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)
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Colorado 84-1283938
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(State or jurisdiction of incorporation or (Primary Standard Industrial (I.R.S. Employer Identification No.)
organization) Classification Code Number)
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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. [ ]
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 class of Maximum amount to be Proposed aggregate Proposed maximum Amount of registration
securities to be registered offering price per aggregate offering fee (1) (2)
registered unit (1) (2) price (1) (2)
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Common stock, par value 40,000,000 (3) $0.09 $3,600,000 $860.40
$0.0001 par share
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Common stock, par value 28,296,991 (4) $0.05 $1,414,849.50 $338.15
$0.0001 par share
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Options to purchase 12,000,000 (5) $0.05 $600,000 $143.40
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. The offering of these securities will be commenced
promptly upon effectiveness of this registration statement, will be made on
a continuous basis and may continue for a period in excess of 30 days from
initial effectiveness.
(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.
(5) This amount represents securities which will be issued upon the exercise of
outstanding options from which the company will receive monetary benefit
upon exercise.
PART I-INFORMATION REQUIRED IN PROSPECTUS
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.
Item 1: Front of Registration Statement and Outside Front Cover of Prospectus
Interspace Enterprises, Inc.
40,000,000 Shares of Common Stock
40,296,991 Shares For Selling Security Holders
(1) Registrant's Name. Interspace Enterprises, Inc.
(2) Title and amount of securities. All of the shares of common stock, $0.0001
par value, offered hereby are being sold by certain shareholders who are
registering 28,296,991 shares issued under the terms of a debenture and the
conversion of said debenture into common shares of the company, and shares which
will be issued upon the exercise of outstanding options, all of which carried
certain piggyback registration rights.
In addition, the company is registering an additional 40,000,000 shares of
common stock, an amount which it reasonably believes may be sold within the next
two years. This offering will be commenced promptly, will be made on a
continuous basis and may continue for a period in excess of 30 days from the
date of initial effectiveness This prospectus may be used only in connection
with the resale of 28,296,991 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 40,000,000 shares
of common stock for cash. These shares will be offered at a maximum price of
$0.09 per share. Interspace does not anticipate paying any commissions related
to the sale of these securities. No underwriting arrangements have been made
with respect to the sale of these securities.
(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.
(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 April 8, 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
Item 2: Inside Front and Outside Back Cover Pages of Registration Statement
Item 3: Summary Information
Table of Summary Information
Risk Factors
Reasons for the Stock Distribution
Manner of the Stock Distribution
Certain Tax Matter
Indemnification Agreements
Expenses
Item 4: Use of Proceeds
Item 5: Determination of Offering Price
Item 6: Dilution
Item 7: Selling Shareholders
Item 8: Plan of Distribution
Item 9: Litigation Proceedings
Item 10: Director, Executive Officers, Promoters and Control Persons
Item 11: Security Ownership of Certain Beneficial Owners
Item 12: Description of Securities
Item 13: Interest and Named Experts and Counsel
Item 14: Disclosure of Commission Position on Indemnification
Item 15: Organization Within the Last Five Years
Item 16: Description of Business
Item 17: Management's Discussion and Analysis of Plan of Operation
Item 18: Description of Property
Item 19: Certain Relationships and Related Transactions
Item 20: Market for Common Equity and Related Stockholders Matters
Item 21: Executive Compensation
Item 22: Financial Statements
Item 23: Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
PART II: INFORMATION NOT REQUIRED IN REGISTRATION STATEMENT
Item 24: Indemnification of Directors and Officers
Item 25: Other Expenses of Issuance and Distribution
Item 26: Recent Sales of Unregistered Securities
Item 27: Exhibits
Item 28: Undertakings
Signatures
Item 3: Summary Information and Risk 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.
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 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. 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. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, which is www.sec.gov. You can also find more information about
Interspace Enterprises, Inc. at our websites at www.interspaceenterprises.com
and www.planetlotto.com.
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 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, Interspace Enterprises 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 Over-The-Counter Bulletin
Board market under the symbol "ITET". Interspace Enterprises, Inc. is a company
with little revenues and no assets, and we have generated operating and net
losses since inception. Since inception, Interspace has incurred a net loss of
$1,912,165, and as such, has funded operations primarily through the sale of
company securities.
Interspace Enterprises, Inc. is the exclusive marketer for the
Planetlotto.com web site, hosted and operated by the International Lottery in
Liechtenstein Foundation, under the rules and regulations of the Government of
Liechtenstein. The Company's web site, www.planetlotto.com, hosts various forms
of online lottery games. The web site also web casts our weekly PlanetLotto
draw, which can be viewed live through the web site, via streaming video. The
Interspace Enterprises's principal revenue stream is derived directly from a
portion of the proceeds of every transaction on the Planetlotto.com web site.
The Offering
Primary Offering
Interspace is registering 40,000,000 shares of common stock to be sold at a
maximum price of $0.09. This offering will be made on a continuous basis.
Selling Stockholders
Interspace is registering 28,296,991 shares of common stock previously sold
under Rule 144 under which certain piggyback registration rights were granted.
Option Shares
Interspace is registering 12,000,000 shares which will be issuable upon the
exercise of outstanding options on a 1 for 1 conversion basis.
The percentage of the proceeds that Interspace Enterprises receives through our
partnership with ILLF with respect to all of the products currently provided on
the Planetlotto.com website is as follows:
Planetlotto Weekly Lottery - 17.5% of every transaction
Planetlotto Hourly Lottery - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Planetlotto Instant Lottery - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Planetlotto Bingo - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Scratch card Games:
Planet Cash - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Martian Madness - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Filthy Rich - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Code Breaker - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Hole in One - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
Monte Carlo - 10% to 16% of every transaction
(Range will fluctuate based on promotional campaigns at any given time, such as
the current 50% bonus deposit program currently in place)
SUMMARY FINANCIAL INFORMATION
Year Ended December 31 2001 2000 1999
Revenue $ -0- $ -0- $ -0-
Net Income (Loss) ($1,694,934) ($1,230,269) ($613,218)
Earnings per Share ($0.02) ($0.02) ($0.02)
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 For
information
regarding
employment
agreements
with certain
senior
management of
the Company,
see page 15.
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SHARES OUTSTANDING 115,004,285 as of March 31, 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 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
TO CONINUE OPERATIONS, WE RELY ON THE CONTINUED SALE OF POTENTIALLY VOLATILE
STOCK
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. Our auditor expresses a substantial doubt
about our ability to continue as a going concern. At the present time, we have
negative working capital and negative shareholder's equity, and the book value
of our common stock is zero.
PENNY STOCKS MAY BE DIFFICULT TO SELL IN THE SECONDARY MARKET
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, 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.
THERE ARE NO ASSURANCES THAT THE PUBLIC TRADING MARKET ON OTC BULLETIN BOARD FOR
INTERSPACE ENTERPRISES WILL BE SUSTAINED
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
WE FACE PROBLEMS FREQUENTLY ENCOUNTERED BY A NEW BUSINESS
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.
WE HAVE A LIMITED OPERATING HISTORY, AND HAVE INCURRED LOSSES SINCE INCEPTION,
WITH NO ASSURANCE 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."
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 SYSTEM FAILURE, WHICH MAY
HINDER OUR ABILITY TO OPERATE SUCCESSFULLY.
Our success, in particular our ability to successfully receive and process
lottery purchases and provide high-quality customer service, largely depends on
the efficient and uninterrupted operation of our computer and communications
systems. 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.
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 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.
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 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 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 INTERSPACE
ENTERPRISES TO MAKE CERTAIN CHANGES IN THE WAY WE IMPLEMENT OUR 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.
FORWARD-LOOKING STATEMENTS
This Registration Statement contains statements that constitute
forward-looking statements. 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.
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 40,000,000 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.
