AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-96157
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMEMDMENT NO.1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TRACKPOWER, INC.
(Name of Small Business Issuer in Its Charter)
WYOMING 7999 13-3411167
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation or Classification Code Number)
Organization) Number)
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
(212) 804-5704
(Address and Telephone Number of Principal Executive Offices)
JOHN G. SIMMONDS
CHIEF EXECUTIVE OFFICER
TRACKPOWER, INC.
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
(212) 804-5704
(Name, Address and Telephone Number of Agent For Service)
COPIES TO:
SCOTT S. ROSENBLUM, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3903
(212) 715-9100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT
SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS
THE SELLING SHAREHOLDERS MAY DETERMINE.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------- ------------------- ---------------------- --------------------- ------------------
Title Of Each Number of Shares Proposed Proposed Maximum Amount
Class Of To Be Maximum Offering Aggregate Offering Of Registration
Securities Registered Price Per Unit Price (1) Fee
To Be Registered
- -------------------------------- ------------------- ---------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001
per share 6,067,032 $1.46 $8,857,867 $2,338.48
- -------------------------------- ------------------- ---------------------- --------------------- ------------------
</TABLE>
(1) The proposed maximum aggregate offering price has been estimated solely to
calculate the registration fee under Rule 457(c) of the Securities Act, based
upon the average of the highest and lowest price per share of common stock on
the Over The Counter Bulletin Board reported on February 2, 2000.
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 SECTION 8(A), MAY
DETERMINE.
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The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION DATED MARCH 16, 2000
PROSPECTUS
TRACKPOWER, INC.
6,067,032 shares of common stock
o This prospectus relates to the public offering from time to time of up
to 6,067,032 shares of our common stock by the persons listed on page
35 below.
o Our common stock is traded on the Over The Counter Bulletin Board under
the symbol TPWR. On March 13, 2000, the last sale price for our common
stock was $1.95.
o The shares of common stock offered by this prospectus are being sold by
the selling shareholders. Any selling shareholder may sell the common
stock on the Over The Counter Bulletin Board or in privately negotiated
transactions, whenever he decides and at the price he sets. The price
at which any of the shares of common stock are sold and the commissions
paid, if any, may vary from transaction to transaction.
o We will not receive any proceeds from the sale of these shares. We will
pay all expenses of registration incurred in connection with this
offering. The selling shareholders will pay all selling and other
expenses that they incur.
This investment involves a high degree of risk. You should carefully
consider the risk factors beginning on page 5 of this prospectus before you
decide to invest.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have not authorized anyone to provide you with, and you should not
rely on, information other than that which is in this prospectus, any prospectus
supplement or which is incorporated in this prospectus by reference.
The date of this prospectus is March___, 2000.
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TABLE OF CONTENTS
Page
Prospectus Summary............................................................3
Risk Factors..................................................................5
Cautionary Statement Concerning Forward-Looking Statements...................13
Selected Financial Information...............................................14
Capitalization...............................................................15
Market for our Common Equity and Related Shareholder Matters.................16
Management's Discussion and Analysis or Plan of Operation....................17
Business.....................................................................23
Legal Proceedings............................................................26
Directors and Executive Officers.............................................26
Executive Compensation.......................................................28
Security Ownership of Certain Beneficial Owners and Management...............29
Certain Relationships and Related Transactions...............................33
Use of Proceeds..............................................................34
Selling Shareholders.........................................................34
Description of Securities....................................................36
Plan of Distribution.........................................................37
Legal Matters................................................................38
Experts......................................................................38
Indemnification..............................................................39
Description of Property......................................................39
Where You Can Find More Information..........................................39
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus, including the information set forth
under "Risk Factors." Each prospective investor is urged to read this Prospectus
in its entirety
The Company
TrackPower was incorporated under the laws of the State of Wyoming on
June 30, 1993. TrackPower's present business strategy and direction is to
capitalize on the horseracing wagering industry by providing, via satellite,
live video coverage of horseraces directly to the homes and workplaces of those
who subscribe to our services in the United States. When fully implemented,
these services will enable our subscribers to place wagers on horseraces using
interactive television technology. TrackPower is also planning to expand the
availability of its services to computers in the near future.
TrackPower's live video services have been broadcast digitally since
July 1, 1999 through Echostar's Dish Network(TM) ("Echostar") to Echostar's
current subscribers. On July 9, 1999, an agreement was finalized between
TrackPower and Penn National under which Penn will provide wagering services to
TrackPower's subscribers. Agreements have also been entered into between
TrackPower and eBet to provide interactive wagering services.
TrackPower's current management team has experience in the industry of
broadcast communications, project management, marketing to the racing industry
and other industries, as well as many years of participation in the racing
industry through owning and breeding horses. TrackPower believes this team is
well-suited to continue the development and growth of the business.
Our principal offices are located in New York at 67 Wall Street, Suite
2411, New York, NY 10005, telephone number (212) 804-5704 and Canada at 590
Granite Court, Pickering, Ontario L1W 3Z4, telephone number (905) 836-1430.
Recent Development
On March 6, 2000 TrackPower entered into a letter of intent with Penn
National Gaming, Inc., or Penn National, and eBet Limited, or eBet. Under the
terms of the letter of intent, Penn National and eBet will contribute various
assets, technologies, business operations, contracts and management agreements
to TrackPower. TrackPower will then merge its existing North American satellite
broadcast operations with the existing telephone wagering operations of Penn
National (by way of an exclusive management contract) and eBet's existing
telephone and Internet wagering operations (by sale and license). Pursuant to
the management contract, the joint venture will be required to pay Penn National
the current level of cash flow generated from its existing telephone wagering
operations. eBet will also transfer to TrackPower the exclusive worldwide
license to its Internet technologies for pari-mutuel wagering operations. eBet
will retain outright and exclusive ownership of its technology for all other
gaming and wagering applications.
In consideration for their contributions to the joint-venture,
TrackPower will issue to Penn National 18,000,000 shares of common stock and
warrants, which are exercisable at $1.00, to purchase 1,000,000 shares of common
stock, and will issue to eBet 18,000,000 shares of common stock and warrants,
which are exercisable at $1.00, to purchase 5,000,000 shares of common stock.
Penn National and eBet will each own approximately 26.5% of TrackPower based on
the number of shares of TrackPower common stock currently outstanding.
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It is expected that eBet managing director Keith Cullen will assume the
role of chief executive officer of TrackPower and Penn National and eBet will
each be entitled to nominate one member each to TrackPower's seven-member board
of directors.
The letter of intent requires the parties to use their best efforts to
execute a definitive agreement and secure necessary regulatory, contractual and
shareholder approvals to give effect to the consolidation of assets within 90
days.
The Offering
Common Stock Offered............................. Up to 6,067,032 shares.
Common Stock Outstanding Prior to this
Offering (1...................................... 29,340,401 shares
Common Stock to be Outstanding After
Completion of this Offering (2)................. 31,027,043 shares
Use of Proceeds.................................. Selling shareholders are
selling all the common
stock covered by this
prospectus for their own
account. Therefore,
TrackPower will not receive
any proceeds from the sale
of this common stock.
OTC Bulletin Board Symbol Common Stock............ TPWR
(1) Based upon the number of outstanding shares at November 30, 1999. Does
not include (i) 1,850,000 shares issuable upon the exercise of
outstanding stock options, (ii) 7,572,813 shares issuable upon exercise
of outstanding warrants, (iii) 3,960,000 shares issuable upon
conversion of convertible debentures, and (iv) 3,960,000 shares
issuable upon the exercise of warrants that are issuable upon
conversion of convertible debentures.
(2) Includes 1,686,642 shares to be issued upon exercise of warrants held
by selling shareholders.
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RISK FACTORS
You should carefully consider each of the following risk factors in
addition to the other information contained in this prospectus before purchasing
shares of our common stock. Investing in our common stock involves a high degree
of risk. Any of the following risks could materially and adversely affect our
business, operating results, financial condition and the market price of our
common stock and could result in the complete loss of your investment.
We have a limited operating history with which to evaluate our business.
We are a development stage company. In 1998, we shifted our business
emphasis to focus on our live horseracing video service. As a result, we have
only a limited history with this service. There is little historical information
on which to evaluate our future business. Therefore, assumptions in our plan may
be inaccurate or flawed. This may prove to have a significant impact on our
future financial results.
An investor in our common stock must consider the risks, expenses and
difficulties frequently encountered by early-stage companies that are in the
midst of significant business changes and compete in new and rapidly-evolving
markets. Such risks for us include:
o our ability to achieve market acceptance of our service;
o our ability to manage growing and expanding operations;
o our ability to compete effectively against our competitors,
many of which have far greater resources;
o rapid evolution of technology in our market;
o the risk of business interruption arising from our dependence
on outside contractors; and
o our ability to attract and retain key personnel.
We may not be successful in implementing any of our strategies or in
addressing these risks. Even if we successfully address these risks, we may
never achieve or sustain profitability.
Our future revenues are unpredictable and our operating results may fluctuate
significantly.
Live horseracing video delivered to the home coupled with interactive
wagering from the home is a new, emerging market. Our revenue is driven by
numerous unpredictable factors, several of which we do not control.
Such factors include:
o our ability to retain existing subscribers and attract new
subscribers;
o price competition;
o the development, announcement or introduction of new services
or service enhancements by us or by our competitors; and
o our ability to obtain and retain horseracing broadcast
content.
We expect to base our expenditures on our plans and estimates of future
revenue. As many of our costs are fixed, if we are unable to reach a certain
number of subscribers, we will continue to incur losses.
We are uncertain of our future profitability.
We have been unprofitable to date and have incurred substantial
operating losses. In the last two fiscal years, we have incurred a cumulative
net loss of over $3 million. We have experienced significant quarterly
fluctuations in operating results and expect that these fluctuations in
revenues, expenses and losses will continue until a break-even level of
subscribers is attained. The amount of our wagering revenue is uncertain and
depends on many factors, including:
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o the personal wealth of our subscriber base;
o the personal preferences of subscribers;
o availability and presentation of horseracing data; and
o the relative attractiveness of our service in comparison to
other available wagering services.
Our independent auditors have included an explanatory paragraph in
their report to our financial statements on our Form 10-KSB for the fiscal year
ending February 28, 1999, which expresses doubt as to our ability to continue as
a going concern.
We currently depend on one service and face the risks of expanding into new
business areas.
We currently focus exclusively on our TrackPower service. As a result,
our near to medium-term future financial condition will depend heavily on the
success or failure of our TrackPower service. Our TrackPower service was
launched in July 1999 and it is difficult to predict demand and market
acceptance for this service in the new and rapidly evolving live horseracing
video market.
If the demand for our TrackPower service does not grow, whether because
of lack of market acceptance, competition, technological change or other
factors, we will need to expand our operations by promoting new or complementary
systems or services or by expanding the breadth and depth of our offerings. We
cannot assure you that we will be able to do so. Our experience in marketing our
TrackPower service may not be effective in marketing other systems or services.
We will rely heavily on certain third parties, including satellite service
providers and telecommunications companies.
Our operations depend on third parties for satellite service, billing
and customer service, various information technology functions and
telecommunications. From time to time, services such as ours have experienced
temporary interruptions in telecommunications access and other systems. Frequent
or prolonged interruptions of our service could result in significant losses of
revenues. We also depend on operating systems and data base and server software
produced by and licensed from third parties. From time to time, we expect to
discover errors and defects in such software and will rely on these third
parties to correct these errors and defects promptly. We have limited control
over these third parties and we cannot assure you that we will be able to
maintain satisfactory relationships with any of them on acceptable commercial
terms. We cannot assure you that the quality of services provided by these third
parties will be sufficient to enable us to conduct our business effectively.
Some of these third parties have experienced significant outages, delays and
other difficulties in the past and could experience future outages, delays and
other difficulties due to system failures unrelated to our on-line architecture.
These types of occurrences could cause our subscribers to believe that our
products as not functioning properly and to cease their use of our service.
We depend on Penn National Gaming, Inc. to produce horseracing content.
We depend on Penn National Gaming, Inc., or Penn, to provide us with
horseracing content. We have content agreements with Penn which generally have
one-year terms. We may not be able to renew these agreements on favorable terms
or at all, or these agreements may be cancelled prior to expiration of their
terms. If we are unable to renew any such agreements or if Penn cancels any of
these agreements, we cannot assure you that we will be able to obtain substitute
content, or that such substitute content will be comparable in quality or cost
to our existing horseracing content. Our competitors currently offer content
similar to ours. Our ability to compete successfully will depend on our ability
to continue to obtain desirable horseracing content.
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New regulatory and legal issues may restrict or eliminate our means of
conducting business.
New federal or state statutes or regulations, including the Federal
Wire Act, which is the statutory regime that applies to pari-mutuel wagering, or
new interpretations under existing statutes or regulations, may have a material
and adverse effect on our business, operating results and financial condition.
The Federal Wire Act prohibits interstate and international
transmission of wagers, but permits interstate and international transmission of
information assisting in placing wagers if betting on a particular event is
legal at both the transmission's point of origin and terminus. We have taken the
position that so long as the account from which an individual places a wager is
located at the site where the wager is accepted, the telephone call that
initiates the wager merely transmits information assisting in the placement of
the wager rather than constituting the wager itself. We believe that this
distinction places our activity within the scope of conduct that is permitted
under the Federal Wire Act. The Department of Justice has taken no formal
position with regard to the telephone wagering on horseracing.
The telephone account wagering systems conduct their business subject
to the approval and sanction of state racing commissions. Within the United
States, forty-two states permit some form of pari-mutuel wagering, eight
specifically have legalized pari-mutuel wagering, five of those permit
interstate wagering and six prohibit pari-mutual wagering.
The Kyl Bill, which is currently under consideration, is designed to
control wagering activity on the Internet. However, the Kyl Bill mainly targets
off-shore casinos accepting bets over the Internet and any Internet service
providers that facilitate this form of wagering. The Kyl Bill has specific
exemptions for horse-race wagering, allowing telephone account wagering and
simulcasting if conducted between states in which these activities are legal.
Use of a United States satellite could subject us to the scope of the
Federal Wire Act, which requires that common carriers terminate the services of
any facility that may be operating in violation of the Federal Wire Act upon
written notice from a federal, state or local law enforcement agency. Thus, for
example, distribution via a United States satellite of live horseracing
coverage, with associated wagering, could potentially be terminated upon demand
by an appropriate law enforcement agency.
Government regulation and legal uncertainties relating to the Internet could
hurt our business.
We are currently subject to regulations applicable to businesses
generally, as well as laws and regulations specifically applicable to satellite
service and the Internet. Although currently our TrackPower service is available
only via satellite, we intend to deliver our service over the Internet in the
future. The laws of relating to satellite service and the Internet, however,
remain largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as
those governing intellectual property, privacy, libel and taxation apply to
satellite service and the Internet. In addition, due to the increasing
popularity and use of satellite service and the Internet, it is possible that a
number of laws and regulations may be adopted with respect to satellite service
and the Internet covering issues such as user privacy, security, pricing,
content, copyrights, distribution, taxation and characteristics and quality of
services.
Currently, there are few laws or regulations that specifically regulate
communications through satellite service and the Internet. For example, the
Telecommunications Act of 1996 sought to prohibit the transmission of certain
types of information and content over the Internet. In addition, several
telecommunications companies have petitioned the Federal Communications
Commission to regulate satellite service and Internet providers in a manner
similar to long distance telephone carriers and to impose access fees on such
providers. This could increase the cost of transmitting data via satellite or
over the Internet. Finally, state tax laws and regulations relating to the
provision of services via satellite
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or over the Internet are still developing. If individual states impose taxes on
services provided via satellite or over the Internet, our cost of providing our
TrackPower service may increase and we may not be able to increase the price we
charge our subscribers to cover these costs. Any new laws or regulations or new
interpretations of existing laws and regulations relating to satellite service
or the Internet could have a material and adverse effect on our business,
operating results and financial condition.
Our board of directors can issue preferred stock with rights adverse to the
holders of common stock.
After the offering, our board of directors will be authorized, without
further stockholder approval, to determine the provisions of and to issue an
unlimited number of shares of preferred stock. Issuance of preferred shares with
rights to dividends and other distributions, voting rights or other rights
superior to the common stock could be adverse to the holders of common stock.
Our articles of incorporation provide director and officer indemnification (and
indemnification of our employees and agents) if certain conditions are met.
We may have to spend significant resources indemnifying our officers,
directors, employees and agents or paying for attorneys' fees, damages or other
amounts to dispose of suits or proceedings caused by their conduct. Our articles
of incorporation also provide for the elimination in certain circumstances of
the personal liability of our directors for monetary damages for breach of their
fiduciary duty. Consequently, subject to applicable law and to certain
exceptions in our articles of incorporation, none of our directors will be
personally liable to us or to our stockholders for monetary damages for breach
of fiduciary duty as a director.
The Wyoming Business Corporation Act provides for broad indemnification
by corporations of their officers and directors, and our articles of
incorporation allow indemnification of our directors and officers, and also
eliminates the personal liability of directors for breach of their fiduciary
duty, to the fullest extent permitted under applicable law.
Our articles of incorporation, our bylaws and Wyoming law contain provisions
that could discourage a takeover.
There are provisions in our articles of incorporation, our bylaws and
Wyoming law that make it more difficult for a third party to obtain control of
TrackPower, even if doing so would be beneficial to our stockholders. For
example, TrackPower has the authority to issue an unlimited number of shares of
both common stock and preferred stock. The articles of incorporation provide
that each share of common stock will be of the same class without qualification,
limitation or restriction, each with one vote per share of stock on all matters
voted upon by the shareholders. However, the articles of incorporation also give
the Board of Directors the authority to create classes or series of common stock
and to determine whether the common stock will have full, limited, contingent,
or no voting power and to determine the designations, preferences and relative
rights, and the qualifications, limitations and restrictions, which will be
applicable to the common stock. The Board is also authorized to determine the
classes or series of preferred stock and their respective powers, preferences,
rights, limitations and restrictions. Additionally, the acquisition of
TrackPower may be made more difficult or expensive by the following: if the
shareholders of TrackPower wish to call a special shareholders' meeting, at
least twenty percent (20%) of the total voting power must make a written demand
on TrackPower to call such a meeting. Additionally, while the shares of each
class or series of common stock must be alike in every particular and be of
equal rank with the same power, preferences, rights, limitations and
restrictions, the Board has the authority to establish classes or series of
common stock, and to construct preferences, relative rights, limitations,
restrictions, and differences in voting powers as between the different classes
or series of shares of common stock.
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We face risks relating to systems development and rapid technological changes.
