TRACKPOWER INC, 10KSB, 2000-05-30

TRACKPOWER INC
10KSB, 2000-05-30
RADIO BROADCASTING STATIONS

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As filed with the Securities and Exchange Commission on May 30, 2000

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ending February 29, 2000 Commission File No. 000-28506

TRACKPOWER, INC.
(Exact name of registrant as specified in charter)

Wyoming 13-3411167
(State or other jurisdiction ) (I.R.S. Employer Identification No.)
67 Wall Street, Suite 2411 (212) 804-5704
New York, New York 10005 (Registrant's Telephone No. incl. area
Securities registered pursuant to Common Stock, par value $.0001 per
Section 12(b) of the Act share

Section 12
Securities registered pursuant to
Section 12(g) of the Act None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes ( X ) No ( )

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB ( ).

For the fiscal year ended February 29, 2000, the Company's revenues were
$159,775.

Based on the closing high bid price on May 17, 2000, as reported by the
National Association of Securities Dealer's Over The Counter electronic bulletin
board, the aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant was approximately $32,331,820.

On May 17, 2000, the number of shares outstanding of the registrant's
Common Stock was 35,071,805.

Transitional Small Business Disclosure Format (Check One): Yes (
) No ( X )

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<PAGE>

Part I

Certain matters discussed in this Annual Report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and as such may involve risks
and uncertainties. These forward-looking statements relate to, among other
things, expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's goals. The Company's actual results,
performance, or achievements may differ from those expressed or implied in such
forward-looking statements. For discussion of the factors that might cause such
a difference, see Item 6 Management's Discussion and Analysis or Plan of
Operations.

Item 1. Description of Business

General

TrackPower, Inc. (the "Company" or "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 would enable our subscribers to
place wagers on horseraces using interactive television technology. TrackPower
also hopes 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 Gaming Inc. ("Penn National") under which Penn National will
provide wagering services to TrackPower's subscribers. Agreements have also been
entered into between TrackPower and eBet Limited ("eBet") to provide interactive
wagering services.

Trackpower's 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
580 Granite Court, Pickering, Ontario L1W 3Z4, Canada, telephone number (905)
839-1430.

Recent Developments

On March 6, 2000 the Company entered into a letter of intent with Penn
National and eBet whereby each of Penn National and eBet would either sell
certain of their subsidiaries or contribute various assets, technologies,
business operations, contracts and management agreements to the Company in
exchange for shares of the Company's common stock.

The letter of intent contemplates that eBet and Penn National would each
receive 18,000,000 shares of the Company's common stock. In addition, eBet would
receive warrants to purchase an additional 5,000,000 shares of common stock for
$1.00 per share for a period of three years and Penn National would receive
warrants to purchase an additional 1,000,000 shares of common stock for $1.00
per share for a period of three years. As part of these transactions, the
warrants to purchase 5,000,000 shares of common stock which were issued to Penn
under the July 9, 1999 agreement would be canceled.

The proposed transactions are expected to involve:

(1) The Company entering into an exclusive management contract with Penn
National, effectively combining the Company's existing North American
satellite broadcast operations with the existing telephone account
wagering operations of Penn National. Pursuant to the management
contract, the Company would likely be required to pay Penn National a
royalty representing the historical level of cash flow generated from
its previously existing telephone account wagering operations.

(2) The Company purchasing a subsidiary of eBet to acquire contracts and
licenses to operate certain of

<PAGE>

eBet's existing telephone account and Internet wagering operations;
and

(3) eBet granting the Company the exclusive worldwide license to certain
Internet technologies for pari-mutuel wagering operations for horse
and dog racing. eBet would retain the rights to use its technology for
all other gaming and wagering applications.

The current agreement between the parties contemplates that formal
agreements be entered into by the parties in June, 2000.

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 board of directors.
It is also expected that all of the current directors of Trackpower, other than
John G. Simmonds, will resign from the Board of Trackpower.

There can be no assurance that the transactions between the Company, Penn
National and eBet will be consummated.

In April, 2000, the Company acquired Harness Tracker and the web address
www.harness.com. Harness Tracker is an Internet search program that enables
members to search the USTA and CTA databases for information on selected horses
that they are following. For a small monthly fee, members set up a list of
horses they wish to follow, and the program searches the databases and returns
the horse's next entry or recent result and then links the user to further
information. This is a service that TrackPower can expand and build into a
valuable attraction for both harness and thoroughbred players through its web
portal strategy. This program is currently accessed through the website
www.harness.com, which will provide TrackPower with the use of an effective web
address for the harness racing industry.

The Company has recently completed a specification for the development of
a horseracing portal site. Initial development has begun on certain key features
to the site and the Company plans to launch a full portal site later this year.
Using the Internet as a core platform, the Company plans to offer live video and
audio, detailed racing information, and access to eBet's secure, closed-loop
subscription service to place a wager. These components are fundamental to a
successful interactive horseracing site.

The Company hopes to enhance these key features with other products and
services, including both non-racing and racing features such as handicapping
information, on-line horse sales, and other more general sports and financial
information.

Significant Developments in the Company's History

The Company changed its name from American Digital Communications, Inc. on
September 7, 1999. TrackPower is the successor to Mont Rouge Resources, Inc.
("Mont Rouge"), a New York corporation organized on March 19, 1987. Mont Rouge
completed a small public offering in 1987 and in March 1988 acquired American
Fidelity Holding Corporation, a Delaware corporation, in a stock-for-stock
exchange. The acquisition was rescinded in 1989 and Mont Rouge became dormant
until early 1993 when it was redomiciled to the State of Wyoming.

In 1993 and 1994, TrackPower acquired a series of 220 Mhz licenses. The
acquisition strategy was to aggregate as many licenses as possible in order to
offer a low cost analog alternative to digital 800 and 900 Mhz spectrum. During
1997 the Company reviewed its strategic direction concerning the implementation
of a 220 Mhz spectrum system as funding became very difficult. Based on certain
developments occurring in the industry, TrackPower determined that it would be
unable to operate an analog dispatch system effectively and profitably at the
requisite scale. As a result, in 1998, management decided to take advantage of
an opportunity to sell its tower sites and licenses to a large 220 Mhz
aggregator and free up its investment in the 220 Mhz spectrum.

Between December 1995 and November 1996, TrackPower acquired Midland Land
Mobile Radio distribution rights from Simmonds Capital Limited ("SCL"). The
rights included exclusive Midland 800 Mhz rights in the United States, exclusive
international (defined as Mexico, South America, Pacific Rim, Australia, New

<PAGE>

Zealand, Thailand and Southeast Asia) rights for all Midland radios and the
rights to certain western Canadian provinces. During 1997 the Company was able
to divest, by way of sale or sub-license, all of its Midland distribution rights
except for a group of Midland radio rights known as "LTR" in the United States.

In January 1998, the Company acquired certain development-stage assets of
SCL, including the TrackPower trademark and other information and communications
technology and contractual and intellectual property rights. As consideration
therefore, the Company has agreed to issue to SCL $1.0 million of preferred
stock of the Company (convertible at any time into common stock of the Company
at $1.00 per share) and warrants to purchase 500,000 shares of common stock of
the Company for $2.00 per share exercisable any time before January 31, 2001.
The Company also agreed, subject to certain terms, to pay SCL an earnout of up
to $1.5 million. The Company also assumed certain accounts payable and certain
lease obligations of SCL and agreed to pay SCL a monthly fee for the services of
those employees who became officers of the Company. The TrackPower service, when
fully implemented, will distribute live horse racing video to subscribers' homes
via satellite and such subscribers will be able to place wagers interactively
through their television. The Company will not accept or place any wagering
transactions, but intends to deliver the wager to a state licensed account
wagering entity.

In February 1998, the Company entered into a series of agreements with the
Ontario Jockey Club ("OJC"), a horse racing institution, to design and develop
the TrackPower service acquired from SCL. SCL had been partners with OJC in the
development of a Multi-channel Multi-point Distribution System ("MMDS") wireless
video version of the TrackPower business. The OJC project served as a pilot test
of the TrackPower concept. During the pilot project the Company decided to
change the method of video delivery from MMDS to a satellite based system with a
footprint throughout North America.

On February 10, 1999, the Company entered into an agreement with Loral
Skynet (a subsidiary of Loral SpaceCom Corporation), pursuant to which Loral
Skynet would supply the Company with technical services and channel capacity on
the "Skynet Direct" Service. The TrackPower programming carried by "Skynet
Direct" was added to a package of programming put together by EchoStar called
"Sky Vista".