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
25% 50% 75% 100%
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Net Offering Proceeds 900,000 1,800,000 2,700,000 3,600,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Marketing and Promotion 600,000 1,000,000 1,800,000 2,600,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Salaries and Benefits 200,000 300,000 300,000 300,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Web Development 50,000 100,000 100,000 100,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
General and Administrative 50,000 75,000 100,000 125,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Working Capital 100,000 325,000 400,000 475,000
- -------------------------------------------- -------------------- ------------------- -------------------- ---------------------
Item 5: Determination of Offering Price
In addition to the registration of shares of our common stock, which is
currently traded on the Over-The-Counter Bulletin Board, the company is
registering 12,000,000 shares issuable upon exercise of options granted to
certain investors as additional consideration for their investment in the
company. The options contain a strike prices ranging from $0.01 per share to
$0.20 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.
Item 6: Dilution
As of December 31, 2001 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 12,000,000
options being registered herein and the sale of all 40,000,000 shares registered
for the shelf herein at $0.09 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, 2001 would have been $945,087 or $0.01 per
share. This represents an immediate increase in our pro forma net tangible book
value of $0.02 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $0.04 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 28,296,991 shares being registered
for the account of security holders in this registration statement and the
exercise of options to purchase 12,000,000 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.
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Selling Security Holder Shares Owned Percentage Shares Being Shares Owned After Percentage
(9) Before Offering Owned Before Registered (2) Offering (3) Owned After
Offering (1) Offering (4)
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Donlon Murphy Corp. (5) 2,007,000 1.9% 2,007,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Zabadoo.com AG (6) 7,000,000 6.6% 7,000,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Robert K. Swanson 7,352,000 6.9% 7,352,000 7,352,000 Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Bergen Briller Group (7) 75,000 Nominal 75,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Shari Blecher 13,000 Nominal 13,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Stuart Liberman 13,000 Nominal 13,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Gilbert Satov 600,000 Nominal 600,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Larry Heuchart 150,000 Nominal 150,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Doug E. Lachance 163,000 Nominal 163,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Carl Jantz 833,333 Nominal 833,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Ronnie Tan 833,333 Nominal 833,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Kavan Singh 1,666,666 1.24% 1,666,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Michael Tait 416,666 Nominal 416,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Jonathan Wichman 833,333 Nominal 833,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Peter M. Reynolds 1,500,000 1.12% 1,500,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Donald & Diane Paquette 190,000 Nominal 190,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Jonathan H. Davis 166,666 Nominal 166,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
David R. Heilbroner 200,000 Nominal 200,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
William E. & Patricia A. 416,666 Nominal 416,666 -0- Nominal
Post
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Gary S. Semple 150,000 Nominal 150,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Maria S. Machado 33,333 Nominal 33,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Philip F. & Carol Lindner 500,000 Nominal 500,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Frederick C. & Perri L. 66,666 Nominal 66,666 -0- Nominal
Sachs
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Robert Bowler 833,333 Nominal 833,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Norman Rest 266,666 Nominal 266,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Robert J. D'Esposito, Jr. 393,333 Nominal 393,333 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Marshal D. Schictman 20,000 Nominal 20,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Giovanni Garcia 16,666 Nominal 16,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Valentin Chavez 16,666 Nominal 16,666 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Gary Mozach 100,000 Nominal 100,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Susan Rohrbach 50,000 Nominal 50,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Paul & Pat Recore 100,000 Nominal 100,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Freedom Financial Group 970,665 Nominal 970,665 -0- Nominal
(8)
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
David Robart-Morgan 250,000 Nominal 250,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
Louis Malfara 100,000 Nominal 100,000 -0- Nominal
- --------------------------- -------------------- ----------------- ------------------- ----------------------- -----------------
(1) Percentage calculation is based on a total of 105,570,563 common shares
outstanding prior to the offering.
(2) Total number of shares being registered assumes exercise of all 12,000,000
options to purchase common shares and the sale of all 40,000,000 shares
registered for the shelf.
(3) Total number of shares outstanding after the offering are calculated
assuming exercise of all 12,000,000 options to purchase common shares and
the sale of all 40,000,000 shares registered for the shelf.
(4) Percentage calculation is based on a total of 157,570,563 common shares
outstanding after the offering, assuming exercise of all 12,000,000 options
to purchase common shares and the sale of all 40,000,000 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. Mr. Murphy has no voting control
over Donlon Murphy shares. The controlling person of Donlon Murphy is
Kelley Murphy.
(6) Zabadoo.com AG is owned by Zabfin Anstalt (100% ownership). Zabfin is
controlled by Adriaan Brink and Hugo Sele.
(7) Bergen Briller is controlled by Mitch Briller and Mike Bergen.
(8) Freedom Financial Group is controlled by Edward Machado and David Ditosti.
(9) None of the selling security holders are broker dealers or affiliates of
broker dealers.
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. Interspace
does not intend to retain an underwriter for the primary offering. Interspace
anticipates that selling shareholders will deposit their shares in individual
brokerage accounts, and that any such sales will occur through such brokerage
accounts.
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. Mr.
Murphy is serving a 4 year term which commenced on April 16, 2000. Mr. Trujillo
is serving a 4 year term which commenced on April 16, 2000.
DIRECTORS
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- ----------------------- -----
Daniel P. Murphy 32 Founder, President, Chief Executive 1998
Officer, Chairman and Director
Alejandro Trujillo 32 Founder, Chief Technology Officer 1998
and Director
EXECUTIVE OFFICERS
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
All officers spend 100% of their time on Company business. Directors meet at
least once a month on Company business.
EMPLOYMENT AGREEMENTS
In April 2000, as a result of the reorganization, the Company entered into new
employment agreements with Daniel P. Murphy, its Chairman of the Board,
President and Chief Executive Officer, Alejandro Trujillo, its Chief Technology
Officer and Director, and Andrew P. Patient, its Chief Financial Officer and
Secretary. Mr. Murphy's employment contract is for an initial term of four
years. The employment agreement provides for a minimum base salary of $80,000 in
its first year, with requirements for minimum increase of 50% each January 1.
Mr. Murphy is eligible for a performance bonus based on the greater of 1% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Murphy is eligible to receive an annual stock incentive bonus equal to 1% of
the Company's outstanding shares and participate in the Company's Incentive
Stock Option Plan. No shares or options were granted for 2000 under the terms of
the contract. The agreement further provides that in the event of the
termination of Mr. Murphy's employment by the Company without cause, the Company
will pay Mr. Murphy his base salary for the remainder of the initial term, a
prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately. In the event of the
termination of Mr. Murphy's employment by the Company as a result of change in
control, the Company will be required to pay Mr. Murphy a termination fee equal
to 10 times his annual base salary, plus any accrued bonuses or other incentive
compensation.
Mr. Trujillo's employment contract is for an initial term of two years. The
employment agreement provides for a minimum base salary of $80,000 in its first
year, with requirements for minimum increase of 20% each January 1. Mr. Trujillo
is eligible for a performance bonus based on the greater of 0.25% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Trujillo is eligible to receive an annual stock incentive bonus equal to
0.25% of the Company's outstanding shares and participate in the Company's
Incentive Stock Option Plan. No shares or options were granted for 2000 under
the terms of the contract. The agreement further provides that in the event of
the termination of Mr. Trujillo's employment by the Company without cause, the
Company will pay Mr. Trujillo his base salary for the remainder of the initial
term, a prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately.
Mr. Patient's employment contract is for an initial term of two years. The
employment agreement provides for a minimum base salary of $80,000 in its first
year, with requirements for minimum increase of 25% each January 1. Mr. Patient
is eligible for a performance bonus based on the greater of 0.25% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Patient is eligible to receive an annual stock incentive bonus equal to
0.25% of the Company's outstanding shares and participate in the Company's
Incentive Stock Option Plan. No shares or options were granted for 2000 under
the terms of the contract. The agreement further provides that in the event of
the termination of Mr. Patient's employment by the Company without cause, the
Company will pay Mr. Patient his base salary for the remainder of the initial
term, a prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately.
(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.
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.
Mr. Robert K. Swanson has been nominated to the Board of Directors.
