part upon the development
and maintenance of the Web infrastructure, such as a reliable network backbone
with the necessary speed, data capacity and security. We also depend on timely
development of complementary products, such as high-speed modems, for providing
reliable Web access and services. Because global commerce and the online
exchange of information are new and evolving, it is difficult to predict with
any assurance whether the Web will prove to be a viable commercial marketplace
in the long-term. The Web has experienced, and is expected to continue to
experience significant growth in the numbers of users and amount of traffic. To
the extent that the Web continues to experience increased numbers of users,
frequency of use of increased bandwidth requirements of users, the Web,
infrastructure may not continue to be able to support the demands placed on it
by this continued growth and the performance or reliability of the Web may be
compromised. The infrastructure of complementary products or services necessary
to make the Web a viable commercial marketplace of the long-term may not be
developed and, even if it is developed, the Web may not become a viable
commercial marketplace for products and services such as those offered by the
company. If the necessary infrastructure, standard or protocols or
complementary products, services or facilities are not developed, or if the Web
does not become a viable commercial market place, our business, financial
condition and results of operations will be harmed. Even if the
infrastructures, standards or protocols or complementary products, services or
facilities are developed and the Web becomes a viable commercial marketplace in
the long term, we might be required to incur substantial expenditures in order
to adapt our service to changing Web technologies, which could harm our
financial condition and results of operations.
If Not Managed Efficiently, Our Growth May Divert Management's Attention
from the Operation of Our Business Which Could Hinder Our Ability to Operate
Successfully. Our anticipated growth will continue to place significant demands
on our managerial and operational resources. Our failure to manage our growth
efficiently may divert management's attention from the operation of our business
and render us unable to keep pace with our customers' demands.
Legal Risks Associated with Information Disseminated Through the Company's
Services May Harm the Company's Business. We anticipate marketing a significant
amount of products to our members and marketing club memberships on the
Internet. The law relating to the liability of online companies for information
carried on or disseminated through their web site is currently unsettled. It is
possible that claims could be made against online companies under both United
States and foreign law for defamation, libel, invasion of privacy, negligence,
copyright or trademark infringement, or other theories based on the nature and
content of the material disseminated through their web sites. Several private
lawsuits seeking to impose such liability upon other online companies are
currently pending. In addition, legislation has been proposed in several states,
including California, Maryland, Nevada, Virginia and Washington that imposes
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liability for, or prohibits the transmission over the Internet, of certain types
of unsolicited e-mail or advertisements. The imposition upon the company and
other online providers of potential liability for information carried on or
disseminated through their web sites could require us to implement measures to
reduce our exposure to such liability, which may require us to expend
substantial resources and/or to discontinue certain services. In addition, the
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could impact the growth of Internet use. We do not
currently carry liability insurance. Therefore, any costs incurred by us as a
result of such liability or asserted liability could harm our business,
financial condition and results of operations.
The Issuance and Enforcement of Broad Patents Could Force the Company to
Make Certain Changes in the Way it Implements the Company's Business Model. The
U.S. Patent Office recently issued several business-method patents having an
impact on business conducted on the Internet, among them the business-method
patents relating to "one click" online transactions (whereby third party
affiliates provide certain services, including book review, online) issued to
Amazon.com. While we do not believe that any of the business process patents
issued to date will directly impact the way we plan on conducting the Internet
portion of our business, there can be no assurance that the U.S. Patent Office
will not issue additional business-method patents which could have an adverse
impact on our Internet business, forcing modification to some of our planned
business activities in order to avoid possible future claims of patent
infringement. The recent granting of such patents is still being challenged.
Furthermore, the likelihood and ability to enforce such broad patents remains
undetermined. Nonetheless, the continued granting of such broad patents could,
in the future, force us to change our method of advertising, as well as other
important aspects of the Internet portion of our business or face the risk of
litigation.
Item 4: Use of Proceeds
We will not receive proceeds from the registration of common stock by the
selling security holders as shown in "Selling Security Holders". We will
receive proceeds from the sale of 25,000,000 shares registered herein for sale
at a later date. We intend to use all proceeds from the registration and sale
of common stock for working capital including but not limited to, administrative
and general overhead expenses including salaries and bonuses, repayment of
obligations owed to third parties including vendors and creditors and expansion
of our business including the identification and purchase of other companies or
their assets.
Item 5: Determination of Offering Price
In addition to the registration of shares of our common stock which is
currently traded on Nasdaq's Over-The-Counter Bulletin Board, the company is
registering options to purchase 7,000,000 shares of its common stock granted to
certain investors as additional consideration for their investment in the
company. The options contain a strike price of $0.01 per share, and were
granted at a time when the company's common stock was trading at or around $0.02
per share. The company will receive proceeds from the exercise of these
options.
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Item 6: Dilution
As of December 31, 2000 the pro forma net tangible book value of our common
stock was $(0.01) per share. Net tangible book value per share is equal to our
total tangible assets less liabilities divided by the number of issued and
outstanding shares of our common stock. Assuming the exercise of all 7,000,000
options being registered herein and the sale of all 25,000,000 shares registered
for the shelf herein at $0.075 per share, and the application of the net
proceeds as set forth under "Use of Proceeds"; the pro forma net tangible book
value of our common stock at December 31, 2000 would have been $1,159,928 or
$0.02 per share. This represents an immediate increase in our pro forma net
tangible book value of $0.03 per share to existing shareholders and an immediate
dilution in pro forma net tangible book value of $0.045 per share to persons
acquiring our shares through this registration statement.
Item 7: Selling Security Holders
The table below sets forth certain information as of the date of this
prospectus with respect to the amount and percentage ownership of each selling
security holder before this offering, the number of shares covered by this
prospectus and the amount and percentage ownership of each security holder after
this offering (assuming the issuance of the 26,371,658 shares being registered
for the account of security holders in this registration statement and the
exercise of options to purchase 7,000,000 shares of common stock being
registered in this registration statement). Unless otherwise disclosed, none of
the selling security holders has had any material relationship with us in the
past three years.
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Selling Security Shares Percentage Shares Shares Owned Percentage
Holder Owned Owned Being After Offering Owned
Before Before Registered (3) After
Offering Offering (2) Offering
(1) (4)
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Donlon Murphy 2,007,000 1.80% 2,007,000 2,007,000 1.39%
Corp. (5)
- --------------------------------------------------------------------------------
Zabadoo.com AG 7,000,000 6.27% 7,000,000 7,000,000 4.88%
- --------------------------------------------------------------------------------
Robert K. Swanson 7,352,000 6.59% 14,352,000 (2) 14,352,000 (3) 10.00% (4)
- --------------------------------------------------------------------------------
Bergen Briller
Group 75,000 Nominal 75,000 75,000 Nominal
- --------------------------------------------------------------------------------
Shari Blecher 13,000 Nominal 13,000 13,000 Nominal
- --------------------------------------------------------------------------------
Stuart Liberman 13,000 Nominal 13,000 13,000 Nominal
- --------------------------------------------------------------------------------
Gilbert Satov 600,000 Nominal 600,000 600,000 Nominal
- --------------------------------------------------------------------------------
Larry Heuchart 150,000 Nominal 150,000 150,000 Nominal
- --------------------------------------------------------------------------------
Doug E. Lachance 163,000 Nominal 163,000 163,000 Nominal
- --------------------------------------------------------------------------------
Carl Jantz 833,333 Nominal 833,333 833,333 Nominal
- --------------------------------------------------------------------------------
Ronnie Tan 833,333 Nominal 833,333 833,333 Nominal
- --------------------------------------------------------------------------------
Kavan Singh 1,666,666 1.49% 1,666,666 1,666,666 1.16%
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
Michael Tait 416,666 Nominal 416,666 416,666 Nominal
- --------------------------------------------------------------------------------
Jonathan Wichman 833,333 Nominal 833,333 833,333 Nominal
- --------------------------------------------------------------------------------
Peter M.
Reynolds 1,500,000 1.34% 1,500,000 1,500,000 1.04%
- --------------------------------------------------------------------------------
Donald & Diane
Paquette 190,000 Nominal 190,000 190,000 Nominal
- --------------------------------------------------------------------------------
Jonathan H. Davis 166,666 Nominal 166,666 166,666 Nominal
- --------------------------------------------------------------------------------
David R.
Heilbroner 200,000 Nominal 200,000 200,000 Nominal
- --------------------------------------------------------------------------------
William E. &
Patricia A. Post 416,666 Nominal 416,666 416,666 Nominal
- --------------------------------------------------------------------------------
Gary S. Semple 150,000 Nominal 150,000 150,000 Nominal
- --------------------------------------------------------------------------------
Maria S. Machado 33,333 Nominal 33,333 33,333 Nominal
- --------------------------------------------------------------------------------
Philip F. &
Carol Lindner 500,000 Nominal 500,000 500,000 Nominal
- --------------------------------------------------------------------------------
Frederick C. &
Perri L. Sachs 66,666 Nominal 66,666 66,666 Nominal
- --------------------------------------------------------------------------------
Robert Bowler 833,333 Nominal 833,333 833,333 Nominal
- --------------------------------------------------------------------------------
Norman Rest 266,666 Nominal 266,666 266,666 Nominal
- --------------------------------------------------------------------------------
Robert J.
D'Esposito, Jr. 393,333 Nominal 393,333 393,333 Nominal
- --------------------------------------------------------------------------------
Marshal D.
Schictman 20,000 Nominal 20,000 20,000 Nominal
- --------------------------------------------------------------------------------
Giovanni Garcia 16,666 Nominal 16,666 16,666 Nominal
- --------------------------------------------------------------------------------
Valentin Chavez 16,666 Nominal 16,666 16,666 Nominal
- --------------------------------------------------------------------------------
Gary Mozach 100,000 Nominal 100,000 100,000 Nominal
- --------------------------------------------------------------------------------
Susan Rohrbach 50,000 Nominal 50,000 50,000 Nominal
- --------------------------------------------------------------------------------
Paul & Pat
Recore 100,000 Nominal 100,000 100,000 Nominal
- --------------------------------------------------------------------------------
Freedom Financial
Group 970,665 Nominal 970,665 970,665 Nominal
- --------------------------------------------------------------------------------
David
Robart-Morgan 250,000 Nominal 250,000 250,000 Nominal
- --------------------------------------------------------------------------------
(1) Percentage calculation is based on a total of 111,490,556 common shares
outstanding prior to the offering.
(2) Total number of shares being registered assumes exercise of all
7,000,000 options to purchase common shares and the sale of all 25,000,000
shares registered for the shelf.
(3) Total number of shares outstanding after the offering are calculated
assuming exercise of all 7,000,000 options to purchase common shares and
the sale of all 25,000,000 shares registered for the shelf.
14
(4) Percentage calculation is based on a total of 143,490,556 common shares
outstanding after the offering, assuming exercise of all 7,000,000 options
to purchase common shares and the sale of all 25,000,000 shares registered
for the shelf.
(5) The Donlon Murphy Corporation is made up of members of the family of
Daniel P. Murphy, CEO of Interspace Enterprises, Inc. Mr. Murphy is not a
shareholder of Donlon Murphy, nor does he control any stock of Donlon
Murphy. Donlon Murphy was formed by members of Mr. Murphy's family who
own shares in Interspace Enterprises and have no direct operational
control of Interspace Enterprises, other than the requisite voting
power as a shareholder of Interspace Enterprises.
Item 8: Plan of Distribution
We are registering the shares of common stock and options to purchase
common stock on behalf of the current shareholders of Interspace Enterprises
Corporation in fulfillment of our contractual obligation to do so contained in
certain piggyback registration rights agreements with selling shareholders.
Interspace Enterprises agreed to pay all costs, expenses and fees in connection
with this registration. Interspace Enterprises will not receive any of the
proceeds from the distribution of the shares in which piggyback registration
rights were granted, but will receive proceeds from the exercise of options to
purchase shares. In addition, Interspace will receive all proceeds from the
sale of shares registered for the shelf, less any applicable commissions.
Interspace has not negotiated for the sale of the shelf registered stock
contained in this prospectus, thus it has no information at this time as to the
commissions which might be charged by underwriters. Interspace anticipates that
a substantial portion of these common shares will be sold directly to investors,
outside of any underwriting agreement, and thus without cost of commissions.