Our market is characterized by rapidly changing technologies and
customer demands. The life cycle of our TrackPower service is difficult to
estimate. If we cannot keep pace with these changes, our TrackPower service will
become obsolete and unmarketable and our business will suffer. The recent growth
of the Internet and of live horseracing video technology and the intense
competition in our industry exacerbate these characteristics. We need to enhance
and improve the customer service features, functions and responsiveness of our
TrackPower service and that keep pace with continuing changes in information
technology and customer requirements. We may not be successful in developing and
marketing enhancements to the TrackPower service or new systems or services that
respond to technological change or customer demands, and our business may suffer
as a result.
Software we use could contain defects.
Complex software such as the software developed for us by third parties
may contain errors or defects, especially when first implemented or when new
versions are released, that may be very costly to correct. Defects or errors
also could result in downtime and our business could suffer significantly from
any resulting adverse customer reaction, negative publicity and harm to our
reputation.
Satellite programming signals have been pirated, which could cause us to lose
subscribers and revenue.
The delivery of subscription programming requires the use of encryption
technology to protect against signal theft and piracy. If our satellite service
providers do not promptly correct a compromise in their encryption technology,
it would materially and adversely affect our business, operating results and
financial condition and our ability to contract for video and audio services
provided by programmers.
Complex broadcasting technology that we use could fail or become obsolete.
Technology in the satellite television industry is in a rapid and
continuing state of change as new technologies develop. We cannot assure you
that we and our suppliers will be able to keep pace with technological
developments. In addition, delays in the delivery of components or other
unforeseen problems in our partner's direct broadcast satellite system may occur
that could adversely affect performance or broadcast of our service and could
have an material and adverse effect on our business, operating results and
financial condition. Further, in the event that a competitive satellite receiver
technology becomes commonly accepted as the standard for satellite receivers in
the United States, we would be at a significant technological disadvantage.
We depend on the continued usage and development of the Internet infrastructure.
We believe that we will come to depend on the delivery of our service
over the Internet for revenue and, therefore, that the increased use of the
Internet for commerce is important for our business to grow. Accordingly, our
success depends in large part on the continued development of the infrastructure
for providing Internet access and services, which we do not control. The
Internet could lose its viability or its usage could decline due to many
factors, including:
o delays in the development of the Internet infrastructure;
o power outages;
o disruptions due to the inability of computer systems to
recognize the year 2000;
o security and privacy concerns;
o lack of cost-effective, high-speed and consistent service;
o the adoption of new standards or protocols for the Internet;
and
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o changes in governmental regulations, including taxation,
intellectual property and liability regulations.
We cannot be certain that the infrastructure or complementary services
necessary to maintain the Internet as a useful and easy means of transferring
information and data will be developed or that, if they are developed, the
Internet will remain a viable channel for our TrackPower service. The Internet
infrastructure may not support the demands that growth may place on it and the
performance and reliability of the Internet may decline.
We may also incur substantial costs to keep up with changes surrounding
the Internet. Any costs we incur may have a material and adverse effect on our
business, operating results and financial condition.
We face substantial competition.
There are several competitors in operation that are attempting to
address the shortcomings of the existing wagering arrangements and secure
advantageous market positions in the live horseracing video market.
YouBet.com. The YouBet model is a personal computer service that
accepts wagers from subscribers' computers over a virtual private network
resembling a countrywide Intranet. All of the wagering will occur through the
Ladbrokes wagering hub based on a partnership with Ladbrokes in Pennsylvania.
YouBet earns a percentage of wagering for facilitating the transactions. YouBet
has developed a good customer interface and access to quality racing product.
YouBet has been in operation for over one year and, we believe, has several
thousand subscribers.
Television Games Network (TVG). TVG is developing a cable and satellite
television channel, The Television Games Network, which will utilize a set-top
box for wagering via interactive television technology. TVG is focused on
increasing awareness of horseracing and developing new horseracing fans and has
content agreements with many major tracks. TVG does not broadcast full cards in
an uninterrupted manner, but rather picks and chooses certain races.
The Racing Network (TRN). We believe that the TRN service will be
similar to our service but will not offer interactive wagering. TRN has launched
a four-channel network, which includes dog, thoroughbred and harness racing. We
believe that this system will utilize a studio show to switch between multiple
tracks on one channel. The system uses a host to comment on all of the carried
tracks.
Off-Shore Betting. While numerous offshore web sites exist, they are
focused on betting on sports other than horseracing and are also generally
unable to receive a video signal. In the United States it is illegal to wager
using these systems.
We may be unable to manage our growth and may face capacity constraints.
Our ability to implement our business plan successfully in a rapidly
evolving market requires effective planning and growth management. If we are
unable to manage our growth, we may not be able to implement our business plan,
and our business will suffer as a result. We expect that we will have to address
potential growth in the number of customers, to expand our system, service
offerings and existing operations, particularly those relating to marketing and
customer service and to pursue other market opportunities. We expect that we
will also need to continue to improve our financial systems, procedures and
controls, and will need to expand, train and manage our work force, particularly
our information technology staff. Furthermore, we expect that we will need to
continue to manage multiple relationships
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with various customers, Internet and satellite service providers and other third
parties to maintain control over our strategic direction as the live horseracing
video market evolves.
Our management and operating systems may be strained by these efforts
and we may be unable to complete in a timely manner necessary improvements to
our operating systems, procedures and controls to support our future operations.
If we cannot manage our anticipated growth effectively, our business, operating
results and financial condition will be materially and adversely affected.
We depend on the satisfactory performance, reliability and availability
of our content service providers, network infrastructure and subscriber support
system. These operating systems are critical to our reputation and our ability
to retain and attract subscribers and to maintain adequate subscriber service
levels. Any significant capacity restraints could have a material and adverse
effect on our business, operating results and financial condition.
International expansion could result in financial losses.
We intend to attempt to expand significantly our international
marketing and sales efforts. We have limited experience in marketing, selling
and distributing our TrackPower service internationally. International
operations are subject to a number of inherent risks, including the following:
o recessions in foreign economies;
o political and economic instability;
o fluctuations in currency exchange rates;
o potentially adverse tax consequences;
o the burdens of complying with a wide variety of foreign laws
and changing regulatory requirements; and
o uncertain or reduced protection for intellectual property
rights in some countries.
To the extent these or other factors inhibit our ability to market and
sell our TrackPower service outside the United States, our business, operating
results and financial condition could be materially and adversely affected.
We may have future capital needs.
We may need to raise funds if the marketing of our TrackPower service
is not as successful as anticipated and it takes a longer time to generate
significant revenues, if our expansion is otherwise delayed, if we attempt to
develop new or enhanced systems or services or to expand more rapidly or if
competitive pressures or technological changes are greater than anticipated. If
additional funds are raised through the issuance of common stock or securities
convertible into or exchangeable for common stock, the percentage ownership of
our stockholders at the time will decrease and they may experience additional
dilution. In addition, any convertible or exchangeable securities may have
rights, preferences and privileges more favorable than those of the common
stock. If additional financing is needed, we cannot assure you that it will be
available on reasonable terms or at all. If additional financing is needed and
is not available, we may not be able to fund necessary enhancements to our
technology, to develop new systems or services or otherwise expand our business,
and our business, operating results and financial condition will be materially
and adversely affected.
We are dependent on our intellectual property.
We believe that our success depends, in large part, on protecting our
intellectual property in the United States and in foreign countries. Other than
certain trademarks and patents, most of our intellectual property consists of
proprietary or confidential information that is not subject to patent or similar
11
<PAGE>
protection. Competitors may independently develop similar or superior services,
software or business models.
We cannot assure you that we will be able to protect our intellectual
property. There is no way to assure that third parties will not try to copy our
service or business model or use our confidential information to develop
competing services. Although we have applied for trademark protection for the
TrackPower name, this name is not currently a registered trademark in the United
States. We cannot assure you that we will be able to secure significant
protection for this trademark. It is possible that our competitors or others
will adopt product or service names similar to TrackPower, thereby impeding our
ability to build brand identity and possibly confusing customers. Legal
standards relating to the validity, enforceability and scope of protection of
certain proprietary rights in Internet and satellite-related businesses are
uncertain and still evolving. As a result, we cannot predict the future
viability or value of our proprietary rights. Policing unauthorized use of our
technology is difficult and expensive. The laws of other countries may not
adequately protect our intellectual property.
We also cannot assure you that our business activities and products
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against us. Any such claims and any
resulting litigation, should it occur, could subject us to significant liability
for damages and could result in invalidation of our proprietary rights as well
as distracting management and requiring us to enter into costly and burdensome
royalty and licensing agreements. Such royalty and licensing agreements, if
required, may not be available on terms acceptable to us, or may not be
available at all. In the future, we may also need to file lawsuits to defend the
validity of our intellectual property rights and trade secrets, or to determine
the validity and scope of the proprietary rights of others. Such litigation,
whether successful or unsuccessful, could result in substantial costs and
diversion of resources.
We also rely on a variety of technologies that we license from third
parties. We cannot assure you that these third-party technology licenses will
continue to be available to us on commercially reasonable terms. If we lose any
such licenses, or if we are unable to maintain or obtain upgrades to any of
these licenses, it could delay completion of our proprietary software
enhancements until equivalent technology is identified, licensed or developed
and integrated.
We depend on our key personnel and we will need to attract and retain additional
personnel.
We are substantially dependent on the continued services and on the
performance of our executive officers and other key employees. We do not
maintain key person life insurance policies. Although many of our executive
officers and key employees have entered into employment agreements, none of
these agreements prevents any of them from leaving TrackPower. The loss of the
services of any of our executive officers or other key employees could
materially and adversely affect our business, operating results and financial
condition. If we do not succeed in retaining our personnel and in attracting the
required number of new employees, our business, operating results and financial
condition could be materially and adversely affected. In addition, we might not
be able to prevent key personnel, who may leave our employ in the future, from
disclosing or using our technical knowledge, practices or procedures.
Furthermore, we believe that our success will also depend upon our
ability to attract, train and retain highly skilled marketing, sales and
customer service personnel who have the required technical knowledge.
Competition for employees with their skills is intense, and we expect that it
will continue for the foreseeable future. We have from time to time experienced
difficulty in locating candidates with appropriate qualifications.
We may not be successful in attracting or retaining the required
personnel, which could have a material and adverse effect our business,
operating results and financial condition.
12
<PAGE>
Problems related to the year 2000 issue could require us to incur unanticipated
delays and expenses.
The year 2000 issue exists because many computer systems and
applications use two-digit fields to designate a year. Date-sensitive computer
systems and programs may fail to recognize or correctly process the year 2000 as
the century date change approaches or occurs. This inability properly to
recognize or address the year 2000 may cause systems errors or failures that
could seriously disrupt or prevent normal business operations. We rely on
computer programs and systems in connection with our internal and external
communication networks and systems, accounting and financial systems and other
business functions. Based on our design process and assessment to date, we
believe the current versions of our systems and services are year 2000
compliant. However, we cannot assure you that our programs designed to minimize
the impact of the transition to the year 2000 on our electronic date-sensitive
equipment, including the equipment at our outsourced function locations, will be
completely successful or that the costs of implementing them will not exceed our
current estimates. If they are not, the date change from 1999 to 2000 could have
a material and adverse effect on our business, operating results and financial
condition. The full extent of any adverse impact on our business is impossible
to determine.
Our business depends on the satisfactory performance and reliability of
the external communication and computer networks, systems and services integral
to satellite transmissions. These networks, systems and services are maintained
or provided by third parties and affect the ability of our customers to access
our services. We also rely on other systems and services that third parties
provide to our customers. We cannot assure you that the third parties upon which
our business depends will achieve year 2000 compliance. Any failure of
third-party networks, systems or services upon which our business depends could
have a material and adverse effect on our business, operating results and
financial condition.
As a result, the success of our plan to address year 2000 issues
depends in part on parallel efforts being undertaken by third parties. We have
begun to identify and initiate communications with third parties whose networks,
systems or services are critical to our business to determine the status of
their year 2000 compliance. We cannot assure you that all such parties will
provide accurate and complete information, or that all their networks, systems
or services will achieve full year 2000 compliance in a timely fashion. The most
reasonably likely worst-case scenario for us resulting from year 2000 issues is
that third-party noncompliance would disrupt, reduce or eliminate for a period
of time the ability of our subscribers to access our service. If these
occurrences are frequent or long in duration, they could have a material and
adverse effect on our business, operating results and financial condition. The
compliance of third-party global, national and local communications networks is
not within our control. Accordingly, a contingency plan for this worst-case
scenario does not exist, and we do not believe we will be able to develop one.
Our stock price may be extremely volatile.
The market price of our common stock is likely to fluctuate
substantially in the future. Fluctuations in the market price of our common
stock may affect our visibility and credibility in the market. Furthermore,
these fluctuations may be unrelated to the performance of our business.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus contains a number of forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as it may be amended
from time to time, and Section 21E of the Securities Exchange Act of 1934, as it
may be amended from time to time. Specifically, all statements other than
statements of historical facts included in this prospectus, or incorporated by
reference in this
13
<PAGE>
prospectus, regarding our financial position, business strategy and plans and
objectives of management for future operations are forward-looking statements.
These forward-looking statements are based on the beliefs of management, as well
as assumptions made by and information currently available to management. When
used in this prospectus, including the information incorporated by reference,
the words anticipate, believe, estimate, expect, may, will, continue and intend,
and words or phrases of similar import, as they relate to our financial
position, business strategy and plans, or objectives of management, are intended
to identify forward-looking statements. These cautionary statements reflect our
current view regarding future events and are subject to risks, uncertainties and
assumptions related to various factors which include but are not limited to
those listed under the heading Risk Factors starting on page 5 and other
cautionary statements in this prospectus and in the information incorporated in
this prospectus by reference.
Although we believe that our expectations are reasonable, we cannot
assure you that our expectations will prove to be correct. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this prospectus as anticipated, believed,
estimated, expected or intended. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements.
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statements of Operations Data:
12 mos ended 12 mos ended 12 mos ended 12 mos ended 9 mos ended 9 mos ended
Feb 28 Feb 28 Feb 28 Feb 28 Nov 30 Nov 30
1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Two way radio sales 74,644 596,507 76,480
220 Mhz equipment sales 331,500 2,638,219
Midland royalties 43,990 11,375 10,125 7,909
TrackPower subscriptions 30,152
TrackPower wagering commissions 9,312
Other 851 4,430
-------------------------------------------------------------------------------------------------------------
Total revenues: 406,164 596,507 2,758,689 12,226 10,125 51,803
Costs and expenses:
Cost of two way radio sales 53,126 587,030 102,621
Cost of 220 Mhz equipment sales 272,800 2,158,893
General & administrative 737,438 923,795 693,982 1,242,796 955,500 3,763,509
Depreciation and amortization 65,700 89,430 53,271 44,866 62,554 38,441
Interest and Financing Expense 46,454 332,139 287,170 829,634
Other 318,989 228,654 943,851 175,620 (6,849) (28,463)
-------------------------------------------------------------------------------------------------------------
Total costs and expenses: 1,448,053 1,828,909 3,999,072 1,795,421 1,298,375 4,603,121
Net loss: (1,041,889) (1,232,402) (1,240,383) (1,783,195) (1,288,250) (4,551,318)
Other comprehensive income:
Unrealized holdings gains
(losses) on marketable securities 144,132 (128,776) (390,159) 13,801
Comprehensive loss: (1,041,889) (1,232,402) (1,096,251) (1,911,971) (1,678,409) (4,537,517)
Net loss per share of common stock (.13) (.07) (.05) (.07) (.07) (.16)
</TABLE>
The Company was in the wireless telecommunications business and
intended to provide two-way radio communications in the 220 MHz band. The
Company was the U.S. distributor for 800 MHz LTR Midland products but suspended
the distribution of two-way radios and sold all remaining 220 MHz equipment and
licenses during the year ended February 28, 1998.
14
<PAGE>
In January 1998, the Company acquired certain development stage assets
from Simmonds Capital Limited, including the TrackPower trademark and other
information and communications technology and contractual and intellectual
property rights. The technology is in use in the United States to provide the
satellite distribution of live horse-racing to subscribers homes and for placing
wagers through a state licensed telephone account wagering entity.
On July 1, 1999, the Company launched the TrackPower service under the
EchoStar service.
<TABLE>
<CAPTION>
Balance Sheet Data:
Feb 28 Feb 28 Feb 28 Feb 28 Nov 30
1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C>
Current assets 794,576 2,661,298 1,237,950 646,064 175,731
Property and equipment 604,046 8,848 4,764 20,618 39,392
Other assets 602,470 1,344,599 600,084 571,984 474,447
---------------------------------------------------------------------------------------------------
Total assets 2,001,092 4,014,745 1,842,798 1,238,666 689,570
Current liabilities 144,035 1,295,460 414,937 1,732,213 1,696,462
Long term debt 564,254 540,896 158,337 - 2,730,000
---------------------------------------------------------------------------------------------------
Total liabilities 708,289 1,836,356 573,274 1,732,213 4,426,462
Shareholders' equity 5,725,442 7,843,430 8,030,816 8,179,716 9,473,888
Accumulated deficit (4,432,639) (5,665,041) (6,905,424) (8,688,619) (13,239,937)
Accumulated other
comprehensive income 144,132 15,356 29,157
---------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 1,292,803 2,178,389 1,269,524 (493,547) (3,736,892)
Total liabilities and
shareholders' equity 2,001,092 4,014,745 1,842,798 1,238,666 689,570
</TABLE>
The Balance Sheet Data table set forth above summarizes actual data on
an actual basis.
CAPITALIZATION
The following table sets forth our capitalization as of November 30, 1999.
This table excludes the following shares:
o 1,850,000 shares of common stock issuable upon the exercise of
stock options outstanding under our employee stock options
plans;
o 7,572,813 shares of common stock issuable upon the exercise of
outstanding warrants;
o 3,960,000 shares of common stock issuable upon conversion of
convertible debentures; and
o 3,960,000 shares of common stock issuable upon the exercise of
warrants that are issuable upon conversion of convertible
debentures.
15
<PAGE>
Nov 30
1999
Long-term obligations 2,730,000
Shareholders' deficit:
Convertible preferred stock, no par value, unlimited
Shares authorized, 1,000,000 shares to be issued
(liquidation value $1,000,000) 1,000,000
Common stock, $.0001 par value; unlimited shares
authorized, 29,340,401 shares issued and outstanding, 2,934
Additional paid in capital 7,813,954
Common stock subscribed 7,500
Warrants issued for guarantee 649,500
Accumulated deficit (13,239,937)
Accumulated other comprehensive income 29,157
----------
Total shareholders' deficit (3,736,892)
----------
Total capitalization (1,006,892)
----------
MARKET FOR OUR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
Our common stock trades under the symbol TPWR in the over-the-counter
market on the OTC Electronic Bulletin Board operated by the National Association
of Securities Dealers, Inc. The table below sets forth the high and low bid
quotations for our common stock for the fiscal years ended February 28, 1999 and
1998.