Robert K. Swanson, 69, is currently the chairman of the RKS, Inc., an
International Investment and Marketing Consulting Firm located in Paradise
Valley, Arizona. He is also a Partner in ST International LTD., an International
Marketing Consulting Firm located in London, England. In addition, Swanson is a
consultant to various legal firms on matters of corporate ethics and governance
in the United Kingdom and United States. He has served as a chairman and/or
director of various public and private companies, including the Del Webb Corp.
from January 1981 through October 1987. Swanson received his Bachelor of Arts,
Magna Cum Laude from the University of South Dakota. He was also a Fullbright
Scholar at the University of Melbourne in Melbourne, Australia. In addition,
Swanson has pursued post-graduate studies at the Harvard University School of
Business and Oxford University.
(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
Of Class Name and Address Owned Owned
- ---------- ------------------------- --------------- ------------------
Common Daniel P. Murphy
President, Chairman, CEO, 15,750,000 (1) 14.91%
and Director
7825 Fay Avenue, #200
La Jolla, California 92037
Common Alejandro Trujillo
Chief Technology Officer and 15,750,000 (2) 14.91%
Director
7825 Fay Avenue, #200
La Jolla, California 92037
Common Andrew P. Patient
CFO, Treasurer, and Secretary 6,750,000 (3) 6.39%
7825 Fay Avenue, #200
La Jolla, California 92037
Common Robert K. Swanson 14,372,000 (4) 13.61%
Shareholder
Common Zabadoo.com, AG 12,000,000 (5) 11.36%
Shareholder
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.
(4) Includes 7,000,000 shares issuable upon exercise of options to purchase
common stock. Option strike price is $0.01 per share and assumes exercise of all
options.
(5) Includes 5,000,000 shares issuable upon exercise of options to purchase
common stock. Option strike prices range from $0.02 per share to $0.20 per share
and assumes exercise of all options.
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 28,296,991 shares of common stock, 12,000,000 options to
purchase shares of common stock, and 40,000,000 shares registered for the shelf.
All shares contained in this registration statement are common shares. The
company's common shares are listed on the Over-The-Counter Bulletin Board.
The following description of certain matters relating to the common stock
is a summary and is qualified in its entirety by the provisions of our articles
of incorporation and bylaws.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of our shareholders. The holders of our common stock
have the sole right to vote, except as otherwise provided by law or by our
articles of incorporation. In addition, such holders are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
board of directors out of legally available funds, subject to the preferences
granted to the holders of our preferred stock. In the event of the dissolution,
liquidation or winding up of 2-Infinity, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of all our
liabilities, subject to the preferences granted to the holders of our preferred
stock.
The holders of our common stock do not have cumulative voting rights or
preemptive rights to acquire or subscribe for additional, unissued or treasury
shares in accordance with the laws of the state of Colorado. Accordingly, the
holders of more than 50 percent of the issued and outstanding shares of our
common stock voting for the election of directors can elect all of the directors
if they choose to do so, and in such event, the holders of the remaining shares
of our common stock voting for the election of the directors will be unable to
elect any person or persons to the board of directors. All outstanding shares of
our common stock are fully paid and nonassessable.
The laws of the state of Colorado provide that the affirmative vote of a
majority of the holders of the outstanding shares of our common stock is
required to authorize: (i) amendments to our articles of incorporation, with
some exceptions; (ii) mergers or consolidations with any corporation, with some
exceptions; or (iii) any liquidation or disposition of any of our substantial
assets other than in the usual and regular course of business.
Item 13: Interest of Named Experts and Counsel
None.
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. Mr. Murphy was granted options to purchase 250,000 shares at
$1.10 per share for a period of 5 years. Mr. Trujillo was granted options to
purchase 250,000 shares at $1.10 per share for a period of 5 years, and Mr.
Patient was granted options to purchase 250,000 shares at $1.00 per share for 5
years. 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 grant. All options
were exercised on March 22, 1999 and were financed through promissory notes from
the Company at the Federal Rate for Mid-Term Funds, payable on or before March
22, 2004. 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 Enterprises, Inc. and Marathon Marketing
Corp. The Agreement was subsequently cancelled and Prudential Overseas Company,
Ltd. acquired 672,000 shares. Prudential Overseas Company, Ltd. exchanged
672,000 shares to InterSpace Enterprises, Inc. for 672,000 shares of its stock
on April 17, 2000.
The officers and directors of Marathon Marketing Corporation consisted of
the following: Jeff Ploen, Scott Deitler and Jim Toot. On April 14, 2000 these
individuals sold the entire shares outstanding, which amounted to 672,000 shares
of common stock in Marathon Marketing corporation to Prudential Overseas
Company, Ltd. Their relationship as officers and directors ended after this
transaction occurred. Interspace Enterprises has not had any contact from these
individuals and they have no involvement in Interspace Enterprises in any
capacity.
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.
Interspace Delaware was the predecessor Company to the Interspace
Enterprises, Inc., Colorado. The officers and directors of Interspace Delaware
are the same as they are currently. The major shareholders of Interspace
Delaware were the founders, Daniel P. Murphy and Alejandro Trujillo, who
together owned more than 50% of the outstanding common shares at that time.
The merger between Interspace Delaware and Marathon Marketing consisted of
a simple one for one share exchange whereby each shareholder of Interspace
received one share of Marathon. Marathon then changed its name to Interspace
Enterprises, Inc. There were 672,000 shares of Marathon Marketing and 6,668,200
shares of Interspace Delaware outstanding at the time of the merger, for a total
of 7,340,200 shares outstanding on a post-merger basis. No cash was exchanged as
part of the merger and there were no agreements or arrangements that benefited
the officers, directors or major shareholders of either company. Mr. Michael A.
Littman performed legal services as part of the merger and received
approximately $2,500 as compensation.
Item 16: Description of Business: Interspace Enterprises
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, 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
Over-The-Counter Bulletin Board market under the symbol "ITET".
DESCRIPTION OF BUSINESS
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 are encouraged
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 of March 15, 2002, we have had 4987 users of the Internet lottery
games and US$12,522.52 has been paid out in prizes to date.
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.
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 (TM) with acquiring ability.
Deposits are held in accounts at the Liechtensteinische Landesbank, owned by the
government, and audited by Ernst & Young AG.
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 (TM). 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.
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. Draws are filmed using multiple broadcast-quality cameras.
First Tier. The company offers round-the-clock customer 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 first tier customer support, 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.
Marketing Plan. The Company's 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.
Charities. PlanetLotto donates 10% of gross revenues to charity. 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(R) grants the wishes of children with
life-threatening illnesses to enrich the human experience with hope, strength,
and joy. They 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
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
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.
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
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. 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."
STRATEGIC RELATIONSHIPS
InterSpace recognizes the speed at which the Internet operates and as such,
plans to enter into several key strategic relationships, and is pursuing
additional partnerships. These partnerships are of several types:
o Alliances or partnerships with other technology companies that enable
InterSpace to get to market faster with a more robust or diverse product
offering.
o Alliances or partnerships that offer new and strong distribution channels
for our products.
o 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. 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. The Company spent
approximately $824,417 and $758,922 on research and development activities for
the years ended December 31, 2001 and 2000, respectively.
NUMBER OF EMPLOYEES
As of December 31, 2001, the Company had 4 full-time employees. All other
personnel operate as independent contractors to the Company.
Item 17: Management's Discussion and Analysis of Plan of Operation
PLAN OF OPERATIONS
During the course of the next twelve months, Interspace Enterprises will
continue to market its PlanetLotto product through targeted affiliate license
partners. Because of its operational structure, Interspace has only minimal
operational cash needs. Management has and will continue to accrue management
salaries until such time as Interspace can afford to pay such salaries on an
ongoing basis. This structure, combined with the fact that PlanetLotto is fully
operational, minimizes the cash needs of the company. Little or no research and
development costs are anticipated, and the company does not anticipate any
expected purchase or sale of plant assets or equipment. There are no current
plans to significantly change the number of employees.