Item 9: Legal Proceedings
The company is not a party to any material litigation and is not aware of
any threatened material litigation
Item 10: Director, Executive Officers, Promoters and Control Persons
(a) The following persons are currently serving as directors of the Company.
Certain information regarding each director is set forth below, including each
individual's principal occupation, and the year in which the individual was
elected a director of the Company or one of its predecessor companies.
DIRECTORS
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- --------------------- -----
Daniel P. Murphy 32 Founder, President, Chief Executive 1998
Officer, Chairman and Director
15
Alejandro Trujillo 32 Founder, Chief Technology Officer 1998
and Director
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION WITH COMPANY TERM
- ---- --- --------------------- -----
Daniel P. Murphy 32 Chairman of the Board, President and 4 years
Chief Executive Officer
Andrew P. Patient 31 Chief Financial Officer, Treasurer
and Secretary 2 years
(b) Identification of Certain Significant Employees.
NONE
(c) Family Relationships.
NONE
(d) Business Experience
The following is a brief account of the business experience during the past
five years of each of the Company directors and executive officers, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.
Daniel P. Murphy, President, Chief Executive Officer, Chairman and Director
Mr. Murphy, is the President and Founder of the Company and has served as
its Chief Executive Officer since inception. Mr. Murphy is also the Chairman of
the Board of Directors for Interspace Enterprises. Prior to founding the
Company, Mr. Murphy spent two years in operations management at Taco Bell
Corporation. Mr. Murphy has worked as a business consultant for various
companies from 1990 through 1996. Mr. Murphy, educated at the University of
California, San Diego (UCSD) in the field of Urban Studies and Planning, has an
entrepreneurial background in marketing, sales and business development arising
through his tenure as the Principal of a wholesale belt manufacturing company
from 1990 to 1992. Mr. Murphy was in charge of all aspects of business
operations including advertising, marketing, administration, sales,
manufacturing and design. His current primary responsibility is to develop and
maintain the Company vision, oversee all areas and Company departments, approve
all financial obligations, seek business opportunities and strategic alliances
with other organizations, and plan, develop and establish policies and
objectives of business organization in accordance with board directives and
Company charter. Mr. Murphy also has experience in operations management.
16
Alejandro Trujillo, Chief Technology Officer, Director
Mr. Trujillo is a co-founder, director and has served as the Company's
Chief Technology Officer since June 1998. Mr. Trujillo is also a member of the
Company's Board of Directors. Prior to working with the Company, Mr. Trujillo
was the V.P. of Development for Netrom Inc., a multimedia development company,
from 1996 through 1998. Mr. Trujillo has an extensive background within the
programming and Internet industry.
Andrew P. Patient, Chief Financial Officer and Secretary
Mr. Patient has served as the Company's Chief Financial Officer and
Secretary since 1999. Before joining Interspace, Mr. Patient held the position
of Chief Financial Officer of Netrom, Inc., a multimedia development company,
from 1997 to 1999. Prior to that, Mr. Patient worked for six years as a senior
audit staff member with BDO Dunwoody in the Toronto area and later with an
affiliate office in San Diego. Mr. Patient earned a Bachelors degree with
honors from Brock University in 1994 and is a Certified Public Accountant and
Canadian Chartered Accountant.
(e) Committees of the Board of Directors
During 2001, the Board of Directors met on twenty-six occasions. All
directors attended 100% of the meetings of the Board during 2001.
The Company is currently actively seeking additional Board members and has
identified several potential candidates in the areas of finance, gaming and
technology. It is the intent of the Company to instate an additional 3 members
to the Board in the 2002 fiscal year.
Item 11: Security Ownership of Certain Beneficial Owners and Management
Securities Ownership of Principal Stockholders
The following table sets forth the Common Stock of the Company's Common
Stock beneficially owned by each person who is known by the Company to be the
beneficial owner of more than five percent of the Common Stock as of September
30, 2001.
Outstanding
----------------
Title Beneficial Owner- Beneficially Percent
Owned
Of Class Name and Address Owned Owned
- ---------- ---------------- ------------ -------
Common Daniel P. Murphy
President, Chairman, CEO, 15,750,000 (1) 17.28%
and Director
7825 Fay Avenue, #200
La Jolla, California 92037
17
Common Alejandro Trujillo
Chief Technology Officer and 15,750,000 (2) 17.28%
Director
7825 Fay Avenue, #200
La Jolla, California 92037
Common Andrew P. Patient
CFO, Treasurer, and
Secretary 6,750,000 (3) 7.41%
7825 Fay Avenue, #200
La Jolla, California 92037
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all Common and
Preferred Stock and options or warrants to purchase stock.
(1) Includes 6,750,000 shares pledged against payment of a promissory note to
the Company in the amount of $67,500 used to exercise the options under which
the shares were acquired. Mr. Murphy has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.
(2) Includes 6,750,000 shares pledged against payment of a promissory note to
the Company in the amount of $67,500 used to exercise the options under which
the shares were acquired. Mr. Trujillo has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.
(3) Includes 3,600,000 shares pledged against payment of a promissory note to
the Company in the amount of $36,000 used to exercise the options under which
the shares were acquired. Mr. Patient has full power to vote the shares and
exercise all other rights of ownership, other than sale of the shares.
Item 12: Description of Securities
All of the shares of common stock, $0.0001 par value, (the "Common Stock")
offered hereby (the "Offering") are being sold by certain shareholders who are
registering up to 28,196,991 shares of common stock, 7,000,000 options to
purchase shares of common stock, and 25,000,000 shares registered for the shelf.
All shares contained in this registration statement are common shares. The
company's common shares are listed on the Nasdaq Over-The-Counter Bulletin
Board.
Item 13: Interest of Named Experts and Counsel
None.
18
Item 14: Disclosure of Commission Position on Indemnification for Securities
Act Liabilities
The Company's Bylaws and the Colorado Business Corporation Act provide for
and Directors of the Company are indemnified generally against expenses actually
and reasonably incurred in connection with proceedings, whether civil or
criminal, provided that it is determined that they acted in good faith, were not
found guilty, and, in any criminal matter, had reasonable cause to believe that
their conduct was not unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers, or persons
controlling our Company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in our affairs since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making the offer is not qualified to do so or to anyone
to whom it is unlawful to make such offer or solicitation.
Item 15: Organization Within the Last Five Years
The 1999 Omnibus Stock Plan (the "Executive Plan"), approved by
shareholders in 1999, was implemented in March, 2000 with 3 employees
participating. Under the terms of the Executive Plan, eligible key employees
were granted the right to purchase shares of the Company's Common Stock at the
market price, or in the case of owners of 10% or more of the outstanding shares
110% of the market price, which was $1.00 per share at the time of purchase.
Participating employees financed the purchases of these shares through
promissory notes from the Company at the Federal Rate for Mid-Term Funds,
payable over five years. The loans were fully-recourse to the participating
employees but were guaranteed by 150% of the number of shares acquired through
the note. Sales of the shares purchased under the Plan are subject to the
restrictions of unregistered securities.
On April 12, 2000, Berkshire Capital Partners, Inc. entered into a Share
Purchase Agreement with the control shareholders of Marathon Marketing Corp. in
which Berkshire Capital Partners, Inc. was to acquire all 672,000 shares
outstanding of the Registrant from the certain shareholders for purpose of
accomplishing a Merger of InterSpace Enterpsises, Inc. and Marathon Marketing
Corp. The Agreement was subsequently cancelled and Prudential Overseas Company,
Ltd. acquired 672,000 shares. Prudential Overseas Company, Ltd. exchanged
19
672,000 shares to InterSpace Enterprises, Inc. for 672,000 shares of its stock
on April 17, 2000.
On April 17, 2000, InterSpace Enterprises, Inc. completed a Share Exchange
Agreement with shareholders of Marathon Marketing Corp. in which InterSpace
Enterprises, Inc., a Delaware corporation, acquired all 672,000 shares
outstanding of the Registrant for the purposes of accomplishing a Merger of
Marathon Marketing Corp. and InterSpace Enterprises, Inc. The Merger was
subsequently completed.
Item 16: Description of Business: Interspace Enterprises - the company
GENERAL DEVELOPMENT OF BUSINESS
InterSpace Enterprises, Inc. is a Colorado corporation. The principal
executive offices are currently located at 7825 Fay Avenue, Suite 200, La Jolla,
California 92037. All communications with the Company should be forwarded to the
foregoing address, by telephone (858) 456-3539, by facsimile at (858) 454-2679
or via the company's Internet address at www.planetlotto.com.
InterSpace Enterprises, Inc., a Delaware corporation ("InterSpace
Delaware") was formed on June 30, 1998. Following incorporation, the InterSpace
Delaware Founders, developed a preliminary business plan for the PlanetLotto
lottery and game show, raised seed capital, and began to negotiate with various
foreign governments to host the PlanetLotto lottery. For the purposes of
becoming a publicly traded company, InterSpace Enterprises acquired all of the
outstanding shares of common stock of Marathon Marketing Corporation, a
Colorado corporation. After acquiring all of the Marathon Marketing common
stock InterSpace Delaware merged into its subsidiary on April 17, 2000, changing
its name to InterSpace Enterprises, Inc. Thereafter, the Company has begun to
implement the business plan and carry on the business activities previously
initiated by Interspace Delaware. The Company assumed, performed and became
responsible for all assets, contracts, liabilities, obligations and agreements
of InterSpace Delaware as a result of the Merger. Additionally, the company made
the necessary filings to become a fully reporting 12(g) publicly traded company
and subsequently received approval to begin trading of its common stock on the
NASD Over-The-Counter Bulletin Board market under the symbol "ITET".
DESCRIPTION OF BUSINESS
The Internet. It is estimated that more than 233 million people worldwide
use the Internet, with under one-half of the users located in the United States.
According to the Internet Industry Almanac (C-I-A), there will be over 318
million Internet users by year-end 2000 and over 717 million by year-end 2005.
(Internet users are defined as adults with weekly usage in businesses and
homes.) According to C-I-A, there were over 364 million PCs in use worldwide at
year-end 1998 - up from 222 million in 1995 and 98 million in 1990. C-I-A
projects that there will be over 500 million PCs in use worldwide at year-end
2000. The installed base of PC-like devices will grow to over 990 million by
20
year-end 2005, with the U.S. projected to grow to 222 million PC-like devices in
2005, or 22% of the world's total. This growth is fueled by the expanding
installed base of personal computers, advances in the performance of these
machines, improvements in network infrastructure, easier and cheaper access to
the Internet and increased awareness of the Internet among businesses and
consumers.
According to the latest figures from Activmedia, worldwide e-commerce will
generate $95 billion (U.S.) in revenue by the end of this year. Further, the
report predicts that global e-commerce revenues will top $1.3 trillion (U.S.),
by 2003.
The Language of the Web: By 2002, Internet users will be predominately
non-English speaking, according to research by Computer Economics, and by 2005,
60 percent of Internet users will speak a language other than English. "The
growth of the non-English speaking market will mean that it will become
imperative that companies offer multiple language choices on their Web sites,"
said Computer Economics VP of Research Michael Erbschloe. "It also will mean
that on significantly more Web sites, English will not be the default language
option, and in many instances, English will not be offered at all." There will
be a 60 percent increase in Internet usage among English speakers during the
next six years. At the same time, the non-English speaking market will grow by
150 percent. The language groups that most significantly affect the dominance of
English on the Internet are those in Asia Pacific and Latin America, according
to Computer Research.
INDUSTRY BACKGROUND
The Lottery Market. Within the United States, thirty-eight states currently
sponsor a traditional lottery system. State lottery systems are operated
through public entities, which produce, maintain and operate the state lottery
and the state receives a percentage of the lottery revenue. For instance, the
California Lottery Act grants the operator the exclusive California market, in
exchange for 34% of the weekly jackpot proceeds, which are contributed to
California's public education system. Other states have similar agreements with
lottery corporations. Globally, over 120 countries operate or sponsor
lotteries.
It is estimated by TLF Publications that the annual lottery revenue within
the United States in 1999 was $39 billion. Revenue for the State of California
alone was $2.5 billion. World wide, it is estimated that the total amount of
lottery revenue is around $125 billion. One of the unique aspects of the
lottery market, both in the United States and world wide, is that there has been
no competition, due to the fact that a traditional lottery ticket must be
purchased within the state or host nation in order to play, market exclusivity
has, until today, remained in effect.
