<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1997
REGISTRATION NO. 333-1634
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 9
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPORTSTRAC, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 7380 84-1320893
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
ORGANIZATION) CLASSIFICATION CODE
NUMBER)
------------------------
6900 E. BELLEVIEW AVENUE
SUITE 200
ENGLEWOOD, COLORADO 80111
(303) 771-3733
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
------------------------
MARC SILVERMAN
CHIEF EXECUTIVE OFFICER
6900 E. BELLEVIEW AVENUE
SUITE 200
ENGLEWOOD, COLORADO 80111
(303) 771-3733
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
STUART NEUHAUSER, ESQ. MITCHELL LAMPERT, ESQ.
BERNSTEIN & WASSERMAN, LLP LAMPERT & LAMPERT
950 THIRD AVENUE 10 EAST 40TH STREET
NEW YORK, NY 10022 NEW YORK, NY 10016
(212) 826-0730 (212) 889-7300
(212) 371-4730 (FAX) (212) 889-5732 (FAX)
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share(3).................. 776,250 $6.00 $4,657,500 $1,411.22
Representative's Purchase
Option to purchase shares of
Common Stock(4)............... 67,500 $0.001 $67.50 $0.02
Common Stock, par value $.01
per share, underlying
Underwriter's Purchase
Option(4)..................... 67,500 $9.90 $668,250 $202.48
TOTAL......................... $5,325,817.50 $1,613.72(5)
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the 'Act'), this
Registration Statement covers such additional indeterminate number of shares
of Common Stock as may be issued by reason of adjustments in the number of
shares of Common Stock pursuant to anti-dilution provisions contained in the
Representative's Purchase Option. Because such additional shares of Common
Stock will, if issued, be issued for no additional consideration, no
registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 101,250 shares of Common Stock subject to the Underwriters'
over-allotment option (the 'Over-Allotment Option').
(4) The Representative's Purchase Option entitles the Representative to purchase
up to 67,500 shares of Common Stock at $9.90 per share (the
'Representative's Purchase Option').
(5) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPORTSTRAC, INC.
CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 23, PART I, OF FORM SB-2)
<TABLE>
<CAPTION>
ITEM IN FORM SB-2 PROSPECTUS CAPTION
-------------------------------------- --------------------------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus... Facing Page of Registration Statement;
Outside Front Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information and Risk
Factors............................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Outside Front Cover Page of
Prospectus; Underwriting; Risk Factors
6. Dilution.............................. Dilution; Risk Factors
7. Selling Securityholders............... Not Applicable
8. Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Risk Factors; Underwriting
9. Legal Proceedings..................... Business--Litigation
10. Directors, Executive Officers,
Promoters and Control Persons....... Management
11. Security Ownership of Certain
Beneficial Owners and Management.... Principal Stockholders
12. Description of Securities............ Description of Securities;
Underwriting
13. Interest of Named Experts and
Counsel............................. Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Underwriting; Certain Transactions
15. Organization Within Last 5 Years..... Prospectus Summary; The Company;
Business
16. Description of Business............... Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation................ Management's Discussion and Analysis
of Financial Condition and Results of
Operations
18. Description of Property............... Business--Facilities
19. Certain Relationships and Related
Transactions........................ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters................. Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation................ Management--Executive Compensation
22. Financial Statements.................. Selected Financial Data; Financial
Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosures............... Not Applicable
</TABLE>
ii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH AN OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED JUNE 23, 1997
PROSPECTUS
SPORTSTRAC, INC.
675,000 SHARES OF COMMON STOCK
PAR VALUE $.01 PER SHARE
OFFERING PRICE PER SHARE--$6.00
------------------------
SportsTrac, Inc., a Delaware corporation (the 'Company' or 'SportsTrac'),
hereby offers (the 'Offering') 675,000 shares of common stock, par value $.01
per share (the 'Common Stock' or 'Shares'). See 'Risk Factors' and 'Description
of Securities.'
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the Common Stock has been determined by
negotiations between the Company and IAR Securities Corp., the representative of
the several underwriters of this Offering (the 'Representative'), and does not
necessarily bear any relationship to the Company's assets, book value, net worth
or results of operations or any other established criteria of value. For
additional information regarding the factors considered in determining the
initial public offering price of the Common Stock, see 'Risk Factors--Lack of
Market,' 'Description of Securities' and 'Underwriting.'
The Company has applied for the inclusion of the Common Stock on the
National Association of Securities Dealers ('NASD') OTC Bulletin Board, an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than on a national stock exchange or The Nasdaq Stock Market,
Inc. ('Nasdaq'), and quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for a national
stock exchange or Nasdaq. There can be no assurance that the Company's
application for inclusion of its Common Stock on the OTC Bulletin Board will be
approved or that, if approved, a regular trading market for its Common Stock
will develop after this Offering or that, if developed, a regular trading market
will be sustained. In the event the Common Stock is not included on the OTC
Bulletin Board, quotes for the Common Stock may be included in the 'pink sheets'
for the over-the-counter market. If the Company's Common Stock trades for less
the $5.00 per share on the OTC Bulletin Board or the 'pink sheets,' it will
become subject to the Commission's penny stock disclosure requirements. While
the Company has applied for inclusion of its Common Stock on the Nasdaq SmallCap
Market, the application was denied by the Nasdaq staff. The Company's appeal was
denied by the Nasdaq Listing Qualifications Panel ('Listing Committee'). The
Company's further appeal was denied by the Nasdaq Listing and Hearing Review
Committee. See 'Risk Factors--No Assurance of Public Trading Market,' 'Denial of
Nasdaq Listing' and 'Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Company's Common Stock.'
------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE 'DILUTION' AND 'RISK
FACTORS' WHICH BEGIN ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share...... $6.00 $0.60 $5.40
Total(3)....... $4,050,000 $405,000 $3,645,000
</TABLE>
(Notes on next page)
IAR SECURITIES CORP.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
(Notes to Cover)
- ------------------
(1) Does not reflect additional compensation to be received by the
Representative from the Company in the form of: (i) a non-accountable
expense allowance of $121,500 ($139,725 if the Over-Allotment Option (as
hereinafter defined) is exercised in full) (ii) a three (3) year financial
advisory and investment banking agreement providing for aggregate fees of
$100,000 payable in advance at the closing of this Offering, and (iii) an
option to purchase 67,500 shares of Common Stock at $9.90 per share (the
'Representative's Purchase Option'), exercisable for a period of four (4)
years commencing one (1) year from the effective date of this Offering. The
Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the 'Act'). See 'Underwriting.'
(2) Before deducting expenses of the Offering payable by the Company estimated
at $456,500 including the Representative's non-accountable expense allowance
and financial advisory fee referred to in Footnote (1) (not assuming
exercise of the Over-Allotment Option), registration fees, transfer agent
fees, NASD fees, Blue Sky filing fees and expenses, legal fees and expenses,
and accounting fees and expenses. After deducting such expenses, the net
proceeds to the Company will be approximately $3,188,500. See 'Use of
Proceeds' and 'Underwriting.'
(3) Does not include 101,250 additional shares of Common Stock to cover
over-allotments which the Underwriters have an option to purchase for thirty
(30) days from the date of this Prospectus at the initial public offering
prices, less the Underwriters' discount (the 'Over-Allotment Option'). If
the Over-Allotment Option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and the estimated expenses
including the Representative's non-accountable expense allowance and
financial advisory fee will be $4,657,500, $465,750, and $474,725,
respectively, and the total net proceeds to the Company will be $3,717,025.
See 'Underwriting.'
The securities are offered by the Underwriters on a firm commitment basis,
when, as and if delivered to and accepted by the Underwriters, and subject to
prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Underwriters named herein and subject to its right
to reject orders in whole or in part and to certain other conditions. It is
expected that the delivery of the certificates representing the Common Stock and
payment therefor will be made at the offices of the Representative on or about
, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE COMMON STOCK TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITERS WHICH MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S COMMON STOCK IN THE EVENT THAT ADDITIONAL BROKER-
DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S COMMON STOCK, OF WHICH THERE CAN
NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF THE COMMON STOCK THROUGH AND/OR WITH THE UNDERWRITERS. THE
UNDERWRITERS HAVE ADVISED THE COMPANY THAT IT PRESENTLY CANNOT QUANTIFY THE
AMOUNT OF THE COMPANY'S COMMON STOCK THAT MAY BE SOLD TO ITS CUSTOMERS. THE
UNDERWRITERS HAVE ALSO ADVISED THE COMPANY THAT IT HAS NO AGREEMENTS OR
ARRANGEMENTS IN EFFECT WITH CUSTOMERS RELATING TO THE PURCHASE OR SALE OF THE
COMPANY'S COMMON STOCK AND IT DOES NOT EXPECT TO HAVE AGREEMENTS OR ARRANGEMENTS
IN THE FUTURE.
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY FROM TIME
TO TIME ACT AS MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
COMMON STOCK. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BECOME
DOMINATING INFLUENCES IN THE MARKET FOR THE COMMON STOCK. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITERS WILL OR WILL NOT CONTINUE TO BE DOMINATING
INFLUENCES. THE PRICES AND LIQUIDITY OF THE COMMON STOCK OFFERED HEREUNDER MAY
THEREFORE BE SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, TO WHICH THE
UNDERWRITERS PARTICIPATE IN SUCH MARKET AND BY WHETHER OR NOT OTHER
BROKER-DEALERS MAKE A MARKET IN, OR OTHERWISE PARTICIPATE IN THE MARKET FOR, THE
COMPANY'S COMMON STOCK. THE UNDERWRITERS HAVE ADVISED THE COMPANY THAT THEY
CANNOT DETERMINE AT PRESENT WHICH BROKER-DEALERS, IF ANY, WILL MAKE A MARKET IN
THE COMPANY'S COMMON STOCK. SEE 'RISK FACTORS--LACK OF PRIOR MARKET FOR COMMON
STOCK,' 'NO ASSURANCE OF PUBLIC TRADING MARKET' AND 'DENIAL OF NASDAQ LISTING.'
THE UNDERWRITERS MAY DISCONTINUE THEIR PARTICIPATION IN SUCH MARKET AT ANY TIME
OR FROM TIME TO TIME.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all information appearing
herein (i) does not give effect to (a) 101,250 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (b) 67,500 shares of Common Stock
issuable upon exercise of the Representative's Purchase Option; (c) shares of
Common Stock issuable upon exercise of 2,000,000 Class A Warrants (which are
owned by certain Bridge Lenders of the Company) and (d) 210,000 employee stock
options and 180,000 warrants to purchase Common Stock, (ii) gives effect to the
Company's January 1996 20-for-1 stock split and the March 1996 1.2-for-1 stock
split, and (iii) gives effect to certain transactions effected immediately prior
to the date of this Prospectus. See 'Bridge Financing,' 'Description of
Securities,' 'Certain Transactions,' 'Underwriting,' and 'Management--Stock
Option Plans and Agreements.' EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
SportsTrac, Inc., a Delaware corporation ('SportsTrac' or the 'Company'),
is a development stage business established in April 1995 (under the name Bogart
International Associates, Inc.) to develop and market products designed to
enhance and monitor athletic performance. The first product developed by the
Company, The SportsTrac(Trademark) System, is a skill evaluation tool that can
measure a person's hand-eye coordination and chart day-to-day variations in
performance. The Company filed a trademark application on May 6, 1996 with
respect to a trademark of the name of The SportsTrac(Trademark) System, and is
presently using the name for promotional purposes.
The SportsTrac(Trademark) System is presently in use (on an experimental
basis) by professional baseball and basketball teams and has been used by a
professional hockey team in the past. Presently, this professional level sports
team version of The SportsTrac(Trademark) System is the only version in use and
it is in use only in an uncompleted pilot program, is not yet fully tested or
engineered, and is not ready for commercial production and sale to professional
sports teams. The Company is endeavoring to adapt the same developed technology
by creating prototype versions for a kiosk-based evaluation and information
delivery system for health and fitness clubs, as well as for a skill analyzer
for golfers and other recreational sports enthusiasts. Additionally, the Company
will also endeavor to adapt The SportsTrac(Trademark) System to a consumer
entertainment version which will allow users to 'compete' against professional
athletes. However, the Company has not yet begun commercial production of any
version of its SportsTrac(Trademark) System which the Company anticipates will
be commercially available to any of its targeted markets. There can be no
assurances that should such adaptations be successfully completed, that such
adaptations will achieve market acceptance. See 'Business--Versions of the
Company's Single Product.'
The Company anticipates that it will first establish the value of its
developed technology at the professional sports level, and then apply the same
technology and analysis to the broad base of recreational athletes, teams and
sports clubs. The SportsTrac(Trademark) System is already in use at the
professional sports level. The Company has established a pilot program with the
Los Angeles Dodgers (Major League Baseball), Anaheim Angels (Major League
Baseball), San Diego Padres (Major League Baseball), Minnesota Twins (a Major
League Baseball team through their AAA minor league affiliate), Minnesota
Timberwolves (National Basketball Association) and Callaway Golf. Additionally,
the Company has recently concluded a pilot program with the New York Rangers (a
National Hockey League team through their affiliate in the American Hockey
League). The Company has signed a purchase agreement with the Palm Springs Suns
(a minor league baseball team which is not an affiliate of the Company, as that
term is defined under the Securities Act of 1933, as amended (The 'Securities
Act' or '1933 Act')) to install The SportsTrac(Trademark) System (identical to
the professional sports team version) in late 1997. The purchase price for such
system is $20,000.
The SportsTrac(Trademark) System is based closely on the Critical Tracking
Task ('CTT'), a tool created by Systems Technology, Inc. ('STI') for the United
States Airforce to evaluate whether military pilots could control experimental
aircraft. Since the initial conception of the CTT, 40 years of field testing by
the Department of Defense, NASA and the Department of Transportation has
supported the CTT's accuracy in assessing the motor skill level of astronauts,
pilots, ship captains, and heavy equipment operators. Although the CTT
technology was originally developed in an analog format, the scientists at STI
adapted the technology to be used with computers
3
<PAGE>
and computer software in the early 1960s. The Company has secured an exclusive
sublicense from BioFactors, Inc., now known as NHancement Technologies, Inc.
('BFI') to market the CTT technology. This sublicense agreement grants the
Company exclusive rights solely for sports-related and sports-entertainment
applications, so as to not compete with BFI's non-invasive fitness for duty
testing device ('FACTOR 1000(Trademark)') for safety-related industrial
settings. See 'Business' for a further discussion of the sublicense agreement.
BFI licenses the software and associated protocols and methodology for the
CTT technology from STI. Although BFI's exclusive licensing agreement expires in
2008 (assuming the exercise of all available extensions), as does the Company's
own sublicensing agreement with BFI, the Company has negotiated an agreement
with STI which allows the Company to assume BFI's rights and obligations should
such licensing agreement terminate earlier. This agreement will remain in
effect, until the scheduled expiration date of both the license and sublicense
agreement, so long as the Company is not in default under any terms of its
sublicense agreement with BFI. Pursuant to the Company's sublicense agreement
with BFI, the Company agreed to pay BFI $1,000,000, all of which has been paid.
In addition, the Company agreed to issue 180,000 warrants to BFI which were
subsequently assigned. See 'Certain Relationships and Related Transactions.' The
Company is obligated to pay BFI quarterly royalties equal to 8.5 % of the cash
receipts from the sale of the Company's products based on the sublicensed
technology. Under the terms of the sublicensing agreement, BFI may not register
a service mark in connection with the name, marketing, selling or sublicensing
of The SportsTrac(Trademark) System. See 'Risk Factors--Potential Loss of
Licensed Technology May Affect Operations,' 'Use of Proceeds' and 'Description
of Securities.'
The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
SEE 'RISK FACTORS' FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
THE OFFERING
Common Stock Offered by the
Company ......................... 675,000 shares of Common Stock at a price of
$6.00 per Share. See 'Description of
Securities.'
Common Stock Outstanding Prior to
the Offering..................... 2,904,000
Common Stock Outstanding Subsequent
to the Offering(1)............... 3,579,000
Use of Proceeds.................... The net proceeds to the Company from the
sale of the Common Stock offered hereby are
estimated to be $3,188,500. The net proceeds
are expected to be applied for the following
purposes: Repayment of certain indebtedness,
expansion of the Company's marketing
efforts, product development and for working
capital purposes.
Risk Factors....................... The securities are subject to a high degree
of risk and substantial dilution. See 'Risk
Factors' and 'Dilution.'
Proposed OTC Bulletin Board
Symbol(2)........................ SPRT
- ------------------
(1) Does not give effect to (i) 2,000,000 shares of Common Stock issuable upon
exercise of Class A Warrants owned by Bridge Lenders of the Company; (ii)
101,250 shares of Common Stock issuable upon exercise of the Over-Allotment
Option; (iii) 67,500 shares of Common Stock issuable upon exercise of the
Representative's Purchase Option; (iv) 180,000 shares of Common Stock
issuable upon exercise of certain warrants, and (viii) 480,000 shares of
Common Stock issuable upon exercise of employee stock options. See 'Bridge
Financing,' 'Certain Transactions' and 'Description of Securities.'
(2) Application has been made for the inclusion of the Common Stock on the OTC
Bulletin Board. See 'Risk Factors--Lack of Prior Market for Common Stock,'
'No Assurance of Public Trading Market' and 'Denial of Nasdaq Listing'.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary information has been summarized from the Company's
financial statements included elsewhere in the Prospectus. This information
should be read in conjunction with the financial statements and the related
notes thereto. See 'Financial Statements.'
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
APRIL 25, CUMULATIVE
THREE MONTHS THREE MONTHS YEAR 1995 DURING
ENDED ENDED ENDED (INCEPTION) DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 12/31/96 TO 12/31/95 STAGE
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 0 $ 0 $ 0 $ 0 $ 0
Gross Profits................... 0 0 0 0 0
Operating (loss)................ (223,428) (344,558) (1,364,489) (821,525) (2,409,442)
Net (loss)...................... (223,428) (344,558) (1,364,489) (821,525) (2,409,442)
Net (loss) per share............ (.07) (.11) (.44) (.26) (.77)
Weighted average number of
common shares outstanding..... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
</TABLE>
SUMMARY BALANCE SHEET DATA
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
Working Capital (deficit)....................... $ (1,652,847) $(1,862,337)
Total assets.................................... 943,765 946,084
Total liabilities............................... 1,686,779 1,912,526
Deficit accumulated during development stage.... (2,186,014) (2,409,442)
Stockholders' (deficit)......................... (743,014) (966,442)
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Lack of Prior Market for Common Stock. Prior to this Offering, no
public trading market existed for the Common Stock. There can be no assurances
that a public trading market for the Common Stock will develop or that a public
trading market, if developed, will be sustained. The Company's application to
list the Common Stock on the Nasdaq SmallCap Market was denied. See 'Risk
Factors--Denial of Nasdaq Listing.'
2. No Assurance of Public Trading Market. Although the Company has applied
for the inclusion of the Common Stock on the OTC Bulletin Board, there can be no
assurance that such application will be approved or that, if approved, a regular
trading market for the Common Stock will develop after this Offering or that, if
developed, a regular trading market will be sustained. The OTC Bulletin Board is
an unorganized, inter-dealer, over-the-counter market which provides
significantly less liquidity than a national stock exchange or Nasdaq and quotes
for stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for a national securities exchange or
Nasdaq. Therefore, prices for securities traded solely on the OTC Bulletin Board
may be difficult to obtain and purchasers of the Common Stock may be unable to
resell the Common Stock offered hereby at or near their original offering price
or at any price. In the event the Common Stock is not included on the OTC
Bulletin Board, quotes for the Common Stock may be included in the 'pink sheets'
for the over-the-counter market. In any event, because certain restrictions may
be placed upon the sale of securities at prices under $5.00, unless such
securities qualify for an exemption from the 'penny stock' rules, such as a
listing on The Nasdaq SmallCap Market, some brokerage firms will not effect
transactions in the Company's Common Stock and it is unlikely that any bank or
financial institution will accept such securities as collateral, which could
have a material adverse effect in developing or sustaining any market for the
Common Stock. See 'Risk Factors--Penny Stock Regulations May Impose Certain
Restrictions on Marketability of Company's Common Stock.'
3. Denial of Nasdaq Listing. The Company's application to list the Common
Stock on the Nasdaq SmallCap Market was denied by the Nasdaq staff for the
following reasons: (1) there is substantial risk regarding the Company's ability
to continue operating as a going concern and to continue to comply with Nasdaq
listing criteria; (2) there are significant investment risks to prospective
public investors in the Company who will provide the vast majority of its
permanent equity capital but who will sustain a disproportionate degree of
investment risk relative to the percentage of share ownership and investment by
the Company's principals and bridge lenders; and (3) there is a potential for
extraordinary monetary gain to be realized by the Company's bridge lenders to
the detriment of prospective public investors. The denial was affirmed by the
Nasdaq Listing Qualifications Panel ('Panel') for the following reasons: (1) the
Panel was unwilling to dismiss the staff's concern relating to the Company's
ability to continue as a going concern and noted that the Company lacks executed
contracts to serve as a basis for its 1997 projections and that the Company's
licensing contracts with the professional teams and the health club agreement
fall short of providing a basis for future revenue stream projections; and (2)
the Panel was uncomfortable with the bridge loan financing as structured due to
the excessive potential returns for the bridge lenders, the brief period of
investment prior to the offering, and the lack of adequate lock up provisions
for the equity securities in the post-offering period. The Company's appeal to
the Nasdaq Listing and Hearing Review Committee ('Review Committee') was denied.