<TABLE>
<CAPTION>
---------------------- -------------------------------- ----------------------------------
Fiscal Year Ended 2/28/99 Fiscal Year Ended 2/28/98
---------------------- -------------- ----------------- ----------------- ----------------
High Low High Low
---------------------- -------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
First Quarter .375 .20 .156 .062
---------------------- -------------- ----------------- ----------------- ----------------
Second Quarter .28 .115 .297 .047
---------------------- -------------- ----------------- ----------------- ----------------
Third Quarter .175 .08 .391 .141
---------------------- -------------- ----------------- ----------------- ----------------
Fourth Quarter .36 .08 .406 .125
---------------------- -------------- ----------------- ----------------- ----------------
</TABLE>
These quotations reflect only inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
Shareholders
On November 30, 1999, we had approximately 208 shareholders of record.
Dividends
We have never paid a cash dividend on our common stock and do not
expect to pay one in the foreseeable future. Payment of dividends in the future
will depend on our earnings and cash requirements at that time.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Our business has changed from the sale and distribution of two Midland
radios and the operation of 220 MHz analog dispatch licenses in fiscal year 1998
to our new TrackPower business initiative, the development of our Track Power
service which, in conjunction with Penn, provides a satellite-based in-home
electronics wagering system for horseracing content. Subject to legal and
regulatory restrictions, we intend to add other sporting events later. Revenues
during fiscal year 1999 were nominal as a result of the launch of our TrackPower
service during fiscal year 2000.
During fiscal 1999, we focused primarily on financing the launch of our
TrackPower service and negotiating business relationships for the future.
Although our new TrackPower business initiative began in the first half of
fiscal year 2000, we anticipate continued operating losses until we reach a
break-even level of subscribers. However, we cannot assure you that we will
reach a break-even level of subscribers.
On July 1, 1999 we relaunched the TrackPower service on four channels
under the EchoStar DishNetwork service with a subscription fee of $19.99 per
month or $125 per annum. During the three month period ended August 31, 1999, we
also began earning wagering commissions under an agreement with Penn National
Gaming, Inc. ("Penn Gaming"). Subsequent to the end of the quarter ended
November 30, 1999 and effective January 10, 2000, reduced the number of channels
to two and no longer charged a fee for the service.
The decision to reduce the number of channels and eliminate the
subscription fee was a significant step forward for the Company in response to
changes in the marketplace. The reduction in channels has reduced the satellite
transporter costs from $400,000 to $200,000 per month. Despite the reduction in
the number of channels, we will effectively double the capacity of the
previously-used four channel service by adding new switching and production
equipment. We will now focus on marketing the wagering opportunity to
horseracing fans. The free channels allow access to a larger audience. We will
also focus more resources on marketing its interactive WebTV(TM) and computer
platforms expected to be available in February 2000.
Television Games Network ("TVG"), a service similar to TrackPower which
is also free of charge, was launched in the fall of 1999 on EchoStar's
DishNetwork. TVG accepts wagering from three U.S. States. The Racing Network
("TRN"), also similar service on EchoStar's DishNetwork, charges $24.999 and
does not offer any wagering services. TrackPower's free channels will allow
access to may of the TVG and TRN customers. TrackPower has launched an extensive
marketing campaign offering the wagering opportunity to this audience.
We believe that the TrackPower service is oriented toward the more
serious core wagerer and therefore we have made the decision to focus on
wagering by eliminating the subscription fee. We are attempting to attract more
core wagerers to subscribe to the TrackPower service and begin wagering through
Penn Gaming, thereby increasing the amount of wagering commissions earned by the
Company.
We have also hired key spokespeople, such as D. Wayne Lukas, a top
thoroughbred trainer, and John Campbell, a top harness racing driver, to promote
the service and gain credibility with the horseracing fans. We also hired a top
handicapper and well-recognized wagering consultant to assist in marketing the
product to active heavy wagerers.
The decision to reduce to two channels from four has reduced monthly
fixed transponder fees from $400,000 to $200,000. We are of the opinion that if
the Company succeeds in accelerating the sing up rate of wagering account
holders, a breakeven level of operations will occur sooner. In addition, due
17
<PAGE>
to the reduce costs the risk of being unable to raise sufficient financing to
fund interim operating losses has been reduced.
In November 1999, we changed the marketing campaign to refocus on
attracting bettors to the TrackPower service rather than attracting mass levels
of satellite subscribers. The marketing campaign has a specific focus on
attracting heavy wagerers. Initial plans include offering a loyalty program and
running a large handicapping tournament, the TrackPower National Handicapping
Challenge with a total purse of $200,000. We believe that the key statistics
that will measure the performance of the Company have shifted from number of
satellite subscribers to wagering revenue and the number of wagering accounts,
number of active account holders, and the amount wagered per active account.
Results of Operations
For the three month period ended November 30, 1999
Our revenues for the three month period ended November 30, 1999 were
$37,765, representing Midland royalty revenue of $3,393, TrackPower net
subscription revenue of $25,489, wagering commissions of $8,750 and
miscellaneous revenue of $133.
Our operating expenses totaled $1,996,100 during the three month period
ended November 30, 1999. Transponder fees were $1,200,000, advertising and
marketing costs were $300,421, general and administrative expenses were
$225,923, wages and consulting costs totaled $194,756 and management fees to
Simmonds Capital totaled $75,000. As described previously transponder fees have
been reduced to $200,000 per month effective January 10, 2000.
Other expenses totaled $47,004 during the three month period ended
November 30, 1999, including interest of $34,034, depreciation of capital assets
and amortization of Midland distribution rights and TrackPower technology rights
of $12,970.
We recorded an unrealized holding loss of marketable securities of
$3,773 during the three month period ended November 30, 1999. The loss is
attributable to the declined in the market value, after adjusting for a one for
five share consolidation, of Fifty Plus Network (formerly Ventel Inc.) shares
from $0.67 to $0.425 during the quarter. We held 15,400 Fifty Plus Network
common shares at November 30, 1999.
Our net loss during the three month period ended November 30, 1999
(prior to unrealized holding gains or losses on marketable securities) was
$2,005,339 and $2,009,112 after unrealized holding loss on marketable
securities.
For the three month period ended November 30, 1998
During the three month period ended November 30, 1998, we collected
$2,378 on Midland distribution rights.
We sold 87,400 Intek shares during the three month period ended
November 30, 1998 at an average price of $1.47 for total proceeds of $128,327
representing a gain of $5,421. we also sold 70,000 Fifty Plus Network Inc.
(formerly Ventel Inc.) shares at an average price of approximately $0.10 for
total proceeds of $7,250, representing a gain of $1,428.
Our operating expenses for the three month period ended November 30,
1998 were $235,563 consisting of $112,178 in wages and consulting costs, $75,000
in management fees to Simmonds Capital and $48,385 in general and administrative
costs.
18
<PAGE>
Our financing costs totaled $25,522 during the three month period ended
November 30, 1998, consisting primarily of interest.
The closing trading value of our investment in Intek common shares
increased from $1.56 at August 31, 1998 to $1.84 at November 30, 1998 and the
trading value of Fifty Plus Network, Inc. common shares closed at $0.52.
Accordingly, we recorded an unrealized holding gain on marketable securities of
$131,481 during the three month period ended November 30, 1998.
During the three month period ended November 30, 1998, our
comprehensive loss was $141,227 or $0.01 per share.
For the nine month period ended November 30, 1999
Our revenues for the nine month period ended November 30, 1999 were
$51,803, comprised of net TrackPower subscription revenues of $30,152, Midland
distribution right royalties of $7,909, TrackPower wagering commissions of
$9,312 and miscellaneous revenues of $4,430.
Our operating expenses for the nine month period ended November 30,
1999 were $3,763,509, comprised of $2,200,00 in EchoStar transponder fees,
general and administrative expenses of $526,004, advertising and marketing costs
of $450,425, wages and consulting costs of $362,080 and management fees paid to
Simmonds Capital of $225,000.
Other expenses for the nine month period ended November 30, 1999 were
$839,612, consisting of one time $649,500 non cash guarantee fee, $147,409 of
interest on notes payable and preferred shares, non-cash financing costs of
$32,725, a net gain on sales of marketable securities of $28,463 and
depreciation of capital assets and amortization of Midland distributions rights
and TrackPower technology rights of $38,441.
Our one time non-cash guarantee fee represents the estimated valued of
guarantee provided by Simmonds Capital on the Company's obligations under a
satellite distribution services agreement with EchoStar.
During the six month period ended August 31, 1999, we sold 256,800
Intek common shares for net proceeds of $635,903 and 270,000 Fifty Plus Network
(formerly Ventel, Inc.) shares for net proceeds of $16,696. The net gain of
sales of Intek shares was $29,587 and the loss on sales of Fifty Plus Network
shares was $1,124.
Our net loss for the nine month period ended November 30, 1999, prior
to unrealized holding gains or losses on marketable securities, was $4,551,318.
We recorded an unrealized holding gain on marketable securities of
$13,801 due to the appreciation in the market value of Fifty Plus Network shares
form $0.33 on February 28, 1999 to $0.425 on November 30, 1999.
Our comprehensive loss for the nine month period November 30, 1999 was
$4,537,517 or $0.16 per share.
For the nine month period ended November 30, 1998
Our revenues during the nine-month period ended November 30, 1998 were
$10,125, consisting of Midland royalty revenues.
19
<PAGE>
Our operating expenses, for the nine month period ended November 30,
1998 were $955,500 consisting of $397,664 in wages and consulting costs,
$225,000 in management fees to Simmonds Capital, $284,058 in general and
administrative costs and $48,778 of nonrecurring costs to close down the former
head office.
Other expenses totaled $342,875, during the nine month period ended
November 30, 1998, and consisted of $287,170 in non-cash financing costs (common
shares issued in connection with notes payable for the purpose of funding the
operations of the company), a gain of $6,849 on the sale of marketable
securities and depreciation of capital assets and amortization of Midland
distribution rights totaling $62,554.
During the nine month period ended November 30, 1998, we recorded an
unrealized holding loss on marketable securities of $390,159 due to the decline
in value of the Company's Intek and Fifty Plus Network shares.
Our comprehensive loss was $1,678,409, $0.07 per share, during the nine
month period ended November 30, 1998.
Fiscal year ended February 28, 1999
We had a comprehensive loss of $1,911,971 during the fiscal year ended
February 28, 1999 consisting of an unrealized holding loss on marketable
securities of $128,776 and a net loss from operations of $1,783,195. We paid
dividends of $67,500 to a related party on that party's shares of our
convertible preferred stock.
We recorded an unrealized holding loss on marketable securities of
$128,776 arising from holding shares of Intek Global Corporation and Ventel Inc.
common stock during the year. The price per share of Intek Global fell from
$2.67 on February 28, 1998 to $2.313 on February 28, 1999 and the price per
share of Ventel Inc. fell from $0.069 on February 28, 1998 to $0.066 on February
28, 1999.
Our net loss from operations during the current year included a loss of
$128,238 from the disposition of 161,581 shares of Intek Global Corporation
common stock and 997,446 shares of Ventel Inc. common stock.
We earned $11,375 in royalty revenue under a sub-license of Midland
distribution rights to certain territories in western Canada. As a result of low
royalty revenue during the fiscal year ended February 28, 1999 and the
expectation that royalties will remain at these lower levels, we wrote down the
Midland distribution rights by $47,382.
General and administrative expenses decreased 11% from $606,473 in the
fiscal year ended February 28, 1998 to $541,367 in the fiscal year ended
February 28, 1999. Our expenses relates to our Track Power service, which
consisted primarily of consulting costs attributable to the development of our
new business, amounted to $401,429.
We recorded amortization of $19,921 on our TrackPower trademark and
other intellectual property rights during the current year.
We financed our pre-operating losses by borrowing using our marketable
securities as security. We completed two financing of notes payable during the
current year for a total of $850,000. We incurred interest and other financing
related costs totaling $319,542 under these notes.
Our basic and diluted loss per share was $.07 during the current year.
20
<PAGE>
Fiscal year ended February 28, 1998
Revenue from operations during the fiscal year ended February 28, 1998
totaled $2,758,689, which included the sale of 22 of our 220 Mhz licenses for a
total of $2,638,219, which represented a gain of $479,326, and the sale of our
international Midland distribution rights for the territories of Mexico, South
America, Pacific Rim, Australia, New Zealand, Thailand and Southeast Asia for
$292,500, at a loss of $324,375.
Total costs and expenses, excluding the cost of sale of our 220 Mhz
systems, were $1,840,179 in 1998. General and administrative expenses were
$606,473. The basic and diluted loss per common share in the fiscal year ended
February 28, 1998 was $0.05.
We expect to experience material pre-operating losses attributable to
the implementation of our TrackPower service.
Financial Condition
Our total assets decreased from $744,786 on August 31, 1999 to $689,570
on November 30, 1999. The decrease is primarily the result of a $59,443 decrease
in cash offset by a $3,773 reduction in the value of our marketable securities.
Our decrease in cash during the three month period ended November 30,
1999 was caused by $1,258,251 of new funding being insufficient to offset the
$1,315,062 used in operations and $2,632 in capital asset acquisitions.
The value of our marketable securities, which consists of 15,400 Fifty
Plus Network common shares, decreased from $10,318 at August 31, 1999 to $6,545
at November 30, 1999. At November 30, 1999 our marketable securities consisted
of 15,400 shares of Fifty Plus Network valued at a market price of $0.425 per
share.
Our working capital deficit, after adjusting for related party amounts,
increased from $411,607 at August 31, 1999 to $1,177,982 at November 30, 1999.
The change resulted from a significant increase in accounts payable relating to
transponder fees.
Our shareholders equity deficit increased from $1,756,031 at August 31,
1999 to $3,736,892 at November 30, 1999. The increase in the deficit during the
current quarter is a result of $2.0 million comprehensive loss. We expect the
deficit to continue to rise until a break-even level of operations is achieved.
Options exercised to purchase common shares of the Company by
management during the three month period ended November 30, 1999 totaled 188,333
shares for an increase in stockholders capital of $28,251.
During the fiscal year ended February 28, 1999, total assets decreased
from $1,842,798 to $1,238,666. The decrease is directly proportional to the drop
in marketable securities during the year. As a result of unrealized holding
losses and sales of securities, marketable securities decreased from $1,209,844
to $616,880. We sold 161,581 shares of Intek common stock and 997,446 shares of
Ventel common stock during the year.
Our working capital ratio declined from 2.98 at the beginning of the
fiscal year ended February 28, 1999 to 0.38 at the end of the fiscal year ended
February 28, 1999. However, we owe approximately $652,000 of our current
liabilities as at February 28, 1999 to related parties. In addition, subsequent
21
<PAGE>
to the end of the fiscal year ended February 28, 1999, all $595,000 in notes
payable were either converted to our common equity or were repaid from the
proceeds of a new private placement.
Shareholders' equity decreased from $1,269,524 to a deficit of
$493,547. This decrease is attributable to common stock and paid in capital
increasing by $183,395 as a result of issuing common stock from treasury which
was more than offset by the accumulated deficit increasing by $1,783,195 and the
accumulated holding gain decreasing by $128,776.
Liquidity and Capital Resources
Our ability to continue to fund losses arising from costs and expenses
exceeding revenue is connected to its ability to raise additional financing
prior to achieving a break even level of operating results. We have and continue
to raise funds primarily by issuing new convertible debt.
At November 30, 1999 there were $2,730,000 outstanding in convertible
debentures. Debentures totaling $1,250,000 issued on June 10, 1999 which were
convertible into common shares of the Company at $1.25, were converted, on
December 17, 1999 by special resolution of the Board of Directors at $.50 per
share. At November 30, 1999 there was $1,480,000 face value in convertible
debentures outstanding with conversion privileges at $.60 per share, which were
also amended, by special resolution of the Board of Directors, to adjust the
conversion rate to $.50. Both special resolutions were approved to assist us in
raising sufficient financing to continue to fund the operating losses.
As of January 14, 2000 we have received commitments for the issuance of
$5,000,000 in new convertible debentures, of which $3,626,000 have been
received.
Simmonds Capital has provided two guarantees to the Company: a general
guarantee of all the obligations of the Company until March 1, 2000 and a
guarantee of our obligations under the Transponder Encryption Services
Corporation agreement. In exchange, during the quarter ended August 31, 1999,
Simmonds Capital received 1,000,000 warrants to purchase our common stock at
$2.50, valued at $649,500, and also received the option to convert the $1.5
million earnout, received in the January 1998 transaction, into 750,000 shares.
The earnout was based on 10% of annual EBITDA up to a maximum of $1,500,000,
after the Company's retained earnings become positive, Simmonds Capital has
funded and will continue to fund day-to-day operating case flow shortages.
We financed the development of our TrackPower service during the
current fiscal year by issuing notes payable totaling $850,000 in two
transactions of $500,000 and $350,000. Our marketable securities served as
security for the notes payable. Prior to the end of the fiscal year, we repaid
$255,000 of the notes from proceeds of the sale of securities.
In addition, Simmonds Capital Limited, an Ontario corporation ("SCL"),
a related party, funded a portion of our operations during the fiscal year ended
February 28, 1999. On June 10, 1999, SCL committed to provide us with additional
funding for one year, in the event that we are unable to fully support the
development of our TrackPower service. Furthermore, SCL has guaranteed our
obligations under a satellite distribution services agreement with EchoStar.
We cannot assure you that we will generate sufficient revenues to fund
our operations.
Year 2000
We are developing our new TrackPower service to be year 2000 compliant.
We will, prior to consummating any new business contracts, require year 2000
compliance certification from the contracting party.
22
<PAGE>
We do not know the incremental cost of year 2000 compliance at this
time, but we believe that due to our outsourcing of the majority of our
operating tasks, the cost will not be significant. If the systems of our
business partners are not year 2000 compliant at December 31, 1999, this may
have a material and adverse effect on our business, operating results and
financial condition. See "Problems related to the year 2000 issue could require
us to incur unanticipated delays and expenses" on page 15.
Inflation
Inflation has not had a significant impact on TrackPower during the
last two fiscal years.
BUSINESS
TrackPower, Inc.
Industry Background
During the last two decades, there has been an increase in off-track
wagering, which involves wagering without actually visiting a racetrack. We
believe that the basis for this trend is the desire for convenience. Most tracks
in the United States now import and export simulcast video of live horseracing
occurring within the United States. We believe that importing video of premier
tracks to a racetrack or an off-track wagering facility will attract significant
wagering. We plan to capitalize on this on-track to off-track trend by providing
the very same full card video signal available in an off-track facility directly
to our subscribers' home or place of work.
According to a report prepared for the American Horse Council
Foundation by Barents Group LLC in December 1996, referred to in this prospectus
as the Barents Report, over 7 million people participate in the horse industry
in the United States. It has been estimated that in 1997 horseracing wagering
exceeded $100 billion worldwide and $15 billion in the United States. We believe
that the horse industry contributes over $25 billion each year to the United
States Gross Domestic Product.
