We currently have an employment agreement with Michael J. Wurtsbaugh, our
proposed CFO and Secretary, which will take effect upon completion of this
offering, and are in negotiations with prospective candidates for the President
of FanZ Racing, Inc. and FanZ Merchandising, Inc. The table below sets forth the
compensation schedule for our officers which will take effect upon completion of
this offering. We have two incentive compensation plans: (i) the 2001 Stock
Option Plan of FanZ Enterprises, Inc. and (ii) the 2001 Non-Employee Director
Stock Option Plan of FanZ Enterprises, Inc. that were adopted by our Board of
Directors on May 15, 2001 and are subject to stockholder approval upon
completion of this offering. These plans require us to reserve an amount equal
to 10% of our shares of common stock, after giving effect to this offering, for
issuance upon exercise of options granted under such plans. Both plans must be
approved by our stockholders within twelve (12) months of their implementation.
Directors will also be entitled to a stipend of $5,000 per board meeting
attended and $2,500 per committee meeting attended which is held on a separate
day from the regularly scheduled board meeting.
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------
Name and Principal Year Annual Compensation Long-Term Compensation
Position Awards
---------------------------------------------------------
Salary Securities Underlying
($) Options/SAR's
(#)
-----------------------------------------------------------------------------------------------
J. Roe Hitchcock, 2001 50,000
Chief Executive
Officer, Treasurer
(1)(2)
-----------------------------------------------------------------------------------------------
Frederick L. McDonald, 2001 50,000
II, President(1)(2)
-----------------------------------------------------------------------------------------------
Michael J. Wurtsbaugh, 2001 175,000 500,000(3)
CFO, Secretary (1)
-----------------------------------------------------------------------------------------------
(1) We intend to implement a bonus plan within ninety (90) days of the
completion of this offering. All of our officers will be entitled to
participate in the bonus plan. Shareholder approval of this plan is not
required, but the plan will be approved by a majority of our
disinterested directors.
(2) J. Roe Hitchcock and Frederick L. McDonald will each devote a minimum
of eighty percent (80%) of their business time to our operations.
(3) All of these shares are subject to a Non-Qualified Option Agreement
dated February 28, 2001 and will be issued upon the exercise of the
option at an exercise price of $3.00 per share. The option is currently
exercisable for 250,000 with the remaining 250,000 vesting in equal
annual increments over a four-year period commencing on the first
anniversary of the date of grant.
The employment agreement with Mr. Wurtsbaugh, who is currently serving as a
consultant to FanZ Enterprises, Inc., has an initial term of three (3) years
from the completion of this offering, with automatic one-year extensions
thereafter. As compensation for his services as CFO and Secretary of FanZ
Enterprises, Inc., Mr. Wurtsbaugh will receive and annual base salary of
$175,000.00, periodic discretionary bonuses, travel expenses and health and
retirement benefits. Upon termination without cause or a change in ownership of
the company, he will be entitled to a severance equal to his annual salary for
one year from the termination date. We also granted to
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Mr. Wurtsbaugh an option to purchase, over a period of five years, up to 500,000
shares of the Company's common stock at $3.00 per share.
The 2001 Non-Employee Director Stock Option Plan affords our directors, who are
not also officers or key employees, the opportunity to purchase shares of our
common stock in increments of 100 shares at the then prevailing fair market
price. Upon becoming a director, we will grant the director an option to
purchase 100 shares. An option to purchase an additional 100 shares will be
granted to the director on each two year anniversary of the original grant date.
We have reserved up to 1% of our authorized common stock for issuance under this
plan.
Upon the closing of this offering, we will purchase Directors' and Officers'
Insurance covering all of our directors and officers. The policy will provide
the maximum coverage available to our directors and officers under Delaware law.
PLAN OF DISTRIBUTION
We will sell a maximum of 2,500,000 shares of our common stock to the public on
a "best efforts" basis. There can be no assurance that any of these shares will
be sold. This is not an underwritten offering. We have not committed to keep the
registration statement effective for any set period of time. The gross proceeds
to us will be $25,000,000 if all the shares offered are sold. No public market
currently exists for our shares of common stock, although we will attempt to
have our shares quoted on the OTCBB under the symbol ("FANZ").
Regulation M of the Exchange Act (which replaced Rule 10b-6) may prohibit a
broker-dealer from engaging in any market making activities with regard to a
company's securities. Under Section 242.104 of Regulation M, stabilizing is
prohibited except for the purpose of preventing or retarding a decline in the
market price of a security. We do not plan to engage in any passive stabilizing
activities.
The shares of common stock represented by this offering are being registered
pursuant to Section 12 of the Exchange Act and Section 5 of the Securities Act,
for which an exemption from registration under Section 3 and Section 4 is not
available.
Limited State Registration
We will qualify or register the sale of our shares of common stock in the
following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West
Virginia and Wisconsin. We will not accept subscriptions from investors residing
in states other than those states where we have qualified or registered our
shares. In addition, investors in our common stock will not be permitted to
resell their shares in states where we have not filed a registration statement
or to residents of those states. The shares will be offered or sold through a
registered or licensed broker/dealer in the following states: Arizona, Florida,
North Carolina and Texas.
Broker/Dealer Agreement
We intend to enter into an agreement with a broker/dealer licensed to sell our
shares in Arizona, Florida, North Carolina and Texas. The Broker/Dealer
Agreement provides that the broker shall be entitled to a commission equal to
the greater of:
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(i) $140,000 in the event that between 1,000,000 and 2,499,999
shares of our common stock are sold in this offering, or
$190,000 in the event that 2,500,000 shares of our common
stock are sold in this offering; or
(ii) 5% of the money raised by us from the sale of our common stock
in Arizona, Florida, North Carolina and Texas.
Terms of Sale of the Shares
We will be selling our shares through our officers and directors and, where
required by state law, registered or licensed broker-dealers who will be
offering our shares and distributing this prospectus primarily at the locations
of the 2001 NASCAR sanctioned events and over the Internet.
We will reimburse our officers and directors for expenses incurred in connection
with the offer and sale of our shares, however, no sales commissions will be
paid to any of our officers or directors. Our officers and directors are relying
on Rule 3a4-1 of the Exchange Act as a "safe harbor" from registration as a
broker-dealer in connection with the offer and sales of the shares. In order to
rely on such "safe harbor" provisions provided by Rule 3a4-1, an officer or
director must be in compliance with all of the following:
- he or she must not be subject to a statutory disqualification;
- he or she must not be compensated in connection with such
selling participation by payment of commissions or other
payments based either directly or indirectly on such
transactions;
- he or she must not be an associated person of a broker-dealer;
- he or she must restrict participation to transactions
involving offers and sale of the shares;
- he or she must perform substantial duties for the issuer after
the close of this offering not connected with transactions in
securities, and not have been associated with a broker or
dealer for the preceding 12 months, and not participate in
selling an offering of securities for any issuer more than
once every 12 months; and
- he or she must restrict participation to written
communications or responses to inquiries of potential
purchasers.
Our officers and directors intend to comply with the guidelines enumerated in
Rule 3a4-1. Each of our officers has indicated that they are willing to purchase
up to 2,500 shares of our common stock at an aggregate offering price of $25,000
in this offering. In addition, certain of our directors have indicated a
willingness to purchase up to 2,500 shares of our common stock at an aggregate
offering price of $25,000 in this offering. Any sale of shares to our officers
and proposed directors will be on the same terms as are offered to the public
investors.
Prospective investors must purchase a minimum of 25 shares at an
aggregate-offering price of $250. Until we have sold at least 1,000,000 shares,
we will not accept subscriptions for any shares. Subscriptions will be revocable
until accepted by us. All proceeds of this offering will be deposited in an
escrow account with Firstar Bank, N.A. The proceeds will be invested in the
Firstar U.S. Treasury Money Market Fund and will bear interest at the rate then
52
prevailing under that fund. We intend to break escrow once subscriptions for the
minimum number of our shares (1,000,000) are received and accepted and will
continue to sell our shares until all shares offered are sold or nine months
from the date of this prospectus. Any shares purchased by our officers or
proposed directors in this offering will count towards the minimum number of
subscriptions required. If we are unable to sell at least 1,000,000 shares
before this offering ends, we will return all funds, with interest, to
subscribers promptly after the end of this offering. We have the right to
completely or partially accept or reject any subscriptions for shares in this
offering, for any reason or no reason. Certain states have required that
investors from those states meet certain financial criteria in order to invest
an amount above the minimum investment. We may decide to terminate this offering
at any time or cease selling efforts at any time prior to such date if our board
of directors determines that there is a better use of funds and management time.