The Review Committee affirmed the decision of the Panel because the Company was
in its development stage, with speculative prospects for future sales and
uncertainty regarding the Company's ability to continue as a going concern. The
Review Committee was also concerned with the excessive potential return to
bridge lending to the detriment of potential Nasdaq shareholders.
4. Lack of Market. Prior to this Offering, there has been no public market
for the shares of Common Stock. The initial public offering price was determined
by negotiation between the Company and the representatives of the
Representative, and may not be indicative of the market price for such
securities in the future, and does not necessarily bear any relationship to the
Company's assets, book value, net worth or results of
6
<PAGE>
operations of the Company or any other established criteria of value. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices of many
smaller companies. Frequently, such fluctuations have been unrelated or
disproportionate to the operating performance of such companies. These
fluctuations, as well as general economic and market conditions, may have a
material adverse effect on the market price of the shares of Common Stock. See
'Underwriting--Determination of Public Offering Price,' 'Description of
Securities' and 'Financial Statements.'
5. Limited Operating History; Net Losses. The Company was formed in April
1995 for the purpose of developing and marketing devices to enhance athletic
performance. For the period April 25, 1995 (inception) to March 31, 1997, the
Company had net losses of $2,409,442. There can be no assurance that the Company
will be able to operate profitably due to its limited operating history. The
Company is subject to many business risks which include, but are not limited to,
unforeseen marketing and promotional expenses, unforeseen negative publicity,
competition, and lack of operating experience. Many of the risks may be
unforeseeable or beyond the control of the Company. There can be no assurance
that the Company will successfully implement its business plan in a timely or
effective manner, or that management of the Company will be able to market and
sell enough products to generate sufficient revenues and continue as a going
concern. There can be no assurance that the Company will not continue to incur
net losses in the future or that it will be able to operate profitably. See
'Management's Discussion and Analysis of Financial Condition and Plan of
Operations,' 'Business,' 'Use of Proceeds,' 'Certain Transactions' and
'Financial Statements.'
6. Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have qualified
their report on the Company's financial statement for the period ended December
31, 1996. The Company incurred a net loss for the period April 25, 1995
(inception) to December 31, 1996 of $2,186,014. The Company's independent
auditor's report on the financial statements includes an explanatory paragraph
stating that the Company's ability to continue in the normal course of business
is dependent upon successful completion of its planned public offering of equity
capital and the success of future operations. These factors raise a substantial
doubt about the Company's ability to continue as a going concern. There can be
no assurance that the Company will not continue to incur net losses in the
future. See 'Management's Discussion and Analysis of Financial Condition and
Plan of Operations,' 'Business,' 'Use of Proceeds' and 'Financial Statements and
Notes.'
7. Dependence on Offering Proceeds; Possible Need for Additional Financing
May Affect Operations. The Company's cash requirements have been and will
continue to be significant. The Company believes that the net proceeds of this
Offering, together with cash generated from operations, will be sufficient to
conduct the Company's operations, for at least twelve (12) months. The Company
is dependent on the proceeds from this Offering in order to further expand its
operations. In the event that these plans change, or the costs of development of
operations prove greater than anticipated, the Company could be required to
curtail its expansion or to seek additional financing sooner than currently
anticipated. The Company believes that its operations would be restricted absent
expansion. The Company has no current arrangements with respect to such
additional financing and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company. See 'Use of
Proceeds.'
8. Dependence on Key Personnel. The Company is dependent, in particular,
upon the services of Michael Mellman, M.D., its Chairman of the Board and Marc
Silverman, its Chief Executive Officer. The Company has not entered into an
employment agreement with either of Dr. Mellman or Mr. Silverman. After the
Offering the Company will apply for a key person life insurance policy on Mr.
Silverman with coverage in the amount of approximately $1,000,000, payable to
the Company, and will endeavor to keep such policy in force for a period of
three (3) years. The Company does not intend to apply for a key person life
insurance policy on the life of Dr. Mellman. Since Dr. Mellman and Mr. Silverman
are involved in all aspects of the Company's business, there can be no assurance
that suitable replacements could be found if Dr. Mellman and Mr. Silverman were
unable to perform services for the Company. As a consequence, the loss of either
Dr. Mellman or Mr. Silverman could have a material adverse effect upon the
Company. See 'Management.' In addition, the Company's ability to develop and
market its products and fulfill its business plans will depend, in large part,
on its ability to attract and retain qualified personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be able
to attract and retain such personnel.
7
<PAGE>
9. Competition. Although, at present, the competition for
performance-related testing is limited, there may be numerous entries as the
market develops. The Company is aware of technologies which have been developed
for research purposes which, while not currently marketed commercially, could be
made available to the Company's intended marketplace. Potential competitors may
have greater financial, marketing and technical resources than the Company. To
the extent that competitors achieve a performance or price advantage, the
Company could be at a competitive disadvantage. See 'Business--Competition.'
10. Initial Reliance Upon a Single Product May Affect Revenues. Since the
Company will initially market a single product, The SportsTrac(Trademark)
System, the Company's ability to achieve its market plan will depend in
significant part upon the acceptance of The SportsTrac(Trademark) System by
professional and recreational athletes and athletic organizations. Lack of
acceptance by such organizations or consumers, or inconsistent or inadequate
results would seriously limit the Company's ability to generate revenues and
force the Company to pursue and market other products.
11. Dependence on Emerging Market; Uncertainty of Market Acceptance. A
segment of the Company's services includes evaluating elite professional
athletes using The SportsTrac(Trademark) System, which has been used on an
experimental basis for more than one year with a limited number of clients.
Currently, The SportsTrac(Trademark) System is installed at 5 locations,
although the Company has entered into discussions with several other
professional sports organizations to install the system on an experimental
basis. There can be no assurance, however, that any additional professional
sports organizations will agree to utilize the system on an experimental basis,
or otherwise. Broader acceptance may require lengthy periods of review.
Additional installations may be dependent upon the results achieved with the
current clients, as well as upon pricing, and athlete and union acceptance.
Furthermore, the ability of the Company to provide customized software and data
analysis, as well as reconfiguring the parameters of both, may influence whether
other installations are made. While the Company believes that it presently has
the ability to produce and reconfigure customized software and data analysis,
based upon its experience with The SportsTrac(Trademark) System, there can be no
assurances, however, that such services can be provided in the future.
Additionally, there can be no assurances that the results at such installed
sites will be sufficiently positive to achieve wide acceptance. Achieving market
acceptance for the Company's products will require substantial marketing efforts
and the expenditure of significant funds to inform potential customers of the
availability of those products. The Company intends to apply a portion of the
proceeds of the Offering to its marketing efforts. See 'Use of Proceeds,' and
'Versions of the Company's Single Product--Professional SportsTrac(Trademark)
System.'
12. No Assurance of Ability to Manage Growth. The Company's growth
strategy will require expanded services and increased personnel throughout the
Company, including expanded operational systems. There can be no assurances that
management can manage the specific expansion described herein, considering that
such expansion is subject to circumstances beyond its control, nor can there be
any assurance that the Company will be able to recruit the necessary employees
and managers required for such growth.
13. Dependence on Assistance for Proprietary Technology. The Company's
product, The SportsTrac(Trademark) System, relies on the Critical Tracking Task
('CTT') technology, which is protected under one patent and two copyrights, the
use of which is sublicensed by the Company from BioFactors, Inc. ('BFI')
pursuant to a sublicense agreement. BFI, as the sublicensor to the Company, has
obtained certain rights to use the CTT pursuant to a license granted to BFI by
Systems Technology, Inc. ('STI'), which is not affiliated with either BFI or the
Company. The CTT is considered one of the 'benchmark' measures of human hand-eye
performance and is protected under one patent and two copyrights. The Company
has utilized the CTT technology for use in The SportsTrac(Trademark) System. The
Company will rely on STI for scientific validation of the CTT technology. Should
the Company modify or enhance the CTT technology for any of its projected uses,
STI will provide scientific validation of the technology. To date, the CTT
technology has not been modified so as to require STI's validation. This will be
done by STI's scientists and will be performed on a project-by-project basis and
is not pursuant to a written agreement. STI's scientists provide statistical
analysis of reported test results from the pilot program. The Company maintains
an on-going working relationship with STI's scientists. The loss of STI's
scientific validation of the CTT technology or access to STI's scientists (if
the Company desires to modify the CTT technology) could materially adversely
affect the Company's operations. See 'Business--Development of The
SportsTrac(Trademark) System.'
8
<PAGE>
14. Potential Loss of Licensed Technology May Affect Operations;
Relationship with BFI. The Company's sublicense of the CTT technology expires
on November 24, 2008 (assuming the exercise of all available extensions), as
does BFI's license with STI. If the Company does not market, sell or manufacture
products other than The SportsTrac(Trademark) System and any other products
relying upon the CTT technology, the expiration of the license could have a
material adverse effect on the Company's revenue. There can be no assurance that
the Company will be able to extend the term of the sublicense beyond November
24, 2008 or that the Company will be able to market, sell or manufacture any
products which do not rely on the CTT technology. The Company has negotiated an
agreement with BFI and STI which allows the Company to assume BFI's rights and
obligations should BFI's licensing agreement with STI terminate earlier. This
agreement will remain in effect until the scheduled expiration date of both the
license and sublicense agreements, so long as the Company is not in default
under any terms of its sublicense agreement with BFI. Certain members of
management have a relationship with BFI. See 'Business--General' and 'Certain
Relationships and Related Transactions.'
15. Lack of Trademark and Servicemark Protection. The Company has filed an
application to register a trademark for the name of The SportsTrac(Trademark)
System and may register or file other applications in the future. On December
31, 1996 the United States Patent and Trademark Office informed the Company that
no similar trademark existed and requested that the Company provide them with
samples of its proposed trademark. Such samples were provided on May 22, 1997,
and the Company is awaiting final approval of its trademark application. No
assurances can be made that the trademark will be granted. On occasion, such
applications may be opposed by third parties. The Company intends to pursue all
available legal remedies to vigorously defend its rights to its trademarks to
the extent it has resources available to fund such activities. Although to date
no claims have been brought against the Company alleging that it infringes on
the intellectual property rights of others, there can be no assurance that such
claims will not be brought against the Company in the future, or that if made,
such claims will not be successful. In addition to any potential monetary
liability for damage, the Company could be required to obtain a license in order
to continue to use the trademarks in question or could be enjoined from using
such trademarks if such a license were not made available on acceptable terms.
If the Company becomes involved in such litigation, it may divert significant
Company resources, which could have a material adverse effect on the Company and
its results of operations, and, if such a claim were successful, the Company's
business could be materially adversely affected. The Company currently does not
hold any patents on products. See 'Business--Trademarks and Service Marks.'
16. Broad Discretion in Application of Proceeds In Management. While the
Company presently intends to use the net proceeds of this Offering as described
in the 'Use of Proceeds' section of this Prospectus, management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of this Offering, as well as any proceeds received upon any exercise of
outstanding warrants or options, in order to address changed circumstances and
opportunities. As a result of the foregoing, the success of the Company will be
substantially dependent upon the discretion and judgment of the management of
the Company with respect to the application and allocation of the net proceeds
hereof. Pending use of such proceeds, the net proceeds of this Offering will be
deposited in interest bearing accounts, or invested in government obligations or
certificates of deposit. See 'Use of Proceeds.'
17. Underwriters' As Market Makers of Company's Common Stock. A
significant amount of shares of Common Stock which are sold in this offering may
be sold to customers of the Underwriters. Such a scenerio could adversely affect
the market for and liquidity of the Company's Common Stock if additional
broker-dealers do not make a market in the Company's Common Stock. Although they
have no obligation to do so, the Underwriters may from time to time act as
market makers and otherwise affect transactions in the Company's Common Stock.
The prices and liquidity of the Company's Common Stock may be adversely affected
by the Underwriters' participation. The Underwriters cannot determine at this
time whether or not other broker dealers will act as market makers of the
Company's Common Stock. The prices and liquidity of the Company's Common Stock
may also be significantly affected by the degree, if any, to which the
Underwriters so effect transactions. In addition, the Underwriters may
voluntarily discontinue such participation at any time.
18. 'Penny Stock' Regulations May Impose Certain Restrictions on
Marketability of Company's Common Stock. The Securities and Exchange Commission
(the 'Commission') has adopted regulations which generally define a 'penny
stock' to be any equity security that has a market price (as defined) of less
than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. If the Common Stock is included
9
<PAGE>
on the OTC Bulletin Board and is trading at less than $5.00 per share, it may
become subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with
their spouse). For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities
and have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document (Schedule 15G) mandated by the Commission relating to the
penny stock market. The broker-dealer must also disclose the commission
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Consequently, the
'penny stock' rules may restrict the ability of broker-dealers to sell the
Company's Common Stock and may affect the ability of purchasers in this
Offering to sell the Company's Common Stock in the secondary market and the
price at which such purchasers can sell any such Common Stock.
19. Consideration Paid by Present Shareholders. The present shareholders
of the Company have acquired their equity interests (2,904,000 shares) in the
Company at a cost ($507,000 or $.17 per share) substantially below the offering
price. Accordingly, the public investors will bear most of the risk of loss. See
'Underwriting.'
20. Dilution. Investors in this Offering will suffer immediate substantial
dilution of their investments (after giving effect to the proceeds received from
the Bridge Financing), to the extent that the net tangible book value per share
of Common Stock upon completion of this Offering will be $.42, representing a
dilution of $5.58 per share (93%) from the $6.00 offering price of the shares
(not including the Underwriters' Over Allotment Option). See 'Dilution.'
21. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
Thus, investors should not participate in this offering expecting any dividend
payments as part of their return on investment. See 'Dividend Policy.'
22. Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender. Upon the closing of the Offering, the
Company intends to repay the Bridge Lenders $400,000 plus accrued interest. The
Bridge Lenders (and the principal amounts to be paid and the securities issued
to them) include The Holding Company ($65,000 and the issuance of 78,000 shares
of Common Stock and 325,000 Warrants), Solomon Weisgal, as trustee ($15,000 and
the issuance of 18,000 shares of Common Stock and 75,000 Warrants), and Ulster
Investments Ltd. ($100,000 and the issuance of 120,000 shares of Common Stock
and 500,000 Warrants). Burton W. Kanter is the President of The Holding Company.
Mr. Kanter is the father of Joel Kanter, a principal stockholder of the Company,
and Joshua Kanter, a director and Secretary of the Company. Solomon Weisgal is a
director of the Company. Ulster Investment, Ltd. is an Antigua corporation which
is owned by the St. John's Trust. The beneficiaries of the St. John's Trust are
the members of the family of Burton W. Kanter (but not including Burton W.
Kanter), including Joel Kanter, Josh Kanter and Janis Kanter, all of whom are
shareholders of the Company. The Bridge Lenders did not pay any additional
consideration (cash or other) for the Bridge Units. Purchasers of the Common
Stock in this Offering are advised that such persons personally benefit in the
completion of this Offering. In addition, the Company will repay additional
loans made by Ulster Investment, Ltd. in the amount of $614,000. See 'Use of
Proceeds,' 'Bridge Financing,' 'Principal Stockholders' and 'Certain
Transactions'.
Randolph K. Pace, a beneficial owner of Dune Holdings, Inc., is a Bridge
Lender and shareholder. In 1987, Mr. Pace entered into a settlement of claims
brought by the Securities and Exchange Commission pursuant to which he
consented, without admitting or denying liability, to a suspension from
associating with a broker or dealer for a period of twelve (12) months and from
serving as a principal of a broker or dealer for an additional period of five
(5) years. In 1988, Mr. Pace entered into a settlement of claims brought by the
National Association of Securities Dealers (the 'NASD') pursuant to which he
consented, without admitting or denying
10
<PAGE>
liability, to a censure, fine and suspension from associating with an NASD
member for a period of two (2) years and from acting in a supervisory capacity
at an NASD member for a period of five (5) years.
23. Substantial Portion of Proceeds to Satisfy Indebtedness; Proceeds to
Pay Accrued Salaries of Officers. Approximately 43% of the net proceeds of the
Offering will be used to repay indebtedness. See 'Risk Factors--Proceeds of
Offering to Benefit Principal Shareholders and Directors; Regulatory History of
Bridge Lender' and 'Use of Proceeds.' In addition, approximately 3% of the net
proceeds of the Offering will be used to pay accrued salaries to Messrs. Mellman
and Silverman. See 'Use of Proceeds.'
24. Shares Eligible for Future Sale May Adversely Affect the Market. All
of the Company's currently outstanding shares of Common Stock are 'restricted
securities' and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding 'restricted securities' for a period of one (1)
year may sell only an amount every three (3) months equal to the greater of (a)
one percent (1%) of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four (4) calendar weeks preceding the
sale. The amount of 'restricted securities' which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for two (2) years if there is
adequate current public information available concerning the Company. In such an
event, 'restricted securities' would be eligible for sale to the public at an
earlier date. Immediately prior to the Effective Date, the Company will have
2,904,000 shares of its Common Stock issued and outstanding, all of which are
'restricted securities,' which become tradeable on , 1997. The total
number of shares of Common Stock issued and outstanding does not include the
exercise of up to 2,000,000 Warrants held by the Bridge Lenders to purchase up
to 2,000,000 shares of the Company's Common Stock, the Underwriter's Purchase
Option to purchase up to 67,500 shares of Common Stock, the Underwriter's
Over-Allotment Option of 101,250 shares of Common Stock, other warrants to
purchase up to 180,000 shares of Common Stock, and up to 480,000 shares of
Common Stock issuable upon exercise of employee stock options. See 'Bridge
Financing' and 'Description of Securities.'
Prospective investors should be aware that the possibility of resales by
stockholders of the Company may, in the future, have a material depressive
effect on the market price of the Company's Common Stock in any market which may
develop, and therefore, the ability of any investor to market his shares may be
dependent directly upon the number of shares that are offered and sold.
Affiliates of the Company may sell their shares during a favorable movement in
the market price of the Company's Common Stock which may have a depressive
effect on its price per share. See 'Description of Securities.'
25. Representative's Purchase Option. In connection with this Offering,
the Company will sell to the Representative, for nominal consideration ($67.50),
an option to purchase an aggregate of 67,500 shares of Common Stock (the
'Representative's Purchase Option'). The Representative's Purchase Option will
be exercisable commencing one (1) year after the Effective Date and ending four
(4) years after such date, at prices of $9.90 per Share, subject to certain
adjustments. The holders of the Representative's Purchase Option will have the
opportunity to profit from a rise in the market price of the Company's Common
Stock, without assuming the risk of ownership. The Company may find it more
difficult to raise additional capital if it should be needed for the business of
the Company while the Representative's Purchase Option is outstanding. At any
time when the holders thereof might be expected to exercise them, the Company
would probably be able to obtain additional capital on terms more favorable than
those provided by the Representative's Purchase Option. See 'Underwriting.'
26. Limitation on Director Liability. As permitted by Delaware law, the
Company's Certificate of Incorporation limits the liability of directors to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of the
Company's charter provision and Delaware law, stockholders may have limited
rights to recover against directors for breach of fiduciary duty. See
'Description of Securities.'
27. Certain Anti-Takeover Provisions Potentially Discouraging a Merger or
other Change in Control. The ability of the Board of Directors to issue shares
of preferred stock in one or more series and to determine the designation,
voting and other rights, preferences, privileges and restrictions applicable to
such shares, together with the heightened shareholder approval requirements
associated with certain business combination transactions involving a Related
Person (as defined) and applicable provisions of Delaware law may have the
effect of discouraging a merger, tender offer, proxy contest or other
transaction involving a change in
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<PAGE>
control of the Company that has not received the prior approval of a majority of
the Company's Board of Directors. See 'Description of Securities.'
28. Additional Authorized Shares Available for Issuance May Adversely
Affect the Market. The Company is authorized to issue 15,000,000 shares of its
Common Stock, $.01 par value. If all of the 675,000 shares of Common Stock
offered hereby are sold, there will be a total of 3,579,000 shares of Common
Stock issued and outstanding. However, the total number of shares of Common
Stock issued and outstanding does not include the exercise of up to 2,000,000
Warrants held by the Bridge Lenders to purchase up to 2,000,000 shares of the
Company's Common Stock, the Representative's Purchase Option to purchase up to
67,500 shares of Common Stock, the Underwriters' Over-Allotment Option of
101,250 shares of Common Stock, other warrants to purchase up to 180,000 shares
of Common Stock, and up to 480,000 shares of Common Stock issuable upon exercise
of employee stock options. After reserving a total of 2,828,750 shares of Common
Stock for issuance upon the exercise of all the options and warrants (including
the Over-Allotment Option, the Representative's Purchase Option, other warrants
of the Company, all of the Class A Warrants owned by the Bridge Lenders and
employee stock options), the Company will have at least 8,592,250 shares of
authorized but unissued Common Stock available for issuance without further
shareholder approval including issuances under current outstanding options and
warrants as well as issuances pursuant to employee stock option plans. As a
result, any issuance of additional shares of Common Stock may cause current
shareholders of the Company to suffer significant dilution and may adversely
affect the market price of their shares. In addition, the Company is authorized
to issue 100,000 shares of Preferred Stock. See 'Description of Securities' and
'Underwriting.'