The company anticipates that all cash needs will be met in the short term from
the sale of common stock and proceeds from the sale of PlanetLotto lottery
tickets.
If the company succeeds in raising only nominal funds from this offering,
operations will continue as they have. Management has and will continue to
operate, and associated salaries will continue to accrue until such time as
Interspace can fund such expenses.
OVERVIEW
The most recent fiscal year has been a trying one for the Company. Commitments
for funding that went unfulfilled resulted in the need to reconfigure the
business model such that a partnership proved the most viable means to bring the
Company's core product to market. Limited capital availability due to the
downturn in the Internet and technology sectors meant that the Company was
forced to reduce its staff to core personnel in order to continue to operate. In
spite of these setbacks, the management successfully completed the company's
major milestone of making www.planetlotto.com operational in 2001 through the
partnership in September with the International Liechtenstein Lottery
foundation. Through this partnership, planetlotto.com became a retail outlet for
the Liechtenstein Lottery in December of 2001, a weekly lottery operated by
Zabadoo.com AG and regulated by ILLF and the Government of Liechtenstein,
audited by Ernst and Young, International and Insured by a Lloyds of London
Broker.
The partnership enabled the company to leverage the existing structure of
the lottery operations already in place under Zabadoo.com AG. By virtue of the 5
year agreement, the weekly operations of the Liechtenstein lottery and
management of the planetlotto.com web site, including customer service support,
maintenance and hosting are provided by ILLF and Zabadoo.com AG, in return for
equity in the Company and revenue sharing based on each transaction on the
Company's web site. Initially regarded as the Company's main competition, the
partnership with Zabadoo has allowed the Company to fast-forward its launch and
create the strongest Internet lottery presence currently on the web. In order to
develop a progressive jackpot, with a weekly rollovers of the Planetlotto
lottery, the company modified it's lottery model from a 6/70 lottery format to a
7/49 format which eliminated the need for the company to provide its own lottery
draw equipment, and separate audit procedures, one of them most costly aspects
of the original plan. Modifications in this manner allowed Planetlotto to launch
without the need to for significant additional capital. Additionally, the
Company negotiated a supplemental insurance policy to coincide with the 7/49
Jackpot, exclusive to the Planetlotto.com website. The Supplemental 1-year
insurance was paid in equity to Zabadoo.com AG in return for providing the
initial minimum deposit required to initiate the insurance policy. The 7/49
insurance policy allows Planetlotto.com to guarantee a progressive jackpot that
parallels traditional lotteries. The jackpot insurance is scheduled to increase
on a weekly basis throughout the 2002-year in the event that there is no jackpot
winner(s). Additionally, the term of the agreement includes an allocation of
each ticket sold from the prize pool to be included within the advertised
jackpot amount. Management believes that the implementation of a coordinated
marketing plan in 2002 will drive ticket sales over the insured amount and
develop a mature lottery model without the need to purchase additional insurance
in 2003.
Through the result of these strategic alliances, it is management's belief
that the company is well position within the online lottery industry to capture
a significant percentage of market share within this industry sector. The
current focus of the Company is to develop the Planetlotto brand through
strategic alliances with Internet based portals to distribute it's product on
the Internet. It is management's belief that the Company will be able to secure
adequate funding to enable the company to market the Planetlotto brand and
translate it's marketing effort into self-sufficient revenues and positive cash
flow, however, there can be no assurances that funding will occur.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001 the Company had $130,815 in cash resources available to
satisfy requirements for operations, which are not sufficient to sustain
long-term operations. No assurances can be given that the Company will be
successful in realizing sufficient funding to continue any operations. Based on
the partnership arrangement with Zabadoo.com AG, the Company was able launch the
PlanetLotto website and begin the generation of its first revenues. While the
website is fully operational, very little cash is available to begin the process
of marketing and promoting the site.
The Company is currently working to create exposure for the website via
strategic alliances and cross-marketing opportunities. While the deterioration
of funding sources for internet based businesses has created financial stress
for the Company, the cost of web-based advertising has likewise decreased. The
Company plans to strategically place test-marketing campaigns via web portals
and other internet sources to determine the most effective means to attract its
core audience. The Company plans to raise capital during the second quarter of
2002 via a formal registration statement. Funds from this placement will be used
to expand our marketing efforts to a much wider audience, via both online and
offline placements.
The Company's consolidated financial statements have been prepared on a
continuing operations basis which 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 development and launch timeframe.
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 December 31, 2001, there were no material commitments for capital
expenditures.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2000
The Company did not generate revenue in 2001 or 2000. The Company had general
and administrative expenses of $1,663,264 in 2001 compared with $1,274,835 in
2000. The Company's main expenses continue to be consulting and legal fees as
well as compensation costs. The Company incurred $495,685 in 2001 and $257,250
in 2000 for consulting fees, much of this related to stock-based compensation as
a result of the Company's lack of cash resources. In 2001 the legal and
professional fees increased to $118,039 from $50,201 in 2000 as a result of
costs associated with licensing and financing related items. Other
administrative expenses increased to $410,465 from $120,671 in 2000 due to the
cost of website development, insurance and associated operational costs.
Salaries expense increased to $577,405 from $466,880 as a result of hiring 5
additional staff for most of 2001.
The Company incurred a loss on operations of ($1,663,264) in 2001 compared to
($1,274,835) in 2000. The Company had a net loss of ($1,694,934) in 2001 after
interest expense of $39,774 and interest income of $8,904. In 2000 the net loss
was ($1,230,269) after interest income of $54,471 and interest expense of
$9,105. The loss per share was ($.02) in both 2001 and 2000.
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
The 1999 Omnibus Stock Plan (the "Executive Plan"), approved by
shareholders in 1999, was implemented in March, 2000 with 3 employees
participating. Mr. Murphy, the Company's Chairman, President and Chief Executive
Officer, was granted options to purchase 250,000 shares at $1.10 per share for a
period of 5 years. Mr. Trujillo, the Company's Director and Chief Technology
Officer was granted options to purchase 250,000 shares at $1.10 per share for a
period of 5 years, and Mr. Patient, the Company's Chief Financial Officer, was
granted options to purchase 250,000 shares at $1.00 per share for 5 years. 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 estimated at $1.00 per share at the time of grant. All options
were exercised on March 22, 1999 and were financed through promissory notes from
the Company at the Federal Rate for Mid-Term Funds, payable on or before March
22, 2004. On October 1, 2001, the Board of Directors, in consideration of the
decline in market value of the common shares, agreed to reduce the value of the
original purchase transaction to an effective price of $0.01 per share, thereby
reducing the promissory notes and accrued interest by approximately 85%. The
repayment dates and other terms remain the same.
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.
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. The quotations 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
A. 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
subsidiaries during the two fiscal years ended December 31, 2000.
ANNUAL COMPENSATION
-----------------------------------------------
Name and Principal Position Annual Bonus Other Annual Long Term Awards
Year Salary Compensation of Options
Daniel P. Murphy 2001 $120,000 0 0 4,000,000
Chairman of the Board, 2000 $90,000 0 0 250,000
President and CEO 1999 $63,333 0 0 0
Alejandro Trujillo 2001 $48,000 0 0 0
Director, Chief Technology 2000 $83,333 0 0 250,000
Officer 1999 $63,333 0 0 0
Andrew P. Patient 2001 $83,333 0 0 1,000,000
Chief Financial Officer and 2000 $86,250 0 0 250,000
Secretary 1999 $18,750 0 0 0
The following table sets forth information concerning grants of stock options to
purchase shares of our Common Stock during the year ended December 31, 2001 to
executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Name Number of Securities Percentage of Total Exercise or Base Price Expiration Date
Underlying Options Options Granted to Per Share ($)
Granted Employees in Fiscal
2001 (%)
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Daniel P. Murphy 4,000,000 80.0% $0.01 Sept. 30, 2006
Chairman of the Board,
President and CEO
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Alejandro Trujillo -0- -0- -0- ---
Director, Chief
Technology Officer
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Andrew P. Patient 1,000,000 20.0% $0.01 Sept. 30, 2006
Chief Financial Officer
and Secretary
The following table sets forth information with respect to stock options
exercised by our Executive Officers during the fiscal year ended December 31,
2001 and stock options he held as of December 31, 2001.