On April 1, 1999, the Company launched the TrackPower service on the "Sky
Vista" service. The Company believed that the Skynet relationship enabled the
Company to launch the TrackPower service in a shorter period of time and with
lower technical risk than would have been the case if the Company had built its
own infrastructure, including a satellite uplink facility and a subscriber
billing system.

On June 4, 1999, the Company entered into an agreement with Transponder
Encryption Services Corporation ("TESC", a subsidiary of EchoStar Satellite
Communications Inc.) to have the TrackPower service broadcast under the broader
coverage of EchoStar's Dish Network rather than the "Sky Vista" service.
EchoStar's Dish Network has over 2.7 million subscribers, while Sky Vista had
approximately 10,000. The TESC agreement is for a term of four years and allowed
the Company to broadcast four full time horse racing video channels plus one
data channel. The TrackPower service was migrated from the "Sky Vista" to
EchoStar's Dish Network on July 1, 1999 and began carriage of the TrackPower
service on four channels. The Company charged subscribers a fee of $19.99 per
month or $125.00 per annum.

On July 9, 1999, the Company entered into an agreement with Penn National
pursuant to which Penn National would serve as the Company's exclusive wagering
hub operator. Penn National is a licensed pari-mutuel racetrack operator which
operates account wagering in compliance with Pennsylvania laws and also imports
and exports simulcast signals with numerous harness and thoroughbred racetracks
in North America. Pursuant to the agreement, Penn National would (i) process all
wagers arising from TrackPower subscribers; (ii) provide the TrackPower service
with all of Penn National's owned horse racing simulcasts; (iii) assist the
Company in the execution of additional simulcast agreements; (iv) assist in the
design of the Company's marketing plan; and (v) attempt to transfer existing
Penn National account wagering customers to the TrackPower service. In addition,
under the terms of the agreement, Penn National would pay the Company a wagering
fee, of up to 4.75%, on all wagers processed from TrackPower subscribers. The
Company issued warrants to purchase a total 5,000,000 shares of common stock at
prices between $1.58 and $2.53 over the next five years, vesting at the rate of
1,000,000 warrants per year.

<PAGE>

In December 1999, the Company signed a 3-year exclusive services and
marketing agreement with Post Time Technologies. Post Time builds and operates
kiosks, which are installed at racetracks and provide bettors with an
interactive interface to archived video replays and related information, such as
results and times. The archives are searchable and provide a unique handicapping
experience. The agreement allows the Company to utilize this technology for
distribution through the Internet and on the WebTV platform. The Post Time
product will provide TrackPower a branding and marketing opportunity at
racetracks and at OTB's. The product is expected to generate significant traffic
to the website and could eventually provide a significant revenue stream.

On January 10, 2000, the Company 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 in response to changes in the
marketplace. The reduction in channels reduced the satellite transponder costs
from $400,000 to $200,000 per month. The free channels allowed the Company
access to a larger audience.

Industry Background

A significant trend during the last two decades has been the increase in
off-track wagering. The basis for this trend has been the desire for
convenience. Wagering can occur without actually having to visit a racetrack.
Most tracks import and export simulcast video of live horse racing from around
the United States. Racetracks have found importing video of other tracks to
their site or their off-track wagering facility useful in attracting incremental
wagering.

Reports indicate that pari-mutuel wagering on Thoroughbred racing in the
United States during 1999 increased by approximately 4.6 per cent over the
previous year, while combined North American wagering rose by approximately 4.4
per cent against 1998 returns. The gains are reported to have come from the
off-track sector, which accounted for approximately 82.8 per cent of total US
wagering. These developments suggest an increasing reliance placed on
simulcasting and expanded networks of off-track betting outlets to generate
pari-mutuel wagering revenues.

It has been estimated that worldwide horse racing wagering exceeded $100
billion in 1997 and wagering in the United States exceeded $15.0 billion.

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, depositing funds into the account and then placing
wagers usually using a telephone. Penn National is a licensed account wagering
entity.

Principal Product - the TrackPower Video Service

It is the on-track to off-track trend that the Company wishes to
capitalize on by providing the same video signal available in an off-track
facility directly to the subscriber's home or place of work.

TrackPower packages the same live video signals that are normally
simulcast at other racetracks in the United States and distributes the signal to
subscribers homes. TrackPower does not produce the signal but utilizes the
existing track signal and redirects it to homes via a satellite service.

TrackPower has a philosophy to broadcast "full cards", i.e. the signal
begins with race one and is broadcast uninterrupted to the final race "sign
off". The service is oriented to the serious horseracing enthusiast that would
find jumping from race one at a given track to race two at an alternative track
back to race three at the original track, undesirable. Management makes
programming decisions when race signals time conflict.

<PAGE>

Distribution of the Principal Product

Since July 1, 1999, the 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, it is intended that TrackPower, will provide an additional channel of
streaming video via broadband and 56K modems in the future. The Dish NetworkTM
provides the Company 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.

The Company plans to expand the distribution of the TrackPower service in
the future to as many methods as possible including other satellite platforms,
cable and the Internet.

Wagering Services

On July 9, 1999, the Company 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 TrackPower a fee based on the gross
wagering through Penn National Race Course from TrackPower subscribers in
exchange for using the TrackPower video system and marketing their services to
TrackPower subscribers.

The Company's revenues from the TrackPower service will be from wagering
commissions. Under pari-mutuel wagering, a state licensed wagering entity (Penn
National, in the Company's case) retains a flat percentage from each accepted
wager. The wagering entity pays all statutory taxes, and returns a portion to
horsemen (in the form of purses). After these payments, a fee is normally paid
to the simulcast signal originator and the remainder is retained by the wagering
entity.

With the TrackPower system, the wagering hub entity, Penn National, will
pay the Company a fee for each wager accepted. The amount of the fee will differ
depending on certain circumstances and contractual details. This fee can be as
much as 4.75%.

As described in Recent Developments above, the Company has signed a letter
of intent that would merge the existing Penn telephone wagering system into the
Company.

Dependence on Wagering Revenues

The monthly subscription fee was eliminated in January 2000 making
wagering commissions the Company's current sole source of revenue. The marketing
efforts of the Company have been refocused on large handicappers/bettors.
Management believes that incremental marketing expenditures are best oriented to
heavy wagerers who provide the Company with increased wagering commissions.
Therefore, the Company at the moment is dependent on a relatively small group of
heavy wagerers whose allegiance to the TrackPower service is conditional upon
what competing telephone wagering operations are providing.

The Company plans to diversify the revenue stream through the proposed
merger described in Recent Developments.

<PAGE>

Content

Currently the TrackPower service carries live signals from over thirty
racetracks carrying either thoroughbred or standardbred (or both) horseracing.
Tracks under contract are:

Beulah Park Harrington Raceway Pocono Downs
Canterbury Park Hawthorne Race Course Remington Park
Charles Town Races Hazel Park Retama Park
Colonial Downs Little Brown Jug River Downs
Delaware Park Louisiana Downs Rockingham Park
Delta Downs Meadowlands Sam Houston
Evangeline Downs Monmouth Park Santa Anita
Fair Grounds Northfield Park Sportsmans Park
Fairmount Park Northville Downs Suffolk Downs
Freehold Raceway Ocean Downs Tampa Bay Downs
Garden State Park Penn National Thistledown
Great Lakes Plainridge

Under the agreement with Penn National, the Company is dependent upon Penn
National for racetrack content. Penn National provides the simulcast signal from
its owned tracks and also provides access to other tracks' signals under which
it is contracted. Penn National also assists in all additional North American
track content agreements. Contracts are generally for a one year period.

The Company plans to contract with other international tracks for the
carriage of their signal on the TrackPower service in the future.

Competition

There are several competitors operating similar live horseracing video
services.

YouBet.com

YouBet is a PC based service that accepts wagers from subscribers'
computers over a virtual private network resembling a countrywide Intranet.
Similar to the TrackPower service, the YouBet wagering occurs through a wagering
hub based on a partnership with Ladbrokes in Pennsylvania. YouBet earns a
percentage of wagering. YouBet has been in operation for several years and is
believed to have several thousand subscribers. YouBet charges a nominal monthly
fee and the subscriber must download software to their PC.

Television Games Network (TVG)

TVG is a single channel service carried on cable TV and beginning in the
fall of 1999 also carried on EchoStar's Dish Network. TVG is free of charge
within a "basic" package of services that the subscriber must pay a monthly fee
for. TVG has developed a set top box with interactive features in order to
process wagering transactions. TVG has content agreements with many major
tracks.

