Case Study : Confidential Private Placement Memorandum…

Chapter 8 Securities Homework
Name (Last Name, First Name):
Class Number and Section:
Read (skim) the attached private placement memorandum.
Answer the questions and then print off the answers only and turn in at class.
Can this be a Subchapter S corporation and give your explanation?
Answer:
Identify, copy and paste herein three references to federal securities law from the memorandum and define a legal term in the reference (the first one I have provided below – define one of the bold and underlined terms): Suitability Standards The Shares will only be sold to persons who are “accredited investors” as defined under Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”). See “INVESTOR SUITABILITY STANDARDS.
Definition:
(Insert)
Definition:
(Insert)
Definition:
Cut and paste the language underneath from the memorandum where it says that this is ‘not a sale of a security’. Why is this relevant?
Answer:
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
BeyondGaming, Inc.
Confidential Copy No.: _______ Offeree:
Date: For Accredited Investors Only $500,000
250,000 COMMON SHARES AT $2.00 PER SHARE
This Confidential Private Placement Memorandum relates to a private offering (the “Offering”) of up to 250,000 Common Shares, no par value (the “Shares”) of BeyondGaming, LLC., an Ohio limited liability corporation (“Gaming” or the “Company”), for a total Offering of $500,000. The Company is currently organized as an Ohio limited liability company and has operated as such since June of 2009. Prior to the issuance of any Shares in the Offering, the Company will be reorganized as an OhioC-corporation, with Common Shares issued in exchange for the membership interests currently outstanding.Assuming that all Shares offered hereby are issued, such Shares will represent forty percent (40%) of the total number of Common Shares outstanding, calculated after the assumed issuance of 1,000,000 Common Shares that are reserved for this transaction and issuance to preferred shareholders, current owners and stock options, or warrants that the Board of Directors may elect to grant as incentive compensation for officers, managers and key employees of the Company.
Concurrently herewith, Company is also offering up to 50,000 Preferred Shares with a $10 Face Value, 8% Cumulative Dividend. The terms and conditions of that offering are disclosed herein in the Dilution Table only, and for a greater understanding of the relationship between the Common Shares being offered herein and said Preferred Shares, please read the attached Articles of Organization and Preferred Shareholder Purchase Agreement which have been included in the booklet for your consideration. The Shares and Preferred Shares have different benefits and drawbacks which may or may not impact your investment decision.
The Company will manage a social network that is specifically targeted at the gaming industry. The Company’s services provide “gamers”, those that play games virtually against other competitors, a communication tool and network to game, either competitively for money or just for fun, with other gamers around the globe.Further, the site will be a marketplace for all things gaming, such as hardware and software that game enthusiasts would be likely to buy. The Company will use the proceeds from this Offering to enhance current software and web site, market its gaming services, and infrastructure.
The Shares are being offered pursuant to exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws. The Shares are available only to investors who (i) acquire the Shares for their own account for investment and not resale, (ii) have certain business and financial expertise, and (iii) are “accredited investors.” See “INVESTOR SUITABILITY STANDARDS.” The Shares are being offered by officers, directors and employees of the Company on a “best efforts” basis without any requirement that any minimum number of Shares be sold. The Company intends to continue the Offering until December 31, 2010, but it may terminate or extend the Offering at its discretion. The Offering may be terminated by the Company at any time, regardless of the number of Shares sold. See “THE OFFERING AND PLAN OF DISTRIBUTION.” Sales Net
Offering Price (1) Commissions (2) Proceeds
Per Common Share $2.00 $0.00 $2.00
Per Preferred Shares $10.00 $10.00
Total Offering (3) $500,000 $0.00 $500,000
________________________________________________________________________________________________ The Offering Price per Share has been determined by the Company on the basis of certain projections of earnings and cash flow, discounted to present value. See “PRO-FORMA REVENUES, EXPENSES AND CASH FLOW”, which is provided in the accompanying business plan. The Company makes no representation that the offering price is or will be the fair market value of its Common Shares or that such Shares could be resold for such amount. The offering price has no relation to the current assets, book value, earnings (loss) or net worth of the Company. See “RISK FACTORS-Determination of the Offering Price.” Each prospective investor should make an independent evaluation of the fairness of such price under all of the circumstances described in this Memorandum. The Company does not anticipate any sales commissions being paid in this Offering, however, it may have to pay some fees but this figure is not currently anticipated. The Company anticipates raising $500,000, either through sales of Preferred Share and or Common Shares. This document only expressly deals with the Common Share offering and its terms. To fully understand the implications of the Preferred Shares as against the rights of the Common Shares, please review the Articles of Organization and the Preferred Shares Purchase Agreement, both of which have been included in the offering materials.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK See “Risk Factors” THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH, OR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE. NO SUCH COMMISSION OR AUTHORITY HAS PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM, NOR IS IT INTENDED THAT THEY WILL AND ANY REPRESENTATIONS TO THE CONTRARY IS A CRIMINAL OFFENSE.