If this offering is not oversubscribed, within a reasonable time after
effectiveness, we plan to accept all subscriptions as soon as reasonably
practicable but in no event until we have received and accepted subscriptions
for the minimum number of shares (1,000,000). If this offering is
oversubscribed, we plan to allocate the shares among subscribers in our
discretion within a reasonable time after effectiveness of this offering. We
anticipate having one or more closings of this offering, the first of which
cannot be held until we are able to sell at least 1,000,000 shares. After that,
we could have multiple closings whenever we receive and accept new
subscriptions.
Investment Procedures
No one may purchase any shares in this offering until it has been declared
effective by the SEC and any applicable state securities commission. Following
the effectiveness of this offering, an investor must complete, date, execute and
deliver to us our subscription agreement together with a check in the amount
corresponding to the cost of the shares to be purchased made payable to "Firstar
Bank, N.A., Escrow Account for FanZ Enterprises, Inc." Once received, we will
forward all funds and a copy of the subscription agreement to our escrow agent
Firstar Bank, N.A. Subscriptions will be revocable until accepted by us.
Internet Sales
We will post a copy of our final prospectus, as filed with the SEC, on our web
site, located on the Internet at www.fanzenterprises.com, www.fanzracing.com,
www.fanzenterprises.net and www.fanzracing.net for investors to view or download
once we have been declared effective with the SEC. We will update the web site
to replace the online prospectus with any post-effective amendments.
If an investor indicates that he or she would like to receive any other
amendments to this prospectus electronically, we will e-mail a notice to the
investor that informs him or her that an amendment to this Prospectus has been
filed with the SEC, which will include a hyperlink to the web site as well as
its Internet address. Additionally, upon request, the investor will receive
paper copies of any or all documents from us.
Prior to effectiveness, no one may purchase any shares in this offering.
Following the effectiveness of this offering, in order to purchase shares in
this offering over the Internet, an investor must complete, date, execute and
deliver to us, either a paper copy of our subscription agreement, together with
either a check in the amount corresponding to the cost of the shares to be
purchased, made payable to "Firststar Bank, N.A., Escrow Account for FanZ
Enterprises, Inc.," or a wire transfer of funds for that amount or
alternatively, electronically, by clicking on the "I have accessed the final
prospectus and I agree to subscribe" button and forwarding the
53
proper payment to us. An investor may not necessarily be able to purchase all of
or any of the shares that he or she has requested, depending on availability,
state blue-sky laws and our discretion. The address and wire transfer
instructions for our escrow agent is indicated in the subscription agreement.
Following the effectiveness of this offering, subscription agreements will be
available as follows:
o on the web site where we have posted our final prospectus;
o unless an investor has specifically requested electronic
delivery of the final prospectus, we will include the
subscription agreement together with a paper copy of the final
prospectus that we send to such investor; and
o an investor can request a paper copy of the subscription
agreement and prospectus by calling us, writing to us, or
e-mailing us at the number or address listed in this
prospectus or on our web site.
On our web sites, www.fanzenterprises.com, www.fanzenterprises.net,
www.fanzracing.com and www.fanzracing.net, we have posted our prospectus that
explains our subscription procedure.
Escrow Agreement
Under the terms of our proposed escrow agreement, proceeds from the sale of our
shares will be deposited into an interest bearing account until the minimum
number of shares (1,000,000) are sold. In the event the proceeds from investors
deposited into the escrow account is insufficient to meet our 1,000,000 share
minimum, proceeds will be returned directly to investors by the escrow agent
with interest. The proceeds for subscriptions for our shares that are placed in
escrow will not be subject to claims by our creditors, affiliates or associates
until the proceeds have been released to us under the terms of the escrow
agreement. We intend to break escrow and conduct an initial closing once we
receive and accept subscriptions for the minimum number of shares offered
(1,000,000).
The securities regulatory authority of any state in which our offering is
registered has the right to inspect and make copies of the records of the escrow
agent relating to the escrowed funds in the manner described in the escrow
agreement.
LEGAL PROCEEDINGS
Neither FanZ Enterprises, Inc., nor any of its subsidiaries are parties to any
pending legal proceeding or litigation, and none of our property is the subject
of a pending legal proceeding.
DESCRIPTION OF SECURITIES
The following is a description of the material terms of our capital stock. This
summary is subject to and qualified in its entirety by our Restated Certificate
of Incorporation and Bylaws, and by the applicable provisions of Delaware law.
Capital Stock
Our authorized capital stock consists of 20,000,000 shares of common stock, par
value $.01 per share and 10,000 shares of preferred stock, par value $.01 per
share.
Common Stock
General. We have 20,000,000 authorized shares of common stock, par value $.01
per share, 10,000,000 of which are issued and outstanding. All shares which are
the subject of this
54
Prospectus, when issued and paid for under this offering, will be validly
issued, fully paid and non-assessable.
Voting Rights. Each share of our common stock entitles the holder to one vote,
either in person or by proxy, at meetings of stockholders. Our board of
directors is elected annually at each annual meeting of the stockholders. The
holders are not permitted to vote their shares cumulatively. Accordingly, the
holders of more than fifty percent (50%) of our voting power can elect all of
our directors.
Dividend Policy. All shares of common stock are entitled to participate ratably
in dividends when, as, and if declared by our board of directors out of the
funds legally available to distribute dividends, after all accrued and unpaid
dividends on the preferred stock have been paid. Any such dividends may be paid
in cash, property or additional shares of common stock. We have not paid any
dividends since our inception and presently anticipate that all earnings, if
any, will be retained for development of our business. We expect that no
dividends on the shares of common stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of our board of
directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, general business
conditions and other pertinent facts. There can be no assurance that any
dividends on the common stock will ever be paid.
Miscellaneous Rights and Provisions. Holders of common stock have no preemptive
or other subscription rights, conversion rights, redemption or sinking fund
provisions. In the event of the liquidation or dissolution, whether voluntary or
involuntary, of FanZ Enterprises, Inc., each share of common stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of FanZ Enterprises, Inc. after satisfaction of all liabilities,
including the payment of the liquidation preference of $600,000 plus accrued and
unpaid dividends on the preferred stock.
Shares Eligible For Future Sale. Upon completion of this offering, we will have
a minimum of 11,000,000 shares of common stock outstanding if the minimum number
of shares offered in this offering are sold, or 12,500,000 shares of common
stock outstanding if the maximum number of shares offered in this offering are
sold. Of these shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares purchased by an "affiliate" of FanZ Enterprises, Inc., and those held
by Jackson Roscoe Motorsports, LLC, which will be subject to the limitations of
Rule 144 adopted under the Securities Act. In general, a person who has a
control relationship with FanZ Enterprises, Inc. is defined as an "affiliate."
All of the remaining shares are deemed to be "restricted securities" as that
term is defined in Rule 144 under the Securities Act.
In general, under Rule 144, commencing 90 days after the date of this
Prospectus, a person, including an affiliate or persons whose shares are
aggregated, who has owned restricted shares of common stock beneficially for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
outstanding shares of the same class or the average weekly trading volume of our
common stock on all exchanges and/or reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. A
person who has not been an affiliate of FanZ Enterprises, Inc. for at least the
three months immediately preceding the sale and who has beneficially owned
shares of common stock for at least two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
55
Transfer Agent. The transfer agent for our common stock will be American Stock
Transfer and Trust Company.
Lock-up Agreement. Jackson Roscoe Motorsports, LLC will hold in the aggregate
upon completion of this offering 10,000,000 shares of our issued and outstanding
common stock and Michael J. Wurtsbaugh will have the right to acquire 500,000
shares of our common stock at an exercise price of $3.00 subject to certain
limitations. These shares of common stock (other than the restrictions
applicable to Mr. Wurtsbaugh's shares under the Non-Qualified Option Agreement)
are not subject to any contractual restriction on the sale of any such shares,
other than a Lock-up Agreement. In addition, any shares purchased by Messrs.
Hitchcock, McDonald or Wurtsbaugh in this offering will also be subject to the
terms of the Lock-up Agreement. Beginning on the day this offering is completed,
they are prohibited by the terms of the Lock-up Agreement from selling,
transferring or pledging all of their shares of common stock , although they
retain all of the voting rights attendant on these shares.