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 675,000 shares of
Common Stock offered hereby, are estimated to be 3,188,500 (after deducting
approximately $405,000 in underwriting discounts, other expenses of this
Offering estimated to be $456,500, which includes the Underwriters'
non-accountable expense allowance of $121,500, and a $100,000 financial
consulting fee payable to the Representative at the closing) (but not
considering any exercise of the Over-Allotment Option or the Representative's
Purchase Option).
The Company, based upon all currently available information, intends to
utilize such proceeds approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
AMOUNT OF PERCENTAGE(%) OF
NET PROCEEDS NET PROCEEDS
------------ -----------------
<S> <C> <C>
Product Development(1)........................ $ 500,000 15.68%
Marketing and Sales........................... 500,000 15.68%
Repayment of Certain Indebtedness(2).......... 1,364,000 42.78%
Working Capital(3)............................ 824,500 25.86%
------------ -------
Total....................................... $3,188,500 100.00%
</TABLE>
- ------------------
(1) Includes funds utilized for research and development, including product
design, engineering and prototype design, statistical analysis and software
design and development. Of this amount, approximately 10% will be used for
the further development of the Company's professional sports version of The
SportsTrac(Trademark) System and the remainder will be allocated between the
Company's consumer and health and fitness versions.
(2) Represents the repayment of Bridge Loans in the aggregate principal amount
of $400,000. The Bridge Loans are due and payable upon the earlier of
January 31, 1998 or the closing of the Company's initial public offering and
bear interest at the rate of 8% per annum. The proceeds of the Bridge Loans
were used for working capital ($350,000) and as a source of funds to pay
expenses associated with this Offering ($50,000). See 'Bridge Financing.'
Also represents the repayment of two loans, each in the amount of $350,000,
to Swiss American Bank Ltd. and Ulster Investment, Ltd. Each of these loans
are due and payable upon the earlier of January 31, 1998 or the closing of
the Company's initial public offering and bear interest at the rate of 15%
per annum. The proceeds of such loans was used to pay the balance of the
up-front licensing fees due to BFI under the Company's sublicense agreement.
Also represents the repayment of additional loans in the amount of $264,000
to Ulster Investment, Ltd. due and payable upon the earlier of January 31,
1998 or the closing of the Company's initial public offering. Such loans
bear interest at the rate of 10% per annum. The proceeds of such loans were
used for working capital. See 'Bridge Financing' and 'Certain Transactions.'
(3) This amount will be utilized for general and administrative expenses
(including salaries, accrued salary to Messrs. Silverman and Mellman,
President and Chairman, respectively, in the amounts of $48,500 and $33,000,
respectively, as of December 31, 1996, office space and equipment rental
(including communication equipment), supplies, legal and accounting fees and
expenses aggregating approximately $250,000, and other miscellaneous
expenses).
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to expand its business. As a result, the Company believes that the net
proceeds of this Offering, together with cash generated from operations, will be
sufficient to conduct the Company's operations for at least twelve (12) months.
The underwriting agreement does not prevent the Company from seeking bank
financing, although there can be no assurance that such financing will be
available on commercially reasonable terms. See 'Risk Factors-- Dependence on
Offering Proceeds; Possible Need for Additional Financing.'
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise by the
Underwriters of its Over-Allotment Option, the resulting balances will be
retained and used for general working capital purposes. Conversely, to the
extent that such expenditures require the utilization of funds in excess of the
amounts anticipated, additional financing may be sought from other sources, such
as debt financing from financial institutions, although there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See 'Risk Factors--Dependence on Offering Proceeds;
Possible Need For Additional Financing.' The net proceeds of this Offering that
are not expended immediately may be deposited in interest bearing accounts, or
invested in government obligations or certificates of deposit.
13
<PAGE>
DILUTION
At March 31, 1997, the Company had outstanding an aggregate of 2,904,000
shares of Common Stock having an aggregate net tangible deficit value of
$(1,819,190) or $(.63) per share, based upon operating activity through March
31, 1997. Net tangible book value per share consists of total assets less
intangible assets and liabilities, divided by the total number of shares of
Common Stock outstanding. The shares of capital stock described above do not
include any securities subject to any outstanding warrants or options.
After giving effect to the sale of 675,000 shares of Common Stock by the
Company with net proceeds of $3,288,500 (without deducting the $100,000
financial advisory fee), the pro forma tangible book value of the Common Stock
would have been $1,497,658 or approximately $.42 per share. This represents an
immediate increase in pro forma net tangible book value of $1.05 per share to
the present stockholders and an immediate dilution of $5.58 per share (93%) to
the public purchasers. The following table illustrates the dilution which
investors participating in this Offering will incur and the benefit to current
stockholders as a result of this Offering:
Public offering price of shares offered hereby(1).......... $6.00
Net tangible deficit per share............................. $ (.63)
Increase per share attributable offered hereby............. $1.05
Pro Forma net tangible book value per share after
offering(3).............................................. $ .42
Dilution of net tangible book value per share to purchasers
in this offering(2)(3)................................... $ 5.58
- ------------------
(1) Before deduction of underwriting discounts, commission, fees and Offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option and Representative's
Purchase Option. See 'Underwriting' and 'Description of Securities.'
(3) Assuming no exercise of any outstanding warrants or options. See 'Bridge
Financing' and 'Certain Transactions.'
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing shareholders as of March 31, 1997 and
to be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $6.00 per share before deducting underwriting and
commissions and estimated Offering expenses).
<TABLE>
<CAPTION>
AGGREGATE
THE SHARES OF CASH PERCENTAGE OF
COMMON STOCK PERCENT OF CONSIDERATION TOTAL CASH AVERAGE PRICE
PURCHASED EQUITY OWNED PAID CONSIDERATION PER SHARE
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
New Stockholders........ 675,000 18.86% $ 4,050,000 88.87% $6.00
Existing Stockholders... 2,904,000 81.14% 507,000 11.13% .17
------------- ------ ------------- ------ ------
Total................... 3,579,000 100% $ 4,557,000 100%
------------- ------ ------------- ------
</TABLE>
The foregoing table gives effect to the sale of the Common Stock
underlying the shares offered hereby but without giving effect to the exercise
of the Representative's Purchase Option, or any securities issuable upon the
exercise of the Over-Allotment Option or any outstanding options or warrants.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted giving effect to the sale of 675,000 shares of
Common Stock offered hereby and the application of net proceeds $3,288,500
therefrom assuming a public offering price of $6.00 per share. The table is not
adjusted to give effect to the exercise of the Underwriters' Over-Allotment
Option, Representative's Purchase Option, or any other outstanding warrants or
options. This table should be read in conjunction with the Financial Statements
of the Company, including the notes thereto, appearing elsewhere in this
Prospectus.
ACTUAL(1) PRO FORMA(2)
---------- ------------
Notes Payable..................................... $1,364,000 $ --
---------- ------------
Stockholders' equity:
Common Stock, $.01 par value per share, 15,000,000
shares authorized, issued and outstanding
2,904,000, and 3,579,000 respectively........... 29,040 35,790
---------- ------------
Preferred Stock, $.01 par value per share, 100,000
shares authorized, 0 shares issued and
outstanding..................................... -- --
Additional paid-in capital........................ 1,413,960 4,695,710
---------- ------------
Deficit accumulated during the development
stage........................................... (2,409,442) (2,409,442)
---------- ------------
Total stockholders' (deficit) equity.............. (966,442) 2,322,058
---------- ------------
Total capitalization.............................. $ 397,558 2,322,058
---------- ------------
---------- ------------
- ------------------
(1) Does not include the sale of 675,000 shares of Common Stock offered hereby.
(2) Reflects the sale of 675,000 shares offered hereby and the anticipated
application of the net proceeds of $2,088,500 therefrom, after deducting
estimated Offering expense of $761,500 and the repayment of notes of
$1,200,000 payable with the proceeds of the Offering. Does not give effect
to a $100,000 fee payable to the Representative pursuant to a three (3) year
financial advisory and investment banking agreement.
DIVIDEND POLICY
Holders of the Company's Preferred Stock or Common Stock are entitled to
dividends when, as and if declared by the Board of Directors out of funds
legally available therefore. The Company has not in the past and does not
currently anticipate the declaration or payment of any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital requirements
and general business conditions. Therefore, there can be no assurance that any
dividends of any kind will ever be paid.
BRIDGE FINANCING
From December, 1995 through February 1996, the Company borrowed an
aggregate of $400,000 from the following ten (10) lenders (the 'Bridge
Lenders'): Ulster Investments Ltd ($100,000); The Holding Company ($65,000);
Dune Holdings, Inc. ($100,000); Solomon A. Weisgal, as trustee ($15,000); Howard
Kirschbaum as Custodian for Brian Kirschbaum under the Uniform Gift to Minors
Act ($5,000); Scott Sinar ($5,000); Matthew Harriton ($20,000); John LaFalce
($10,000); Michael Lulkin ($30,000); and Hartley T. Bernstein ($50,000). See
'Risk Factors--Proceeds of Offering to Benefit Principal Shareholders and
Directors; Regulatory History of Bridge Lender.' None of the Bridge Lenders are
affiliated with the Company other than Solomon A. Weisgal, a director of the
Company, and The Holding Company, a principal stockholder of the Company. Burton
W. Kanter is the president of The Holding Company. Mr. Kanter is the father of
Joel Kanter, a principal stockholder of the Company, and Josh Kanter, a director
and Secretary of the Company. Ulster Investment Ltd. is an Antigua corporation
which is owned by the St. John's Trust. The beneficiaries of the St. John's
Trust are members of the family of Burton W. Kanter (but not including Burton W.
Kanter), including Joel Kanter, Josh Kanter and Janis Kanter, all of whom are
shareholders of the Company. In exchange for making loans to the Company, each
Bridge Lender received (i) a promissory note (each a 'Bridge Note') and (ii)
Bridge Units (aggregate 400,000 of such Bridge Units). Each of the Bridge Units
is comprised of one (1) share of Common Stock and five (5) Class A Warrants.
Each of the Bridge Notes bears interest at the rate of eight percent (8%) per
annum. The Bridge Notes are due and payable upon the earlier of (i) January 31,
1998 or (ii) the closing of an initial
15
<PAGE>
underwritten public offering of the Company's securities. The Company intends to
use a portion of the proceeds of this Offering to repay the Bridge Lenders. See
'Use of Proceeds.' The Company entered into the bridge financing transactions
because it required additional financing and no other sources of financing were
available to the Company at that time. See 'Description of Securities.' With
respect to the bridge financing, the Company did not engage a placement agent,
the Bridge Lenders were identified by the Company's officers and directors, and
no other solicitations were made. See 'Certain Transactions' and 'Underwriting.'
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's statement of
operations for the year ended December 31, 1996 and the period commencing April
25, 1995 (inception) to December 31, 1995, and the balance sheet data at
December 31, 1996 are derived from the Company's financial statements which have
been audited by Holtz Rubenstein & Co., LLP, independent public accountants, and
which appear elsewhere in this Prospectus. The statements of operations data for
the three (3) months ended March 31, 1997 and 1996 and cumulative during
development stage, and the balance sheet data at March 31, 1997 are derived from
unaudited financial statements which appear elsewhere in this Prospectus.
Management believes that all adjustments necessary for a fair presentation have
been made in such interim period. However, the results of operations for the
interim period are not necessarily indicative of the Company's financial results
for the entire current fiscal year. See 'Financial Statements.'
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS YEAR APRIL 25, 1995 DURING
ENDED ENDED ENDED (INCEPTION) TO DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 12/31/96 12/31/95 STAGE
-------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............... $ 0 $ 0 $ 0 $ 0 $ 0
Gross Profits.......... 0 0 0 0 0
Operating (loss)....... (223,428) (344,558) (1,364,489) (821,525) (2,409,442)
Net (loss)............. (223,428) (344,558) (1,364,489) (821,525) (2,409,442)
Net (loss) per share... (.07) (.11) (.44) (.26) (.77)
Weighted average number
of common
shares outstanding... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
</TABLE>
SUMMARY BALANCE SHEET DATA
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
Working Capital (deficit)...................... $ (1,652,847) $(1,862,337)
Total assets................................... 943,765 946,084
Total liabilities.............................. 1,686,779 1,912,526
Deficit accumulated during development stage... (2,186,014) (2,409,442)
Stockholders' (deficit)........................ (743,014) (966,442)
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
The following discussion should be read in conjunction with historical
financial statements of the Company and notes thereto included elsewhere herein:
RESULTS OF OPERATIONS
SportsTrac, Inc. is a Delaware corporation, which from inception to the
present, has been solely involved in the advancement of The
SportsTrac(Trademark) System. The Company was formed in April 1995 for the
purposes of sublicensing the Critical Tracking Task ('CTT') and to apply that
technology to monitor and enhance athletic performance. The proceeds from this
offering will enable the Company to proceed with its business plan for the
continued development, application, marketing and distribution of the various
versions of The SportsTrac(Trademark) System.
To date, the Company has received no revenues from product sales. As a
result of the Company's start-up expenses and product design costs, the Company
had an accumulated deficit of $2,409,442 and $2,186,014 as of March 31, 1997 and
December 31, 1996, respectively. The Company anticipates little revenues from
product sales during the next twelve months and therefore expects to incur
operating losses until such time as it can generate significant revenues from
the sale of any version of its product. The Company believes it can
significantly increase its overall revenues from product sales during the second
and third quarters of 1998. The Company intends to seek third parties to
distribute The SportsTrac(Trademark) System to health clubs and to retail
consumers. The Company will maintain direct relationships with the professional
organizations using its product.
PLAN OF OPERATION
During the first twelve months of operations after completion of the
offering, the Company will further refine the professional level sports team
version of The SportsTrac(Trademark) System (which is not fully tested or ready
for commercial production) for sale to professional sports teams as well as
continue to adapt it to other formats. The Company will endeavor to develop and
market new versions of its product based on the CTT technology, which serves as
the basis of The SportsTrac(Trademark) System. No assurances can be made,
however, that the Company will successfully produce its product or adapt the
product to other uses. The Company plans to conduct market research studies and
develop new versions of its product and prototypes thereof. The Company also
intends to implement its marketing plan, develop promotional material, and
attend trade shows and seminars. The Company believes its proprietary skills
evaluation technology can be the foundation for a number of versions of its
product, as hand-eye coordination is a fundamental skill in activities other
than those to which the Company has begun to adapt The SportsTrac(Trademark)
System. Additionally, the Company believes that opportunities to address these
other market segments will arise based on the fundamental nature of the skill
evaluated by The SportsTrac(Trademark) System's core technology. Even if the
Company is able to successfully adapt The SportsTrac(Trademark) System to other
formats, no assurances can be made that the adaptations will achieve market
acceptance. By following a strategy of starting at the professional level before
moving into consumer products, the Company believes it can most effectively
leverage its marketing resources. However, to date the Company has developed
only one product which is in use presently on an experimental basis; no
assurance can be made that the Company will be successful in further developing
and marketing its current product or other products.
As of December 31, 1996, the Company employed four people on a full-time
basis and one person on a part-time basis. The Company leases approximately
1,000 square feet of executive office space. The number of employees and the
amount of space that the Company will need following the offering will vary
according to the progress made in the marketing and distribution of its
products.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had a working capital deficit of
$1,862,337. The Company remains in the development stage as it has not yet
derived significant revenues from the sale of any version of its only product
and requires the proceeds of the offering to commence meaningful marketing
activities and the adaptation of its only product to various formats. The
Company has funded its activities to date from initial capital contributions of
the founders and Bridge Loans. During 1996, the Company received $400,000 from
certain bridge lenders bearing interest at 8% per annum. In exchange for making
the loans to the Company each bridge lender received a bridge note and a
bridge unit. Each bridge unit is comprised of one share of common stock and
five Class A Warrants. The total 480,000 shares represents a financing cost of
$306,000 (effective
17
<PAGE>
interest rate of 651%). See 'Bridge Financing' and 'Certain Transactions.' The
report of the Company's auditors contains an explanatory paragraph which
discusses certain factors which raise substantial doubt about the Company's
ability to continue as a going concern.
The Company expects to incur substantial expenditures over the next
eighteen months to implement its sales, marketing and other programs. The
Company's management believe that the net proceeds of this offering (excluding
any proceeds from the Underwriters' Over-Allotment Option) will be sufficient to
fund its liquidity needs for at least the next twelve months.
BUSINESS
GENERAL
SportsTrac, Inc., a Delaware corporation ('SportsTrac' or the 'Company'),
is a development stage business established in April 1995 (under the name Bogart
International Associates, Inc.) to develop and market products designed to
enhance and monitor athletic performance. The first product developed by the
Company, The SportsTrac(Trademark) System, is a skill evaluation tool that can
measure a person's hand-eye coordination and chart day-to-day variations in
performance. The Company filed a trademark application on May 6, 1996 with
respect to a trademark of the name of The SportsTrac(Trademark) System, and is
presently using the name for promotional purposes. On December 31, 1996 the
United States Patent and Trademark Office informed the Company that no similar
trademark existed and requested that the Company provide them with samples of
its proposed trademark. Such samples were provided on May 22, 1997, and the
Company is awaiting final approval of its trademark application.
The SportsTrac(Trademark) System is presently in use (on an experimental
basis) by professional baseball and basketball teams and has been used by a
professional hockey team in the past. Presently, this professional level sports
team version of The SportsTrac(Trademark) System is the only version in use, and
it is in use only in an uncompleted pilot program, is not fully tested or
engineered, and is not ready for commercial production and sale to professional
sports teams. The Company is endeavoring to adapt the same developed technology,
by creating prototype versions, for a kiosk-based evaluation and information
delivery system for health and fitness clubs, as well as for a skill analyzer
for golfers and other recreational sports enthusiasts. Additionally, the Company
will endeavor to adapt The SportsTrac(Trademark) System to a consumer
entertainment version which will allow users to 'compete' against professional
athletes. However, the Company has not yet begun commercial production of any
version of its SportsTrac(Trademark) System which the Company anticipates will
be commercially available to any of its targeted markets. Should any adaptation
of The SportsTrac(Trademark) System be produced, there can be no assurances that
such adaptation will achieve market acceptance.
The Company anticipates that it will first establish the value of its
developed technology at the professional sports level, and then apply the same
technology and analysis to the broad base of recreational athletes, teams and
sports clubs. The SportsTrac(Trademark) System is already in use at the
professional sports level. The Company has established a pilot program with the
Los Angeles Dodgers (Major League Baseball), Anaheim Angels (Major League
Baseball), San Diego Padres (Major League Baseball), Minnesota Twins (a Major
League Baseball team through its AAA minor league affiliate), Minnesota
Timberwolves (National Basketball Association) and Callaway Golf. Additionally,
the Company has recently concluded a pilot program with the New York Rangers
(via their affiliate in the American Hockey League). The Company has signed a
purchase agreement with the Palm Springs Suns (a minor league baseball team
which is not an affiliate of the Company, as that term is defined under the
Securities Act of 1933, as amended (the 'Securities Act' or '1933 Act')) to
install The SportsTrac(Trademark) System in late 1997. The agreement calls for
the installation of one SportsTrac(Trademark) System (identical to the
professional sports team version) for a purchase price of $20,000. The
agreement provides for: (1) two days of on-site training in conjunction with
installation; (2) provisions for maintenance and repairs by the Company for the
twelve month period following shipment; and (3) the requirement by the Company
to supply updates and modifications to the systems completed by the Company
during the twelve month period following the date of shipment, at no charge to
the customers.
This pilot program is scheduled to continue until the fourth quarter of
1997, at which time the Company anticipates that, except for aesthetic changes,
each system will be fully tested and engineered and ready for commercial
production and sale to other professional level sports teams. While professional
sports teams have participated in the pilot program, their participation should
not be understood to be an endorsement or promotion
18
<PAGE>
of the Company's product by any professional team, or the athletes who utilize
The SportsTrac(Trademark) System in the pilot program.
The Company is unaware of any product other than The SportsTrac(Trademark)
System which provides an objective and reliable measurement of the core skills
needed in sports such as baseball, hockey, basketball, golf, and tennis.
Recently, a study which tested professional baseball players at two minor league
affiliates of the Los Angeles Dodgers (the 'Study'), and which was administered
by Dr. Michael Mellman, the Company's Chairman of the Board, was completed. The
Study is a computer-based assessment of baseball player performance, and was
initiated with permission of BioFactors, Inc. ('BFI'), which holds the exclusive
license for commercial implementation of the CTT technology. The Study's subject
consisted of fifty (50) minor league players who were tested over a two to three
month period using an early prototype version of the Company's only product, The
SportsTrac(Trademark) System. The study detected a strong correlation between
SportsTrac(Trademark) System scores and the on-field performance of professional
athletes. In addition, the study revealed that the most successful baseball
players achieved better SportsTrac(Trademark) scores than did other players.