BeyondGaming, Inc.
C/o General Counsel
1301 N. Summit Street
Toledo, OH43604
Telephone: (419) 344-9571
The Date of this Memorandum is October 1, 2009.
IMPORTANT DISCLOSURES
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT WILL BE UNLAWFUL TO DO SO.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES WILL BE SOLD SUBJECT TO THE PROVISIONS OF A STOCK SUBSCRIPTION AGREEMENT CONTAINING CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND CONDITIONS. YOU SHOULD INVEST IN THESE SECURITIES ONLY AFTER YOU HAVE COMPLETELY AND THOROUGHLY REVIEWED THE PROVISIONS OF THE SUBSCRIPTION AGREEMENT.
THE COMPANY WILL MAKE AVAILABLE TO ANY PROSPECTIVE QUALIFIED INVESTOR, PRIOR TO THE CLOSING, THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY OR PERSONS ACTING ON BEHALF OF THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND OUR BUSINESS AND OPERATIONS, AND TO OBTAIN ADDITIONAL INFORMATION IF IT IS IN THE POSSESSION OF THE COMPANY.
THIS MEMORANDUM CONTAINS SUMMARIES, WHICH THE COMPANY BELIEVES TO BE ACCURATE, OF CERTAIN AGREEMENTS AND OTHER DOCUMENTS. THE SUMMARIES MAY NOT BE COMPLETE AND YOU SHOULD REVIEW THE AGREEMENTS AND DOCUMENTS DESCRIBED HEREIN TO FULLY UNDERSTAND THE TERMS THEREOF. THE COMPANY WILL MAKE THE AGREEMENTS AND DOCUMENTS DESCRIBED IN THIS MEMORANDUM AVAILABLE TO QUALIFIED PROSPECTIVE INVESTORS. SEE “ADDITIONAL INFORMATION.”
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS MEMORANDUM. THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION OR TO MAKE ANY REPRESENTATION NOT COVERED IN THIS MEMORANDUM. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT.
YOU SHOULD ASSUME THE INFORMATION CONTAINED IN THIS MEMORANDUM IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS MEMORANDUM. THE COMPANY'S BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
YOU SHOULD NOT CONSIDER ANY INFORMATION IN THIS MEMORANDUM TO BE LEGAL, BUSINESS OR TAX ADVICE. YOU SHOULD CONSULT YOUR OWN ATTORNEY, BUSINESS ADVISOR AND TAX ADVISOR FOR LEGAL, BUSINESS AND TAX ADVICE REGARDING AN INVESTMENT IN THESE SECURITIES.
THE COMPANY MAKES NO REPRESENTATION TO YOU REGARDING THE LEGALITY OF AN INVESTMENT IN THESE SECURITIES BY YOU UNDER APPLICABLE LEGAL INVESTMENT OR SIMILAR LAWS. YOU MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH YOU PURCHASE, OFFER OR SELL THE SECURITIES AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED FOR YOUR PURCHASE, OFFER OR SALE OF THE SECURITIES UNDER THE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION TO WHICH YOU ARE SUBJECT OR IN WHICH YOU MAKE SUCH PURCHASES, OFFERS OR SALES, AND THE COMPANY WILL HAVE NO RESPONSIBILITY FOR YOUR FAILURE TO COMPLY WITH ANY REGULATION OR LAW.
THIS MEMORANDUM IS BASED ON INFORMATION PROVIDED BY THE COMPANY AND OTHER SOURCES THE COMPANY BELIEVES ARE RELIABLE. HOWEVER, THE COMPANY CANNOT ASSURE YOU THAT THE INFORMATION PROVIDED BY SUCH OTHER SOURCES IS ACCURATE OR COMPLETE.
AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. IT IS SPECULATIVE AND SUITABLE ONLY FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES AND HAVE NO NEED TO SELL THE SECURITIES. YOU SHOULD PURCHASE THE SECURITIES ONLY IF YOU UNDERSTAND OR HAVE BEEN ADVISED ABOUT THE TAX CONSEQUENCES OF AND THE RISK FACTORS ASSOCIATED WITH THE PURCHASE OF THE SECURITIES.