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Name Shares Acquired On Value Realized Number of Securities Value of Unexercised
Exercise ($) Underlying Unexcercised in-the-money
Options/SARs at FY-end options/SARs at Fy-end
(#) Exercisable/ ($)
unexcercisable Exercisable/
unexcercisable
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Daniel P. Murphy -0- --- 4,000,000
Chairman, President and
CEO
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Alejandro Trujillo -0- --- -0-
Director
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Andrew P. Patient -0- --- 1,000,000
Chief Financial Officer
and Secretary
- --------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Management salaries are paid from operating capital if available. Unless
salaries are paid, these amounts will accrue as a liability to the company.
B. Directors' Compensation
The Company's director compensation program provides that each director who
does not receive other direct compensation from the Company is eligible to
receive upon his or her initial election to the Board a warrant to purchase
100,000 shares of the Company's common stock at the market price at the date of
grant. Each warrant has a term of five years. No warrants have yet to be granted
under this program, as all members of the current Board receive other direct
compensation from the Company.
- -------------------- --------- -------------- ---------- --------------- -------------- ----------------- ----------- ------------
Name and Principal Year Annual Meeting Consulting/ Number of Securities LTIP All
Position Retainer Fees ($) Other Fees ($) Shares (#) Underlying Pay-ments Other
Fees ($) Options/ Compensation
SARSs (#shares)
- -------------------- --------- -------------- ---------- --------------- -------------- ----------------- ----------- ------------
Daniel P. Murphy, 2001
(1)Director 2000 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0
- -------------------- --------- -------------- ---------- --------------- -------------- ----------------- ----------- ------------
Alejandro Trujillo, 2001
(1)Director 2000 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0
- -------------------- --------- -------------- ---------- --------------- -------------- ----------------- ----------- ------------
(1) Both Mr. Murphy and Mr. Trujillo were compensated and have options and
incentive participation pursuant to their Employment Contracts as Officers.
Details of compensation are shown in Officers Compensation above and Employment
Agreements below.
EMPLOYMENT AGREEMENTS
In April 2000, as a result of the reorganization, the Company entered into
new employment agreements with Daniel P. Murphy, its Chairman of the Board,
President and Chief Executive Officer, Alejandro Trujillo, its Chief Technology
Officer and Director, and Andrew P. Patient, its Chief Financial Officer and
Secretary. Mr. Murphy's employment contract is for an initial term of four
years. The employment agreement provides for a minimum base salary of $80,000 in
its first year, with requirements for minimum increase of 50% each January 1.
Mr. Murphy is eligible for a performance bonus based on the greater of 1% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Murphy is eligible to receive an annual stock incentive bonus equal to 1% of
the Company's outstanding shares and participate in the Company's Incentive
Stock Option Plan. No shares or options were granted for 2000 under the terms of
the contract. The agreement further provides that in the event of the
termination of Mr. Murphy's employment by the Company without cause, the Company
will pay Mr. Murphy his base salary for the remainder of the initial term, a
prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately. In the event of the
termination of Mr. Murphy's employment by the Company as a result of change in
control, the Company will be required to pay Mr. Murphy a termination fee equal
to 10 times his annual base salary, plus any accrued bonuses or other incentive
compensation. Mr. Trujillo's employment contract is for an initial term of two
years. The employment agreement provides for a minimum base salary of $80,000 in
its first year, with requirements for minimum increase of 20% each January 1.
Mr. Trujillo is eligible for a performance bonus based on the greater of 0.25%
of the Company's operating income or a calculation based on the Company's
increased market value. No bonus was triggered under this clause during 2000. In
addition, Mr. Trujillo is eligible to receive an annual stock incentive bonus
equal to 0.25% of the Company's outstanding shares and participate in the
Company's Incentive Stock Option Plan. No shares or options were granted for
2000 under the terms of the contract. The agreement further provides that in the
event of the termination of Mr. Trujillo's employment by the Company without
cause, the Company will pay Mr. Trujillo his base salary for the remainder of
the initial term, a prorated bonus and continuation of medical insurance
coverage, and his restricted stock and stock options will vest immediately. Mr.
Patient's employment contract is for an initial term of two years. The
employment agreement provides for a minimum base salary of $80,000 in its first
year, with requirements for minimum increase of 25% each January 1. Mr. Patient
is eligible for a performance bonus based on the greater of 0.25% of the
Company's operating income or a calculation based on the Company's increased
market value. No bonus was triggered under this clause during 2000. In addition,
Mr. Patient is eligible to receive an annual stock incentive bonus equal to
0.25% of the Company's outstanding shares and participate in the Company's
Incentive Stock Option Plan. No shares or options were granted for 2000 under
the terms of the contract. The agreement further provides that in the event of
the termination of Mr. Patient's employment by the Company without cause, the
Company will pay Mr. Patient his base salary for the remainder of the initial
term, a prorated bonus and continuation of medical insurance coverage, and his
restricted stock and stock options will vest immediately.
Item 22: Financial Statements
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Financial Statements (Unaudited)
For the Three Months Ended March 31, 2002
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Balance Sheet
As at March 31, 2002
ASSETS
March 31, December 31,
2002 2001
-------------------------------------
Current Assets
Cash $ 17,862 130,815
Accounts Receivable 768
-------------------------------------------------------------------------------------------------------------------
Total current assets 18,630 130,815
Fixed Assets
Computer and office equipment 12,464 11,281
Accumulated depreciation (7,302) (6,662)
-------------------------------------------------------------------------------------------------------------------
Total fixed assets 5,162 4,619
-------------------------------------------------------------------------------------------------------------------
Total Assets $ 23,792 135,434
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 172,745 232,886
Notes payable 15,000 30,000
Accrued payroll liabilities 671,393 746,361
Accrued income tax 2,400 2,400
Convertible notes payable - 178,000
Current portion long term liabilities 372 700
-------------------------------------------------------------------------------------------------------------------
Total current liabilities 861,910 1,190,347
Long Term Liabilities 670 842
Stockholders' Equity
Common stock 1,150 998
Accounts receivable subscribed (210,549) (185,697)
Additional paid in capital 3,293,465 2,736,043
Accumulated deficit - during development stage (3,922,854) (3,607,099)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (838,788) (1,055,755)
-------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 23,792 135,434
===================================================================================================================
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Operations (Unaudited)
For the Three Months Ended 31, 2002
Cumulative from
June 30, 1998
(Inception of the
Development
Three Months Three Months Stage) to
Ended Ended March 31,
March 31, 2002 March 31, 2001 2002
------------------------------------------ -------------------
Revenues - -
Sales $ 4,581 - $ 4,581
- --------------------------------------------------------------------------------------------------------------------------
Total Revenue 4,581 - 4,581
Research and Development - - 5,059
Administrative and Selling Expenses
Consulting 73,750 323,250 900,260
Depreciation and amortization 640 683 7,302
Legal and professional - 72,550 319,556
License fees - - 373,000
Marketing and promotion 100,409 2,092 218,362
Office expense 9,778 9,132 98,771
Other administrative expenses 42,640 22,640 621,314
Rent 2,712 2,078 24,908
Salaries 93,940 170,989 1,373,732
- --------------------------------------------------------------------------------------------------------------------------
Total Administrative Expense 323,869 603,414 3,937,205
- --------------------------------------------------------------------------------------------------------------------------
Net Loss from Operations (319,288) (603,414) (3,937,683)
Other Income
Interest income (3,692) (14,002) (18,389)
Interest expense 159 (9,105) 360
- --------------------------------------------------------------------------------------------------------------------------
Total Other (Income) Expense (3,533) (23,107) (18,029)
Income Taxes - - 3,200
- --------------------------------------------------------------------------------------------------------------------------
Net loss $ (315,755) (580,307) (3,922,854)
==========================================================================================================================
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Cash Flows (Unaudited)
For the Three Months Ended 31, 2002
June 30, 1998
(Inception of the
Development
Three Months Three Months Stage) to
Ended Ended March 31,
March 31, 2002 March 31, 2001 2002
------------------ ------------------- ------------------
Cash Flows From Operating Activities
Net loss $ (315,755) (580,307) $ (3,922,854)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 640 683 7,302
Stock issued for services 113,750 339,525 1,609,420
Changes in:
Accounts receivable (768) 0 (768)
Prepaid expense 0 14,750 0
Accounts payable (60,141) (1,642) 172,745
Accrued interest 0 (9,105) 0
Accrued payroll liabilities (74,968) 110,633 671,393
State tax payable - - 2,400
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (337,242) (125,463) (1,460,362)
Cash Flows From Investing Activities
Accrued interest related parties (3,692) (14,002) (18,389)
Computer and equipment purchases (1,183) - (12,464)
Note receivable (payments) - 41,112 -
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (4,875) 27,110 (30,853)
Cash Flows From Financing Activities
Notes payable (15,000) 29,000 24,200
Sale of common stock 422,664 199,150 1,493,035
Repayment of notes (500) (400) (8,158)
Convertible notes (178,000) (136,000) 0
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities 229,164 91,750 1,509,077
Net Decrease in Cash (112,953) (6,603) 17,862
Cash, beginning of the year 130,815 17,343 0
- ------------------------------------------------------------------------------------------------------------------------------
Cash, March 31, 2002 $ 17,862 10,740 $ 17,862
==============================================================================================================================
INTERSPACE ENTERPRISES, INC.