TVG is limited to one channel and is therefore using a rotation coverage
method and does not provide uninterrupted full card simulcasting. In addition
the rotation method limits the subscribers ability to maintain continuous
contact with changes to wagering odds.

The Racing Network (TRN)

The TRN service is similar to the TrackPower service, in that there is
close duplication of tracks carried and the service is available on EchoStar's
Dish Network. There are four channels carried under the Dish Network service.
TRN also broadcasts seven channels under a "TRN Direct" satellite service, which
requires dedicated

<PAGE>

receiving equipment. TRN charges $24.99 per month for either service.

TRN subscribers are free to channel any wagering transactions they wish to
make with whatever wagering service they are familiar with. The partners in TRN
include the Ladbrokes, the Ontario Jockey Club and Philadelphia Park. All three
partners operate telephone account wagering services.

Off-Shore Betting

Numerous off-shore wagering web sites exist, many of which focus on
betting on sports other than horseracing. Generally they do not provide a live
racing signal. In the United States it is illegal to wager using these systems.

Technology

When fully implemented the TrackPower service will enable subscribers to
place wagers on horseracing using interactive television technology. The
TrackPower interactive wagering service will operate on a highly-secure, closed
loop subscriber based network. The Company has outsourced most of the technology
development required for the 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 the service.

Under the March 6, 2000 letter of intent with eBet, the Company will
acquire a worldwide license to provide the interactive components of the
TrackPower service, including the interactive wagering interface for both the
computer and interactive television platforms. This will allow the Company to
eliminate the capital expenditures and technical risk of developing the
Company's' own interactive interface. The eBet interactive service is currently
operating in New Zealand.

Regulatory and Legal Issues

New or existing 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 the Company's business, operating results
and financial condition.

All 50 states currently have statutes or regulations restricting gaming
activities, and three states have no gaming at all. In most states it is illegal
for anyone either to accept or make a wager, with specific state-by-state
statutory exceptions. The Federal Interstate Wire Act contains provisions which
make it a crime for anyone in the business of gaming to use an interstate or
international telephone line to transmit information assisting in the placing of
wagers, unless the wagering is legal in the jurisdictions from which and into
which the transmission is made. Other federal laws impacting gaming activities
include the Interstate Horse Racing Act, the Interstate Wagering Paraphernalia
Act, the Travel Act and the Organized Crime Control Act. Certain legislation is
currently being considered in Congress and individual states in this regard. In
addition, the United States Justice Department is in the process of taking
action against selected companies that it deems to be operating without proper
licensing and regulatory approval.

The Company believes that its activities conform to those gaming laws and
regulations as currently applied which are applicable to its activities.
However, because there is very little clear statutory and case law authority,
this conclusion is not free from doubt. The Company faces the risk of either
civil or criminal proceedings brought by governmental or private litigants who
disagree with the Company's interpretation of the applicable laws. Because there
is little guiding authority, there is a risk that the Company could lose such
lawsuits or actions and be subject to significant damages or civil or criminal
penalties.

The telephone account wagering systems, including Penn National's, 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 telephone account wagering.

<PAGE>

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 the Company 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.

Management

Members of the 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.

Item 2. Description of Property

The Company has temporarily leased office space at 67 Wall Street, Suite
2411, New York, NY 10005. Certain officers of the Company maintain offices at
580 Granite Court, Pickering, Ontario, L1W 3Z4, Canada.

Item 3. Legal Proceedings

The Company believes that it is not presently a party to any pending
litigation or any proceeding contemplated by a governmental authority, the
outcome of which could reasonably be expected to have a material adverse effect
on its financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of the security holders of the Company.

(Remainder of page left intentionally blank)

<PAGE>

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock trades in the over-the-counter market (symbol
TPWR) 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 the common stock for the fiscal years ended February 29, 2000 and
February 28, 1999.

Fiscal Year Ended Fiscal Year Ended
2/29/2000 2/28/99
High Low High Low
---- --- ---- ---
First Quarter 3.07 .17 .375 .20
Second Quarter 3.968 .75 .28 .115
Third Quarter .93 .47 .175 .08
Fourth Quarter 3.03 .46 .36 .08

These quotations reflect only inter-dealer prices, without retail mark-up,
mark-down or commissions and may not represent actual transactions.

Shareholders

On May 17, 2000, the Company had approximately 400 shareholders of record.
The Company believes it has approximately 3,000 shareholders including holders
whose securities are held in street name or nominee accounts.

Dividends

The Company has never paid a cash dividend on its common stock and does
not expect to pay one in the foreseeable future. Payment of dividends in the
future will depend on the Company's earnings and its cash requirements at that
time.

Item 6. Management's Discussion and Analysis or Plan of Operation

Overview

During the year ended February 29, 2000, the Company launched the new
TrackPower business. Prior to this point, the Company was considered a
development stage enterprise. Although the TrackPower business has been
launched, it has not yet reached maturity. As of February 29, 2000 the Company's
costs exceed its revenues and the Company is reliant upon financing operating
losses through the issuance of new debt or equity.

<PAGE>

Results of Operations

For the year ended February 29, 2000

Revenues

Revenues for the year ended February 29, 2000 were $159,775 compared to
$14,413 in the prior year.

The TrackPower video service was launched under the SkyVista service on
April 1, 1999 and then relaunched July 1, 1999 under EchoStar's Dish Network.
Revenues from net subscription fees totaled $46,336 during the year ended
February 29, 2000. Subscription revenues were zero in the prior year. Effective
January 10,2000 the Company eliminated the subscription fee in order to access
increased levels of subscribers and to focus on wagering commissions.

On July 9, 1999, the Company signed an agreement with Penn National
pursuant to which the Company would earn wagering commissions from wagering
delivered to Penn National and originating from TrackPower subscribers. Wagering
commissions for the period July 1999 to February 2000 totaled $38,210. Wagering
commissions in the prior year were zero.

The Company earned $10,731 in royalty revenue during the year ended
February 29, 2000, under a sub-license of Midland distribution rights to certain
territories in western Canada. Royalties in the previous year were approximately
the same at $11,375.

During the year ended February 29, 2000 the Company sold its investments
of 256,800 shares of Intek Global Corporation and 69,400 shares of Fifty Plus
Network (formerly known as Ventel, Inc. and after a one for five share
consolidation), and realized a gain of $60,068. In the prior year the Company
sold 161,581 shares of Intek Global Corporation and 199,489 shares of Fifty Plus
Network at a loss of $128,238.

Miscellaneous revenues during the year ended February 29, 2000 were $4,430
compared to $3,038 in the prior year.

Costs and Expenses

Costs and expenses, excluding losses on marketable securities and
impairment losses on distribution rights, increased from $1,621,988 during the
year ended February 28, 1999 to $7,437,305 during the year ended February 29,
2000, representing an increase of approximately $5.8 million. The increase is
attributable to increases in the following cost categories: transponder fees -
$3.0 million, advertising - $865,000, general and administrative costs -
$534,000, non-cash financing expenses - $1,315,000 and wages & consulting fees -
$92,000.

The Company launched the TrackPower video service on April 1, 1999 and
began to incur transponder fees. During the year ended February 29, 2000
transponder fees totaled $3,000,000, compared to zero in the prior year.

Concurrent with the launch of the service the Company began to incur
advertising costs. Advertising costs during the year ended February 29, 2000
were $865,480, the biggest single expenditure being $200,000 for a handicapping
tournament during February 2000. The remainder of the costs were magazine
advertising, trade show costs and other radio media type advertisements.
Advertising costs in the prior year were insignificant.

General and administrative costs rose from $290,631 during the year ended
February 28, 1999 to $824,127 during the year ended February 29, 2000. The
increase is the result of the launch of the TrackPower service during the year,
travel, entertainment, communications, insurance and other similar operating
costs were significantly higher than the prior year.

Non-cash financing costs increased from $148,900 during the year ended
February 28, 1999 to $1,463,893 during the year ended February 29, 2000. The
increase is primarily attributable to the recognition of expenses for financial
reporting purposes in connection with; the reduction in the conversion price on
certain convertible

11
<PAGE>

debentures (valued at $781,668), and the issuance of warrants to purchase
1,000,000 common shares of the Company's common stock to Simmonds Capital
Limited in exchange for Simmonds guarantee of the Company's obligations under
the EchoStar satellite services contract (valued at $649,500).