The Online Gaming Market Segment. The Internet has created a wide variety
of gaming opportunities that equips the end-user with the ability to travel to
any country in the world via the web. Online gambling sites are flourishing, and
the number of sites has increased from 15 sites in 1997 to approximately 1650
today. These sites are expected to earn a combined $1 billion this year,
according to Christiansen Capital Advisors in New York. Online Casino's such as
the Sands of the Caribbean, thesands.com one of the most popular online casinos,
handled over $400 million in wagers last year.
21
The Lottery "Rollover Phenomenon". The lottery "rollover phenomenon" is
one of the many unique benefits within the lottery industry. The goal of a
lottery company is for a weekly jackpot to not have a 6-out-of-6 winner every
draw, so that the jackpot will then roll over into the following week's game.
The increase in the prize amount fuels an increase in player interest that
increases the jackpot dramatically. For example, the California Lottery's July
1, 1998 jackpot was estimated at $4,000,000, the jackpot rolled over due to the
lack of 6-out-of-6 winners, and ballooned into a $14,000,000 payout for the July
4, 1998 jackpot. The $14,000,000 payout claimed no winners and the jackpot
again rolled over into the July 8, 2000 jackpot of $37,500,000. The July 8,
2000 jackpot also failed to provide a winner and the jackpot again doubled into
a $70,000,000 jackpot on July 11, 2000, which drew national and international
interest and produced four winners.
The rollover phenomenon clearly illustrates how an eleven-day span without
a winner can result in a $70,000,000 jackpot and a free advertising bonanza.
The weekly rollover phenomenon provides for a dramatically increased payout and,
in turn, draws massive player interest and public interest, via radio and
television publicity, which will inevitably increase the jackpot amounts. The
July "Powerball Jackpot", a multi-state lottery, escalated into a $290,000,000
payout. People from around the world flew in to the United States to purchase
tickets. Lines at the Powerball outlets extended to hundreds of people with an
average wait time of six hours. There were massive delays due to the jammed
Powerball phone system and lack of ability to print the lottery tickets.
Articles regarding the $290,000,000 Powerball jackpot were in every major
newspaper worldwide, while CNN news interviewed those waiting in line. The
demand created by a lottery's "rollover phenomenon" creates a system for
continuous free advertising at every print, publishing and news media outlet.
The interest becomes magnified as the jackpot rolls over and the rewards to the
lottery industry are priceless.
Advertising Comparison. Through the advertising their jackpots, lotteries,
enjoy a competitive advantage that separates them from virtually every other
industry. A study by the North American Association of State and Provincial
Lotteries (NASPL) in 1996, reported that North American lotteries spend $400
million ($US) on advertising and received $34 billion in sales. Advertising
expenditures accounted for 1.17 percent of their total revenue. By contrast
beverage manufacturers spend 7.5 percent of their revenue, cosmetics companies
8.8 percent of their revenue, and candy makers 12.7 of their revenue. Lotteries
have the highest return on advertising, per dollar, than any other industry and
advertising accounts for less of the cost of a lottery ticket than virtually any
other consumer product.
Traditional vs. Internet Lottery - Operations. Traditional lotteries are
bound by the limits of their respective state lottery machinery and systems.
Although the goal of any lottery Company is to continuously have large
"rollover" jackpots, PlanetLotto believes there is a fundamental flaw within the
traditional system. As the interest for a particular weekly lottery grows, the
massive number of computer-generated quick picks, combined with the inherent
limitations of the telephone system and the limited number of authorized lottery
outlets, creates a re-occurring bottleneck that limits the ability to maximize
additional revenue generated by the rollover phenomenon. These bottlenecks
limit the amount of the potential jackpot and sacrifice customer loyalty, due to
22
long lines at the retail outlets and player frustration. Another problem
associated with traditional lotteries is in the constant maintenance and up-keep
of the lottery machinery and battles regarding ticket printing and forgery. In
contrast, an Internet based lottery is not bound by such limitations. The
Internet will allow interested players to casually and instantaneously purchase
tickets over the Internet in the comfort of their own homes, without the hassles
of long lines or telephone breakdowns. Management believes that including an
e-mail confirmation guaranteed by the player's credit card or digital cash
transaction will prove to be a suitable substitute for the traditional lottery
ticket.
Odds of Winning Formula. The total number of balls to be included in the
drawing will determine the odds of winning. For example, the California lottery
determined that due to the population of California, a 6/51 system should be
utilized. A total of 51 balls are placed into an air-filtered plexi-glass
display machine and six balls are randomly selected. This 6/51 formula has an
odds of winning of approximately 1 in 18,000,000. The odds of winning formula
utilized by California translated successfully into an average weekly payout of
$23,000,000 during the 1998 fiscal year. The Company believes that by creating
a 7/49 system with an odds of winning formula of 1 to 85,000,000, player
interest will be furthered worldwide. The Company also intends to double the
average weekly jackpot by increasing the purchase price per ticket to $2.00
(U.S.). Management believes these changes to the traditional lottery system
will inevitably produce "weekly rollovers" previously unrecorded in the lottery
industry.
PRODUCTS AND SERVICES
PlanetLotto Web Site. The Company's core product is the marketing of the
PlanetLotto.com web site. The Company's web site has incorporated all of the
traditional, as well as the new Internet functions of a lottery system.
Consumers are first greeted by a state-of-the-art web site display with a large
continuous "PlanetLotto ticker", which displays the ever-increasing current
weekly jackpot. As customers enter into the weekly jackpot, they will be
instructed to become a player. The player prompts ask the new players to answer
a few simple questions, screen name, country of origin, etc, followed by
appropriate Company disclaimers, and they are then given a player password.
Players may enter any weekly jackpot by simply purchasing a $2.00 (U.S.) entry
fee and selecting their personal numbers or by selecting the "Planet Pick", a
random number picking program. The transaction is secured through an
established online credit card or digital cash transaction company. The player
will then be given a confirmation e-mail, complete with a PlanetLotto
confirmation number. The web site also includes visual displays and an archive
video collection of past winners, as well as bingo and scratch card games.
Planetlotto Lottery Infrastructure
- ------------------------------------
Lottery License Partner. The company's current lottery partner is the
International Lottery in Liechtenstein Foundation, licensed by the Government of
Liechtenstein to run the company's Lottery. The term of the Lottery License
agreement is five years. The license is highly regulated, with auditors Ernst &
Young appointed by the government to oversee all aspects of the operation. As a
European License it has the added advantage in that under the Treaty of Rome
free trade of goods and services including lottery tickets, is permitted between
all European states.
23
The company's operational partner, Zabadoo.com AG provides all the website
infrastructure for the planetlotto.com web site, including hosting, bandwidth,
management of the web site and providing all customer support.
Payment Processing. Planetlotto.com has an established relationship with
one of the largest acquiring banks in Germany, and backup facilities in
Switzerland and the UK, to provide Planetlotto.com with a high capacity,
robust acquiring ability. Credit card transactions generally authorize in under
10 seconds. Bank transfers into Planetlotto.com accounts in Liechtenstein will
be quick and cost effective due to the sophisticated nature of the
Liechtenstein/Swiss banking system- so players have the ability to send cash
direct through traditional banking methods and not use their credit cards.
Deposits are help in trust accounts at the Liechtensteinische Landesbank, owned
by the government.
Statistics. In order for the company to be able to measure how successful
the company's marketing and promotion program are, the company will utilize an
advanced statistics system, which will enable the company to:
Monitor sales and site traffic in real time
Track data per advertisement banner including hits, signups, conversion rates,
Average spend and total revenue
Get detailed sales and customer information about your best players
Get geographical information by sales and sign ups
Monitor detailed information about click-throughs, including the referring site
Get in-depth information about player paths through the site and most accessed
pages
Server Room. The Planetlotto.com server room is a purpose-built Grade 1
computing environment. It has a dual, high-capacity, under-floor air
conditioners keeping the temperature stable, and Inergen (Argonaut) fire
protection systems. Power supply is ensured with dual uninterruptible power
supplies linked to a 30Kw diesel generator.
Disaster Recovery. A fully functional off-site disaster recovery facility
is in place 10 km from the main server center. This facility contains up-to-date
copies of all data and is linked via wireless network to the primary site. As an
autonomous system with 3 independent backbones (UUNET, GlobalOne and IP Plus),
Planetlotto manages its own BGP (Border Gateway Protocol) sessions with the
backbones giving it the ability to react to localized problems on the Internet
by rerouting traffic where necessary. Each line runs at E1 (2Mb) speed, and
further capacity will be available at short notice. Graphics are served through
a network of 8000 servers around the world provided by Akamai . This ensures
that customers always receive their graphics and other "heavy" content from the
closest server to them. All server equipment will be configured in redundant
clusters to provide the highest possible resilience. This includes firewalls,
routers, utility and database servers. Web servers are accessed through a pair
of Big IP2 load balancing systems that will enable Planetlotto.com to add new
servers very quickly, and load balance across multiple servers.
Data Storage. Compaq Storageworks RA8000 FC Fiber Channel RAID are used
for critical data storage. This system has redundancy throughout and is
extremely fast due to its 64Mb read-write cache unit and high-speed fiber
channel connectivity. The database runs on an 8 processor Compaq Systempro 8500
server with 4Gb main memory.
24
Security. There is a high level of physical security on site. Access is
controlled to all areas and alarms are monitored 24/7/365 by an on-site security
control room. In addition, firewalls and systems are configured to provide the
highest level of security, and has been tested in both internal and external
penetration tests. Three hardware engineers will also be available 24/7/365 to
solve problems if they occur. A sophisticated alerting system is in place to
notify support staff when there are problems.
Internal Controls. Planetlotto.com weekly draws are attended by two
scrutineers from Ernst & Young AG, Vaduz. They supervise the pre-draw procedures
and take possession of a CD-ROM containing data on entries for the draw. This
record is the definitive record used to verify the winners, and is validated
against the database before the draw can take place. Draws are performed using
one of two mechanical ball machines manufactured by Editec. Prior to the draw a
ball set is selected at random and test draws are carried out to ensure that the
machine and ball sets have not been tampered with. After the draw an independent
program is run by the auditors and the results compared to the database to
verify that the data is correct and there are no errors.
Jackpot Insurance. Planetlotto.com's weekly draw features two headline
jackpots, the weekly 7/49 Jackpot and the Bonus Play Jackpot, which are insured
by a consortium of Lloyds of London insurance underwriters.
Real Time Broadcast. The draws are currently filmed and broadcast live on
the Internet using Real Video. Players can also watch archive copies of the
draws. Plans are in place to add an uplink to the European satellite network.
Feeds can be provided on demand if you have broadcasting capacity. Draws are
filmed using multiple broadcast-quality cameras.
First Tier. The company uses the services of Aqua Online for 24/7/365 first
tier support. Operators are multi-lingual and trained to respond to e-mails and
phone calls making use of an extensive knowledgebase. E-mails are assigned a
tracking number via an auto-reply function and are answered personally within 1
hour.
Second Tier. In circumstances where support queries e-mails cannot be
answered by Aqua Online, the player will be informed that the query has been
passed on to a manager and the query is forwarded to our team in Liechtenstein.
Liechtenstein support is available 08.00 to 19.30 CET weekdays and reduced hours
over the weekend and public holidays. Support staff has access to an extensive
CRM database, which will enable them to answer customer queries efficiently and
effectively.
Email Program. The company uses a state-of-the-art e-mail system that
integrates with the database and enables it to send e-mails to selections of
players based on a wide variety of criteria. E-mails are formatted in such a way
as to display correctly in all mail clients and are multilingual and able to
incorporate customer information such as name and account number. Newsletters
will also be sent out weekly to all players who have not opted out.
Competition. The Company believes that the market exclusivity enjoyed by
traditional lottery companies has created an industry wide complacency. The
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lack of competition for market share within each lottery, state and nation has
provided an opportunity for market penetration and direct competition with the
traditional lottery structure. The majority of the current Internet market
competitors have been ineffective in properly foreseeing the possibilities of a
combined worldwide lottery system.
Competition Overview:
iWon
URL: www.iwon.com
- ------------------
Location: Irvington, NY
Content: Search engine portal with daily $10,000 sweepstakes and monthly $1
million sweepstakes.
Revenue model: Advertising, sponsorship, e-commerce.