According to the terms of the Lock-up Agreement, it will terminate and the
shares will be freely tradeable upon the occurrence of any of the following:
(i) the fourth anniversary of the completion of this offering;
(ii) the date all funds have been returned to investors if this
offering is terminated; or
(iii) the date the shares become "covered securities" as defined in
Section 18(b)(1) of the Securities Act. These include shares
which are listed as authorized for listing on the New York
Stock Exchange, the Nasdaq National Market, or other national
securities exchanges which the SEC has determined have listing
standards substantially similar to the listing standards
applicable to these securities.
Prior to its termination, 2 1/2% of the shares subject to the Lock-up Agreement
may be released from the restrictions in the Lock-up Agreement on a quarterly
basis commencing two years from the date the offering is completed.
Lack of Public Market for Our Shares. There has not been a public market for our
common stock and the price of our shares may be very volatile. We are not sure
if and when the shares will start trading, and this may not occur until well
after the first closing of this offering. We could decide not to facilitate the
commencement or continuation of a trading market for the common stock for an
extended period. We cannot predict the extent to which investor interest in our
common stock will lead to the development of an active trading market or how
liquid that market might become. Because no underwriter has sold any shares to
their customers or received options, warrants or shares in this offering, there
is currently little incentive for a financial institution to provide aftermarket
support of the shares. Due to this lack of aftermarket support, the price of our
stock following this offering may decrease, and investors may be unable to
resell their shares at or above the initial public offering price.
Stock Option Plans and Stock Options.
On May 15, 2001, we adopted two stock option plans, the 2001 Stock Option Plan
and the 2001 Non-Employee Director Plan. These plans will be subject to
stockholder approval after completion of their public offering. Administration
of the 2001 Stock Option Plan shall be administered by the Compensation
Committee of the Board of Directors. Under the terms of the 2001 Stock Option
Plan, a maximum of nine percent (9%) of the number of outstanding shares
56
of our common stock, after giving effect to the completion of this offering, may
be granted to our officers, key employees and consultants. Options granted under
the 2001 Stock Option Plan may be incentive stock options, non-qualified stock
options, or a combination of the foregoing. No incentive stock option may be
granted to a person who is not an employee. The option price per share of any
stock option granted under the plan may not be less than the fair market value
of the common stock on the date of grant. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the 2001 Non-Employee Director Plan, options may be granted
equal to a maximum of one percent (1%) of the number of outstanding shares of
our common stock, after giving effect to the completion of this offering. This
plan will also be administered by the Compensation Committee of the Board of
Directors. The option price of any options granted under the 2001 Non-Employee
Directors Plan shall be the fair market value on the date of grant. Such options
shall generally be exercisable for a term of not more than five years.
In addition to the foregoing plans, on February 28, 2001, we granted an option
to purchase up to 500,000 shares of our common stock at an exercise price of
$3.00 per share to Michael J. Wurtsbaugh, currently a consultant. Mr. Wurtsbaugh
will become our Chief Financial Officer upon completion of this offering. The
option is currently exercisable for 250,000 shares with the remaining vesting
over a four-year period commencing on the first anniversary of the date of
grant.
Preferred Stock
General. We have 10,000 authorized shares of preferred stock, par value $.01 per
share, 10,000 of which are issued and outstanding and held by Jackson Roscoe
Motorsports, LLC.
Voting Rights. The holders of our preferred stock shall not be entitled to any
voting rights except that an affirmative vote of at least two-thirds of the
issued and outstanding shares of preferred stock, voting as a class, shall be
required to amend any provision of our Restated Certificate of Incorporation
that would otherwise adversely affect the rights and preferences of the
preferred stock or authorize the creation of a new class of stock.
Dividend-Policy. The holders of our preferred stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefore, cumulative dividends at the rate of 10% per annum,
in preference to and in priority over any dividends upon the common stock.
Conversion and Liquidation Rights. Our preferred stock is not convertible into
shares of common stock. Upon our dissolution, liquidation, or winding up,
holders of our preferred stock will be entitled to receive, after payment or
provision for payment of all our debts and liabilities, prior to and in
preference to any distribution to our other stockholders including the holders
of common stock, the aggregate amount of $600,000 or $60 per share, plus an
amount equal to all accrued and unpaid dividends thereon to the date of
liquidation.
Redemption. We may redeem, at our option, at any time on or after the date which
is six months from the initial closing of this offering, in whole or in part,
the issued and outstanding preferred shares, at an aggregate redemption price of
$600,000 or $60 per share, out of funds legally available for such payment and
such redemption if not otherwise prohibited by the terms of any senior bank
financing. The holders of our preferred stock shall not be entitled to receive
any accrued and unpaid dividends in payment for their shares in the event we
exercise our right to purchase their shares pursuant to the redemption
provisions of our Restated Certificate of
57
Incorporation. If the shares of our preferred stock are redeemed, they may not
be reissued or redesignated by our Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 15, 2000, in exchange for $100 in consideration, we issued 100
shares of our common stock to Jackson Roscoe Motorsports, LLC. On December 18,
2000, Jackson Roscoe Motorsports, LLC contributed an additional $50,000 to the
capital of FanZ Enterprises, Inc. for its shares of common stock. On February
23, 2001, Jackson Roscoe Motorsports, LLC contributed an additional $50,000 to
the capital of FanZ Enterprises, Inc., in the form of a Demand Note, for its
shares of common stock. On February 23, 2001, in exchange for $400,000 in
consideration, in the form of a Demand Note, we issued 10,000 shares of our
preferred stock to Jackson Roscoe Motorsports, LLC. As of June 14, 2001, the
entire amount of the Demand Note has been drawn down. The interest rate charged
on such Demand Note was 7%. Any requests for partial payment on the Demand Note
were made in increments of Ten Thousand Dollars ($10,000). Jackson Roscoe
Motorsports, LLC is an entity wholly owned and controlled by J. Roe Hitchcock
and Frederick L. McDonald, II. The preferred shares are redeemable, at our
option, at any time after six months from the closing of this offering at a
price of $600,000 subject to applicable escrow provisions. Approval by the
independent members of our Board of Directors will be required in order to
effect a redemption of the preferred stock.
On January 1, 2001, we entered into an agreement with Stillwater Capital
Advisors, LLC, a Delaware limited liability company, for consulting services
including, among other things, preparation and development of our business plan,
development of a sophisticated financial model, identifying key personnel and
negotiating with a broker/dealer, accountants and attorneys. Out of the $750,000
fee to be paid to Stillwater Capital Advisors, LLC, up to $200,000 of this fee
could be paid to the broker/dealer by Stillwater Capital Advisors, LLC. J. Roe
Hitchcock, our Chief Executive Officer, Treasurer and a director of FanZ
Enterprises, Inc., and Frederick L. McDonald, II, our President and also a
director of FanZ Enterprises, Inc., are members of Stillwater Capital Advisors,
LLC and together own a controlling interest in Stillwater Capital Advisors, LLC.
Consulting services will be provided to us for a period of twelve (12) months at
a flat fee of $750,000 to be paid in one lump sum payment following the closing
of this offering. We believe that the terms of the consulting agreement are as
favorable to us as those generally available from unaffiliated third parties.
On February 28, 2001, we entered into an Option Agreement with Michael J.
Wurtsbaugh, our proposed CFO, pursuant to which Mr. Wurtsbaugh was granted an
option to purchase up to 500,000 shares of our common stock at $3.00 per share.
The option is exercisable for a period of five years from the date of grant.
FanZ Enterprises, Inc. will donate approximately two and one-half percent (2.5%)
of its yearly pre-tax profit to the Jackson Roscoe Foundation. In any year,
including its first, that we do not generate a profit, no monetary donation will
be made to the Jackson Roscoe Foundation. The Jackson Roscoe Foundation has been
set up in memory of Jackson Roscoe Hitchcock. Jackson was one of the twins born
to Joan and J. Roe Hitchcock, our CEO and Treasurer, on September 13, 1999.
Jackson was diagnosed with transposition of the greater vessels. He lived in the
Riley Children's Hospital in Indianapolis, Indiana for 83 days before he died.