The majority of horseracing wagering is through either pari-mutuel
wagering, primarily in North America, or fixed-odds wagering, primarily in other
parts of the world such as the United Kingdom. In pari-mutuel wagering, the
entity accepting the wager, also known as the house, retains a percentage fee
from the total amount wagered in the pool. The house distributes the pool to tax
authorities, horsemen, through purses, and, normally, pays a fee to the
simulcast originator, and keeps the remainder as profit. Under pari-mutuel
wagering, the house bears no risk. Under fixed odds wagering, the house bears a
risk of possible loss. The house sets odds, collects all wagers and distributes
all amounts payable to winners. If the amount collected is less than the amount
paid out, the house must bear the resulting loss.
We believe that a major portion of the wagering in the United States
is off-track. Off-track wagering includes telephone account wagering, off-track
wagering establishments and wagering on simulcasted races at other tracks.
Telephone account wagering involves establishing a wagering account with a
licensed account wagering entity, such as Penn National, depositing funds into
the account and then placing wagers, usually over a telephone.
Our TrackPower Service
We believe that our TrackPower service, when fully implemented, will
distribute live horseracing video to our subscribers' homes via satellite and a
number of other platforms and will enable our subscribers to place wagers using
interactive television technology. We intend to use our TrackPower
23
<PAGE>
service to deliver the wages to a state license account wagering entity, but we
will not accept or place any wagering transactions.
Video Service
Since July 1, 1999, our TrackPower service has been broadcast by
Echostar's Dish NetworkTM, which has over 2.7 million current subscribers.
TrackPower's live video is currently broadcast digitally via the Dish NetworkTM
and, we believe, will provide an additional channel of streaming video via
broadband and 56K modems in the future. The Dish NetworkTM provides us with all
billing, customer service, technical infrastructure and other assistance, as
well as subsidized hardware which is available through EchoStar's 20,000 local
dealers. The Dish NetworkTM also broadcasts over 230 other channels, which are
available to TrackPower subscribers for additional monthly fees. In order to
receive our TrackPower service, a subscriber must purchase an 18-inch Dish
NetworkTM satellite dish and a Dish NetworkTM set-top box. The base model begins
at $149.00, while the top model, the DISHPlayerTM, is available at $199.00. The
DISHPlayerTM set-top box is a WebTV receiver in addition to a satellite
receiver. It has a hard drive and will be used to interact with our service.
Content
Currently our TrackPower service carries over thirty tracks, including
some of the most prestigious thoroughbred and standard bred tracks in the United
States.
Wagering Services
On July 9, 1999, we finalized an agreement with Penn, pursuant to which
Penn provides wagering services to our subscribers. Penn's wholly-owned
subsidiary, Penn National Race Course, a licensed pari-mutuel wagering facility
in the state of Pennsylvania, will accept the wagers through its existing phone
wagering system. Penn has agreed to pay us a fee of up to 4.75% of the gross
wagering through Penn National Race Course from our TrackPower subscribers in
exchange for using our video system and marketing their services to our
TrackPower subscribers.
Technology
Our TrackPower interactive wagering service will operate on a
highly-secure, closed-loop subscriber-based network. We have outsourced most of
the technology development required for our TrackPower service and will likely
continue to do so in the future. EchoStar is currently responsible for providing
all required technology and hardware for the continued operation and development
of the video aspect of our TrackPower service.
We recently finalized an agreement with eBet Ltd., or eBet, which
currently operates a wagering system in Australia and New Zealand, to provide
the interactive components of our TrackPower service, including the interactive
wagering interface for both the computer and interactive television platforms.
This allows us to eliminate the capital expenditures and technical risk of
developing our own interactive interface.
TrackPower.com Features
Our TrackPower service is currently available on television through the
Dish NetworkTM service and will later, we believe, be available via computer.
Wagering is available via telephone account wagering today and, we believe, will
be available in the future via computer or via a television closed-loop
subscription network. We believe that our TrackPower service will be able to
provide real-time odds, past performances and statistical information in the
future via television and computer.
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<PAGE>
Marketing
There are three core audiences that we intend to focus on during the
first phase of our marketing strategy. The primary target market is large
handicappers/bettors, industry participants and current Dish NetworkTM
subscribers. We believe that there are currently over 7 million industry
participants and approximately 2.7 million Dish NetworkTM subscribers.
We intend to contact prospects in this market via different types of
media. The most significant will be direct mail campaigns, through handicapping
services, publications and industry organizations, using magazine and radio
advertising to reinforce name recognition of TrackPower.com.
We are currently building relationships with trade publications and
developing an alliance with companies such as the Daily Racing Form, or DRF. We
believe that we can increase industry leaders' and participants' awareness of
TrackPower.com through advertisements and editorials in these publications.
We are also conducting joint marketing programs with both the Dish
NetworkTM and Penn. We intend to contact Dish NetworkTM subscribers through bill
inserts, commercials, newsletters and entertainment magazines and Penn Telebet
account holders through direct mail, newsletters and live demonstrations.
We also intend to use telemarketing and a VIP program that will
encourage interactive wagering through Penn National and to conduct marketing
initiatives such as a guaranteed $10,000 Pick 6 with the DRF on Breeders Cup day
and a $200,000 National Handicapping Challenge contest during February 2000.
Revenue Sources
We believe that the revenues from our TrackPower service in its initial
horseracing form will stem from wagering commissions.
Wagering Revenue. Under pari-mutuel wagering, a state licensed wagering
entity, such as Penn National, retains a percentage fee from each accepted
wager. The wagering entity pays all statutory taxes and returns a portion of the
wagering revenue to horsemen in the form of purses. After these payments, the
wagering entity normally pays a fee to the simulcast signal originator and keeps
the remainder. Under the terms of our agreement with Penn, we receive a
percentage of up to 4.75% of the gross wager revenue from subscribers as payment
for providing video services.
Expansion
Although our TrackPower service was launched as a horseracing service,
we also intend to expand our service offerings to include other sports involving
wagering, such as jai alai and dog racing, both of which are established
pari-mutuel sporting ventures that are popular in certain regions of the United
States.
In addition, subject to changes in the legal and regulatory frameworks,
we intend to eventually simulcast and process wagering on other live sports
events, such as football, baseball and basketball. Wagering on these sports is
currently only legal in the State of Nevada.
We believe that Canada may represent a significant horseracing market
for our TrackPower service. However, we believe that landing the TrackPower
video signal is not legal under current Canadian legislation. We are
investigating alternative signal delivery options.
25
<PAGE>
We believe that substantial growth in revenue may be achieved by
entering certain markets such as Puerto Rico and Mexico. Puerto Rico currently
has a base of EchoStar subscribers who already possess the set-top box and
satellite dish required to receive our TrackPower service and who can become
TrackPower subscribers simply by calling EchoStar and ordering our service.
Management
Members of our management team have industry experience in broadcast
communications, project management, marketing to the racing industry and other
industries, as well as many years of participation in the racing industry
through owning and breeding horses. We believe that our current management team
is well suited to continue to develop and grow our business.
Hardware Sales
We plan to out-source as many functional tasks as possible. The
hardware required for our TrackPower service is available direct from EchoStar
or through the EchoStar network of approximately 20,000 dealers. Subscribers can
install the system themselves or contract the dealer to install it.
Corporate Information and Description of Property
We were incorporated on June 30, 1993 in Wyoming. The addresses and
telephone numbers of our principal executive offices are 67 Wall Street, Suite
2411, New York, NY 10005, (212) 804-5704 and 580 Granite Court, Pickering,
Ontario L1W 3Z4, (905) 839-1430.
LEGAL PROCEEDINGS
We are not presently party to any pending litigation the outcome of
which could reasonably be expected to have a material adverse effect on our
financial condition or results of operations.
DIRECTORS AND EXECUTIVE OFFICERS
Directors
John G. Simmonds, 49, was appointed chairman of the board of directors
and chief executive officer of TrackPower effective January 29, 1998. Mr.
Simmonds is the founder of Simmonds Capital Limited, or SCL, formerly Simmonds
Communications Ltd., a company listed on the Toronto Stock Exchange. Since 1991,
Mr. Simmonds has served as chairman, president and chief executive officer of
SCL. SCL is involved in the wireless communications business as a systems
integrator and in the electronics business as a manufacturer and distributor of
electronic components and related products. From 1994 to 1996, Mr. Simmonds
served as chief executive officer of Intek Global Corporation, formerly Intek
Diversified Corp., a company listed on the Nasdaq SmallCap Market. Intek is
involved in the specialized mobile radio market in the United States and owns
and manages SMR licenses in the 200 MHz frequency. Between September 1995 and
November 1997, Mr. Simmonds served as the chairman of Ventel Inc., a company
listed on the Vancouver Stock Exchange. Ventel provides secured loans to
developing companies in the specialized radio market in the United States. Mr.
Simmonds was a member of the board of directors of Intek from 1994 until his
resignation during 1998 and has resigned from the board of directors of Ventel.
Kenneth J. Adelberg, 46, has been a director of TrackPower since April
1, 1996. Mr. Adelberg, who holds Bachelor of Science degrees in biophysics and
psychology from Pennsylvania State
26
<PAGE>
University, is the president and chief executive officer of HiFi House Group of
Companies, a founder and a director of Republic First Bancorp and a founder and
former director of U.S. Watts. Since 1995, Mr. Adelberg has been a director of
Global Sports Inc., a company listed on the Nasdaq SmallCap Market.
Lawrence P. Aziz, 52, has been a director of TrackPower since August
25, 1999. Mr. Aziz has occupied several senior management positions in the
office furniture manufacturing industry, including vice president of sales for
Biltrite Manufacturing for four years. In 1988, Mr. Aziz founded PBI Office
Interiors, a leading office furniture dealership offering interior design and
supplying products and services to major corporations and financial institutions
throughout the United States and Canada. Mr. Aziz continues to own and operate
PBI. Mr. Aziz is also a private pilot and maintains an active role with the
Canadian Cancer Society.
Charles Cernansky, 45, has been a director of TrackPower since August
1997. Mr. Cernansky has a securities principal registration with Pellinore
Securities Corp., a New York City-based broker-dealer, and, since 1992, has been
a principal of WestCap Partners, Inc., a Manhattan-based financial investment
and merchant banking consulting and advisory services firm. Mr. Cernansky is
experienced in business development and consults on overall corporate financial
functions, tax planning, corporate finance strategy and venture capital
activities and provides merger-acquisition assistance. Mr. Cernansky holds a
Bachelor of Science degree from SUNY College at Brockport, an M.B.A. from
Rensselaer Polytechnic Institute and a J.D. from Albany Law School of Union
University. Mr. Cernansky is an attorney and C.P.A. in the State of New York.
Ian Macdonald, 44, has been a director of TrackPower since June 1996.
Mr. Macdonald, who holds a Bachelor of Science degree in economics, an M.B.A. in
marketing and is a C.A., is the chairman and chief executive officer of The
Versatech Group Inc., an auto parts manufacturer listed on the Toronto Stock
Exchange. Mr. Macdonald has been managing director of Tri-Capital Management
Limited, a Toronto-based private merchant bank, since 1989.
Arnold K. Smolen, 57, has been a director of TrackPower since August
25, 1999. Mr. Smolen graduated from the Philadelphia College of Pharmacy and
Science with a Bachelor of Science degree in 1965. From 1974 to 1994, Mr. Smolen
owned and operated a chain of pharmaceutical stores. He is presently a
consultant of Northwest Tennis, Inc. and is executive vice president and
principal of Percival Financial Partners. Mr. Smolen has been actively involved
as a breeder of thoroughbred racehorses in the Mid-Atlantic area for over
twenty-five years and is a licensed owner in Maryland, West Virginia, Delaware,
New Jersey, Pennsylvania and New York.
Executive Officers and Significant Employees
Gary N. Hokkanen, 43, was appointed chief financial officer of
TrackPower in February 1998. Mr. Hokkanen's principal occupation is an
accountant and he holds a Certified Management Accountant, or CMA, designation
from Society of Management Accountants of Ontario. Mr. Hokkanen has also been
vice president, finance/chief financial officer of SCL since July 1997. From
April 1996 to July 1997, Mr. Hokkanen was treasurer of SCL. From June 1994 to
April 1996 he was manager, finance & treasury of SCL. From May 1986 to June
1994, Mr. Hokkanen was manager, financial planning & analysis, with CUC
Broadcasting Limited, which was a privately-owned Canadian cable TV multiple
system operator prior to being acquired by Shaw Communications Inc.
Carrie J. Weiler, 40, joined the Simmonds group of companies in 1979.
Ms. Weiler has been secretary of TrackPower since February 1998 and was promoted
to vice president of corporate development for SCL and its divisions in 1994.
Ms. Weiler continues to serve in this capacity and is a key liaison between the
compensation and audit committees and the board of directors of SCL.
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<PAGE>
The Company's directors will serve until the next annual meeting of
shareholders and until their respective successors are duly elected and shall
have qualified. The By-laws of the Company provide that the number of directors
of the Company shall be fixed by the shareholders or the Board of Directors and
shall be not less than three or more than fifteen. The number has been fixed by
the Board of Directors at seven. The Company's Articles of Incorporation
provides that directors may be removed by the shareholders, with or without
cause, upon the affirmative vote of the holders of a majority of the votes cast
and at a meeting called for the purpose of such removal.
There are no family relationships among any of the directors or
executive officers of the Company.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended February 28, 1999,
February 28, 1998 and February 28, 1997 of those persons who were, during all or
part of the fiscal year ended February 28, 1998, the chief executive officer.
None of our other executive officers received compensation in excess of $100,000
in fiscal year ended February 28, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------------------------------------
Long Term Compensation
Annual Compensation
- ------------------------------------------------------------- ---------------- --------------------------------------
Awards Payouts
- ------------------------------ -------- ---------- ---------- ---------------- ------------- ------------ -----------
Restricted
Name and Principal Position Year Salary Bonus Other Annual Stock Awards Options/ LTIP
Compensation SARS(#) Payouts
- ------------------------------ -------- ---------- ---------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
John G. Simmonds 1999 (1) (1) (1) None 250,000 None
Chairman of the Board, -------- ---------- ---------- ---------------- ------------- ------------ -----------
Chief Executive Officer and 1998 (1) (1) (1) N/A 250,000 N/A
President -------- ---------- ---------- ---------------- ------------- ------------ -----------
1997 N/A N/A N/A N/A N/A N/A
- ------------------------------ -------- ---------- ---------- ---------------- ------------- ------------ -----------
Gary N. Hokkanen 1999 (1) (1) (1) None 100,000 None
Chief Financial Officer -------- ---------- ---------- ---------------- ------------- ------------ -----------
1998 (1) (1) (1) N/A 100,000 N/A
-------- ---------- ---------- ---------------- ------------- ------------ -----------
1997 N/A N/A N/A N/A N/A N/A
- ------------------------------ -------- ---------- ---------- ---------------- ------------- ------------ -----------
Carrie J. Weiler 1999 (1) (1) (1) None 200,000 None
Vice President and -------- ---------- ---------- ---------------- ------------- ------------ -----------
Corporate Secretary 1998 (1) (1) (1) N/A 100,000 N/A
-------- ---------- ---------- ---------------- ------------- ------------ -----------
1997 N/A N/A N/A N/A N/A N/A
- ------------------------------ -------- ---------- ---------- ---------------- ------------- ------------ -----------
</TABLE>
(1) In connection with the acquisition of certain assets of SCL in January
1998, we agreed to pay to SCL an aggregate of $25,000 per month,
commencing February 1998 and terminating at the end of July 1999, for
the services of Mr. Simmonds, Mr. Dunstan, Ms. Weiler and Mr. Hokkanen.
We have no long-term incentive plan.
Option Grants Table for Fiscal 1999
We did not grant any stock options or stock appreciation rights under
any of our stock option plans during the fiscal year ended February 28, 1999.
We adopted our 1993 Compensatory Stock Option Plan, or Stock Option
Plan, for our officers, key employees, potential key employees, non-employee
directors and advisors. We reserved a maximum of 4,000,000 shares of our common
stock to be issued upon the exercise of options granted under the Stock Option
Plan. The Stock Option Plan does not qualify as an incentive stock option plan
under
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<PAGE>
Section 422A of the Internal Revenue Code of 1986, as amended. Options are
granted under the Stock Option Plan at exercise prices to be determined by our
board of directors or stock option committee. With respect to options granted
pursuant to the Stock Option Plan, optionees will not recognize taxable income
upon the grant of options, but will realize income or capital loss at the time
the options are exercised to purchase common stock. The amount of income will be
equal to the difference between the exercise price and the fair market value of
the common stock on the date of exercise. We will be entitled to a compensating
deduction in an amount equal to the taxable income realized by an optionee as a
result of exercising the option. The Stock Option Plan is currently administered
by our board of directors. We maintain three other stock option plans but have
not granted any options under these plans.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information regarding the exercise of
stock options during the last fiscal year by the executives named in the Summary
Compensation Table on page 28 and the fiscal year-end value of unexercised
options.
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
Name Shares Acquired on Value Realized Number of Value of Unexercised
Exercise Unexercised Options In-the-Money Options
at February 28, 1999 at February 28, 1999
exercisable/
unexercisable (1)
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
John G. Simmonds None N/A 500,000 $17,500
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
Gary N. Hokkanen None N/A 200,000 $7,000
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
Carrie J. Weiler None N/A 300,000 $14,000
- ------------------------ ---------------------- ----------------------- --------------------- ----------------------
</TABLE>
(1) Represents the difference between the fair market value of the
securities underlying the options and the exercise price of the options
at fiscal year end.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information as of November 30, 1999
regarding the beneficial ownership, as defined in regulations of the Securities
and Exchange Commission, of common stock of (i) each person who is known to
TrackPower to be the beneficial owner of more than 5% of the outstanding shares
of our common stock, (ii) each director and nominee for director of TrackPower
and each executive officer of TrackPower named in the summary compensation table
below and (iii) all directors and executive officers as a group. Unless
otherwise specified, the named beneficial owner has sole voting and investment
power. The information in the table below was furnished by the persons listed in
the table.