IF YOU PURCHASE THE SECURITIES YOU MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD, SINCE THE SECURITIES MAY NOT BE RESOLD UNLESS THEY ARE REGISTERED UNDER THE SECURITIES ACT OF 1933 OR AN EXEMPTION FROM REGISTRATION IS MADE AVAILABLE.
THE COMPANY HAS PREPARED THIS MEMORANDUM TO BE SUBMITTED TO A LIMITED NUMBER OF POTENTIAL INVESTORS SO THAT THEY CAN CONSIDER PURCHASE OF THE SECURITIES. THE COMPANY HAS NOT AUTHORIZED ITS USE FOR ANY OTHER PURPOSE. IF YOU AGREE TO DELIVERY OF THIS MEMORANDUM YOU AGREE TO RETURN IT AND ALL ENCLOSED DOCUMENTS IF YOU DO NOT PURCHASE SECURITIES WITHIN THE TIME PERIOD STATED BELOW. THIS MEMORANDUM MAY NOT BE COPIED OR REPRODUCED IN WHOLE OR IN PART, AND IT MAY ONLY BE DISTRIBUTED AND DISCLOSED TO THE PROSPECTIVE INVESTORS TO WHOM IT IS PROVIDED.
THIS OFFERING WILL TERMINATE ONDECEMBER 31, 2010, UNLESS TERMINATE OR EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION IN CONNECTION WITH THE OFFERING AND SALE OF THE SECURITIES, THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION BY ANY INVESTOR AND TO HOLD MULTIPLE CLOSINGS.
ACCREDITED INVESTORS ONLY
THIS OFFERING IS BEING MADE ONLY TO PERSONS WHO ARE ACCREDITED INVESTORS AS THAT TERM IS DEFINED PURSUANT TO RULE 501 OF REGULATION D OF THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF THE STATE OF OHIO OR ANY OTHER STATE. THESE SECURITIES CANNOT BE RESOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE INVESTOR WITHOUT APPROPRIATE REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
TABLE OF CONTENTS
PAGE
IMPORTANT DISCLOSURES. ii
TABLE OF CONTENTS. iv
INVESTOR SUITABILITY STANDARDS. 1
THE OFFERING AND PLAN OF DISTRIBUTION.. 2
ADDITIONAL INFORMATION.. 3
RISK FACTORS. 3
Risk Factors Related To The Business Of The Company. 3
Development to Early Stage Company. 3
Ongoing Need For Financing. 3
Negative Net Worth of Company. 4
General Economic Conditions. 4
Competition. 4
Management of Growth. 4
Dependency on Key Personnel 4
Technology Risks. 4
Risk Factors Related To Offering. 4
Best Efforts – No Minimum Offering. 4
Arbitration. 5
Delay of Dividends. 5
Broad Discretion in Use of Proceeds. 5
Determination of the Offering Price. 5
Company Stock is Not Liquid – No Public Trading Market 5
No Assurance of Public Offering or Other Liquidity Event 5
Dilution/Disparity of Consideration. 5
Forward Looking Statements And Associated Risks. 5
CAPITALIZATION.. 7
DILUTION.. 7
USE OF PROCEEDS. 8
THE COMPANY.. 9
Company Services. 9
The Industry 9
Market Size Analysis. 10
The Customer and Marketing Strategy. 12
Industry Competitive Analysis. 12
Marketing Strategy. 12
Strategic Alliances. 13
Exit Strategy. 13
Summation. 14
Facilities. 14
MANAGEMENT. 14
Executive Officers. 14
Anthony J.Legeza. 14
Justin Yamek. 14
Dan Gross. 14
Brandon S. Cohen, Esq. 14
MANAGEMENT COMPENSATION.. 15
CERTAIN TRANSACTIONS. 15
PRINCIPLE SHAREHOLDERS. 15
DESCRIPTION OF SECURITIES. 16
LEGAL PROCEEDINGS. 17
REPORTS TO SHAREHOLDERS. 17
PROFORMA FINANCIAL STATEMENTS………………………………………………………………………………………EXHIBIT A
PRO FORMA REVENUES, EXPENSES AND CASH FLOW……………………………………………………………………………………….. EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT…………………………………………………………………………………………………………………. EXHIBIT C
INVESTOR SUITABILITY STANDARDS
BECAUSE OF THE SIGNIFICANT RISK ASSOCIATED WITH THIS OFFERING, THE MINIMUM INVESTMENT REQUIRED FOR PURCHASE OF THE SHARES SHOULD BE CONSIDERED ONLY BY SOPHISTICATED ACCREDITED INVESTORS WHO HAVE SUBSTANTIAL MEANS, WHO CAN AFFORD THE ILLIQUIDITY OF THIS INVESTMENT, WHO ARE PREPARED TO SUSTAIN A COMPLETE LOSS IN THIS INVESTMENT AND WHO MEET THE FOLLOWING SUITABILITY STANDARDS:
The Company is offering the Shares only to accredited investors and are being offered and sold without registration in compliance with Regulation D of the Securities Act of 1933, as amended. Such securities laws require, among other things, that the following requirements be met with respect to potential investors.
