AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MAY 11, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------------------
FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------------------------
LEAPFROG SMART PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
COLORADO 84-1076959
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION
</TABLE>
LEAPFROG SMART PRODUCTS, INC.
1011 Maitland Center Commons
Maitland, FLORIDA 32751
(407) 838-0400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<PAGE>
MARK T. THATCHER
17 WEST CHEYENNE MOUNTAIN BOULEVARD
COLORADO SPRINGS, CO 80906
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
NADEAU & SIMMONS, P.C. MOORE, STEPHENS & LOVELACE, P.A.
1250 TURKS HEAD BUILDING 1201 SOUTH ORLANDO AVENUE,
PROVIDENCE, RI 02903 SUITE 400
401-272-5800 WINTER PARK, FL 53203
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after approval.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ] _________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Disclosure alternative used (check one):
Alternative 1 ( ) Alternative 2(X)
-------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO AMOUNT TO OFFERING AGGREGATE AMOUNT OF
BE REGISTERED BE REGISTERED PRICE PER OFFERING PRICE REGIST. FEE
SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,450,000(1) $2.87 per $4,161,500(1) $1,435.00
Par value
$0.001 share
Underlying Common 1,459,625(2) $4.00 per $5,838,500(2) $2,013.28
Stock, Par Value,
$4.00, to Series
A Convertible
Preferred Stock
- --------------------------------------------------------------------------------
</TABLE>
(1) This offering registers shares previously sold. The securities will be
sold at their market price on the Over-the-Counter Electronic Bulletin
Board when sold. Accordingly, the registration fee has been calculated in
accordance with Rule 457(c) of the Securities Act and based upon certain
shares of common stock ("Leapfrog Common Stock"). The average of the
bid and asked price as of May 11, 2000 was $2.87.
(2) This offering registers underlying common shares yet to be converted. The
securities may be re-sold at their market price on the Over-the-Counter
Electronic Bulletin Board when sold. Accordingly, the registration fee
has been calculated in accordance with Rule 457(c) of the Securities Act
and based upon certain shares of Series A Convertible Preferred Stock
("Leapfrog Series A Preferred Stock"). The offering price of the Leapfrog
Series A Preferred Stock as of May 11, 2000 was $4.00.
- --------------------------------------------------------------------------------
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Subject to Completion Dated May ___, 2000
LEAPFROG SMART PRODUCTS, INC.
2,909,625 SHARES
COMMON STOCK
This Prospectus relates to up to 2,909,625 shares of common stock, no par
value (the "Common Stock") of Leapfrog Smart Products, Inc. (the "Company" or
"Registrant"), whose corporate address is 1011 Maitland Center Commons,
Maitland, FL 32751. All of the shares (collectively the "Shares") of the
Company offered hereby are to be sold for the accounts of the selling
shareholders set forth herein (the "Selling Shareholders"). The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Shareholders. The Company estimates that total expenses of the offering will
be approximately $75,000 in connection with this offering ("Offering") of the
Shares. (See "Selling Shareholders" and "Plan of Distribution").
The Company's Common Stock is quoted on the Over-the-Counter Electronic
Bulletin Board stock symbol "FROG". The Company is subject to the reporting
requirements of Section 13 and 15(d) of the Exchange Act and is presently
current in its filed reports with the Securities and Exchange Commission.
INVESTMENTS IN THE SECURITIES INVOLVE A HIGH DEGREE OF RISK (SEE "RISK
FACTORS"). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary ..........................................................
Risk Factors.................................................................
Year 2000 Problems May Have an Adverse Effect
Competition
Potential Fluctuations in Quarterly Operating Results
Limited Operating History
Dependence on Third-Party Suppliers
Patents, Trademarks and Proprietary Information
Rapid Technological Changes
Expansion
Government Regulation
Dependence on Key Personnel
Control by Principal Shareholders, Officers and Directors
Issuance of Preferred Stock
Trading Market; Volatility of Stock Price
Possible Need for Additional Financing
Indemnification of Officers and Directors
Dependence Upon Outside Advisors
Rule 144 Sales
Use of Proceeds..............................................................
Dilution ....................................................................
Dividend Policy .............................................................
Business ....................................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations .....................................................
Management ..................................................................
Certain Transactions ........................................................
Principal Shareholders ......................................................
Description of Capital Stock ................................................
Plan of Distribution ........................................................
Agreements ..................................................................
Investor Relations Arrangements .............................................
Legal Matters................................................................
Experts .....................................................................
Additional Information ......................................................
Financial Statements ........................................................F-1
</TABLE>
<PAGE>
CROSS REFERENCE PAGE REQUIRED BY
REGULATION S-K ITEM 501(b)
<TABLE>
<CAPTION>
CAPTION OR LOCATION
ITEM IN FORM SB-1 IN PROSPECTUS
----------------------------------------- -------------------
<S> <C> <C>
1. Information Required by Item 501 of Regulation S-B.... Front Cover
2. Information Required by Item 502 of Regulation S-B.... Inside Front Cover
3. Information Required by Item 503 of Regulation S-B.... Prospectus Summary;
Risk Factors
4. Use of Proceeds....................................... Prospectus Summary;
Use of Proceeds
5. Determination of Offering Price....................... Risk Factors;
Plan of Distribution
6. Dilution.............................................. Dilution
7. Selling Security Holders..............................
8. Plan of Distribution.................................. Plan of Distribution
9. Description of the Securities to be Registered........ Description of
Securities
10. Interest of Named Experts and Counsel................. Legal Matters
11. Information with Respect to the Registrant............
11(a)Information Required by Item 101 of Regulation S-B.... Description of
Business
11(b)Information Required by Item 102 of Regulation S-B.... Description of
Property
11(c)Information Required by Item 103 of Regulation S-B.... Litigation
11(d)Information Required by Item 201 of Regulation S-B.... Price Range of
Common Stock
11(e)Information Required Under Regulation S-B............. Financial Statements
11(f)Information Required by Item 301 of Regulation S-B.... Description of
Securities
11(g)Information Required by Item 302 of Regulation S-B.... N/A
11(h)Information Required by Item 303 of Regulation S-B.... Management's
Discussion
and Analysis
11(i)Information Required by Item 304 of Regulation S-B.... Experts
11(j)Information Required by Item 401 of Regulation S-B.... Management
11(k)Information Required by Item 402 of Regulation S-B.... Executive
Compensation
11(l)Information Required by Item 403 of Regulation S-B.... Principal
Stockholders
11(m)Information Required by Item 404 of Regulation S-B.... Certain Transactions
12. Information Required by Item 510 of Regulation S-B.... Indemnification of
Officers and
Directors
</TABLE>
<PAGE>
IMPORTANT FACTORS RELATED TO
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
- ----------------------------------------------------------------------------
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including statements
regarding the Company's expectations, hopes, intentions or strategies regarding
the future. All forward-looking statements included herein are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important
to note that the Company's actual results could differ materially from those in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are the risk factors which may be listed from time
to time in the Company's reports on Form 10-QSB, 10-KSB and registration
statements filed under the Securities Act.
Forward-looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) continued expansion of the Company's operations
through joint ventures and acquisitions, (iii) success of existing and new
marketing initiatives undertaken by the Company, and (iv) success in controlling
the cost of services provided and general administrative expenses as a
percentage of revenues.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements were based on assumptions that the Company would continue to expand,
that capital will be available to fund the Company's growth at a reasonable
cost, that competitive conditions within the industry would not change
materially or adversely, that demand for the Company's services would remain
strong, that there
<PAGE>
would be no material adverse change in the Company's operations or business, and
that changes in laws and regulations or court decisions will not adversely or
significantly alter the operations of the Company. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive, regulatory and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking information will prove to be
accurate.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
<PAGE> 1
PART I
NARRATIVE INFORMATION REQUIRED IN PROSPECTUS
ITEM 1. INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF PROSPECTUS
See front and back cover pages of this Prospectus.
ITEM 2. SIGNIFICANT PARTIES
(a) The Company's directors:
<TABLE>
<CAPTION>
The directors and officers of the Company are as follows:
<S> <C> <C>
Name Title Age
Dale Grogan President & Director
Randolph Tucker CEO, Treasurer & Director
Jim Gornto Secretary
Jim Grebey Executive Vice President
& Director
Ron Breland Director
Bob Harnett Director
George MacKay Director
Randall Schrader Director
Bruce Starling Chairman & Director
Van Staton Director
George Stuart Director
</TABLE>
<PAGE> 2
(b) The Company's officers: See response to Item 2(a) above.
<TABLE>
<CAPTION>
The officers of the Company are as follows:
<S> <C> <C>
Name Title Address
Bruce Starling Chairman 1011 Maitland Center Commons
Maitland, FL 32751
Randolph Tucker CEO & Treasurer 1011 Maitland Center Commons
Maitland, FL 32751
Dale Grogan President 1011 Maitland Center Commons
Maitland, FL 32751
Jim Grebey Vice President 1011 Maitland Center Commons
Maitland, FL 32751
Jim Gornto Secretary 1011 Maitland Center Commons
Maitland, FL 32751
</TABLE>
(c) The Company's general partners: None.
(d) Record owners of 5 percent or more of any class of the
Company's equity securities (common stock): See response to
Item 2(e) below.
(e) Beneficial owners of 5 percent or more of any class of the
Company's equity securities (common stock):
<PAGE> 3
<TABLE>
<CAPTION>
COMMON STOCK
- ------------------------------------------------------------------------------
Name and address # of % of
of beneficial owner shares Class Options(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Ron Breland 0 0.00% 240,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
William Campion 325,681 5.73% 3,971
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Jim Grebey 5,000 0.09% 110,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Dale Grogan 309,500 5.44% 143,574
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Bruce Starling 139,858 2.46% 50,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Van Staton 304,858 5.36% 50,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
George Stuart 130,730 2.30% 52,307
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
George MacKay
C/O Leapfrog Smart Products, Inc. 285,500 5.02% 25,000
1011 Maitland Center Commons
Maitland, FL 32751
Robert Harnett 139,858 2.45% 25,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Randall Schrader 0 0.00% -
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Randolph Tucker 490,500 8.62% 170,052
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
Jim Gornto 0 0.00% 25,000
C/O Leapfrog Smart Products, Inc.
1011 Maitland Center Commons
Maitland, FL 32751
</TABLE>
See also the information set forth under the heading "Principal Shareholders"
appearing elsewhere in this Prospectus.
<PAGE> 4
(f) Promoters of the Company: See response to Item 2(a) above.
(g) Affiliates of the Company: See Items 2(a), (b), (d) and (f) above.
(h) Counsel to the Company with respect to the proposed offering:
Nadeau & Simmons, P.C.
1250 Turks Head Building
Providence, RI 02903
(i) Each underwriter with respect to the proposed offering:
Not applicable.
(j) The underwriter's directors:
Not applicable.
(k) The underwriter's officers:
Not applicable.
(l) The underwriter's general partners:
Not applicable.
(m) Counsel to the underwriter:
Not applicable.
ITEM 3. RELATIONSHIP WITH ISSUER OF EXPERTS NAMED IN
REGISTRATION STATEMENT
No expert named in this prospectus was paid on a contingent basis or had a
material interest in the Company or any of its subsidiaries or was connected
with the Company or any of its subsidiaries as a promoter, underwriter, voting
trustee, director, officer or employee.
ITEM 4. LEGAL PROCEEDINGS
Neither the Registrant nor any of its affiliates are a party, nor is any of
their property subject, to material pending legal proceedings or material
proceedings known to be contemplated by governmental authorities.
<PAGE> 5
ITEM 5. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
As previously reported on a Current Report on Form 8-K dated March 17, 2000,
LEAPFROG dismissed Thomas Leger & Company, P.A., whose address is 1235 Loop
West, Suite 907, Houston, Texas, and which was previously engaged as the
principal accountant to audit the registrant's financial statements, on March 2,
2000, by unanimous consent of the board of directors of the Company, in favor of
retaining the present independent accounting firm. The following information is
set forth pursuant to Reg. Sec. 229.304 of Regulation S-K of the Securities Act
of 1933 (the "Act"):
(i) Thomas Leger and Company's report on the balance sheet of Albara
Corporation (now known as LEAPFROG) for only the year ended December 31, 1998
contained no adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principles;
(ii) The decision to change accountants was recommended and approved by
the board of directors of the Company;
(iii) From the date the Company commenced operations (January 13, 1998)
through any subsequent interim period preceding the dismissal, there have been
no disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedure.
(iv) The Company has requested Thomas Leger and Company, P.A., to
furnish it a letter addressed to the Commission stating whether it agrees with
the above statements. A copy of that letter was filed as Exhibit 16.1 to the
Company's Form 8-K, dated March 17, 2000.
On February 25, 2000, Moore Stephens Lovelace, P.A. Certified Public
Accountants, whose address is 1201 South Orlando Avenue, Suite 400 Winter Park,
FL 32789-7192 was engaged as the principal accountant to audit the Company's
financial statements.
ITEM 6. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
The Company's Articles of Incorporation provide that a director of the Company
shall not be personally liable to the Company or any of its shareholders for
monetary damages for breach of fiduciary duty as a director, except liability
for the following:
(a)any breach of the director's duty of loyalty to the Company or its
shareholders;
(b)acts or omissions not in good faith or which involve gross negligence
intentional misconduct or a knowing violation of law;
(c)any unlawful distribution as set forth in the General Corporation Law
of the State of Colorado; or
(d)any transaction from which the director derived an improper personal
benefit.
<PAGE> 6
These provisions may have the effect in certain circumstances of reducing the
likelihood of derivative litigation against directors. While these provisions
may eliminate the right to recover monetary damages from directors in various
circumstances, rights to seek injunctive or other non-monetary relief are not
eliminated.
The Company's By-laws provide for indemnification of the Company's directors
to the fullest extent permitted by law. The Company's Bylaws also permit the
Company, through action of the Board of Directors, to indemnify the Company's
officers or employees to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "1933 Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and should
be read in conjunction with, the more detailed information and the financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
THE COMPANY
This Summary of Business describes the overall operational plan for the
Company with respect to its development and operation of power plant systems.
Company Description
Founded in April of 1996, LEAPFROG is a Florida corporation dedicated to
designing, developing, licensing, and marketing Smart card applications and
related database management system and services. The Smart card is a
wallet-sized plastic card with an embedded computer chip carrying a myriad
of accessible data that is retrievable on demand and capable of fully
integrating a variety of everyday functions with strict security features.
Just like Microsoft writes software to operate PCs, LEAPFROG writes software
to make computers called "Smart cards" work.
LEAPFROG currently has 32 full-time employees and a growing sales
representative network. The engineering department is comprised of fourteen
and a total of ten employees are associated with administrative roles. The
sales and marketing team is comprised of eight people, which is expected to
increase when the sales and marketing plan is implemented.
In 1997 and 1998, LEAPFROG invested in developing a technology that would
serve as a platform for developing commercially viable Smart card software
products. That technology is based on an architecture which is designed to
allow any combination of software modules to be activated via a patent
pending "Plug-and-Play" technology. Management believes, the technology
allows a client to choose any number of modules from the LEAPFROG "library"
and have a customized product. For LEAPFROG, this proprietary technology
allows LEAPFROG to re-use software modules numerous times without having to
duplicate previous development efforts. Management believes this technology
is key to LEAPFROG's potential future success and potential future
profitability in the software business.
In 1999, a suite of proprietary software programs is being developed for
commercialization. Six commercial products are nearing completion in
Commercial-Off-The-Shelf form and have been announced by LEAPFROG. They
are: SecurePak, Smart card Commander, MDCard, SmartPoints, SmartExpo, and
SmartResort.
LEAPFROG has two patents pending: ("Plug and Play Architecture", and
"Biometric Identity Verification Authentication" on a Smart card).
Management believes these patents, if eventually awarded, will help to
create a barrier of entry against potential competitors and will help create
an intangible asset value for the shareholders of the Company.
Additionally, LEAPFROG appears to be the only software engineering firm that
is qualified as a "Development Partner" with two Smart card manufacturers:
Schlumberger and Giesecke & Devrient.
<PAGE> 8
On December 21, 1998, LEAPFROG was awarded its Government Services
Administration ("GSA") master contract number, GS-35J-0161. This process
took almost one year to complete. LEAPFROG intends to pursue GSA contracts
in 2000. Management believes the United States federal government is
presently the largest potential domestic issuer of Smart cards for two
reasons: (1) it has the ability to mandate change, and (2) it has the
financial resources to build and upgrade infrastructure. The United States
government has undertaken several initiatives, in pilot form, to test the
viability and use of Smart cards. As a result, the GSA is expected to issue
a Request For Proposal for employee cards which will provide physical as
well as logical access for 2,500,000 federal employees. This contract
could have a substantial value over a ten-year period and is expected to be
awarded to multiple vendors. LEAPFROG intends to actively pursue this
contract opportunity on some basis and will likely enter into an alliance
with a major government contractor to supply Smart card software integration
services over the next ten years in connection with this GSA contract.