(A Development Stage Company)
Statement of Cash Flows (Unaudited)
For the Three Months Ended 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional Paid Accounts Rec Accumulated
Description Shares Dollars Shares Dollars in Capital Subscribed Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 - - 99,887,230 $ 998 $ 2,736,042 $(185,697) $(3,607,099) $(1,055,756)
Conversion of notes payable 10,923,991 $ 109 $ 295,251 $ 295,360
Conversion of other payables 1,018,064 $ 11 $ 103,454 $ 103,465
Stock issued for current services 3,175,000 $ 32 $ 158,718 $ (45,000) $ 113,750
Interest on notes - $ - $ - $ (3,691) $ (3,691)
Due from shareholder - $ - $ - $ 23,839 $ 23,839
Net loss $ (315,755) $ (315,755)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2002 - - 115,004,285 1,150 3,293,465 (210,549) (3,922,854) (838,788)
===================================================================================================================================
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 March 31, 2002 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 three months ended March 31, 2002 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, 2001.
NOTE 2 - NET REVENUE
Net revenue represents the residual amount earned by the Company from its weekly
lottery draw ticket sales and scratchcards after deducting payouts, insurance,
charity allocations, affiliate promotions and partnership fees as set out in the
hosting agreement.
NOTE 3 - CONVERSION OF NOTES PAYABLE
In February 2002, the Company converted $291,100 of convertible promissory notes
into common stock resulting in the issuance of 10,673,991 shares. In addition, a
note payable from the Company in the amount of $15,000 was converted into
250,000 shares of common stock.
NOTE 4 - CONVERSION OF OTHER LIABILITIES
In February 2002, the Company settled $88,465 of payroll liabilities to various
former employees and $15,000 of trade liabilities via the issuance of 1,018,064
shares.
NOTE 5 - NON-MONETARY TRANSACTIONS
The Company issued 3,175,000 shares during the three month period ending March
31, 2002, for certain consulting and advisory services provided to the Company,
as well as services related to the development of the Company's internet
infrastructure. Approximately 900,000 of these shares were issued in connection
with services to be provided to the Company over the remainder of the fiscal
year. 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 6 - 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.
INTERSPACE ENTERPRISES, INC.
(A Developmental Stage Company)
FINANCIAL STATEMENTS
For the Year Ended December 31, 2001
SIEGEL, SMITH & GARBER
Certified Public Accountants
INTERSPACE ENTERPRISES, INC. AND SUBSIDIARIES
AUDIT REPORT
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REPORT
The Board of Directors and Shareholders'
InterSpace Enterprises, Inc.
We have audited the accompanying balance sheet of InterSpace Enterprises, Inc.
(a development stage company) as of December 31, 2001, and 2000 and the related
statement of operations, shareholders' equity (deficit) and cash flows for the
years then ended and for the period from inception (June 30, 1998) to December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. 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, on a test
basis, examination of 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
December 31, 2001 and 2000, and the results of operations and their cash flows
for the years then ended and the period from inception (June 30, 1998) to
December 31, 2001, in conformity with generally accepted accounting principles
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note L to the
financial statements, the Company cannot successfully implement its operating
plan without raising significant capital. This condition raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
SIEGEL SMITH, LLP
Certified Public Accountants
Solana Beach, California
March 28, 2002
InterSpace Enterprises, Inc.
(A Development Stage Company)
Balance Sheet
December 31
ASSETS
2001 2000
---------------- ----------------
Current Assets
Cash $ 130,815 $ 17,343
Prepaid expenses 0 14,750
--------------------------------------------------------------------------------------------------------
Total current assets 130,815 32,093
Fixed Assets
Computer and office equipment 11,281 11,281
Accumulated depreciation (6,662) (4,315)
--------------------------------------------------------------------------------------------------------
Total property and equipment 4,619 6,966
--------------------------------------------------------------------------------------------------------
Total Assets $ 135,434 $ 39,059
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued liabilities $ 232,886 $ 260,053
Notes payable 30,000 136,000
Accrued payroll liabilities 746,361 279,332
Accrued income tax 2,400 1,600
Convertible notes payable 178,000 136,000
Accrued interest 0 9,105
Current portion long term debt 700 930
--------------------------------------------------------------------------------------------------------
Total current liabilities 1,190,347 823,020
Long Term Liabilities 842 1,111
Stockholders' Equity (Deficit)
Common stock 998 658
Accounts receivable subscribed-related parties (185,697) (1,187,097)
Additional paid in capital 2,736,043 2,313,532
Accumulated deficit during development stage (3,607,099) (1,912,165)
--------------------------------------------------------------------------------------------------------
Total stockholders' equity (1,055,755) (785,072)
--------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 135,434 $ 39,059
========================================================================================================
See the Accompanying Notes to Financial Statements
InterSpace Enterprises, Inc.