Importantly, players found that tracking on The SportsTrac(Trademark) System was
a simple, enjoyable addition to their pre-game preparation. The Study is not an
endorsement of or promotion by the Los Angeles Dodgers, the two minor league
affiliates or the players who participated in the Study.
The SportsTrac(Trademark) System is based closely on the Critical Tracking
Task ('CTT'), a tool created by Systems Technology, Inc. ('STI') for the United
States Airforce to evaluate whether military pilots could control experimental
aircraft. Since the initial conception of the CTT, 40 years of field testing by
the Department of Defense, NASA and the Department of Transportation has
supported the CTT's accuracy in assessing the motor skill level of astronauts,
pilots, ship captains, and heavy equipment operators. Although the CTT
technology was originally developed in an analog format, the scientists at STI
adapted the technology to be used with computers and computer software in the
early 1960s. The Company has secured an exclusive sublicense from BFI to market
the CTT technology. This sublicense agreement grants the Company exclusive
rights solely for sports-related and sports-entertainment applications, so as to
not compete with BFI's non-invasive fitness for duty testing device ('FACTOR
1000(Trademark)') for safety-related industrial settings. BFI obtained the
exclusive license from STI and developed a prototype on-field athletic
performance system which was a research prototype used to validate the
application of the CTT and Factor 1000(Trademark) technologies to evaluate
athletic performance, which BFI did not and has not developed for commercial
production. In addition, the license granted by BFI pursuant to the sublicense
agreement was a license of the Factor 1000(Trademark) technology developed by
BFI, and a sublicense of the CTT technology, which technologies the Company
subsequently incorporated in its SportsTrac(Trademark) System.
BFI licenses the software and associated protocols and methodology for the
CTT technology from STI. Although BFI's exclusive licensing agreement expires in
2008 (assuming the exercise of all available extensions), as does the Company's
own sublicense agreement with BFI, the Company has negotiated an agreement with
STI which allows the Company to assume BFI's rights and obligations should the
original licensing agreement be termined earlier. This agreement will remain in
effect, until the scheduled expiration date of both the license and sublicense
agreements, so long as the Company is not in default under any terms of its
sublicense agreement with BFI. Pursuant to the Company's sublicense agreement
with BFI, the Company agreed to pay BFI $1,000,000, all of which has been paid.
In addition, the Company agreed to issue 180,000 warrants to BFI, which were
subsequently assigned. See 'Certain Relationships and Related Transactions.' The
Company is also obligated to pay BFI quarterly royalties equal to 8.5% of the
cash receipts from the sale of the Company's products based on the sublicensed
technology. Under the terms of the sublicense agreement, BFI may not register a
trademark or service mark in connection with the name, marketing, selling or
sublicensing of The SportsTrac(Trademark) System. See 'Risk Factors--Potential
Loss of Licensed Technology May Affect Operations,' 'Use of Proceeds' and
'Description of Securities.'
The SportsTrac(Trademark) System is designed to provide more than just a
raw measure of hand-eye coordination scores. Extensive military and industrial
use has shown that the CTT, which is the core technology of the Company's
product, provides a unique window into a person's mental and physical readiness.
As a result of this extensive use of the CTT technology, as well as the results
of the Study, the Company believes that The SportsTrac(Trademark) System can
serve as a powerful tool for identifying the playing rhythms of an athlete, as
well as assessing players who need a rest, rehabilitated players ready to play
again, and talented prospects who have the basic skills to compete at the
professional level. The Company believes that The SportsTrac(Trademark) System
will also
19
<PAGE>
appeal to amateur athletes who work to improve their athletic performance,
fine-tune their training and game preparation, and emulate their favorite
professional stars.
Presently, the Company provides data analysis for its pilot program
participants. As athletes use SportsTrac, their scores are encrypted, stored on
The SportsTrac(Trademark) System computer and then transferred via modem by a
system administrator to a computer at SportsTrac, Inc. The Company's chairman,
Dr. Michael Mellman, then decrypts the scores and creates charts which display
each player's SportsTrac scores during the previous one to six weeks. These
charts visually demonstrate how a player's SportsTrac performance (maximum
score, standard deviation, and moving average) changes over time, as well as
which players consistently achieve high SportsTrac scores.
Using these charts and specified game data, SportsTrac, Inc. can evaluate
players' SportsTrac performance and identify performance trends. For example,
tracking data may identify a group of players that consistently scores best on
travel days, or another group that scores well with extra rest. SportsTrac
delivers to each participant a weekly player report containing the scoring
charts, trend analysis (if any) and individual player profiles.
The Company believes that The SportsTrac(Trademark) System technology is
adaptable to a variety of formats. There can be no assurances that the
adaptation of The SportsTrac(Trademark) System technology to various formats
will be completed, or if completed that such adaptions will achieve market
acceptance. The professional version of The SportsTrac(Trademark) System
combines a laptop computer and control panel with electronic delivery of data to
the Company's headquarters. The Company anticipates that every version of The
SportsTrac(Trademark) System, except for the proposed consumer entertainment
version, will require the use of a personal computer and not necessarily a
laptop computer. Additionally, even though the Company does not anticipate that
all versions of The SportsTrac(Trademark) System will require data transmittal
to the Company for analysis (as the Company believes that only professional
sports teams will need and be willing to pay for such a service), however,
should markets for other versions of The SportsTrac(Trademark) System demand
data transmittal to the Company for analysis, the Company will endeavor to
provide the service. However, since the hardware component of The
SportsTrac(Trademark) System is small enough to be built into a handheld unit,
like the proposed consumer entertainment version, it could include an on-board
automated analysis of the test scores.
The Company is contemplating a health and fitness club version of The
SportsTrac(Trademark) System, which is still under development and presently
only exists in a prototype form, will be housed in a free-standing kiosk and
will include automated analysis of scores and delivery of health, nutrition and
other information of interest to users. The Company believes that this device
will meet the needs of health club organizations looking for add-on benefits for
members and provide a convenient, practical gateway to the sports and medical
information available on the Internet. See 'Business--Versions of the Company's
Single Product.'
The Company has initiated research projects with Callaway Golf to determine
how The SportsTrac(Trademark) System can most benefit amateur and professional
golfers. Preliminary results from this pilot program indicate that the benefits
of The SportsTrac(Trademark) System will apply equally to other athletic
endeavors. The Company believes it can capture a share of the $1 billion spent
annually on golf-related products with a small, portable unit sold in golf
specialty stores and pro shops. The golf version of The SportsTrac(Trademark)
System will be designed for the five (5) million avid golfers who spend more
than $2,100 on golf annually and seek the latest high-technology enhancement
products. The Company anticipates that commercial production of this version of
The SportsTrac(Trademark) System will begin in the second quarter of 1998.
However, there can be no assurances that the Company will successfully complete
the adaptation of The SportsTrac(Trademark) System to this format, or that once
adapted, will achieve market acceptance. See 'Business--Versions of the
Company's Single Product.'
The Company also believes that the competitive aspect of The
SportsTrac(Trademark) System can be emphasized in a consumer version that
enables users to compete against the performance profile of professional sports
stars. Unlike a typical video game, upon completion of the proposed adaptation
of The SportsTrac(Trademark) System technology scheduled for the first quarter
of 1998, The SportsTrac(Trademark) System game will be a device 'used by the
pros' and will incorporate the actual scores of professional athletes.
The Company anticipates that The SportsTrac(Trademark) System game, published on
CD-ROM or in a dedicated device, will include full-motion video and advanced
graphical displays.
The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
20
<PAGE>
DEVELOPMENT OF THE SPORTSTRAC(TRADEMARK) SYSTEM
To give athletes and coaches the evaluation tool they need, the Company has
licensed and adapted proven performance measurement technology developed for
astronauts, pilots, and other skilled users. This technology, known as the
Critical Tracking Task ('CTT'), has been in daily use since the 1960s. The CTT
has been used to evaluate and predict whether astronauts, pilots, truck drivers,
equipment operators, ship captains and others in safety-sensitive positions are
capable of performing. The SportsTrac(Trademark) System measures the same visual
motor acuity skills. The CTT was originally developed in the 1950s by STI to
help the US Air Force better understand how pilots control high performance
aircraft. Although the CTT technology was originally developed in an analog
format, the scientists at STI adapted the technology to be used with computers
and computer software in the early 1960s. During the last six years the CTT
technology has been used nationwide in the FACTOR 1000(Trademark) employee
fitness system marketed by BioFactors Inc. ('BFI'), the sublicensor of the
Company's technology. Based upon the Company's experience with the CTT
technology, the Company believes that FACTOR 1000(Trademark) provides a fast,
reliable means to assure employee fitness for duty in safety-related industrial
settings, by measuring an employee's hand-eye coordination and indicating to a
supervisor on a 'yes/no' basis whether or not the employee's results meet
specific, selected safety guidelines.
The Company has incorporated the CTT technology in The
SportsTrac(Trademark) System, which management believes, is the first simple,
easy-to-use device to precisely and reliably measure any athlete's psychomotor
skills (hand-eye coordination). While the core technology is shared between
BFI's FACTOR 1000(Trademark) and the Company's SportsTrac(Trademark) System,
both the application of the technology and the results obtained differ greatly.
While the FACTOR 1000(Trademark) utilizes the CTT technology to evaluate an
employee's fitness in a commercial setting on a 'yes/no' basis, The
SportsTrac(Trademark) System provides athletes with a quantitative measurement
of their skills. Additionally, The SportsTrac(Trademark) System is designed to
pick up the day-to-day variations in hand-eye coordination which affect athletic
performance. Management believes that no other product other than The
SportsTrac(Trademark) System attempts to gauge an athlete's readiness for
competition in the same manner of The SportsTrac(Trademark) System, and knows of
no other product which claims, or has proven, to serve the same function.
As part of his duties as Chief Technology Officer at BFI from 1993 through
September 1995, Marc Silverman (the Company's President, Chief Executive Officer
and Chief Financial Officer) helped to design and manage the development of a
crude prototype on field athletic performance system which was based upon the
FACTOR 1000(Trademark) and utilized the CTT technology. This crude prototype was
used in the Study to test the validity and efficacy of the CTT technology in a
sports/performance enhancement environment. This crude prototype has been
refined to its present configuration which is presently in use in the Company's
incomplete pilot program. This prototype was a research prototype used to
validate the application of the CTT and Factor 1000(Trademark) technologies to
evaluate athletic performance and BFI did not and has not developed such
prototype for commercial production.
Management's experience with the CTT technology has shown that users
gradually improve on The SportsTrac(Trademark) System for the first 100-200
tries. Since each try requires less than a minute to complete, most users reach
their plateau or individual performance level ('IPL') within a week. The Study
required Dodgers players at the AA and AAA minor level to test on the CTT daily
before games for at least two months on an early prototype version of The
SportsTrac(Trademark) System. Their CTT scores were then plotted against
on-field performance. The Study revealed that players' CTT scores varied
directly with some measures of on-field performance and that the most successful
baseball players achieved better CTT scores than did other players. Importantly,
players indicated that tracking on the CTT was a simple, enjoyable addition to
their pre-game preparation. The Study indicates that a product based on the CTT,
like The SportsTrac(Trademark) System, can reliably measure at least one
significant component of the skill set professional athletes need to succeed,
regardless of an athlete's background, stage of development, degree of fatigue,
illness or stress.
After an athlete has achieved his or her IPL, The SportsTrac(Trademark)
System daily scores generally fall within a few percentage points of their IPL.
The difference between a daily score and the athlete's IPL can reflect
their level of concentration, emotional state, health status and degree of
fatigue. Scores that are consistently below a player's IPL can alert a coach or
player to an upcoming performance slump or reflect controllable environmental
factors such as extensive travel or sleep disturbances. Scores that consistently
exceed the IPL may reflect a positive change in an athlete's training or game
preparation even before such changes affect game performance. Periodic high and
low scores can identify an athlete's personal biorhythmic cycle of coordination,
a useful tool for any player striving for maximum athletic performance.
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Based upon its experience in its pilot program, management believes that
The SportsTrac(Trademark) System is an accurate measurement of visual-motor
acuity (a fundamental component in athletic performance), regardless of an
individual athlete's background and level of development. It is a consistent
yardstick which, combined with other performance measures, can help player
development experts to evaluate and compare players. The SportsTrac(Trademark)
System is a targeted measure which can help coaches determine which players tend
to be 'sharpest' on road trips, following long layoffs, or under the pressure of
playoff conditions. The SportsTrac(Trademark) System cannot substitute for game
statistics or a coach's intuition, but it can reliably quantify what has been
unmeasurable--an athlete's varying degree of coordination.
The professional version of The SportsTrac(Trademark) System requires a
laptop computer and electronic transmission of data to the Company for analysis.
Professional users of The SportsTrac(Trademark) System receive charts of player
scores on The SportsTrac(Trademark) System correlated with game conditions.
The Company plans to develop a version of The SportsTrac(Trademark) System
by the second quarter of 1998, employing advanced graphics and video that will
enhance The SportsTrac(Trademark) System's entertainment value. Based upon its
experience with The SportsTrac(Trademark) System in the pilot program, the
Company believes that combining The SportsTrac(Trademark) System's inherent
excitement level with actual performance scores and performance profiles
generated by professional athletes will create a unique diagnostic amusement
product with strong appeal to the vast audience of video game users. However, no
assurances can be made that the adaptation of The SportsTrac(Trademark) System
to this format can and will be successful. Additionally, no assurances can be
made that such adaptation, once completed, will achieve market acceptance.
RECENT DEVELOPMENTS
The Company has obtained a sublicense from BioFactors, Inc. which markets
the first commercial implementation of the CTT. That product, FACTOR
1000(Trademark), is used to monitor the fitness for duty of employees in
safety-sensitive jobs. In 1994 the Los Angeles Dodgers, Major League Baseball,
and Centinela Hospital (Los Angeles) commissioned a study to apply the CTT and
FACTOR 1000(Trademark) Technology systems in the professional sports
environment. The study compared the scores of the Los Angeles Dodgers minor
league players with their on-field performance statistics in more than 160
games. The results of that study indicated that the CTT and FACTOR
1000(Trademark) Technologies performance is predictive of performance
differences between players--in other words, a player who performs better on the
CTT and FACTOR 1000(Trademark) Technologies on a given game day would be
expected to show an increased likelihood of better game performance.
In 1995 the Company was founded and secured an exclusive sublicense from
BioFactors, Inc. to apply the CTT and FACTOR 1000(Trademark) technologies for
sports-related, and sports-entertainment applications. The FACTOR
1000(Trademark) system was modified to withstand the rigors of travel and the
locker room environment, by adapting it to a laptop computer. The
SportsTrac(Trademark) System has since been installed and used by the NHL New
York Rangers (via their affiliate in the American Hockey League), the NBA
Minnesota Timberwolves, the Los Angeles Dodgers, the Anaheim Angels, the San
Diego Padres and the Minnesota Twins (a Major League Baseball team through their
AAA minor league affiliate).
The SportsTrac(Trademark) System scores are transferred electronically from
these sites to the Company. This data is carefully reviewed for correlations
with other individual and team performance measures by the Company's Chairman,
Dr. Michael Mellman, and its President, Mr. Marc Silverman. Statistically
significant correlations are reported back to the customers by Dr. Mellman, for
their use and incorporated in future analysis using The SportsTrac(Trademark)
System. The Company holds periodic telephone meetings (on at least a monthly
basis) with customers to discuss The SportsTrac(Trademark) System results.
Most recently, the Company has extended its pilot program to include
Callaway Golf, the market leader in golf equipment, to assist in the research
and development of a version of the Company's only product that can
monitor and predict the performance of golfers. The Company anticipates this
project will include extensive testing at Callaway's advanced research division
in Carlsbad, California.
STRATEGY AND OUTLOOK
The Company has identified four primary markets for various versions of its
only product which incorporate its proprietary skills evaluation technology.
These are:
o Professional Monitoring Tools and Analysis
o Consumer Enhancement Versions--Golf
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o Consumer Entertainment Versions
o Health and Fitness Monitoring and Information Systems
The Company expects to introduce the professional version of The
SportsTrac(Trademark) System to new teams during the 1998 Major League Baseball
season and the 1997-1998 National Hockey League and National Basketball
Association seasons. The Company's goal is to install systems for several teams
in each sport and demonstrate results that will convince the remaining teams
that The SportsTrac(Trademark) System is a necessary component of any team's
success on the field.
The SportsTrac(Trademark) System enters the market at a time of increased
interest in high-tech, computerized devices for performance enhancement. Many
professional sports organizations have begun to routinely test the psychological
state of potential recruits using traditional examinations, check the physiology
of players using MRIs (magnetic resonance imaging) and other diagnostic tools,
and have supplemented their training techniques with computerized measures of
performance levels. Some of these computerized measures have found their way to
the recreational level as health and fitness clubs adopt complex new training
systems.
VERSIONS OF THE COMPANY'S SINGLE PRODUCT
Professional SportsTrac(Trademark) System
The professional version of The SportsTrac(Trademark) System, which is
still undergoing development in the Company's uncompleted pilot program, in its
prototype form, and which is not fully tested or engineered and is not yet ready
for commercial production, consists of a small screen, keyboard, and a control
knob similar to the volume control on a radio. The components are housed in a
small, rugged unit which can sit on a tabletop in the corner of a locker room at
home or on the road. The SportsTrac(Trademark) System is light and portable for
easy transportation with team equipment.
Before going out on the field or court, each player spends 2 to 5 minutes
using The SportsTrac(Trademark) System. After a player enters his identification
number, the screen displays a diamond pointer drifting between two vertical
lines. Using the control knob, the player must correct for the unpredictable
movement of the pointer, keeping it from touching either of the lines. The
difficulty increases as the pointer gradually accelerates, until the pointer
touches one of the lines. The 'critical instability' level at the point the
player loses control of the pointer is an instant, accurate measure of the
player's hand-eye coordination. To ensure maximum accuracy, each player repeats
the task 5 times in a session with The SportsTrac(Trademark) System.
Using The SportsTrac(Trademark) System can be compared to balancing a
broomstick upright on your open palm. You must move your hand from side to side
to prevent the unstable broomstick from falling to the ground. In effect, The
SportsTrac(Trademark) System is like balancing a broomstick that becomes shorter
over time. The balancing task is simple when the stick is long but becomes
increasingly difficult and eventually impossible as the length decreases
(compare balancing a broomstick with balancing a short pencil).
The SportsTrac(Trademark) System is designed to be used with minimal
supervision. A trainer or other person can set up The SportsTrac(Trademark)
System station in minutes and player sessions are self-administered and
confidential. A built-in help system clarifies any questions users may have. The
SportsTrac(Trademark) System maintains a computerized database of players and
results, enabling a trainer or other person to check player participation and
generate reports with a few keystrokes. Testing by major and minor league
baseball teams has shown that The SportsTrac(Trademark) System integrates easily
into athletic training environments and is welcomed by players and coaches.
The SportsTrac(Trademark) System maintains a historical record of The
SportsTrac(Trademark) System scores. It can display numeric reports or graphs of
performance trends on an individual or team basis. Data security is built into
The SportsTrac(Trademark) System and teams can choose to make data available
to any combination of players, trainers, physicians and management.
The market for professional sports enhancement products is highly
fragmented with many individuals and companies selling devices, analysis,
statistics, training techniques, food supplements, and more to professional
sports organizations. Teams vary widely in their interest in new products,
particularly high-tech products, and the key element for vendors is often a
high-level contact or demonstrable success story with another team. While the
Company believes that the results of the Study, as well as the results of the
Company's pilot program, will enable The SportsTrac(Trademark) System to receive
serious consideration by nearly any professional sports organization, there
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can be no assurance that additional professional sports organizations will
elect to utilize The SportsTrac(Trademark) System. See 'Risk Factors--
Dependence upon Emerging Market; Uncertainty of Market Acceptance.'
The SportsTrac(Trademark) System for Consumers
The Company believes that developing a simplified, consumer version of The
SportsTrac(Trademark) System is the best way to leverage The
SportsTrac(Trademark) System's professional acceptance. The first consumer
version of The SportsTrac(Trademark) System (the 'Consumer SportsTrac(Trademark)
System') will be designed for recreational golfers. In 1994, this group spent a
total of $16.31 billion on golf-related goods and services, including more than
$6 billion on clubs, equipment and miscellaneous items. The market for golf
self-improvement products includes video tapes, learning grips, clubs designed
to improve one's swing, and various other devices and services. The Company
believes that The SportsTrac(Trademark) System offers the kind of skill analysis
and monitoring that will appeal to high and low handicap golfers alike.
The Company has recently begun a research project with Callaway Golf, the
leading manufacturer of golf clubs and one of the most powerful brand names in
golf. The Company and Callaway will use Callaway's testing facilities and its
team of professional golfers to determine how The SportsTrac(Trademark) System
technology can best be delivered to the golfing community.