Offers will be made only to persons whom the Company believes either have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment or can bear the economic risks of the investment (i.e. at the time of investment, could afford a complete loss).
Sales will be only to “accredited investors” as defined in the Subscription Agreement (Exhibit C) and below; all investors are required to represent that they are capable of bearing the economic risk of the investment and personally possess such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment.
The economic suitability standards for individual investors required for this investment are:
That the investor has a net worth of at least $1,000,000, or That the investor had income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
A corporation, partnership or other entity investing in the Offering must have total assets in excess of $5,000,000 unless all of its equity owners are themselves accredited investors. A qualified pension, profit-sharing or Keogh employee benefit plan, the fiduciary for such plan, or the donor of any such plan who directly or indirectly supplies the funds to purchase an interest in the Company, must also meet the minimum financial suitability standards. See the Subscription Agreement (Exhibit C) for further explanation of these requirements.
The Company has sole discretion with regard to the sale to any prospective investor. In addition to the suitability standards described above, each investor will be required to represent the following by execution of a subscription agreement stating:
That the investor has such knowledge and experience in financial and business matters and that he is capable of evaluating the merits and risks of an investment in Company. That the investor has the basic means to provide for his current needs and personal contingencies, has no need for liquidity in this investment and has the ability to bear the economic risks of this investment, including the loss of his investment. That the investor is acquiring the Shares for his own account for long-term investment and not with a view towards the resale or distribution thereof. That the investor has no present intention of selling or granting any participation in or otherwise distributing the Shares. That the investor has read and understands this Private Placement Memorandum and all Exhibits attached hereto.
THE OFFERING AND PLAN OF DISTRIBUTION
Securities Offered 250,000 Common Shares, no par value.
50,000 Preferred Shares, Face Value of $10.00 per share.
Outstanding Common Shares Upon completion of the conversion of the Company into an Ohio C-corporation prior to the issuance of any Shares in this Offering, the Company will have 1,000,000 Common Shares authorized for issuance, of which all shares will be issued and outstanding (subject to full subscription herein) and 250,000 shares will be reserved for issuance upon exercise of future stock option grants by the Board of Directors as incentive compensation for officers, managers and key employees of the Company and warrants. Assuming that all 250,000 Shares offered hereby are sold, investors in the Offering will hold Twenty Five percent (25%) of the total number of Common Shares outstanding on completion of the Offering, calculated on a fully diluted basis, assuming the grant of stock options for the entire number of Common Shares reserved for stock option grants.
Outstanding Preferred Shares Upon completion of the conversion of the Company into an Ohio C-corporation prior to the issuance of any Shares in this Offering, the Company will have 100,000 Preferred Shares authorized for issuance, of which up to 50,000 Preferred Shares may be issued and outstanding (depending on the demand for Shares and / or Preferred Shares which will subject to investor preference) and 50,000 shares will be reserved for issuance should capital demands require the sale of such Preferred Shares for continuing operations at a later date. The Preferred Shares issued and outstanding, shall have a conversion feature of 1 to 1 into Shares thus totaling up to Five percent (5%) of the total number of Common Shares authorized on completion of the Offering, calculated on a fully diluted basis, assuming the grant of stock options for the entire number of Common Shares reserved for stock option grants.
Minimum Investment 5,000 Common Shares ($10,000) for any investor, unless waived by the Company.
1,000 Preferred Shares with 8% cumulative dividend and 1 to 1 conversion feature ($10,000) for any investor, unless waived by the Company.
Use of Proceeds Net proceeds from this Offering will be used (i) as working capital to fund the marketing and sale of the Company’s services, (ii) to build out the Company’s infrastructure, and (iii) to create new proprietary software for gaming.
Risk Factors The Shares involve a HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT See “RISK FACTORS.”