Security Ownership of Certain Beneficial Owners
- ------------------------------- ----------------------------- ------------------
Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership Common Stock
- ------------------------------- ----------------------------- ------------------
Simmonds Capital Limited
580 Granite Court 7,377,558 (1) 22.4%
Pickering, Ontario
Canada L1W 3Z4
- ------------------------------- ----------------------------- ------------------
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<PAGE>
- ------------------------------- ----------------------------- ------------------
John G. Simmonds
580 Granite Court 1,965,422 (3) 6.6% (2)
Pickering, Ontario
Canada L1W 3Z4
- ------------------------------- ----------------------------- ------------------
(1) SCL owns an aggregate of 3,727,558 shares of our common stock,
representing 12.70% of the aggregate shares of our outstanding common
stock. See footnote 3 under Security Ownership of Management on page
31. In addition, SCL owns (i) 1,000,000 shares of our preferred stock,
which are convertible into an aggregate of 1,000,000 shares of our
common stock; (ii) warrants to purchase 1,250,000 shares of our common
stock at an exercise price of $2.00 and 1,200,000 shares of our common
stock at an exercise price of $2.50; and (iii) $250,000 of debentures
convertible into 200,000 shares of our common stock; assuming the
conversion of this preferred stock and these debentures and the
exercise of these warrants, SCL owns 22.4% of our outstanding common
stock. This does not include any securities of TrackPower owned by
certain directors and/or officers of SCL who are also directors and/or
officers of TrackPower.
(2) Based on 29,340,401 shares outstanding at November 30, 1999.
(3) Includes 800,000 options to purchase our common stock from SCL, which
is also included in the amount of common stock held by SCL listed in
footnote 1 above.
Security Ownership of Management
The following table sets forth the beneficial ownership of our common
stock as of December 1, 1999, by each director, each executive officer named in
the Summary Compensation Table on page 28, and by all directors and executive
officers of TrackPower as a group:
- ------------------------------------- --------------------- ------------------
Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership (1) Common Stock (2)
- ------------------------------------ ---------------------- ------------------
John G. Simmonds (3)(12)
580 Granite Court
Pickering, Ontario
Canada L1W 3Z4 1,965,422 6.6%
- ------------------------------------- ------------------- ----------------------
Kenneth J. Adelberg (4)
1001 Sussex Blvd.
Broomall, Pennsylvania 29008 691,237 2.3%
- ------------------------------------- ------------------- ----------------------
Lawrence P. Aziz (5)
PBI Office Interiors
1305 Morningside Ave., Unit 15
Scarborough, Ontario
Canada M1B 3Z5 237,258 0.8%
- ------------------------------------- ------------------- ----------------------
Charles Cernansky (6)
WestCap Partners, Inc.
745 Fifth Avenue 394,625
New York, New York 10151 1.3%
- ------------------------------------- ------------------- ----------------------
J. Harry Dunstan (7)(12)
6 Damascus Drive
Caledon East, Ontario 1,076,936
Canada L0N 1E0 3.7%
- ------------------------------------- ------------------- ----------------------
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<PAGE>
- ------------------------------------- ------------------- ----------------------
Gary Hokkanen (8)
580 Granite Court
Pickering, Ontario
Canada L1W 3Z4 400,000 1.4%
- ------------------------------------- ------------------- ----------------------
Ian Macdonald (9)
The Versatech Group
4307 Village Centre Court
Mississauga, Ontario 858,750
Canada L4Z 1S2 2.9%
- ------------------------------------- ------------------- ----------------------
Arnold K. Smolen (10)
2515 Boston St., Unit 1103
Baltimore, Maryland 21224 124,200 0.4%
- ------------------------------------- ------------------- ----------------------
Carrie Weiler (11)
580 Granite Court
Pickering, Ontario
Canada L1W 3Z4 700,000 2.4%
- ------------------------------------- ------------------- ----------------------
All executive officers and directors
as a group, including those named 6,448,428
above (9 persons) (12) 21.4%
- ------------------------------------- ------------------- ----------------------
(1) Except as otherwise indicated below, each person or entity in this
table has voting and investment power with respect to the securities he
or it owns.
(2) Based on 29,340,401 shares outstanding at November 30, 1999.
(3) Represents (a) 418,164 shares of our common stock; (b) 250,000 options
to acquire our common stock granted under the Stock Option Plan
effective September 8, 1997, at an exercise price of $.40 per share,
all of which are fully exercisable; (c) 400,000 options granted by SCL
to acquire shares of our common stock held by SCL on January 12, 1998,
at an exercise price of $.01 per share, all of which are fully
exercisable, subject to certain conditions regarding the minimum
trading price of our common stock for a specified period; (d) 400,000
options granted by SCL on January 28, 1998 to acquire our common stock
held by SCL, at an exercise price of $.25 per share, all of which are
fully exercisable, subject to certain conditions regarding the minimum
trading price of our common stock for a specified period; (e) $125,000
of our convertible debenture which is convertible into 100,000 shares
of our common stock issued on June 10,1999; (f) 100,000 warrants to
purchase our common stock at an exercise price of $2.50 issued upon
conversion of our convertible debenture described in (e); (g) 147,258
shares of our common stock owned by Mr. Simmonds' wife Deborah
Simmonds; (h) $31,250 of our convertible debenture convertible into
25,000 shares of our common stock issued on June 10, 1999 owned by Mr.
Simmonds' wife Deborah Simmonds; (i) 25,000 warrants to purchase our
common stock at an exercise price of $2.50 issued upon conversion of
our convertible debenture described in (h), owned by Mr. Simmonds' wife
Deborah Simmonds; (j) 50,000 shares of our common stock held in trust
by Mr. Simmonds' wife Deborah Simmonds for Mr. Simmonds' son Jack
Simmonds; (k) $31,250 of our convertible debenture which is convertible
into 25,000 shares of our common stock issued on June 10, 1999 held in
trust by Mr. Simmonds' wife Deborah Simmonds for Mr. Simmonds' son Jack
Simmonds; and (l) 25,000 warrants to purchase our common stock at an
exercise price of $2.50 issued upon conversion of our convertible
debenture described in (k) held in trust by Mr.
Simmonds' wife Deborah Simmonds for Mr. Simmonds' son Jack Simmonds.
(4) Represents (a) 341,237 shares of our common stock; (b) options to
acquire 250,000 shares of our common stock granted under our Stock
Option Plan on March 18, 1999 at an exercise price of
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$.15 per share, all of which are fully exercisable; (c) $62,500 of our
convertible debenture convertible into 50,000 shares of our common
stock issued on June 10, 1999; and (d) 50,000 warrants to purchase our
common stock at an exercise price of $2.50 issued upon conversion of
our convertible debenture described in (c).
(5) Represents (a) 197,258 shares of our common stock; (b) $25,000 of our
convertible debenture issued on June 10, 1999 which is convertible into
20,000 shares of our common stock; and (c) 20,000 warrants to purchase
our common stock at an exercise price of $2.50 issued upon conversion
of our convertible debenture described in (b).
(6) Represents (a) 17,625 shares of our common stock owned by an affiliate;
(b) 15,000 warrants owned by an affiliate to purchase our common stock
at an exercise price of $.30 per share issued on April 17, 1998, all of
which are fully exercisable; (c) 350,000 shares of our common stock;
(d) $7,500 of our convertible debenture, owned by an affiliate,
convertible into 6,000 shares of our common stock issued on June 10,
1999; and (e) 6,000 warrants to purchase our common stock at an
exercise price of $2.50 issued upon conversion of our convertible
debenture described in (d).
(7) Represents (a) 200,000 options to acquire our common stock granted
under the Stock Option Plan effective September 8, 1997, at an exercise
price of $.40 per share, all of which are fully exercisable; (b)
250,000 options to acquire our common stock granted under the Stock
Option Plan effective March 18, 1999, at an exercise price of $.15 per
share, all of which are fully exercisable; (c) 200,000 options to
acquire our common stock granted by SCL on January 12, 1998 at an
exercise price of $.01 per share, all of which are fully exercisable,
subject to certain conditions regarding the minimum trading price of
our common stock for a specified period; (d) 200,000 options to acquire
our common stock granted by SCL on January 28, 1998 at an exercise
price of $.25 per share, all of which are fully exercisable, subject to
certain conditions regarding the minimum trading price of our common
stock for a specified period; (e) 17,500 warrants to purchase our
common stock at an exercise price of $.30 per share issued on April 17,
1998, all of which are fully exercisable; (f) 114,999 shares of our
common stock; and (g) 94,437 warrants to purchase our common stock at
an exercise price of $.15 per share issued on March 31, 1999, all of
which are fully exercisable. Mr. Dunstan resigned as a member of our
Board of Directors on December 13, 1999.
(8) Represents (a) 100,000 options to acquire the Company's common stock
granted under the Stock Option Plan effective September 8, 1997, at an
exercise price of $.40 per share, all of which are fully exercisable;
(b) 100,000 options to acquire the Company's common stock granted under
the Stock Option Plan effective March 18, 1999, at an exercise price of
$.15 per share, all of which are fully exercisable; (c) 100,000 options
to acquire the Company's common stock granted by SCL on January 12,
1998 at an exercise price of $.01 per share, all of which are currently
exercisable subject to certain conditions regarding the minimum trading
price of the Company's stock for a specified period.
(9) Represents (a) options to acquire 250,000 shares of our common stock
granted under our Stock Option Plan on March 18, 1999 at an exercise
price of $.15 per share, all of which are fully exercisable; (b)
300,000 shares of our common stock; (c) 100,750 shares of our common
stock owned by an affiliate; (d) $125,000 of our convertible debenture
convertible into 100,000 shares of our common stock issued on June 10,
1999; and (e) 100,000 warrants to purchase our common stock at an
exercise price of $2.50 issued upon conversion of our convertible
debenture described in (d).
(10) Represents (a) 24,200 shares of our common stock; (b) $62,500 of our
convertible debenture issued on June 10, 1999 which is convertible into
50,000 shares of our common stock; (c) 50,000
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warrants to purchase our common stock at an exercise price of $2.50
issued upon conversion of our convertible debenture described in (b).
(11) Represents (a) 100,000 options to acquire the Company's common stock
granted under the Stock Option Plan effective September 8, 1997, at an
exercise price of $.40 per share, all of which are fully exercisable;
(b) 200,000 options to acquire the Company's common stock granted under
the Stock Option Plan effective March 18, 1999, at an exercise price of
$.15 per share, all of which are fully exercisable; (c) 100,000 options
to acquire the Company's common stock granted by SCL on January 12,
1998 at an exercise price of $.01 per share, all of which are currently
exercisable, subject to certain conditions regarding the minimum
trading price of the Company's stock for a specified period; (d)
100,000 options to acquire the Company's common stock granted by SCL on
January 28, 1998 at an exercise price of $.25 per share, all of which
are currently exercisable, subject to certain conditions regarding the
minimum trading price of the Company's stock for a specified period;
(e) 62,500 of the Company's convertible debenture convertible into
50,000 shares of the Company's common stock issued on June 10, 1999;
(f) 50,000 warrants to purchase the Company's common stock at an
exercise price of $2.50 issued upon conversion of the Company's
convertible debenture described in (e).
(12) Does not include securities owned by SCL other than with respect to
options granted by SCL to purchase our stock held by SCL, as described
above. The relationship of John G. Simmonds is described below under
Certain Relationships and Related Transactions on pages 33 to 34 of
this prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SCL, either directly or through its wholly-owned subsidiary, Midland
International Corporation, or MIC, owns, as of October 4, 1999, an aggregate of
3,727,558 shares of our common stock, representing 12.7% of the aggregate
29,340,401 shares of our common stock outstanding. In addition, SCL owns (i)
1,000,000 shares of our preferred stock, which are convertible into an aggregate
of 1,000,000 shares of our common stock; (ii) warrants to purchase 1,250,000
shares of our common stock at an exercise price of $2.00 per share and 1,200,000
shares of our common stock at $2.50 per share; and (iii) a $250,000 debenture
convertible into 200,000 shares of our common stock. Assuming conversion of the
debenture and the preferred stock and the exercise of the warrants, SCL owns
22.4% of our outstanding common stock. The above figures do not include any of
our securities owned by officers and/or directors of SCL who are also officers
and/or directors of TrackPower.
Mr. John G. Simmonds, either directly or through various affiliates,
owns approximately 5% of the stock of SCL. SCL acquired certain shares of our
stock in December 1995, in connection with the grant to TrackPower of certain
exclusive license rights and the sale of assets. SCL acquired additional shares
of TrackPower in November 1996, in connection with an exclusive distribution
license granted to TrackPower. In addition, in January 1998, SCL completed the
sale to TrackPower of certain intellectual property and other assets. As
consideration for these assets, SCL received 1,000,000 shares of our convertible
preferred stock, which are convertible at the option of the holder into
1,000,000 shares of our common stock and a warrant exercisable until January 31,
2001 to purchase 500,000 shares of our common stock at a purchase price of $2.00
per share. In connection with these transactions, we agreed to pay to SCL an
aggregate of $25,000 per month pursuant to a written management fee agreement
commencing February 1998 and terminating at the end of July 1999, for the
services of Mr. Simmonds, Mr. Dunstan, Ms. Weiler and Mr. Hokkanen. We continue
to pay SCL $25,000 a month for these services.
On October 16, 1998, SCL transferred ownership of 4,230,906 shares of
our common stock, owned by MIC, to Mees Pierson ICS Limited, or Mees, pursuant
to a debt settlement agreement between
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SCL, MIC and Mees. On May 4, 1999, Mr. Simmonds and a group of close business
associates and investors familiar with TrackPower acquired the block of
4,230,906 shares from Mees. Mr. Simmonds and his immediate family acquired
170,906 of the shares. Effective June 4, 1999, we issued to SCL 1,000,000
warrants to purchase our common stock at any time during the next four years at
an exercise price of $2.50 per share and 750,000 warrants to purchase our common
stock at any time during the next four years at an exercise price of $2.00 per
share, in consideration for guaranteeing our obligations under a contract with a
subsidiary of EchoStar Satellite Communications Inc. and a general guarantee of
all of our obligations until March 1, 2000. As part of this transaction, SCL has
been given the option to be paid with 750,000 shares of our common stock.
Mr. Simmonds, our chairman of the board, president and chief executive
officer, serves SCL in the same capacities. In addition, Mr. Hokkanen, our chief
financial officer, is chief financial officer of SCL. Mr. Macdonald, who is a
director of TrackPower, is also a director of SCL.
USE OF PROCEEDS
The selling shareholders are selling all the common stock covered by
this prospectus for their own account. We will not therefore receive any
proceeds from the sale of this common stock.
SELLING SHAREHOLDERS
We issued 2,800,000 shares to SCL in 1996 in exchange for certain
Midland two way radio distribution rights pursuant to a General Security
Agreement and a License Agreement both between the Company and SCL SCL
subsequently sold 50,000 of these shares to each Shelwick Investments and
Blakeian Investments, both on May 25, 1999.
In April 1998, we issued 100 units pursuant to subscription agreements
with certain of the selling shareholders. Each unit is convertible into 5,000
shares of our common stock, warrants to purchase 5,000 shares of our common
stock and debt securities in the principal amount of $5,000. The debt securities
are evidenced by secured demand notes. In July 1998, we issued 70 substantially
similar units pursuant to subscription agreements with certain other selling
shareholders.
On March 31, 1999, we offered shares of common stock to the holders of
the units as incentive to convert the secured demand notes underlying their
units into warrants and shares of common stock. Pursuant to conversion
agreements all dated as of March 31, 1999, the holders of the units converted
their secured demand notes into warrants and shares of common stock.
In the table below is information, as of November 30, 1999, regarding
the beneficial ownership of the shares by the selling shareholders. The number
of shares shown as beneficially owned by the selling shareholders represents all
of the shares of common stock currently issued and to be issued upon conversion
in full of all of the convertible securities described above. The information
regarding the selling shareholders' beneficial ownership after this offering
assumes that all shares of common stock offered by the selling shareholders
through this prospectus are actually sold. The presentation is based on
29,340,401 shares of our common stock outstanding as of November 30, 1999.
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<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------- ------------------- ---------------------------
Number of Shares Number of Common Stock
of Common Stock Shares of Beneficially Owned
Beneficially Owned Common Stock After Offering
- --------------------------------------------- ----------------------- ------------------- --------------- -----------
Selling Shareholders Prior to Offering Offered Number Percent
- --------------------------------------------- ----------------------- ------------------- --------------- -----------
<S> <C> <C> <C> <C>
Kenneth J. Adelberg 1,753,626 324,195 1,429,431 4.9%
Adoribel Holdings Ltd. 219,596 219,596 0 *
Lawrence Aziz 97,258 97,258 0 *
William Scott Benoit 43,500 43,500 0 *
Helmut Biemann 65,250 65,250 0 *
Blakeian Investments Ltd. 920,556 50,000 870,556 3.0%
Pamela Brocious 65,250 65,250 0 *
Louis J. DeRicco Jr. 21,750 21,750 0 *
Harry Dunstan 264,998 226,936 38,062 *
First Premier Corp. 43,500 43,500 0 *
Gary and Linda Fischoff JT 125,206 125,206 0 *
Rabbia and Khawasa Ali Hassan 183,695 183,695 0 *
Anthony Matrone 219,596 219,596 0 *
Richard Messina 601,314 223,250 378,064 1.3%
Relevant Investments Ltd. 626,034 626,034 0 *
Reina S. Robbins IRA 54,375 54,375 0 *
Saul Robbins IRA 95,592 54,375 41,217 *
Steven A. Sanders & Partners 65,250 65,250 0 *
Shelwick Investments Limited 50,000 50,000 0 *
Simmonds Capital Limited 4,148,669 2,700,000 1,448,669 14.1%
Deborah Simmonds 97,258 97,258 0 *
John G. Simmonds 1,015,422 97,258 918,164 3.1%
Sphere Management Corporation 87,000 87,000 0 *
Summit Capital Associates, Inc. 454,439 76,375 378,064 1.3%
Tricapital Management Limited 108,750 108,750 0 *
Lee Vosburgh 54,375 54,375 0 *
Wallis G. Young 54,375 54,375 0 *
WestCap Capital 382,625 32,625 350,000 1.2%
</TABLE>
- ----------------------------------------------------------
* Less than 1%
Certain selling shareholders are known or believed to have had material
relationships with TrackPower or its affiliates within the last three years.
Messrs. Adelberg, Aziz, and Simmonds are currently directors of TrackPower. Mr.
Simmonds is also Chairman, President and CEO of SCL which is the largest
shareholder of TrackPower. Deborah Simmonds is the spouse of Mr. Simmonds who is
currently a director of TrackPower. Ian MacDonald, a current director of
TrackPower, is a partner in Tricapital Management Limited and Blakeian
Investments is a trust for Mr. MacDonald's children. Charles Cernansky, a
current director of TrackPower, is a partner of WestCap Partners, Inc. Mr.
Cernansky also holds a security principal registration in Pellinore Securities,
Inc. which acted as agent for April and July 1998 noteholders. Richard Messina
is President of Pellinore Securities, Inc. and Summit Capital Associates, Inc. A
partner of Mr. MacDonald in Tricapital Management Limited is also the owner of
Shelwick Investments Limited. Helmut Biemann was the Chief Operating Officer of
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<PAGE>
TrackPower for the period from February 1998 to December 1998. Sphere Management
Corporation performs technical consulting services for TrackPower.