Most golf equipment is sold through golf specialty stores, sporting goods
dealers, and mail order catalogues, with a heavy emphasis on brand name goods
like Callaway, Ping, Taylor Made, and Wilson. Approximately 20% of buyers are
'avid' golfers who play more than 25 rounds per year and spend more than $2,000
each year on their sport. Various sub-categories of non-avid golfers spend
anywhere from $350 to $750 per year on golf. The Company believes the strongest
market for this version of The SportsTrac(Trademark) System is among avid
golfers who want the latest equipment used by the pros. However, the Company has
no experience to date in this market and there can be no assurances that this
will be the strongest market for this version of the Company's single product,
even if this version is successfully developed, and commercially produced and
sold.
Although only a single prototype version presently exists, the Company
expects to market two versions of the Consumer SportsTrac(Trademark) System for
golf. An individual version consisting of a control panel and software will be
made available to golfers with personal computers. A second model, will be
leased to pro shops and golf course facilities to serve as a skills monitoring
device and gateway to information about the course and golfing. However no
assurances can be given that the Company will complete the adaption of The
SportsTrac(Trademark) System to these formats, and if completed, that such
adaptations will achieve market acceptance.
Consumer Entertainment Version
The professional version of The SportsTrac(Trademark) System is designed to
be entertaining and exciting like a video game. The Company added
incentive-building features like personal and team high score indicators in
developing The SportsTrac(Trademark) System for sports use. The Company
anticipates that The SportsTrac(Trademark) System technology will be adapted for
consumer entertainment use by the second quarter of 1998. The Company
anticipates that once the adaptation process is completed, by adding further
graphic design (incorporating full motion video) and sound, it will have
developed a game that combines The SportsTrac(Trademark) System's inherent
excitement level with actual scores and performance profiles generated by
professional athletes to create a unique diagnostic amusement product with
strong appeal to the vast audience of video game users. The required adaptation,
however, has not yet been completed, and there can be no assurances that such
adaptation can be completed successfully. Additionally, no assurances can be
made that should such an adaptation be completed, it would achieve market
acceptance.
The SportsTrac(Trademark) System for Health and Fitness Centers
The Company believes that The SportsTrac(Trademark) System's benefits can
be delivered in an automated unit for health and fitness centers. Athletes will
be able to track their day-to-day skill level before or after working out or
competing. In addition, the Health and Fitness version of The
SportsTrac(Trademark) System will deliver timely, useful information about
sports medicine, nutrition, fitness, and club information about classes, events,
new members, and services.
The preliminary design of The SportsTrac(Trademark) System version suitable
for health and fitness club use, which is presently still under development and
exists only in a prototype form, includes a free-standing kiosk with embedded
control panel and 17 inch touch screen monitor. A hidden 486 class personal
computer with MPEG
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video card handles interaction with users, presents The SportsTrac(Trademark)
System task, analyzes and stores results, graphs scores, and connects via
phone line to the Internet. The kiosk is rugged and waterproof, suitable for
installation in a lobby, locker room or workout area.
The Health and Fitness Market
Following a slight downturn during the recession of the early 1990s, health
club memberships and revenues are increasing. The number of clubs rose 7% to
12,408 in 1994 and revenues increased by 10% in both 1993 and 1994 to a present
level of $18.8 billion. Average reported club revenue of $1.5 million during
1994 was up 7% over 1993.
The Health and Fitness SportsTrac(Trademark) System version closely fits
one of strong trends in club revenues--an increased focus on alternative revenue
sources (beyond club membership dues). In 1994, fees for services such as
fitness evaluation, personal training, child care, juniors programming and
nutritional counseling accounted for 22% of the average club's total revenue.
The Company believes that the Health and Fitness SportsTrac(Trademark) System
can be marketed as an add-on benefit to club membership with either an
additional flat fee charged each month or on a charge per access basis.
SALES AND MARKETING PLAN
The current version of The SportsTrac(Trademark) System is in use in its
prototype form (in the Company's uncompleted pilot program) and is marketed
directly to professional baseball, hockey, and basketball teams, as well as to
professional golfers and tennis players. The marketing is designed to solicit
both new participants in the Company's pilot programs as well as future
customers when The SportsTrac(Trademark) System is available for commercial
implementation. This professional version of The SportsTrac(Trademark) System,
with its specialized support and data analysis by the Company, will continue to
be offered to the professional market after the various consumer versions of The
SportsTrac(Trademark) System go to market. However, at the present time, this
version of The SportsTrac(Trademark) System is neither fully tested nor fully
engineered, nor is it ready for commercial production. However, upon the
conclusion of the pilot program, estimated to be in the fourth quarter of 1997,
the Company anticipates that such version of The SportsTrac(Trademark) System
will be available for commercial production and sale. The Company has signed a
purchase agreement with the Palm Spring Suns (a minor league baseball team) to
install The SportsTrac(Trademark) System in late 1997. The purchase price for
such system is $20,000.
While the consumer versions of The SportsTrac(Trademark) System have not
yet been fully developed, they will take advantage of the broad distribution
channel for consumer sports equipment. The hardware, software and manual will
fit in a shoebox-sized box for shelf sales at department, sporting goods stores
and specialty golf and tennis shops. Health clubs that offer The
SportsTrac(Trademark) System on-site will be able to private label consumer
machines incorporating The SportsTrac(Trademark) System for sale in their
equipment stores. The Company may also market the consumer versions of The
SportsTrac(Trademark) System via infomercial videos and display ads in sports
publications.
The Company will also seek to develop consumer revenues through
publications, vendors and sales representatives serving the amateur sports
marketplace.
COMPETITION
Presently, the Company has no direct competition in the sports and
entertainment related fields. As the Company's products are established,
however, competition could arise from organizations with more computer and
software expertise or more financial capability than the Company.
Other performance assessment technologies have been developed for research
and fitness for duty testing purposes but the Company knows of none that have
been refined for commercial application in the sports and entertainment related
fields. Based upon the Company's own evaluation, management believes that these
alternate technologies are more difficult to administer and less practical in
the marketplace than The SportsTrac(Trademark) System. Management believes that
a significant amount of engineering and other work would be required for any of
these other technologies to be successfully adapted to the marketplace in which
the Company intends to market The SportsTrac(Trademark) System. In addition, any
new technology would lack the benefit of the three decades of validation of the
CTT underlying The SportsTrac(Trademark) System. Currently, the only version of
The SportsTrac(Trademark) System which is in use is the prototype of the
professional level sports team version, which is being utilized in the Company's
uncompleted pilot program. This version has not been fully tested and is not
ready for
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commercial production. In addition to providing the prototype version to its
pilot program participants, the Company also provides services such as the
initial installation of The SportsTrac(Trademark) System and the training of
the appropriate personnel, as well as consulting and data analysis services.
TRADEMARKS AND SERVICE MARKS
The Company has filed an application to register a trademark for the name
of The SportsTrac(Trademark) System on May 6, 1996, and may register or file
other applications in the future. On occasion, such applications may be opposed
by third parties. The Company intends to pursue all available legal remedies to
vigorously defend its rights to its trademarks to the extent it has resources
available to fund such activities. On December 31, 1996 the United States and
Trademark Office informed the Company that no similar trademark existed and
requested that the Company provide them with samples of its proposed trademark.
Such samples were provided on May 22, 1997, and the Company is awaiting final
approval of its trademark application. However, no assurances can be made that
the Company's application will be approved by the United States Patent and
Trademark Office.
EMPLOYEES
As of December 31, 1996, the Company employed four full-time employees,
which consist of management, and one part-time employee. The Company considers
its employee relations to be good. The Company anticipates hiring additional
personnel after the Offering for sales, marketing, engineering and product
support, and general administrative assistance.
BOARD OF ADVISORS
The Company's Advisory Board brings together noted athletes and experts in
the fields of sports medicine, administration, research, marketing, law, and
promotion. While the Advisory Board serves an important role in the review of
The SportsTrac(Trademark) System product design and identification of new
product designs and customers, it does not serve any management function.
Members of the Company's Board of Advisors include:
Fred Claire. Mr. Claire has been with the Los Angeles Dodgers since 1969
and currently holds the position of Executive Vice President and General
Manager. In 1988 Mr. Claire was named the Sporting News Executive of the Year
and has served Major League Baseball as a member of the Board of Directors of
Baseball Properties, the Broadcast Advisory Group, and the Baseball Operations
committee.
Ralph Gambardella, MD. Dr. Gambardella is an orthopaedic surgeon,
specializing in sports medicine, practicing with the world renowned Kerlan-Jobe
Orthopaedic Clinic. Dr. Gambardella is an orthopaedic consultant for the Los
Angeles Dodgers and the University of Southern California and Loyola Marymount
University sports programs. He serves as an Associate Clinical Professor of
Orthopaedics at the University of Southern California School of Medicine.
Frank W. Jobe, MD. Dr. Jobe is a pioneer in the fields of orthopaedic
surgery and sports medicine, and co-founded the Kerlan-Jobe Orthopaedic Clinic
in Inglewood, California. Dr. Jobe regularly consults to numerous professional
sports teams, including the PGA Tour, Senior PGA Tour and the Los Angeles
Dodgers. He is the Medical Director of the Biomechanics Laboratory at Centinela
Hospital Medical Center, and serves as Clinical Professor of Orthopaedics at the
University of Southern California School of Medicine.
Roy A. Mlakar. Mr. Mlakar is the President and Chief Executive Officer of
the NHL Ottawa Senator hockey club. He is the former chief operating officer of
the NHL Pittsburgh Penguins and was president of the NHL Los Angeles Kings.
Rob Moor. Mr. Moor is president of the National Basketball Association's
Minnesota Timberwolves and responsible for the day-to-day operation of that
franchise. Prior to joining the Timberwolves, Mr. Moor was executive vice
president of the National Hockey League's Los Angeles Kings, where he was
instrumental in the development, formation and acquisition of several companies,
including the Toronto Argonauts of the Canadian Football League, Upper Deck
Authenticated and MultiVision Marketing.
Ann Meyers Drysdale. Ms. Drysdale was a 4-time All American basketball
player at UCLA and received a silver medal in the 1976 Olympics. She was the
first woman signed by an NBA team, the Indiana Pacers, and has been active in
the women's professional basketball and broadcasting for several years.
Diana Scott. Ms. Scott is an attorney with expertise in employment law and
wrongful termination. She has represented professional sports players and
executives in various areas of employment, litigation, and business.
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Kenny Slutsky. Mr. Slutsky is currently Vice Chairman of Candle
Corporation, the leading provider of systems management software in the world.
He was previously Chairman of Kern Oil and Refining Co. and developed and
founded the Old Marsh Golf Club in Palm Beach County, Florida.
Reggie Smith. Mr. Smith played major league baseball for 17 seasons with
the Boston Red Sox, St. Louis Cardinals, Los Angeles Dodgers, and the San
Francisco Giants. He is currently the Los Angeles Dodgers' batting coach and is
founder of the Baseball Development Centers for skills instruction and training.
FACILITIES
The Company's executive offices are located at 6900 East Belleview Avenue,
Suite 200, Englewood, Colorado 80111. The term of such lease expired March 31,
1996 and the rent for the facilities is $1,100 per month. The Company continues
to occupy such premises on a month-to-month basis and will do so until the
completion of this Offering, at which time the Company will evaluate its
facility requirements.
The Company also leases office space in Los Angeles, California. Such lease
also expired on March 31, 1996 and the rent for such facility is $900 per month.
The Company continues to occupy such premises on a month-to-month basis and will
do so until the completion of this Offering, at which time the Company will
evaluate its facility requirements.
LITIGATION
There is no material litigation pending or threatened against the Company
nor are there any such proceedings to which the Company is a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
NAME AGE POSITION HELD
- ----------------------- --- --------------------------------------------------
Michael Mellman, MD.... 46 Chairman of the Board and Director
Marc R. Silverman...... 44 Chief Executive Officer, President, Chief
Financial Officer and Director
Elliot Steinberg....... 59 Director
Solomon A. Weisgal..... 70 Director
Joshua Kanter.......... 35 Director and Secretary
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Michael Mellman, MD is a founder of the Company and is presently in the
private practice of internal medicine at Centinela Hospital Medical Center in
Inglewood, California. Dr. Mellman has been the team physician for the Los
Angeles Dodgers since 1986, and the Los Angeles Lakers and Los Angeles Kings
since 1981. He was the team physician for the now defunct LA Express of the
United States Football League and has served as a consultant to the Los Angeles
Rams. Dr. Mellman is widely recognized as an expert in the area of sports
medicine and athletic performance. Dr. Mellman graduated from the University of
California at Los Angeles with a bachelors degree in Zoology. He received his MD
from the Mount Sinai School of Medicine in New York. His internship, residency,
and chief residency in Internal Medicine were all served at Cedars Sinai Medical
Center in Los Angeles.
Marc R. Silverman is a founder of the Company and has a broad background of
business experience and technical expertise, including strategic planning,
business development, product design and implementation. From 1989 through 1993,
Mr. Silverman was the President and a director of Performance Factors, Inc. (in
which he was one of the founders). Performance Factors, Inc. (which was formerly
known as Cognitive Systems, Inc.) was merged with and into BioFactors, Inc. on
May 22, 1994. Mr. Silverman was an officer of BioFactors, Inc. from 1993 until
September 1, 1995 (and a director until April, 1995). Prior to joining
Performance Factors Inc., Mr. Silverman was Director of Planning and Business
Development at Technicon Corporation, a major developer of computerized patient
care and hospital information systems, from 1987 until 1989. In that capacity,
he was responsible for strategic direction, new product planning and corporate
development. From 1985 to 1987, Mr. Silverman was General Manager of the Medical
Information Systems Division at BaronData Systems. This division developed and
marketed automated clinical decision support systems for acute care hospitals
and ambulatory care facilities. Prior to assuming the position of General
Manager, he was Director of Planning, with responsibility for the direction of
all corporate product lines.
Mr. Silverman has previously held positions at Cutter Laboratories and
Hexcel Corporation, where he was responsible for the design and implementation
of various computer applications. He is an engineering graduate of the
University of California at Los Angeles and has attended the Stanford
University, Advanced Management College.
Elliot Steinberg, a director of the Company, is the managing partner of
W.S. Ventures, a private investment partnership. From 1992 to the present date,
Mr. Steinberg has actively engaged in the practice of law, specializing in
business planning and real estate. In 1995, Mr. Steinberg became a managing
shareholder of Sunrise Creek, LLC, a company engaged in real estate subdivision
and development in the State of Colorado. Also in 1995, Mr. Steinberg became a
trustee of the California Real Estate Investment Trust, a self-administered real
estate trust (traded on the New York Stock Exchange under the symbol 'CT').
During 1992 and 1993, Mr. Steinberg was a director of Kimco Hotel Management
Company , a private company engaged in hotel management and development. From
1992 to July 1996, Mr. Steinberg was a director of BioFactors, Inc. Also, since
1992 Mr. Steinberg has been a director of Ganson Ltd. and Cege Co., Ltd. (Hong
Kong), both private companies
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engaged in the manufacture and sale of leather goods. From 1988 through 1992,
Mr. Steinberg was the general partner of, and general counsel to, Genesis
Merchant Group, an Illinois financial services firm, providing investment
banking, brokerage activities and asset management of equities and bonds. Mr,
Steinberg is a graduate of the University of California (Berkeley) and holds a
J.D. degree from the Boalt Hall School of Law, University of California
(Berkeley).
Solomon A. Weisgal, has been a director of the Company since February 1996.
Mr. Weisgal is a Certified Public Accountant and has been President of Solomon
A. Weisgal, Ltd., a financial consulting firm, since its inception in 1979. Mr.
Weisgal is presently a director of Chicago Holdings, Inc. and Dealers Alliance
Credit Corp., privately-held concerns, and First Merchant Acceptance Corporation
and Walnut Financial Services, Inc., companies listed on the Nasdaq National
Market System.
Joshua S. Kanter has been of counsel to Barack, Ferrazzano, Kirschbaum &
Perlman, specializing in securities, corporate and real estate law since June
1993. Mr. Kanter has also been the Vice-President of Windy City, Inc., a closely
held investment management and consulting firm since June 1986 and has been
General Counsel of Walnut Financial Services, Inc., a publicly-held concern
(Nasdaq NMS--WNUT) since September 1995. Mr. Kanter received a B.A. in Economics
and Political Science and graduated magna cum laude from Emory University in
1984. Thereafter, Mr. Kanter received his J.D. from the University of Chicago
Law School in 1987. Mr. Kanter has served on the Boards of Directors of a number
of companies, including Critical Industries, Inc., a publicly held concern, and
Performance Factors, Inc. and TCOM Systems, Inc., both privately-held concerns.
EXECUTIVE COMPENSATION
The following table sets forth remuneration paid or accrued by the Company
during fiscal years 1995 and 1996 to the named officers and directors of the
Company. Each director of the Company is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company. The members of the Board of Directors intend to meet at least
quarterly during the Company's fiscal year, and at such other times duly called.
In fiscal years 1995 and 1996 no director, officer or employee received
compensation exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------ SECURITIES ----------------------
NAME OF INDIVIDUAL OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
- ---------------------- ----- -------- ------ ------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marc Silverman........ 1995 $ 42,000 -- -- -- 60,000 -- --
Chief Executive
Officer, ............. 1996 $144,500 -- -- -- -- -- --
President, Chief
Financial Officer and
Director
Michael Mellman....... 1995 $ 21,000 -- -- -- 60,000 -- --
Chairman of the
Board................. 1996 $ 90,000 -- -- -- -- -- --
</TABLE>
Set forth below is information relating to stock options granted to Messrs.
Silverman and Mellman (none were granted in 1996):
OPTION/SAR GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO
OPTION/SARS EMPLOYEES IN EXERCISE
NAME GRANTED FISCAL 1995 PRICE ($/SH) EXPIRATION DATE
- ------------------- ----------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
Marc Silverman..... 60,000 28.57% $.25 Nov. 30, 2000
Michael Mellman.... 60,000 28.57% $.25 Nov. 30, 2000
</TABLE>
29
<PAGE>
AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 1995
AND YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT FY-END AT FY-END(1)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc Silverman..... -- -- 60,000 -- $ 345,000 --
Michael Mellman.... -- -- 60,000 -- $ 345,000 --
</TABLE>
- ------------------
(1) Represents the value of options assuming the initial public offering price
per Share set forth on the cover page of this Prospectus.
EMPLOYMENT AGREEMENTS
There are currently no employment agreements with any of the Company's
executive officers or key employees. All salaries of such persons will be set by
the Company's Compensation Committee which consists of Messrs. Steinberg,
Weisgal and Kanter, all non-employee directors of the Company.
1995 STOCK PLAN
In November 1995, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1995 Stock Plan
(hereinafter called the 'Plan'). The purpose of the Plan is to provide a means
whereby key individuals providing services to the Company and to its related
corporations may sustain a sense of proprietorship and personal involvement in
the continued development and financial success of the Company and to encourage
them to remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its shareholders.
Under the Plan, certain directors, officers, employees and consultants are
eligible to acquire Common Stock of the Company or otherwise participate in the
financial success of the Company. The Plan is expected to provide flexibility to
the Company's compensation methods, after giving due consideration to
competitive conditions and the impact of the federal tax laws.
The maximum aggregate number of Shares that may be awarded to individuals
under the Plan is 480,000 Shares. Any Shares that remain unissued at the
termination of the Plan shall cease to be subject to the Plan, but until
termination of the Plan, the Company shall at all times make available
sufficient shares to meet the requirements of the Plan. The aggregate number of
Shares which may be awarded under the Plan shall be adjusted to reflect a change
in capitalization of the Company, such as a stock dividend or stock split.
The Plan shall be administered by a Committee which shall be comprised of
at least two (2) non-employee disinterested directors appointed by the Board of
Directors of the Company (hereinafter referred to as the 'Board'). A
disinterested director is any member of the Board who within the prior year has
not been, and is not being, granted any awards related to the Shares under the
Plan or any other plan of the Company or any related Company except for awards
which: (i) are calculated in accordance with a formula as contemplated in
paragraph (c)(ii) of Rule 16b-3 ('Rule 16b-3') under the Securities and Exchange
Act of 1934; (ii) result from participation in an ongoing securities acquisition
plan meeting the conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise
from an election by a director to receive all or part of his Board fees and
Shares. The Committee shall have sole authority to select the individuals from
among those eligible to whom awards shall be made under the Plan, to establish
the amount of such award for each individual and the time when certificates for
Shares shall be issued, and to prescribe the legend to be affixed to the
certificate. The Committee is authorized, subject to Board approval, to
interpret the Plan and may from time to time adopt such rules, regulations, form
and agreement, not inconsistent with the Plan as it may deem advisable to carry
out the Plan. All decisions made by the Committee in administering the Plan
shall be subject to Board review.
30
<PAGE>
TYPES OF AWARDS
Stock Options. Options granted under the Plan may be 'incentive stock
options' ('Incentive Options') within the meaning of Section 422 of the Code or
stock options which are not incentive stock options ('Non-Incentive Options'
and, collectively with Incentive Options, hereinafter referred to as 'Options').