Users: N/A
LuckySurf.com
URL: www.luckysurf.com
- -----------------------
Location: South San Francisco, CA
Content: $1 million sweepstakes
Lottery System: 7/50 system
Odds of Winning: 1 in 99 Million
Ticket Price: Free
Revenue model: Advertising: Sells click-thru's rather than impressions. Says its
advertisers have been averaging registration and purchase conversion rates of 13
percent, and that 95 percent of its initial advertisers have signed up for more.
Users: 125,400 registered
TreeLoot
URL: www.treeloot.com
Location: Overland Park, KS
Content: Simple "clicking" game with instant cash prizes of up to $25,000.
Revenue model: Advertising: Sells impressions and targeted impressions.
Users: Profiles approximately 6 million per year
Uproar
URL: www.uproar.com
- --------------------
Location: New York
Content: Dozens of slick, multiplayer, quiz-oriented games.
Revenue model: Advertising, licensing properties to other companies to create
co-branded game such as Lycos Trivia 2000.
Users: 3.6 million registered across all its properties.
Webstakes.com
URL: www.webstakes.com
- -----------------------
Location: New York
Content: Weekly sweepstakes for such items as microwave ovens, high- definition
TVs, and cash prizes up to $100,000.
Revenue model: Advertising, sponsorship, syndication, licensing, consulting.
Users: 2 million registered
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Management believes that by any comparison, the Company's business plan has
more features and will have superior marketing, production and performance than
its competitors. The enormous magnitude of the lottery market will enable the
Company to generate significant revenues from even a fractional market share.
Web Site Advertising: Due to the anticipated number of visitors to the
PlanetLotto sites, Management believes it will be able to sell advertising
banner space at rates competitive with the major search engine web sites. Based
on the number of impressions and unique users, management believes that the
website revenue alone will amount to a significant revenue stream.
Additionally, the PlanetLotto database will enable the Company to obtain
specifically tailored market demographics, which can generate a substantial
revenue stream of its own.
Positioning. Management believes that the Company will hold a unique
position in the customers' minds. The Company's unique Internet game show and
web site advantages, both timely and technical, can be exploited to arrive at a
winning position in the business consumers' minds. The focus within the
Company's marketing department will be in positioning the Company as the leader
of lottery based gaming by continuing to affiliate and co-market with
established Fortune 100 Corporations.
Marketing Plan. The Company will market their PlanetLotto products and
services through established traditional, as well as Internet, channels. In
addition, public relations will play a large part in establishing a global
presence for PlanetLotto. Future co-marketing agreements with established
Internet web sites will also open a new world of marketing opportunities.
Tentative plans currently include brand recognition through a comprehensive
viral marketing campaign, supplemented with Internet banner advertisements,
search engine cataloging, and e-mail database marketing. The Company believes it
can achieve significant market share of the online lottery industry within
approximately three to five years.
Traditional Marketing Methods. By linking the Company's core product with
current industry advertising leaders, the Company intends to establish instant
market recognition by the customer. Management believes that this can be
accomplished by exchanging advertising space on the Planet Lotto web site and
the PlanetLotto show for print and television space within ads and promotions
created by name brands. The Company also intends to institute an aggressive
print, television, radio and event sponsorship campaign to attract both target
markets and penetrate new markets in order to lead customers to its web site
full of products and services.
By donating a portion of each jackpot to a number of selected worldwide
charities, the Company intends to establish and maintain a positive worldwide
corporate image. This activity is also projected to generate both customer
loyalty and provide free exposure for the Company's PlanetLotto products and
services on an international level.
The Company also is currently addressing issues of market stability for
maintaining profit margins and market position for the many international
markets. Other non-negotiables for the Company are: providing technical support
staff which responds accurately and immediately to customer questions or
comments, adhering to the Company's quality in design construction and
27
packaging, and developing public relations which sustains customer awareness and
demand.
Because the Company's core products fall within the global lottery market,
the Company intends to establish links with advertising and marketing companies
that will represent their products and services in Canada, Japan, France, China,
Australia, New Zealand, Germany, Italy, Finland, Norway, Austria, and
Switzerland. Addressing new international lottery markets is critical to the
Company's sustained growth plan. The Company plans to train marketing managers
to constantly research new promotional methodologies in all regions of the world
in order to secure a solid customer base outside the U.S.
The Company plans to establish its image as an organization, which is
professional, completely reliable and well positioned in the lottery
marketplace. Through maximum efficiency in selecting and scheduling its
published ads, the Company intends to cover all markets. The Company also plans
to select primary business publications with highly specific market penetration.
Advertising must be sufficiently frequent to influence the market with the
Company's corporate image and product messages. Where possible, advertising
should be placed in or near product reviews, front cover, center spread and
appropriate editorials.
The Company also plans to create a system of research and response to
ensure the maximum benefit from advertising dollars. PlanetLotto.com is so
unique, the promotional campaigns must be consistent and easy to understand.
The Company will measure publication effectiveness by counting the number of
inquires and or purchases per 1,000 readers given a particular ad. By varying
the advertisement's size messages, then measuring these differences, the Company
can calculate the number of responses per investment in advertising.
Given the growing potential for the Internet, the Company also is building
its capabilities in database marketing. The Company will develop a membership
list in-house for the first phase as it develops database sophistication. The
Company's memberships and periodic customer service program will help it to
understand its customers and to measure the success of its marketing, sales,
product activities and profile overlays. The Company will use these lists to
fill in the Company's awareness gaps. The in-house presence will provide the
Company's marketing and technical support teams with tools that streamline the
Company's operations while updating the Company's customer knowledge. The
Company plans to develop a customer information system that will help it to make
sound decisions by providing historical answers to marketing questions.
Internet Marketing Methods. The Company also plans to expand through
aggressive promotion on the Internet and the Company expects to be listed on all
major world-wide-web site directories. Through the lack of competing
world-wide-web content, the Company feels this may be its strongest promotional
position per dollar. PlanetLotto intends to pursue an aggressive Internet
campaign by use of the following:
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Viral Marketing
A carefully structured online, viral advertising campaign will create a
strong brand identity and customer awareness of PlanetLotto. Additional offline
advertising in selected international markets will further build brand awareness
and identity in all media formats - television, radio, outdoor and print. The
Company plans to employ streaming video e-mail to create a highly effective
viral marketing campaign to entice consumers to watch the Webcast, purchase
tickets and pass the e-mail along to their friends.
The viral e-mail technique, will not only "touch" users with the
information regarding PlanetLotto, but will also acquire these users and their
friends for future programs. The target audience is both global and Internet
connected. Thus, the ideal targeting would include only those with Internet
access.
The campaign will begin with a targeted "opt-in" e-mail to specific groups
in each country with the goal of developing a tremendous pass along of this
promotion. This is a combination of an e-mail containing a hyperlink and a
rich-media presentation (specifics of this are outlined below). Users will be
encouraged to purchase a ticket and gain points by forwarding this message to
their friends and associates.
Worldwide Banner Placement
One of the most effective methods of increasing visitor traffic to the
PlanetLotto Web site is by placing hyper-linked advertising banners in highly
visible locations on the Web for our target audience. The first key step to
effective banner advertising is strategic placement. Banner ads must be placed
on sites that are going to attract our target customers. This is an excellent
way to build traffic through specific, targeted countries. Banner rates vary
widely depending on the country. They average US $0.03-0.07 per "impression"
and the click-through rate averages about 2%. By targeting popular indexes and
search engines in the each of the target countries the Company can advertise on
a page that concerns any "gaming" subject to our site. Additionally the Company
can buy "keywords" that have to do with "gaming" and "Lotteries". Smaller Web
sites also can be effective means of increasing Web site traffic. Online gaming
web sites may attract fewer visitors, but visitors are more likely to be
interested in a purchasing an online lottery ticket. This technique will draw
ideal (pre-qualified) visitors to our web site. This partnership also offers an
excellent marketing opportunity, due to the highly-specific targeted audience.
Search Engine Optimization
Through the design of the PlanetLotto homepage into a multilingual format
with country-specific indexes, potential visitors from other countries go to
major search engines, type in keywords in their own language, and would find the
PlanetLotto website in their language. Search engine optimization service will
place our site at the top of the search engine listings when a search associated
with lotteries is requested, in any language used by the search engine.
Strategic Linking
Strategic linking is a cornerstone to building the necessary infrastructure
to drive long-term traffic to the PlanetLotto site. Link development lacks
glamour and it requires tenacity. As a result, it tends to be under-rated as an
online promotional activity. However, when done properly, it is an extremely
29
cost-effective way to generate continuing traffic to content rich web sites.
PlanetLotto intends to pursue strategic website partnerships to insure constant
traffic.
Cyber Cafes
Cyber Cafes are emerging as one of the easiest and most convenient methods
to use the Internet. These cafes have become a predominant alternative to home
computers throughout North America and Europe. In Latin America however, these
cyber cafes are among the main outlets to the Internet. PlanetLotto intends to
forge strategic alliances with many of these cyber cafes to penetrate this
emerging Latin American region.
PlanetLotto Affiliate Program. Affiliate partner marketing programs are a
critical component of most successful Internet marketing plans, and when
properly developed and implemented, can determine the level of success of an
Internet operation when used in conjunction with an effective overall marketing
strategy. Often, affiliate programs should be used as the primary advertising
vehicle whenever possible. Next to direct e-mail, affiliate marketing programs
have been shown to be the most effective form of marketing on the Internet.
Companies such as Amazon.com, CDNOW and reel.com have been built on this type of
marketing model, and thousands of other Internet retailers owe their success to
an effective affiliate program. Because the PlanetLotto product has universal
appeal, a broad target market and high profit margins, it is an ideal candidate
to benefit from an effective affiliate marketing program.
The affiliate signs up for the program at the PlanetLotto web site and
places a banner or text link on their own site leading to the PlanetLotto site.
When a visitor comes to the affiliate's site and clicks on the banner/link, they
will be taken to the PlanetLotto site. As the visitor clicks-through, a cookie
(a small text file containing the referring affiliate's ID number) will be
placed on the visitor's browser. When the visitor purchases tickets from
PlanetLotto, the ordering system and affiliate software work together to attach
the referring affiliate's ID number held in the cookie to the sale and uses that
information to credit the affiliate his proper commission for the referral.
The affiliate program is a viral marketing technique that rewards
affiliates for recruiting new affiliates into the PlanetLotto affiliate network.
Whenever an affiliate joins our affiliate program as a result of an existing
affiliate's referral, the referring affiliate will get paid a commission anytime
the referred affiliate earns a commission.
The reseller program is designated for major established distribution
networks that can resell PlanetLotto tickets through an existing large network
of websites. The reseller program will typically be sold through the
PlanetLotto business development direct sales efforts to select distribution
networks. PlanetLotto technicians will work with these strategic distribution
partners on integration issues, and the business development department will
worth resellers on product improvements and enhancements through additional
strategic alliances and partnerships.
All affiliates must meet minimum requirements to be accepted as PlanetLotto
affiliates in order to control program administration costs. Requirements will
be established after the programs inception.
30
Public Relations. Through strategic coordination with an international PR
firm, the local PR firm will work with the agency's global offices to launch and
sustain international media relations initiatives. The global relationship will
be leveraged in a variety of ways, including:
Building international media lists
Translating and printing press kits in each native language
Media relations outreach
Leveraging existing relationships with key members of the media
Media monitoring and reporting
Coordination of special events
Charities. The PlanetLotto Charitable Division of Interspace Enterprises
is an independent, not-for-profit organization that will be a financially
self-sustaining entity upon the first lottery drawing. The Company is committed
to a code of ethics that maintains the highest standards and professional
integrity with strict conformance with all legal and ethical standards in the
conduct of administration, finance and programming.
Because giving abroad represents an array of challenges for a private
donor, PlanetLotto has united with organizations that are able to provide
customized service and quick response in places of need around the world. The
Company has selected, International Make A Wish Foundation as our first partner
and currently are assessing two additional groups for potential partnership.
The Make-A-Wish Foundation grants the wishes of children with
life-threatening illnesses to enrich the human experience with hope, strength,
and joy. They are e are the largest wish-granting organization in the world,
with 81 chapters in the United States and its territories, and 22 international
affiliates on five continents.