Professional fees, interest expense and depreciation and amortization were
not significantly different from the prior year.

The Company had a net loss of $7,277,530, or a loss of $0.25 per share
during the year ended February 29, 2000. The Company had a net loss of
$1,783,195 ($0.07 per share) in the prior year.

The Company recorded an unrealized holding loss on marketable securities
(prior to the realized loss described above) of $15,356 during the year. The
comprehensive loss was $7,292,886 during the year ended February 29, 2000 and
$1,911,971 in the prior year. Preferred stock dividends (to Simmonds Capital
Limited) during the year ended February 29, 2000 were $60,000 ($67,500 in the
prior year).

Financial Condition

During the year ended February 29, 2000, total assets decreased from
$1,238,666 to $1,071,826. The decrease is primarily attributable to; a decrease
in current assets resulting from the sale of the Company's marketable
securities, and normal depreciation and amortization of the Company's office
equipment, distribution and other trademark and intellectual property rights.

The Company's liabilities increased from $1,732,213 at February 28, 1999
to $4,907,766 as at February 29, 2000. The increase is the result of the Company
issuing $4,375,000 in new convertible debentures in fiscal 2000. These
debentures are five year senior subordinated 8% notes, that are convertible at
the option of the note holder into common shares of the Company at $0.50 per
share. Upon conversion a warrant is issued to purchase another common share
exercisable at $0.75 per share at any time over the next five years. All notes
automatically convert to common shares at maturity. The Company has the option
to repay in cash at any time.

The stockholders' deficit increased from $493,547 at February 28, 1999 to
$3,835,940 at February 29, 2000, representing an increase of approximately $3.3
million. The increase is the result of the fiscal 2000 operating loss,
approximately $7.4 million offset by approximately $4.1 million in the issuance
of common stock and warrants. Approximately $1.7 million in principal and
interest related to a convertible debenture issued in June 1999 was converted to
common shares of the Company in December 1999. The remainder of the increase in
common share capital is primarily the result of warrants and options exercised,
and non-cash financing activities.

The Company's working capital ratio improved from 0.4 to 1.0 at February
28, 1999 to 1.0 to 1.0 at February 29, 2000. The working capital deficit swung
from a deficit of $1,086,149 at the beginning of the year to positive working
capital of $1,569. As described above the change is primarily a result of the
Company raising new long term debt to reduce current liabilities.

Liquidity and Capital Resources

During fiscal 2000, the Company used $6,415,382 in cash from operating
activities primarily as a result of the $7,277,530 operating loss for the year.
Cash provided by investing activities during fiscal 2000 amounted to $666,193
and was primarily as a result of the proceeds from the sale of marketable
securities. Cash provided by financing activities during fiscal 2000 amounted to
$5,982,588 which resulted primarily from the proceeds from the sale of
convertible debentures and the exercise of stock options.

The revenues of the Company during the year ended February 29, 2000 were
insignificant in comparison to the costs of the Company and therefore do not
play a significant role in financing operations. Although the Company reduced
monthly transponder fees from $400,000 to $200,000 in January 2000, the
Company's operating costs continue to exceed its revenues. The continued
development of the TrackPower business was financed during the current year by
issuing new convertible securities and through the exercise of warrants and
options. The Company continues to be successful in raising sufficient funds to
offset operating losses, however there can be no assurance

<PAGE>

that this will continue.

As of March 2000, the Company is subject to a merger letter of intent
whereby a new combined international business will arise. The resulting business
combination is expected to improve the operating loss position of the Company
and also provide a new opportunity to recapitalize. The Company is also in
discussions with third parties to make certain acquisitions that will also
improve the operating results. Although, these discussions are proceeding well
there can be no assurance that the Company will ultimately be successful in
consummating any of these proposed transactions. In the event that these
transactions do not proceed the Company will be forced to raise additional
amounts by way of debt or equity in order to finance losses.

The Company's future operating results are particularly dependent on its
ability to develop, produce and market new and innovative products using the
latest technologies. There are numerous risks inherent in this process,
including the need for the Company to timely bring to market new products and
applications to meet customers' changing interests.

The Company will require additional capital over the next year in order to
achieve its business plan. Failure to obtain such capital could adversely impact
the Company's operations and prospects.

Any interruptions or breakdowns in the systems the Company uses to operate
its business, including, in particular, those telecommunications and
computerized processing services provided by third parties, could adversely
impact the Company's results of operations.

The Company may be adversely affected by the costs and other
effects associated with

1. legal and administrative cases and proceedings, whether
civil or criminal;

2. settlements, investigations, claims, and changes in
those items;

3. developments or assertions by or against the Company
relating to intellectual property rights and
intellectual property licenses; and

The Company's results of operations may also be affected by:

1. changes within the Company's organization, particularly
at the executive officer level, or in compensation and
benefit plans; and

2. the amount, type and cost of the financing which the
Company maintains, and any changes to the financing.

The Company's operations may be adversely impacted by:

1. the effects of war or severe weather or other acts of
God on the Company's operations, including disruptions
of the satellites that transmit the horse races and the
horse racing facilities;

2. the effects of a disruption in the Company's
communications systems.

Inflation

The effect of inflation on the Company has not been significant during the
last two fiscal years.

<PAGE>

Item 7. Financial Statements and Supplementary Data

The financial statements of the Company as of February 29, 2000 and for
each of the years in the two-year period ended February 29, 2000, are included
as part of this report. An index to the financial statements appears at page 17.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Effective June 25, 1999, the Company engaged the firm of Pannell Kerr
Forster PC ("PKF") as its independent auditors, and dismissed its former
accountants, Causey, Demgen & Moore Inc. ("CDM").

None of the reports of CDM on the financial statements of the Company for
either of the two fiscal years ending February 28, 1999 and 1998, contained an
adverse opinion, a disclaimer of opinion, or was modified as to uncertainty,
audit scope or accounting principles. However, CDM's report dated May 27, 1999
included a paragraph regarding substantial doubt about the Company's ability to
continue as a going concern. During the Company's two fiscal years ending
February 28, 1999 and 1998, and the subsequent interim period preceding the
termination of CDM, there were no disagreements with CDM on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreement(s), if not resolved to the satisfaction
of CDM would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report. None of the reportable events
listed in Item 304(B) of Regulation SB occurred with respect to the Company
during the Company's two fiscal years ending February 28, 1999 and 1998, and the
subsequent interim period preceding the termination of CDM.

The Company's decision to dismiss CDM and to engage the firm of PKF was
approved by the Board of Directors. The Company's decision to engage the firm of
PKF was ratified by the shareholders of the Company.

Part III

Item 9. Directors and Executive Officers of the Registrant

Information required by this Item will be set forth in either (i) the
Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders, or (ii) an amendment to this Report on Form 10-KSB/A, which in
either case will be filed with the Securities and Exchange Commission not later
than 120 days after February 29, 2000, and which information is incorporated
herein by reference.

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationship and Related Transactions

<PAGE>

Part IV

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit Document
------- --------

1 Underwriting Agreement

1.1 Placement Agent Agreement, between Registrant and Pellinore Securities
Corporation ("Pellinore"), dated April 17, 1998 (incorporated by
reference to Exhibit 1 of the Registrant's Form 8-K dated May 7,
1998).

2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession

2.01 Articles of Merger as filed with the New York Department of State on
February 11, 1994 (incorporated by reference to Exhibit 2.1 to report
on Form 8-K dated February 14, 1994).

2.02 Articles of Merger as filed with the Wyoming Secretary of State on
February 14, 1994 (incorporated by reference to Exhibit 2.2 to report
on Form 8-K dated February 14, 1994).

2.03 Agreement and Plan of Merger dated July 1, 1993 between the Company
and Mont Rouge Resources, Inc. (incorporated as Exhibit A to Exhibit
2.2 above).

3 Articles of Incorporation and Bylaws

3.01 Articles of Incorporation of Mont Rouge Resources, Inc. as filed with
the New York Department of State on March 19, 1987. (incorporated by
reference to Exhibit 3.1 to registration statement on Form S-1, File
No. 33-6343).

3.02 Articles of Amendment of American Digital Communications, Inc. as
filed with the Wyoming Secretary of State on September 7, 1999.*

3.03 Articles of Incorporation of the Company, as filed with the Wyoming
Secretary of State on June 30, 1993 (incorporated by reference to
Exhibit 3.1 to report on Form 8-K dated July 14, 1993).

3.04 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
report on Form 8-K dated July 14, 1993).