The Company's corporate headquarters are located at 1011 Maitland Center
Commons, Maitland FL 32751. The Company's transfer agent is American
Securities Transfer, Inc., 1825 Lawrence Street, Ste 444 Denver, CO 80020
(303) 298-5370.
THE OFFERING
The offering to which this Prospectus relates (the "Offering") consists of
2,909,625 shares of Common Stock.
RISK FACTORS
The securities offered hereby are speculative, involve a high degree of risk
and immediate and substantial dilution, and should not be purchased by
investors who cannot afford the loss of their entire investment. See "Risk
Factors."
<PAGE> 9
Forward-Looking Information
THIS FORM SB-1 AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
LEAPFROG SMART PRODUCTS, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH
MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A.
SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF LEAPFROG SMART
PRODUCTS, INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS
ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT
ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE
AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET
FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
INCLUDED AS EXHIBIT 99.1 TO THIS FORM SB-1 AND ARE HEREBY INCORPORATED
HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR
REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS
OVER TIME.
YEAR 2000 PROBLEMS MAY HAVE AN ADVERSE EFFECT ON OPERATIONS
The Company utilizes a significant number of computer software programs and
operating systems across its entire organization. To the extent the Company's
software applications contain source codes that were unable to appropriately
interpret the calendar year 2000, some level of modification, or even possibly
replacement of such applications was necessary.
The Company intends to continue its efforts to seek reassurances regarding the
Year 2000 compliance of vendors, joint venture partners and content partners.
The costs incurred by the Company through December 1999 to address Year 2000
compliance were approximately $10,000.
The Company has not specifically tested software, including licensed software,
shareware, and freeware, obtained from third parties, but it has sought
assurances from its vendors that licensed software is Year 2000 Compliant.
The Company funded its Year 2000 plan from operating cash flows. We estimate
that costs incurred through December 31, 1999 in connection with Year 2000
compliance projects have not been material.
COMPETITION
At this time, the Company is in a highly competitive market with brand name
operators. It's success, therefore, must rely solely on the effective and
efficient promotion, operational support and sales of its services. The
company is engaged in a business with a high public profile and is directly
competitive with manufacturers and distributors of Smart Card Systems.
<PAGE> 10
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. Such risks for the Company include, but are not limited
to, an evolving and unpredictable business model, management of growth, the
Company's ability to anticipate and adapt to a developing market and
unforeseen changes and developments in the Company's strategic partners'
activities and direction. To address these risks, the Company must, among
other things, implement and successfully execute its business strategy,
continue to develop and upgrade its technology, provide superior client
service, respond to competitive developments and attract, retain and motivate
qualified personnel and meet the expectations of its strategic partners. There
can be no assurance that the Company will be successful in addressing such
risks, and the failure to do so could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
LIMITED OPERATING HISTORY
As a result of the Company's limited operating history and the emerging nature
of the markets in which it competes, the Company may not be able to accurately
predict its revenues. The Company expects to experience significant
fluctuations in its future quarterly operating results due to a variety of
factors, many of which are outside the Company's control. Factors that may
adversely affect the Company's quarterly operating results include (i) the
Company's ability to retain and attract clients, (ii) the level of competition
in the Smart Card industry, (iii) the Company's ability to upgrade and develop
its systems and infrastructure and attract new personnel in a timely and
effective manner, (iv) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (v) governmental regulation, and (vi) general economic
conditions and economic conditions specific to the Smart Card industry.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company may apply for United States patents related to its business. The
Company also has applied for trademark protection in the United States for the
name LEAPFROG SMART PRODUCTS, INC. There can be no assurance as to the
breadth or degree of protection which existing or future patents or trademarks,
if any, may afford the Company, that any patent or trademark applications will
result in issued patents or trademarks, that the Company's patents or
trademarks will be upheld, if challenged, or that competitors will not develop
similar or superior methods or products outside the protection of any patent
issued to the Company. Although the Company believes that its potential patent
and trademarks and the Company's products do not and will not infringe patents
or trademarks or violate the proprietary rights of others, it is
possible that the Company's existing patent or trademark rights may not be
valid or that infringement of existing or future patents, trademarks or
proprietary rights may occur. Failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent or trademark infringement or
proprietary rights violation action which may be brought against it. Moreover,
if the Company's products infringe patents, trademarks or proprietary rights
of others, the Company could, under certain circumstances, become liable for
damages, which also could have a material adverse effect on the Company.
<PAGE> 11
EXPANSION
The Company's proposed expansion will also require the implementation of
enhanced operational and financial systems and will require additional
management, operational and financial resources. Failure to implement these
systems and add these resources could have a material adverse effect on the
Company's results of operations and financial condition. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth. In
addition, there can be no assurance of the viability of the Company's
products in new geographic regions or particular local markets.
GOVERNMENT REGULATION
The Company must comply with state laws and a wide range of other state and
local rules and regulations applicable to their businesses. See "Company
Business--Government Regulation." Continued compliance with this broad
federal, state and local regulatory network is essential and costly, and the
failure to comply could have a material adverse effect on the Company.
Violations of laws and/or state laws and regulations governing substantive
aspects of doing business in a particular state could subject the Company and
its affiliates to rescission offers, monetary damages, penalties, imprisonment
and/or injunctive proceedings.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large on part of the continued service
of its key marketing and management personnel and on its ability to continue
to attract an retain qualified employees. The competition for such personnel
is intense, and the loss of key employees could have a material effect on the
Company's financial condition and results of operations.
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS
The Company's principal shareholders, officers and directors will beneficially
own approximately 2,131,485 (35.55%) of the Company's Common Stock. As a
result, such persons may have the ability to control the Company and direct its
affairs and business. Such concentration of ownership may also have the
effect of delaying, deferring or preventing change in control of the Company.
See "Principal Stockholders."
<PAGE> 12
ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT HOLDERS OF
COMMON STOCK OR DELAY OR PREVENT CORPORATE TAKE-OVER
The Company's Articles of Incorporation provide that preferred stock may be
issued by the Company from time to time in one or more series. The Board of
Directors of the Company is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed upon any wholly unissued
series of preferred stock and the designation of any such shares, without any
vote or action by the Company's shareholders. The Board of Directors may
authorize and issue Preferred stock with voting power or other rights that
could adversely affect the voting power or other rights of the holders of
Common Stock. In addition, the issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control of the
Company, because the terms of preferred stock that might be issued could
potentially prohibit the Company's consummation of any merger, reorganization,
sale of substantially all of its assets, liquidation or other extraordinary
corporate transaction without the approval of the holders of the outstanding
shares of the preferred stock.
TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
There has been little public market for the Common Stock, and there can be no
assurance that an active trading market will develop or be sustained. At a
future date, provided a public market for the stock does develop, the market
price of the shares of Common Stock is likely to be highly volatile and may be
significantly affected by factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products
and/or services by the Company or its competitors, governmental regulatory
action, developments with respect to patents or proprietary rights and general
market conditions. In addition, the stock market has from time-to-time
experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The ultimate success of the Company may depend upon its ability to raise additio
nal capital. The Company has not investigated the availability, source, or
terms that might govern the acquisition of additional capital and will not do
so until it determines a need for additional financing. If additional capital
is needed, there is no assurance that funds will be available from any source
or, if available, that they can be obtained on terms acceptable to the
Company. If not available, the Company's operations will be limited to those
that can be financed with its modest capital.
<PAGE> 13
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation provide for the indemnification of its
directors, officers, employees, and agents, under certain circumstances,
against attorney's fees and other expenses incurred by them in any litigation
to which they become a party arising from their association with or activities
on behalf of the Company. The Company will also bear the expenses of such
litigation for any of its directors, officers, employees, or agents, upon such
person's promise to repay the Company therefor if it is ultimately determined
that any such person shall not have been entitled to indemnification. This
indemnification policy could result in substantial expenditures by the Company
which it will be unable to recoup.
DEPENDENCE UPON OUTSIDE ADVISORS
To supplement the business experience of its officers and directors, the
Company may be required to employ consultants or advisors. It is anticipated
that such persons may be engaged on an "as needed" basis without a continuing
fiduciary or other obligation to the Company.
RULE 144 SALES
Certain of the outstanding shares of Common Stock held by present stockholders
are "restricted securities" within the meaning of Rule 144 under the
Securities Act of 1933, as amended.
As restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Act and as required under
applicable state securities laws. Rule 144 provides in essence that a person
who has held restricted securities for a prescribed period may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed the greater of 1.0% of a company's outstanding
common stock or the average weekly trading volume during the four calendar
weeks prior to the sale. As a result of revisions to Rule 144 which became
effective on or about April 29, 1997, there will be no limit on the amount of
restricted securities that may be sold by a nonaffiliate after the restricted
securities have been held by the owner for a period of two years. A sale
under Rule 144 or under any other exemption from the Act, if available, or
pursuant to subsequent registrations of shares of Common Stock of present
stockholders, may have a depressive effect upon the price of the Common Stock
in any market that may develop.
<PAGE> 14
FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the reporting
period. Amounts affected by these estimates include, but are not limited to,
the estimated useful lives, related amortization expense and carrying values
of the Company's intangible assets and capitalized software development costs.
Changes in the status of certain matters or facts or circumstances underlying
these estimates could result in material changes to these estimates, and
actual results could differ from these estimates.
DISCLOSURE RELATING TO LOW-PRICED STOCKS
As long as the trading price of the Common Stock is less than US$5.00 per
share, trading in the Common Stock in the US secondary market is subject to
certain rules promulgated under the Securities Exchange Act of 1934, which
rules require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a "penny stock" (generally, any non-NASDAQ
equity security that has a market price of less than US$5.00 per share,
subject to certain exceptions). Such rules require the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transactions
prior to sale.
The additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock,
which could severely limit the market liquidity of the Common Stock and the
ability of stockholders to sell the Common Stock in the US secondary market.
USE OF PROCEEDS
The Company will not realize any of the proceeds of this Offering.
<PAGE> 15
CAPITALIZATION
The following is the capitalization of the Company as of May 10, 2000.
<TABLE>
<CAPTION>
AMOUNT TO BE
AMOUNT AMOUNT OUTSTAND. UPON
TITLE OF CLASS AUTHORIZ. OUTSTAND. ISSUANCE OF ALL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
$.001 par value 30,000,000 8,906,120 8,906,120
</TABLE>
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
During the 1998 and 1999 fiscal years, the Company's Common Stock traded on the
over-the-counter market and was quoted in the National Quotation Bureau, Inc.'s
"Pink Sheets" and the National Association of Securities Dealers, Inc.'s "OTC
Bulletin Board". The range of high and low bid quotations for the Common Stock
for the two most recently completed fiscal years is provided below. The volume
of trading in the Company's Common Stock has been limited and the bid prices as
reported may not be indicative of the value of the Common Stock or of the
existence of an active trading market. These over-the-counter market quotations
reflect inter-dealer prices without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
1998 Fiscal Year High Bid Low Bid
First Quarter $ 0.01 $ 0.01
Second Quarter $ 0.01 $ 0.01
Third Quarter $ 0.01 $ 0.01
Fourth Quarter $ 0.05 $ 0.04
1999 Fiscal Year High Bid Low Bid
First Quarter $ 0.09 $ 0.04
Second Quarter $ 0.09 $ 0.01
Third Quarter $ 0.43 $ 0.01
Fourth Quarter $ 0.50 $ 0.34
2000 Fiscal Year High Bid Low Bid
First Quarter $ 9.00 $ 5.88
On March 31, 2000, the reported bid for the Company's Common Stock was $5.875.
The Company has never paid dividends with respect to the Common Stock and
currently does not have any plans to pay cash dividends in the future. There are
no contractual restrictions on the Company's present or future ability to pay
dividends. Future dividend policy is subject to the discretion of the Board of
Directors and is dependent upon a number of factors, including future earnings,
capital requirements and the financial condition of the Company. The payment of
future dividends will also be restricted to the extent of $20,000 in liquidation
preference inuring to the benefit of the holders of the Company's Series F
Preferred Stock. The Colorado Corporation Code provides that a corporation may
not pay dividends if the payment would reduce the remaining net assets of the
corporation below the corporation's stated capital plus amounts constituting a
liquidation preference to other security holders.
<PAGE> 16
DILUTION
The Company's shareholders will not realize any dilution from this Offering.
SELLING SHAREHOLDERS
This offering registers shares previously sold. The securities will be
sold at their market price on the Over-the-Counter Electronic Bulletin
Board when sold. Accordingly, the registration fee has been calculated in
accordance with Rule 457(c) of the Securities Act and based upon certain
shares of common stock ("Leapfrog Common Stock"). The average of the
bid and asked price as of May 11, 2000 was $2.87.
This offering registers underlying common shares yet to be converted. The
securities may be re-sold at their market price on the Over-the-Counter
Electronic Bulletin Board when sold. Accordingly, the registration fee
has been calculated in accordance with Rule 457(c) of the Securities Act
and based upon certain shares of Series A Convertible Preferred Stock
("Leapfrog Series A Preferred Stock"). The offering price of the Leapfrog
Series A Preferred Stock as of May 11, 2000 was $4.00.
THE OFFERING
An aggregate of up to 2,909,625 Shares of the Company's Common Stock, par
value $.001 cents per share, may be offered by the Selling Shareholders who
had previously been issued "restricted" shares by the Company and who will be
entitled to sell up to 2,909,625 Shares of the Company's Common Stock offered
herein by this Prospectus.
The following table sets forth certain information with respect to the Selling
Shareholders, persons or entities for whom the Company is registering for
resale to the public, either the Shares of the Company's Common Stock which
such persons or entities own.
The following table reflects certain person's or entities' ownership as of
May 11, 2000.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL MAX.
NAME OF OWNER. OF PERCENT NO.TO
HOLDERS SHARES OF CLASS BE SOLD
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Hin H. Khoo
Equator Star Holdings LTd
5 Shenton Way
UIC Building, Ste. 32-07
Singapore 068808
VIVEKANANTHAN s/o M.V. NATHAN
42 Jalan Bangsar Utama
Bangsar 59000
Kuala Lumpur
Malaysia
NATIONS CORP LIMITED
50 Playfair Road
#06-03 Noel Building
Singapore 367995
Anthony J. Skelchy
6 Jalan 5/41
Petaling Jaya 46000
Malaysia
Vicki Skelchy
6 Jalan 5/41
Petaling Jaya 46000
Malaysia
</TABLE>
<PAGE> 17
DIVIDEND POLICY
The Company expects to retain its earnings to finance further growth and, when
appropriate, retire existing debt. As a result, the Directors of the Company
expect that, for the foreseeable future, the Company will not declare or pay
any dividends on any of its shares.
BUSINESS
GENERAL
Leapfrog Smart Products, Inc.--Description of the Business
Founded in April of 1996, Leapfrog Smart Products, Inc. ("LEAPFROG" or the
"Company") is a Florida corporation dedicated to designing, developing,
licensing, and marketing Smart card applications and related database management
systems and services. The Smart card is a wallet-sized plastic card with an
embedded computer chip carrying a myriad of accessible data that is retrievable
on demand and capable of fully integrating a variety of everyday functions with
strict security features. Just like Microsoft writes software to operate PCs,
LEAPFROG writes software to make computers called "Smart cards" work.
LEAPFROG merged with Albara Corporation ("ALBARA") effective February 18, 2000
through a reverse acquisition whereby the existing shareholders of LEAPFROG
obtained control of ALBARA. The transaction was approved by the shareholders at
ALBARA's annual meeting held on January 28, 2000. ALBARA was development stage
company with no ongoing operations. It was traded under the stock symbol "ALBR"
which has now been changed to "FROG".
At ALBARA's Annual Shareholder meeting, the shareholders approved effecting a 1
for 7 reverse split of the Company's common stock, increasing the number of
authorized shares of common stock, no par value, to 30,000,000, increasing the
number of authorized shares of preferred stock, no par value, to 10,000,000,
changing the name of ALBARA to "Leapfrog Smart Products, Inc.", electing a new
Board of Directors, and modifying ALBARA's Incentive Stock Option Plan, all of
which were conditions to closing the acquisition of LEAPFROG.
LEAPFROG had 27 full-time and three part-time employees and a growing sales
representative network at December 31, 1999. The engineering department was
comprised of nine full-time employees and the three part-time employees. A total
of ten employees were associated with administrative roles. The sales and
marketing team was comprised of eight people, which is expected to increase when
the sales and marketing plan is implemented.
In 1997 and 1998, LEAPFROG invested in developing a technology that would serve
as a platform for developing commercially viable Smart card software products.
That technology is based on an architecture which is designed to allow any
combination of software modules to be activated via a patent pending
"Plug-and-Play" technology. Management believes, the technology allows a client
to choose any number of modules from the LEAPFROG "library" and have a
customized product. For LEAPFROG, this proprietary technology allows LEAPFROG to
re-use software modules numerous times without having to duplicate previous
development efforts. Management believes this technology is key to LEAPFROG's
potential future success and potential future profitability in the software
business.