The Jackson Roscoe Foundation will donate money and services to programs and
help families of sick children, specifically the children suffering from
congenital heart diseases. The Jackson Roscoe Foundation will assist various
charitable, medical and research organizations in drawing awareness to the
disease and helping to cure the disease. The Jackson Roscoe Foundation will be a
501(c)(3) corporation and therefore the donations will be a tax-deductible
contribution for
58
the Company. If the Jackson Roscoe Foundation is not granted tax-deductible
status, FanZ Enterprises, Inc. will not make any monetary contribution to the
Jackson Roscoe Foundation, although the founders of the Company will make
contributions regardless. The Jackson Roscoe Foundation will operate as a
totally separate entity distinct from the Company and its subsidiaries, with its
own Board of Directors and officers. Joan Hitchcock will serve as a member of
the Board of Directors of the Jackson Roscoe Foundation.
Jackson Roscoe Motorsports, LLC, an entity controlled by J. Roe Hitchcock and
Frederick McDonald II, has entered into a letter of intent to lease an existing
race shop facility. Upon the closing of this offering, Jackson Roscoe
Motorsports, LLC will assign the letter of intent to us and we will negotiate to
enter into a lease with Sharp Racing, Inc.
We currently only have two directors, Messrs. Hitchcock and McDonald, on our
Board of Directors. Neither of whom are independent directors. At the time of
the transactions with Jackson Roscoe Motorsports, LLC and Stillwater Capital
Advisors, LLC, we lacked sufficient disinterested independent directors to
ratify these transactions. We intend to add additional members to our Board of
Directors following the closing of this offering. Five of these members have
been identified in this prospectus on pages 49 through 51. All of the members
identified, except Arnold G. Busse, would qualify as independent directors. We
intend to maintain at least two independent directors on our Board. All future
material affiliated transactions and loans will be made or entered into on terms
that are no less favorable to us than those that can be obtained from
unaffiliated third parties. Additionally, all future material affiliated
transactions, and any forgiveness of loans, will be approved by a majority of
our independent directors who do not have an interest in the transactions and
who had access, at our expense, to our legal counsel or independent legal
counsel.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for our securities. Jackson Roscoe
Motorsports, LLC is our sole shareholder. To date, no dividends have been
declared on our common stock.
LEGAL MATTERS
The validity, authorization and issuance of the shares of our common stock
offered hereby will be passed upon for FanZ Enterprises, Inc. by Benesch,
Friedlander, Coplan & Aronoff, LLP of Cleveland, Ohio.
EXPERTS
The consolidated financial statements of FanZ Enterprises and Subsidiaries
included in this prospectus and in the registration statement have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent and
for the period (from October 20, 2000 (inception) to January 31, 2001) set forth
in their report (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern) appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
59
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our Certificate of Incorporation provides that we will indemnify our officers
and directors to the fullest extent permitted by the Delaware General
Corporation Law ("DGCL"). Our Certificate of Incorporation provides that we will
indemnify and hold harmless each person who was or is threatened to be made a
party to or is otherwise involved in any threatened proceedings by reason of the
fact that he or she is or was a director or officer of our company or is or was
serving at our request as an officer, director, partner, trustee, employee, or
agent of another entity, against all losses, claims, damages, liabilities and
expenses actually and reasonably incurred or suffered in connection with such
proceeding.
Insofar as indemnification for liabilities arising under the Securities Act, as
amended, may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
60
INDEX TO FINANCIAL STATEMENTS
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Report of Independent Certified Public Accountants F-2
Audited Financial Statements for the period from October 20,
2000 (Inception) to January 31, 2001:
Balance sheet F-3
Statement of loss F-4
Statement of stockholders' deficit F-5
Statement of cash flow F-6
Summary of significant accounting policies F-7-8
Notes to financial statements F-9-13
Unaudited Financial Statements for the three months ended
April 30, 2001:
Balance sheets F-14
Statements of loss F-15
Statements of stockholders' equity (deficit) F-16
Statements of cash flow F-17
Summary of significant accounting policies F-18-20
Notes to financial statements F-21-24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
FanZ Enterprises, Inc.
We have audited the accompanying balance sheet of FanZ Enterprises, Inc. ( a
development stage company) as of January 31, 2001, and the related statements of
loss, stockholder's deficit and cash flow for the period from October 20, 2000
(inception) to January 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FanZ Enterprises, Inc. as of
January 31, 2001, and the results of its operations and cash flows for the
period from October 20, 2000 (inception) to January 31, 2001 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's dependence on raising equity, its lack of working
capital and income sources as well as the inherent risks associated with a
start-up business raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman LLP
Atlanta, Georgia
February 26, 2001
F-2
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
Accrued expenses ............................................... $ 160,910
---------
TOTAL LIABILITIES ................................................. 160,910
---------
Commitments
STOCKHOLDER'S DEFICIT
Common stock, $.01 par value - 20,000,000 shares authorized;
10,000,000 issued and outstanding (Note 4) ................... 100,000
Additional paid-in capital (Note 4) ............................ (49,900)
Accumulated deficit during the development stage ............... (64,975)
---------
TOTAL STOCKHOLDER'S DEFICIT ....................................... (14,875)
---------
$ 146,035
=========
See accompanying summary of accounting polices and notes to financial
statements.
F-3
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSS
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
Revenues ....................................................... $ --
General and administrative expenses ............................ 64,975
------------
Net loss ....................................................... $ (64,975)
============
Basic and diluted loss per share (Note 4) ...................... $ (0.01)
============
Basic and diluted weighted average shares outstanding (Note 4) . 10,000,000
============
See accompanying summary of accounting polices and notes to financial
statements.
F-4
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
Accumulated
Common Stock Deficit
------------------------------- Additional During the
Paid-In Development
Shares Amount Capital Stage Total
--------------- -------------- -------------- ----------------- --------------
BALANCE AT OCTOBER 20, 2000 - $ - $ - $ - $ -
Net loss - - - (64,975) (64,975)
Issuance of common stock 100 1 99 - 100
Capital contribution - - 50,000 - 50,000
100,000 for 1 stock split (Note 4) 9,999,900 99,999 (99,999) - -
----------- ----------- ---------- ---------- -----------
BALANCE AT JANUARY 31, 2001 10,000,000 $ 100,000 $(49,900) $ (64,975) $ (14,875)
=========== =========== ============ =========== ===========
See accompanying summary of accounting polices and notes to financial
statements.
F-5
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO JANUARY 31, 2001
OPERATING ACTIVITIES
Net loss ................................................... $ (64,975)
Adjustment to reconcile net loss to cash used in
operating activities:
Change in current assets and liabilities:
Deferred offering costs .............................. (95,935)
Accrued expenses ..................................... 160,910
---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........... -
---------
FINANCING ACTIVITY
Proceeds from the issuance of stock ........................ 50,100
---------
NET INCREASE IN CASH .......................................... 50,100
CASH, BEGINNING OF PERIOD ..................................... -
---------
CASH, END OF PERIOD ........................................... $ 50,100
=========
See accompanying summary of accounting polices and notes to financial
statements.
F-6
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FanZ Enterprises, Inc. (a development stage company) (the "Company") is a
Delaware corporation which was formed on October 20, 2000 for the purpose of
controlling and managing a multi-car professional motorsports operation that
will participate in NASCAR sanctioned events. The Company has selected a January
31 year end. The Company has two wholly-owned subsidiaries, also development
stage companies. FanZ Racing, Inc. will own and manage the racing operations
while FanZ Merchandising, Inc. will own, manage, market and distribute all of
the related merchandise for the racing operations. As of January 31, 2001, there
were no transactions in either subsidiary and there were no intercompany
accounts to eliminate.
The Company is in the development stage and its activities to date have been
limited to organizational activities including developing and implementing its
business plan, hiring personnel, establishing business strategies and
formulating a strategy to raise equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash approximate fair value because of the short-term
nature of this item.
REVENUE RECOGNITION
Revenues are expected to be generated from a number of sources including
sponsorships, race purse winnings, race bonus opportunities and merchandise
sales. It is expected that sponsorship revenue will be recognized over the
period of the sponsorship agreement; race purse winnings and bonuses will be
recognized when receipt is assured; and merchandise sales will be recognized
upon shipment, less returns and allowances.
STOCK-BASED COMPENSATION
The Company plans to account for its stock option awards to employees and
directors under the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount the employee must pay to acquire the
stock. The Company plans to adopt the disclosure provisions of SFAS
123,"Accounting for Stock-Based Compensation" ("SFAS 123") and disclose the pro
forma amounts of net income (loss) as if the fair value based method of
accounting had been applied.
For options awarded to all others, compensation will be recognized for the fair
value of options granted in accordance with SFAS 123 and related
interpretations.