Suitability Standards The Shares will only be sold to persons who are “accredited investors” as defined under Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”). See “INVESTOR SUITABILITY STANDARDS.”
Restrictions on Transfer The Shares are not being registered under the Securities Act or the securities laws of any state and are being offered and sold in reliance upon exemptions from such registration requirements for non-public offerings pursuant to Regulation D under the Securities Act and applicable state securities laws and, therefore, cannot be resold, transferred or otherwise disposed of without registration under such laws or the availability of an exemption from such registration.
Plan of Distribution The Shares will be marketed on a best efforts basis by officers, directors and employees of the Company without any sales commissions or other compensation relating to the number of Shares sold by them.The Company intends to continue the Offering until December 31, 2009 and may elect to extend the Offering to December 31, 2010. There is no required minimum number of Shares being sold in the Offering, meaning that there is no assurance of any future sales of Shares in the Offering after the investment by any person. Amounts invested in the Offering will be available to the Company immediately after the Company’s acceptance of the subscription agreement for the investment. The Offering may be terminated by the Company at any time, regardless of the total number of Shares that have been sold in the Offering.
ADDITIONAL INFORMATION
The Shares have not been registered under the Securities Act, and the Company is not subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, information about the Company is not publicly available. Prior to making any decision on the Offering, prospective investors are invited to ask questions of and obtain additional information from the Company concerning the Company and the terms and conditions of the Offering. For any such inquiries, prospective investors should contact Tony Legeza, Chief Executive Officer of the Company, at the offices of the Company at 1301 n. Summit Street, Toledo, OH 43604 Telephone: (419) 344-9571 . You should evaluate such information in connection with the information contained in this Memorandum. The Company has not authorized any person to provide you with information inconsistent with the information set forth herein or any representation as to future performance of the Company or future value of the Shares. Certain documents not included with this Memorandum are available for review by prospective investors, including the organizational documents of the Company and its predecessor, BeyondGaming, LLC, employment agreements and other material contracts of the Company.
RISK FACTORS The Shares offered hereby are speculative and involve a high degree of risk. Only those persons economically able to lose their investment should purchase these securities. Prospective investors, prior to making an investment decision, should carefully consider, along with other matters referred to herein, the following risk factors:
1. Risk Factors Related To The Business Of The Company
Development to Early Stage Company.The Company has less than three complete years of operating history. The likelihood of the success of the Companymust be considered along with potential problems, expenses and the competitive environment in which the Company will operate. Unanticipated problems are frequently encountered in establishing a technology-related business such as the Company’s. The Company has less than three years of historical financial data on which to base planned operating expenses. The Company’s expense levels are mostly variable and are based on limited operational activities of the Company. As a result of the variable nature of many of the Company’s expenses, the Company may have difficulty forecasting or adjusting expenses in a timely manner to compensate for any unexpected delays in the development of the Company’s business plan or any subsequent shortfall. Any such delays or shortfalls could have an immediate adverse impact on the Company’s business, operating results and financial condition, andcould cause investors to lose all or a substantial part of their investment.
Ongoing Need For Financing. The Company has fixed operational expenses, and anticipates up to $30,000 per month to maintain its initial overhead. The Company may require additional funds to finance its operations for an undeterminable amount of time. In the event borrowing is required, the Company may become highly leveraged and subject to all the risks of any such borrowing. No person or entity has committed to provide any of the capital that the Company may require to fund its operations. There can be no assurance that any required financing will be available or available on terms acceptable to the Company. See “USE OF PROCEEDS.”
Negative Net Worth of Company. Because the Company’s shares are illiquid and it’s assets that will be hard to value, it could have a negative net worth at anytime in the immediate future, meaning that its liabilities exceeded the book value of its assets. Because of such negative net worth, the Company would be technically insolvent under a balance sheet definition of insolvency. Although the Company believes that the fair market value of its assets, including intangible assets such as intellectual property assets and goodwill, will exceed the total liabilities of the Company, no independent valuation of the Company’s assets has been obtained to confirm such belief.
General Economic Conditions. The Company believes that the general economic conditions will strongly influence company performance and it may experience periods of decline during economic downturns. The Company cannot be certain of the effect of general economic conditions on its market.