<PAGE> 18
During 1999, a suite of proprietary software programs were under development for
commercialization. Six commercial products are nearing completion in
Commercial-Off-The-Shelf form and have been announced by LEAPFROG. They are:
SecurePak, Smart card Commander, MDCard, SmartPoints, SmartExpo, and
SmartResort.
LEAPFROG has two patents pending: ("Plug and Play Architecture", and "Biometric
Identity Verification Authentication" on a Smart card). Management believes
these patents, if eventually awarded, will help to create a barrier of entry
against potential competitors and will help create an intangible asset value for
the shareholders of the Company. Additionally, LEAPFROG appears to be the only
software engineering firm that is qualified as a "Development Partner" with
two Smart card manufacturers: Schlumberger and Giesecke & Devrient.
On December 21, 1998, LEAPFROG was awarded its Government Services
Administration ("GSA") master contract number, GS-35J-0161. This process took
almost one year to complete. LEAPFROG intends to pursue GSA contracts in 2000.
Management believes the United States federal government is presently the
largest potential domestic issuer of Smart cards for two reasons: (1) it has the
ability to mandate change, and (2) it has the financial resources to build and
upgrade infrastructure. The United States government has undertaken several
initiatives, in pilot form, to test the viability and use of Smart cards. As a
result, the GSA is expected to issue a Request For Proposal for employee cards
which will provide physical as well as logical access for 2,500,000 federal
employees. This contract could have a substantial value over a ten-year period
and is expected to be awarded to multiple vendors. LEAPFROG intends to actively
pursue this contract opportunity on some basis and is currently working to
establish an alliance with a major government contractor to supply Smart card
software integration services over the next ten years in connection with this
GSA contract.
Products
In 2000, if financial resources will allow, LEAPFROG intends to enter several
commercial markets with products focusing on market share and creating barriers
for the competition. For each of its targeted markets, LEAPFROG is in the
testing, pilot or final deployment stage. LEAPFROG is currently targeting the
following markets: Internet security, medical and patient data, authentication,
consumer and sports loyalty, conventions and expos, hospitality and college
campuses.
Having developed a proprietary underlying architectural technology, LEAPFROG is
now preparing software products for commercialization. LEAPFROG's software
development strategy is expressly based on creating Commercial-Off-The-Shelf
software. Management believes that software which can be packaged for mass
replication and distribution may provide LEAPFROG a competitive advantage in
that units can be shipped with minimal customization. This in turn could allow
LEAPFROG access to the consumer market. LEAPFROG hopes to be the first company
into the market with a "boxed" product and the ability to turn out multiple
exact copies.
<PAGE> 19
Management of LEAPFROG expects to be able to leverage its proprietary technology
to develop new products that can be marketed and sold as exact copies all over
the world in much the same way as word processing or spreadsheet programs are
marketed today. Additionally, Management of LEAPFROG believes that its
proprietary technology may allow its products to be designed to be easily
configurable providing each user their choice of preferences, needed
accessories, and report requirements.
LEAPFROG's Management believes that a number of markets can be penetrated with a
relatively small number of products. In developing a marketing strategy,
additional considerations such as life expectancy of a product, enhancement of
core services, and product replication become important. If financial resources
will allow, Management intends to make the following products commercially
available in 2000, although there can be no assurance that such resources will
be available:
SecurePak (Internet/Intranet Security). SecurePak is a tool designed for sending
information through Cyberspace. SecurePak is designed to combine DES,
triple-DES, and RSA encryption with physical security to protect data and
systems.
Smart card Commander (Application Development Tool). The Smart card Commander
is an application program development environment designed for use by persons
seeking to create Smart card applications that interface directly with in-house
proprietary software systems. Management intends to market the Smart card
Commander through LEAPFROG resellers.
MDCard (Health Care). MDCard, is designed to be a fully-integrated Smart card
program that authenticates patients and expedites check-in, while streamlining
insurance data gathering and claims submission. MDCard is designed to be a
comprehensive suite of medical software modules that create a digital
environment for data collection and management within the medical community.
This product is currently being beta tested by a hospital group in Florida that
intends to utilize a patient Smart card for a host of interactive functions.
SmartPoints (Loyalty for Sports, Chambers of Commerce, Banks). SmartPoints is
designed to be a loyalty program for closed user groups wishing to increase
member or fan loyalty such as a frequent flyer program or a cash-back program.
The user of this software, i.e., a sports team or Chamber of Commerce, issues
cards to their respective affinity group or member base and then those cards are
used to collect SmartPoints at various points-of-encounter. The SmartPoints can
then be redeemed for prizes providing a way to bring the fans back.
SmartExpo (Expo and Convention Registration). SmartExpo is an offshoot of the
SmartPoints loyalty software. It was designed as an expo registration and
tracking software module. SmartExpo software is designed to allow show sponsors
and exhibitors to gather data on each attendee through the use of a single card
for all expo purposes (registration, lead tracking, purchases, and continuing
education credit tracking).
SmartResort (Hospitality Member Registration/Tracking). SmartResort is designed
to verify membership, while providing guests with a secure way to enter and
exit a destination such as a
<PAGE> 20
membership resort, time share, or other self-contained vacation property.
Members enjoy the convenience of using that same card to check in and out
quickly, make reservations, shop, pay for entertainment, buy snacks and meals,
get discounts, rent skis, etc. SmartResort is designed for use by membership
properties to manage a large database of members with different levels of
usage rights, including reciprocity.
Sales and Marketing
In the technology industry, there are three distinct phases of a company's
development: Formulation, Product Development, and Sales. Management believes
that LEAPFROG has successfully negotiated the Formulation phase in 1997 and
1998. The Product Development phase has been a primary focus in 1999. Although
the Sales phase has begun in late 1999, major efforts in this phase will not
begin until 2000 after additional capital becomes available to fund sales and
marketing efforts.
Management believes that the winner of the marketing game will generally be the
company that hits critical mass first, by utilizing the most efficient paths to
customers. For smaller companies, strategic marketing alliances maximize reach
while reducing potential competition. LEAPFROG intends to market its products
three ways: (i) partnership distribution and licensing; (ii) closed user-group
decision makers; and (iii) indirect distribution.
Creating strong strategic partnerships is initially of paramount importance for
a smaller company. Management does not believe that LEAPFROG has the marketing
resources and capabilities of major companies in other software market segments.
Instead, LEAPFROG intends to focus on establishing important relationships and
alliances with other companies that can license LEAPFROG's software and
distribute it through their existing channels, although there can be no
assurance that such relationships and alliances can be established. LEAPFROG
intends to target alliances which may include Fortune 500 companies such as
Sprint, Motorola, Lockheed Martin, EDS, GTE, AAA and others. If successful,
LEAPFROG can expect to garner license fees on a wholesale basis from each
alliance.
Secondly, LEAPFROG plans to employ a "leadership relationship" marketing
strategy to offer its software to closed user groups. Because emerging
technology demands a certain visionary mentality to embrace it, marketing
requires one-to-one selling with decision-makers. In this regard, Management
intends to utilize sales tactics that are based on portraying a lead position,
utilizing personal contacts at the highest level in each target user group.
Lastly, LEAPFROG plans to offer certain products through indirect distribution
channels. These channel distributors will be located on a regional basis and
will be chosen based on overall commitment to LEAPFROG. For example, a company
may have the exclusive rights to market specific LEAPFROG software products in a
particular geographic region, but would be a non-exclusive reseller in other
areas. Further, a distributor's discount level may be determined by the number
of units purchased or the level of value-added services provided.
<PAGE> 21
Competition
The entire Smart card industry is fragmented into several strata. Management
believes that LEAPFROG's direct competitors are companies that create software
applications. They are: 3GI, National CacheCard, Precis, Cybermark, and
RealMed. All of these companies are small privately held companies.
There are a host of other players in the industry with whom Management believes
LEAPFROG does not compete. Within the Smart card industry, the sub-markets
include: (1) card manufacturers (Schlumberger, Gemplus, Giesecke & Devrient) and
hardware manufacturers (Verifone, DANYL, Intellect) who are suppliers to
LEAPFROG; (2) integrators (IBM, Honeywell/Bull) who generally do not develop or
own any software that is proprietary in nature or are marketers of limited
applications only, which do not currently encroach on LEAPFROG markets, but are
potential customers; (3) American Express, Visa, Master Card and banks who aid
in developing market awareness and are potential LEAPFROG customers; and (4)
system platform providers (Microsoft, Visa, Mondex, Proton) who write languages
for applications but do not market Smart card products to end users. Management
does not believe that LEAPFROG directly competes with these players, but
rather purchases from or sells to them.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and notes thereto.
PLAN OF OPERATION
LEAPFROG did not have any external sources of working capital during 1999 and
1998 except for the sale of stock to individuals and the issuance of short-term
notes payable while it was a private company. On February 18, 2000, LEAPFROG
merged with Albara Corporation through a reverse acquisition in which Albara
acquired LEAPFROG and the existing shareholders of LEAPFROG obtained control of
Albara. Even with the completion of this business combination transaction, there
can be no assurance that the combined companies will have sufficient funds to
undertake any significant development, marketing and manufacturing activities.
Accordingly, the combined companies are being required to seek additional debt
or equity financing or funding from third parties, in exchange for which the
combined companies might be required to issue a substantial equity position.
From the period January 1, 2000 through April 3, 2000, additional debt of
$550,000 was issued to third parties and 212,000 shares of restricted common
stock were issued for $842,000 and 125,000 shares of convertible preferred
stock were issued for $500,000.
There is no assurance that the combined companies will be able to obtain
additional financing on terms acceptable to the Company. If Management is
successful in obtaining additional funding, these funds will be used primarily
to provide working capital needed for repayment of outstanding notes payable,
software development, sales and marketing expense, to finance research,
development and advancement of intellectual property concerns and for general
administration.
Management has committed to a $225,000 investment into its China subsidiary
for funding a joint venture to produce and market biometric readers
internationally. A description of the LEAPFROG business is provided in
ITEM 1.
<PAGE> 22
RESULTS OF OPERATIONS
Revenues and Gross Profits:
- ---------------------------
LEAPFROG is a development stage company with virtually no revenues. Revenues for
the year ended December 31, 1999 increased $35,000, from $86,000 to $121,000, a
41 % increase compared to the year ended December 31, 1998. Revenues were
associated with the sale of predominantly hardware related items such as Smart
card readers/writers utilized in pilot evaluation programs, software testing
programs and specialized software solutions by potential future users of
LEAPFROG's software products. Gross profit margin for the year ended
December 31, 1999 increased to 64% from 24% in the same period in 1998. During
part of 1999 and all of 1998, LEAPFROG initiated pilot programs by providing
software and hardware at cost or near cost. During 1999, LEAPFROG also focused
on selling some packaged products for a small but positive gross margin to
ensure that handling costs were covered. Gross margins are not expected to
continue in the 64% range in future years. In 1999, this margin is due to small
projects with inconsequential added costs to the Company that will not be the
primary source of revenue in the future.
Total Operating Expenses:
- -------------------------
Total operating expenses for the year ended December 31, 1999 increased $1.2
million from $1.5 million to $2.7 million, an 82% increase compared to the same
period in 1998. This increase is net of $76,000 in software development
expenditures that have been capitalized during the year ended December 31, 1999.
This increase is primarily associated with expense incurred in preparing a
marketing plan, hiring senior marketing and sales personnel to prepare for an
intended roll-out of software products in 2000 and the initial costs of
developing sales, advertising and marketing materials, as well as product
packaging. Significant expenses have been incurred in identifying potential
contract opportunities and recruiting distributors and value added resellers who
may participate in the intended product rollout in 2000.
Personnel and related expenses increased $265,000 or 28% to $1.2 million for the
year ended December 31, 1999 compared to the $952,000 for the same period in
1998. This increase was primarily due to the hiring of senior marketing and
sales personnel to prepare for an intended rollout of software products in
2000.
Consulting fees increased by $372,000 from the $21,000 incurred for the year end
December 31, 1998 to $392,000 for the year ended December 31, 1999. The expenses
in 1999 related primarily to fees paid to individuals and companies that
assisted the Company in identifying potential contract opportunities and
recruiting distributors and value added resellers who may participate in the
intended product rollout in 2000.
General and administrative expenses increased to $1.1 million for the year ended
December 31, 1999 from $491,000 for the same period in 1998. This $589,000 or
120% increase was due largely to increase legal costs related to the impending
merger as well as financial advisory services during 1999. General and
administrative expenses also increase in several areas with the hiring of new
personnel requiring more space and general overhead as well as the travel and
other related costs for developing sales, advertising and marketing materials
and in identifying potential contract opportunities and recruiting distributors
and value added resellers who may participate in the intended product rollout
in 2000.
Depreciation and amortization expenses increased $10,000 or 22% to $55,000 for
the year ended December 31, 1999 compared to $45,000 for the same period in
1998. The increase was due to the purchase of additional assets as well as the
amortization of capitalized software costs and the addition attributable to
costs of assets acquired in excess of fair market value.
<PAGE> 23
Other income and expense:
- -------------------------
Interest expense for the year ended December 31, 1999 increased $397,000 from
$36,000 to $433,000 when compared to the same period in 1998. In March through
July 1999, LEAPFROG completed a short-term debt offering to a select group of
accredited investors providing net proceeds of $1,402,000. As additional
consideration, LEAPFROG provided these note holders 386,128 shares of common
stock. For accounting purposes, these shares of common stock were valued at
$290,000 and that value was included as additional interest consideration and
expense associated with the issuance of notes payable. Substantially all of the
remaining interest expense in 1999 is directly associated with these outstanding
notes payable and the $350,000 in bank notes. Almost all of the interest expense
in 1998 is related to the bank notes and $200,000 in convertible common stock
debentures.
Net loss:
- ---------
The net loss for the year ended December 31, 1999 increased $1.6 million from
$1.5 million to $3.1 million, a 104% increase compared to the year ended
December 31, 1998. This increase is net of $76,000 in software development
expenditures that were capitalized during the year ended 1999. This increase in
the net loss is primarily associated with expenses incurred in preparing a
marketing plan, hiring senior marketing and sales personnel to prepare for an
intended roll-out of software products in 2000 and the initial costs of
developing sales, advertising and marketing materials, as well as product
packaging. Significant expenses have been incurred in identifying potential
contract opportunities and recruiting distributors and value added resellers who
may participate in the intended product rollout in 2000. Net loss per share of
common stock increased from $.49 per share in 1998 to $.72 in 1999. This
increase is primarily due to the increase in losses realized offset by an
increase in the weighted average number of common shares outstanding from
3,125,793 for the year ended December 31, 1998 to 4,280,158 for the year ended
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities increased $1.1 million from $1.2 million
for the year ended December 31, 1998 to $2.4 million for the year ended December
31, 1999. Net cash provided by financing activities increased $1.2 million from
$1.4 million for the year ended December 31, 1998 to $2.6 million for the year
ended December 31, 1999. Financing activities during 1999 included the issuance
of common stock providing $1.2 million in the aggregate and the issuance of
notes payable which provided a net of $1.4 million offset by an $18,000
repayment of existing notes payable. Financing activities during 1998 included
the issuance of common stock providing $965,000 in the aggregate and the
issuance of notes payable that provided a net of $361,000 after repayment of
principal in the amount of $153,000.
Like many early stage technology companies, the majority of LEAPFROG's assets
are intangible assets such as copyrights, trademarks, and research and
development costs which by their very nature are not reflected in the
Company's balance sheet as assets.
<PAGE> 24
Net cash used by financing activities increased $119,000 from $118,000 for the
year ended December 31, 1998 to $237,000 for the year ended December 31, 1999.
The increase was primarily due to the increase in acquisitions of property and
equipment, as well as to the capitalization of software costs in 1999.
Management expects this trend to continue as LEAPFROG's operations grow.
In the past, LEAPFROG's Management has been successful in attracting accredited
investors who have purchased newly issued common stock. However, there can be no
assurance that the Company will be able to obtain additional equity financing on
similar terms in the future. Over the past two years all of LEAPFROG's debt
financing has been short-term notes payable. These notes can only be repaid if
the company successfully raises additional equity or debt financing. In addition
to the cash requirement associated with repaying these notes, LEAPFROG will not
be able to mount an effective national marketing campaign for its products
without an additional infusion of capital. The Company does not have any
commitments to provide additional capital funding. Accordingly, there can be no
assurance that any additional funds will be available to the Company to allow it
to repay its outstanding debt and to cover the expenses associated with
executing its sales and marketing plan.
From the period January 1, 2000 through April 3, 2000, additional debt of
$550,000 was issued to third parties and 212,000 shares of restricted common
stock were issued for $842,000 and 125,000 shares of convertible preferred stock
were issued for $500,000.