COMPETITIVE ENVIRONMENT
Traditional lotteries are bound by the limits of their respective state
lottery machinery and systems. Although the goal of any lottery Company is to
continuously have large "rollover" jackpots, PlanetLotto believes there is a
fundamental flaw within the traditional system. As the interest for a particular
weekly lottery grows, the massive number of computer-generated quick picks,
combined with the inherent limitations of the telephone system and the limited
number of authorized lottery outlets, creates a re-occurring bottleneck that
limits the ability to maximize additional revenue generated by the rollover
phenomenon. These bottlenecks limit the amount of the potential jackpot and
sacrifice customer loyalty, due to long lines at the retail outlets and player
frustration. Another problem associated with traditional lotteries is in the
constant maintenance and up-keep of the lottery machinery and battles regarding
ticket printing and forgery. In contrast, an Internet based lottery is not bound
by such limitations. The Internet will allow interested players to casually and
instantaneously purchase tickets over the Internet in the comfort of their own
homes, without the hassles of long lines or telephone breakdowns. Management
believes that including an e-mail confirmation guaranteed by the player's credit
card or digital cash transaction will prove to be a suitable substitute for the
traditional lottery ticket.
31
The Company believes that the market exclusivity enjoyed by traditional
lottery companies has created an industry wide complacency. The lack of
competition for market share within each lottery, state and nation has provided
an opportunity for a market penetration and direct competition with the
traditional lottery structure. The majority of the current Internet market
competitors have been ineffective in properly foreseeing the possibilities of a
combined worldwide lottery system.
Although there are numerous Internet lottery companies, Management believes
the narrow-minded focus on Internet advertising without incorporating
traditional marketing methods will invariably result in the emergence of one
market leader. Online lotteries such as freelotto.com, iwon.com, and
luckysurf.com have developed a free lottery concept based upon a pure
advertising revenue model. Players can play in the lottery at no cost, but must
first visit the sponsors of the site in order to be eligible to play. Although
this model is not a direct competitor of PlanetLotto, it illustrates the power
of the lottery phenomenon and the ability to generate revenues with the promise
of large cash prizes. Several countries, including Australia, Canada and Austria
have either already developed or are currently developing an online edition of
their current traditional lottery system. However, Management believes their
lack of global vision will limit their marketing efforts and handicap their
ability to capture increased market share. The key to surviving future
competition will be to constantly adapt and develop new marketing techniques to
remain above the market industry.
Still, the Internet gaming and wagering industry is increasingly
competitive. With relatively low barriers to entry, new competitors are entering
the online lottery segment of gaming. Interspace expects the number of
companies offering lottery products online to increase. InterSpace expects to
directly compete with these companies, as well as other established companies
that may enter the Internet lottery industry. Many of InterSpace Enterprises'
current and potential competitors have far greater resources than InterSpace.
GOVERNMENT LICENSING AND REGULATION AND RELATED RISKS
Historically, gaming activities have been subject to extensive statutory
and regulatory control by government authorities, and have been very dependent
and likely significantly affected by any changes in the political climate and
economic and regulatory policies of the countries where gaming facilities are
located. These changes may impact the operations of the Company in a materially
adverse way. Various laws and regulations could have a direct and material
effect on the business, and indirectly could have a material effect on the
public demand for software of InterSpace Enterprises. Most countries and
jurisdictions within countries have laws or regulations restricting gaming
activities. For example, in the United States, the Federal Interstate Wire Act
contains provisions which make it a crime for anyone in the business of gaming
to use an interstate or international wire communication line to make wagers or
to transmit information assisting in the placing of wagers, except, with respect
to transmitting information, the wagering is legal in the jurisdictions from
which and into which the transmission is made. Other United States laws
impacting gaming activities include the Interstate Horse Racing Act, the
Interstate Wagering Paraphernalia Act, the Travel Act and the Organized Crime
Control Act.
32
The planetlotto.com web site is licensed and regulated and operated through
the government of Liechtenstein and, by virtue of the Treaty act of Rome,
Liechtenstein is allowed to sell it's products and services, including the sale
of lottery tickets via the Internet to All European States. It is the opinion of
the government of Liechtenstein that all visitors and players to their retail
outlets, including planetlotto.com are within the jurisdiction of Liechtenstein
and therefore there access to their lottery does not violate or is not subject
to such any additional laws and regulations. The company however, has taken a
conservative stance in this regard and has voluntarily restricted access from
U.S. players by not accepting deposits in the jurisdiction until legal
clarification has been established. Therefore, the Company faces the risk of
either civil or criminal proceedings brought by governmental or private
litigants who disagree with the Company's interpretation of laws and
regulations. Because there is little guiding authority, there is a risk that
the Company could lose such lawsuits or actions and be subject to significant
damages or civil or criminal penalties and fines. Such proceedings could also
involve substantial litigation expense, diversion of the attention of key
executives, injunctions or other prohibitions being invoked against the Company.
The uncertainty surrounding the regulation of Internet gaming could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition.
Several countries, most notably law enforcement agencies in the United
States, believe that the laws of their country restrict, and in some instances
prohibit, interactive gaming operators from doing business with residents of
their countries and, in some instances, prohibit or restrict residents of their
respective countries from doing business with interactive gaming operators
located in a foreign country. The Department of Justice of the United States of
America has taken the position that the federal criminal laws of the United
States do, in fact, address interactive gaming operators that accept wagers from
residents of the United States. They have taken this position on legislation
pending in Congress, discussed below, and have also pursued various criminal
prosecutions. For example, of several indictments issued at the request of the
United States Attorney for the Southern District of New York, the one case that
went to trial involved Jay Cohen, an owner of World Sports Exchange, a licensed
gaming operator in Antigua. On February 28, 2000 the jury in the Federal
District Court case found Jay Cohen guilty of violating United States federal
law (18 U.S.C. Section 1084), a federal statute that purports to make it illegal
for a betting or wagering business to use a wire communication facility to
transmit bets or wagers in interstate or foreign commerce. Several of the counts
for which Mr. Cohen was found guilty solely involved his Internet operations.
The decision is on appeal.
Other countries, such as Great Britain, have recently lent new legitimacy
to online gambling. In March 2001, Great Britain dumped its tax on sports
betting in exchange for a pledge by its famed bookmakers to shut down their
offshore Internet operations and reopen them at home. One bookmaker said the
change could turn the United Kingdom into "the hub of the global gambling
industry." The tax-code change, announced by Chancellor of the Exchequer Gordon
Brown as part of the government's budget for 2002, makes Britain the first world
power to embrace Internet gambling. Under the new scheme, the government on
January 1, 2002 scrapped its 9 percent tax on wagers, which was paid directly by
bettors, and replaced it with a 15 percent tax on gross profits that will be
absorbed by bookmakers who conduct off-site wagering, either via the Internet or
33
by telephone, in Britain. The British bookmakers are free to accept wagers on
sports contests from all over the world, though it is still illegal to offer
online casino-style games over the Internet from the United Kingdom.
Britain's entry into online gambling is expected to put additional pressure
on the United States and other nations to either join the rush toward regulation
or develop a workable strategy to stop Internet gambling operators from
targeting their citizens. Britain's decision is the direct result of
competition from offshore operators doing business in tax-free jurisdictions. In
the face of such competition, virtually all of Britain's bookmakers had
established their own Internet divisions in locales as Antigua, Gibraltar and
Malta, cutting into the tax revenue the British government collects from
gambling.
Now, those bookmakers that return to Britain will enjoy a competitive
advantage over those offshore operators, who will be banned from advertising
their services in the United Kingdom. As a result of the debate on the
effectiveness of laws in the United States to address activities of interactive
gaming operators, there has been an extended effort in the United States to
prohibit certain types of interactive gaming by companies engaged in the
business of gaming. It is impossible to predict the outcome of such
legislation. If passed, such federal legislation would prohibit wagering over
the Internet by gambling businesses, with exceptions for certain forms of
gaming.
The Company believes that if such laws were found to be applicable to
activities of the Company, such laws would have a material adverse effect on the
Company's business, revenues, operating results and financial condition.
H.R. 4419, a Bill introduced in May, 2000 in the House of Representatives,
is titled the Internet Gambling Funding Prohibition Act. In the form introduced,
this Bill would have prohibited any gambling business from accepting any
financial instrument (defined as any check, wire, credit card charge or any
other transaction facilitated by a financial institution) for the purpose of
Internet gaming. At a Banking Committee hearing on June 28, 2000, the Bill
passed out of Committee with amendments that largely removed the international
reach of the Bill and also added exceptions to the prohibitions for pari-mutuel
and lottery. It was serially referred to the House Judiciary Committee for
consideration. More than 11 federal cases against the credit card companies and
several of the issuing banks were consolidated and assigned to Judge Stanwood R.
Duval Jr. in New Orleans. The plaintiffs were people who had lost money gambling
online. They argued that the banks and credit card companies were involved in
"illegal gambling on the Internet." In sending out monthly statements to the
plaintiffs who had used the cards to gamble online, the plaintiffs alleged that
the defendants committed mail and wire fraud in trying to collect "illegal"
debts. The plaintiffs also charged that the financial institutions were "aiding
and abetting "criminal enterprises. If the casinos had not accepted credit
cards, the plaintiffs argued, they wouldn't have gambled online.
On Feb. 23, Duval dismissed the cases outright, before they even got to
trial. That's an unusually strong step for a judge, but Duval ruled that the
plaintiffs had no grounds to bring these cases. Perhaps more significantly, he
also ruled that Internet casinos do not violate federal law. "Plaintiffs in
these cases are not victims," the judge stated in his ruling, "they are
independent actors who made a knowing and voluntary choice to engage in a course
34
of conduct. Litigation over their own actions arose only when the results of
those actions became a debt that they did not wish to pay. At this point in
time, Internet casino gambling is not a violation of federal law."
Duval quoted with approval an Appeals Court ruling that stated,
"plaintiffs, i.e. the players, can avoid any injury simply by walking away
from the alleged wrongdoers, the casinos, by not playing in the casinos."
In an opinion Duval ruled that the 1961 federal Wire Act, under which
telephone and Internet bookmaker Jay Cohen was convicted, applies only to sports
betting and "does not prohibit Internet casino gambling." In his ruling, Duval
examined the requirements for bring a RICO case, and determined that the
plaintiffs did not meet any of them. He stated, "This case is no different than
Jubilirer." That was a reference to the case of Art Jubilirer, who lost $25
playing blackjack online and tried to bring a RICO claim against MasterCard and
MBNA Bank. His suit was dismissed by a different federal court in September
1999.
The director of litigation for Visa International, Steve Zelinger, was
quoted in a story about the ruling in an issue of The American Banker as saying:
"It's not our role to legislate people's lives. We're not a police organization,
we're a payment mechanism."
STRATEGIC RELATIONSHIPS
InterSpace recognizes the speed at which the Internet operates, and is
committed to remaining a leader in the Internet gaming industry. As such,
InterSpace plans to enter into several key strategic relationships, and is
pursuing additional partnerships. These partnerships are of several types:
- Alliances or partnerships with other technology companies that
enable InterSpace to get to market faster with a more robust
or diverse product offering.
- Alliances or partnerships that offer new and strong distribution
channels for our products.
- Alliances or partnerships that enhance transaction processing
relationships with financial institutions and e-commerce providers.
RESEARCH AND PRODUCT DEVELOPMENT
The Company recently launched its first product, Planetlotto.com, and new
product development will continue to be a primary focus of InterSpace for the
current fiscal year as the Company refines its business model and adds new types
of lottery style games. As the traditional lottery market and the interactive
online lottery market begin to converge, new games that redefine the online
lottery market will emerge. InterSpace hopes to lead this convergence by
redefining the online lottery experience. The Company plans to focus on a
variety of different types, styles and themes of games, focusing on different
demographic and niche markets in order to penetrate a larger user base.
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NUMBER OF EMPLOYEES
As of September 30, 2001, the Company employed 4 persons. All other
personnel operate as independent contractors to the Company.
Item 17: Management's Discussion and Analysis of Plan of Operation
OVERVIEW
Until the launch of www.planetlotto.com in December of 2001, the Company
has been in the development stage of operations. Since its inception in 1998,
management has performed significant legal and market research to determine the
feasibility of the model and its likelihood for success. It was determined
relatively early in the process that the Company's business model held
significant potential, but would require capital resources necessary to develop
infrastructure and properly market the product. Throughout its development, the
Company has managed to raise sufficient capital to continue refinement of the
model and develop important relationships integral to delivery of the product on
a global scale.