DESCRIPTION OF SECURITIES
Pursuant to our articles of incorporation, TrackPower has the authority
to issue an unlimited number of shares of common stock, par value $.0001 per
share ("Common Stock") and an unlimited number of shares of preferred stock, no
par value ("Preferred Stock"). As of November 30, 1999, there were 29,340,401
shares of Common Stock issued and outstanding and 1,000,000 shares of Preferred
Stock issued and outstanding. In addition, TrackPower has reserved 1,850,000
shares of Common Stock for issuance upon the exercise of stock options.
The following is a description of the Common Stock and Preferred Stock.
Common Stock
Issuance. All shares of Common Stock are alike in every particular, are
of equal rank, have the same power, preferences and rights and are subject to
the same qualifications, limitations and restrictions. As of January 20, 2000,
there are no classes or series of Common Stock which have been authorized. The
Board of Directors is authorized to create classes or series of Common Stock and
to issue additional shares of Common Stock, with all shares of each class or
series of Common Stock alike and, of equal rank with the same power, preferences
and rights and otherwise within the limits authorized by TrackPower's articles
of incorporation.
Voting Powers. Each share of Common Stock presently has one vote in
respect of all matters voted upon by the shareholders, although the articles of
incorporation allow the Board of Directors to determine the voting powers of the
Common Stock. Cumulative voting is not allowed in the election of directors or
as to any other matter presented for shareholder approval.
Dividends. After the holders of Preferred Stock are paid any declared
dividends and after TrackPower has complied with any provisions in effect
related to the setting aside of sums in a sinking fund for the purchase or
redemption of shares of any class or series of Preferred Stock, the holders of
Common Stock are entitled to receive, to the extent permitted by law, dividends
as declared by the Board of Directors.
Dissolution or Liquidation. Upon the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of TrackPower,
and after distributions have been made in full to the holders of Preferred Stock
as authorized by the articles of incorporation, the holders of Common Stock are
entitled to receive all the remaining assets of TrackPower of whatever kind
available for distribution to shareholders ratably in proportion to the number
of shares of Common Stock respectively held by them.
Convertibility. The Board of Directors may adopt resolutions allowing
for the Common Stock to be convertible into or exchangeable for (at the option
of TrackPower or the shareholder or upon the occurrence of a specified event)
shares of any other class or any other series of the same or any other class of
shares of TrackPower, at a price or at a rate of exchange and with adjustments
as adopted by the Board of Directors.
Redemption. The Board of Directors may authorize redeemable Common
Stock which may be made redeemable at the option of TrackPower, of the holder
thereof, of another person or upon the occurrence of a designated event, if and
to the extent now or subsequently allowed by the Wyoming
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Business Corporation Act, as amended, and the terms and conditions of redemption
which may be imposed, fixed and established by the Board of Directors.
Preferred Stock
The Articles of Incorporation of TrackPower expressly grant to the
Board of Directors the right to issue any class or series of Preferred Stock and
to determine the respective designation, powers, preferences, rights,
qualifications, limitations and restrictions of the class or series, including
but not limited to the rights of holders of Preferred Stock with respect to the
payment of dividends, conversion of shares, redemption of shares, and rights
upon liquidation or dissolution of TrackPower.
Dividends. The holders of Preferred Stock shall be entitled to receive
dividends declared by the Board of Directors in preference to the holders of
Common Stock, at the rate determined by the Board of Directors.
Dissolution or Liquidation. Upon the voluntary or involuntary
liquidation, dissolution or winding-up of TrackPower, the holders of the
Preferred Stock shall have the right to receive the amount per share fixed by
the Board of Directors before any distribution or payment is made to the holders
of the Common Stock.
Voting. The Preferred Stock has no voting power with respect to any
matter, although the Board of Directors has the authority to determine whether
the shares of any class or series of Preferred Stock which might be authorized
by the Board of Directors would have limited, contingent, full or no voting
rights and what the terms of any such voting rights would be.
PLAN OF DISTRIBUTION
We anticipate that the selling shareholders may sell all or a portion
of the shares offered by this prospectus from time to time on the Over The
Counter Bulletin Board, on securities exchanges or in private transactions, at
fixed prices, at market prices prevailing at the time of sale or at prices
reasonably related to the market price, at negotiated prices, or by a
combination of these methods of sale through:
o ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o sales to one or more brokers or dealers as principal, and the resale by
those brokers or dealers for their account, including resales to other
brokers and dealers;
o block trades in which a broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; or
o privately negotiated transactions with purchasers.
We are not aware as of the date of this prospectus of any agreements
between the selling shareholders and any broker-dealers regarding the sale of
the shares offered by this prospectus, although we have made no inquiry in that
regard. In connection with distributions of the shares or otherwise, the selling
shareholders may enter into hedging transactions with broker-dealers. In
connection with these transactions:
o broker-dealers may engage in short sales of the shares covered by this
Prospectus in the course of hedging the positions they assume with
selling shareholders;
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o the selling shareholders may sell shares of our common stock short and
deliver the shares to close out their short positions;
o the selling shareholders may enter into option or other transactions
with broker-dealers that require the delivery to the broker-dealer of
the shares covered by this prospectus, which the broker-dealer may
resell according to this prospectus; and
o the selling shareholders may pledge the shares covered by this
prospectus to a broker or dealer and upon a default, the broker or
dealer may effect sales of the pledged shares according to this
prospectus.
The selling shareholders and any broker, dealer or other agent
executing sell orders on behalf of the selling shareholders may be considered to
be underwriters within the meaning of the Securities Act, in which case
commissions received by any of these brokers, dealers or agents and profit on
any resale of the shares may be considered to be underwriting commissions under
the Securities Act. These commissions received by a broker, dealer or agent may
be in excess of customary compensation.
All costs, fees and expenses of registration incurred in connection
with the offering will be borne by us. All selling and other expenses incurred
by the selling shareholders will be borne by the selling shareholders.
The selling shareholders also may resell all or a portion of the shares
offered by this prospectus in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that Rule.
We have notified the selling shareholders that they will be subject to
applicable provisions of the Exchange Act and its rules and regulations,
including without limitation, Rule 102 under Regulation M. These provisions may
limit the timing of purchases and sales of any of the common stock by the
selling shareholders. Rule 102 under Regulation M provides, with some
exceptions, that it is unlawful for the selling shareholders or their affiliated
purchasers to, directly or indirectly, bid for or purchase, or attempt to induce
any person to bid for or purchase, an account in which the selling shareholders
or affiliated purchasers have a beneficial interest in any securities that are
the subject of the distribution during the applicable restricted period under
Regulation M. All of the above may affect the marketability of the common stock.
To the extent required by law, we may require the selling shareholders, and
their brokers if applicable, to provide a letter that acknowledges compliance
with Regulation M under the Exchange Act before authorizing the transfer of the
selling shareholders' shares.
LEGAL MATTERS
Holland & Hart of Cheyenne, Wyoming, will opine as to the offered
shares being validly authorized and issued by TrackPower and fully-paid and
nonassessable.
EXPERTS
Causey Demgen & Moore Inc., independent auditors, have audited our
financial statements as of February 28, 1999 and for the previous year ending
February 28, 1998, as set forth in their report, included in our annual report
on Form 10-KSB for the year ended February 28, 1999 which is incorporated in
this prospectus by reference. Such report contained an explanatory paragraph
which indicated that substantial doubt existed with respect to our ability to
continue as a going concern. Our
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<PAGE>
consolidated financial statements are incorporated by reference in reliance on
Causey Demgen & Moore Inc.'s report, given on their authority as experts in
accounting and auditing.
INDEMNIFICATION
The Wyoming Business Corporation Act, or WBCA, provides for mandatory
indemnification of directors and officers of a corporation in connection with an
action, suit or proceeding brought by reason of their position as a director or
officer if they are wholly successful, on the merits or otherwise, in defense of
the proceeding. The WBCA also allows a corporation to indemnify directors or
officers in such proceedings if the director or officer acted in good faith, in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, in the case of a criminal proceeding, he had no reasonable
cause to believe that his conduct was unlawful.
Our articles of incorporation provide that directors and officers may
be indemnified for reasonable expenses or liability incurred in connection with
any proceeding to which they are made a party by reason of their status as a
director or officer provided that they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of TrackPower
or that, with respect to any criminal proceeding, they had reasonable cause to
believe that their conduct was unlawful. These indemnification provisions do not
apply, subject to certain exceptions, if the director or officer initiates the
claim for which he seeks indemnification, if he acts in bad faith, if the claim
against him has been paid by his insurance, or if the claim arises from his
purchase or sale of securities in violation of Section 16(b) of the Exchange Act
or any similar statute.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling TrackPower
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, that indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
DESCRIPTION OF PROPERTY
The principal office of TrackPower is located at 67 Wall Street, Suite
2411, New York, NY 10005. Certain TrackPower officers and executives have
offices located at 580 Granite Court, Pickering, Ontario, L1W 3Z4, Canada.
WHERE YOU CAN FIND MORE INFORMATION
o Government Filings. We file annual, quarterly and special reports,
proxy statements and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the SEC's public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330.
We have filed with the SEC a registration statement on Form SB-2 to
register the shares of common stock to be offered. This prospectus is part of
that registration statement and, as permitted by the SEC's rules, does not
contain all the information included in the registration statement. For further
information about us and our common stock, you should refer to that registration
statement and to the exhibits and schedules filed as part of that registration
statement. You can review and copy the registration statement, its exhibits and
schedules at the public reference facilities maintained by the SEC
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<PAGE>
as described above. The registration statement, including its exhibits and
schedules, are also available on the SEC's web site, given above.
o Stock Market. Shares of our common stock are traded on the Over the
Counter Bulletin Board. Materials that are filed can be inspected at the offices
of the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
We are not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than
the date on the front of those documents.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors, Officers, Employees and Agents.
Sections 17-16-852 and 17-16-856 of the Wyoming Business Corporation
Act, or WBCA, provide for mandatory indemnification by a corporation of
reasonable expenses incurred by a director or officer in connection with any
proceeding brought by reason of his position as a director or officer, so long
as he was wholly successful, on the merits or otherwise, in defense of the
proceeding.
In addition, under Section 17-16-851 of the WBCA, a corporation may
indemnify a director who is party to a proceeding because of his status as a
director if "(i) He conducted himself in good faith; and (ii) He reasonably
believed that his conduct was in or at least not opposed to the corporation's
best interests; and (iii) in the case of any criminal proceeding he had no
reasonable cause to believe his conduct was unlawful; or (iv) He engaged in
conduct for which broader indemnification has been made permissible or
obligatory under a provision of the articles of incorporation."
Under Section 17-16-853 of the WBCA, TrackPower may, before the final
disposition of a proceeding, advance funds to pay for or reimburse the
reasonable expenses incurred by a director if he provides to TrackPower a
written affirmation of his good faith belief that he has met the standard of
conduct required for indemnification under the WBCA and his written undertaking
to repay any funds advanced if he is not entitled to mandatory indemnification
under the WBCA and it is ultimately determined that he has not met the standard
of conduct required for indemnification under the WBCA. Section 17-16-854 of the
WBCA provides for the manner and the circumstances under which a court may order
indemnification and provide for an advance of expenses.
Under Section 17-16-856 of the WBCA, an officer may be indemnified to
the same extent as a director. If an officer is not also a director, the
corporation may further indemnify him as may be provided in the articles of
incorporation, the by-laws, the resolutions of the Board of Directors, or
contract, except for (i) liability in actions brought by or in the right of the
corporation, other than for reasonable expenses incurred therein, or (ii)
liability arising out of conduct that constitutes receipt of a financial benefit
to which he is not entitled, intentional infliction of harm on the corporation
or the shareholders, or intentional violation of criminal law. If an officer
also is a director but the proceeding was brought solely on the basis of his
status as an officer, he also may be indemnified and receive advanced expenses
as may be provided in the articles of incorporation, the by-laws, resolutions of
the Board of Directors, or contract.
Our articles of incorporation provide, among other indemnity
provisions, that directors, officers, employees and agents may be indemnified
for expenses (including attorneys' fees), judgments, fines, settlements or other
liabilities reasonably incurred in connection with any proceeding to which they
are made a party by reason of their status as a director, officer, employee or
agent provided that they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of TrackPower or that,
with respect to any criminal proceeding, they had no reasonable cause to believe
that their conduct was unlawful. These indemnification provisions do not apply,
subject to certain exceptions, if the director, officer, employee or agent
initiates the claim (other than to enforce a right of indemnification) for which
he seeks indemnification, if he institutes a proceeding and a court determines
that each of the material assertions made by him in the proceeding was not made
in good faith or was frivolous, if the claim against him has been paid directly
by an insurance carrier under a policy of officers' and directors' liability
insurance maintained by TrackPower, or if the claim arises from his purchase or
sale of securities in violation of Section 16(b) of the Exchange Act or any
similar or successor statute.
1
<PAGE>
The provisions of Section 17-18-101 and the subsequent sections of the
WBCA, which sections are referred to as the "Wyoming Management Stability Act",
could have the effect of delaying, deferring or preventing a change in control
of TrackPower or the removal of existing management, and as a result could
prevent our shareholders from being paid a premium for their shares of common
stock.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable in
connection with the distribution of the securities covered by this Registration
Statement. All the amounts shown are estimates except the Securities and
Exchange Commission Registration Fee and the OTC Market Listing Fee. All of the
expenses will be borne by the Company except as otherwise indicated.
SEC Registration Fee..........................................$2,586.74
Printing and Engraving Fees and Expenses......................$5,000.00
Legal Fees and Expenses......................................$15,000.00
Accounting Fees and Expenses..................................$5,000.00
Miscellaneous.................................................$2,413.26
Total........................................................$30,000.00
Item 26. Recent Sales of Unregistered Securities.
None except as described in the section entitled "Selling Stockholders"
of this Form SB-2.
Item 27. Exhibits.
The following documents are filed as exhibits to this registration
statement, including those exhibits incorporated in this registration statement
by reference to a prior filing of TrackPower under the Securities Act or the
Exchange Act as indicated in parenthesis:
Exhibit
Number Description
1.1 Placement Agent Agreement dated April 17, 1998 between TrackPower and
Pellinore Securities Corporation (1)
2.1 Articles of Merger as filed with the New York Department of State on
February 11, 1994 (2)
2.2 Articles of Merger as filed with the Wyoming Secretary of State on
February 14, 1994 (3)
2.3 Agreement and Plan of Merger dated July 1, 1993 between TrackPower and
Mont Rouge Resources, Inc. (4)
3.1 Certificate of Incorporation of TrackPower (5)
3.2 By-Laws of TrackPower (6)
4.1 Specimen Stock Certificate of TrackPower (7)
2
<PAGE>
4.2 Form of Warrant issued by TrackPower to various investors, dated as of
April 17, 1998 (8)
5.1* Opinion by Holland & Hart regarding legality of the shares of common
stock being registered pursuant to this registration statement
10.1 Agreement, dated July 9, 1999, between Penn National Gaming, Inc. and
the Registrant, as amended by letter agreements dated July 20, 1999 and
October 1, 1999 (9) (11)
10.2 Satellite Capacity Lease, dated as of June 4, 1999, between the
Registrant and Transponder Encryption Services Corporation (10) (11)
10.3 License Agreement, dated as of November 8, 1996, between the Registrant
and Simmonds Capital Limited (11)
23.1* Consent of Causey, Demgen & Moore
- -------------------------------------------
* Filed herewith.
(1) Incorporated by reference to Exhibit 1 to our Form 8-K dated
May 7, 1998.
(2) Incorporated by reference to Exhibit 2.1 to our Form 8-K dated
February 14, 1994.
(3) Incorporated by reference to Exhibit 2.2 to our Form 8-K dated
February 14, 1994.
(4) Incorporated by reference to Exhibit A to our Articles of
Merger (which are filed as Exhibit 2.2 above).
(5) Incorporated by reference to Exhibit 3.1 to our Form 8-K dated
July 14, 1993.
(6) Incorporated by reference to Exhibit 3.2 to our Form 8-K dated
July 14, 1993.
(7) Incorporated by reference to Exhibit 4.1 to our Form 8-K dated
July 14, 1993.
(8) Incorporated by reference to Exhibit 4.1 to our Form 8-K dated
May 7, 1998.
(9)(10) A portion of this exhibit has been omitted and separately
filed with the Securities and Exchange Commission pursuant to
Rule 406 promulgated under the Securities Act of 1933, as
amended.
(11) Incorporated by reference to our Registration Statement on
Form SB-2 (333-96157) which was filed on February 4, 2000.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
3
<PAGE>
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
15th day of March, 2000.
TRACKPOWER, INC.
By: /s/ John G. Simmonds
------------------------
John G. Simmonds
Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act, this Registration
Statement or amendment thereto has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John G. Simmonds President and Chief March 15, 2000
- ------------------------ Executive Officer
John G. Simmonds (principal executive officer)
(Director)
/s/ Gary N. Hokkanen Chief Financial Officer March 15, 2000
- ------------------------ (principal financial officer)
Gary N. Hokkanen
/s/ Ken Adelberg Director March 15, 2000
- ------------------------
Ken Adelberg
/s/ Lawrence Aziz Director March 15, 2000
- ------------------------
Lawrence Aziz
/s/ Charles J. Cernansky Director March 15, 2000
- ------------------------
Charles J. Cernansky
/s/ Ian MacDonald Director March 15, 2000
- ------------------------
Ian MacDonald
/s/ Arnold Smolen Director March 15, 2000
- ------------------------
Arnold Smolen
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
American Digital Communications, Inc.
New York, New York
We have audited the accompanying balance sheet of American Digital
Communications, Inc. (a development stage company) as of February 28, 1999
and 1998, and the related statements of operations and comprehensive income,
stockholders' equity, and cash flows for the years then ended. 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 audits 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 American Digital
Communications, Inc. at February 28, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended 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 discussed in Note 1 to the
financial statements, the Company is a development stage company and has
suffered recurring losses and at February 28, 1999, the Company has a working
capital deficit of $1,086,149 and a stockholders' deficit of $493,547.
These conditions 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 this uncertainty.
Denver, Colorado
May 27, 1999, except for
Note 11 as to which the
date is June 10, 1999 and CAUSEY DEMGEN & MOORE INC.