Y2K COMPLIANCE
LEAPFROG concluded its efforts concerning its exposure relative to year 2000
issues for both information and non-information technology systems. Management
actively monitors the status of the readiness program of the Company. LEAPFROG`s
out of pocket cost associated with becoming Year 2000 compliant were not
significant. These cost were expensed as incurred, and the Company does not
anticipate any additional material expenditure as a result of Year 2000 issues.
Based on operations since January 1, 2000, including the leap year date of
February 29, 2000, the Company has not experienced any significant disruption or
change, and does not expect any significant impact to its ongoing business as a
result of the Year 2000 issue. Additionally, the Company is not aware of any
significant Year 2000 issues or problems that have arisen for its significant
customers, vendors or service providers. As there can be no assurance that the
Company's efforts to achieve Year 2000 readiness have been completely successful
or that customers, vendors and service providers will not experience Year 2000
related failures in the future, the Company will continue to monitor its
exposure to Year 2000 issues and will leave its contingency plans in place in
the event that any significant Year 2000 related issues arise.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. Those statements include statements
<PAGE> 25
regarding the intent, belief or current expectations of LEAPFROG and members of
its management team as well as the assumptions on which such statements are
based. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risk and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. Readers are urged to carefully
review and consider the various disclosures made by the Company in this report
and in the Company's other reports filed with the Securities and Exchange
Commission. Important factors currently known to Management could cause actual
results to differ materially from those in forward-looking statements. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes in the future operating results over time. The Company believes that its
assumptions are based upon reasonable data derived from and known about its
business and operations and the business and operations of LEAPFROG. No
assurances are made that actual results of operations or the results of the
Company's future activities will not differ materially from its assumptions.
MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
Management
The directors and officers of Leapfrog Smart Products, Inc. are as follows:
Name Age Position
Bruce Starling Chairman
Randolph Tucker CEO, Director and Treasurer
Dale Grogan President and Director
Jim Grebey Executive Vice President and Director
Jim Gornto Secretary
Ronald Breland Director
Robert Harnett Director
George MacKay Director
Randall Schrader Director
Van Staton Director
<PAGE> 26
Biographical Information:
BRUCE STARLING Director.
Mr. Starling attended the University of Florida where he earned a Bachelor of
Science in Business Administration (1963), Master of Business Administration
(1965) and Juris Doctor (1967).
After graduating the University of Florida School of Law, Mr. Starling entered
the military serving in the Judge Advocate General's office in Vietnam
(1968-1972). He practiced law in the Miami and Orlando offices of Helliwell,
Melrose and DeWolf (1972-1977) and was General Counsel to Governor Reubin
Askew (Tallahassee, Florida 1977 to 1979). From 1979 through 1981, he was
the Executive Assistant to the U.S. Trade Representative in 1979 and
subsequently became a partner in the Orlando based law firm of DeWolf, Ward
and Morris (1981-1986).
Mr. Starling became Senior Vice President of Harcourt Brace Jovanovich, Inc.
(1986-1990), was Of Counsel to Akerman, Senterfitt and Edison (1990-1992),
Assistant Executive Director of the Greater Orlando Aviation Authority
(1992-1993) and later VP of governmental relations for the Walt Disney
Corporation (1993-1994). Mr. Starling with his brother Alan, now owns the
Starling Auto Group based in Kissimmee, Florida.
Mr. Starling presently sits on the Advisory Board of Colonial Bank; the
Florida Prepaid College Board, where he was appointed by the Governor of
Florida; the Florida Tax Watch Board, the Florida District Export Council
Board, the Florida/Korea Economic Cooperation Committee and the Florida
Chamber of Commerce Board.
VAN STATON, Director
Mr. Staton received an Honorary Associate Degree from Central Florida
Community College, Ocala, Florida and is a member of the Executive Committee
and Board of Directors of the Company.
Mr. Staton was manager of the Ocala, Florida Belk Lindsey store for 36 years
before his retirement in 1984. He is a former member of the Board of Trustees
for the Central Florida Community Collage and past Chairman of the School
Board for Marion County, Florida. He is actively involved in the recruiting
and regional training as an area coordinator for Excel Telecommunications,
a public company.
<PAGE> 27
RANDOLPH TUCKER, CEO/Director
Mr. Tucker has practiced business law for more than 25 years and has
consummated numerous transactions in all phases of business. His experience
includes business formation and administration, banking, bankruptcy, mergers
and acquisitions. He is recognized as one of the outstanding specialists
within the membership law discipline. He has represented over 50 corporations
in various aspects of leisure law over the past twelve years. His business
experience includes the chartering of banks, television stations,
underwritings, and various corporate counsel responsibilities.
As Chairman of Leapfrog Smart Products, he has been instrumental in creating
the infrastructure and corporate environment. Mr. Tucker has been able to
assemble the brightest minds in a new industry and establish a cohesive
creative workplace. Mr. Tucker provided strategic guidance, business
development, and expansion analysis.
DALE GROGAN, President/Director
Mr. Grogan's professional experience includes over a decade in finance and
investment banking. He has managed two investment banking firms specializing
in business start-ups, with particular emphasis in the membership industry.
Related business experience for Mr. Grogan includes the formation and initial
administration of a national non-profit trade association within the leisure
and travel industry, board membership for an interactive travel information
supplier, and advisor to several telecommunications marketing companies within
the pre-paid phone card industry.
Mr. Grogan provides corporate and industry vision. His duties include product
and market development, recruiting, management and strategy formulation and
implementation. Mr. Grogan is a recognized author and guest speaker in the
Smart card industry and serves on various industry technology committees. He
is a co-founded and President of Leapfrog Smart Products.
RONALD BRELAND, Director
Mr. Breland is the current President of Selbre Associates, Inc. He brings 28
years of experience in contract negotiations and management for both
commercial and governmental markets. Mr. Breland has supervised and
personally negotiated more than 1,000 Schedule Contracts and has successfully
conducted compliance audits for several Fortune 1,000 companies. Mr. Breland
was a Charter Member of the Industry Advisory Council of the Federation of
Government Information Processing Councils, a member of the American
Management Association and a former member of the Baltimore-Washington
Minority Economic Development Council. Mr. Breland holds a B.S. in
Engineering from the University of Maryland.
<PAGE> 28
JAMES GREBEY, EVP Director
Mr. Grebey received an AAS degree in Electronics from SUNY (1970), BT Degrees
in computer Systems and Technical Management from NYIT (1977), and has
completed course work towards his MBA from SUNY.
Mr. Grebey comes to Leapfrog from Hughes Training in Orlando, where he
developed and oversaw a 100-man engineering team responsible for multiple
projects in the millions of dollars (1994-1998). His management background
includes financial planning and execution at the programs department division
and operational level plus cost account management and strategic planning.
Mr. Grebey has led the development on over 3000,000 lines of ADA, C. and
FORTRAN code. As an engineer and technical manager. Mr. Grebey has been
highly involved with solving software and system production problems. His
engineering experiences, include hardware, software and system design, domain
engineering, system architecture, requirement analysis design, coding and
hardware fabrication and testing of complex virtual and constructive
simulation systems. Mr. Grebey is responsible for the daily activities of
the Engineering Department of Leapfrog.
GEORGE STUART, JR. Director
Mr. Stuart served as Secretary of Florida's Department of Business and
Professional Regulation (BPR) from 1991 to 1995. The Department licensed and
regulated eight major industries and fifty-five professions and occupations
including the pari-mutual, hotel and restaurant industries.
Senator Stuart served as a Florida State Senator from 1978 through 1990. His
legislative service included sponsoring landmark legislation in health care,
growth management and education. Senator Stuart chaired the committees on
Education, Natural Resources and Economic and Consumer Affairs and chaired the
Joint Committee on Information Technology Resources. He sponsored major
innovations in international business development and in the management and
acquisition of technology. He co-chaired the Council of State Government's
Task Force on Health Care Reform.
Mr. Stuart earned an MBA from Harvard University's Graduate School of
Business. He is a graduate of the University of Florida.
JIM GORNTO, Secretary
Management has advised that they may acquire additional shares of the
Company's Common Stock from time to time in the open market at prices
prevailing at the time of such purchases.
The Company's key personnel bring a broad range of private and public
management, corporate finance and technical skills to the Company.
<PAGE> 29
BOARD OF DIRECTORS
Colorado provides that a corporation's board of directors may be divided into
various classes with staggered terms of office. The Company's directors are
elected for a term of three years and until their successors are elected and
qualified.
NUMBER OF DIRECTORS
The Company's board of directors currently consists of five directors. The
number of directors on the Company's board may only be changed by a vote of a
majority of the directors, subject to the rights of the holders of any
outstanding series of the Company's preferred stock to elect additional
directors. There is currently two million three hundred seventeen thousand
eight hundred thirty-nine (2,317,839) shares of Series A Convertible Preferred
Stock of the Company outstanding.
REMOVAL OF DIRECTORS
The Company's directors, or the entire board, may be removed for cause by the
affirmative vote of the holders of at least 50% of the outstanding shares of
capital stock of the Company entitled to vote in the election of directors,
voting as a single class and subject to the rights of the holders of any
outstanding series of the Company's preferred stock.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any newly created directorships in either of our boards of directors,
resulting from any increase in the number of authorized directors or any
vacancies, may be filled by a majority of the remaining members of such board
of directors, even though less than a quorum, or in the case of the Company,
by a sole remaining director, subject to the rights of holders of any
outstanding series of preferred stock.
Newly created directorships or decreases in directorships in either of our
boards of directors are to be apportioned among the classes of directors so as
to make all classes as nearly equal in number as practicable, provided that no
decreases in the number of directors in either of our boards of directors may
shorten the term of any director then in office.
To the extent reasonably possible, any newly created directorship will be
added to the class of directors whose term of office is to expire at the
latest date following the creation of that directorship, unless otherwise
provided for by resolution of the majority of the directors then in office.
Any newly eliminated directorship will be subtracted from the class whose
office is to expire at the earliest date following the elimination of the
directorship, unless otherwise provided for by resolution of the majority of
the directors then in office.
<PAGE> 30
ABILITY TO CALL SPECIAL MEETINGS
Special meetings of the Company's stockholders may be called by the Company's
board of directors, by affirmative vote of a majority of the total number of
authorized directors at that time, regardless of any vacancies, or by the
chief executive officer.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The Company's bylaws allow stockholders to nominate candidates for election to
the board of directors at any annual or any special stockholder meeting at
which the board of directors has determined that directors will be elected. In
addition, the bylaws allow stockholders to propose business to be brought
before any annual stockholder meeting. However, nominations and proposals may
only be made by a stockholder who has given timely written notice to the
Secretary of the Company before the annual or special stockholder meeting.
Under the Company's bylaws, to be timely, notice of stockholder nominations or
proposals to be made at an annual stockholder meeting must be received by the
Secretary of the Company no less than 60 days nor more than 90 days before the
first anniversary of the preceding year's annual stockholder meeting. If the
date of the annual meeting is more than 30 days before or more than 60 days
after the anniversary of the preceding year's annual stockholder meeting,
notice will also be timely if delivered within 10 days of the date on which
public announcement of the meeting was first made by the Company.
In addition, if the number of directors to be elected is increased and no
public announcement is made by the Company naming all of the nominees or
specifying the size of the increased board of directors at least 70 days
before the first anniversary of the preceding year's annual meeting, or, if
the date of the annual meeting is more than 30 days before or 60 days after
the anniversary of the preceding year's annual meeting, at least 70 days before
the annual meeting, a stockholder's notice will be considered timely, with
respect to the nominees for any new positions created by the increase, if it
is delivered to the Secretary of the Company within 10 days of the date on
which public announcement of the meeting was first made by the Company.
Under the Company's bylaws, to be timely, notice of a stockholder nomination
to be made at a special stockholder meeting must be received no less than 60
days nor more than 90 days before a special meeting at which directors are to
be elected or within 10 days of the date on which public announcement of the
special meeting was first made by the Company.
<PAGE> 31
A stockholder's notice to the Company must set forth all of the following:
- all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable
law, relating to any person that the stockholder proposes to nominate for
election or reelection as a director, including that person's written
consent to being named in the proxy statement as a nominee and to serving
as a director if elected
- a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed
- the stockholder's name and address as they appear on the Company's
books and the class and number of shares which are beneficially owned
by the stockholder
The chairman of the Company's stockholder meeting will have the power to
determine whether the nomination or proposal was made by the stockholder in
accordance with the advance notice procedures set forth in the Company's
bylaws. If the chairman determines that the nomination or proposal is not in
compliance with the Company's advance notice procedures, the chairman may
declare that the defective proposal or nomination will be disregarded.
DIRECTOR COMPENSATION
The directors of the Company, who are all executive officers of the Company as
well, are not compensated for serving as directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation provide that a director of the Company
shall not be personally liable to the Company or any of its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its shareholders, (ii) for acts or omissions not in good faith or which
involve gross negligence, intentional misconduct or a knowing violation of law,
(iii) for any unlawful distribution as set forth in the Colorado Model Business
Corporation Act of Colorado (the "CMBCA") or (iv) for any transaction from
which the director derived an improper personal benefit. These provisions may
have the effect in certain circumstances of reducing the likelihood of
derivative litigation against directors. While these provisions may eliminate
the right to recover monetary damages from directors in various circumstances,
rights to seek injunctive or other non-monetary relief is not eliminated.
<PAGE> 32
EXECUTIVE COMPENSATION
The following executive compensation was paid for the fiscal years ended
December 31, 1999, to the Company's Directors, Officers or Affiliates or other
persons who were executive officers of the Company as at December 31, 1999.
SUMMARY COMPENSATION TABLE FOR LEAPFROG
Long Term Compensation
____________________________________________________________________________
Annual Compensat. Awards Payouts
____________________________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Rest. All
Name and Annual Stock LTIP Other
Principal Calend. Comp. Award(s)Opt. P/outs Comp.
Position Year Salary Bonus($) ($) ($) SARs(#) ($) ($)
_____________________________________________________________________________
Director
Grebey, 1999 116,625
Jim (annualized)
1998 115,000
Director
Grogan, 1999 87,500
Dale (annualized)
1998 75,000
1997 64,583
Director
Tucker, 1999 98,750
Randolph (annualized)
1998 85,000
1997 80,833
____________________________
Director Compensation
The Company does not reimburse directors for expenses incurred, if any, in
attending meetings of the Board of Directors. The Company does not pay
director fees to directors for their service on the Board.
Compensation of Directors
The directors of the Company are currently compensated for serving as a
director on the basis of options. See "Options Granted to Named Executive
Officers".
Directors' and Officers' Insurance
The Company intends to purchase liability insurance for the directors and
officers of the Company. No part of this premium will be paid by the
directors or officers of the Company.
<PAGE> 33
STOCK OPTION PLAN
The Company maintains a stock option plan (the "Stock Option Plan") designed
to provide incentives to directors, executive officers and employees of the
Company or its subsidiaries and companies wholly owned by these individuals in
order to permit those persons to participate in the growth and success of the
Company.
Under the terms of the Company's Stock Option Plan, the Company is authorized
to set aside as options a maximum of 10% of the Company's Common Shares
outstanding from time to time, for the benefit of directors, officers and full
time employees of the Company or its subsidiaries and companies wholly owned
by these individuals. The Stock Option Plan does not permit any one
individual to hold as options more than 5% of the Common Shares outstanding
from time to time.
Any options so granted will be exercisable at the exercise price and for such
period of time as may be determined by the board of directors of the Company
and approved pursuant to the requirements of the applicable stock exchange, or
if the Company's securities are not listed on a stock exchange, then in
accordance with the conditions established by the board of directors of the
Company.
Any stock options will be non-transferable and terminate on the earlier of the
expiry date or the 90th day following the day on which the director, officer
or employee, as the case may be, ceases to be either a director, officer or
employee of the Company or any of its subsidiaries.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS AND PROMOTERS
No director, senior officer, promoter or other member of management or their
respective associates or affiliates have been indebted to the Company at any
time during the period ended December 31, 1999 or since that date.
CERTAIN TRANSACTIONS
In connection with the transactions described below, the Company did not secure
an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. However, in each
instance described below, the directors reviewed and unanimously approved the
fairness and reasonableness of the terms of the transactions. The Company
believes that the transactions described below were fair and reasonable to the
Company on the basis that such transactions were on terms at least as favorable
as could have been obtained from unaffiliated third parties. The transactions
between officers and directors of the Company, on the one hand, and the Company,
on the other, have inherent conflicts of interest.
The Company is a party to a Representation Agreement with Selbre Associates, a
Maryland corporation ("Selbre"), dated April 29, 1999. Ron Breland, a director
of the Company, is the owner of over 95% of the outstanding equity of Selbre.
Pursuant to that agreement, the Company pays Selbre a consultation fee of $4,000
per month during the two-year term of the agreement, in exchange for which
Selbre assists the Company in marketing the Company's products to the Federal
government. In addition to the consultation fee, Selbre is eligible to receive
stock options to purchase up to 500,000 shares of the Company's Common Stock in
the event that certain revenue targets are met by the Company. The agreement is
filed herewith as Exhibit 10.7.