INCOME TAXES
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis of assets and
liabilities. Deferred tax assets of approximately $26,000 related primarily to
non-deductible accruals have been offset by a valuation reserve since the
utilization of this asset cannot be assured.
F-7
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE
Basic and diluted loss per share was computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Basic loss per
share is computed by dividing the net loss available to common shareholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period and excludes the effects of potentially dilutive
common shares. Diluted net loss per share gives effect to all potentially
dilutive common shares outstanding during a period. There were no potentially
dilutive common shares outstanding on January 31, 2001, thus basic and dilutive
loss per share are the same for the period presented.
WEB SITE DEVELOPMENT COSTS
Subsequent to January 31, 2001, the Company began development of its web site
which will be utilized to promote the Company's racing and merchandising
operations. During 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-2, Accounting for Web Site Development Costs. This EITF specifies how an
entity should account for costs incurred to develop a web site.
Costs incurred in the planning stage, regardless of whether the web site
planning activities specifically relate to software, should be expensed as
incurred. Costs incurred in the planning stage include such activities as
identification of the specific goals of the web site, identification of the
target audience, determination of the functionalities, identification of
necessary hardware, identification of necessary web application and
conceptualization of graphics and content, among other things.
Costs incurred in the web site application and infrastructure development stage
and costs incurred to develop graphics should be accounted for in accordance
with Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use if the web site is expected to
be utilized for internal use. Since this is the Company's intent, the
application of SOP 98-1 is appropriate. This statement, in general, requires the
capitalization of costs of developing software for internal use once the
preliminary project stage is completed and prior to the point at which the
project is substantially complete and ready for its intended use. Fees incurred
for web site hosting, which involves the payment of a specific, periodic fee to
an internet service provider in return for hosing the web site, generally would
be expensed over the period of benefit.
Costs incurred during the operating stage including training, administration,
maintenance and other costs to operate an existing web site should be expensed
as incurred. However, costs that provide additional functions or features to the
web site should be accounted for in accordance with SOP 98-1 which requires that
certain costs relating to such upgrades be capitalized if it is probable that
they will result in added functionality.
F-8
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-9
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of liabilities in the
normal course of business. Since its inception on October 20, 2000, the Company
has been involved in organizational activities. The Company's ultimate ability
to attain profitable operations is dependent upon its obtaining adequate
capitalization to complete its development activities and implementation of its
business plan. The Company has filed a registration statement on Form SB-2 with
the Securities and Exchange Commission which would offer outside investors up to
2,500,000 common shares in a direct participation offering. Monies raised from
this offering will be held in escrow until a minimum of 1,000,000 shares are
sold. There can be no assurances as to if and when this registration statement
may become effective or what the ultimate net proceeds from such an offering
might be.
As a result of the foregoing, these circumstances raise substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. DEFERRED OFFERING COSTS
Deferred offering costs consist of professional fees incurred through January
31, 2001 that are directly related to the public offering described more fully
in Note 4. If the public offering is successful, these costs will be offset
against the proceeds in stockholders' equity. If the public offering is not
successful, these costs will be expensed in full upon that determination.
3. ACCRUED EXPENSES
Accrued expenses as of January 31, 2001 consist of consulting services of
$62,500 (See Note 5) and professional fees of $98,410.
4. STOCKHOLDER'S DEFICIT
ISSUANCE OF COMMON STOCK
On October 20, 2000, the Company issued 100 shares of its $.01 par value stock
to Jackson Roscoe Motorsports, LLC (the "sole stockholder" or the "parent"). The
sole stockholder is owned in its entirety by two directors of the Company. As
consideration for the shares issued, the Company received $1 per share. On
December 18, 2000, the Company received additional consideration for these
shares in the amount of $50,000. Subsequent to January 31, 2001, the Company
received another capital contribution from its sole stockholder in the form of a
$50,000 note receivable. This note was satisfied in cash on February 16, 2001.
F-10
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Subsequent to January 31, 2001, the Company increased its authorization of
Common Stock to 20,000,000 shares and affected a 100,000 to 1 split. All share
and per share data have been retroactively adjusted to reflect this split. In
the retroactive presentation, additional paid-in capital as adjusted for the
split resulted in a negative balance in this account; however, when the split
actually occurred subsequent to January 31, 2001, the Company had adequate
capital to absorb the effects of the transaction.
PREFERRED STOCK
Subsequent to January 31, 2001, the Company authorized and issued to its sole
stockholder ten thousand (10,000) shares of 10% Cumulative Preferred Stock (the
"Preferred Stock") at $40.00 per share. The par value was $0.01 per share. The
parent, as holder of the shares, is entitled to receive, at the discretion of
the independent Board of Directors, cumulative dividends at the annual rate of
10% ($4.00 maximum) per share, in priority over any dividends payable upon any
of the Common Stock. As consideration, the Company received a $400,000 note
receivable from the sole stockholder. This note was satisfied in cash in a
series of payments beginning on February 16, 2001 and ending June 14, 2001.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, the holders of Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company that
are available for distribution, an amount in cash equal to $60 per share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation. If the assets of the Company are not
sufficient for this, then the holders of the Preferred Stock shall share ratably
in the distribution of assets.
The Company may redeem the Preferred Stock at any time six months after the
closing of a Qualified Public Offering ("public offering"), in whole or from
time to time, at a redemption price of $60 per share (the "redemption amount").
A Qualified Public Offering in this case is defined as a public offering
registered under the Securities Act of 1933 which ultimately results in gross
proceeds to the Company of at least $10,000,000. The holders of the Preferred
Stock will only be entitled to receive the redemption amount, and not the amount
of any accrued and unpaid dividends.
5. RELATED PARTY TRANSACTION
Effective January 1, 2001, the Company entered into a 12 month agreement for
consulting services with Stillwater Capital Advisors, LLC, a company partially
owned by the shareholders of the parent company. The amount accrued at January
31, 2001 under this agreement was $62,500. The Company is contractually
obligated to Stillwater Capital Advisors, LLC for an additional $687,500. The
Company believes the terms of this agreement to be at arm's length. See Notes 4,
6 and 7 for description of additional related party transactions.
F-11
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS
Subsequent to January 31, 2001, the Company entered into a letter of intent to
lease land and property to be used as its principal place of business for annual
rent of approximately $60,000 under a lease term of one year with an option to
renew for three consecutive periods of one year each. The lessor is a consultant
to the Company's parent and the commencement of this lease is contingent upon
the Company's closing of its public offering.
The Company has oral agreements with third party service providers such that if
the public offering is successful, additional fees of $125,000 will be remitted.
7. STOCK OPTIONS
Subsequent to January 31, 2001, the Company adopted two stock option plans: the
2001 Stock Option Plan (the "Plan") and the 2001 Non-Employee Director Stock
Option Plan (the "Non-Employee Plan"). Under the terms of the Plan, a maximum of
9% of the number of outstanding shares of the Company's Common Stock, after
giving effect to the close of Company's public offering, may be granted to its
officers, key employees and consultants. Options granted under this Plan may be
(a) Incentive Stock Options, (b) Non-Qualified Stock Options or (c) a
combination of the foregoing. No Incentive Stock Options may be granted to a
person who is not an employee. The option price per share of any stock option
granted under the Plan shall not be less than the fair market value of the
Common Stock at the date of the grant. In the case of an Incentive Stock Option
grant, the option price per share shall not be less than 110% of the fair market
value of the shares at the date of grant should that employee hold more than 10%
of the total combined voting power of all classes of stock of the Company, its
parent or subsidiaries at the grant date. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the Non-Employee Plan, options may be granted equal to a
maximum of 1% of the number of outstanding shares of the Company's Common Stock,
after giving effect to the close of Company's public offering. The option price
shall be the fair market value at the date of grant, and shall, in general, be
exercisable for a term of not more than five years.
F-12
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Subsequent to January 31, 2001, the Company granted 500,000 options to a
consultant, expected to become the Company's Chief Financial Officer, at an
exercise price of $3.00 per share of which 250,000 vest on the grant date and
the remaining vest over a four year period commencing on the first anniversary
of the grant date. In accordance with FAS 123 and related interpretations,
compensation expense for the fair value of these options will be recognized over
the period in which these options are earned. The fair value approach for
valuing stock options was determined using the Black-Scholes option pricing
model given the following assumptions: risk free interest rate of 5.53%;
expected option life of 4 years; and no dividend yield or volatility. Assuming a
fair market value of $10 per share (the projected selling price of shares in the
aforementioned public offering), the Company, therefore, expects to incur
approximately $3,800,000 of non-cash compensation expense in the future. It is
expected that $1,900,000 will be recognized when the options are granted while
the remaining will be recognized over the four year period from the grant date.