Note 12 dated March 6, 2000
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
BALANCE SHEET
February 28, 1999 and 1998
ASSETS
1999 1998
---- ----
Current assets:
Cash $ 18,089 $ 19,558
Notes receivable 10,764 8,548
Marketable securities (Notes 2 and 4) 616,880 1,209,844
Other current assets 331 -
--------- ----------
Total current assets 646,064 1,237,950
Property and equipment, at cost:
Office equipment 141,055 125,052
Furniture and fixtures 26,082 26,082
--------- ----------
167,137 151,134
Less accumulated depreciation 146,519 146,370
--------- ----------
Net property and equipment 20,618 4,764
Other assets:
Distribution rights, net of accumulated amortization
of $118,465 (1999) and $46,286 (1998) (Note 9) 129,493 201,672
Deposits on satellite uplink services 64,000 -
TrackPower trademarks and other intellectual property
rights, net of accumulated amortization of $19,921
(1999) (Notes 3 and 6) 378,491 398,412
---------- ----------
Total other assets 571,984 600,084
---------- ----------
$1,238,666 $1,842,798
========== ==========
See accompanying notes.
F-2
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
BALANCE SHEET
February 28, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1999 1998
---- ----
Current liabilities:
Accounts payable $ 339,106 $ 243,716
Accounts payable - related parties (Note 6) 407,319 36,289
Accrued expenses 71,063 59,193
Accrued interest 75,242 -
Accrued interest - related parties 56,652 40,294
Notes payable - related parties (Note 4) 30,370 30,370
Current portion of long-term note payable - related
party (Note 4) 157,461 -
Notes payable - individuals (Notes 4 and 11) 595,000 -
Current portion of capital lease obligations - 5,075
--------- ----------
Total current liabilities 1,732,213 414,937
Long-term debt:
Capital lease obligations - 876
Long-term note payable - related parties (Note 4) - 157,461
--------- ----------
Total long-term debt - 158,337
Commitments and contingencies (Notes 1, 3, 5, and 9)
Stockholders' equity (deficit)(Notes 3, 8 and 11):
Convertible preferred stock, no par value, unlimited
shares authorized, 1,000,000 shares to be issued
(liquidation value $1,000,000) 1,000,000 1,000,000
Common stock, $.0001 par value; unlimited shares
authorized, issued and outstanding, 25,162,886
shares (1999), 24,113,624 shares (1998) 2,516 2,412
Additional paid-in capital 7,169,700 6,986,409
Common stock subscribed, 50,000 shares (1999),
214,262 shares (1998) 7,500 41,995
Accumulated deficit (including $1,783,195 accumulated
during the development stage) (8,688,619)(6,905,424)
Accumulated other comprehensive income 15,356 144,132
---------- ----------
Total stockholders' equity (deficit) (493,547) 1,269,524
---------- ----------
Total liabilities and stockholders' equity
(deficit $1,238,666 $1,842,798
========== ==========
See accompanying notes.
F-3
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Years Ended February 28, 1999 and 1998
1999 1998
---- ----
Revenues:
Two-way radio sales (Note 10) $ - $ 76,480
220 MHz radio tower equipment sales (Note 2) - 2,638,219
Royalties received from distribution rights (Note 9) 11,375 43,990
Other revenue 851 -
---------- -----------
Total revenues 12,226 2,758,689
Costs and expenses:
Cost of two-way radio sales - 102,621
Write-down of two-way radio inventory - 12,414
Cost of 220 MHz radio tower equipment sales - 2,158,893
Loss on sale of distribution rights - 324,375
Impairment losses on distribution rights (Note 9) 47,382 476,865
TrackPower expenses (Note 3) 401,429 62,509
TrackPower expenses - related party (Note 6) 300,000 25,000
Realized losses on marketable securities 128,238 130,197
General and administrative 541,367 606,473
Depreciation and amortization 44,866 53,271
Interest expense 288,943 5,901
Interest expense - related parties 43,196 40,553
----------- -----------
Total costs and expenses 1,795,421 3,999,072
----------- -----------
Net loss (1,783,195) (1,240,383)
Preferred dividends (Note 3) (67,500) -
----------- -----------
Net loss applicable to common shareholders $(1,850,695) $(1,240,383)
=========== ===========
Basic and diluted net loss per share of common
stock $ (0.07) $ (0.05)
=========== ===========
Weighted average number of common shares outstanding 24,486,000 24,199,000
========== ==========
COMPREHENSIVE INCOME
Net loss $(1,783,195) $(1,240,383)
Other comprehensive income:
Unrealized holding gains (losses) Note 2) (128,776) 144,132
----------- -----------
Comprehensive income (loss) $(1,911,971) $(1,096,251)
=========== ===========
See accompanying notes.
F-4
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended February 28, 1999 and 1998
Preferred stock Common stock
Shares Amount Shares Amount
------ ------ ------ ------
Balance, February 28, 1997 - $ - 23,627,431 $ 2,363
Issuance of common stock for
subscriptions (Note 8) - - 436,193 44
Issuance of common stock to
employees for services (Note 8) - - 780,000 78
Exercise of stock options for cash - - 120,000 12
Return of the Company's common
stock on sale of radio tower
equipment (Note 2) - - (1,150,000) (115)
Issuance of common stock to
consultants for services (Note 8) - - 300,000 30
Stock subscriptions received for
cash (214,262 shares) (Note 8) - - - -
Convertible preferred stock to
be issued for trademarks
(Note 3) 1,000,000 1,000,000 - -
Net income (loss) for the year
ended February 28, 1998 - - - -
--------- --------- ---------- ------
Balance, February 28, 1998 1,000,000 1,000,000 24,113,624 2,412
Issuance of common stock for
subscriptions - - 164,262 16
Issuance of common stock in
conjunction with debt issuance
($.19 per share)(Note 4) - - 500,000 50
Issuance of common stock in
conjunction with debt issuance
($.14 per share)(Note 4) - - 385,000 38
Net loss for the year ended
February 28, 1999 - - - -
--------- --------- ---------- ------
Balance, February 28, 1999 1,000,000 $1,000,00 25,162,886 $2,516
========= ========= ========== ======
(Continued on following page)
See accompanying notes.
F-5
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years Ended February 28, 1999 and 1999
(Continued from preceding page)
Additional Common Other
paid-in stock Accumulated comprehensive
capital subscribed deficit income
--------- ---------- ----------- -------------
Balance, February 28, 1997 $ 7,747,767 93,300 $(5,665,041) $ -
Issuance of common stock for
subscriptions (Note 8) 93,256 (93,300) - -
Issuance of common stock to
employees for services (Note 8) 77,922 - - -
Exercise of stock options for
cash 11,988 - - -
Return of the Company's common
stock on sale of radio tower
equipment (Note 8) (87,932) - - -
Issuance of common stock to
consultants for services
(Note 8) 44,970 - - -
Stock subscriptions received for
cash (214,262 shares) (Note 8) - 41,995 - -
Convertible preferred stock to be
issued for trademarks (Note 3) (901,562) - - -
Net income (loss) for the year
ended February 28, 1998 - - (1,240,383) 144,132
---------- ------- ----------- --------
Balance, February 28, 1998 6,986,409 41,995 (6,905,424) 144,132
Issuance of common stock for
subscription 34,479 (34,495) - -
Issuance of common stock in
conjunction with debt issuance
($.19 per share) (Note 4) 94,950 - - -
Issuance of common stock in
conjunction with debt issuance
($.14 per share)(Note 4) 53,862 - - -
Net loss for the year ended
February 28, 1999 - - (1,783,195) (128,776)
---------- ------ ----------- --------
Balance, February 28, 1999 $7,169,700 $7,500 $(8,688,619) $15,356
========== ====== =========== =======
See accompanying notes.
F-6
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Years Ended February 28, 1999 and 1998
1999 1998
---- ----
Operating activities:
Net loss $(1,783,195) $(1,240,383)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 44,866 53,271
Impairment losses on distribution rights 47,382 476,865
Costs of licenses and distribution rights - 324,375
Gain on sale of radio tower equipment - (396,584)
Realized losses on marketable securities 128,238 130,197
Issuance of stock for interest expense 148,900 -
Issuance of common stock for debt issuance
costs - 123,000
Changes in:
Accounts receivable - 21,110
Inventories - 91,577
Other current assets (331) 3,888
Accounts payable 466,420 (179,010)
Accrued expenses 11,870 54,260
Accrued interest 91,600 29,918
---------- ---------
Net cash used in operating activities (844,250) (507,516)
Investing activities:
Purchase of office and equipment (16,002) -
Increase in deposits (64,000) -
Note receivable (2,216) -
Proceeds from sale of marketable securities 335,950 292,500
Proceeds from sale of fixed assets - 234,719
--------- --------
Net cash provided by investing activities 253,732 527,219
Financing activities:
Proceeds from sale of common stock, net - 12,000
Proceeds from stock subscriptions - 41,995
Payment of capital lease obligations (5,951) (5,841)
Payments of notes payable (255,000) (50,000)
Borrowings under notes payable 850,000 -
Borrowings from related parties - (30,000)
---------- --------
Net cash provided by (used in) financing
activities 589,049 (31,846)
---------- --------
Decrease in cash (1,469) (12,143)
Cash, beginning of period 19,558 31,701
---------- --------
Cash, end of period $ 18,089 $ 19,558
========== ========
(Continued on following page)
See accompanying notes.
F-7
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Years Ended February 28, 1999 and 1998
(Continued from preceding page)
Supplemental disclosure of non-cash investing and financing activities:
During the year ended February 28, 1998, $377,838 of inventory was returned
for credit against the note payable.
During the year ended February 28, 1999, the Company issued common stock for
debt issuance costs of $148,900. During the year ended February 28, 1998, the
Company issued common stock for services valued at $123,000.
During the year ended February 28, 1998, the Company sold radio tower
equipment for:
Marketable securities $ 1,211,156
Common stock of the Company 88,047
Settlement of a note payable 756,077
Settlement of accrued interest on a note payable 248,468
Cash 219,472
-----------
$ 2,523,220
===========
During the year ended February 28, 1998, the Company purchased trademarks
for:
Preferred stock to be issued $ 98,438
Assumption of accounts payable 299,974
---------
$ 398,412
=========
Supplemental disclosure of cash flow information:
1999 1998
---- ----
Cash paid for interest $ 91,639 $ 1,564
======== =======
See accompanying notes.
F-8
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
1. Summary of significant accounting policies
Nature of business:
The Company was organized June 30, 1993 under the laws of Wyoming. The
Company was in the wireless telecommunications business and intended to
provide two-way communications in the 220 MHz band. The Company was the U.S.
distributor for 800 MHz LTR Midland products but has suspended distribution
of these products during the year ended February 28, 1998. The Company also
owns the rights to be a distributor in certain territories of Canada for
certain Midland brand commercial land mobile radios and radio parts. On
January 15, 1998, the Company acquired the TrackPower trade name and other
intellectual property rights. The technology is in use in the United States
to market a service whereby subscribers are able to watch live horseracing on
television via satellite distribution and place wagers through a state
licensed telephone account wagering entity. The Company plans to add
horseracing statistics and data to the service in later stages. The Company
is party to a hub wagering letter of intent under which a portion of the
wagering revenue will accrue to the Company. The Company is also planning, in
a later stage, to provide interactive wagering through the television to
subscribers. The Company will not accept or place any wagering transactions,
but will deliver the wager to a state licensed account wagering entity. The
TrackPower service was launched on April 1, 1999. Therefore no revenues,
from the TrackPower business, accrued to the Company during year ended
February 28, 1999. Effective March 1, 1998, the Company is considered to be
in the development stage as more fully defined in the Financial
Accounting Standards Board Statement No. 7.
Basis of presentation:
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial
statements, the Company has incurred significant losses and at February 28,
1999, the Company has a working capital deficit of $1,086,149 and a
stockholders' deficit of $493,547. As a result, substantial doubt exists
about the Company's ability to continue to fund future operations using its
existing resources.
The Company plans to begin executing the TrackPower business plan during
fiscal year ended February 29, 2000. Many business agreements and strategic
relationships have been put in place and others are in various stages of
completion. A significant agreement was executed with Transponder Encryption
Services Corporation (a subsidiary of Echo Star Communications Inc.) on June
4, 1999. Pursuant to which the TrackPower Service will be broadcast effective
July 1, 1999, under EchoStar's main Dish Network service which has
approximately 2.5 million subscribers. The Company anticipates that the
subscriber take up rate will accelerate as a result of this agreement.
F-9
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
1. Summary of significant accounting policies (continued)
Subsequent to year end the outstanding notes payable - individuals were
either converted to common stock of the Company or repaid from the proceeds
of a private placement of new convertible notes. The marketable
securities previously held as security for the notes payable were freed up
for sale to generate cash to support operations. Net proceeds, from the
new private placement, after repaying the notes payable will also provide
additional cash for operations.
The Company has entered into letters of intent with companies to provide a
satellite uplink facility, a subscriber billing system and a wagering hub
operator. The Company launched the service on April 1, 1999 and expects to
generate revenues from operations sufficient to fund operations. Although
the Company is expects these revenue generating strategies to be
successful, there is no assurance that sufficient cash flows will be
generated to fund current operations.
The Company is also planning additional financing activities as and when cash
will be required. The Company is confident, based on past experience, that it
will be able to fund any additional working capital shortfalls as and when
required although there can be no assurances that this can be achieved. The
financial statements present the Company on a going concern basis and
do not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Marketable securities:
The Company's marketable securities consist of unrestricted common stock of
publicly traded companies. The securities are considered held for sale and
therefore are recorded at market value at the balance sheet date.
Depreciation:
Office equipment and furniture and fixtures, are stated at cost. Depreciation
is computed over the estimated useful life of three years using the
straight-line method.
F-10
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
1. Summary of significant accounting policies (continued)
Amortization of distribution rights:
The cost of distribution rights are being amortized over 10 years, the period
estimated by management to be benefited. However, due to uncertainty
surrounding future revenues from the distribution rights, the Company uses
the cost recovery method if that method produces a greater amount of
amortization.
It is reasonably possible that revenues generated from the distribution of
products pursuant to the agreements will not be sufficient to recover these
capitalized costs.
Measurement of intangibles impairment:
The Company annually reviews the amount of recorded intangible assets for
impairment. If the sum of the expected cash flows from these assets is less
than the carrying amount of these assets, the Company will recognize an
impairment loss in such period.
Income taxes:
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("FASB No. 109"). Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. The Company's temporary differences consist primarily of tax
operating loss carryforwards and start-up costs capitalized for tax purposes.
Fair value of financial instruments:
Cash, accounts payable, accrued liabilities and notes payable are carried
in the financial statements in amounts which approximate fair value because
of the short-term maturity of these instruments. Notes payable are carried
in the financial statements in amounts which approximate fair value because
interest rates have not changed significantly after the debt was incurred.
Advertising costs:
The Company expenses the costs of advertising as incurred.
F-11
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
1. Summary of significant accounting policies (continued)
Cash flows:
For purposes of the statement of cash flows, the Company considers cash and
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash. The Company places its cash with
high quality financial institutions. At times during the year, the balance at
one financial institution exceeded insured limits.
Net loss per share:
Basic net loss per common share is based on the weighted average number of
shares outstanding during each period presented. Options to purchase
stock are included as common stock equivalents when dilutive.
Reclassifications:
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
2. Sale of radio tower equipment and related licenses and marketable securities
During the year ended February 28, 1998, the Company sold to Intek Global
Corporation (formerly Intek Diversified Corporation) (Intek), a company
majority owned by Securicor Radiocoms Ltd., most of the radio tower equipment
and related licenses held by the Company in exchange for cash of $75,000,
payment of the Company's note payable to Ventel, Inc. ($1,004,545 including
accrued interest), return of 1,150,000 shares of the Company's common stock
(valued at $88,047), 2,666,667 shares of Ventel, Inc's. common stock (a
Canadian public company, valued at $293,333), 418,381 shares of Intek's
common stock (a U.S. public company, valued at $917,823) and assumption of
$144,472 of accounts payable for total consideration of $2,523,220.
F-12
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
2. Sale of radio tower equipment and related licenses and marketable
securities (continued)
The marketable securities are considered available for sale and as such are
recorded at market value on the balance sheet at February 28, 1999 and 1998
with the net unrealized gain of $15,356 and $144,132, respectively, reflected
as a separate component of stockholders' equity. The gross unrealized gain on
these securities amounts to $30,623 and $199,254 and the gross unrealized
loss amounts to $15,267 and $55,122 at February 28, 1999 and 1998,
respectively.
3. Acquisition of TrackPower trademarks and other intellectual property rights
On January 15, 1998, the Company acquired the TrackPower trade name and other
intellectual property rights from Simmonds Capital Limited, a stockholder of
the Company. The Company (1) agreed to issue 1,000,000 shares of convertible
preferred stock which is convertible at the option of the holder into
1,000,000 shares of common stock (valued at $98,438) (2) assumed accounts
payable of $299,974 for total consideration of $398,412. In connection with
the transaction, the Company also agreed (1) to issue warrants to purchase an
additional 500,000 common shares of the Company exercisable at $2 per share
until January 31, 2001 and (2) to pay a royalty of 10% of the Company's
annual earnings before interest, taxes, depreciation and amortization (not to
exceed $1,500,000) commencing when the Company's retained earnings position
becomes positive. These items are considered contingent consideration. The
preferred stock is convertible into common stock of the Company at $1 per
share at any time, has a cumulative dividend rate of 6% for the first two
years and 7% thereafter, payable semi-annually in shares of the Company, is
redeemable by the Company at anytime for $1,000,000 and is not redeemable by
the holder. At February 28, 1999, undeclared cumulative dividends owed on the
preferred stock amounted to $67,500 which is payable in shares of the
Company's common stock (429,963 shares).
On February 28, 1998, the Company entered into a joint venture agreement with
the Ontario Jockey Club. The joint venture has been organized as a
corporation on April 1, 1998, with each entity acquiring a 50% interest for
nominal cash and an agreement for each entity to loan $1,000,000 (Canadian)
on a non-interest bearing basis to the joint venture. On July 15, 1998, the
joint venture was terminated and the Company acquired the remaining 50%
interest in the joint venture for nominal consideration.
The TrackPower trademark and intellectual property rights are in use in the
United States and the Company plans to add horseracing data and the ability
to interactively wager through a television in later stages of the business.
F-13
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
4. Notes payable
Short-term notes payable:
The Company's short-term notes payable consist of the following loans from
shareholders at February 28, 1999 and 1998:
9% note payable - shareholder, due on demand,
unsecured, in default $ 10,370
12% note payable - shareholder, due on demand,
unsecured, in default 20,000
--------
$ 30,370
========
During April and July 1998, the Company raised gross proceeds of $500,000 and
$350,000, respectively, in debt offerings. The notes are due on demand, bear
interest at 12% per annum and the marketable securities are pledged as
collateral. As part of the offering, the Company issued 850,000 shares of its
common stock to the note holders and warrants to purchase 850,000 shares of
its common stock exercisable at $.30 per share for a five-year period.
Offering expenses amounted to $66,425 in cash plus 35,000 shares of the
Company's common stock valued at $4,900. During the year ended February 28,
1999, the Company repaid $255,000 of the principal of the notes.