Whether or not Options will be granted, the number of shares subject to each
Option granted, the prices at which Options may be exercised (which shall not be
less than the fair market value of shares of Common Stock on the date of grant),
whether an Option will be an Incentive Option or a Non-Incentive Option, the
time or times and the extent to which Options may be exercised and all other
terms and conditions of Options will be determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years after
the date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted at any time after October 2005. The exercise price at which the shares
may be purchased may not be less than the Fair Market Value of shares of Common
Stock at the time the Option is granted, except as provided below with respect
to Incentive Options granted to 10% Stockholders.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ('10% Stockholder') shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock on the date the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
The exercise price of the shares to be purchased pursuant to each Option
shall be paid in any one or a combination of cash, personal check, personal
note, shares already owned or Plan awards which the Optionee has an immediate
right to exercise.
Restricted Stock Awards. Restricted Stock Awards ('RSAs') under the Plan
shall be in the form of Shares, restricted as to transfer and subject to
forfeiture, and shall be evidenced by restricted stock agreements in such form
and consistent with the Plan as the Committee shall approve from time to time.
RSAs awarded under the Plan shall be subject to such terms, conditions, and
restrictions, including without limitation: prohibitions against transfer,
substantial risks of forfeiture, attainment of performance objective and
repurchase by the Company or right of first refusal, and for such period or
periods as shall be determined by the Committee at the time of grant. The
Committee shall have the power to permit, in its discretion, an acceleration of
the expiration of the applicable restriction period with respect to any part or
all of the RSAs awarded to a grantee.
RSAs awarded, and the right to vote on the underlying Shares and to receive
dividends thereon, may not be sold, assigned, transferred, exchanged, pledged,
hypothecated, or otherwise encumbered during the restriction period applicable
to such Shares, except in the event of the death of the Optionee or by will or
the laws descent and distribution. Subject to the foregoing, and except as
otherwise provided in the Plan, the Grantee shall have all other rights of a
stockholder including, but not limited to, the right to receive dividends and
the right to vote such Shares.
In the event of a grantee's termination of employment prior to the lapse of
restrictions applicable to any RSAs awarded to such grantee, all such Shares as
to which there still remain restrictions shall be forfeited by such grantee
without payment of any consideration to the grantee, and neither the grantee nor
any successors, heirs, assigns, or personal representatives of such grantee
shall thereafter have any further rights or interest in such Shares or
certificates.
Stock Appreciation Rights. Stock Appreciation Rights ('SARs') are rights
entitling the grantee to receive cash or Shares having a fair market value equal
to the appreciation in market value of a stated number of Shares from date of
grant, or in the case of rights granted in tandem with or by reference to an
option granted prior to the grant of such rights, from the date of grant of the
related option to the date of exercise, which may be granted to such eligible
directors and employees as may be selected by the Committee. SARs may be granted
in tandem or with reference to a related option, in which event the grantee may
elect to exercise either the option or the SAR, but not both, as to the same
Share subject to the option and SAR, or the SAR may be granted independently of
a related option. In the event of a grant with a related option, the SAR shall
be subject to the terms and conditions of the related option. In the event of an
independent grant, the SAR shall be subject to the terms and conditions
31
<PAGE>
determined by the Committee. SARs shall not be transferred, assigned or
encumbered, except that SARs may be exercised by the executor, administrator or
personal representative of a deceased grantee within twelve (12) months of the
death of the grantee.
Upon exercise of an SAR, the grantee shall be paid the excess of the then
fair market value of a number of Shares to which the SAR relates over the fair
market value of such number of Shares at the date of grant of the SAR or of the
related option, as the case may be. The exercise of an SAR may only be made in
accordance with applicable restrictions pursuant to Rule 16b-3(e) under the
Securities and Exchange Act of 1934 or any similar successful provision.
At December 31, 1995, 174,000 Incentive Options and 36,000 Non-Incentive
Options have been granted. Messrs. Mellman and Silverman, Chairman of the Board
and Chief Executive Officer of the Company, respectively, were each granted
60,000 Incentive Options to purchase Common Stock at $.25 per share. The
remaining 90,000 options in the aggregate are exercisable at the greater of $.25
or 25% of the public offering price of the Company's Common Stock in the
Offering ($1.50).
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding shares of
the Company's Common Stock by (i) any holder of more than five percent (5%) of
the outstanding shares; (ii) the Company's officers and directors; and (iii) the
directors and officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENTAGE PERCENTAGE
OWNED PRIOR (%) OF (%) OF
TO THIS CLASS BEFORE CLASS AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING(1) OFFERING(1) OFFERING(1)
- ------------------------------------ ----------- ------------ -----------
<S> <C> <C> <C>
Jelsin Investments Limited ......... 216,000 7.44 6.04
P.O. Box NO3933
Shirley Street
Nassau, Bahamas
Kanter Family Foundation ........... 216,000 7.44 6.04
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Joshua S. Kanter(2)(9) ............. 86,400 2.98 2.42
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
M.D. Funding, Inc. ................. 459,000 15.81 12.83
5 Old Woods Drive
Harrison, New York 10528
Michael Mellman(3) ................. 234,000 7.89 6.43
500 North Poinsettia Avenue
Manhattan Beach, California 90266
Marc Silverman(4) .................. 234,000 7.89 6.43
c/o SportsTrac, Inc.
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENTAGE PERCENTAGE
OWNED PRIOR (%) OF (%) OF
TO THIS CLASS BEFORE CLASS AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING(1) OFFERING(1) OFFERING(1)
- ------------------------------------ ----------- ------------ -----------
<S> <C> <C> <C>
W. S. Ventures(5) .................. 270,000 9.30 7.54
P.O. Box 3721
Telluride, Colorado 81435
Elliot Steinberg(5) ................ 270,000 9.30 7.54
P.O. Box 3721
Telluride, Colorado 81435
The Holding Company(6) ............. 234,600 8.07 6.56
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Daniel Durchslag ................... 408,000 14.05 11.40
9400 Brighton Way
#402
Beverly Hills, CA 90210
Joel S. Kanter(7)(9) ............... 388,800 13.39 10.86
8000 Towers Crescent Avenue
Suite 1070
Vienna, Virginia 22182
Solomon A. Weisgal(8) .............. 18,000 .62 .50
120 South Riverside Drive
Suite 1420
Chicago, IL 60606
All officers and directors
as a group (five (5) persons)..... 842,400 28.68 23.32
</TABLE>
- ------------------
(1) Gives effect to the issuance of 480,000 shares of Common Stock (after the
March stock split) included in the Bridge Units. Does not give effect to (i)
101,250 shares of Common Stock issuable upon exercise of the Over-Allotment
Option; (ii) 67,500 shares of Common Stock issuable upon exercise of the
Representative's Purchase Option; (iii) 2,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants owned by the Bridge Lenders
and (iv) 210,000 employee stock options and 180,000 outstanding warrants.
(2) Mr. Kanter is a director and secretary of the Company. See 'Management.' Mr.
Kanter is a Vice President of Windy City, Inc. and Vice President of the
Kanter Family Foundation and has no voting or investment control of shares
owned by them and disclaims any beneficial interest in such shares. Mr.
Kanter is the brother of Joel Kanter, a principal stockholder.
(3) Mr. Mellman is the Chairman of the Board of Directors of the Company.
Includes options to purchase 60,000 shares of Common Stock at $.25 per
share. See 'Management.'
(4) Mr. Silverman is the Chief Executive Officer, Chief Financial Officer,
President and Director of the Company. Includes options to purchase 60,000
shares of Common Stock at $.25 per share. See 'Management.'
(5) Mr. Steinberg is the general partner of W.S. Ventures and has sole voting
and investment control over said shares. Mr. Steinberg is a director of the
Company. See 'Management.'
(6) Mr. Burton Kanter is the President of The Holding Company. Mr. Kanter is the
father of Joel S. Kanter, a principal stockholder, and Joshua S. Kanter, a
director and secretary of the Company.
(Footnotes continued on next page)
33
<PAGE>
(Footnotes continued from previous page)
(7) Includes (i) 86,400 shares owned by Mr. Kanter, (ii) 216,000 shares owned by
the Kanter Family Foundation and (iii) 86,400 shares owned by Windy City,
Inc. Mr. Kanter, as the President of the Kanter Family Foundation and Windy
City, Inc., is vested with sole voting and investment control of the shares
owned by said entities. Mr. Kanter disclaims any beneficial ownership of any
shares owned by the Kanter Family Foundation or Windy City, Inc. Mr. Kanter
is the brother of Joshua S. Kanter, a director of the Company.
(8) Director of the Company. See 'Management.' Includes 18,000 shares of Common
Stock (post March 1996 stock split) issued to him, as trustee, in connection
with a bridge loan to the Company. Mr. Weisgal, as trustee, is vested with
the sole voting and investment control of such shares but disclaims any
beneficial interest in such shares. See 'Bridge Financing.'
(9) Does not include 120,000 shares of Common Stock and 500,000 warrants held by
Ulster Investments Ltd. which were issued by the Company in connection with
its bridge loan. See 'Bridge Financing.' Ulster Investment Ltd. is an
Antigua corporation which is owned by the St. John's Trust, the trustee of
which is the Antigua International Trust, Ltd., a subsidiary of Swiss
American Bank, Ltd. The beneficial owner of such shares is the St. John's
Trust. Antigua International Trust, Ltd. is the sole director of Ulster
Investment Ltd., and Stuart Young serves as President and Treasurer and
Roslyn Yearwood serves as Secretary. The beneficiaries of the St. John's
Trust are the members of the family of Burton W. Kanter (but not Burton W.
Kanter), including Josh Kanter, Joel Kanter and Janis Kanter, all of whom
are shareholders of the Company. Joel Kanter, Josh Kanter and Janis Kanter
disclaim any beneficial interest in such shares and warrants.
34
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From inception to November 1995, the Company issued an aggregate of
2,424,000 shares of its common stock to 14 shareholders for aggregate
consideration of $507,000. The Company also issued warrants to purchase up to
180,000 shares of Common Stock at an exercise price of $4.17 per share (as
adjusted for the Company's March stock split) through December 30, 2000. The
exercise price of those warrants were based upon the anticipated public offering
price of the Common Stock. These warrants were issued on December 31, 1995 to
Burton Kanter and Elliot Steinberg. The right to receive these warrants were
initially granted to BFI (on August 30, 1995) pursuant to the sublicense
agreement (although such warrants as issued contain different terms as initially
contemplated). BFI assigned such rights (on October 16, 1995) to Messrs. Kanter
and Steinberg in connection with the waiver of defaults relating to unsecured
loans of $54,450 and $237,660, respectfully, owed by BFI to such persons (and
affiliates), the deferment of such obligations of BFI and the conversion of such
obligations of BFI into shares of capital stock of BFI upon the closing of the
initial public offering of BFI, if the same occurs prior to December 31, 1996
(otherwise such obligations become due and payable). In January 1997, BFI closed
on its initial public offering of securities and paid its obligations to such
persons. On February 19, 1996, these warrants were subsequently assigned to
Sheridan Ventures, Ltd. and Rainy Day Holdings.
From December 1995, through February 1996, the Company borrowed an
aggregate of $400,000 from ten (10) lenders (the 'Bridge Lenders'): Ulster
Investments Ltd ($100,000), The Holding Company ($65,000), Dune Holdings, Inc.
($100,000), Solomon A. Weisgal, as trustee ($15,000), Howard Kirschbaum as
Custodian for Brian Kirschbaum under the Uniform Gift to Minors Act ($5,000),
Scott Sinar ($5,000), Matthew Harriton ($20,000), John LaFalce ($10,000),
Michael Lulkin ($30,000), and Hartley T. Bernstein ($50,000). See 'Risk
Factors--Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender.' None of the Bridge Lenders are affiliated
with the Company other than Solomon A. Weisgal, a director of the Company, and
The Holding Company, a principal stockholder of the Company. Burton W. Kanter is
the President of The Holding Company. Mr. Kanter is the father of Joel Kanter, a
principal stockholder of the Company and Josh Kanter, a director and Secretary
of the Company. Ulster Investments Ltd. is an Antigua corporation which is owned
by the St. John's Trust. The beneficiaries of the St. John's Trust are the
members of the family of Burton W. Kanter (but not including Burton W. Kanter),
including Josh Kanter, Joel Kanter and Janis Kanter, all of whom are
shareholders of the Company. In exchange for making loans to the Company, each
Bridge Lender received (i) a promissory note (each a 'Bridge Note') and (ii)
Bridge Units. Each of the Bridge Units is comprised of one (1) share of Common
Stock and five (5) Class A Warrants. Each of the Bridge Notes bears interest at
the rate of eight percent (8%) per annum. The Bridge Notes are due and payable
upon the earlier of (i) January 31, 1998 and (ii) the closing of an initial
underwritten public offering of the Company's securities. The Company intends to
use a portion of the proceeds of this Offering to repay the Bridge Lenders. See
'Use of Proceeds.' The Company entered into the bridge financing transactions
because it required additional financing and no other sources of financing were
available to the Company at that time. See 'Description of Securities.' With
respect to the bridge financing, the Company did not engage a placement agent,
the Bridge Lenders were identified by the Company's officers and directors, and
no other solicitations were made. See 'Underwriting.'
In August 1996, the Company received an advance of $350,000 from one of the
Bridge Lenders (Ulster Investments Ltd.). This advance bears interest at the
rate of 15% per annum and was used to pay off the balance of the note payable to
BFI (See 'Use of Proceeds'). Repayment of this note is due on the earlier of (i)
the completion of a public offering of the Company's securities, or (ii) January
31, 1998. See 'Use of Proceeds.'
In October 1996 and December 1996, the Company received advances of $50,000
each from one of the Bridge Lenders (Ulster Investments Ltd.). These advances
bear interest at the rate of 10% per annum and were used for working capital
purposes. Repayment of these notes are due on the earlier of (i) the completion
of a public offering of the Company's securities, or (ii) January 31, 1998. See
'Use of Proceeds.'
During the months of January 1997 to March 1997, the Company received
advances aggregating $164,000 from one of the Bridge Lenders (Ulster Investments
Ltd.). These notes bear interest at the rate of 10% per annum and were used for
working capital purposes. Repayment of these notes are due on the earlier of (i)
the completion of a public offering of the Company's securities, or (ii) January
31, 1998. See 'Use of Proceeds.'
Mr. Silverman, chief executive officer and a director of the Company, was
one of the founders and the President and a director of Performance Factors,
Inc. ('Performance Factors'), the original licensee of the CTT
35
<PAGE>
technology from STI., from 1989 until 1993. Performance Factors (which was
formerly known as Cognitive Systems, Inc.) was merged with and into BFI on May
27, 1994, the sublicensor of the CTT technology to the Company. Mr. Silverman
was an officer of BFI, from 1993 until September 1, 1995 (and a director until
April 1995). Mr. Silverman is a minority stockholder of BFI.
Mr. Steinberg, a director of the Company, served on the board of directors
of Performance Factors and served on the board of directors of BFI until July
1996. Mr. Steinberg is the general partner of W.S. Ventures, a principal
stockholder of the Company. W.S. Ventures is a minority stockholder of BFI. Mr.
Steinberg is the general partner of W.S. Ventures and has sole voting and
investment control over the shares of Common Stock owned by W.S. Ventures.
Mr. Burton Kanter is the father of Joel S. Kanter, a principal stockholder,
and Joshua S. Kanter, a director and secretary of the Company. Burton Kanter
served on the board of directors of Performance Factors and continues to serve
on the board of directors of BFI. Burton Kanter is the President of The Holding
Company, a principal stockholder of the Company. Burton Kanter is Chairman of
the Board of Walnut Capital Corp., an early-stage venture capital fund which has
a minority interest in BFI. Joel Kanter is the President of the Kanter Family
Foundation and Windy City, Inc., stockholders of the Company, and is the brother
of Joshua S. Kanter.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors. Currently there are no disinterested
directors serving on the Company's Board of Directors.
DESCRIPTION OF SECURITIES
The Company is offering 675,000 shares of Common Stock, par value $.01 per
share.
COMMON STOCK
The Company is authorized to issue up to 15,000,000 shares of Common Stock,
of which 2,904,000 shares will be issued and outstanding as of the date of this
Prospectus. All of the issued and outstanding shares of Common Stock will be
fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See 'Dividend Policy.'
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for each
share held at all stockholders' meetings including the annual meeting, for all
purposes, including the election of directors. The Common Stock does not have
cumulative voting rights.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 100,000 shares of
'blank check' Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the
36
<PAGE>
redemption price and the liquidation preference of such class or series. As of
the date of this Prospectus, there are no shares of Preferred Stock issued and
outstanding and the Board of Directors has no present intention to issue any
shares of Preferred Stock.
CLASS A WARRANTS
In connection with the Bridge Financing, the Company issued 2,000,000 Class
A Warrants included in the Bridge Units. Each Class A Warrant entitles the
holder to purchase one (1) share of Common Stock at a price of $6.50 per share
for a period of four (4) years commencing one (1) year from the Effective Date
of this Offering. Each Class A Warrant is redeemable by the Company for $.05 per
Class A Warrant, at any time after , 1998, upon thirty (30) days'
prior written notice, if the closing price of the Common Stock, as reported by
the principal exchange on which the Common Stock is traded, The Nasdaq Small Cap
Market, the National Quotation Bureau Incorporated, or the OTC Bulletin Board as
the case may be, exceeds $9.00 per share for twenty (20) consecutive trading
days ending within fifteen (15) days prior to the date of the notice of
redemption. If there is no publicly traded market for the Common Stock, the
Class A Warrants will not be subject to redemption. Upon thirty (30) days'
written notice to all holders of Class A Warrants, the Company shall have the
right, subject to compliance with Rule 13E-4 under the Securities Exchange Act
of 1934 and the filing of Schedule 13E-4 and, if required, a post-effective
amendment to this registration statement, to reduce the exercise price and/or
extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a holder
of Class A Warrant certificates resides, such holder might not be permitted to
exercise the Warrants.
Each Class A Warrant may be exercised by surrendering the warrant
certificate, with the form of election to purchase on the reverse side of the
Class A warrant certificate properly completed and executed, together with
payment of the exercise price, to the Transfer Agent. The Class A Warrants may
be exercised in whole or from time to time in part. If less than all of the
Class A Warrants evidenced by a warrant certificate are exercised, a new Class A
warrant certificate will be issued for the remaining number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the Class A Warrants will result in the dilution
of the then book value of the Common Stock of the Company held by the public
investors and would result in a dilution of their percentage ownership of the
Company.
OTHER WARRANTS TO PURCHASE COMMON STOCK
On December 31, 1995, the Company issued 180,000 warrants to purchase
Common Stock, at $4.17 per share (adjusted in connection with the Company's
March stock split), for a period commencing on such date and ending on December
30, 2000. See 'Certain Transactions.'
Each warrant may be exercised by surrendering the original warrant
certificate with the form of election to purchase and payment of the exercise
price multiplied by the number of such warrants exercised. Such warrants may be
exercised in whole or from time to time in part. If less than all of such
warrants are exercised, a new certificate will be issued for the remaining
number of such warrants.
37
<PAGE>
The holders of such warrants have piggyback registration rights on the
shares of Common Stock underlying such warrants, in accordance with certain
procedures. All expenses in connection with such rights will be borne by the
Company.
Holders of such warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events including, but not limited to, issuance of stock
dividends. If the Company merges or consolidates or effects a sale, the holder
shall have the right to purchase such securities or assets as may be issued or
payable with respect to or in exchange for a number of shares of Common Stock
equal to the number purchasable by such warrants.
For the life of the warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the warrants will result in the dilution of the
then book value of the Common Stock of the Company held by the public investors
and would result in a dilution of their percentage ownership of the Company.
These warrants were issued on December 31, 1995 to Burton Kanter and Elliot
Steinberg. The right to receive these warrants were initially granted to BFI (on
August 30, 1995) pursuant to the sublicense agreement (although such warrants as
issued contain different terms as initially contemplated). BFI assigned such
rights (on October 16, 1995) to Messrs. Kanter and Steinberg in connection with
the waiver of defaults relating to unsecured loans of $54,450 and $237,660,
respectfully, owed by BFI to such persons (and affiliates), the deferment of
such obligations of BFI and the conversion of such obligations of BFI into
shares of capital stock of BFI upon the closing of the initial public offering
of BFI, if the same occurs prior to December 31, 1996 (otherwise such
obligations become due and payable). In January 1997, BFI closed on its initial
public offering of securities and paid its obligations to such persons. On
February 19, 1996, these warrants were subsequently assigned to Sheridan
Ventures, Ltd. and Rainy Day Holdings. See 'Certain Relationships and Related
Transactions.'
If any underwriter or dealer intends to acquire restricted securities of a
stockholder of the Company subsequent to effectiveness of the Registration
Statement of which this Prospectus forms a part, a post-effective amendment to
such Registration Statement will be filed to reflect an arrangement involving
10% or more of the restricted securities being registered for resale pursuant to
a new registration statement. A sticker supplement to the Prospectus contained
in the Registration Statement will be filed if the amount of restricted
securities being registered for resale pursuant to a new registration statement
falls within the range of 5% to 10%.