<PAGE> 34
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the ownership of
Leapfrog Smart Products, Inc. outstanding common stock on February 23, 2000 by
(i) each director and executive officer of the Company, (ii) all directors and
executive officers of the Company as a group, and (iii) each shareholder who
was known by the Company to be the beneficial owner of more than five percent
(5%) of the outstanding shares of Leapfrog Smart Products, Inc.:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Number of Shares Owned Percentage of Ownership
Ron Breland 0 0.00%
William Campion 325,681 5.73%
Jim Grebey 5,000 0.09%
Dale Grogan 309,500 5.44%
Bruce Starling 139,858 2.46%
Van Staton 304,858 5.36%
George Stuart 130,730 2.30%
Jim Gornto 0 0.00%
Randolph Tucker 490,500 8.62%
All Executive Officers and 1,706,126 30.00%
Directors as a Group
</TABLE>
Management has advised that they may acquire additional shares of the
Company's Common Stock from time to time in the open market at prices
prevailing at the time of such purchases.
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
As of the date hereof, the authorized share capital of the Company consists of
thirty million (30,000,000) Common Shares of which seven million five hundred
forty-six thousand four hundred ninety-five (7,546,495) Common Shares are
issued and outstanding and one million four hundred fifty-nine thousand six
hundred twenty-five (1,459,625) Series A Convertible Preferred Shares (the
"Series A Shares") are issued and outstanding. The following is a summary of
the principal attributes of the share capital of the Company.
COMMON SHARES
The rights, privileges, restrictions and conditions attached to the Common
Shares are as follows:
Voting
Holders of Common Shares shall be entitled to receive notice of and to attend
and vote at all meetings of shareholders of the Company, except meetings of
holders of another class of shares. Each Common Share shall entitle the
holder thereof to one vote.
Dividends
Subject to the preferences accorded to holders of Series A Shares and any
other shares of the Company ranking senior to the Common Shares from time to
time with respect to the payment of dividends, holders of Common Shares shall
be entitled to receive, if, as and when declared by the Board of Directors,
such dividends as may be declared thereon by the Board of Directors from time
to time.
Liquidation, Dissolution or Winding-Up
In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of the Company, or any other distribution of its assets among its
shareholders for the purpose of winding-up its affairs (such event referred to
herein as a "Distribution"), holders of Common Shares shall be entitled,
subject to the preferences accorded to holders of the Series A Shares and any
other shares of the Company ranking senior to the Common Shares from time to
time with respect to payment on a Distribution, to share equally, share for
share, in the remaining property of the Company.
<PAGE> 36
PREFERRED SHARES
The Company's articles of incorporation provides that the board of directors
is authorized to provide for the issuance of shares of un-designated preferred
stock in one or more series, and to fix the designations, powers, preferences
and rights of the shares of each series and any qualifications, limitations or
restrictions thereof.
The number of authorized shares of the Company un-designated preferred stock
may be increased by the affirmative vote of the holders of a majority of the
Company's common stock, without a vote of the holders of preferred stock,
unless their vote is required pursuant to the terms of any preferred stock
then outstanding. The number of authorized shares of un-designated preferred
stock of the Company may be reduced or eliminated by the affirmative vote of
the holders of 80% of the outstanding capital stock of the Company entitled to
vote in the election of directors, voting together as a single class.
Attributes
Subject to the filing of Articles of Amendment in accordance with the Act, the
Board of Directors may from time to time fix, before issuance, the
designation, rights, privileges, restrictions and conditions attached to each
series of Preferred Shares including, without limiting the generality of the
foregoing, the amount, if any, specified as being payable preferentially to
such series on a Distribution; the extent, if any, of further participation on
a Distribution; voting rights, if any; and dividend rights (including whether
such dividends be preferential, cumulative or non-cumulative), if any.
Liquidation
In the event of a Distribution, holders of each series of Preferred Shares
shall be entitled, in priority to holders of Common Shares and any other
shares of the Company ranking junior to the Preferred Shares from time to time
with respect to payment on a Distribution, to be paid rateably with holders of
each other series of Preferred Shares the amount, if any, specified as being
payable preferentially to the holders of such series on a Distribution.
Dividends
The holders of each series of Preferred Shares shall be entitled, in priority
to holders of Common Shares and any other shares of the Company ranking junior
to the Preferred Shares from time to time with respect to the payment of
dividends, to be paid rateably with holders of each other series of Preferred
Shares, the amount of accumulated dividends, if any, specified as being
payable preferentially to the holder of such series.
<PAGE> 37
The Company has never paid any dividends on its Common Shares. The Company
intends to retain its earnings to finance the growth and development of its
business and does not expect to pay dividends in the near future. The Board
of Directors of the Company will review this policy from time to time having
regard to the Company's financing requirements, its financial condition
and other factors considered relevant.
RESTRICTIONS ON TRANSFER
"Affiliates" of the Company under the Securities Act of 1933, as amended (the
"Securities Act") are persons who generally include individuals or entities
that control, are controlled by, or are under common control with the Company
and may include certain officers and directors of the Company as well as
principal stockholders of the Company. Persons who are affiliates of the
Company will be permitted to sell their shares of the Company only pursuant to
an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such exemptions
afforded by Section 4(1) or 4(2) of the Securities Act or Rule 144 thereunder.
CERTAIN PROTECTIVE PROVISIONS
General
The Articles and Bylaws of the Company and the CMBCA contain certain
provisions designed to enhance the ability of the Board of Directors to deal
with attempts to acquire control of the Company. These provisions may be
deemed to have an anti-takeover effect and may discourage takeover attempts
which have not been approved by the Board of Directors (including potential
takeovers which certain shareholders may deem to be in their best interest)
and may adversely effect the price that a potential purchaser would be willing
to pay for the Company's stock. These provisions also could discourage or make
more difficult a merger, tender offer or proxy contest, even though such
transaction may be favorable to the interests of shareholders, and could
potentially adversely effect the price of the Common Stock.
The following briefly summarizes protective provisions contained in the
Articles, the Bylaws and the CMBCA. This summary is necessarily general and is
not intended to be a complete description of all the features and consequences
of these provisions, and is qualified in its entirety by reference to the
Articles, the Bylaws and the provisions of the CMBCA.
The Company has one class of common stock issued and outstanding. Holders of
the Company's common stock are each entitled to one vote for each share held.
<PAGE> 38
AMENDMENT OF ARTICLES OF INCORPORATION
Under Colorado law, articles of incorporation of a Colorado corporation may be
amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares
entitled to vote for the amendment, unless a higher vote is
required by the corporation's articles of incorporation.
The Company's articles of incorporation provides that the affirmative vote of
the holders of at least 50% of the outstanding shares of capital stock of the
Company entitled to vote in the election of directors, voting together as a
single class, will be required to reduce or eliminate the number of authorized
shares of the Company's common stock or preferred stock, or to amend, repeal
or adopt any provision inconsistent with the provisions of the Company's
articles of incorporation which deal with the following:
-undesignated preferred stock
-matters relating to the board of directors, including the number of
members, board classification, vacancies and removal
-the powers and authority expressly conferred upon the board of directors
-the manner in which stockholder action may be effected
-amendments to bylaws
-business combinations with interested stockholders of the Company
-indemnification of officers and directors of the Company
-the personal liability of directors to the Company or its stockholders
for breaches of fiduciary duty
-the amendment of the Company's articles of incorporation
AMENDMENT OF BYLAWS
Under Colorado law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its articles of
incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal bylaws, even though the board
may also be delegated such power.
The Company's board of directors is expressly authorized to adopt, amend and
repeal the Company's bylaws by an affirmative vote of a majority of the total
number of authorized directors at that time, regardless of any vacancies.
The Company's bylaws may also be adopted, amended and repealed by the
affirmative vote of the holders of at least 50% of the outstanding shares of
capital stock of the Company entitled to vote in the election of directors,
voting together as a single class.
<PAGE> 39
LIMITATION OF LIABILITY OF DIRECTORS
The CMBCA permits a corporation to include a provision in its articles of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for a breach of the
director's fiduciary duty, subject to certain limitations. Our respective
articles of incorporation include such a provision to the maximum extent
permitted by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
that duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CMBCA permits a corporation to indemnify officers and directors for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action, which they had no reasonable cause to believe was
unlawful.
Our articles of incorporation and bylaws provide that any person who was or is
a party or is threatened to be a party to or is involved in any action, suit,
or proceeding, whether civil, criminal, administrative or investigative,
because that person is or was a director or officer, or is or was serving at
the request of either of us as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, will be indemnified against expenses, including attorney's fees,
and held harmless by each of us to the fullest extent permitted by the CMBCA.
The indemnification rights conferred by each of us are not exclusive of any
other right to which persons seeking indemnification may be entitled under any
statute, our articles of incorporation or bylaws, any agreement, vote of
stockholders or disinterested directors or otherwise. In addition, each of us
is authorized to purchase and maintain insurance on behalf of its directors
and officers.
Additionally, each of us may pay expenses incurred by our directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the final disposition of
that action, suit or proceeding. However, such payment will be made only if we
receive an undertaking by or on behalf of that director or officer to repay
all amounts advanced if it is ultimately determined that he or she is not
entitled to be indemnified by us, as authorized by our articles of
incorporation and bylaws.
<PAGE> 40
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent of the Company is American Securities
Transfer, Inc, at its principal office in Lakewood, Colorado.
PLAN OF DISTRIBUTION
The shares of Common Stock registered hereunder could be sold, if desired, by
the Selling shareholder on the Over-the-Counter Bulletin Board.
The Selling Shareholders Shares (the "Securities"), being offered hereby: (i)
through dealers or in ordinary brokers' transactions, in the over-the-counter
market or otherwise; (ii) at the market or through market makers or into an
existing market for the securities; or (iii) in other ways not involving
market makers or established trading markets, including direct sales to
purchasers or effective through agents, or (iv) in combinations of any of such
methods of sale. The Securities will be sold at market prices prevailing at
the time of sale or at negotiated prices.
If a dealer is utilized in the sale of the Securities in respect of which the
Prospectus is delivered, the Selling Security Holders will sell such
Securities to the dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
Sales of Securities "at the market" and not at a final price, which are made
into an existing market for the Securities, will be made by the Selling
Security Holders to or through a market maker, acting as principal or as
agent. Other sales may be made, directly or through an agent, to purchasers
outside existing trading markets. A selling broker may act as agent or may
acquire the Securities or interests therein as principal or pledgee and may,
from time to time, effect distributions of such Securities and interests.
The Securities offered hereby are eligible for sale only in certain states,
and, in some of those states, may be offered or sold only to "institutional
investors", as defined under applicable state securities law. No sales or
distributions, other than as described herein, may be effected after this
Prospectus shall have been appropriately amended or supplemented.
INVESTOR RELATIONS ARRANGEMENTS
On ________________, the Company entered into an Investor Relations Agreement
with Continental Capital, Inc. ("CCI"). Under the agreement, CCI is engaged to
provide investor relations, corporate communications and related support
services to the Company, specifically including, among other duties, the
development of a comprehensive plan for the dissemination of Company
information to shareholders as well as brokers, analysts and potential
investors; advising the Company regarding trends and changes in the
Over-the-Counter Bulletin Board brokerage and investment community, as well as
changes in share ownership of the Company's securities, all in the context of
providing appropriate investor relations communications; coordinating investor
and shareholder contacts with Company counsel to ensure compliance with
applicable securities laws and exchange listing requirements; and assisting
the Company with on-site investor relations meetings and with the design,
preparation and dissemination of investor relations materials. The initial
term of the agreement expires _________________ but will renew automatically
for successive one-month terms thereafter unless either party provides the
other with 30 days' advance written notice of termination. In exchange for his
services, CCI is entitled to receive a y fee of US $___________, plus
reimbursement of all reasonable out-of-pocket expenses and any reasonable
third-party professional advisory fees.
<PAGE> 41
DESCRIPTION OF PROPERTY
The Company currently leases its headquarters facility in Maitland, Florida,
which is owned by Geneva College. The space for the headquarters facility is
leased to the Company. The following tabulates certain information with respect
to the lease currently executed between the Company and Geneva College. The
lease has annual increases of $.50 per square foot per year.
Current
Square Monthly
Location Footage Rental Expiration
- --------- ------- ------ ----------
Executive Offices 14,500 $17,944 November, 2004
1011 Maitland Center Commons
Maitland, Florida 32751
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for the
Company by Nadeau & Simmons, P.C., 1250 Turks Head Building, Providence, Rhode
Island.
EXPERTS
Moore, Stephens & Lovelace, P.A., independent auditors, have audited the
financial statements of the Company included for the year ended December 31,
1998, which are incorporated by reference into this prospectus and
registration statement. These financial statements are incorporated by
reference in reliance on their reports, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-1 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This prospectus constitutes a part
of the Registration Statement and does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted from
this prospectus as permitted by the rules and regulations of the commission.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to herein are not necessarily complete
and, where such agreement or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
of such exhibit, to which reference is hereby made for a full statement of the
provisions thereof. For further information with respect to the Company and
the Common Stock, reference is hereby made to the Registration Statement and
to the exhibits thereto.
<PAGE> 42
The Registration Statement and the exhibits may be inspected, without charge,
and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street,
N.W., room 1024, Washington, DC 20549, or on the Internet at http://www.sec.gov.
Copies of the Registration Statement and the exhibits may also be inspected,
without charge, at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of the Registration Statement and
the exhibits may be obtained by mail, at prescribed rates, from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, DC
20549.
In connection with this offering, the Company continues to be subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and regional offices referred to above. The Company intends
to furnish its shareholders with annual reports containing audited financial
statements certified by independent public accountants and with quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.
<PAGE> F-1
LEAPFROG SMART PRODUCTS, INC.
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
and For The Period April 11, 1996
(Date of Inception) Through December 31, 1999
F-1
<PAGE> F-2
C O N T E N T S
--------
Page
Number
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Moore Stephens Lovelace, P.A. F-3
Meeks, Dorman & Company, P.A. F-5
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet F-6
Consolidated Statements of Operations F-7
Consolidated Statements of Changes in Stockholders' Equity (Deficit) F-8
Consolidated Statements of Cash Flows F-10
Notes to Consolidated Financial Statements F-11
F-2
<PAGE> F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Leapfrog Smart Products, Inc. and Subsidiaries
(A Development Stage Company)
Maitland, Florida
We have audited the accompanying consolidated balance sheet of Leapfrog Smart
Products, Inc. and Subsidiaries (a development stage company) as of December 31,
1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the year then ended and for
the period April 11, 1996 (date of inception) through December 31, 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. We did not audit the financial statements of Leapfrog Smart Products,
Inc. and Subsidiaries for the years ended December 31, 1997 and December 31,
1998, which reflect a deficit accumulated during development stage of $2,413,005
and which is included in the financial statements presented for the period April
11, 1996 (date of inception) through December 31, 1999. Those statements were
audited by other auditors, whose report has been furnished to us, and our
opinion insofar as it relates to the amounts included in the cumulative period
since April 11, 1996 (date of inception) through December 31, 1998, is based
solely on the report of the other auditors.
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, based upon our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Leapfrog Smart Products, Inc. and
Subsidiaries as of December 31, 1999, and the results of its operations and its
cash flows for the year then ended and for the period April 11, 1996 (date of
inception) through December 31, 1999 in conformity with generally accepted
accounting principles.
F-3
<PAGE> F-4
Board of Directors
Leapfrog Smart Products, Inc. and Subsidiaries
(A Development Stage Company)
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is currently in
its development stage and, as discussed in Note 1 to the financial statements,
since its inception, the Company has incurred an accumulated deficit of
approximately $5,500,000 and as of December 31, 1999, it has a working capital
deficit of approximately $1,900,000. Additionally, the Company incurred a net
loss of approximately $3,100,000 and had negative cash flows from operations of
approximately $2,400,000 in 1999. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1 to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Moore Stephens Lovelace, P.A.
- ----------------------------------
Moore Stephens Lovelace, P.A.
Certified Public Accountants
Orlando, Florida
March 31, 2000
F-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Leapfrog Smart Products, Inc. and Subsidiary
Orlando, Florida
We have audited the accompanying consolidated balance sheets of Leapfrog Smart
Products, Inc. (a corporation in the development stage) and Subsidiary as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, changes in stockholders' deficit and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Leapfrog Smart Products, Inc. (a corporation in the development stage) and
Subsidiary as of December 31, 1998 and 1997, and the consolidated results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has experienced significant operating losses,
an accumulated deficit and negative working capital at December 31, 1998 and
1997. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Meeks, Dorman & Company, P.A.
- ---------------------------------
Meeks, Dorman & Company, P.A.