Of the total debt offering, $95,000 was issued to related parties and the
balance owed to related parties at February 28, 1999 was $66,500.
Long-term note payable consist of the following at February 28, 1999 and
1998:
1999 1998
---- ----
Note payable - SCL, a related company (Note 6),
payable on November 1, 1999 including interest
at 8% per annum, unsecured $157,461 $157,461
Less current portion 157,461 -
-------- ---------
Amount due after one year $ - $157,461
======== ========
F-14
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
5. Lease commitments
In November 1996, the Company entered into a building lease for office space
in Englewood, Colorado. Minimum monthly rent is between $4,909 and $5,189 for
the three-year lease term. During 1998, the space was subleased for
substantially the same amount. The remaining commitment amounted to $62,271
at February 28, 1999.
On April 1, 1998, the Company entered into an agreement to lease office space
in New York, New York. The agreement is for one year and also included
certain corporate, investor relations, financial and administrative advisory
services. This agreement stipulates a fee of $8,000 per month and the Company
has estimated that rent represents $2,000 of this amount.
Rent expense for the years ended February 28, 1999 and 1998 amounted to
$24,000 and $103,322, respectively.
6. Related party transactions
For the years ended February 28, 1999 and 1998, the Company incurred legal
fees of $0 and $5,779 to a law firm owned by a former director/officer of the
Company of which $11,289 remained unpaid at February 28, 1998, which amount
was paid during the year ended February 28, 1999.
During the years ended February 28, 1997 and February 29, 1996, the Company
constructed and financed $241,823 and $806,077, respectively of 220 MHz radio
tower equipment through Ventel, Inc., affiliated with a major stockholder of
the Company. Upon the sale of certain of the radio tower sites, $241,823 of
the loans were assumed by the purchaser leaving a balance due of $806,077 at
February 28, 1997. During April 1997, $50,000 in principal was paid down on
the note upon the sale of one radio tower site. In November 1997, the Company
closed on the sale of its remaining radio tower sites and paid off the
$756,077 principal balance on the note plus $248,468 in accrued interest (see
Note 2).
On January 15, 1998, the Company purchased the TrackPower trade name and
other intellectual rights from Simmonds Capital Limited ("SCL" - a
significant shareholder of the Company) as described in Note 3 and entered
into a management agreement which calls for the payment of $25,000 per month
for services to be performed by certain employees of SCL. During the year
ended February 28, 1999 and 1998, $300,000 and $25,000, respectively, was
accrued under this agreement. During the year ending February 28, 1999,
$356,164 was received from and $408,390 was paid to affiliates of SCL,
$267,619 of expenses was paid by affiliates of SCL on behalf of the Company,
and $133,074 was advanced by the Company on behalf of affiliates of SCL,
leaving $407,319 balance due to related parties at February 28, 1999.
F-15
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
7. Income taxes
The book to tax temporary differences resulting in deferred tax assets and
liabilities are primarily net operating loss carryforwards of $7,496,000 and
start-up costs capitalized for income tax purposes of $1,623,000 (net of
amortization).
As of February 28, 1999 and 1998, total deferred tax assets, liabilities and
valuation allowances are as follows:
1999 1998
---- ----
Deferred tax assets $ 385,000 $ 605,000
Deferred tax assets resulting from loss
carryforward 2,797,000 1,914,000
Valuation allowance (3,182,000)(2,519,000)
---------- ----------
$ - $ -
========== ==========
A 100% valuation allowance has been established against the deferred tax
assets, as utilization of the loss carryforwards and realization of other
deferred tax assets cannot be reasonable assured.
The Company's net operating losses are restricted as to the amount which may
be utilized in any one year. The Company's net operating loss carryforwards
expire as follows:
2004 $ 798,000
2009 92,000
2010 726,000
2011 1,795,000
2012 1,719,000
2013 2,366,000
----------
$7,496,000
==========
8. Stockholders' equity
During the year ended February 28, 1998, the Company issued 436,193 shares of
its common stock in exchange for cash of $93,300 received for subscriptions
during February 1997.
F-16
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
8. Stockholders' equity (continued)
During March 1997, the Company issued 780,000 shares of its common stock to
employees for services valued at $78,000 ($.10 per share).
During February 1998, the Company issued 300,000 shares of its common stock
to a consultant for services pursuant to a consulting agreement valued at
$45,000 ($.15 per share).
During February 1998, the Company received cash of $41,995 pursuant to a
subscription for 214,262 shares of common stock from SCL, a related company,
164,262 of the shares were issued in April 1998.
Stock options:
1993 Compensatory Stock Option Plan ("CSO")
The Company has established the CSO plan for employees, directors and
consultants or other advisors. The Company has reserved a maximum of
4,000,000 common shares to be issued upon the exercise of options granted
under the CSO plan. The purchase price of each share of stock under the CSO
will be determined by the Board of Directors or the Compensation Committee.
The CSO exercise term will not exceed five years. The options expire
beginning 1998 through 2004.
The following is a summary of stock option activity:
Weight
average
Option price exercised Number of
per share price shares
------------ --------- ---------
Balance February 28, 1997 $.23 to $1.75 $0.44 2,980,000
Canceled $.25 to $1.00 $0.85 (620,000)
Reissued $.10 to $ .35 $0.30 620,000
Granted $0.40 $0.40 1,100,000
Exercised $0.10 $0.10 (120,000)
----- ----- ---------
Balance February 28, 1998 and 1999$.23 to $1.75 $0.44 3,960,000
=========
F-17
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
8. Stockholders' equity (continued)
The following is additional information with respect to those options
outstanding at February 28, 1999:
Option price per share Weighted Weighted
average average
contractual exercise Number of
in years price shares
---------------------- ----------- -------- ---------
$0.10 2 $0.10 500,000
$.23 to $.35 2.7 $0.33 1,070,000
$.40 to $.65 1.3 $0.42 2,115,000
$1.00 4 $1.00 175,000
$1.75 9 $1.75 100,000
---------
3,960,000
=========
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation costs for the Company's stock option
plans been determined based on the fair value at the grant date for awards
during the fiscal years ended February 28, 1999 and 1998 in accordance with
the provisions of SFAS No. 123, the Company's net loss and loss per share
would have been reduced to the pro forma amounts indicated below:
1999 1998
---- ----
Net loss - as reported $ (1,701,507) $ (1,240,383)
Net loss - pro forma (1,701,507) (1,387,171)
Loss per share - as reported (0.07) (0.05)
Loss per share - pro forma (0.07) (0.06)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, dividend yield of 0%; expected
volatility of 225.35%, risk-free interest rate of 5.34%; and expected life of
3 years.
1993 Employee Stock Compensation Plan ("ESC")
The Company has reserved a maximum of 2,000,000 common shares to be issued
upon the grant of awards for employees, directors and consultants or
advisors. No shares have been awarded under this plan.
F-18
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
8. Stockholders' equity (continued)
1993 Incentive Stock Option Plan ("ISO")
The Company has reserved a maximum of 2,000,000 common shares to be issued
upon the exercise of options granted under the ISO plan. Options will be
granted under the ISO plan at exercise prices at least equal to the fair
market value of the common stock on the date of grant. At February 28, 1999,
no options remained outstanding under the ISO plan.
1993 Non-Statutory Stock Option Plan ("NSO")
The Company has reserved a maximum of 2,000,000 common shares to be issued to
key employees upon the exercise of options granted under the NSO plan.
Options granted under the NSO plan will be at exercise prices to be
determined by the Board of Directors or other NSO plan administrator. At
February 28, 1999, no options have been granted under the NSO plan.
Warrants:
Warrants outstanding at February 28, 1999 consist of the following:
Exercisable Exercise Number
until price of shares
----------- -------- ---------
January 31, 2001 $2.00 500,000
April 17, 2003 $0.30 500,000
July 26, 2003 $0.30 350,000
July 26, 2003 $0.30 35,000
---------
1,385,000
=========
9. Commitments and contingencies
Sublicense of portions of the distribution rights in Canada:
On April 7, 1997, the Company entered into a letter of intent with SCL
Distributors (Pacific) Ltd. ("SCL Pacific") to sublicense a portion of the
distribution rights in Canada owned by the Company. The letter of intent
calls for SCL Pacific to pay the Company approximately $36,000 on signing of
a definitive agreement and a royalty of 4% of the gross sales price of all
products pursuant to the agreement. The agreement also contains a purchase
option of approximately $288,000 less all previous payments.
F-19
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
9. Commitments and contingencies (continued)
During the years ended February 28, 1998 and 1999, it was determined that
royalties from the Company's Canadian distribution rights had fallen below
initial projections. Impairment losses of $119,542 and $47,382, respectively,
were calculated using the reduced estimate of discounted cash flows estimated
to be received from the distribution rights.
U.S. distribution rights:
The U.S. distribution rights with a book value of $357,323 were written off
during the year ended February 28, 1998. The Company was not able to make the
necessary investment in product development and did not possess the required
working capital to ensure the commercial success of these rights.
10.Major customers
Customers who accounted for over 10% of the Company's gross revenues for the
years ended February 28, 1999 and 1998 are as follows:
1999 1998
Customer A - 82.7%
Customer B 93.0% -
11.Subsequent events
Stock options:
On March 18, 1999, options to purchase 2,335,000 shares of common stock at
prices ranging from $.23 to $1.75 per share were canceled. On the same date,
options for 2,350,000 shares of common stock were issued to different
individuals at a price of $.15 per share. Of those newly issued options,
50,000 shares expire January 31, 2000 with the remaining 2,300,000 shares
expiring November 30, 2003.
On March 26, 1999, options to purchase 250,000 shares at $.10 per share and
500,000 shares at $.15 per share were exercised. On March 31, 1999, options
to purchase 250,000 shares at $.10 per share were exercised. These exercises
of options resulted in net proceeds to the Company of $125,000 and was used
to help launch the TrackPower service on April 1, 1999.
F-20
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
11.Subsequent events (continued)
Conversion of notes payable to common stock:
An offer was made on March 31, 1999 to noteholders for their consent to allow
the sale of additional common stock and to change the form of the promissory
notes to make them convertible into shares of common stock at the holders
option. The offer was in the form of one share of common stock for every $4
of principal outstanding for a total of 148,746 shares of common stock.
On March 31, 1999, a portion of the note holders chose to convert their notes
to shares of common stock and additional warrants. Principal and interest
amounting to $125,497 was converted to common stock and warrants to purchase
an equal number of shares at $.15 per share expiring in one year were also
issued. A total of 836,644 shares of common stock and warrants to purchase
836,644 common share were issued to convert the debt.
Launch of TrackPower service:
On April 1, 1999, the Company launched the TrackPower service on the Sky
Vista service. Sky Vista is satellite service of Sky Direct which is a joint
venture between EchoStar Satellite Communications Inc. and Loral Skynet (a
subsidiary of Loral SpaceCom Corporation).
On June 4, 1999, the Company signed an agreement with Transponder Encryption
Services Corporation (a subsidiary of EchoStar communications Inc.) to move
the TrackPower service from the Sky Vista service to the Dish Network Service
which has substantially more existing subscribers. The Company plans to
relaunch the TrackPower service under the Dish Network Service on July
1, 1999. This agreement provides for a base monthly rent of $433,000 per
month plus a portion of revenues to be paid to EchoStar for the four-year
term of the agreement. Simmonds Capital Limited has guaranteed the Company's
obligation under this agreement.
Penn National Gaming letter of intent:
On April 29, 1999, the Company entered into a binding letter of intent with
Penn National Gaming Inc. under which Penn National will serve as the
Company's exclusive wagering hub operator for a five-year period. Penn
National will process all wagers arising from TrackPower subscribers. The
Company will receive a fee of up to 4.75% of all wagers delivered to Penn
National.
In Connection with the Penn National agreement, the Company issued warrants
to purchase 5,000,000 common shares of the Company. The warrants are
exercisable one million shares each year at (1) $1.58, (2) $1.82, (3) $2.05,
(4) $2.29, and (5) $2.53 and are exercisable for a five-year period. The
agreement contains one five-year renewal option.
F-21
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 and 1998
11.Subsequent events (continued)
Private placements:
On March 12, 1999, the Company completed a private placement of 333,333
common stock with Simmonds Capital Limited at $.15 per share. Proceeds of the
private placement were used to help launch to TrackPower service.
On June 10, 1999, the Company completed a $1,250,000 private placement of
convertible notes. Proceeds of the private placement were used to repay the
remaining notes payable, after certain note holders converted to common stock
and for general corporate purposes. Interest on the notes at the rate of 8%
per annum is payable annually each June commencing in the year 2000 with the
principal due June 2004. The notes are convertible, at the option of the note
holder, into an aggregate of 1,000,000 shares of common stock of the Company
and 1,000,000 warrants to purchase common stock of the Company at $2.50, per
share for a period of three years from the date of conversion. At the
maturity date, the outstanding amount of the notes plus any accrued interest
is automatically converted into an equal number of shares of common stock and
warrants computed by dividing the total principal and interest outstanding
by $1.25.
12.Letter of intent
On March 6, 2000, the Company entered into a letter of intent with Penn
National and eBet Limited ("eBet") whereby Penn National and eBet would
contribute various assets, technologies, business operations, contracts and
management agreements to the Company. In exchange, the Company would issue,
in the aggregate, 36,000,000 shares of its common stock and warrants to
purchase 6,000,000 shares of the Company's common stock exercisable at $1 per
share. Penn National and eBet would each own approximately 26.5% of the then
outstanding common stock and would also be entitled to nominate one member to
the Company's seven-member board of directors.
The letter of intent requires the parties to use their best efforts to
execute a definitive agreement and secure necessary regulatory, contractual
and shareholder approvals to give effect to the agreement within 90 days.
F-22
Exhibit 5.1
[LETTERHEAD OF HOLLAND & HART]
March 15, 2000
TrackPower, Inc.
67 Wall Street
New York, New York 10005
RE: Opinion Letter for TrackPower, Inc.
Ladies and Gentlemen:
We have acted as special Wyoming counsel to TrackPower, Inc., fka
American Digital Communications, Inc. (the "Company"), a Wyoming corporation, in
connection with the registration of 6,067,032 shares of the Company's common
stock (the "Shares") pursuant to its Form SB-2 Registration Statement filed via
Edgar on February 4, 2000 with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended by Amendment No. 1 filed via
Edgar with the SEC (as so amended, the "Registration Statement"). Capitalized
terms used herein which are not defined herein shall have the meaning given to
them in the Registration Statement.
4,380,390 of the Shares are outstanding as of the date hereof
(collectively, the "Outstanding Shares"), and 1,686,642 of the Shares have not
been issued as of the date hereof but are the subject of warrants to purchase
shares of the Company's common stock (collectively, the "Warrants") which have
been issued to certain of the Selling Shareholders as set forth in the
Registration Statement (collectively, the "Shares Under Warrant").
In connection with this opinion, we have reviewed copies of the
following:
(a) The Articles of Incorporation of American Digital Communications, Inc. dated
June 29, 1993 ("Articles"), filed with the Wyoming Secretary of State on June
30, 1993 and certified to us by the Secretary of the Company as being in full
force and effect as of the date of this opinion, amended only by the Articles of
Amendment dated September 3, 1999 and filed with the Wyoming Secretary of State
on September 7, 1999, the sole purpose of which was to change the name of the
Company from American Digital Communications, Inc. to TrackPower, Inc.;
(b) The Articles of Merger of Mont Rouge Resources Inc. into American Digital
Communications, Inc., filed with the Wyoming Secretary of State on February 14,
1994, which established the Articles of Incorporation and the Bylaws of American
Digital Communications, Inc. as the Articles and Bylaws of the Company as the
surviving entity in such merger;
(c) The Bylaws of the Company ("Bylaws"), certified by the Secretary of the
Company as being in full force and effect as of the date of this opinion; and
<PAGE>
(d) A certificate of the Secretary of the Company, addressed to Holland & Hart,
as to certain matters of fact, and all exhibits and attachments thereto (the
"Company Certificate").
For purposes of this opinion, we have assumed with your permission and
without any investigation (i) the legal capacity of each natural person and the
genuineness of each signature and the completeness and authenticity of each
document submitted to us as an original, (ii) the conformity to the original of
each document submitted to us as a copy, (iii) the authenticity of the original
of each document submitted to us as a copy, (iv) that the statements contained
in the Company Certificate are accurate and complete, (v) that the Company's
Board of Directors has duly authorized the Company's issuance of the Shares to
the Selling Shareholders as set forth in the Registration Statement, including
without limitation authorization of the number and class of Shares to be issued
and the consideration to be received in exchange for the issuance of the Shares,
in conformity with the Wyoming Business Corporation Act (the "Act") and the
Company's Articles and Bylaws, (vi) that the stock certificates evidencing the
Outstanding Shares, and which will evidence the Shares Under Warrant when such
Shares are issued, are each in a form which complies with the requirements of
the Act and the Company's Articles and Bylaws, and (vii) that the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Wyoming both at the times of the Company's
issuance of the Shares to the Selling Shareholders and as of the date of this
opinion.
Based on the foregoing assumptions, and subject to the qualifications
set forth below, we are of the opinion that:
The Outstanding Shares have been duly authorized and validly
issued by the Company and are fully paid and nonassessable shares of
common stock of the Company. Upon the due exercise of the Warrants, the
satisfaction of all requirements thereunder, and the issuance of the
Shares Under Warrant to those Selling Shareholders who hold Warrants,
the Shares Under Warrant will be duly authorized and validly issued and
will be fully paid and nonassessable shares of common stock of the
Company.
The opinion expressed above is subject to the following qualification
and limitation: we express no opinion as to matters involving tax, securities,
or antitrust laws.
We are admitted to practice in the State of Wyoming and express no
opinion and have conducted no independent review as to matters under or
involving or with respect to the laws of any state or jurisdiction other than
applicable laws of the State of Wyoming. Our opinions are based upon Wyoming law
and case decisions as of this date and upon facts now known to us; we expressly
disavow any obligations to advise you with respect to future changes in law or
in our knowledge or as to any event or change of condition occurring subsequent
to the date of this letter.
The opinion is provided as a legal opinion only, effective as of the
date of this letter, and does not constitute an opinion as to matters of fact or
as a guaranty or warranty of the matters discussed herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Registration Statement. In giving such consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the SEC.
We express no opinion as to any matter other than as expressly set
forth above, and no other opinion is intended to be implied nor inferred
herefrom.
Very truly yours,
/s/ HOLLAND & HART
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Registration Statement of American Digital
Communications, Inc. on Form SB-2 of our report dated May 27, 1999, except for
Note 11, as to which the date is June 10, 1999 and Note 12 dated March 6, 2000,
relating to the financial statements of American Digital Communications, Inc.
as of February 28, 1999 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the years then ended.
Denver, Colorado
March 15, 2000 /s/ CAUSEY DEMGEN & MOORE INC.