(A Development Stage Company)
Statement of Operations
For the Years Ended December 31 and Inception to Date
From Inception
June 30, 1998
Through
2001 2000 December 31,2001
---------------------------------------------------------------------------------------------------------------------
Revenues
Research and Development 5,059
Administrative and Selling Expenses
License fees 0 333,000 373,000
Consulting 495,685 257,250 826,510
Depreciation and amortization 2,347 2,347 6,662
Legal and professional 118,039 50,201 319,556
Marketing and promotion 18,322 14,468 117,953
Office expense 29,628 24,241 88,993
Other administrative expenses 410,465 120,671 578,674
Rent 11,373 5,777 22,196
Salaries 577,405 466,880 1,279,792
-------------------------------------------------------------------------------------------------------------------
Total Administrative Expense 1,663,264 1,274,835 3,613,336
------------------------------------------------------------------------------------------------------------------
Net Loss from Operations (1,663,264) (1,274,835) (3,618,395)
Other (Income) Expense
Interest income 39,774 (54,471) (14,697)
Interest expense (8,904) 9,105 201
-------------------------------------------------------------------------------------------------------------------
Total Other (Income) Expense 30,870 (45,366) (14,496)
Income Taxes 800 800 3,200
-------------------------------------------------------------------------------------------------------------------
Net Income $ (1,694,934) (1,230,269) (3,607,099)
===================================================================================================================
Weighted Average Shares 81,561,061 58,321,405
Loss per share (0.02) (0.02)
See the Accompanying Notes to Financial Statements
InterSpace Enterprises, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31 and From Inception, June 30, 1998
Through December 31, 2001
From Inception
June 30, 1998
Through
2001 2000 December 31,2001
----------------- ----------------- --------------------
Cash Flows From Operating Activities
Net Loss $ (1,694,934) $ (1,230,269) $ (3,607,099)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 2,347 2,347 6,662
Stock for services 868,170 469,000 1,499,120
Changes in:
Prepaid expense 14,750 (14,750) 0
Accounts payable (27,167) 112,316 232,886
Accrued interest (9,105) 9,105 0
Accrued payroll expenses 467,030 168,805 746,362
State tax payable 800 800 2,400
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (378,109) (482,646) (1,119,669)
Cash Flows from Investing Activities
Accrued interest related parties 39,774 (54,471) (14,697)
Computer and equipment purchases (1,982) (8,335)
Note receivable (payments) 45,126 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities 84,900 (56,453) (23,032)
Cash Flows from Financing Activities
Notes payable (106,000) 136,000 39,200
Sale of common stock 489,550 275,124 1,040,164
Repayment of notes (499) (905) (10,604)
Convertible notes 23,630 136,000 159,630
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 406,681 546,219 1,228,390
Net Increase in Cash 113,472 7,120 85,689
Cash, beginning of the year 17,343 10,223 0
- ---------------------------------------------------------------------------------------------------------------------------------
Cash, December 31 $ 130,815 $ 17,343 $ 85,689
=================================================================================================================================
Supplemental Non Cash Investing and Financing Activities:
Stock issued for a Lottery license $ $ 333,000 $ 0
Stock for consulting service $ 868,170 $ 136,000 $ 1,004,170
Acquisition of computer on note $ $ $ 2,946
Supplemental Information:
Interest paid $ $ 353 $ 0
Taxes paid $ $ 0 $ 0
See the Accompanying Notes to Financial Statements
InterSpace Enterprises, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
From Inception, June 30, 1998 through December 31, 2001
Common Stock Additional Paid Accounts Accumulated
Date Description Shares Dollars in Capital Rec. Subscribed Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
Beginning - - - - -
balance
June 30,1998 Shares issued 3,475,000 3,475 $ 3,475
to founders
Nov 24,1998 Shares issued 120,000 $ 120 $ 59,880 $ 60,000
for cash
Nov 24,1998 Shares issued 5,000 $ 5 $ 2,495 $ 2,500
for services
Dec. 31,1998 Net loss $ (68,678) $ (68,678)
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 3,600,000 $ 3,600 $ 62,375 $ (68,678) $ (2,703)
- ------------------------------------------------------------------------------------------------------------------------
Shares issued for cash 183,200 $ 183 $ 220,307 $ (5,000) $ 215,490
Shares issued for services 242,000 $ 242 $ 155,758 $ 156,000
Nov. 2, 1999 Cancelled Stock (25,000) $ (25) $ (25)
Nov. 18, 1999 Reincorporating $ 36,002 $ (36,002) $ -
Dec. 31,1999 Net loss $ (613,218) $ (613,218)
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 4,000,200 $ 40,002 $ 402,438 $ (5,000) $ (681,896) $ (244,456)
See the Accompanying Notes to Financial Statements
InterSpace Enterprises, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
From Inception, June 30, 1998 through December 31, 2001
Common Stock Additional Paid Accounts Accumulated
Date Description Shares Dollars in Capital Rec. Subscribed Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
January, 2000 Cash Received 5,000 $ 5,000
Shares issued for cash 99,000 $ 990 $ 195,510 $ 196,500
March, 2000 Officer Options 1,900,000 $ 19,000 $ 1,068,500 $ (1,087,500) $ -
March, 2000 Exercised options 175,000 $ 1,750 $ 117,000 $ (45,126) $ 73,624
March, 2000 Stock for Services 469,000 $ 4,690 $ 464,310 $ 469,000
April, 2000 Merger 672,000 $(66,359) $ 66,359 $ -
July, 2000 Dividend 8 X 1 58,521,600 $ 585 $ (585) $ -
December 31 Interest on Notes $ (54,471) $ (54,471)
Dec. 31,2000 Net loss $(1,230,269) $(1,230,269)
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 65,836,800 $ 658 $ 2,313,532 $ (1,187,097) $(1,912,165) $ (785,072)
=========================================================================================================================
See the Accompanying Notes to Financial Statements
InterSpace Enterprises, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
From Inception, June 30, 1998 through December 31, 2001
Common Stock Additional Paid Accounts Accumulated
Date Description Shares Dollars in Capital Rec. Subscribed Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
Conversion of notes payable 366,300 $ 4 $ 183,146 $ 183,150
Shares issued for services 22,554,030 $ 225 $ 867,945 $ 868,170
Shares issued for cash 11,130,100 $ 111 $ 287,919 $ 288,030
Interest on notes $ - $ - $ 39,774 $ 39,774
Officer Options $ - $ (916,500) $ 916,500 $ -
Due from shareholder $ - $ - $ 45,126 $ 45,126
Net loss $(1,694,934) $(1,694,934)
--------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 99,887,230 $ 998 $ 2,736,042 $ (185,697) $(3,607,099) $(1,055,756)
====================================================================================================================
See the Accompanying Notes to Financial Statements
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.
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, 2001 was $6,662, which represents
$2,347 for the current calendar year, $2,347 for 2000, $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, 2000 of approximately $3,100,000 for federal
purposes and $1,550,000 for State tax purposes. This NOL will begin 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
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 $30,000 in
informal loans to meet the Company's day-to-day cash operating needs. The loans
total $15,000 from each party. 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 not accrued interest on these friendly advances. Subsequent to
year-end one $15,000 note was converted to 250,000 shares of the Company's
common stock.
The Company has assumed a liability from an officer of the Company for
approximately $1,500. 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
2002 $ 700
2003 $ 800
2004 $ -0-
2005 $ -0-
2006 $ -0-
NOTE C - Convertible Notes Payable
In December 2001 the Company raised $178,000 of capital via unsecured
convertible notes. The terms of the notes are between six and twelve months 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, 2001 no note holders or events had
occurred to trigger conversion. Since these notes were issued at various times
during the last two weeks of the year the accrued interest is insignificant at
December 31, 2001. Subsequent to year-end the outstanding notes were converted
to stock.
The convertible notes, and accrued interest, outstanding at December 31, 2000
were converted to stock in February 2001.
NOTE D - Income Taxes
Income tax expense of $800 represents the minimum California franchise tax for
the year ended December 31, 2001. The deferred income taxes consisted of the
following as of December 31, 2001:
Deferred tax assets
Net operating loss $1,054,000
Deferred tax liabilities
Non deductible items 39,000
------
Net deferred assets $1,015,000
Valuation allowance $1,015,000
----------
Net deferred tax -0-
Change in valuation allowance $ 839,200
Deferred tax assets relates to the Company's net operating loss from inception
through December 31, 2001. The net operating loss totals $3,100,000 as of
December 31, 2001 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, 2001 and 2000 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, 2001 and 2000 there were 99,887,230 and 65,836,800 shares
issued and outstanding, respectively. During 2001 the Company sold 11,130,100
shares totaling $306,400 less a $18,370 commission. Additionally, 22,554,030
shares were issued for services, valued at $868,170. The shares issued for
services were valued at various rates. These transactions were recorded at an
amount that approximates the value of the Company's freely traded stock at the
time the transactions were entered into. During the year the stock price has
fluctuated from approximately $0.50 to $0.018.
NOTE G - Stock Options
During 2001 the Company issued two options totaling 9,500,000 shares to a
Director for his continued participation in the Company's leadership. The
options are for a period of two years beginning September 19, 2001 (2,500,000
shares) and October 9, 2001 (7,000,000 shares) and can be exercised at any time
within the two years. The option price is at $0.01 on both options. On the dates
of grant the bid price for the stock was also $0.01. No options had been
exercised as of December 31, 2001.