Longwood, Florida
September 13, 1999, (Except for Note 12, which is as of November 17, 1999)
F-5
<PAGE> F-6
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31, 1999
------------
<S> <C>
CURRENT ASSETS
Cash $ 18,529
Accounts receivable 6,554
Inventory 52,639
Prepaid expenses 219,740
Notes receivable - related party 26,600
Other receivables 9,226
------------
TOTAL CURRENT ASSETS 333,288
PROPERTY AND EQUIPMENT, net 267,073
OTHER ASSETS
Related-party advances 43,116
Notes receivable - related party 5,000
Deposits 8,600
Capitalized software costs, net of accumulated
Amortization of $7,600 68,400
Costs in excess of fair market value of assets acquired,
Net of accumulated amortization of $2,500 27,500
------------
$ 752,977
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 1,859,049
Notes payable - related party 75,258
Accounts payable 223,474
Accrued expenses 99,816
------------
TOTAL CURRENT LIABILITIES 2,257,597
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (deficit)
Common stock - $0.01 par value per share;
6,000,000 shares authorized; 5,189,769 shares
issued and outstanding 51,897
Additional paid-in capital 3,954,128
Deficit accumulated during development stage (5,510,645)
------------
(1,504,620)
------------
$ 752,977
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> F-7
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
From
April 11,
1996
Year Ended Year Ended (Inception)
December 31, December 31, Through
1999 1998 December 31,
1999
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUES $ 121,533 $ 86,360 $ 880,790
COST OF SALES 44,199 65,906 590,429
-------------- ------------- -------------
GROSS PROFIT 77,334 20,454 290,361
OPERATING EXPENSES
Personnel and related expenses 1,216,809 952,176 2,556,749
Consulting fees 392,308 20,577 454,465
General and administrative 1,080,133 491,077 2,188,852
Depreciation and amortization 55,478 45,354 131,199
-------------- ------------- -------------
TOTAL OPERATING EXPENSES 2,744,728 1,509,184 5,331,265
Other income (expense)
Other income, net 3,095 7,293 21,922
Interest expense (433,341) (36,312) (491,663)
-------------- ------------- -------------
(430,246) (29,019) (469,741)
-------------- ------------- -------------
NET LOSS $ (3,097,640) $ (1,517,749) $ (5,510,645)
============== ============= =============
basic and diluted net LOSS PER
common SHARE $ (0.72) $ (0.49)
============== =============
WEIGHTED AVERAGE number of common
shares outstanding 4,280,158 3,125,793
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> F-8
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated Total
$.01 Par Value Additional During Stockholders'
------------------------- Paid-In Development Equity
Shares Amount Capital Stage (Deficit)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
COMMON STOCK ISSUED TO
FOUNDING STOCKHOLDERS ON
APRIL 11, 1996 1,414,000 $ 14,140 $ 153,960 $ - $ 168,100
NET LOSS - - - (245,429) (245,429)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1996 1,414,000 14,140 153,960 (245,429) (77,329)
ISSUANCE OF COMMON STOCK 1,070,846 10,708 418,792 - 429,500
NET LOSS - - - (649,827) (649,827)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1997 2,484,846 24,848 572,752 (895,256) (297,656)
ISSUANCE OF COMMON STOCK 1,066,373 10,664 954,147 - 964,811
ISSUANCE OF COMMON STOCK FOR
CONVERSION OF NOTES PAYABLE 216,000 2,160 213,840 - 216,000
NET LOSS - - - (1,517,749) (1,517,749)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1998 3,767,219 37,672 1,740,739 (2,413,005) (634,594)
ISSUANCE OF COMMON STOCK FOR
CASH 474,879 4,749 1,136,755 - 1,141,504
ISSUANCE OF COMMON STOCK ON
EXERCISE OF OPTIONS 64,075 641 15,378 - 16,019
ISSUANCE OF COMMON STOCK FOR
SERVICES 424,135 4,241 695,754 - 699,995
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> F-9
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated Total
$.01 Par Value Additional During Stockholders'
------------------------- Paid-In Development Equity
Shares Amount Capital Stage (Deficit)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK FOR
PAYMENT OF DEBT 33,333 $ 333 $ 49,667 $ - $ 50,000
ISSUANCE OF COMMON STOCK FOR
ACQUISITION OF MINORITY
INTEREST POSITION IN 40,000 400 29,600 - 30,000
SUBSIDIARY
ISSUANCE OF COMMON STOCK
RELATED TO DEBT FINANCING 386,128 3,861 286,235 - 290,096
NET LOSS FOR THE YEAR ENDED
DECEMBER 31, 1999 - - - (3,097,640) (3,097,640)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1999 5,189,769 $ 51,897 $ 3,954,128 $(5,510,645) $ (1,504,620)
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> F-10
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From
April 11,
1996
(Inception)
Year Ended Year Ended Through
December 31, December 31, December 31,
1999 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,097,640) $ (1,517,749) $ (5,510,645)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation 52,978 45,354 125,688
Depreciation and amortization charged to 26,338 - 26,338
cost of sales
Amortization 2,500 - 2,500
Loss on disposal of assets, net 6,877 3,250 10,127
Loss on write-off of related party note 17,870 - 17,870
receivable
Common stock issued for services and 990,091 16,000 1,007,594
interest
Cash provided by (used in) change in:
Accounts receivable (3,554) (3,000) (6,554)
Related party advances (39,394) - (43,116)
Other receivables (9,226) - (9,226)
Inventory (21,139) (31,500) (52,639)
Prepaid expenses and other assets (222,130) (2,450) (228,340)
Accounts payable (124,199) 281,503 241,141
Accrued expenses 63,630 18,961 99,816
Deferred income (11,500) (21,289) -
Minority interest 11,018 (2,046) -
------------ ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (2,357,480) (1,212,966) (4,319,446)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (143,878) (85,626) (430,099)
Net increase in notes receivable - related (17,400) (32,070) (49,470)
party
Capitalization of software costs (76,000) - (76,000)
Proceeds from sale of vehicles - - 8,473
------------ ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (237,278) (117,696) (547,096)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 1,402,326 513,540 2,415,866
Payments on notes payable (18,434) (152,650) (324,484)
Proceeds from exercise of common stock options 16,019 367,390 448,620
Proceeds from sale of common stock 1,141,504 597,421 2,269,811
Proceeds from related-party borrowings 37,300 34,258 82,658
Repayments of related-party borrowings (6,300) (1,100) (7,400)
------------ ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,572,415 1,358,859 4,885,071
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH (22,343) 28,197 18,529
CASH AT BEGINNING OF PERIOD 40,872 12,675 -
------------ ------------- -------------
CASH AT END OF PERIOD $ 18,529 $ 40,872 $ 18,529
============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> F-11
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Leapfrog Smart Products, Inc. and Subsidiaries operations include the design,
development, and licensing of Smart card applications and related database
management systems and services. The Smart card is a wallet-sized plastic card
with an embedded computer chip carrying accessible data that is retrievable on
demand and is capable of integrating various functions with security features.
Leapfrog Smart Products, Inc. (Leapfrog) was incorporated under the laws of the
State of Florida in 1996 originally under the name Telephones! Telephones!, Inc.
Leapfrog owns 100% of the outstanding common stock of Leapfrog Global IC
Products, Inc. and approximately 96% of the outstanding common stock of Conduit
Healthcare Solutions, Inc. (Conduit). Conduit was originally incorporated in
1997 under the name Leapfrog Healthcare Products, Inc.
The consolidated financial statements include the accounts of Leapfrog Smart
Products, Inc., Conduit Healthcare Solutions, Inc., and Leapfrog Global IC
Products, Inc. (collectively, the Company). All significant intercompany
transactions and balances have been eliminated in the consolidated financial
statements.
Development Stage Company
Since its inception, the Company's planned principal operations have not yet
begun to produce significant revenue; accordingly, the Company is considered
to be a development stage enterprise.
Accounts Receivable
The Company provides its services and extends credit to its customers under
normal trade credit terms.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventory is generally comprised of software
purchased for resale, Smart cards and accessories, and packaging material.
Prepaid Expenses
Prepaid expenses consists of the following at December 31, 1999:
Prepaid legal fees $ 186,750
Prepaid license fees 25,760
Other 7,230
-----------
$ 219,740
===========
F-11
<PAGE> F-12
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Prepaid Expenses (Continued)
The prepaid legal fees were paid for through the issuance of 150,000 shares of
the Company's common stock. The shares were valued at per share prices
approximating recent private placement transactions.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years.
Software Development Costs
Costs incurred internally in creating a computer software product are charged to
research and development expense when incurred until technological feasibility
has been established for the product. Research and development expense for the
years ended December 31, 1999 and 1998 and for the period from the Company's
inception through December 31, 1999 were $293,643, $287,840 and $650,098,
respectively. Technological feasibility is established upon completion of a
detail program design or, in its absence, completion of a working model.
Thereafter, all software production costs are capitalized and subsequently
reported at the lower of unamortized cost or net realizable value. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management with
respect to certain external factors, such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies.
Capitalization of software development costs cease when the product is available
for general release to customers. Costs of maintenance and customer support are
charged to expense when related revenue is recognized or when those costs are
incurred, whichever occurs first. Capitalized costs are amortized based on
current and future revenue for each product with an annual minimum equal to the
straight-line amortization over the remaining estimated economic life of the
product. Amortization expense related to capitalized software costs for the year
ended December 31, 1999, was $7,600.
Excess of Costs Over Fair Value of Net Assets Acquired
Excess of costs over fair value of net assets acquired is amortized using the
straight-line method over five years.
Unearned Revenue
Payments received from customers which relate to future periods are deferred
and are recognized in the periods in which they are earned.
Revenue
The Company recognizes revenue on the sales of its products when shipped.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see Note 7).
F-12
<PAGE> F-13
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Net Loss Per Share of Common Stock
The basic and diluted net loss per common share in the accompanying consolidated
statements of operations are based upon the net loss divided by the weighted
average number of shares outstanding during the periods presented. Diluted net
loss per common share is the same as basic net loss per common share since the
inclusion of all potentially dilutive common shares that would be issuable upon
the exercise of outstanding stock options and the convertible promissory note
would be anti-dilutive.
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.
Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and receivables. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts and believes that it is not exposed to any significant credit risk on
cash. The Company believes that the concentration of credit risk related to its
receivables is limited due to the number of parties the balances are due from.
Fair Value of Financial Instruments
At December 31, 1999, the fair values of cash, receivables, accounts payable and
notes payable approximated their carrying values because of their short-term
nature.
Continued Operations
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements during the year ended December 31, 1999 and 1998, the
Company incurred losses of approximately $3,100,000 and $1,518,000,
respectively, and had a deficiency in working capital of approximately
$1,900,000 at December 31, 1999. These factors, among others, may indicate the
Company will be unable to continue as a going concern for a reasonable period
of time. The accompanying consolidated financial statements do not include any
adjustments relating to the outcome of this uncertainty.
Liquidity and Plan of Operations
At December 31, 1999, the Company had cash of approximately $19,000 and a
deficiency in working capital of $1,900,000.
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
new and rapidly evolving markets such as Smart
F-13
<PAGE> F-14
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Liquidity and Plan of Operations (Continued)
card products and services. These risks include the failure to develop and
extend the Company's products and services, the rejection of such services by
Smart card customers, vendors and/or advertisers, the inability of the Company
to maintain and increase its customer base, as well as other risks and
uncertainties. In the event that the Company does not successfully implement
its business plan, certain assets may not be recoverable.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis. The
Company's primary source of liquidity has been through the private placement of
equity and debt securities. The Company is presently exploring possibilities
with respect to raising working capital through additional equity and/or debt
financings in the near future. However, there can be no assurance that the
Company will be successful in achieving profitable operations or acquiring
additional capital or that such capital, if available, will be on terms and
conditions favorable to the Company. Based upon its current business plan, the
Company believes that it will generate sufficient cash flow through operations
and external sources of capital to continue to meet its obligations in a timely
manner. If anticipated financing transactions and operating results are not
achieved, management has the intent and believes that it has the ability to
delay or reduce expenditures so as not to require additional financial
resources, if such resources were not available on terms acceptable to the
Company.
Reclassifications
Certain amounts in the December 31, 1998 financial statements have been
reclassified to conform with the December 31, 1999 presentation.
NOTE 2 - NOTES RECEIVABLE - RELATED PARTY
Notes receivable - related party consists of the following at December 31,
1999:
Unsecured 6% promissory notes from employee/stockholder, all
principal and interest due at maturity, maturing December 2000. $ 11,000
Unsecured 6% promissory note receivable from officer, all
principal and interest due at maturity, maturing December 2000. 1,500
Unsecured 6% promissory notes receivable from officer, all
principal and interest due at maturity, maturing December 2000. 2,500
Unsecured 6% promissory note receivable from employee/stockholder,
monthly interest payments of $50 beginning in March 2000, with all
remaining principal and interest due December 2000. 8,200
Unsecured 6% promissory note receivable from employee/stockholder,
monthly principal and interest payments of $400 beginning in
February 2000, with all remaining principal and interest due
March 2001. 5,000
Unsecured 6% promissory note receivable, principal and interest
due October 2000. 3,400
----------
31,600
Less current portion (26,600)
----------
Total notes receivable - related party $ 5,000
==========
F-14
<PAGE> F-15
NOTE 3 - ADVANCES RECEIVABLE - RELATED PARTY
During 1998, the Company advanced an officer of the Company approximately
$4,000. This balance remains unpaid at December 31, 1999.
In 1999, the Company advanced a related entity approximately $40,000. This
balance remains unpaid at December 31, 1999.
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 1999, consists of the following:
Computer equipment $196,187
Software 60,350
Furniture and equipment 147,617
-----------
404,154
Less accumulated depreciation (137,081)
-----------
Property and equipment, net $267,073
===========
NOTE 5 - NOTES PAYABLE
During 1999, the Company issued notes payable to third parties in the aggregate
amount of $1,152,326, bearing interest at 12%. The notes had terms of four to
five months and matured in 1999. The maturity dates of approximately $997,000 of
the notes were subsequently extended to January 31, 2000, upon which time they
were in default. The entire aggregate amount of these notes was outstanding at
December 31, 1999.
Notes payable at December 31, 1999, consists of the following:
Unsecured debentures, interest at 12% payable quarterly,
maturing in 1999, approximately $997,000, extended to
January 31, 2000. $1,152,326
Unsecured notes payable, interest at 12% per annum, principal
and interest due in January 2000. 250,000
Note payable to financial institution, interest due in monthly
installments at prime plus 1%, guaranteed by certain stockholders
and officers, collateralized by all assets of the 150,000
Company, matured in October 1999.
Unsecured notes payable, matured in September and October 1999,
default interest at 10.75% per annum. 100,000
Note payable to financial institution, interest due in monthly
installments at prime plus 1%, guaranteed by certain stockholders
and officers, collateralized by all assets of the 100,000
Company, matured in August 1999.
Note payable to financial institution, interest due in monthly
installments at prime plus 1%, guaranteed by certain stockholders
and officers, collateralized by all assets of the 50,000
Company, matured in February 1999.
Note payable to financial institution, interest due in monthly
installments at prime plus 1%, guaranteed by certain stockholders
and officers, collateralized by all assets of the Company,
matured in September 1999. 50,000
F-15
<PAGE> F-16
NOTE 5 - NOTES PAYABLE (Continued)
Unsecured notes payable, interest at 10% payable monthly,
matured in September 1999. $ 6,723
------------
1,859,049
Less current portion (1,859,049)
------------
Total notes payable - long term $ -
============
Notes payable - related party at December 31, 1999, consists of the following:
Unsecured notes payable to former board member and stockholder,
interest at 8% per annum, principal and interest due in
December 2000. $ 37,300
Unsecured note payable to officer, interest at 10% per annum,
principal and interest due in December 2000. 12,958
Unsecured, noninterest-bearing promissory note payable to
former board member, no specified maturity date. 10,000
Unsecured notes payable, interest at 6% per annum, principal
and interest matured in November 1998. 10,000
Unsecured note payable, interest at 6% per annum, principal and
interest matured in January 1999. 5,000
------------
Total notes payable - related party 75,258
Less current portion (75,258)
------------
Total notes payable - related party - long term $ -
============
Cash paid for interest during 1999 and 1998 was approximately $46,000 and
$21,000, respectively.
NOTE 6 - STOCKHOLDERS' EQUITY
Private Placements
During the year ended December 31, 1999, the Company issued 474,879 shares of
its common stock in private placements at per share prices ranging from $0.88
to $3.50. The Company received $1,141,504 in net proceeds from these private
placements.
Other Issuances of Common Stock
During the year ended December 31, 1999, the Company issued 424,135 shares of
its common stock as payment for various consulting services related to legal,
finance and merger related services. The shares issued were valued at per
share prices approximating recent private placement transactions.
During the year ended December 31, 1999, the Company issued 419,461 shares of
its common stock in satisfaction of certain notes payable and related interest
charges.