DELAWARE ANTI-TAKEOVER LAW
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an 'interested
stockholder' (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a 'business
combination' (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
discouraging, delaying or preventing hostile
38
<PAGE>
takeovers, including those that might result in the payment of a premium over
market price or changes in control or management of the Company.
LIMITATION ON LIABILITY OF DIRECTORS
In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Underwriter specifically for or in
connection with the preparation of the registration statement, the Prospectus,
or any such amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers.
The Delaware General Corporation Law 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 by-laws, any agreement, vote of stockholders or otherwise.
Article Eighth of the Company's Certificate of Incorporation provides for
indemnification of officers and directors and Article Ninth eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law. Provisions for indemnification are also
contained in Article VIII of the Company's By-Laws.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
CERTAIN MARKET INFORMATION
The Company has applied for the inclusion of the Common Stock on the OTC
Bulletin Board under the symbol 'SPRT'. There can be no assurance that such
application will be approved or that, if approved, a regular trading market for
the Common Stock will develop after the Offering or that, if developed, a
regular trading market will be sustained. The OTC Bulletin Board is an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than a national securities exchange or Nasdaq and quotes for
stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for a national securities exchange or
Nasdaq. In the event the Common Stock is not included on the OTC Bulletin Board,
quotes for the Common Stock may be included in the 'pink sheets' for the
over-the-counter market. If the Company's Common Stock trades for less than
$5.00 per share on the OTC Bulletin Board or the 'pink sheets', it will become
subject to the Commission's penny stock disclosure requirements. See 'Risk
Factors--'Penny Stock' Regulations May Impose Certain Restrictions on
Marketability of Company's Common Stock.'
The Company's application for listing of its Common Stock on the Nasdaq
SmallCap Market was denied by the Nasdaq staff for the following reasons: (1)
there is substantial risk regarding the Company's ability to continue operating
as a going concern and to continue to comply with Nasdaq listing criteria; (2)
there are significant investment risks to prospective public investors in the
Company who will provide the vast majority of
39
<PAGE>
its permanent equity capital but who will sustain a disproportionate degree of
investment risk relative to the percentage of share ownership and investment by
the Company's principals and bridge lenders; and (3) there is a potential for
extraordinary monetary gain to be realized by the Company's bridge lenders to
the detriment of prospective public investors. The denial was affirmed by the
Panel for the following reasons: (1) the Panel was unwilling to dismiss the
staff's concern relating to the Company's ability to continue as a going concern
and noted that the Company lacks executed contracts to serve as a basis for its
1997 projections and that the Company's licensing contracts with the
professional teams and the health club agreement fall short of providing a basis
for future revenue stream projections; and (2) the Panel was uncomfortable with
the bridge loan financing as structured due to the excessive potential returns
for the bridge lenders, the brief period of investment prior to the offering,
and the lack of adequate lock up provisions for the equity securities in the
post-offering period. The Company's appeal to the Review Committee was denied.
The Review Committee affirmed the decision of the Panel because the Company was
in its development stage, with speculative prospects for future sales and
uncertainty regarding the Company's ability to continue as a going concern. The
Review Committee was also concerned with the excessive potential return to
bridge lending to the detriment of potential Nasdaq shareholders. See 'Risk
Factors--Lack of Prior Market for Common Stock,' 'No Assurance of Public Trading
Market,' and 'Denial of Nasdaq Listing' and 'Penny Stock Regulations May Impose
Certain Restrictions on Marketability of the Company's Common Stock.'
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the 'Transfer Agent').
SHARES AVAILABLE FOR FUTURE SALE
Immediately prior to the sale of the Common Stock hereunder, the Company
had an aggregate of 2,904,000 shares of its Common Stock issued and outstanding,
all of which are 'restricted securities' which may be sold only in compliance
with Rule 144 under the Securities Act of 1933, as amended. Rule 144 provides,
in essence, that a person holding restricted securities for a period of one year
after payment therefor may sell, in brokers' transactions or to market makers,
an amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not affiliates of the Company and who have held their
restricted securities for at least two years are not subject to the volume or
transaction limitations.) Any such sales could have a material adverse effect on
the market price for the Common Stock, should a trading market develop. See
'Risk Factors--Shares Eligible for Future Sale May Adversely Affect the Market'
and 'Risk Factors--Additional Authorized Shares Available for Issuance May
Adversely Affect the Market.'
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriters have agreed to purchase from the Company
675,000 Shares offered hereby from the Company all on a firm commitment basis,
if any are purchased, as follows:
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------- ----------------
IAR Securities Corp................
............
............
............
............
----------------
675,000
The Underwriters have advised the Company that they propose to offer the
Shares to the public at $6.00 per Share as set forth on the cover page of this
Prospectus and that they may allow to certain dealers who are NASD members
concessions not to exceed $ per Share, of which not in excess of $
per Share may be
40
<PAGE>
reallowed to other dealers who are members of the NASD. After the initial public
offering, the public offering price, concession and reallowance may be changed
by the Representative. The Underwriters have informed the Company that they do
not intend to confirm sales over which they exercise discretionary authority.
The public offering price of the securities was arbitrarily determined by
negotiations between the Company and the Representative and does not necessarily
relate to the assets, book value or results of operations of the Company or any
other established criteria of value.
The Company has granted an option to the Underwriters, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 101,250 additional Shares at the Offering prices, less the
underwriting discount, to cover Over-Allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities arising under the Act. Insofar
as indemnification for liabilities arising under the Act may be provided to
officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of three percent (3%) of the aggregate offering price of the
securities offered by the Company hereby, including any securities purchased
pursuant to the Over-Allotment Option.
The Company has agreed to sell to the Representative, or its designees, for
an aggregate purchase price of $67.50, an option (the 'Representative's Purchase
Option') to purchase up to an aggregate of 67,500 Shares. The Representative's
Purchase Option shall be exercisable during a four (4) year period commencing
one (1) year from the Effective Date. The Representative's Purchase Option may
not be assigned, transferred, sold or hypothecated by the Representative until
twelve (12) months after the Effective Date of this Prospectus, except to
officers of the Underwriters or to selling group members in this Offering. Any
profits realized upon the sale of the securities issuable upon exercise of the
Representative's, Purchase Option may be deemed to be additional underwriting
compensation. The exercise price of the shares of Common Stock issuable upon
exercise of the Representative's Purchase Option during the period of
exercisability shall be $9.90 per share. The exercise price of the
Representative's Purchase Option and the number of shares covered thereby are
subject to adjustment in certain events to prevent dilution. For the life of the
Representative's Purchase Option, the holders thereof are given, at a nominal
cost, the opportunity to profit from a rise in the market price of the Company's
securities with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise capital for its business if the need
should arise while the Representative's Purchase Option is outstanding. At any
time when the holders of the Representative's Purchase Option might be expected
to exercise it, the Company would probably be able to obtain additional capital
on more favorable terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the securities offered hereby, the Company
will enter into a three (3) year financial advisory and investment banking
agreement with the Representative, pursuant to which the Company will be
obligated to pay the Representative $100,000 in advance upon the closing of the
Offering, for financial and investment advisory services to the Company.
The Representative shall have the option, subject to the approval of the
Company, to appoint one individual to stand for election to the Company's Board
of Directors for a period of three (3) years from the Effective Date. In lieu of
nominating a director, the Representative may designate a non-director observer
to attend meetings of the Company's Board of Directors for three (3) years after
the Effective Date at the Company's discretion.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Representative Purchase Option which have been filed as exhibits
hereto.
41
<PAGE>
DETERMINATION OF PUBLIC OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Shares has been determined by
negotiations between the Company and the Representative. Among the factors
considered in the negotiations were the market price of the Company's Common
Stock, an analysis of the areas of activity in which the Company is engaged, the
present state of the Company's business, the Company's financial condition, the
Company's prospects, an assessment of management, the general condition of the
securities market at the time of this Offering and the demand for similar
securities of comparable companies. The public offering price of the securities
does not necessarily bear any relationship to assets, earnings, book value or
other criteria of value applicable to the Company.
The Company anticipates that the Common Stock will be listed for quotation
on the OTC Bulletin Board under the symbol 'SPRT' but there can be no assurances
that an active trading market will develop, even if the securities are accepted
for quotation. See 'Description of Securities--Certain Market Information.'
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Representative in matters unrelated to this Offering. Hartley T. Bernstein,
a partner at Bernstein & Wasserman, LLP, is a Bridge Lender and is the record
owner of 60,000 shares of Common Stock and 250,000 Warrants. See 'Bridge
Financing.' Certain legal matters will be passed upon for the Underwriters by
Lampert & Lampert, 10 East 40th Street, New York, NY 10016.
EXPERTS
Certain of the Financial Statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Holtz Rubenstein &
Co., LLP, independent certified public accountants, whose reports thereon appear
elsewhere herein and in the Registration Statement.
AVAILABLE INFORMATION
The Company does not presently file reports and other information with the
Securities and Exchange Commission (the 'Commission'). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act') and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). The Company
has filed with the Commission a registration statement on Form SB-2 (herein
together with all amendments and exhibits referred to as the 'Registration
Statement') under the Act of which this Prospectus forms a part. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information reference is made to the
Registration Statement.
42
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
----------
Report of Independent Certified Public Accountants............... F-2
Financial Statements:
Balance sheets as of December 31, 1996 and March 31, 1997
(unaudited)................................................. F-3
Statements of operations for the year ended December 31, 1996
and the period April 25, 1995 (inception) to December 31,
1995, three months ended March 31, 1997 and 1996 and
cumulative during development stage (unaudited)............. F-4
Statement of stockholders' equity (Deficit) for the year ended
December 31, 1996 and the period April 25, 1995 (inception)
to December 31, 1995, three months ended March 31, 1997 and
cumulative during development stage (unaudited)............. F-5
Statements of cash flows for the year ended December 31, 1996
and the period April 25, 1995 (inception) to December 31,
1995, three months ended March 31, 1997 and 1996 and
cumulative during development stage (unaudited)............. F-6
Notes to financial statements.................................. F-7 - F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
SportsTrac, Inc.
Englewood, Colorado
We have audited the balance sheet of SportsTrac, Inc. (a development stage
company) as of December 31, 1996, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
1996 and the period April 25, 1995 (inception) to December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 SportsTrac, Inc. as of December
31, 1996 and the results of its operations and its cash flows for the year ended
December 31, 1996 and the period April 25, 1995 (inception) to December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, SportsTrac,
Inc. is in the development stage and the Company's ability to continue in the
normal course of business is dependent upon successful completion of its planned
public offering of equity securities to raise capital and the success of future
operations. These uncertainties raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
HOLTZ RUBENSTEIN & CO., LLP
Certified Public Accountants
Melville, New York
March 18, 1997
125 Baylis Road, Melville, NY 11747-3823 o FAX 516/752-1742 o 516/752-7400
F-2
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- -------------------------------------------------------
CURRENT ASSETS:
Cash................................................. $ 23,932 $ 40,189
Accounts Receivable.................................. 10,000 10,000
------------ ------------
33,932 50,189
LICENSED TECHNOLOGY, net of accumulated amortization of
$97,976 and $116,060, respectively (Note 3).......... 842,484 824,400
COMPUTER EQUIPMENT, net of accumulated depreciation of
$10,060 and $12,310, respectively.................... 40,238 38,986
DEFERRED OFFERING COSTS................................ 25,000 28,348
OTHER ASSETS........................................... 2,111 4,161
------------ ------------
$ 943,765 $ 946,084
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- -------------------------------------------------------
CURRENT LIABILITIES:
Bridge notes payable (Note 4)........................ $1,200,000 $ 1,364,000
Deferred revenue..................................... 20,000 20,000
Accrued expenses..................................... 466,779 528,526
------------ ------------
1,686,779 1,912,526
------------ ------------
STOCKHOLDERS' (DEFICIT): (Note 6)
Preferred stock, $.01 par value; authorized 100,000
shares; no shares issued and outstanding......... -- --
Common stock, $.01 par value; authorized 15,000,000
shares; 2,904,000 shares issued and outstanding... 29,040 29,040
Additional paid-in capital........................... 1,413,960 1,413,960
Deficit accumulated during the development stage..... (2,186,014) (2,409,442)
------------ ------------
(743,014) (966,442)
------------ ------------
$ 943,765 $ 946,084
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION) TO DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 STAGE
-------------- -------------- ----------------- ----------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........... $ -- $ -- $ -- $ -- $ --
-------------- -------------- ----------------- ----------------- ------------
COSTS AND EXPENSES:
General and
administrative
(Note 6)...... 149,373 104,632 758,150 735,524 1,643,047
Product design
costs......... 22,663 41,293 90,825 26,439 139,927
Depreciation and
amortization... 20,334 19,083 81,296 26,740 128,370
Interest (Notes 3
and 5)........ 31,058 179,550 434,218 32,822 498,098
-------------- -------------- ----------------- ----------------- ------------
223,428 344,558 1,364,489 821,525 2,409,442
-------------- -------------- ----------------- ----------------- ------------
NET LOSS........... $ (223,428) $ (344,558) $(1,364,489) $(821,525) $ (2,409,442)
-------------- -------------- ----------------- ----------------- ------------
-------------- -------------- ----------------- ----------------- ------------
NET LOSS PER SHARE
(Note 6)......... $ (.07) $ (.11) $ (.44) $ (.26) $ (.77)
-------------- -------------- ----------------- ----------------- ------------
-------------- -------------- ----------------- ----------------- ------------
Weighted average
number of shares
of common stock
outstanding (Note
6)............... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
-------------- -------------- ----------------- ----------------- ------------
-------------- -------------- ----------------- ----------------- ------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(NOTE 6)
<TABLE>
<CAPTION>
PREFERRED DEFICIT
STOCK COMMON STOCK ACCUMULATED
------------- -------------------- ADDITIONAL DURING THE
PAR PAR PAID-IN DEVELOPMENT
SHARES VALUE SHARES VALUE CAPITAL STAGE TOTAL
----- ----- --------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 25, 1995... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of stock for cash
at inception............ -- -- 240,000 2,400 (400) -- 2,000
Issuance of stock in
exchange for notes
payable................. -- -- 1,755,000 17,550 388,700 -- 406,250
Issuance of stock for
cash.................... -- -- 429,000 4,290 94,460 -- 98,750
Issuance of options....... -- -- -- -- 630,000 -- 630,000
Net loss.................. -- -- -- -- -- (821,525) (821,525)
----- ----- --------- ------- ---------- ----------- ----------
Balance, December 31,
1995.................... -- -- 2,424,000 24,240 1,112,760 (821,525) 315,475
Issuance of stock to
bridge note holders
(Note 4)................ -- -- 480,000 4,800 301,200 -- 306,000
Net loss.................. -- -- -- -- -- (1,364,489) (1,364,489)
----- ----- --------- ------- ---------- ----------- ----------
Balance, December 31,
1996.................... -- $ -- 2,904,000 $29,040 $1,413,960 $(2,186,014) $ (743,014)
Net Loss (unaudited)...... -- -- -- -- -- (223,428) (223,428)
----- ----- --------- ------- ---------- ----------- ----------
Balance, March 31, 1997
(unaudited)............. -- $ -- 2,904,000 $29,040 $1,413,960 $(2,409,442) $ (966,442)
----- ----- --------- ------- ---------- ----------- ----------
----- ----- --------- ------- ---------- ----------- ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION TO DEVELOPMENT)
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 STAGE
-------------- -------------- ----------------- ----------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................ $ (223,428) $ (344,558) $(1,364,489) $(821,525) $(2,409,442)
-------------- -------------- ----------------- ----------------- -----------
Adjustments to reconcile
net loss to net cash
used in operations:
Amortization and
depreciation........ 20,334 19,083 81,296 26,740 128,370
Amortization of
imputed interest.... -- 172,885 339,040 26,500 365,540
Issuance of options... -- -- -- 630,000 630,000
Increase in assets:
Accounts
Receivable.......... -- -- (10,000) -- (10,000)
Other assets........ (2,050) (800) (1,011) (1,100) (4,161)
Increase in
liabilities:
Deferred revenue.... -- -- 20,000 -- 20,000
Accrued expenses.... 61,747 137,742 453,033 13,746 528,526
-------------- -------------- ----------------- ----------------- -----------
Total adjustments..... 80,031 328,910 882,358 695,886 1,658,275
-------------- -------------- ----------------- ----------------- -----------
Net cash used in operating
activities.............. (143,397) (15,648) (482,131) (125,639) (751,167)
-------------- -------------- ----------------- ----------------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of licensed
technology............ -- -- -- (300,000) (300,000)
Acquisition of computer
equipment............. (998) (21,080) (28,140) (22,158) (51,296)
-------------- -------------- ----------------- ----------------- -----------
Net cash used in investing
activities.............. (998) (21,080) (28,140) (322,158) (351,296)
-------------- -------------- ----------------- ----------------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance
of stock.............. -- 15,500 15,500 85,250 100,750
Proceeds from notes
payable............... -- -- -- 406,250 406,250
Increase in deferred
offering costs........ (3,348) (155,678) (25,000) -- (28,348)
Proceeds from Bridge
notes payable......... 164,000 400,000 1,200,000 -- 1,364,000
Repayment of notes
payable............... -- -- (700,000) -- (700,000)
-------------- -------------- ----------------- ----------------- -----------
Net cash provided by
financing
activities.............. 160,652 259,822 490,500 491,500 1,142,652
-------------- -------------- ----------------- ----------------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS ............ 16,257 223,094 (19,771) 43,703 40,189
CASH AND CASH EQUIVALENTS,
beginning of period..... 23,932 43,703 43,703 -- --
-------------- -------------- ----------------- ----------------- -----------
CASH AND CASH EQUIVALENTS,
end of period........... $ 40,189 $ 266,797 $ 23,932 $ 43,703 $ 40,189
-------------- -------------- ----------------- ----------------- -----------
-------------- -------------- ----------------- ----------------- -----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS:
SportsTrac, Inc. (the 'Company') is a Delaware Corporation which was formed
on April 25, 1995. Subsequent to formation, the Company entered into a
sublicense agreement providing it with the exclusive right to manufacture and
market a hand-eye coordination device with sports related and sports
entertainment applications (see Note 3). The Company's fiscal year end is
December 31.
The Company is in the development stage, as defined in Statement of
Financial Accounting Standard No. 7 ('FAS 7'). To date, the Company has devoted
its efforts to various organizational activities, including negotiating of a
sublicense agreement, developing its business strategy, hiring management
personnel, raising capital, and undertaking preliminary activities for the
commencement of operations. The Company has not generated any revenue to date
and is presently evaluating the commercial value of the product obtained under
its sublicense agreement. Although the Company has obtained an exclusive
sublicense for the manufacture and marketing rights to a certain hand-eye
coordination device, there can be no assurance that the Company will be
successful in marketing any such product under this license.
As reflected in the accompanying financial statements, the Company has
incurred cumulative losses of approximately $2,409,000. The Company has entered
into a letter of intent with an underwriter for the public sale of the Company's
securities (see Note 6). Management is of the opinion that the proceeds of this
proposed offering will be sufficient for the completion of its presently
contemplated product development activities and to meet the working capital
needs of the Company for more than the twelve-month period following the
successful completion of this proposed offering, including the payment of
certain indebtedness of the Company. There can be no assurance that additional
financing will not be required to significantly penetrate the market and for
continued operations. If additional financing is required, there is no assurance
that such funds will be available to the Company. In addition, there is no
assurance that the proposed public offering will occur.
The above factors raise substantial doubt about the ability of the Company
to continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts and classification of liabilities that might result
should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Depreciation and amortization
Depreciation of computer equipment is computed using the straight-line
method based over the estimated useful lives of the related assets (5 years).
Amortization of licensed technology is computed using the straight-line
method over the contractual period of the license (13 years).
Amortization of financing costs in connection with bridge notes is computed
using the straight-line method over a six month period.
F-7
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
b. Income taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
c. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
d. Research and development costs
Research and development costs are expensed as incurred.
e. 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. Stock-based compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, 'Accounting for Stock-Based Compensation' issued by the
Financial Accounting Board. The Company measures compensation expense for its
stock-based employees compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, 'Accounting for Stock Issued to Employees,'
and will provide pro forma disclosures of net income/(loss) and earnings/(loss)
per share as if the fair value-based method prescribed by SFAS 123 had been
applied in measuring compensation expense. The effect on net earnings for 1995
and 1996 was immaterial.
3. LICENSED TECHNOLOGY:
In August 1995, the Company entered into a thirteen year exclusive and
world-wide sublicensing agreement for the rights to manufacture and market a
hand-eye coordination device with sports related and sports entertainment
applications for an aggregate price of $1,000,000. Certain of the Company's
stockholders are also minority stockholders of the company in connection with
the sublicensing agreement. The consideration consisted of a down payment of
$300,000 and the issuance of a non-interest bearing $700,000 note as well as the
issuance of warrants to purchase 180,000 shares of the Company's common stock at
an exercise price of $4.17 per share (see Note 6c). These warrants were
subsequently assigned and issued to related parties of the Company.