The fair value approach to the valuation of these options requires that the
unvested shares be "marked to market" at the end of each reporting period. As
such, if the fair value of the options change in the future, then related
current and future non-cash compensation expense will change accordingly. When
and if the consultant becomes an employee, a new measurement date will be
required resulting in a remeasurement of the value of the unearned options using
the intrinsic value method. This grant is separate and distinct from either of
the stock option plans described above.
8. EMPLOYMENT AGREEMENTS
The Company and its parent are committed to an employment agreement and certain
consulting contracts to multiple key individuals. All were executed subsequent
to January 31, 2001 and the employment agreement requires the close of the
Company's public offering to become effective.
9. SEGMENT INFORMATION
The Company plans to adopt SFAS 131, which establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company expects that it will have two reportable segments: the racing
segment which will operate the race teams and the merchandising segment, when
established, will own, manage, market and distribute related merchandise.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash. The Company's cash at January 31, 2001
was not deposited at a financial institution, therefore it was not FDIC insured
at that time. The Company has subsequently opened a bank account at a high
quality financial institution.
F-13
FanZ Enterprises, Inc.
(a development stage company)
Unaudited
Financial Statements
Three Months Ended April 30, 2001
F-14
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
April 30, January 31,
2001 2001
------------------- -------------------
(unaudited)
Assets
CURRENT:
Cash $ 91,072 $ 50,100
Note receivable................................................................ 150,000 -
Advance to parent.............................................................. 2,500 -
Deferred offering costs........................................................ 173,335 95,935
------------ ------------
TOTAL CURRENT ASSETS.............................................................. 416,907 146,035
----------- -----------
WEBSITE DEVELOPMENT COSTS 13,000 -
------------ ------------
$ 429,907 $ 146,035
============ ============
Liabilities and Stockholder's Equity (Deficit)
CURRENT:
Accrued expenses............................................................... $ 272,993 $ 160,910
----------- ------------
TOTAL LIABILITIES................................................................. 272,993 160,910
----------- -----------
COMMITMENTS
STOCKHOLDER'S (EQUITY) DEFICIT
Preferred stock, $.01 par value - 10,000 shares authorized,
10,000 shares issued and outstanding......................................... 100 -
Common stock, $.01 par value - 20,000,000 shares authorized;
10,000,000 issued and outstanding (Note 4)................................... 100,000 100,000
Additional paid-in capital..................................................... 2,464,919 (49,900)
Accumulated deficit during the development stage............................... (2,408,105) (64,975)
------------ ------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT).............................................. 156,914 (14,875)
------------ ------------
$ 429,907 $ 146,035
============ ============
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-15
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS
(UNAUDITED)
Period from October
Three months ended 20, 2000 (inception)
April 30, 2001 to April 30, 2001
-------------------- ----------------------
Revenues........................................................................ $ - $ -
Selling, general and administrative expenses.................................... 2,343,130 2,408,105
-------------- ---------------
Net loss........................................................................ $ (2,343,130) $ (2,408,105)
============== ===============
Basic and diluted loss per common share (Note 4)................................ $ (0.23)
==============
Basic and diluted weighted average common shares
Outstanding (Note 4)......................................................... 10,000,000
==============
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-16
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
PERIOD FROM OCTOBER 20, 2000 (INCEPTION) TO APRIL 30, 2001
Accumulated
Deficit
Common Stock Preferred Stock Additional During the
--------------------------- ---------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------------- ------------- -------------- ------------- ------------- ------------------ -------------
BALANCE AT
OCTOBER 20, 2000 - $ - - $ - $ $ $ -
Net loss - - - - - (64,975) (64,975)
Issuance of common
Stock 100 1 - - 99 - 100
Capital contribution - - - - 50,000 - 50,000
100,000 for 1 stock
split (Note 4) 9,999,900 99,999 - - (99,999) - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
JANUARY 31, 2001 10,000,000 100,000 - - (49,900) (64,975) (14,875)
Net loss - - - - - (2,343,130) (2,343,130)
Stock option grant . - - - - 2,064,919 - 2,064,919
Additional capital
contribution for
previously issued
common stock - - - - 50,000 - 50,000
Issuance of
preferred Stock - - 10,000 100 399,900 - 400,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
APRIL 30, 2001
(UNAUDITED) 10,000,000 $ 100,000 10,000 $ 100 $ 2,464,919 $(2,408,105) $ 156,914
=========== =========== =========== =========== =========== =========== ===========
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-17
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
Period from
Three Months October 20, 2000
Ended April 30, (inception) to
2001 April 30, 2001
------------------ -------------------
OPERATING ACTIVITIES
Net loss..................................................................... $ (2,343,130) $ (2,408,105)
Adjustment to reconcile net loss to cash used in
operating activities:
Non-cash compensation expense.............................................. 2,064,919 2,064,919
Change in current assets and liabilities:
Advance to parent...................................................... (2,500) (2,500)
Deferred offering costs................................................ (77,400) (173,335)
Accrued expenses....................................................... 112,083 272,993
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (246,028) (246,028)
------------ -------------
INVESTING ACTIVITY
Web site development costs................................................ (13,000) (13,000)
------------ -------------
FINANCING ACTIVITY
Proceeds from the issuance of stock.......................................... 300,000 350,100
------------ ----------------
NET INCREASE IN CASH............................................................ 40,972 91,072
CASH, BEGINNING OF PERIOD....................................................... 50,100 -
------------ -------------
CASH, END OF PERIOD............................................................. $ 91,072 $ 91,072
============ =============
SUPPLEMENTAL NONCASH FINANCING INFORMATION
Notes receivable, net, of $150,000 were obtained in connection with the
issuance of common and preferred stock.
See accompanying summary of accounting polices and notes to unaudited financial
statements.
F-18
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FanZ Enterprises, Inc. (a development stage company) (the "Company") is a
Delaware corporation which was formed on October 20, 2000 for the purpose of
controlling and managing a multi-car professional motorsports operation that
will participate in NASCAR sanctioned events. The Company has selected a January
31st year end. The Company has two wholly-owned subsidiaries, also development
stage companies. FanZ Racing, Inc. will own and manage the racing operations
while FanZ Merchandising, Inc. will own, manage, market and distribute all of
the related merchandise for the racing operations. As of April 30, 2001, all
material intercompany accounts were eliminated.
The Company is in the development stage and its activities to date have been
limited to organizational activities including developing and implementing its
business plan, hiring personnel, establishing business strategies and
formulating a strategy to raise equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and notes receivable approximate fair value because
of the short-term nature of these items.
REVENUE RECOGNITION
Revenues are expected to be generated from a number of sources including
sponsorships, race purse winnings, race bonus opportunities and merchandise
sales. It is expected that sponsorship revenue will be recognized over the
period of the sponsorship agreement; race purse winnings and bonuses will be
recognized when receipt is assured; and merchandise sales will be recognized
upon shipment, less returns and allowances.
STOCK-BASED COMPENSATION
The Company plans to account for its stock option awards to employees and
directors under the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount the employee must pay to acquire the
stock. The Company plans to adopt the disclosure provisions of SFAS
123,"Accounting for Stock-Based Compensation" ("SFAS 123") and disclose the pro
forma amounts of net income (loss) as if the fair value based method of
accounting had been applied.
For options awarded to all others, compensation is recognized for the fair value
of options granted in accordance with SFAS 123 and related interpretations.
INCOME TAXES
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis of assets and
liabilities. Deferred tax assets of approximately $947,000 related primarily to
net operating losses and non-deductible accruals have been offset by a valuation
reserve since the utilization of this asset cannot be assured.
F-19
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE
Basic and diluted loss per common share was computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic
loss per common share is computed by dividing the net loss available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and excludes the effects of
potentially dilutive common shares. Diluted net loss per common share gives
effect to all potentially dilutive common shares outstanding during a period.
There were no potentially dilutive common shares outstanding on April 30, 2001,
thus basic and dilutive loss per common share are the same for the period
presented.