Purchase of Minority Interest
During the year ended December 31, 1999, the Company acquired an additional
16% ownership interest in Conduit Healthcare Solutions, Inc. by issuing 40,000
shares of the Company's common stock to the former minority interest. The shares
issued were valued at per share prices approximating recent private placement
transactions.
F-16
<PAGE> F-17
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Authorized Shares
In August 1999, the stockholders of the Company approved the increase in the
number of authorized shares of stock from 5,000,000 to 6,000,000.
Stock Options
Activity related to the Company's stock options during the years ended
December 31, 1999, was as follows:
Outstanding Options
-----------------------------
Weighted
Number of Average
Shares Exercise
Price
-------------- --------------
December 31, 1997 622,472 $ .87
Grants 172,000 $ 1.21
Exercises (367,390) $(1.00)
Cancellations - $ -
--------------
December 31, 1998 427,082 $ 1.08
Grants 1,098,546 $ 1.42
Exercises (64,075) $ 0.26
Cancellations (26,603) $ 1.15
--------------
December 31, 1999 1,434,950 $ 1.33
==============
Options Exercisable at
December 31 1999 1,154,950 $ 1.41
==============
The range of exercise prices for options outstanding at December 31, 1999 was
$0.25 to $1.75. The following table summarizes information about options
outstanding at December 31, 1999:
Outstanding Options
-------------------------------------------
Weighted
Average
Contractual Weighted
Range of Exercise Number of Life (in Average
Prices Shares years) Exercise Price
---------------------- --------------------------- ---------------
$0.25 86,174 1.5 $0.25
$1.00 631,230 3.0 $1.00
$1.75 717,546 3.1 $1.75
-------------
1,434,950 3.0 $1.33
=============
Exercisable Options
-------------------------------------------
Weighted
Range of Exercise Number of Average
Prices Shares Exercise Price
---------------------- -------------- ---------------
$0.25 86,174 $0.25
$1.00 351,230 $1.00
$1.75 717,546 $1.75
--------------
1,154,950 $1.41
==============
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) establishes
financial accounting and reporting standards for stock-based employee
compensation plans. It encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. Companies
that choose
F-17
<PAGE> F-18
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Options (Continued)
not to adopt the new fair value accounting rules are required to disclose net
income and earnings per share under the new method on a pro forma basis. The
Company accounts for its options and warrants according to APB No. 25 and
follows the disclosure provisions of SFAS 123. Accordingly, if options or
warrants are granted to employees or others for services and other consideration
with an exercise price below the fair market value on the date of the grant, the
difference between the exercise price and the fair market value is charged to
operations. The fair value of the options granted during the fiscal year ended
December 31, 1999, reported below, has been estimated at the dates of grant
using the Black-Scholes option-pricing model with the following assumptions:
Expected life (in years) 3.7
Risk-free interest rate 8.0%
Volatility 340%
Dividend yield 0.0%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the
fair value of its options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
Pro forma net loss $ (4,983,000)
Pro forma loss per share $(1.16)
The effects on pro forma disclosures of applying SFAS 123 are not necessarily
indicative of the effects on pro forma disclosures of future years.
NOTE 7 - INCOME TAXES
The difference between the Company's effective income tax rate and the federal
statutory rate at December 31, 1999 and 1998, is reconciled below:
December 31,
---------------------
1999 1998
--------- ---------
Federal (benefit) expected (34.0)% (34.0)%
State taxes (net of Federal (3.6) (5.0)
Benefit)
Increase in valuation 37.6 39.0
allowance
--------- ---------
0.0% 0.0%
========= =========
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1999, are approximately as follows:
Deferred tax assets $ 102,000
Net operating losses 1,849,000
------------
Gross deferred tax assets 1,951,000
Less valuation allowance (1,951,000)
------------
Deferred tax assets $ -
============
F-18
<PAGE> F-19
NOTE 7 - INCOME TAXES (Continued)
There were no deferred tax liabilities as of December 31, 1999.
As of December 31, 1999, the Company had a net operating loss carryforward of
approximately $4.9 million available to offset future taxable income. The net
operating loss carryforward expires through the year 2019. Under U.S. federal
tax laws, certain changes in ownership of a company may cause a limitation on
future utilization of these loss carryforwards.
The Company has established a valuation allowance to fully offset all deferred
tax assets and carryforwards, as their future realization is uncertain.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space under noncancelable operating lease
agreements, which expire through April 2005.
Future minimum rental payments required under these leases are approximately
as follows:
Year Ending
December 31, Amount
-------------- ------------
2000 $ 188,000
2001 247,000
2002 232,000
2003 235,000
2004 242,000
Thereafter 61,000
------------
Total future minimum rental
payments $ 1,205,000
============
Total rent expense incurred under these leases approximated $73,000 and
$50,000 for the years ended December 31, 1999 and 1998, respectively.
Employment Agreements
The Company has entered into employment agreements with three officers, which
provide for future annual base salaries aggregating approximately $396,000 and
$444,000 for the years ended December 31, 2000 and 2001, respectively. The
agreements also provide for the issuance of an aggregate of 280,000 $1.00
options upon the execution of the agreements and for the potential issuance of
up to 1,800,000 additional $1.00 options, if certain market capitalization and
revenue targets are met. In addition, the officers are each entitled to receive
a quarterly cash bonus equal to 2% of the Company's gross margin, which is
defined as gross revenues less cost of goods sold, including third party
costs.
F-19
<PAGE> F-20
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Chinese Joint Venture
In November 1999, the Company entered into a joint venture agreement with Top
Group, (TOP) a Chinese corporation registered in Chengdu, P.R. China. The
Company's interest in the joint venture will be held by a wholly owned
subsidiary to be named Leapfrog China, Inc. In accordance with the "Law of the
People's Republic of China Joint Venture Using Chinese and Foreign Investment"
and other relevant laws and regulations, both parties of the joint venture have
agreed to set up a separate company called Leap-TOP Limited Liability Company
(Joint Venture Company). Per the agreement, TOP will contribute $100,000 to
Joint Venture Company for a 20% interest therein and Leapfrog China, Inc. will
contribute $400,000 to Joint Venture Company for an 80% interest therein.
Leapfrog China, Inc.'s contribution will be in the form of $225,000 in cash
and $175,000 in the form of intangible assets, including exclusive and
non-exclusive license rights to use, produce, adapt, market, sell and
distribute the Company's products, technology, know-how and processes. The
purpose of Joint Venture Company is to adapt the Company's products for
application to suitable governmental and private sector markets in Mainland
People's Republic of China, Hong Kong, Macau, Taiwan, Singapore and elsewhere
in the Chinese-speaking portions of the Asia-Pacific Region. Leapfrog China,
Inc. will be responsible for all approved costs associated with the
registration and protection of the intellectual property and related technology
rights, as well as certain other costs.
TOP will be paid 20% - 50% of gross margins (as defined) from Joint Venture
Company sales and will be reimbursed for specified costs. Leapfrog China, Inc.
will be paid the balance of available revenues. The term of the joint venture
is for a period of ten years, commencing on the date Joint Venture Company
receives its business license.
As of December 31, 1999, the joint venture operations had not yet commenced.
Guaranty
In July 1999, the Company guaranteed up to a $150,000 of a $200,000 promissory
note of three of its officers and/or stockholders (the Group). The balance due
on this note as of December 31, 1999 is $150,000 and is due September 2000.
The Group has pledged 200,000 shares of Company's common stock owned by the
Group as collateral for the promissory note. Due to the absence of any market
for this guaranty and the related-party nature, management believes that the
fair value of this guaranty would not be material and the estimation thereof
would not be practicable.
Consulting Agreement with Related Party
In April 1999, the Company entered into a two year marketing consulting
agreement with a member of the Company's board of directors. The agreement
provides for the Company to compensate the consultant as follows: $4,000 per
month, 240,000 stock options upon ratification of the agreement by the board of
directors and up to 260,000 additional stock options if certain revenue targets
are achieved by the Company. The exercise price for all options shall be at a
per share price of $3.50. The term of the options shall be ten years from the
grant date. Past due consulting fees may be converted into the Company's common
stock at the conversion rate of $2.50 per share. No options have been issued
under this agreement. Expenses incurred under this agreement during the year
ended December 31, 1999 approximated $43,000, of which approximately $11,500 was
paid to the consultant and an additional $22,000 was paid through the issuance
of 8,800 shares of the Company's common stock. As of December 31, 1999,
approximately $13,000 is due to the related party.
F-20
<PAGE> F-21
NOTE 9 - SUBSEQUENT EVENTS
Merger
Effective February 18, 2000, Albara Corporation (Albara) acquired, through its
wholly owned subsidiary Leapfrog Merger, Inc., 100% of the outstanding common
stock of the Company in exchange for 5,350,049 shares of Albara common stock.
Additionally, the outstanding stock options of the Company were converted, on a
pro rata basis, into 2,434,950 Albara stock options. Prior to the merger, Albara
was considered to be a publicly held shell company with no revenues and
insignificant expenses, assets and liabilities. Upon completion of the merger,
the original shareholders of Albara held 610,946 shares of its common stock. As
a result of the exchange, the former stockholders of the Company gained control
of Albara. For accounting purposes, the acquisition has been accounted for as a
recapitalization of the Company with the Company being treated as the acquiring
entity (reverse acquisition) with no goodwill recorded. In connection with the
merger, Albara changed its name to Leapfrog Smart Products, Inc. In January 2000
Albara increased its authorized shares of no par value common stock to
30,000,000 and increased its authorized shares of no par value preferred stock
to 10,000,000.
Convertible Preferred Stock
Subsequent to the merger, the Company issued 125,000 shares of Series A
Convertible Preferred Stock and received proceeds of $500,000. The holders of
the Series A Preferred Shares are entitled to cumulative dividends at the rate
of 6% per annum. Each share of Series A Convertible Preferred Stock is
convertible into one share of common stock at the election of the holder
thereof. The Company may require mandatory conversion of all, but not less than
all, of the Series A Preferred Shares on or after the first anniversary of the
initial sale if certain stock trading prices are attained or if there is a
reorganization of the Company involving an exchange of its common stock for
shares of a United States domiciled corporation the shares of which are traded
on a national exchange or on the NASDAQ National Market System. Additional
issuances of the preferred stock, under substantially identical terms and
conditions of the aforementioned shares, may be sold until Series A Convertible
Preferred Stock having an aggregate purchase price of $6,000,000 have been sold,
provided that all such sales are held prior to May 2, 2000. For as long as at
least 50% of the Series A Convertible Preferred Shares are outstanding, the
holders thereof may elect one board member to the Company's board of directors.
Sale of Common Stock
In January, February and March 2000, the Company issued an aggregate of 212,000
shares of its common stock and received proceeds of $842,000.
Issuance of Debentures
In January 2000, the Company issued an aggregate of $550,000 of 8% - 12%
debenture notes. The Company also issued an aggregate of 75,000 shares of its
common stock to the debenture holders as incentive to enter into the
agreements.
F-21
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary
.........................................................................
Risk Factors.............................................................
Year 2000 Problems May Have an Adverse Effect Competition
Potential Fluctuations in Quarterly Operating Results
Limited Operating History
Dependence on Third-Party Suppliers
Patents, Trademarks and Proprietary Information
Rapid Technological Changes
Expansion
Government Regulation
Dependence on Key Personnel
Control by Principal Shareholders, Officers and Directors
Issuance of Preferred Stock
Trading Market; Volatility of Stock Price
Possible Need for Additional Financing
Indemnification of Officers and Directors
Dependence Upon Outside Advisors
Rule 144 Sales
Use of Proceeds..........................................................
Dilution ................................................................
Dividend Policy ,........................................................
Business ................................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................
Management ..............................................................
Certain Transactions ....................................................
Principal Shareholders ..................................................
Description of Capital Stock ............................................
Plan of Distribution ....................................................
Agreements ..............................................................
Investor Relations Arrangements..........................................
Legal Matters ...........................................................
Experts .................................................................
Additional Information ..................................................
Financial Statements ....................................................F-1
thru
F-21
</TABLE>
<PAGE>
-------------------------------
UNTIL ____________________, 2000 (45 DAYS AFTER THE DATE OF THIS PROSPECTUS)
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED
HEREUNDER MAY BE REQUIRED TO DELIVER A PROSPECTUS.
=====================================================================
=====================================================================
LEAPFROG SMART PRODUCTS, INC.
---------------------------------
2,909,625 SHARES
---------------------------------
COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
May ___, 2000
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Model Business Corporation Act of the State of Colorado ("CMBCA")
provides, in general, that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), because the person is or was a director or officer
of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
The CMBCA provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor because the person is or
was a director or officer of the corporation, against any expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation.
The CMBCA provides, in general, that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director or officer of the corporation against any liability asserted against
the person in any such capacity, or arising out of the person's status as
such, whether or not the corporation would have the power to indemnify the
person against such liability under the provisions of the law.
The Company's Articles of Incorporation (incorporated by reference herein)
provides for indemnification of directors, officers and other persons as
follows:
To the fullest extent permitted by the CMBCA as the same now exists or may
hereafter be amended, the Corporation shall indemnify, and advance expenses
to, its directors and officers and any person who is or was serving at the
request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
The Corporation, by action of its board of directors, may provide
indemnification or advance expenses to employees and agents of the Corporation
or other persons only on such terms and conditions and to the extent
determined by the board of directors in its sole and absolute discretion.
<PAGE> 44
The indemnification and advancement of expenses shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability.
The indemnification and advancement of expenses, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such officer or director. The indemnification and
advancement of expenses that may have been provided to an employee or agent of
the Corporation by action of the board of directors, shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased
to be an employee or agent of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such a person, after the time
such person has ceased to be an employee or agent of the Corporation, only on
such terms and conditions and to the extent determined by the board of
directors in its sole discretion.
<PAGE> 45
The Company's By-Laws (incorporated by reference herein) provides that:
Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
because he is or was a director or an officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the CMBCA, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide before such amendment),
against all expense, liability and loss (including attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided, however, that, except as provided in the section "Right of
Indemnitees to Bring Suit" with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a proceeding (or part thereof) initiated by such Indemnitee
only if such proceeding (or part thereof) was authorized by the board of
directors of the Corporation.
Right to Advancement of Expenses. The right to indemnification conferred in
the section "Right to Indemnification" of this Article shall include the right
to be paid by the Corporation the expenses (including attorney's fees)
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the CMBCA requires, an advancement of expenses
incurred by an Indemnitee in his capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such Indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such Indemnitee is not entitled to be indemnified for such
expenses under this section or otherwise. The rights to indemnification and to
the advancement of expenses conferred in this section and the section "Right
to Indemnification" of this Article shall be contract rights and such rights
shall continue as to an Indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection
of an Indemnitee existing at the time of such repeal or modification.
<PAGE> 46
Right of Indemnitees to Bring Suit. If a claim under the section "Right to
Indemnification" or "Right to Advancement of Expenses" of this Article is not
paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking,
the Indemnitee shall also be entitled to be paid the expenses of prosecuting
or defending such suit. In (1) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (2) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the CMBCA. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the CMBCA, nor an actual determination by the Corporation (including its board
of directors, independent legal counsel, or its stockholders) that the
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the Indemnitee, be a defense to such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article or
otherwise shall be on the Corporation.
Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Articles of Incorporation as amended from time to
time, these By-Laws, any agreement, any vote of stockholders or disinterested
directors or otherwise.
Insurance. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the CMBCA.
<PAGE> 47
Indemnification of Employees and Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by the board of directors,
grant rights to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent
of the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
The directors and officers of the Company are covered by a policy of liability
insurance.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the sale of the Shares are estimated as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...............$
Legal fees and expenses...........................................
Accounting fees and expenses......................................
Miscellaneous.....................................................
-------------
TOTAL.............................................................$
</TABLE>
ITEM 3. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(2) that before any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form;
<PAGE> 48
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(4) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form SB-1
under the Securities Act of 1933, within one business day of receipt of any
such request, and to send the incorporated documents by first class mail or
other equally prompt means, including information contained in documents filed
after the effective date of the registration statement through the date of
responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If a
claim of indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in a successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE> 49
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
A Plan and Agreement of Merger (the "Agreement") was executed on October 25,
1999, by and among ALBARA, LEAPFROG Merger, Inc., LEAPFROG and Real
Provencher, who joined in the execution of the Agreement for the purpose of
making certain covenants regarding the transaction contemplated therein.
ALBARA is a corporation duly organized and validly existing under the laws of
the state of Colorado, with its registered office at 1560 Broadway, Denver,
Colorado 80202, its principal executive office at 610 South Frazier, Conroe,
Texas 77301, and its phone number is (409) 441-2650; LEAPFROG Merger, Inc.