Due to its relative infancy, the online lottery industry, and even the more
established online casino industry, has suffered due to the reluctance of
established investment groups to participate as a result of the confusing legal
environment. However, in the past 24 months, new legislation combined with more
established companies entering the fold, has left a clearer picture of the
future of the industry. As a result, online gaming is becoming one of the
fastest growing sectors of the Internet.
The Company has had discussions with many investment groups over the course
of its development, but has delayed entering into a significant funding
relationship due to the lack of acceptable terms. However, now that the Company
has launched its model and management has proven its ability to achieve certain
goals, investment offers with more favorable terms are beginning to surface. It
is management's belief that the Company will be able to secure adequate funding
at acceptable terms to continue development of the business into self-sufficient
revenues and positive cash flow, however, there can be no assurances that
funding will occur.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001 the Company had only $3,242 in cash resources
available to satisfy requirements for operations, which are not sufficient to
sustain operations. No assurances can be given that the Company will be
successful in realizing sufficient funding to continue any operations. Based on
the development plan and low overhead, the Company has been able to stay within
its planned timeframe for launch of the PlanetLotto website and has begun to
generate revenue.
The Company's financial statements have been prepared on a continuing
operations basis that contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business.
Management recognizes that the Company must generate additional investment
in a timely manner to maintain its current level of operations and continue to
36
develop the Company's business model to maturity. If such investment is delayed,
management will be required to reduce the Company's operations. The Company
plans to seek private placements of equity capital to fund its operations but
has no commitments at date of this report for funding.
As of September 30, 2001, there were no material commitments for capital
expenditures.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001
COMPARED TO THE SAME PERIOD IN 2000.
The Company continued development of its business model during the nine
months ended September 30, 2001, thus no revenues were achieved. The Company
incurred operating expenses for the nine-month period of $994,800 in 2001
compared to $1,394,891 in the same period in 2000. The Company recorded a net
operating loss of ($945,133) for the 2001 period as compared to ($1,394,891)
for the nine-month period in fiscal year 2000. The Company losses will continue
until business and profitable operations are achieved. While the Company is
seeking capital sources for investment, there is no assurance that capital
sources can be found. The loss per share for the 2001 fiscal period was ($.01)
compared to ($.04) for the nine-month period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital of $3,242, as well as $4,921 in fixed assets,
and investments of $347,083 for total tangible assets of $355,246 at the end of
the period. The Company will be forced to make private placements of stock in
order to fund operations continuance. No assurance exists as to the ability to
make private placements of stock.
At September 30, 2001, the Company had no trade accounts receivable. The
Company has current liabilities of $765,659, which exceed current assets by
approximately $762,417.
Item 18: Description of the Property
The Company does not own any real property and has no long-term commitments
to lease any space. The Company currently leases office and conference
facilities on a month-to-month basis at 7825 Fay Avenue, #200, La Jolla,
California 92037.
Item 19: Certain Relationships and Related Transactions
None
Item 20: Market for Common Equity and Related Stockholder Matters
Our common stock is traded on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board under the symbol "ITET." On January 28,
2002, the low and high bid prices for the common stock on the Bulletin Board
were $0.095 and $0.11, respectively.
37
The following table shows the range of reported low bid and high bid per
share quotations for our common stock for the periods indicated. The high and
low bid prices for the periods indicated reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
High Bid Low Bid
2001
First Quarter $5.250 $0.125
Second Quarter $0.421 $0.055
Third Quarter $0.100 $0.010
Fourth Quarter $0.195 $0.019
Penny Stock Regulation
Our shares are subject to the Penny Stock Reform act of 1990, which may
potentially decrease our ability to easily transfer our shares. Broker-dealer
practices in connection with transactions in "penny stocks" are regulated. Penny
stocks generally are equity securities with a price less than $5.00. The penny
stock rules require a broker-dealer prior to a non-exempt transaction to deliver
a standardized risk disclosure document and make a special determination that
penny stocks are a suitable investment for each investor. In addition the
broker-dealer must receive the investor's written agreement to the transaction.
These disclosure requirements may have the affect of reducing the level of
trading activity in our stock and make it more difficult for you to resell your
stock in our Company.
Shareholders
The approximate number of holders of record of the Common stock as of the
date of this prospectus is 196 inclusive of those brokerage firms and/or
clearinghouses holding shares of common stock for their clientele (with each
such brokerage house and/or clearinghouse being considered as one holder).
Dividend Policy
We have not declared or paid any dividends on our shares of common stock.
We intend to retain future earnings, if any, that may be generated from our
operations to finance our future operations and expansion and do not plan for
the reasonably foreseeable future to pay dividends to holders of our common
stock. Any decision as to the future payment of dividends will depend on our
results of operations and financial position and such other factors as our board
of directors in its discretion deems relevant.
Item 21: Executive Compensation
Compensation of the Executive Officers
The following table sets forth the compensation by the Company of the Chief
Executive Officer and the four most highly compensated other executive officers
of the Company in 2000, for services in all capacities to the Company and its
38
subsidiaries for the nine months ended September 30, 2001 and during the two
fiscal years ended December 31, 2000.
ANNUAL COMPENSATION
--------------------
Name and Annual Bonus Other Annual Long Term
Principal Position Year Salary Compensation Awards of
Options
Daniel P. Murphy 2001 $90,000 0 0 0
Chairman of the 2000 $90,000 0 0 250,000
Board, President 1999 $63,333 0 0 0
and CEO
Alejandro Trujillo 2001 $48,000 0 0 0
Director, Chief 2000 $83,333 0 0 250,000
Technology Officer 1999 $63,333 0 0 0
Andrew P. Patient 2001 $70,833 0 0 0
Chief Financial 2000 $86,250 0 0 250,000
Officer and 1999 $18,750 0 0 0
Secretary
Item 22: Financial Statements
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Financial Statements (Unaudited)
For the Nine Months Ended September 30, 2001
and Cumulative from Inception of the Development Stage
39
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
ASSETS
September 30, December 31,
2001 2000
------------- ------------
Current Assets
Cash $ 3,242 17,343
Prepaid Expenses - 14,750
----------- -----------
Total current assets 3,242 32,093
----------- -----------
Fixed Assets
Computer and office equipment 11,281 11,281
Accumulated depreciation (6,360) (4,315)
----------- -----------
Total fixed assets 4,921 6,966
----------- -----------
Investments 347,083 -
----------- -----------
Total Assets $ 355,246 39,059
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 176,056 260,053
Notes payable 30,000 136,000
Accrued payroll liabilities 557,387 279,332
Accrued liabilities 1,600 1,600
Convertible notes payable - 136,000
Accrued interest - 9,105
Current portion long term liabilities 616 930
----------- -----------
Total current liabilities 765,659 823,020
----------- -----------
Long Term Liabilities 499 1,111
----------- -----------
Stockholders' Equity
Common stock 910 658
Accounts receivable subscribed (1,182,607) (1,187,097)
Additional paid in capital 3,628,083 2,313,532
Accumulated deficit - during development stage (2,857,298) (1,912,165)
----------- -----------
Total stockholders' equity (410,912) (785,072)
----------- -----------
Total Liabilities and Stockholders' Equity $ 355,246 39,059
=========== ===========
See accompanying note F-1
40
Interspace Enterprises, Inc.
(A Development Stage Company)
Statement of Operations (Unaudited)
Cumulative from
June 30, 1998
(Inception of the
Development
Three Months Three Months Nine Months Nine Months Stage) to
Ended Ended Ended Ended Sept. 30
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000 2001
-------------- -------------- -------------- -------------- ----------------
Revenues - - - -
Sales $ - - $ - - -
---------------------------------------------------------------------------
Total Revenue - - - - -
Research and Development - - - - 5,059
Administrative and Selling
Expenses
Consulting 108,442 24,500 299,942 173,087 630,767
Depreciation and amortization 682 220,492 2,045 403,476 6,360
Legal and professional - 12,000 75,800 53,117 277,317
License fees - - - 333,000 373,000
Marketing and promotion - 2,920 8,772 15,264 108,403
Office expense 5,806 10,707 28,764 27,663 88,129
Other administrative expenses 62,012 29,117 113,187 81,668 281,396
Rent 1,956 1,195 8,514 3,765 19,337
Salaries 115,731 110,223 457,776 303,851 1,160,163
---------------------------------------------------------------------------
Total Administrative
Expense 294,629 411,154 994,800 1,394,891 2,944,872
---------------------------------------------------------------------------
Net Loss from Operations (294,629) (411,154) (994,800) (1,394,891) (2,949,931)
---------------------------------------------------------------------------
Other Income
Interest income (13,530) 0 (40,636) 0 (95,107)
Interest expense 0 0 (9,031) 0 74
---------------------------------------------------------------------------
Total Other (Income)
Expense (13,530) 0 (49,667) 0 (95,033)
---------------------------------------------------------------------------
Income Taxes - - - - 2,400
---------------------------------------------------------------------------
Net loss $(281,099) (411,154) (945,133) (1,394,891) (2,857,298)
===========================================================================
See accompanying note F-2
41
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2001
June 30, 1998
(Inception of the
Development
Nine Months Nine Months Stage) to
Ended Ended Sept. 30
Sept. 30, 2001 Sept. 30, 2000 2001
-------------- -------------- ----------------
Cash Flows from Operating
Activities
Net Loss $(945,133) (1,394,891) $(2,857,298)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,045 403,476 6,360
Stock issued for services 496,670 469,000 1,127,620
Changes in:
Prepaid expense 14,750 - -
Accounts payable (83,997) 28,849 176,056
Accrued interest (9,105) -
Accrued payroll liabilities 278,055 86,814 557,387
State tax payable - - 1,600
-------------------------------------------
Net Cash Used In Operating
Activities (246,715) (406,752) (988,275)
-------------------------------------------
Cash Flows From Investing
Activities
Accrued interest related
parties (40,636) - (95,107)
Computer and equipment
purchases - (219) (8,335)
Note receivable (payments) 45,126 (738) 45,126
-------------------------------------------
Net Cash Used in Investing
Activities 4,490 (957) (58,316)
Cash Flows from Financing
Activities
Notes payable (106,000) 170,000 39,200
Sale of common stock 471,050 264,102 1,021,664
Repayment of notes (926) - (11,031)
Convertible notes (136,000) - -
-------------------------------------------
Net Cash Used in Financing
Activities 228,124 434,102 1,049,833
-------------------------------------------
Net Decrease in Cash (14,101) 26,393 3,242
Cash, beginning of the year 17,343 10,223 0
-------------------------------------------
Cash, September 30, 2001 $ 3,242 36,616 $ 3,242
===========================================
See accompanying note F-3
42
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2001
Preferred Stock Common Stock Additional Paid Accounts Rec Accumulated
Description Shares Dollars Shares Dollars in Capital Subscribed Deficit Total
- ----------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 - - 65,836,800 $ 658 $2,313,532 $(1,187,097) $(1,912,165) $(785,072)
Conversion of notes payable 423,900 4 199,146 - 199,150
Shares issued for services 3,908,530 39 579,486 (240,000) 339,525
Interest on notes - - - (14,002) (14,002)
Due from shareholder - - - 41,112 41,112
Net loss (580,307) (580,307)
----------------------------------------------------------------------------------------
Balance March 31, 2001 - - 70,169,230 701 3,092,164 (1,399,987) (2,492,472) (799,594)
Conversion of notes payable 4,072,500 41 186,859 186,900
Shares issued for services 1,606,000 16 121,509 121,525
Revaluation adjustment - (360,000) 240,000 (120,000)
Shares issued for stake 4,958,333 50 347,033 347,083
in Randombet.com
Interest on notes - - (13,104) (13,104)
Due from shareholder - - 4,014 4,014
Net loss (83,727) (83,727)
----------------------------------------------------------------------------------------
Balance June 30, 2001 - - 80,806,063 808 3,387,565 (1,169,077) (2,576,199) (356,903)
Shares issued for services 5,150,000 51 155,569 155,620
Shares issued for cash 5,150,000 51 84,949 - 85,000
Interest on notes - - (13,530) (13,530)
(281,099) (281,099)
----------------------------------------------------------------------------------------
Balance September 30, 2001 - - 91,106,063 $ 910 $3,628,083 $(1,182,607) $(2,857,298) $(410,912)
========================================================================================
See accompanying note F-4
43
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of
InterSpace Enterprises, Inc. (the "Company"). The financial statements have been
prepared in accordance with generally accepted Accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles.