F-8
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
3. LICENSED TECHNOLOGY:--(CONTINUED)
In accordance with APB Opinion No. 21, 'Interest on Receivable and
Payables,' this note ($700,000) has been discounted to reflect its present value
($640,460) on September 1, 1995, utilizing an imputed rate of 12%. Amortization
of interest is calculated using the straight-line method over the respective
terms of the related note. Interest expense for the periods ended December 31,
1996, March 31, 1996 and December 31, 1995 related to this note were $33,040,
$19,885 and $26,500, respectively. During 1996, the Company repaid the $700,000
from the proceeds received as disclosed in Note 4. In addition, the seller is
entitled to a royalty equal to 8 1/2% of the cash receipts from the sale of
products or services containing the licensed technology, excluding any revenue
from installation, maintenance, consulting or other cash receipts not directly
or indirectly related to such technology.
4. BRIDGE NOTES PAYABLE:
a. During January and February 1996, the Company received $400,000 from
third parties ('Bridge Lenders'), bearing interest at 8% per annum. These notes
were due and payable upon the earlier of (i) June 30, 1996 or (ii) the
completion of a public offering of the Company's securities. On December 31,
1996, the Bridge Lenders extended the terms for payment to be the earlier of (i)
the completion of a public offering of the Company's Securities, or (ii) January
31, 1998. In exchange for making the loans to the Company each Bridge Lender
received a 'Bridge Note' and a 'Bridge Unit'. Each bridge unit is comprised of
one share of common stock and five Class A Warrants. Each Class A Warrant is
exercisable into one share of common stock at an exercise price of $6.50 per
share during the four year period commencing one year from the effective date
and may be redeemed if the market price of the common stock exceeds $9.00 per
share. The total 480,000 shares of the Company's common stock represent a
financing cost of $306,000 (effective interest rate of 651%). This cost was
amortized over six months.
The Company has agreed to register the shares of common stock included in
the bridge units as well as the shares of common stock issuable upon exercise of
the Class A Warrants in the first registration statement filed by the Company
following the date of the loan.
b. On April 19, 1996, the Company received an advance of $350,000 from a
third party. This advance bears interest at the rate of 15% per annum and was
used to pay off a portion of the note payable as disclosed in Note 3. On
December 31, 1996, the terms for repayment of this note was extended to be the
earlier of (i) the completion of a public offering of the Company's securities,
or (ii) January 31, 1998.
c. On August 22, 1996, the Company received an advance of $350,000 from one
of the Bridge Lenders disclosed in Note 4a. This advance bears interest at the
rate of 15% per annum and was used to pay off the balance of the note payable as
disclosed in Note 3. On December 31, 1996 the terms for repayment of this note
was extended to be the earlier of (i) the completion of a public offering of the
Company's securities, or (ii) January 31, 1998.
d. On October 11, 1996 and December 12, 1996, the Company received advances
of $50,000 each from one of the Bridge Lenders disclosed in Note 4a. These
advances bear interest at the rate of 10% per annum and are payable on February
28, 1997 and December 31, 1997. On December 31,1996, the terms for repayment of
these notes were extended to be the earlier of (i) the completion of a public
offering of the Company's securities, or (ii) January 31, 1998.
F-9
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
4. BRIDGE NOTES PAYABLE:--(CONTINUED)
e. During the months of January 1997 to March 1997, the Company received
advances aggregating $164,000 from one of the bridge lenders. These notes bear
interest at the rate of 10% per annum and are payable the earlier of (i) the
completion of a public offering of the Company's securities, or (ii) January 31,
1998.
5. INCOME TAXES:
At March 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,530,000, which is available to
offset future federal taxable income, if any, through 2011. A 100% valuation
allowance has been provided for the deferred tax asset resulting from the net
operating loss carryforward. Other temporary differences are insignificant.
6. STOCKHOLDERS' EQUITY:
a. Capitalization
Pursuant to an amendment of the Company's certificate of incorporation in
January 1996, the Company changed the number of authorized shares of common
stock to 15,000,000 and authorized the issuance of 100,000 shares of preferred
stock. All stock has a $.01 par value. Each share of common has one vote in all
matters. The terms of the preferred stock are to be determined by the Board of
Directors. In April 1995, the Company issued 240,000 shares of common stock for
$2,000 ('Founders' Stock'). On January 17, 1996, the Company effected a 20 for 1
stock split. On March 29, 1996, the Company effected a 1.20 for 1 stock split.
All references to number of shares and per share data in the financial
statements and accompanying notes have been restated to reflect these stock
splits as if it occurred as of April 25, 1995. As a result of the Company's 1.20
for 1 stock split a discount on the common shares of $400 has been recorded.
During the period July 1995 through October 1995, the Company received
advances aggregating $406,250 with interest at the rate of 10% per annum. On
November 1, 1995, these notes were exchanged for 1,755,000 shares of common
stock.
In November 1995, the Company issued 429,000 shares of common stock for
$98,750.
During January 1996 and February 1996, the Company issued 480,000 shares of
common stock in connection with certain bridge loans as disclosed in Note 4.
b. Stock option plans
In November 1995, the Company adopted an Incentive Stock Plan ('the 1995
Plan') consisting of qualified and nonqualified stock options, restricted stock
awards and stock appreciation rights, covering 480,000 shares of the Company's
common stock. Qualified stock options under the Incentive Stock Plan are granted
at an exercise price not less than the fair market value at the date of grant.
No option may be exercised more than 10 years after the date of grant and no
option granted to a 10% stockholder or greater may be exercised more than 5
years after the date of grant.
Non-qualified options, restricted stock awards and freestanding stock
appreciation rights may also be granted with any exercise price.
F-10
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
All such options are authorized and approved by the Incentive Stock Plan
Administrative Committee at the time of issuance. During 1995, 174,000 qualified
and 36,000 non-qualified stock options have been granted at exercise prices
equal to $.25 per share or in some instances the greater of $.25 per share or
25% of the initial public offering price. Included in the accompanying
statements of operations for the period ended December 31, 1995 under the
caption 'General and Administrative Expenses' is an amount of $630,000
representing compensation expense for the aforementioned issuance of stock
option using a fair value of $3.25 per share along with corresponding credit to
additional paid-in capital.
c. Warrants
At March 31, 1997, the Company had outstanding warrants to purchase 180,000
shares of the Company's common stock at an exercise price of $4.17 per share.
The warrants became exercisable on December 31, 1995 and expire on December 30,
2000.
d. Loss per share
Loss per share was computed by dividing net loss by the weighted number of
shares outstanding. The inclusion of warrants has no impact on the calculation
of loss per share using the treasury stock method.
The Company is contemplating an initial public offering ('IPO'). Pursuant
to Securities and Exchange Commission rules, common stock issued for
consideration below the estimated IPO price during the 12 months before the
filing of the registration statement has been included in the calculation of
weighted average number of shares, as if such shares had been outstanding for
all periods presented.
<TABLE>
<CAPTION> CUMULATIVE
DURING
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DEVELOPMENT
1997 1996 1996 1995 STAGE
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Applicable common and common stock equivalent
shares:
Weighted average shares of common stock
outstanding during the period................ 2,904,000 2,904,000 2,904,000 2,424,000 2,904,000
Shares outstanding during the period resulting
from the assumed exercise of stock options... 210,000 210,000 210,000 210,000 210,000
Shares outstanding during period resulting from
issuance in connection with bridge loans..... -- -- -- 480,000 --
----------- ----------- ------------ ------------ ------------
Weighted average shares of common stock and
equivalents outstanding during the period.... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
e. Reserved shares
At March 31, 1997, the Company has 2,390,000 shares of common stock
reserved for future issuances.
F-11
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
f. Proposed public offering
The Company intends to file a Registration statement on Form SB-2 in
connection with a public offering of securities of the Company. The proposed
transaction would be in the form of an offering consisting of a minimum number
of shares of common stock. The proposed transaction, the maximum number of
shares to be offered and the offering price will be dependent upon market
conditions on the effective date. Accordingly, the extent to which this
transaction will be successful, or if it will be successful at all, cannot be
ascertained prior to its completion.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial Accounting Standards Board Statement No. 107, which requires
disclosures about the fair value of the Company's financial instruments. The
methods and assumptions used to estimate the value of the following classes of
financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash
and temporary cash investments, current receivables and payables and
certain other short-term financial instruments approximate their fair
value.
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
-------------------------- --------------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 23,932 $ 23,932 $ 40,189 $ 40,189
Accounts receivable........... 10,000 10,000 10,000 10,000
Bridge notes payable.......... 1,200,000 1,200,000 1,364,000 1,364,000
Other current liabilities..... 486,779 486,779 548,526 548,526
</TABLE>
8. SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS:
During the period ended December 31, 1995, notes payable totaling $700,000
were issued for the purchase of licensed technology as disclosed in Note 3.
Also, certain advances aggregating $406,250 were exchanged for 1,755,000 shares
of common stock in satisfaction of repayment, as well as the issuance of 480,000
shares of the Company's common stock representing a financing cost of $306,000
in connection with certain bridge loans. No payments of interest or income taxes
were made during the year ended December 31, 1996 and for the periods ended
December 31, 1995, March 31, 1997 and 1996.
9. UNAUDITED FINANCIAL STATEMENTS:
The financial statements as of March 31, 1997 and the three months ended
March 31, 1997 are unaudited; however, in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary to a
fair presentation of the financial statements for this interim period have been
made. The results of the interim period are not necessarily indicative of the
results to be obtained for a full fiscal year.
F-12
<PAGE>
-----------------------------------------------------
-----------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF
ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................................... 3
The Company.................................................... 3
The Offering................................................... 4
Summary Financial Information.................................. 5
Risk Factors..................................................... 6
Use of Proceeds.................................................. 13
Dilution......................................................... 14
Capitalization................................................... 15
Dividend Policy.................................................. 15
Bridge Financing................................................. 15
Selected Financial Data.......................................... 16
Management's Discussion and Analysis of Financial Condition and
Plan of Operations............................................. 17
Business......................................................... 18
Management....................................................... 28
Principal Stockholders........................................... 32
Certain Relationships and Related Transactions................... 35
Description of Securities........................................ 36
Underwriting..................................................... 40
Legal Matters.................................................... 42
Experts.......................................................... 42
Available Information............................................ 42
Financial Statements............................................. F-1
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
675,000 SHARES OF COMMON STOCK
SPORTSTRAC, INC.
------------------------
PROSPECTUS
------------------------
IAR SECURITIES CORP.
, 1997
-----------------------------------------------------
-----------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In connection with the Offering, the Underwriters agreed to indemnify the
Company, its directors, and each person who controls it within the meaning of
Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriters specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers.
The Delaware General Corporation Law 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 by-laws, any agreement, vote of Stockholders or otherwise.
Article Eighth of the Company's Certificate of Incorporation provides for
indemnification of officers and directors and Article Ninth eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law. Provisions for indemnification are also
contained in Article VIII of the Company's By-Laws.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee.............................................. $ 1,613.72
NASD filing fee............................................. $ 1,032.58
Accounting fees and expenses*............................... $ 35,000
Legal fees and expenses*.................................... $135,000
Blue Sky fees and expenses*................................. $ 15,000
Printing and engraving*..................................... $ 40,000
Transfer Agent's and Registrar's fees....................... $ 2,500
Miscellaneous expenses*..................................... $ 4,853.70
-----------
Total....................................................... $235,000
-----------
-----------
- ------------------
* Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
From inception to November 1995, the Company issued an aggregate of
2,424,000 shares of its common stock to 14 shareholders (Jelsin Investment
Limited, K.A.M. Group, Inc., Kanter Family Foundation, Janis Kanter, Joel
Kanter, Joshua Kanter, M.D. Funding, Inc., Michael Mellman, Marc Silverman, W.S.
Ventures, The Holding Company, Windy City, Inc., Rick Alber and Bigelow
Ventures, Inc.) for aggregate consideration of $507,000. On December 31, 1995
the Company issued warrants to purchase up to 180,000 shares of Common Stock at
an exercise price of $4.17 ( adjusted for the Company's March stock split) per
share through December 30, 2000. These warrants were issued to Burton Kanter and
Elliott Steinberg. The right to receive these warrants were initially granted to
BFI (on August 30, 1995) pursuant to the sublicence agreement (although such
warrants as issued contain different terms as initially contemplated). BFI
assigned such rights (on October 16, 1995) to Messrs. Kanter and Steinberg in
connection with the waiver of defaults relating to unsecured loans of $54,450
and $237,660, respectively, owed by BFI to such persons (and affiliates), the
deferment of payment of such obligations of BFI and the conversion of such
obligations of BFI into shares of capital stock of BFI upon the closing of the
initial public offering of BFI if the same occurs prior to December 31, 1996
(otherwise such obligations will become due and payable). In January 1997, BFI
closed on its initial public offering of securities and paid its obligations to
such persons. On February 19, 1996, these warrants were subsequently assigned to
Sheridan Ventures, Ltd. and Rainy Day Holdings.
From December 1995, through February 1996, the Company borrowed an
aggregate of $400,000 from ten (10) lenders (the 'Bridge Lenders'): Ulster
Investments Ltd ($100,000); The Holding Company ($65,000); Dune Holdings, Inc.
($100,000); Solomon A. Weisgal, as trustee ($15,000); Howard Kirschbaum as
Custodian for Brian Kirschbaum under the Uniform Gift to Minors Act ($5,000);
Scott Sinar ($5,000); Matthew Harriton ($20,000); John LaFalce ($10,000);
Michael Lulkin ($30,000); and Hartley T. Bernstein ($50,000). See 'Risk
Factors--Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender.' None of the Bridge Lenders are affiliated
with the Company other than Solomon A. Weisgal, a director of the Company and
The Holding Company, a principal Stockholder of the Company. Burton W. Kanter is
the President of The Holding Company. Mr. Kanter is the father of Joel Kanter, a
principal stockholder of the Company and Josh Kanter, a director and Secretary
of the Company. Ulster Investment Ltd. Is an Antigua corporation which is owned
by the St. John's Trust. The beneficiaries of the St. John's Trust are the
members of the family of Burton W. Kanter (but not including Burton W. Kanter),
including Josh Kanter, Joel Kanter and Janis Kanter, all of whom are
shareholders of the Company. In exchange for making loans to the Company, each
Bridge Lender received (i) a promissory note (each a 'Bridge Note') and (ii)
Bridge Units (aggregate 400,000 of such Bridge Units). Each of the Bridge Units
is comprised of one (1) share of Common Stock and five (5) Class A Warrants.
Each of the Bridge Notes bears interest at the rate of eight percent (8%) per
annum. The Bridge Notes are due and payable upon the earlier of (i) January 31,
1998 or (ii) the closing of an initial underwritten public offering of the
Company's securities. The Company intends to use a portion of the proceeds of
this Offering to repay the Bridge Lenders. See 'Use of Proceeds.' The Company
entered into the bridge financing transactions because it required additional
financing and no other sources of financing were available to the Company at
that time. With respect to the bridge financing, the Company did not engage a
placement agent, the Bridge Lenders were identified by the Company's officers
and directors, and no other solicitations were made. See 'Description of
Securities.'
The Company has relied on Section 4(2) of the Securities Act of 1933, as
amended, for its private placement exemption, such that the sales of the
securities were transactions by an issuer not involving any public offering.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are 'restricted securities' as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the 'private placement' exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant
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<PAGE>
has been informed that each person is able to bear the economic risk of his
investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The Transfer Agent and registrar of the Registrant will be instructed
to mark 'stop transfer' on its ledgers to assure that these securities will not
be transferred absent registration or until the availability of an exemption
therefrom is determined.
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
1.01 -- Form of Underwriting Agreement.
1.02 -- Form of Selected Dealers Agreement.
1.03 -- Form of Financial Consulting Agreement.
3.01 -- Certificate of Incorporation of the Company.
3.02 -- By-Laws of the Company.
4.01 -- Specimen Certificate for shares of Common Stock.
4.02 -- Specimen Certificate for Class A Warrants.
4.03 -- Form of Warrant Agreement.
4.04 -- Form of Underwriter's Purchase Option.
4.06 -- Intentionally Omitted.
4.07 -- Intentionally Omitted.
5.01 -- Opinion of Bernstein & Wasserman, LLP, counsel to the Company.
10.01 -- Intentionally omitted.
10.02 -- 1995 Stock Plan.
10.03 -- Sublicense Agreement dated as of August 30, 1995 between Company and
Biofactors, Inc.
10.04 -- Agreement dated as of August 30, 1995 by and among Systems
Technology, Inc., Biofactors, Inc. and the Company.
10.05 -- Bridge Loan Agreements and Related Promissory Notes.
10.06(A) -- Amended Bridge Loan Agreements.
10.06(B) -- Amended Bridge Loan Agreements dated June 27, 1996.
10.06(C) -- Amended Bridge Loan Agreements dated July 31, 1996.
10.06(D) -- Amended Bridge Loan Agreements dated September 4, 1996.
10.06(E) -- Amended Bridge Loan Agreements dated December 31, 1996.
10.07 -- The Study.
10.08 -- Agreement dated August 8, 1996 between the Company and The Palm
Springs Suns
23.01 -- Consent of Bernstein & Wasserman, LLP (to be included in Exhibit
5.01).
23.02 -- Consent of Holtz Rubenstein & Co., LLP, Independent Certified Public
Accountants.*
99.01 -- Consent of Matthew Wilson.
99.02 -- Consent of Stanley Johnson.
99.03 -- Consent of R. Wade Allen.
99.04 -- Consent of Dr. Michael Mellman.
99.05 -- Consent of Marc Silverman.
- ------------------
* Filed herewith. All other Exhibits previously filed.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the small business issuer under Rule 424(b)(1) or (4)
or 497(h) under the Act as part of this Registration Statement as of the
time the Commission declared it effective.
2. For any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the Registration Statement, and
that the offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York on June 23, 1997.
SPORTSTRAC, INC.
By: /s/ MARC R. SILVERMAN
----------------------------------
Marc R. Silverman
President, Chief Executive Officer,
Chief Financial Officer, Principal
Accounting Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------- ------------------------------------- -------------
/s/ MICHAEL MELLMAN, MD Chairman of the Board and Director June 23, 1997
- -------------------------
Michael Mellman, MD
/s/ MARC R. SILVERMAN Chief Executive Officer, President, June 23, 1997
- ------------------------- Chief Financial Officer, Principal
Marc R. Silverman Accounting Officer and Director
/s/ ELLIOT STEINBERG Director June 23, 1997
- -------------------------
Elliot Steinberg
/s/ SOLOMON A. WEISGAL Director June 23, 1997
- -------------------------
Solomon A. Weisgal
/s/ JOSHUA S. KANTER Director and Secretary June 23, 1997
- -------------------------
Joshua S. Kanter
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- --------------------------------------------------------- ----------
1.01 -- Form of Underwriting Agreement.
1.02 -- Form of Selected Dealers Agreement.
1.03 -- Form of Financial Consulting Agreement.
3.01 -- Certificate of Incorporation of the Company.
3.02 -- By-Laws of the Company.
4.01 -- Specimen Certificate for shares of Common Stock.
4.02 -- Specimen Certificate for Class A Warrants.
4.03 -- Form of Warrant Agreement.
4.04 -- Form of Underwriter's Purchase Option.
4.06 -- Intentionally Omitted.
4.07 -- Intentionally Omitted.
5.01 -- Opinion of Bernstein & Wasserman, LLP, counsel to the
Company.
10.01 -- Intentionally omitted.
10.02 -- 1995 Stock Plan.
10.03 -- Sublicense Agreement dated as of August 30, 1995 between
Company and Biofactors, Inc.
10.04 -- Agreement dated as of August 30, 1995 by and among Systems
Technology, Inc., Biofactors, Inc. and the Company.
10.05 -- Bridge Loan Agreements and Related Promissory Notes.
10.06(A) -- Amended Bridge Loan Agreements.
10.06(B) -- Amended Bridge Loan Agreements dated June 27, 1996.
10.06(C) -- Amended Bridge Loan Agreements dated July 31, 1996.
10.06(D) -- Amended Bridge Loan Agreements dated September 4, 1996.
10.06(E) -- Amended Bridge Loan Agreements dated December 31, 1996.
10.07 -- The Study.
10.08 -- Agreement dated August 8, 1996 between the Company and The
Palm Springs Suns
23.01 -- Consent of Bernstein & Wasserman, LLP (to be included in
Exhibit 5.01).
23.02 -- Consent of Holtz Rubenstein & Co., LLP, Independent
Certified Public Accountants.*
99.01 -- Consent of Matthew Wilson.
99.02 -- Consent of Stanley Johnson.
99.03 -- Consent of R. Wade Allen.
99.04 -- Consent of Dr. Michael Mellman.
99.05 -- Consent of Marc Silverman.
- ------------------
* Filed herewith. All other Exhibits previously filed.
<PAGE>
[Letterhead of Holtz Rubenstein & Co., LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of SportsTrac, Inc. on
Amendment No. 9 to Form SB-2 of our report dated March 18, 1997, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings, "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Holtz Rubenstein & Co., LLP
Holtz Rubenstein & Co., LLP
Melville, New York
June 23, 1997