4 Instruments Establishing Rights of Security Holders

4.01 Specimen Stock Certificate of the Company (incorporated by reference
to Exhibit 4.1 to report on Form 8-K dated July 14, 1993).

4.02 Form of Warrant issued by Registrant to various investors, dated as of
April 17, 1998 (incorporated by reference to Exhibit 4.1 to report on
Form 8-K, dated May 7, 1998).

4.03 Form of October, 1999 Debenture issued by Registrant to various
investors.*

10 Material Contracts

10.01 1993 Incentive Stock Option Plan of the Company dated July 15, 1993
(incorporated by reference to Exhibit 10.1 to report on Form 8-K dated
July 14, 1993).

10.02 1993 Non-Statutory Stock Option Plan of the Company dated July 15,
1993 (incorporated by reference to Exhibit 10.2 to report in Form 8-K
dated July 14, 1993).

10.03 1993 Employee Stock Compensation Plan of the Company dated July 15,
1993 (incorporated by reference to Exhibit 10.3 to report on Form 8-K
dated July 14, 1993).

10.04 1993 Employee Stock Compensation Plan of the Company dated November 5,
1993 ( incorporated by reference to Exhibit 10.4 to report on Form 8-K
dated February 14, 1994).

<PAGE>

Exhibit Document
------- --------

10.05 Asset purchase agreement dated November 8, 1996 for the sale of
certain licensing rights, distribution rights, and right to acquire up
to $1,000,000 in certain inventory by and between Simmonds Capital
Limited, SCL Distributors (Western) Ltd., Midland International
Corporation, and American Digital Communications, Inc. (incorporated
by reference to Exhibit 10.41).

10.06 Agreement, dated January 15, 1998, between Simmonds Capital Limited
and the Registrant (incorporated by reference to Exhibits 2 through
2.6 of the Registrant's Form 8-K, dated May 7, 1998).

10.07 Amended and Restated Global Secured Demand Promissory Note, dated July
28, 1998, in the principal amount of $850,000, issued by the
Registrant in favor of Pellinore, for itself and as agent for certain
investors (incorporated by reference to Exhibit 10.1 of the
Registrant's Form 8-K dated September 10, 1998).

10.08 Amended and Restated Pledge Agreement, dated July 28, 1998, between
the Registrant and Pellinore, for itself and as agent for certain
investors (incorporated by reference to Exhibit 10.2 of the
Registrant's Form 8-K dated September 10, 1998).

10.09 Placement Agent Agreement, dated July 28, 1998 between the Registrant
and Pellinore, for itself and as agent for certain investors
(incorporated by reference to Exhibit 1 of the Registrant's Form 8-K
dated September 10, 1998).

16 Letter on Change in Certifying Accountants

16.01 Letter of Causey, Demgen & Moore, dated March 24, 1998 (incorporated
by reference to the Exhibit to the Registrant's report on Form 8-K,
dated April 13, 1998).

16.02 Letter of Stark Tinter & Associates, LLC, dated May 13, 1998
(incorporated by reference to Exhibit 16 to the Registrant's report on
Form 8-K, dated May 22, 1998).

16.03 Letter of Causey, Demgen & Moore, dated July 23, 1999 (incorporated by
reference to Exhibit 16.1 to the Registrant's report on Form 8-K,
dated July 23, 1999).

*27 Financial Data Schedule.

* Filed herewith.

(b) Reports on Form 8-K

None

(Remainder of page left intentionally blank)

<PAGE>

Index to Financial Statements

Independent Auditors' Reports F-2

Financial Statements:

Balance Sheet F-4

Statement of Operations and Comprehensive (Loss) F-5

Statement of Changes in Stockholders' Equity (Deficit) F-6

Statement of Cash Flows F-7

Notes to Financial Statements F-8

F-1

<PAGE>

Independent Auditor's Report

To the Stockholders and Board of Directors of TrackPower, Inc.

We have audited the accompanying balance sheet of TrackPower, Inc. (formerly
American Digital Communications, Inc.) as of February 29, 2000 and the related
statements of operations and comprehensive (loss), changes in stockholders'
equity (deficit), and cash flows for the year 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TrackPower, Inc. as of February
29, 2000, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in notes 1 and 2
to the financial statements, the Company has recently emerged from its
development stage, has suffered recurring losses from operations, and has
sustained operations to date through the issuance of common stock and
convertible debt and other securities, all of which matters 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 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

PANNELL KERR FORSTER PC

New York, New York
April 20, 2000

F-2

<PAGE>

Independent Auditor's Report

To the Stockholders and Board of Directors
American Digital Communications, Inc.
New York, New York

We have audited the accompanying statements of operations and comprehensive
(loss), changes in stockholders' equity (deficit), and cash flows of American
Digital Communications, Inc. for the year ended February 28, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of American
Digital Communications, Inc. for the year ended February 28, 1999 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 notes 1 and 2 to the
financial statements, the Company was a development stage company at February
28, 1999 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 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

CAUSEY, DEMGEN & MOORE INC.

Denver, Colorado
May 27, 1999

F-3

<PAGE>

TRACKPOWER, INC.

Balance Sheet
February 29, 2000

Assets

Current assets
Cash and cash equivalents (note 2) $ 251,488
Accounts and other receivables 64,583
Notes receivable 10,764
Prepaid transponder fees (note 6) 200,000
Other 7,500
-----------
Total current assets 534,335
-----------
Office equipment, at cost, net of accumulated
depreciation of $126,230 (note 2) 29,709

Distribution rights, net of accumulated amortization
of $143,260 (note 2) 104,698

Trademarks and other intellectual property rights, net of
accumulated amortization of $39,842 (notes 2 and 3) 358,570

Deposits 44,514
-----------
Total other assets 537,491
-----------
Total assets $ 1,071,826
-----------
Liabilities and Stockholders' Equity (Deficit)

Current liabilities
Accounts payable (including $7,838 due to related
parties) $ 301,700
Accrued expenses
Interest $ 81,960
Withholding tax 36,500
Directors fees 43,000
Other 59,236 220,696
Note payable - related party (note 4) 10,370
----------
Total current liabilities 532,766

Convertible debentures (note 5) 4,375,000
----------
Total liabilities 4,907,766
----------
Commitments and contingencies (notes 2, 10 and 12)

Stockholders' equity (deficit) (notes 3 and 9)
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, issued and outstanding, 33,795,959 shares 3,380
Additional paid-in capital 11,254,329
Accumulated (deficit) (16,093,649)
-----------
Total stockholders' equity (deficit) (3,835,940)
-----------
Total liabilities and stockholders' equity (deficit) $1,071,826
----------

See notes to financial statements

F-4

TRACKPOWER, INC.

Statement of Operations and Comprehensive (Loss)

Year Ended
---------------------------
February 29, February 28,
2000 1999
----------- ------------
Revenues (notes 2 and 10)
<S> <C> <C>
Wagering commissions $ 38,210 $ -
Net subscription revenue 46,336 -
Royalties received from distribution rights 10,731 11,375
Gain on sale of marketable securities 60,068 -
Other 4,430 3,038
----------- -----------
Total revenues 159,775 14,413
----------- -----------
Costs and expenses
Wages and consulting fees 558,482 466,221
Management fees (note 7) 300,000 300,000
Transponder fees (note 6) 3,000,000 -
Advertising and marketing 865,480 972
Professional fees 217,733 187,159
General and administrative 824,127 290,631
Depreciation and amortization 50,510 44,866
Interest expense (notes 4 and 5) 157,080 183,239
Non-cash financing expenses (notes 5, 9 and 11) 1,463,893 148,900
Impairment losses on distribution rights (note 2) - 47,382
Loss on sale of marketable securities - 128,238
----------- -----------
Total costs and expenses 7,437,305 1,797,608
----------- -----------

Net (loss) (7,277,530) (1,783,195)

Preferred dividends (note 3) (60,000) (67,500)
----------- -----------
Net (loss) applicable to common stockholders $(7,337,530) $(1,850,695)
----------- -----------
Basic and diluted net loss per share of common stock $ (0.25) $ (0.07)
----------- -----------
Weighted average number of common shares outstanding 28,889,640 24,486,000
----------- -----------
Comprehensive (Loss)
Net (loss) $(7,277,530) $(1,783,195)
Other comprehensive (loss)
Unrealized holding (losses) (note 2) (15,356) (128,776)
----------- -----------
Comprehensive (loss) $(7,292,886) $(1,911,971)
----------- -----------

See notes to financial statements
</TABLE>

F-5

<PAGE>

<TABLE>
<CAPTION>
TRACKPOWER, INC.