WEB SITE DEVELOPMENT COSTS
During the three months ended April 30, 2001, the Company began development of
its web site which will be utilized to promote the Company's racing and
merchandising operations. During 2000, the Emerging Issues Task Force ("EITF")
issued EITF 00-2, Accounting for Web Site Development Costs. This EITF specifies
how an entity should account for costs incurred to develop a web site.
Costs incurred in the planning stage, regardless of whether the web site
planning activities specifically relate to software, are expensed as incurred.
Costs incurred in the planning stage include such activities as identification
of the specific goals of the web site, identification of the target audience,
determination of the functionalities, identification of necessary hardware,
identification of necessary web application and conceptualization of graphics
and content, among other things.
Costs incurred in the web site application and infrastructure development stage
and costs incurred to develop graphics are accounted for in accordance with
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use if the web site is expected to
be utilized for internal use. Since this is the Company's intent, the
application of SOP 98-1 is appropriate. This statement, in general, requires the
capitalization of costs of developing software for internal use once the
preliminary project stage is completed and prior to the point at which the
project is substantially complete and ready for its intended use. Fees incurred
for web site hosting, which involves the payment of a specific, periodic fee to
an internet service provider in return for hosing the web site, generally are
expensed over the period of benefit.
F-20
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Costs incurred during the operating stage including training, administration,
maintenance and other costs to operate an existing web site are expensed as
incurred. However, costs that provide additional functions or features to the
web site are accounted for in accordance with SOP 98-1 which requires that
certain costs relating to such upgrades be capitalized if it is probable that
they will result in added functionality.
In accordance with the above policy, the Company has capitalized $13,000 in web
site development costs for the three months ended April 30, 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. The balance
sheet as of April 30, 2001; the statements of loss for the three months ended
April 30, 2001 and for the period from October 20, 2000 (inception) to April 30,
2001; the statements of stockholder's equity (deficit) for the period from
October 20, 2000 (inception) to April 30, 2001 and the statements of cash flows
for the three months ended April 30, 2001 and for the period from October 20,
2000 (inception) to April 30, 2001, have been prepared without audit. The
balance sheet as of January 31, 2001 has been audited by independent certified
public accountants. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading. It is suggested that
these financial statements and related notes be read in conjunction with the
financial statements and notes thereto for the period from October 20, 2000
(inception) to January 31, 2001 included in this document.
In the opinion of the Company, the statements for the unaudited interim periods
presented included all adjustments that were of a normal recurring nature
necessary to present a fair statement of the financial condition and results of
operations for such interim periods. The results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the entire year.
F-21
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of liabilities in the
normal course of business. Since its inception on October 20, 2000, the Company
has been involved in organizational activities. The Company's ultimate ability
to attain profitable operations is dependent upon its obtaining adequate
capitalization to complete its development activities and implementation of its
business plan. The Company has filed a registration statement on Form SB-2 with
the Securities and Exchange Commission which would offer outside investors up to
2,500,000 common shares in a direct participation offering. Monies raised from
this offering will be held in escrow until a minimum of 1,000,000 shares are
sold. There can be no assurances as to if and when this registration statement
may become effective or what the ultimate net proceeds from such an offering
might be.
As a result of the foregoing, these circumstances raise substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. DEFERRED OFFERING COSTS
Deferred offering costs consist of professional, registration and filing fees
incurred through April 30, 2001 that are directly related to the public offering
described more fully in Note 4. If the public offering is successful, these
costs will be offset against the proceeds in stockholders' equity. If the public
offering is not successful, these costs will be expensed in full upon that
determination.
3. ACCRUED EXPENSES
Accrued expenses as of April 30, 2001 primarily consist of consulting services
of $250,000 (See Note 5) and professional fees of $20,000.
4. STOCKHOLDER'S EQUITY (DEFICIT)
ISSUANCE OF COMMON STOCK
On October 20, 2000, the Company issued 100 shares of its $.01 par value stock
to Jackson Roscoe Motorsports, LLC (the "sole stockholder" or the "parent"). The
sole stockholder is owned in its entirety by two directors of the Company. As
consideration for the shares issued, the Company received $1 per share. On
December 18, 2000, the Company received additional consideration for these
shares in the amount of $50,000. During the three months ended April 30, 2001,
the Company received another capital contribution from its sole stockholder in
the form of a $50,000 note receivable and which was satisfied in cash on
February 16, 2001.
F-22
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
During the three months ended April 30, 2001, the Company increased its
authorization of common stock to 20,000,000 shares and affected a 100,000 to 1
split on May 15, 2001. All share and per share data have been retroactively
adjusted to reflect this split.
PREFERRED STOCK
During the three months ended April 30, 2001, the company authorized and issued
to its sole stockholder ten thousand (10,000) shares of 10% Cumulative Preferred
Stock (the "Preferred Stock") at $40.00 per share. The par value was $0.01 per
share. The parent, as holder of the shares, is entitled to receive, at the
discretion of the independent Board of Directors, cumulative dividends at the
annual rate of 10% ($4.00 maximum) per share, in priority over any dividends
payable upon any of the Common Stock. As consideration, the Company received a
$400,000 note receivable from the sole stockholder. This note was satisfied in
cash in a series of payments beginning on February 16, 2001 and ending June 14,
2001.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, the holders of Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company that
are available for distribution, an amount in cash equal to $60 per share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation. If the assets of the Company are not
sufficient for this, then the holders of the Preferred Stock shall share ratably
in the distribution of assets.
The Company may redeem the Preferred Stock at any time six months after the
closing of a Qualified Public Offering ("public offering"), in whole or from
time to time, at a redemption price of $60 per share (the "redemption amount").
A "Qualified Public Offering" in this case is defined as a public offering
registered under the Securities Act of 1933 which ultimately results in gross
proceeds to the Company of at least $10,000,000. The holders of the Preferred
Stock will only be entitled to receive the redemption amount, and not the amount
of any accrued and unpaid dividends.
5. RELATED PARTY TRANSACTION
Effective January 1, 2001, the Company entered into a 12 month agreement for
consulting services with Stillwater Capital Advisors, LLC, a company partially
owned by the shareholders of the parent company. The amount accrued at April 30,
2001 under this agreement was $250,000. The Company is contractually obligated
to Stillwater Capital Advisors, LLC for an additional $500,000. The Company
believes the terms of this agreement to be at arm's length. See Notes 4, 6 and 7
for description of additional related party transactions.
F-23
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS
During the three months ended April 30, 2001, the Company entered into a letter
of intent to lease land and property to be used as its principal place of
business for annual rent of approximately $60,000 under a lease term of one year
with an option to renew for three consecutive periods of one year each. The
lessor is a consultant to the Company's parent and the commencement of this
lease is contingent upon the Company's closing of its public offering.
The Company has oral agreements with third party service providers such that if
the public offering is successful, additional fees of $125,000 will be remitted.
7. STOCK OPTIONS
During the three months ended April 30, 2001, the company adopted two stock
option plans: the 2001 Stock Option Plan (the "Plan") and the 2001 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan"). Under the terms of the
Plan, a maximum of 9% of the number of outstanding shares of the Company's
Common Stock, after giving effect to the close of Company's public offering, may
be granted to its officers, key employees and consultants. Options granted under
this Plan may be (a) Incentive Stock Options, (b) Non-Qualified Stock Options or
(c) a combination of the foregoing. No Incentive Stock Options may be granted to
a person who is not an employee. The option price per share of any stock option
granted under the Plan shall not be less than the fair market value of the
Common Stock at the date of the grant. In the case of an Incentive Stock Option
grant, the option price per share shall not be less than 110% of the fair market
value of the shares at the date of grant should that employee hold more than 10%
of the total combined voting power of all classes of stock of the Company, its
parent or subsidiaries at the grant date. In general, the options shall be
exercisable for a term of not more than five years.
Under the terms of the Non-Employee Plan, options may be granted equal to a
maximum of 1% of the number of outstanding shares of the Company's Common Stock,
after giving effect to the close of Company's public offering. The option price
shall be the fair market value at the date of grant, and shall, in general, be
exercisable for a term of not more than five years.