The Company has also issued options to the President (4,000,000 shares) and the
CFO (1,000,000 shares) for their services. The options are exercisable at 110%
of the closing price of the stock on October 8, 2001. No options had been
exercised as of December 31, 2001.
NOTE H - Non-Monetary Transactions
The Company initiated a policy of paying commissions for referrals of investors,
however, there were no formal agreements with any individuals or groups under
which fees were paid. On occasion, the Company paid fees on a case-by-case basis
to individuals who referred investors. The individuals and amount of
compensation are as follows:
Norm Carter - Former business associate who referred several friends as
initial investors in the Company from November 1998 to March 1999. Total
amount raised from these individuals was $60,000 for which the investors
received a total of 115,000 shares. Mr. Carter received compensation of
$5,510 for the referrals.
Jon Nelson - Former employee of Interspace from March 1999 to December
1999 who referred friends and family members as investors. Total amount
raised from these individuals was $65,000 for which the investors
received a total of 65,000 shares. Mr. Nelson received compensation of
$6,500 for the referrals.
Douglas Abbott - Former consultant and employee of the Company from
February 1999 to February 2001 who referred friends and associates as
investors. Total amount raised from these individuals was $30,000 for
which the investors received a total of 50,000 shares. Mr. Abbott
received $4,000 for the referrals.
Mike McNally - Friend of founding members who referred an associate who
purchased 20,000 shares for $10,000. Mr. McNally received $1,000 for the
referral.
Charles Davis - Friend of founding members who referred an associate who
purchases 15,000 shares for $15,000. Mr. Davis received $1,250 for the
referral.
The Company has an agreement with an agent, whereby a commission is paid for
referrals of investors in the Company's notes and stock. During 2001 and 2000
the Company paid $18,370 and $26,000 respectively for referrals.
The Company issued 22,554,030 shares for certain consulting and advisory
services provided to the Company. The Company valued these transactions at what
they believed approximated the fair market value of the stock at the time the
agreements for services were signed. The Company's stock price ranges from
approximately $0.50 to $0.018 during the year. Therefore, the value recorded for
these services also ranges from $0.50 to $0.02.
NOTE I - Related Party Transactions
The Company currently has assumed a liability from an officer of the Company for
approximately $1,500. 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, 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. In
October the Company adjusted the price of the stock for the officers of the
Company. The total adjustment, ($916,500), reduced Additional Paid in Capital as
well as the Accounts Receivable from Officers. Total accrued interest, at
December 31, 2001, from officer receivable was $14,700.
The Company has issued a total of two options totaling 9,500,000 shares to a
Director for his continued participation in the Company's leadership. The
options are for a period of two years beginning September 19, 2001 (2,500,000
shares) and October 9, 2001 (7,000,000 shares) and can be exercised at any time
within the two years. The option price is at $0.01 on both options. On the dates
of grant the bid price for the stock was also $0.01. (Note G)
The Company has also issued options to the President (4,000,000 shares) and the
CFO (1,000,000 shares) for their services. The options are exercisable at 110%
of the closing price of the stock on October 8, 2001. (Note G)
NOTE J - Subsequent events
The Company has converted the entire $178,000 of convertible notes to 9,203,326
shares of common stock. Additionally, the note holder of the $15,000 note
converted their note to 250,000 shares of common stock.
NOTE K - 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
conference and meeting rooms. The Company is also charged for additional
services such as secretarial services, call forwarding and facsimiles. During
2001 the Company paid $11,373 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 L - Going Concern
At December 31, 2001 the Company had a working capital deficit in excess of
$1,000,000. Additionally, the Company has recurring, losses during their
development stage, negative stockholders' equity as well as
approximately$350,000 liability to the Internal Revenue Service for payroll
taxes and penalties. 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.
NOTE M - Concentrations of Credit Risks
The Company maintains cash balances at a financial institution in San Diego,
California. The account is insured by the Federal Deposit Insurance Corporation,
("FDIC") up to $100,000. At various times during 2001 the Company's cash
balances exceeded FDIC insurance amounts.
NOTE O - Lottery Drawing
On December 20, 2001 the Company began selling tickets for the first lottery
drawing held January 18, 2002. The lottery, including ticket sales are operated
by a casino in Liechtenstein. The Company will receive 17% of the net proceeds
from the drawing. The proceeds from this drawing are insignificant and the
Company has not recorded any anticipated receipts in the December 31, 2001
financials.
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,
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 $1,650,150 through the issuance
of 27,669,526 shares of its Common Stock to 145 investors. All of the shares
were sold directly by the Company. The board of directors arbitrarily determined
the price per share.
No. of Price Gross No. of
Date Offering Type Exemption Shares per Share Proceeds Investors
- ---------------------------------------------------------------------------------------------------------------------------
11/8/98 - 11/30/98 private placement Reg D Rule 506 1,080,000 $ 0.056 $ 60,000 7
- ---------------------------------------------------------------------------------------------------------------------------
2/3/99 - 5/18/99 private placement Reg D Rule 506 922,500 $ 0.111 $ 97,000 27
- ---------------------------------------------------------------------------------------------------------------------------
7/7/99 - 3/30/00 private placement Reg D Rule 506 1,842,300 $ 0.278 $ 404,250 24
- ---------------------------------------------------------------------------------------------------------------------------
03/10/2000 option exercise 750,000 $ 0.090 $ 67,500 1
- ---------------------------------------------------------------------------------------------------------------------------
03/10/2000 option exercise 750,000 $ 0.090 $ 67,500 1
- ---------------------------------------------------------------------------------------------------------------------------
03/10/2000 option exercise 750,000 $ 0.090 $ 36,000 1
- ---------------------------------------------------------------------------------------------------------------------------
03/21/2000 option exercise 100,000 $ 1.000 $ 100,000 1
- ---------------------------------------------------------------------------------------------------------------------------
03/21/2000 option exercise 75,000 $ 0.250 $ 18,750 1
- ---------------------------------------------------------------------------------------------------------------------------
02/22/2001 private placement Reg D Rule 506 366,300 $ 0.500 $ 183,150 44
- ---------------------------------------------------------------------------------------------------------------------------
03/05/2001 private placement Reg D Rule 506 57,600 $ 0.278 $ 16,000 5
- ---------------------------------------------------------------------------------------------------------------------------
06/29/2001 debt conversion 2,400,000 $ 0.050 $ 120,000 1
- ---------------------------------------------------------------------------------------------------------------------------
06/29/2001 debt conversion 1,672,500 $ 0.040 $ 66,900 1
- ---------------------------------------------------------------------------------------------------------------------------
07/31/2001 option exercise 2,500,000 $ 0.025 $ 62,500 1
- ---------------------------------------------------------------------------------------------------------------------------
07/31/2001 option exercise 1,000,000 $ 0.010 $ 10,000 1
- ---------------------------------------------------------------------------------------------------------------------------
09/13/2001 option exercise 1,950,000 $ 0.010 $ 19,500 3
- ---------------------------------------------------------------------------------------------------------------------------
11/01/2001 option exercise 1,500,000 $ 0.010 $ 15,000 1
- ---------------------------------------------------------------------------------------------------------------------------
02/12/2002 private placement Reg D Rule 506 9,703,326 $ 0.030 $ 291,100 24
- ---------------------------------------------------------------------------------------------------------------------------
02/12/2002 debt conversion 250,000 $ 0.060 $ 15,000 1
27,669,526 $1,650,150 145
- ---------------------------------------------------------------------------------------------------------------------------
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
Item 28: Undertakings
(a) The undersigned registrant hereby undertakes:
a. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
i. Include any prospectus required by section 10(a)(3) of the
Securities Act;
ii. Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement;
iii. Include any additional or changed material information on the
plan of distribution.
b. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
c. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(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.
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 Officer 2/6/02
Andrew P. Patient and Secretary
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") under the Securities Act
of 1933, as amended (the "Act") relating to an aggregate of 81,296,991 Shares of
the Common Stock of the Company, $0.0001 par value, (the "Shares") to be issued.
As special counsel to the Company (Commission File Number 000-28465) , 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.
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