Statement of Changes in Stockholders' Equity (Deficit)
For Years Ended February 29, 2000 and February 28, 1999
Additional
Preferred Stock Common stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1998 1,000,000 $ 1,000,000 24,113,624 $ 2,412 $ 6,986,409
Issuance of common stock for
subscriptions -- -- 164,262 16 34,479
Issuance of common stock in
conjunction with debt issuance -- -- 500,000 50 94,950
Issuance of common stock in
conjunction with debt issuance -- -- 385,000 38 53,862
Change in unrealized gain on
marketable securities -- -- -- -- --
Net loss for the year ended
February 28, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, February 28, 1999 1,000,000 1,000,000 25,162,886 2,516 7,169,700
Exercise of stock options -- -- 3,225,000 323 617,802
Issuance of common stock in
private placement -- -- 333,333 33 49,967
Debenture conversion to common
stock -- -- 4,042,200 405 2,509,538
Exercise of warrants -- -- 453,829 45 97,655
Issuance of warrants for guarantee -- -- -- -- 649,500
Issuance of shares for consent fee -- -- 148,748 15 32,710
Common stock issued as dividend on
6% preferred stock -- -- 429,963 43 67,457
Common stock accrued as dividend on
6% preferred stock (note 3) -- -- -- -- 60,000
Adjustment to common stock subscribed -- -- -- -- --
Change in unrealized gain on marketable
securities -- -- -- -- --
Net loss for the year ended
February 29, 2000 -- -- -- -- --
----------- ----------- ----------- ---------- -----------
Balance, February 29, 2000 1,000,000 $ 1,000,000 33,795,959 $ 3,380 $11,254,329
----------- ----------- ----------- ---------- -----------
Accumulated
Common Other
Stock Accumulated Comprehensive
Subscribed (Deficit) Income (Loss) Total
---------- --------- ------------- -----

<S> <C> <C> <C> <C>
Balance, February 28, 1998 $ 41,995 $(6,905,424) $ 144,132 $1,269,524
Issuance of common stock for
subscriptions (34,495) -- -- --
Issuance of common stock in
conjunction with debt issuance -- -- -- 95,000
Issuance of common stock in
conjunction with debt issuance -- -- -- 53,900
Change in unrealized gain on
marketable securities -- -- (128,776) (128,776)
Net loss for the year ended
February 28, 1999 -- (1,783,195) (1,783,195)
----------- ----------- ---------- -----------
Balance, February 28, 1999 7,500 (8,688,619) 15,356 (493,547)
Exercise of stock options -- -- -- 618,125
Issuance of common stock in
private placement -- -- -- 50,000
Debenture conversion to common
stock -- -- -- 2,509,943
Exercise of warrants -- -- -- 97,700
Issuance of warrants for guarantee -- -- -- 649,500
Issuance of shares for consent fee -- -- -- 32,725
Common stock issued as dividend on
6% preferred stock -- (67,500) -- --
Common stock accrued as dividend on
6% preferred stock (note 3) -- (60,000) -- --
Adjustment to common stock subscribed (7,500) -- -- (7,500)
Change in unrealized gain on marketable
securities -- -- (15,356) (15,356)
Net loss for the year ended
February 29, 2000 -- (7,277,530) -- (7,277,530)
------------ ----------- ---------- -----------
$ - $(16,093,649) $ - $(3,835,940)
------------ ------------ ---------- -----------

See notes to financial statements
</TABLE>

F-6

TRACKPOWER, INC.

Statement of Cash Flows
Year Ended
-----------------------------
February 29, February 28,
2000 1999
----------- --------------
Operating activities
<S> <C> <C>
Net (loss) $ (7,277,530) $ (1,783,195)
Adjustments to reconcile net (loss) to net cash
(used) in operating activities:
Depreciation and amortization 50,510 44,866
Impairment losses on distribution rights - 47,382
(Gain) loss on sale of marketable securities (60,068) 128,238
Issuance of common stock in conjunction with debt
conversion 848,693 -
Issuance of warrants for guarantee 649,500 -
Issuance of common stock for consent fee 32,725 -
Issuance of common stock in conjunction with debt
issuance - 148,900
Changes in:
Accounts and other receivables (64,583) -
Prepaid transponder fees (200,000) -
Other current assets (7,169) (331)
Accounts payable (452,225) 466,420
Accrued expenses 64,765 103,470
----------- ------------
Net cash (used) in operating activities (6,415,382) (844,250)
----------- ------------
Investing activities

Purchase of office equipment (14,885) (16,002)
Decrease (increase) in deposits 19,486 (64,000)
Note receivable - (2,216)
Proceeds from sale of marketable securities 661,592 335,950
----------- ------------
Net cash provided by investing activities 666,193 253,732
----------- ------------
Financing activities
Proceeds from convertible subordinated debentures 5,663,013 -
Payment of capital lease obligations - (5,951)
Payments of notes payable (446,250) (255,000)
Borrowings under notes payable - 850,000
Proceeds from issuance of common stock 50,000 -
Proceeds from exercise of options 618,125 -
Proceeds from exercise of warrants 97,700 -
----------- ------------
Net cash provided by financing activities 5,982,588 589,049
----------- ------------
Increase (decrease) in cash and cash equivalents 233,399 (1,469)
Cash and cash equivalents, beginning of year 18,089 19,558
----------- ------------
Cash and cash equivalents, end of year $ 251,488 $ 18,089
----------- ------------
Supplemental disclosure of cash flow information
Cash paid for interest $ 92,962 $ 91,639
----------- ------------
Noncash activities:
During fiscal 2000, the Company issued 429,963 shares of its common stock in
payment of dividends due on its preferred stock.

During fiscal 2000, the Company issued 4,042,200 shares of its common stock
upon conversion of long-term debt which amounted to $1,728,275 in principal
and interest.

During fiscal 2000, $261,987 of notes and accrued interest payable were
converted into subordinated debt.

During fiscal 1999, the Company issued common stock for debt issuance costs
of $148,900.

See notes to financial statements
</TABLE>

F-7

<PAGE>

TRACKPOWER, INC.

Notes to Financial Statements
February 29, 2000

Note 1 - Organization and business

TrackPower, Inc., formerly American Digital Communications, Inc., (the Company)
was incorporated under the laws of the State of Wyoming on June 30, 1993. The
Company had intended to provide wireless two-way communications in the 220 mHz.
band, and the Company held distribution rights for various Midland brand
commercial land mobile radios and radio parts acquired in separate transactions
during 1995 and 1996. During fiscal 1998, the Company sold, sub-licensed or
wrote off all remaining distribution rights. On January 15, 1998, the Company
acquired the TrackPower trade name and other intellectual property rights from
Simmonds Capital Limited ("Simmonds"), a major shareholder of the Company (see
note 3). The Company's present business strategy and direction is to capitalize
on the horseracing trend toward off track wagering by providing a live
horseracing video signal directly to homes and workplaces in the United States.
The live horseracing video signal is currently transmitted via satellite and the
Company hopes to expand video distribution via other sources such as cable and
the internet. The Company receives a wagering commission for all wagering by
TrackPower customers delivered to a state-licensed account wagering entity. The
Company does not accept or place any wagering transactions. When fully
implemented the wager will be placed through interactive television technology.

The Company's live video services have been broadcast digitally since July 1999
through the Echostar Dish Network (Echostar) to Echostar's current subscribers.
At that time, an agreement was finalized between the Company and Penn National
Gaming Inc. (Penn) under which Penn provides wagering services to the Company's
subscribers. In connection with this wagering agreement the Company issued
5,000,000 warrants to Penn (see note 9). Agreements have also been entered into
between the Company and eBet Limited (eBet) to provide interactive wagering
services.

Prior to fiscal 2000, the Company was considered to be in its development stage.
Additionally, in August 1999 the Company changed its name from American Digital
Communications, Inc. to TrackPower, Inc.

Note 2- Summary of significant accounting policies

a. 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 29, 2000, the
Company had an accumulated (deficit) of $(16,093,649). As a result, substantial
doubt exists about the Company's ability to continue to fund future operations
using its existing resources.

Since inception the Company has supported operations through the issuance of
common stock and convertible debt and other securities. During fiscal 2000, the
Company began executing its business plan through the launching of live video
and wagering services. Additionally, during 2000 the Company entered into a
letter of intent with Penn and eBet (see note 12), which will combine the
existing video distribution business currently operated by the Company with
telephone wagering accounts in the United States and New Zealand. Management
believes that the combined business will be successful and will provide
significantly higher levels of operating cash flow.