F-24
FANZ ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
During the three months ended April 30, 2001, the Company granted 500,000
options to a consultant, expected to become the Company's Chief Financial
Officer, at an exercise price of $3.00 per share of which 250,000 vest on the
grant date and the remaining vest over a four year period commencing on the
first anniversary of the grant date. In accordance with FAS 123 and related
interpretations, compensation expense for the fair value of these options will
be recognized over the period in which these options are earned. The fair value
approach for valuing stock options was determined using the Black-Scholes option
pricing model given the following assumptions: risk free interest rate of 5.53%;
expected option life of 4 years; and no dividend yield or volatility. Assuming a
fair market value of $10 per share (the projected selling price of shares in the
aforementioned public offering), the Company, therefore, incurred $2,064,919 of
non-cash compensation expense during the three months ended April 30, 2001 and
is expected to incur approximately $1,735,000 in future periods. It is expected
that future amounts will be recognized over the four year period from the grant
date. The fair value approach to the valuation of these options requires that
the unvested shares be "marked to market" at the end of each reporting period.
As such, if the fair value of the options change in the future, then related
current and future non-cash compensation expense will change accordingly. When
and if the consultant becomes an employee, a new measurement date will be
required resulting in a remeasurement of the value of the unearned options using
the intrinsic value method. This grant is separate and distinct from either of
the stock option plans described above.
8. EMPLOYMENT AGREEMENTS
The Company and its parent are committed to an employment agreement and certain
consulting contracts to multiple key individuals. All were executed during the
three months ended April 30, 2001 and the employment agreement requires the
close of the Company's public offering to become effective.
9. SEGMENT INFORMATION
The Company plans to adopt SFAS 131, which establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company expects that it will have two reportable segments: the racing
segment which will operate the race teams and the merchandising segment, when
established, will own, manage, market and distribute related merchandise.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash and notes receivable. The Company's cash
is deposited in a high quality FDIC insured financial institution, limiting the
Company's exposure to credit risk. The notes receivable are with the Company's
parent and have been substantially satisfied in due course.
F-25
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers
Our Restated Certificate of Incorporation provides that the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
DGCL. Under the DGCL, the directors have a fiduciary duty to us which is not
eliminated by this provision of our Restated Certificate of Incorporation and,
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available.
Section 145 of the DGCL empowers a corporation to indemnify its directors and
officers to cover liability arising out of their capacity or status as directors
and officers, provided that this provision shall not eliminate or limit the
liability of a director:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions which are found by a court of competent
jurisdiction to not be in good faith or which involve
intentional misconduct or a knowing violation of law;
- under Section 174 of the DGCL; or
- for any transaction from which the director derived an
improper personal benefit.
The DGCL provides further that the indemnification permitted thereunder shall
not be deemed exclusive of any other rights to which the directors and officers
may be entitled under the corporation's bylaws, any agreement, a vote of
stockholders or otherwise. Our Restated Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the DGCL and provides that we shall fully indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that that person is or was our director
or officer, or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. This indemnification shall be against expenses including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the indemnities in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or
permitted under our Restated Certificate of Incorporation or under the
indemnification agreements referred to above. We are not aware of any threatened
litigation or proceeding that may result in a claim for this type of
indemnification.
Item 25. Other Expenses Of Issuance And Distribution
The securities are being registered in connection with the public offering of up
to 2,500,000 shares of our common stock, and all of the following expenses will
be borne by FanZ Enterprises, Inc. The amounts set forth are estimates except
for the SEC registration fee:
II-1
Amount To Be Paid
-----------------
SEC registration fee $6,250.00
State Blue Sky Fees $67,310.00
Printing and engraving expenses $100,000.00
Attorneys' fees and expenses $210,000.00
Accountants' fees and expenses $50,000
Transfer agent's and registrar's fees and expenses(1) $303,500.00
Miscellaneous $10,000.00
----------
Total $747,060.00
===========
-----------
(1) Transfer Agent fees are based on an estimate of $3,500 for services related
to this offering and one year of transfer agent services for 100,000
stockholders at $.25 per month. This estimate does not include out-of-pocket
expenses incurred by the Transfer Agent.
Item 26. Recent Sales Of Unregistered Securities
On November 15, 2000, we issued 100 shares of our common stock to Jackson Roscoe
Motorsports, LLC for a total consideration of $100,100, $50,000 of which is
represented by a Demand Note. On February 23, 2001 we issued 10,000 shares of
our preferred stock to Jackson Roscoe Motorsports, LLC for total consideration
of $400,000, all of which is represented by a Demand Note. As of the date
hereof, the Demand Note has been paid in full. Both issuances were private
transactions that were exempt from the registration requirements of the
Securities Act, as amended, pursuant to the exemption found in Section 4(2) of
the Securities Act, as amended. On February 23, 2001 we increased the authorized
number of our common shares to 20,000,000. On May 15, 2001, we authorized a
100,000 for 1 stock split pursuant to which our stockholders received 100,000
shares of our common stock for every one share of common stock owned. This split
was also exempt from the registration requirements of the Securities Act, as
amended.
Item 27. Exhibits
The following exhibits are filed as part of this Registration Statement.
Exhibit. Page
No. No. Description
--------- --- -----------
3(i) ____ Restated Certificate of Incorporation of
FanZ Enterprises, Inc., filed with the
Secretary of State of Delaware on February
23, 2001.*
3(i)(a) ____ Certificate of Amendment to Restated
Certificate of Incorporation of FanZ
Enterprises, Inc., filed with the Secretary
of State of Delaware on June 14, 2001.*
3(ii) ____ By-Laws of FanZ Enterprises, Inc. adopted on
November 15, 2000.*
4 ____ Specimen Stock Certificate.*
II-2
5 ____ Opinion Letter dated April 5, 2001.*
10(i) ____ Form of Subscription Agreement.*
10(ii) ____ 2001 Stock Option Plan of FanZ Enterprises,
Inc.*
10(iii) ____ 2001 Non-Employee Director Stock Option Plan
of FanZ Enterprises, Inc.*
10(iv) ____ Employment Agreement between FanZ
Enterprises, Inc. and Michael J.
Wurtsbaugh.*
10(iv)(a) ____ First Amendment to Employment Agreement
between FanZ Enterprises, Inc. and Michael
J. Wurtsbaugh.*
10(v) ____ Option Agreement between FanZ Enterprises,
Inc. and Michael J. Wurtsbaugh.*
10(v)(a) ____ First Amendment to Option Agreement between
FanZ Enterprises, Inc. and Michael J.
Wurtsbaugh.*
10(vi) ____ Letter of Intent Agreement between Jackson
Roscoe Motorsports, LLC and Sharp Racing,
Inc.*
10(vii) ____ Lock-up Agreement.*
10(viii) ____ Consulting Agreement between FanZ
Enterprises, Inc. and Stillwater Capital
Advisors, LLC.*
10(viii)(a) ____ First Amendment to Consulting Agreement
between FanZ Enterprises, Inc. and
Stillwater Capital Advisors, LLC.*
10(ix) ____ Consulting Agreement between FanZ
Enterprises, Inc. and Michael J.
Wurtsbaugh.*
10(x) _____ Consulting Agreement between Jackson Roscoe
Motorsports, LLC and Eddie Sharp.*
10(xi) _____ Form of Broker/Dealer Agreement.*
21 ____ Subsidiaries of FanZ Enterprises, Inc.*
23(i) ____ Consent of Certified Public Accountants
dated July 2, 2001.
23(ii) ____ Consent of Counsel (See Exhibit 5).*
23(iii) ____ Consent of Board Nominees.*
II-3
99 ____ Escrow Agreement.*
99(a) ____ First Amendment to Escrow Agreement.*
*Previously filed.
Item 28. Undertakings
The Registrant hereby undertakes that it will:
- File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
Include any prospectus required by Section 10(a)(3) of the
Securities Act;
Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
Include any additional or changed material information on
the plan of distribution.
- File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of this
offering.
- For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant,
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
In the event a claim for indemnification against such liabilities (other than
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned,
hereunto duly authorized, in the city of Ann Arbor, State of Michigan, on July
3, 2001.
FanZ Enterprises, Inc.
By: /s/ Frederick L. McDonald II
----------------------------
Frederick L. McDonald II, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ J. Roe Hitchcock Financial Officer, Chief Accounting July 3, 2001
-------------------- Chief Executive Officer, (Chief
J. Roe Hitchcock Financial Officer, Chief Accounting
Officer), Treasurer, Director
/s/ Frederick L. McDonald II President, Director July 3, 2001
----------------------------
Frederick L. McDonald II
Exhibit 23(i)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FanZ Enterprises, Inc. and Subsidiaries
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 26, 2001 relating to the
consolidated financial statements of FanZ Enterprises, Inc. and Subsidiaries for
the period from October 20, 2000 (Inception) to January 31, 2001, which is
contained in that Prospectus. Our report contained an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
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