("Albara Subsidiary" or the "Merger Surviving Corporation") is a wholly owned
subsidiary of ALBARA duly organized and validly existing under the laws of the
State of Florida, with its registered office located in the city of Orlando,
County of Orange, State of Florida, and its principal executive office at 101
Maitland Center Commons, Maitland, FL 32751; LEAPFROG is a corporation duly
organized and validly existing under the laws of the state of Florida, with its
registered office located in the city of Orlando, County of Orange, State of
Florida, and its principal executive office at 101 Maitland Center Commons,
Maitland, FL 32751, and its phone number is (407) 838-0400; and Real
Provencher is the President of ALBARA.
The respective boards of directors of ALBARA, Albara Subsidiary and LEAPFROG
deemed it desirable and in the best interests of their respective
corporations, for ALBARA to acquire the outstanding capital stock of LEAPFROG
by merging LEAPFROG into Albara Subsidiary in exchange for the issuance of
shares of the common stock of ALBARA and have proposed, declared advisable and
approved such merger (the "LEAPFROG Merger") pursuant to this Agreement, which
Agreement has been duly approved by resolutions of the respective boards of
directors of ALBARA, Albara Subsidiary and LEAPFROG. This Agreement requires
that a shareholders' meeting be called by ALBARA for the purposes of approving
the LEAPFROG Merger prior to closing.
The transaction resulted in a change in control of Albara because following
its exchange of the Shares, Leapfrog shareholders owned approximately _____%
of the issued and outstanding Common Stock of Albara.
The number of shares voted for the Plan of Merger was, with respect to each
corporation, sufficient for approval.
CONVERSION OF SHARES IN THE MERGER
On the Effective Date, by virtue of the LEAPFROG Merger each share of LEAPFROG
Common Stock and each LEAPFROG option to purchase LEAPFROG Common Stock issued
and outstanding immediately prior to the Effective Date shall be converted
into the right to receive from ALBARA the following consideration (in the
aggregate, the "LEAPFROG Consideration"):
(i) Issuance of Shares and Options in connection with the LEAPFROG Merger.
The aggregate number of ALBARA Shares of common stock to be issued or
reserved for issuance in connection with the LEAPFROG merger shall be
Seven Million Seven Hundred Seventy-Five Thousand Nine Hundred Ninety-Nine
(7,775,999). As soon as practicable after the LEAPFROG Merger becomes
effective, ALBARA shall cause its transfer agent (the "Transfer Agent")
to issue to the shareholders of LEAPFROG, on a pro rata basis, an
aggregate of Five Million Three Hundred Fifty Thousand, Forty-Nine
(5,350,049) Shares of ALBARA common stock in exchange for all the existing
shares of LEAPFROG stock. Additionally, on the Effective Date, ALBARA
shall issue option agreements to the option holders of LEAPFROG, on a
pro rata basis, and reserve Shares of ALBARA common stock as a result of
those option agreements totaling Two Million Four Hundred Thirty-Four
Thousand Nine Hundred Fifty (2,434,950). In addition, on the Effective
Date, ALBARA shall reserve Twenty-Five Thousand (25,000) shares of ALBARA
common stock for possible issuance in connection with an existing LEAPFROG
Convertible Debt security. The calculation of pro rata distributions for
the purposes of this section shall be made by dividing the aggregate
number of ALBARA Shares of common stock to be issued or reserved for
issuance in connection with the LEAPFROG merger by the aggregate number
of LEAPFROG Shares of common stock issued or reserved as a result of
options, warrants, convertible securities or other commitments. No other
issuance of securities is required to effect the LEAPFROG Merger.
<PAGE> 50
(ii) Fractional Interests. No fractional shares of common stock of ALBARA
or certificate or scrip representing the same shall be issued. In lieu
thereof each holder of LEAPFROG Shares or LEAPFROG Options having a
fractional interest arising upon such conversion will be rounded up into
one full additional share of ALBARA common stock;
(iii)Status of Common Stock. All Shares of common stock of ALBARA into which
LEAPFROG Shares are converted as herein provided shall be fully paid and
non-assessable and shall be issued in full satisfaction of all rights
pertaining to such Shares;
ITEM 5. EXHIBITS.
INDEX TO EXHIBITS
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits
to previous filings with the Commission and are incorporated herein by this
reference:
Exhibit No. Exhibit
----------- -------
### 2.1 Agreement and Plan of Merger
## 3(a) Articles of Incorporation
## 3(b) Bylaws
# 4(a) Agreements Defining Certain Rights of Shareholders
# 4(b) Specimen Stock Certificate
x 5(a) Opinion re Legality of Securities Issued
# 10(a) Pre-incorporation Consultation and Subscription
Agreement
## 10.1 Consultation Services Agreement
## 10.2 Legal Services Engagement Agreement
### 10.3 Bleed-Out Agreement
### 10.4 Consulting Agreement
### 10.5 Warrant Agreement
### 10.6 Registration Rights Agreement
xx 10.7 Representation Agreement
xx 11 Statement re Computation of Earnings per Share
(included in financial statements filed herewith)
#### 16 Letter on Change in Certifying Accountant
# 21 Subsidiaries of the Registrant
x 23(a) Consent-Legal
x 23(b) Consent-Auditor
xx 27 Financial Data Schedule
x 99.1 Safe Harbor Compliance Statement
<PAGE> 51
- -----------------------------
x filed herewith
xx previosuly filed with the Company's Annual Report on Form 10-KSB
on April 17, 2000
# previously filed with the Company's Definitive Information Statement on
Schedule 14C on January 18, 2000.
## previously filed with the Company's Registration Statement on Form S-8
on February 29, 2000
### previously filed with the Company's Form 8-K dated March 8, 2000
#### previously filed with the Company's Form 8-K dated March 17, 2000
(b) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the last quarter of
the 1999 fiscal year:
Current Report on Form 8-K dated March 8, 2000, reporting a change in
control of the registrant, pursuant to a merger transaction, in Item 1, and
other information regarding the merger transaction in Item 5. Financial
statements were filed in Item 7.
Current Report on Form 8-K dated March 17, 2000, reporting a change in
the registrant's certifying account in Item 4. No financial statements were
filed.
<PAGE> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned hereunto duly authorized.
LEAPFROG SMART PRODUCTS, INC.
/s/Randolph Tucker
DATE: May 11, 2000 By: RANDOLPH TUCKER
Name:
Title: CEO
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Randolph Tucker, his true and lawful
attorneys-in-fact and agents with full power of substitution and
re-substitution, for then and in their name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ----------------------- -------------
<S> <C> <C>
Signature Title Date
/s/ Randolph Tucker Chief Executive Officer May 11, 2000
- ------------------------- & Director
Randolph Tucker
/s/ James Gornto Chief Financial Officer May 11, 2000
- ------------------------- & Secretary
James Gornto
/s/ James Grebey Chief Technical Officer May 11, 2000
- ------------------------- & Director
James Grebey
/s/ Dale Grogan President May 11, 2000
- ------------------------- & Director
Dale Grogan
/s/ Bruce Starling Chairman May 11, 2000
- ------------------------- & Director
Bruce Starling
</TABLE>
May 11, 2000
CONFIDENTIAL
Office of Small Business Policy
Division of Corporation Finance
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Leapfrog Smart Products, Inc.-
Opinion re Legality of Securities to be Issued
Ladies and Gentlemen:
We have acted as special counsel for Leapfrog Smart Products, Inc., a Colorado
corporation (the "Registrant"), in connection with the execution and delivery
of a registration statement on Form SB-1 (the "Registration Statement"),
filed pursuant to the Securities Act of 1933 on behalf of the Registrant
and certain Selling Shareholders.
In connection with this matter, we have examined the originals or copies
certified or otherwise identified to my satisfaction of the following:
(a) Articles of Incorporation of the Registrant, as amended to date;
(b) By-laws of the Registrant, as amended to date;
(c) Certificate from the Secretary of State of the State of Colorado,
dated as of a recent date, stating that the Registrant is duly
incorporated and in good standing in its state of incorporation;
(d) Certificate from the Secretary of State of the State of Colorado,
dated as of a recent date, stating that the Registrant is duly qualified
to do business and is in good standing in its state of
incorporation and has filed all required reports and paid
all taxes due;
Page 2
S.E.C.
May 11, 2000
- --------------------
(e) Executed copy of the Registration Statement;
In addition to the foregoing, we have also relied as to matters of fact upon
the representations made by the Registrant in compliance with due diligence
requirements submitted by my office and related certificates and upon
representations made by the Registrant. Based upon and in reliance upon the
foregoing, and after examination of such corporate and other records,
certificates and other documents and such matters of law as we have deemed
applicable or relevant to this opinion, it is our opinion that:
1. The Registrant has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Colorado and
has full corporate power and authority to own its properties and conduct
its businesses; the Registrant is duly qualified as a foreign corporation
and is in good standing in Florida and in each other jurisdiction in
which the ownership or leasing of property requires such qualification
(except for those jurisdictions in which the only material consequence of
a failure to be so qualified, other than potential penalties not individually
or in the aggregate material to the Registrant taken as a whole, is that
actions may not be brought in the courts of such jurisdictions by the
Registrant until its failure to so qualify, if required, has been cured);
2. The authorized capital stock of the Registrant consists of 30,000,000
shares of Common Stock, .001 par value, of which there are outstanding
7,546,495 shares. Proper corporate proceedings have been taken validly to
authorize such authorized capital stock; all the outstanding shares of such
capital stock (including the Shares) have been duly and validly issued and are
fully paid and nonassessable; the shareholders of the Registrant have no
preemptive rights with respect to the Common Stock of the Registrant;
3. The Registrant timely files reports and is current with respect to all
reports required to be filed on behalf of the Registrant, pursuant to Section
12, 13 and/or 15 of the Securities Exchange Act of 1934 (the "Exchange Act")
and, to the best of my knowledge, no stop order suspending the effectiveness
of any registration statement, Exchange Act filing, or suspending or
preventing trading on the Over-the-Counter ("OTC") Bulletin Board is in effect
and no proceedings for that purpose have been instituted or are pending or
contemplated by the N.A.S.D.;
Page 3
S.E.C.
May 11, 2000
- ---------------------
4. The Registrant's reports (except as to the financial statements contained
therein, as to which we express no opinion) comply as to form in all material
respects with the requirements of the Exchange Act and with the rules and
regulations of the Securities and Exchange Commission thereunder;
5. On the basis of information developed and made available to us, the
accuracy or completeness of which has not been independently verified by us,
we have no reason to believe that the Registration Statement or the Exchange
Act reports (except as to the financial statements contained therein, as to
which we express no opinion) contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading;
6. The information required to be set forth in the Registration Statement is,
to the best of our knowledge, accurately and adequately set forth therein in all
material respects or no response is required with respect to such items, and,
to the best of my knowledge, the description of the Registrant's plans and
agreements granted thereunder accurately and fairly represents the information
required to be shown with respect to said plans, agreements, and reports by
the Exchange Act and the rules and regulations of the Securities and Exchange
Commission thereunder;
7. The terms and provisions of the capital stock of the Registrant conform to
the description thereof contained in all filed reports under the caption
"Description of Common Stock" and have been reviewed by me and insofar as
such statements constitute a summary of the law or documents referred to
therein, are correct in all material respects, and the forms of certificates
evidencing the Common Stock comply with the Colorado law;
8. The descriptions in the filed reports and Registration Statement of material
contracts and other material documents are fair and accurate in all material
respects; and we do not know of any franchises, contracts, leases, licenses,
documents, statutes or legal proceedings, pending or threatened, which in our
opinion is of a character required to be described in the filed reports and
Registration Statement or to be filed as exhibits to the reports or
Registration Statement, which are not described and filed as required;
Page 4
S.E.C.
May 11, 2000
_____________________
9. The Shares have been duly authorized, executed, and delivered by
the Registrant and constitute the valid and legally binding obligation of the
Registrant except as the indemnity provisions thereof may be limited by the
principles of public policy;
10. To the best of our knowledge and belief after due inquiry, there are no
holders of Common Stock or other securities of the Registrant having
registration rights with respect to such securities on account of the filing
of a registration statement who have not effectively waived such rights; and
11. No consent, approval, authorization, or order of any court or
governmental agency or body is required for the consummation by the
Registrant of the transactions on its part contemplated by the Registration
Statement, except such as have been obtained under the Exchange Act
and such as may be required under state or other securities or blue sky
laws in connection with the distribution of the Shares to the Selling
Shareholders.
In addition, we have participated in conferences with representatives and
accountants of the Registrant at which the contents of the Registration
Statement were discussed. Although we have not verified the accuracy or
completeness of the statements contained in the Registration Statement
(other than the caption "Description of Common Stock"), we advise you that
on the basis of foregoing, we have no reason to believe that the Registration
Statement, as of the effective date, contained any untrue statements of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (except
in each such case for the financial statements or other financial data
contained in the Registration Statement as to which we are not called upon
to and do not express any opinion).
Page 5
S.E.C.
May 11, 2000
_____________________
This letter is furnished to you as for filing purposes on behalf of the
Registrant, and is solely for the benefit of the United States Securities and
Exchange Commission.
Respectfully,
/s/ Nadeau & Simmons, P.C.
NADEAU & SIMMONS, P.C.
CONSENT OF COUNSEL
We hereby consent to the use of our name as legal counsel in the Registration
Statement filed on Form SB-1 pursuant to the Securities Act of 1933 (the
("Act") by Leapfrog Smart Products, Inc..
NADEAU & SIMMONS, P.C.
/S/ Nadeau & Simmons, P.C.
By:_____________________________
Providence, RI
May 31, 2000
CONSENT OF MOORE, STEPHENS & LOVELACE, P.A.,
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus of Leapfrog Smart Products, Inc. that is made a part of the
Registration Statement (Form SB-1) of Leapfrog Smart Products, Inc. for the
registration of approximately 2,909,625 shares of its common stock and to the
incorporation by reference therein of our report dated December 31, 1999, with
respect to the financial statements and schedules of Leapfrog Smart Products,
Inc., as amended, filed with the Securities and Exchange Commission.
/s/ Moore, Stephens & Lovelace, P.A.
Winter Park, Florida
May 11, 2000
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD LOOKING STATEMENTS
MARKET RISKS AND OTHER BUSINESS FACTORS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Sections 77z 2 and 78u 5 (Supp. 1996), Congress encouraged
public companies to make "forward looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward looking statements. Leapfrog Smart Products, Inc. ("the "Company")
intends to qualify both its written and oral forward looking statements for
protection under the Reform Act and any other similar safe harbor provisions.
"Forward looking statements" are defined by the Reform Act. Generally, forward
looking statements include expressed expectations of future events and the
assumptions on which the expressed expectations are based. All forward looking
statements are inherently uncertain as they are based on various expectations
and assumptions concerning future events and they are subject to numerous
known and unknown risks and uncertainties which could cause actual events or
results to differ materially from those projected. Due to those uncertainties
and risks, the investment community is urged not to place undue reliance on
written or oral forward looking statements of the Company. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, the Company undertakes no obligation
to update or revise forward looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
The Company provides the following risk factor disclosure in connection with
its continuing effort to qualify its written and oral forward looking
statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to
management that could cause actual results to differ materially from those in
forward looking statements include the disclosures incorporated herein by
reference and set forth in Item 3, Risk Factors of Form SB-1, filed herewith
on May 11, 2000 with the Securities and Exchange Commission
("SEC") and also include the following:
Liquidity
The Company is considering the sale of equity in connection with a secondary
offering later in 2000. The Company does not have any underwriting commitments
for such sale of equity. There can be no assurance that any such sale will
close by such date or at all or that the Company will continue to consider
such an offering.
Litigation And Government Investigations
Numerous federal and state civil and criminal laws govern software technology
operations, development and ancillary activities. In general, these laws
provide for various fines, penalties, multiple damages, assessments and
sanctions for violations.
Evolving Industry Standards; Rapid Technological Changes
The Company's success in its business will depend in part upon its continued
ability to enhance its existing techniques and services, to introduce new
techniques and services quickly and cost effectively to meet evolving client
needs and to respond to emerging industry standards and other technological
changes. There can be no assurance that the Company will be able to respond
effectively to new industry standards. Moreover, there can be no assurance
that competitors of Leapfrog Smart Products, Inc. will not develop competitive
techniques, or that any such competitive techniques will not have an adverse
effect upon the Company's operating results.
Moreover, management intends to continue to implement "best practices" and
other established process improvements in its operations going forward. There
can be no assurance that the Company will be successful in refining, enhancing
and developing its operating strategies and systems going forward, that the
costs associated with refining, enhancing and developing such strategies and
systems will not increase significantly in future periods.
Volatility Of Stock Price
The Company believes factors such as liquidity and financial resources and
quarter to quarter and year to year variations in financial results could
cause the market price of the Company's common stock to fluctuate
substantially. Any adverse announcement with respect to such matters or any
shortfall in revenue or earnings from levels expected by management could have
an immediate and material adverse effect on the trading price of the Company's
common stock in any given period. As a result, the market for the Company's
common stock may experience material adverse price and volume fluctuations and
an investment in the Company's common stock is not suitable for any investor
who is unwilling to assume the risk associated with any such price and volume
fluctuations.