F-8

<PAGE>

TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

The continued operations of the Company are dependent upon its ability to raise
additional capital, achieve market acceptance of its service, expand operations,
compete effectively against competitors, and retain key personnel. Additionally,
regulatory and/or legal issues may arise which could restrict or eliminate the
Company's means of conducting business.

All of these matters raise substantial doubt about the Company's ability to
continue as a going concern. However, as a result of the recapitalization of the
combined business (see note 12) management believes it has positioned itself for
successful international expansion and the acquisition of complementary
businesses in the year 2000.

b. 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.

c. Revenue recognition

Revenue is recorded when earned and consists of:

Subscription revenue

The Company charged a subscription fee of $19.99 per month or $125 per
annum for providing service on four channels under the Echostar Dish
Network. Effective January 2000, the Company reduced the number of
channels to two and, in an attempt to gain wider distribution of the
signal, no longer charged a fee for the service.

Wagering commissions

During fiscal year 2000, the Company entered into an agreement with Penn,
a state licensed wagering entity, under which the Company receives
commissions of up to 4.75% of all wagers placed with Penn by the Company's
subscribers. Under the terms of the letter of intent with Penn and eBet
(see note 12), the wagering commissions will increase up to approximately
a maximum of 10%.

d. Marketable securities

The Company's marketable securities consisted of unrestricted common stock of
publicly traded companies. The securities were considered "available for sale"
and therefore had been recorded at market value at the balance sheet date with
unrealized gains (losses) included as a separate component of stockholders'
equity (deficit). During fiscal 2000, the Company sold all of its marketable
securities.

e. Depreciation

Depreciation of office equipment is computed over its estimated useful lives
ranging from three to five years using the straight-line method.

F-9

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

f. Amortization of intangibles

The cost of distribution rights, which have been sub-licensed to a third party
(see note 10), are being amortized on a straight-line basis over 10 years. The
Company uses the cost recovery method if that method produces a greater amount
of amortization.

The TrackPower trademark and other intellectual property rights (see note 3) are
being amortized over 20 years, which is the period estimated by management to be
the useful life of such rights.

Amortization expense on all intangible assets during fiscal 2000 and 1999
amounted to $44,716 and $44,718, respectively.

g. 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. During fiscal 2000 no writedowns were required, while in
fiscal 1999 a writedown of $47,382 in distribution rights was provided.

h. Income taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes". Deferred taxes are provided for
the temporary differences between the financial reporting basis and the tax
reporting basis of the Company's assets and liabilities. A valuation allowance
is recorded for deferred tax assets when management determines it is more likely
than not that such assets will not be realized.

i. Fair value of financial instruments

Cash, accounts and notes receivable, accounts payable, accrued expenses, notes
payable and convertible debentures are carried in the financial statements at
amounts which approximate fair value.

j. Advertising costs

The Company expenses the costs of advertising and marketing as incurred.
Advertising and marketing expense amounted to $865,480 and $972 for fiscal 2000
and 1999, respectively.

k. Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers cash and all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.

l. 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.

F-10

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

m. Net loss per share

Basic net loss per common share is based on the weighted average number of
shares outstanding during each period presented. Convertible securities and
options to purchase common stock are included as common stock equivalents only
when dilutive. Potential common stock equivalents totaling 14,108,154 shares
have been excluded from dilutive loss per share as the effects of such shares
would have been antidilutive.

n. Accounting for stock options

All stock options that have been granted by the Company to employees have been
at or above the fair market value of the Company's common stock at the time of
grant. As a result, no compensation expense or other accounting relating to the
Company's stock options issued has been required to be recorded within the
financial statements of the Company.

The foregoing accounting is in accordance with Accounting Principles Board
Opinion No. 25 (APB Opinion No. 25) and related interpretations. The Company has
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," (SFAS 123). The Company has
included in note 9 the impact of the fair value of employee stock-based
compensation plans on net loss and net loss per share on a pro forma basis for
awards granted pursuant to SFAS 123.

o. Reclassification

Certain reclassifications have been made to the fiscal 1999 financial statements
to conform to the fiscal 2000 presentation.

Note 3 - Acquisition of TrackPower trademarks and other intellectual property
rights

In January 1998, the Company acquired the TrackPower trade name and other
intellectual property rights from Simmonds, a stockholder of the Company. As
consideration for the assets acquired, 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) and (2) assumed
accounts payable of $299,974. Accordingly, the value of the acquired intangibles
had been recorded at $398,412 during fiscal 1998. 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 fee 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. In fiscal 2000, Simmonds received the option to receive
payment of royalty fees in the form of common shares (see note 11). 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 at the
Company option only for $1,000,000. At February 29, 2000, cumulative dividends
accrued on the preferred stock amounted to $60,000 which is payable in shares of
the Company's common stock (estimated to be 70,404 shares). The accrued dividend
on the preferred stock amounting to $67,500 at February 28, 1999 was paid during
fiscal 2000 by the issuance of 429,963 shares of common stock.

Note 4 - Short-term note payable

The Company's short-term note payable consists of a 9% note payable to a
stockholder.

F-11

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

Note 5 - Convertible debentures

8% Senior Subordinated Convertible Debentures (maximum issuance: $5,000,000)

During fiscal 2000, the Company issued subordinated convertible debentures in
the principal sum of $4,675,000. The debentures bear interest at 8% per annum,
payable annually on October 31, commencing on October 31, 2000, and mature
October 31, 2004. The debentures are automatically convertible into common stock
of the Company upon maturity, at the rate of $0.50 per share. The debentures may
also be converted at the option of the Company, as defined, or the holder. Upon
conversion, each share of common stock will be accompanied by a three year
warrant to purchase common stock at $0.75 per share. Three noteholders chose to
convert their notes totaling $300,000 to 600,000 shares of common stock.

8% Senior Subordinated Convertible Debentures (maximum issuance: $1,250,000)

During fiscal 2000, the Company issued subordinated convertible debentures in
the principal sum of $1,250,000. The debentures bear interest at 8% per annum,
payable annually on June 10, commencing June 10, 2000. As an inducement to the
noteholders to convert their notes, the Board of Directors approved a resolution
whereby the conversion price was reduced from $1.25 to $0.50 per share of common
stock. In December 1999, all the noteholders converted their notes, including
accrued interest, aggregating $1,302,778 to 2,605,558 shares of common stock and
received 1,042,220 warrants to purchase common stock at the rate of $2.50 per
share. In connection with the conversion, the Company recorded an expense
amounting to $781,668 attributable to the fair value of the common stock issued
upon the conversion over the fair value of the common stock issuable under the
original conversion terms. This expense is included in non-cash financing
expenses in the accompanying statement of operations and comprehensive (loss)
and as an increase in additional paid-in capital for fiscal 2000.

Note 6 - Transponder fees

In June 1999, the Company signed an agreement with Transponder Encryption
Services Corporation to move the TrackPower service to the Echostar Dish
Network, which has substantially more existing subscribers. The Company then
relaunched the TrackPower services under the Echostar Dish Network in July 1999.
This agreement provided for a base monthly fees of $400,000 for four channels
per month, plus a portion of revenues to be paid to EchoStar for the four-year
term of the agreement. Effective January 2000 the number of channels was reduced
to two and the monthly fees under this agreement were reduced to $200,000.
Simmonds Capital Limited has guaranteed the Company's obligations under this
agreement (see note 11).

Note 7 - Related party transactions

Periodically, the Company advances funds and pays expenses on behalf of related
parties and funds are advanced and expenses are paid by related parties on
behalf of the Company. These transactions result in non-interest bearing
payables or receivables to related parties. At February 29, 2000 and February
28, 1999, net payables to related parties amounted to $7,838 and $407,319,
respectively.

In January 1998, the Company purchased the TrackPower trade name and other
intellectual rights from Simmonds (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 Simmonds.

During fiscal 2000, the Company paid $43,000 to two directors of the Company for
consulting and advertising services.

F-12

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

Note 8 - Income taxes

The temporary differences between financial reporting and income tax purposes,
are primarily net operating loss carryforwards and start-up costs capitalized
for income tax purposes (net of amortization).