In the opinion of management, the unaudited interim financial statements
for the period ended September 30, 2001 are presented on a basis consistent with
the audited financial statements and reflect all adjustments, consisting only of
normal recurring accruals, necessary for fair presentation of the results of
such period.
The results for the nine months ended September 30, 2001 are not
necessarily indicative of the results of operations for the full year. These
financial statements and related footnotes should be read in conjunction with
the financial statements and footnotes thereto included in the Company's
financial statements of the period ended December 31, 2000.
NOTE 2 - INVESTMENT IN RANDOMBET.COM
On June 29, 2001, the Company entered into an agreement to acquire
approximately a 10% stake in Randombet.com, plc, a private UK gaming company.
The Company acquired 700,000 shares of Randombet.com valued at (pound) 0.60 per
share for a total of (pound)420,000. The purchase was effected by the issuance
of 4,958,333 shares of Interspace common stock. The transaction was recorded at
the market value of the consideration given, or $.07 per share.
NOTE 3 - NON-MONETARY TRANSACTIONS
The Company issued 10,664,530 shares during the nine month period ending
September 30, 2001, for certain consulting and advisory services provided to the
Company, as well as services related to the development of the Company's
internet infrastructure. The Company valued these transactions at what they
believed to be the fair market value of the services. The value for these
services also approximates what management believes to be the value of the
stock. A portion of the shares representing compensation for services were
revalued to more closely approximate the value of the services provided. The
revaluation resulted in a reduction in consulting expense of $120,000.
In April 2001, the Company reversed accruals totaling $80,000 relating to
consulting services related to the merger which were not provided. These amounts
44
were expensed as consulting fees in the 2000 fiscal year and have been credited
to expense in 2001.
NOTE 4 - INTEREST INCOME/EXPENSE
Interest income represents accrued interest on promissory notes to the
Company from certain officers incurred as a result of options previously
exercised.
Interest expense represents accrued interest recovered as a result of
conversion of notes payable to common stock.
45
Independent Auditor's Report
----------------------------
Board of Directors and Stockholders
InterSpace Enterprises, Inc.
7825 Fay Avenue, Suite 200
La Jolla, CA 92037
We have audited the accompanying balance sheet of InterSpace Enterprises,
Inc., (A development stage company) as of December 31, 2000 and 1999, and the
related statements of operations, stockholders' equity (deficit), and cash flows
years ended and from June 30, 1998, date of inception, through December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterSpace Enterprises, Inc.
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for the year then ended and from June 30 1998, date of inception, through
December 31, 2000 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note K to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note K. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Siegel, Smith & Garber LLP
Solana Beach, California
April 5, 2001
46
Interspace Enterprises, Inc.
(A Development Stage Company)
Financial Statements
And
For the Period June 30, 1998 (Inception)
Through December 31, 2000
C O N T E N T S
BALANCE
SHEET 48
STATEMENT OF
OPERATIONS 49
STATEMENT OF CASH
FLOWS 50
NOTES TO FINANCIAL STATEMENTS
47
INTERSPACE ENTERPRISES, INC.
----------------------------
(A DEVELOPMENT STAGE COMPANY)
----------------------------
BALANCE SHEETS
----------------------------
AS OF DECEMBER 31, 2000 AND 1999
--------------------------------
2000 1999
------------- ------------
Current Assets
Cash $ 17,343 $ 10,223
Prepaid expenses 14,750 0
----------- ----------
Total current assets 32,093 10,223
----------- ----------
Fixed Assets
Computer and office equipment 11,281 9,299
Accumulated depreciation (4,315) (1,968)
----------- ----------
Total property and equipment 6,966 7,331
----------- ----------
Total Assets $ 39,059 $ 17,554
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 260,053 $ 147,737
Notes payable 136,000
Accrued payroll liabilities 279,332 110,527
Accrued income tax 1,600 800
Convertible notes payable 136,000
Accrued interest 9,105
Current portion long term debt 930 719
----------- ----------
Total current liabilities 823,020 259,783
----------- ----------
Long Term Liabilities 1,111 2,227
----------- ----------
Stockholders' Equity (Deficit)
Common stock 658 40,002
Accounts receivable subscribed-related parties (1,187,097) (5,000)
Additional paid in capital 2,313,532 402,438
Accumulated deficit during development stage (1,912,165) (681,896)
----------- ----------
Total stockholders' equity (785,072) (244,456)
----------- ----------
Total Liabilities and Stockholders' Equity $ 39,059 $ 17,554
=========== ==========
48
INTERSPACE ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999 AND INCEPTION TO DATE
From Inception
June 30, 1998
Through
2000 1999 December 31,2000
------------ ------------ ----------------
Revenues $ - $ - $ -
----------------------------------------
Research and Development - - 5,059
----------------------------------------
Administrative and Selling
Expenses
License fees 333,000 31,990 373,000
Consulting 257,250 70,100 330,825
Depreciation and amortization 2,347 1,660 4,315
Legal and professional 50,201 141,061 201,517
Marketing and promotion 14,468 85,163 99,631
Office expense 24,241 31,076 59,365
Other administrative expenses 120,671 44,518 168,209
Rent 5,777 3,651 10,823
Salaries 466,880 203,199 702,387
----------------------------------------
Total Administrative Expense 1,274,835 612,418 1,950,072
----------------------------------------
Net Loss from Operations (1,274,835) (612,418) (1,955,131)
----------------------------------------
Other (Income) Expense
Interest income (54,471) (54,471)
Interest expense 9,105 9,105
---------------------------------------
Total Other (Income) Expense (45,366) (45,366)
Income Taxes 800 800 2,400
---------------------------------------
Net Income $(1,230,269) (613,218) (1,912,165)
=======================================
Weighted Average Shares 58,321,405 32,206,741
Loss per share (0.02) (0.02)
49
INTERSPACE ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FROM INCEPTION, JUNE 30, 1998
THROUGH DECEMBER 31, 2000
From Inception
June 30, 1998
Through
2000 1999 December 31,2000
------------ ------------ ----------------
Cash Flows from Operating Activities:
Net Loss $(1,230,269) $ (613,218) $(1,912,165)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 2,347 1,660 4,315
Stock for services 469,000 158,475 630,950
Changes in:
Prepaid expense (14,750) 0 (14,750)
Accounts payable 112,316 147,737 260,053
Accrued interest 9,105 0 9,105
Accrued payroll expenses 168,805 91,684 279,332
State tax payable 800 800 1,600
-----------------------------------------
Net Cash Used in Operating
Activities (482,646) (212,862) (741,560)
-----------------------------------------
Cash Flows from Investing Activities
Accrued interest related parties (54,471) 0 (54,471)
Computer and equipment purchases (1,982) (5,815) (8,335)
Note receivable (payments) 3,000 0
-----------------------------------------
Net Cash Used by Investing Activities (56,453) (2,815) (62,806)
-----------------------------------------
Cash Flows from Financing Activities
Notes payable 136,000 0 145,200
Sale of common stock 275,124 212,990 550,614
Repayment of notes (905) (9,200) (10,105)
Convertible notes 136,000 0 136,000
------------------------------------------
Net Cash Provided by Financing
Activities 546,219 203,790 821,709
-----------------------------------------
Net Increase in Cash 7,120 (11,887) 17,343
Cash, beginning of the year 10,223 22,110 0
------------------------------------------
Cash, December 31 $ 17,343 $ 10,223 $ 17,343
==========================================
Supplemental Non Cash Investing
and Financing Activities:
Stock issued for a Lottery
license $ 333,000 $ $ 333,000
Stock for consulting service 136,000 136,000
Acquisiton of computer on note 2,946 2,946
Supplemental Information:
Interest paid $ 353 $ 413 $ 0
Taxes paid 0 0 0
50
INTERSPACE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE A - Summary of Significant Accounting Policies
----------------------------------------------
Organization
- ------------
Interspace Enterprises, Inc. (the "Company") was originally incorporated in the
State of Nevada on June 30,1998. The Company reincorporated as a Delaware
Corporation on November 17, 1999. Additionally, on April 14, 2000 the Company
entered into a stock exchange with Marathon Marketing Corp., ("MM") a Colorado
Corporation. The Company issued 672,000 shares of common stock for all the
outstanding shares of MM, which was also 672,000 and the transaction was
accounted for as a reverse reorganization. As part of the reorganization all
officers of MM resigned and MM changed its name to InterSpace Enterprises, Inc.
The Company plans to develop a website "PlanetLotto.com", incorporating a global
lottery combined with an interactive half-hour game show. International viewers
will have the potential to win cash and will be able to watch a weekly game show
tailored to meet the needs of diverse international participants. Guests may
enter any weekly jackpot by purchasing a $2.00 (US) entry and selecting their
lucky numbers. Guests may also purchase PlanetLotto.com merchandise online.
All transactions will be secured through an established online credit card
transaction company. All ticket purchases will be confirmed via e-mail.
Development Stage Operations
Since inception, June 30, 1998, the Company has devoted significantly all of its
efforts to development of a web site, obtaining capital resources and obtaining
lottery licenses. Therefore, the Company is considered a development stage
company as described in SFAS No. 7.
Use of Estimates
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
Basic and Diluted Net Loss Per Share
Net loss per share is calculated in accordance with SFAS128, Earnings Per Share
for the period presented. Basic net loss is based upon the weighted average
number of common shares outstanding. Diluted loss per share is based on the
assumption that all-dilative convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method.
Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if funds
obtained thereby were used to purchase common stock at the average market price
during the period.
51
Comprehensive Income
The Company has adopted SFAS 130, Reporting Comprehensive Income, which
establishes standards for reporting comprehensive loss and its components in the
financial statements. To date, the Company's comprehensive loss equals its net
loss.
Reportable Operating Segments
-----------------------------
SFAS 131, Segment Information, amends the requirements for companies to report
financial and descriptive information about their reportable operating segments.
Operating segments, as defined in SFAS 131, are components of an enterprise for
which separate financial information is available and is evaluated regularly by
a company in deciding how to allocate resources and in assessing performance.
The financial information is required to be reported on the basis that is used
internally for evaluating segment performance. The Company currently is the
development stage and does not have reportable operating segments.
Cash and Cash Equivalents
- ----------------------------
Cash equivalents include cash on hand and in banks.
Accounting Method
- ------------------
The Company uses the accrual method of accounting, which recognizes income as it
is earned and expenses as they are incurred.
Equipment and Depreciation
- ----------------------------
Property and equipment are carried at historical cost. Depreciation is computed
using the straight-line method over the useful life of the asset. Asset lives
are five years for equipment and software. Total depreciation from June 30,
1998, date of inception, through December 31, 2000 was $4,315, which represents
$2,347 for the current calendar year, $1,660 for 1999 and $308 for the period of
inception through December 31, 1998. The Company uses the modified accelerated
cost recovery method for income tax purposes.
Income Taxes
- -------------
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred
income taxes reflect the net tax effects of temporary differences between the
financial statement carrying amounts and tax rates in effect in the years in
which the differences are expected to reverse. The Company has a net operating
loss ("NOL") as of December 31, 1999 of approximately $700,000 for federal
purposes and $350,000 for State tax purposes. This NOL will be gin to expire in
the year 2013 if not previously utilized.
Accounting for Stock-Based Compensation
- ------------------------------------------
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123) prescribes a fair value method of accounting for
stock based compensation plans and for transactions in which stock options or
other equity instruments are exchanged for goods or services. The Company
adopted this accounting standard at inception. Accordingly, the fair value of
the equity instruments issued is used to account for the payment of services
rendered. Also, in accordance with SFAS No. 123, the Company has footnote
disclosure with respect to stock-based non-employee compensation. The cost of
stock based compensation is measured at the grant date on the value of the award
and recognizes this cost over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair market valued of the stock as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
New Accounting Pronouncements
-----------------------------
In December 1999, the Staff of the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenues in
52
financial statements. In June 2000, the SEC staff amended SAB 101to provide
registrants with additional time to implement SAB 101. The Company will be
required to adopt SAB 101 by the fourth quarter of fiscal 2001. Upon
commencement of operations, the Company intends to adopt the revenue recognition
practices to conform to SAB 101. Furthermore, the Company does not expect the
adoption of SAB 101 to have a material effect on its financial position or
results of operation.