Competition. The Company’s business model crosses multiple industries and is highly competitive. The Company’s primary market is developing with competition scattered globally, however, competition from large, publicly traded companiesis anticipated. . The principal competitive factors in this business are the ability to provide a broad spectrum of customer services at the lowest possible costs, factors that directly relate to location of the business and the availability of capable programmers. The Company’s major impediments to effectively competing are limitations on financing and human resources. Well-funded companies have the ability to offer depth of services to current customers while actively seeking out new customers with advertising and sales initiatives. Because of cash-flow restrictions, the Company has had to focus on current active client needs with very limited ability to market and sell to new clients. This has made long term planning more difficult. Proceeds of the Offering will be used in part to finance increased marketing and selling efforts.
Management of Growth. The Company may have to build out its current asset infrastructure in the next year to meet the service demands of new customers, including new hardware and equipment to manage and store data. The Company alsoanticipates a significant increase in personnel in order to meet its sales criteria. These goals cannot be met without the proceeds from the sale of most or all of the Shares in this Offering.Even with the receipt of such proceeds, the Company’s ability to successfully expand its service offerings with custom, scalable applications will depend on a number of factors, including the Company’s ability to contract with and effectively manage its relationships with advertising agencies and hire qualified additional personnel in operations,primarily marketing and sales. No assurance can be given that the Company will be successful in recruiting and retaining such personnel or managing the growth process. New personnel may be costly in terms of cash compensation and/or equity necessary to attract and retain them, or may not be available to the Company on any terms. Such expansion is expected to place significant strains on the Company’s financial, management and operational resources. There can be no assurance that the Company will be successful in managing its expansion, and the failure to do so could adversely affect the Company’s operating results and financial condition.
Dependency on Key Personnel.The Company is substantially dependent on its present officers. Should one or more of them cease to be affiliated with the Company before acceptable replacements are found, there could be a material adverse affect on the Company’s business and prospects, and no assurance can be given that suitable replacements could be hired, if at all, except at substantial cost to the Company. Loss of key personnel could therefore significantly impair the value of the Shares. See “MANAGEMENT” and “PRINCIPAL SHAREHOLDERS.”
Technology Risks. The Company’s technology and software may contain undetected errors or defects. Despite extensive testing and use of such technology and software by the Company, errors or defects may arise in the future. Significant errors or defects could result in, among other things, reputational harm to the Company and erosion of the Company’s customer base and brand confidence. Further, there is no assurance that the Company will be able to keep pace with technology improvements by its competitors.
2. Risk Factors Related To Offering
Best Efforts – No Minimum Offering. The Company is offering the Shares on a “best efforts” – no minimum basis and funds therefore may be utilized as they are received. No individual, firm or corporation has agreed to purchase any of the Shares offered hereby. No assurances are given that any Shares will be sold No provision has been made requiring that any certain minimum number of Shares be subscribed for and sold in this Offering. Each investor’s subscription may be closed as received and approved. If only a small number of Shares are sold, the Company’s ability to accomplish its business objectives would be materially and adversely affected. See “THE OFFERING AND PLAN OF DISTRIBUTION” and “USE OF PROCEEDS.”
Arbitration. Any dispute arising out of or relating to an investment in shares of the Company must be handled in accordance with the rules and regulations of the American Arbitration Association, said arbitration to be binding on the parties. Additionally, each investor hereunder will be waiving the right to seek punitive damages, the right to trial by jury and other potential remedies that otherwise may be afforded by law. See Exhibit C – “Subscription Agreement.”
Delay of Dividends.The Company cannot guarantee that its intended operations will result in sufficient revenues or cash flow to support the Company. The Company intends on paying dividends to investors as soon as earnings are sufficient to do so. However, any delay in producing or marketing the Company’s services and products could delay the payment of dividends for an undetermined period of time.
Broad Discretion in Use of Proceeds. The proceeds of this Offering will be used for general corporate and working capital purposes and may be expended at the Company’s discretion. The Company has reserved the right to redirect the application of proceeds of the Offering to acquisitions or other uses, in light of changing circumstances. As a result of the foregoing, any return on investment to investors will be substantially dependent upon the discretion and judgment of the Company’s management with respect to the application and allocation of the proceeds of the Offering. Pending their use as described above, the net proceeds of the Offering may be invested by the Company in short-term securities or money market funds. The Company does not require that any specific minimum investment criteria be used in selecting such short-term investments, but will select such investments as it deems appropriate, taking into consideration such factors as liquidity, return on and safety of investment. See “USE OF PROCEEDS.”
Determination of the Offering Price. The offering price of the Shares was based on discounted projected cash flows from a pro-forma income statement with somewhat arbitrary variables. See “PRO FORMA REVENUES, EXPENSES AND CASH FLOWS.” The Offering price does not bear any relationship to the current assets, book value, earnings (loss) or net worth of the

 

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