As of February 29, 2000, the deferred tax assets and valuation allowances are
summarized as follows:

Start-up costs $ 165,119
Operating loss carryforwards 5,439,344
Valuation allowance (5,604,463)
-----------
$ -
-----------

A full 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 reasonably assured. The $2,422,463 change in the valuation
allowance between fiscal 1999 and 2000 is primarily due to an increase in the
operating loss carryforward in fiscal 2000.

The Company has available net operating loss ("NOL") carryforwards of
approximately $14,600,000 resulting from accumulated operating losses through
fiscal 2000. The NOL carryforwards for tax reporting purposes expire in various
amounts through the year 2020. The Company believes that an "Ownership Change"
occurred in fiscal 1997 within the meaning of Section 382 of the Internal
Revenue Code. Under this ownership change, utilization of NOL's incurred by the
Company through fiscal 1997 amounting to approximately $3,400,000 will be
limited to approximately $440,000 annually.

The use of all the Company's net operating loss carryforwards could be further
limited if additional changes in ownership, as defined under Section 382, occur.

Note 9 - Stockholders' equity

The Company has the authority to issue an unlimited number of shares of common
stock, par value $.0001 per share and an unlimited number of shares of preferred
stock, no par value. As of February 29, 2000, there were 33,795,959 shares of
common stock issued and outstanding and 1,000,000 shares of preferred stock
outstanding.

During fiscal 2000, the Company issued 148,748 shares of its common stock to
noteholders in exchange 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 fair value of this
transaction was estimated at $32,725, which is included in non-cash financing
expenses in the accompanying statement of operations and comprehensive (loss)
for fiscal 2000.

In addition to the conversion of subordinated convertible debentures into common
stock, as described in note 5, on March 31, 1999, certain of the noteholders
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 amount of shares at $0.15 per share expiring in
one year were also issued. A total of 836,642 shares of common stock and
warrants to purchase 836,642 common shares were issued to convert the debt.

In fiscal 2000, the Company issued 333,333 shares of common stock to Simmonds in
a private placement at $0.15 per share.

F-13

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

During April and July 1998, the Company raised gross proceeds of $500,000 and
$350,000, respectively, in debt offerings including $95,000 from related
parties. The notes were due on demand with interest at 12% per annum and the
Company's marketable securities were pledged as collateral. As part of the
offering, the Company issued 850,000 shares of its common stock to the
noteholders and warrants to purchase 850,000 shares of its common stock
exercisable at $0.30 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 fiscal 1999, the Company repaid $255,000 of the
principal of the notes. The value of this transaction was determined to be
$148,900 and is included in non-cash financing expenses in the accompanying
statement of operations and comprehensive (loss) for fiscal 1999. During fiscal
2000, the remaining balance of the note was repaid or converted to common stock.

Stock options

The Company has established the 1993 Compensatory Stock Option Plan ("CSO") 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 on various
dates through 2004.

The following is a summary of stock option activity for fiscal 2000:

Weighted
Option Average
Number Price Excercise
of Shares Per Share Price
---------- ---------- ----------
Balance, February 28,
1998 and 1999 3,960,000 $0.10 to $1.75 $0.44
Granted 2,525,000 0.15 to 0.42 0.16
Canceled (2,810,000) 0.23 to 1.75 0.46
Exercised (3,225,000) 0.10 to 0.42 0.18
---------- -------------- ----------
Balance, February 29, 2000 450,000 0.40 0.40
---------- -------------- ----------

The following is a summary of outstanding and exercisable options at February
29, 2000:

Number of shares 450,000
Weighted average remaining life 1 year
Weighted average exercise
price $0.40

F-14

<PAGE>

TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

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. At
February 29, 2000 no options were outstanding under this plan.

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 29, 2000, no options were
outstanding under this plan.

1993 Non-Statutory Stock Option Plan ("NSO")

The Company has reserved a maximum of 2,000,000 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. During fiscal 2000, the
Company issued 2,000,000 options at exercise prices ranging from $0.15 to $0.90.
These options vest immediately and expire in June 2003. A summary of these
options at February 29, 2000 are as follows:

Outstanding and exercisable 2,000,000
Weighted average remaining
contractual life 3.3 years
Weighted average exercise price $0.80

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plans and, accordingly, no compensation cost has been
recognized because stock options granted under the plans were at exercise prices
which were equal to or greater than the market value at date of grant. Had
compensation expense been determined as provided in SFAS 123 for stock options
using the Black-Scholes option pricing model, the pro forma effect would have
been:

Year Ended
--------------------------
February 29, February 28,
2000 1999
------------ ------------
Net loss - as reported $(7,277,530) $(1,783,195)
Net loss - pro forma (8,582,280) (1,783,195)
Loss per share - as reported (0.25) (0.07)
Loss per share - pro forma (0.30) (0.07)

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 fiscal 2000, dividend yield of 0%; expected
volatility of 200%, risk-free interest rate of 6%; and expected life of 3 years.

F-15

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

Warrants

Warrants outstanding at February 29, 2000 consists of the following:

Exercise Number
Issue Date Expiration Date Price of Shares
----------------- ---------------- ------------- ---------
January 31, 1998 January 31, 2001 $2.00 500,000
April 17, 1998 April 17, 2003 $0.30 322,500
July 26, 1998 July 26, 2003 $0.30 330,000
July 26, 1998 July 26, 2003 $0.30 35,000
March 31, 1999 March 31, 2000 $0.15 580,313
April 29, 1999 April 29, 2004 $1.58 to $2.53 5,000,000
July 1, 1999 July 1, 2004 $2.50 1,000,000
December 17, 1999 December 17, 2004 $2.50 1,042,220
January 31, 2000 January 31, 2003 $0.75 500,000
February 17, 2000 February 17, 2003 $0.75 100,000
---------
9,410,033
---------

In connection with the wagering agreement with Penn (see note 1), the Company
issued warrants to purchase 5,000,000 common shares. 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 renewable option.

Note 10 - 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. Royalty fees earned
under this agreement during fiscal 2000 and 1999 amounted to $10,731 and
$11,375, respectively.

Note 11 - Guarantees

In fiscal 2000, the Company received two financial guarantees from Simmonds. The
first was a guarantee of the Company's obligations under a satellite
distribution services agreement with EchoStar (see note 6) and the second was a
guarantee of all of the obligations of the Company until March 1, 2000. In
exchange for these guarantees the Company issued warrants to purchase 1,000,000
shares of the Company's common stock at $2.50 per share and the right to receive
750,000 shares of common stock in payment of royalty fees when earned (see note
3). Management has valued the guarantees at $649,500, which is included in
non-cash financing expenses in the accompanying statement of operations and
comprehensive (loss) for fiscal 2000.

F-16

<PAGE>
TRACKPOWER, INC.

Notes to Financial Statements (continued)
February 29, 2000

Note 12 - Subsequent events

In March 2000 the Company entered into a letter of intent with Penn and eBet.
Under the terms of the letter of intent, Penn and eBet will contribute various
assets, technologies, business operations, contracts and management agreements
to the Company. The Company will then merge its existing North American
satellite broadcast operations with the existing telephone wagering operations
of Penn (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 Company will be required to pay Penn the current
level of cash flow generated from its existing telephone wagering operations.
eBet will also transfer to the Company 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 Penn's and eBet's contributions, the Company will issue to
Penn 18,000,000 shares of common stock and warrants to purchase 1,000,000 shares
of common stock at an exercise price of $1.00 per share, and will issue to eBet
18,000,000 shares of common stock and warrants to purchase 5,000,000 shares of
common stock at an exercise price of $1.00 per share. Penn and eBet will each
own approximately 26.5% of the Company based on the estimated number of shares
of common stock to be outstanding at the date of closing.

F-17

<PAGE>

SIGNATURES

In accordance with sections 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereto duly authorized individual.

Date: May 30, 2000
TRACKPOWER, INC.

By: /s/ John G. Simmonds
----------------------------------
John G. Simmonds,
Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

Name Title Date
---- ----- ----
/s/ John G. Simmonds Chairman/President/ May 30, 2000
--------------------------- CEO/Director
John G. Simmonds (principal executive officer)

/s/ Gary N. Hokkanen
--------------------------- Chief Financial Officer May 30, 2000
Gary N. Hokkanen (principal financial officer)

/s/ Charles Cernansky
--------------------------- Director May 30, 2000
Charles J. Cernans

/s/ Ken Adelberg
--------------------------- Director May 30, 2000
Ken Adelberg

/s/ Arnold Smolen
--------------------------- Director May 30, 2000
Arnold Smolen

/s/ Lawrence Aziz
--------------------------- Director May 30, 2000
Lawrence Aziz