NOTE B - Notes Payable
--------------
The Company has obtained from two interested parties a total of $136,000 in
informal loans to meet the Company's day-to-day cash operating needs. The loans
total $16,000 from one party and $120,000 from the second. Neither party has
asked the Company to collateralize the loan, sign notes or state an interest
rate. The Company intends to repay these parties when significant funding has
been obtained. These notes are demand notes and therefore classified as a
current liability. The Company has accrued $3,441 interest at a rate of
10percent on these friendly advances. Subsequent to year-end the $16,000 note
was converted to 57,600 shares of the Company's common stock.
The Company has assumed a liability from an officer of the Company for
approximately $2,000. The Officer used his personal credit to acquire computer
equipment on a revolving credit basis. The loan is unsecured and bears 18%
interest annually.
The following table represents the annual principal payments due on the
revolving credit over the next five years:
YEAR AMOUNT
2001 $ 930
2002 $ 1,110
2003 $ -0-
2004 $ -0-
2005 $ -0-
NOTE C - Convertible Notes Payable
---------------------------
In August 2000 the Company raised $136,000 of capital via unsecured convertible
notes. The terms of the notes are one (1) year with interest at 10% annually.
The notes are convertible to equity at either the note holders' wishes or, if
certain events occur within the Company, the Company has the right to convert.
At December 31, 2000 no note holders or events had occurred to trigger
conversion and the Company accrued $5,664 of interest payable on these notes.
Subsequent to year-end the Company's stock traded on the National Association of
Securities Dealers, Over-The-Counter Bulletin Board, in excess of the benchmark
established in the Convertible Note Agreement. Therefore, the Company has
converted all notes to stock subsequent to December 31, 2000.
53
NOTE D - Income Taxes
Income tax expense of $800 represents the minimum California franchise tax for
the year ended December 31, 2000. The deferred income taxes consisted of the
following as of December 31, 2000, 1999 and 1998.
2000 1999 1998
Deferred tax asset:
NOL $ 175,800 $ 106,200 $ 68,700
-----------------------------
Total deferred tax asset $ 175,800 $ 106,200 $ 68,700
Less: Valuation allowance (175,800) (106,200) (68,700)
-------------------------------
Net deferred tax asset $ - $ - $ -
Change in valuation allowance $ 69,600 $ 37,500 $ 68,700
NOTE D - Income Taxes-continued
-----------------------
Deferred tax assets relates to the Company's net operating loss from inception
through December 31, 2000. The net operating loss totals $1,900,000 as of
December 31, 2000 and begins to expire in 2013. A valuation allowance has been
provided against this deferred tax asset as it more likely than not that the
deferred tax asset will not be realized.
NOTE E - Preferred Stock
----------------
The Company has authorized 40,000,000 shares of $0.0001 par value preferred
stock. As of December 31, 2000 and 1999 no shares were issued and outstanding.
NOTE F - Common Stock
-------------
The Company has authorized 200,000,000 shares of $0.00001 par value common
stock. On December 31, 2000 and 1999 there were 65,836,800 (post dividend) and
4,000,200 (pre dividend) shares issued and outstanding, respectively. During
2000, prior to the stock dividend the Company sold 99,000 shares totaling
$222,500 less a $26,000 commission. Additionally, 136,000 shares, (pre
dividend) were issued for services, valued at $136,000 and 333,000 shares were
issued for a license in Ecuador. The shares issued for services and the license
were valued at what management believed was the value of the stock issued, $1.00
per share.
On July 14, 2000, the Board of Directors announced a nine-for-one split of
InterSpace common stock. The nine-for-one split was effected in the form of an
800% stock dividend paid to stockholders of record as of the close of business
on July 14, 2000. All share and per share data reflect this split.
NOTE G - Non-Monetary Transactions
The Company initiated a policy, whereby a fifteen-percent commission is paid for
referrals of investors in the Company's stock. During 2000 and 1999 the Company
paid $26,000 and $33,260 respectively for referrals.
54
On February 9, 2000 the Company issued 2,997,000 shares, (post dividend), of
common stock to The Association of Ecuador for a license to operate an internet
lottery in Ecuador for a ten year period or until terminated. The Company will
pay a 1.5% commission to The Association of Ecuador for each lotto ticket sold
in Ecuador. The Company valued the transaction at $333,000. The value was based
upon what management believed to be the value of the stock between a willing
buyer and a willing seller at that point in time. Various stock transactions
occurred at other prices during this time period. However, management believes
that the transactions were limited and the Company encountered resistance from
certain buyers at higher stock price.
Additionally, the Company issued 1,224,000 (post dividend) shares for certain
consulting and advisory services provided to the Company. The Company valued
these transactions at what they believed to be the fair market value of the
services. The value for these services also approximates what management
believes to be the value of the stock.
NOTE H - Related Party Transactions
----------------------------
The Company currently has assumed a liability from an officer of the Company for
approximately $2,000. The Officer used his personal credit to acquire computer
equipment on a revolving credit basis. The loan is unsecured and bears 18%
interest annually, (see Note B).
Certain officers and consultants were granted options to purchase stock of the
Company in 1999. In March 2000 all outstanding options totaling 18,675,000
shares (post dividend), at a cost of $1,206,250 were exercised. The options
exercised by the officers for 17,100,000 shares however, were completed by
promissory notes to the Company for $1,087,500 and interest at the annual
Federal mid-term rate. Total accrued interest at December 31, 2000 was $54,471.
The interest was accrued on officer notes only. The Company has a balance owing
to one consultant, that converted options, which approximates the amount of the
note receivable. Additionally, the remaining consultant has paid $25,000 cash
and provided services, which have been applied to the note.
The options exercised by the consultants have been offset in part by services
and or amounts owed to the consultants. As of December 31, 2000 the consultants
owed the Company $45,126 for the stock and the Company owed the consultants for
services $18,750.
NOTE I - Subsequent events
------------------
The Company has converted the entire $136,000 of convertible notes to 272,000
shares of common stock. Additionally, the note holder of the $16,000 note
converted their note to 57,600 shares of common stock.
NOTE J - Commitments and Contingencies
-------------------------------
The Company currently leases space for their corporate headquarters in an
Executive Suite complex in the La Jolla area of San Diego, California. The
Company pays a minimum amount of rent, ($185 monthly) for limited use of
55
conference and meeting rooms. The Company is also charged for additional
services such as secretarial services, call forwarding and facsimiles. During
2000 the Company paid $5,868 for these services and the service can be
terminated on 30 days written notice.
The Company is currently obligated under the terms of an operating lease for an
automobile used by the CEO. The lease was originally for 36 months, at $618 a
month, and matures August 2002.
NOTE K - Going Concern
--------------
At December 31, 2000 and 1999 the Company had a significant working capital
deficit. Additionally, the Company has recurring losses during their
development stage as well as negative stockholders' equity. These factors raise
doubt about the Company continuing as a going concern.
Management continues to seek capital via the sale of common stock. The Company
is also discussing financing alternatives with various investment groups. There
can be no assurance that the Company will be successful in its efforts to raise
adequate capital. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Item 23: Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Siegel, Smith & Garber, LLP have audited the Company's records since
inception. There were no disagreements with them on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
On April 14, 2000, the Company entered into a merger agreement with
Marathon Marketing Corporation for the purposes of attaining a listing on a
public exchange. The business combination was originally accounted for under
the purchase method. During the annual audit, it was mutually agreed, given the
recent clarification of the SEC's position regarding accounting for business
combinations, that the most appropriate method for accounting for the
combination was as a reorganization. As a result, there should have been no
goodwill associated with the transaction. The $622,000 amount booked as
goodwill, as well as accumulated amortization of $440,000 was reversed in the
fourth quarter. The year-end financial statements reflect the appropriate
treatment of the transaction.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24: Indemnification of Directors and Officers
Company's Bylaws and the Colorado Business Corporation Act provide for and
Directors of the Company are indemnified generally against expenses actually and
reasonably incurred in connection with proceedings, whether civil or criminal,
56
provided that it is determined that they acted in good faith, were not found
guilty, and, in any criminal matter, had reasonable cause to believe that their
conduct was not unlawful.
Item 25: Other Expenses of Issuance and Distribution
The following table sets forth the Company's estimates (other than of the
SEC registration fee) of the expenses in connection with the issuance and
distribution of the shares of common stock being registered:
SEC registration fee $1,250.00 (estimate)
Federal taxes $0
State taxes and fees $0
Trustees' and transfer agent's fees $3,000 (estimate)
Printing expenses . $5,000 (estimate)
Legal fees and expenses $5,000 (estimate)
Accounting fees and expenses $7,000 (estimate)
Miscellaneous expenses $2,000 (estimate)
----------
Total: $23,250.00 (estimate)
Item 26: Recent Sales of Unregistered Securities
Since November 8, 1998, the Company has raised $1,268,900 through the issuance
of 22,404,026 shares of its Common Stock to 114 investors. These offerings were
exempt from registration pursuant to 4(1). All of the shares were sold directly
by the Company. The price per share was arbitrarily determined by the board of
directors.
Item 27: Exhibits
- --------------------------------------------------------------------------------
Exhibit # Description of Document
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation Previously filed
- --------------------------------------------------------------------------------
3.2 Bylaws Previously filed
- --------------------------------------------------------------------------------
5.1 Opinion of W. Andrew Stack Page 61
- --------------------------------------------------------------------------------
10.1 Historical Financial Statements Previously filed
- --------------------------------------------------------------------------------
23.1 Consent of Siegel, Smith & Garber, LLP Page 62
- --------------------------------------------------------------------------------
23.2 Consent of W. Andrew Stack Included in Exhibit 5.1
- --------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
3.1 Articles of Incorporation
3.2 Bylaws
10.1 Historical Financial Statements
23.1 Consent of Independent Auditors
57
Item 28: Undertakings
(a) The undersigned registrant hereby undertakes:
(i) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein.
(b) insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective by the Securities and
Exchange Commission.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
AVAILABLE INFORMATION
Interspace Enterprises, Inc. is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements and other information
58
with the Securities and Exchange Commission (the "Commission"). These
materials can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York. New York 10048. Copies of these materials can also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20459.
SIGNATURES
In accordance with the requirements of the Securities Act, 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 registration statement
to be signed on its behalf by the undersigned, in the City of La Jolla, State of
California, on February 6, 2002.
Interspace Enterprises, Inc.
By:/s/Daniel P. Murphy 2/6/02
------------------------------- ------
Daniel P. Murphy Date
President, Chief Executive Officer,
Chairman and Director
In accordance with the requirements of the Securities Act of 1933, the
following persons in the capacities and on the dates stated signed this
Registration Statement:
NAME TITLE DATE
- --------------------------------------------------------------------------------
/s/Alejandro Trujillo Director 2/6/02
Alejandro Trujillo
/s/Andrew P. Patient Chief Financial
Andrew P. Patient Officer and Secretary 2/6/02
59
Exhibit 5.1
February 6, 2002
The Board of Directors
Interspace Enterprises, Inc.
7825 Fay Avenue, Ste. 200
La Jolla, California 92037
Gentlemen:
I refer to the Registration Statement filed on form SB-2 with the
Securities and Exchange Commission (the "Commission") on February 6, 2002 under
the Securities Act of 1933, as amended (the "Act") relating to an aggregate of
61,196,991 Shares of the Common Stock of the Company, $0.0001 par value, (the
"Shares") to be issued.
As special counsel to the Company, I have examined the laws of the State of
Colorado, corporate records, documents and such questions of law as I have
considered necessary or appropriate for purposes of this opinion and, upon the
basis of such examination, advise you that in my opinion, all necessary
corporate proceedings have been taken to authorize the issuance of the shares
and that the shares being registered pursuant to the Registration Statement,
when issued, will be fully authorized, legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement as amended. This consent is not to be construed as an
admission that I am a person whose consent is required to be filed with the
Registration statement under the provisions of the Act.
Very truly yours,
/s/W. Andrew Stack
W. Andrew Stack, Esq.
60
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the use in this Registration Statement of Interspace Enterprises,
Inc. on Form SB-2 of our report dated April 5, 2001, appearing in the
Prospectus, which is part of this Registration Statement.
/s/Siegel, Smith & Garber, LLP
February 6, 2002
61