UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement
Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant|_|
Check the appropriate box:
| | Preliminary information statement |_| Confidential, for use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive information statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ALBARA CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Information Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X|No fee required.
|_|Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:
(2)Aggregate number of securities to which transaction applies:
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4)Proposed maximum aggregate value of transaction:
(5)Total fee paid:
|_|Fee paid previously with preliminary materials:
|_|Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1)Amount Previously Paid:
(2)Form Schedule or Registration Statement No.:
(3)Filing Party:
(4)Date Filed: January 18, 2000
By Order of the Board of Directors
Barbara Provencher
Secretary
Conroe, Texas
January 18, 2000
MANAGEMENT HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. YOUR COOPERATION
WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE
THEIR STOCK PERSONALLY, OTHERWISE YOUR VOTE WILL NOT BE COUNTED.
ALBARA CORPORATION
January 18, 2000
To the Shareholders of
ALBARA CORPORATION:
Dear Fellow Shareholders:
Attached please find a notice of annual meeting of the shareholders of
ALBARA CORPORATION (hereinafter referred to as "ALBARA" and/or the "Company"),
that will be held at the ALBARA headquarters, 610 South Frazier, Conroe,
Texas 77301, on January 28, 2000, at 10:00 a.m., Central Daylight Time
("CDT"). The purpose of this meeting is to consider, discuss, vote and act
upon the following:
(i) Restating and amending the Company's Articles of Incorporation in order to
change its name from ALBARA CORPORATION to "LEAPFROG SMART PRODUCTS, INC."
("name change"), effecting a 1-for-7 (1:7) reverse stock split in the
outstanding shares of ALBARA common stock, no par value ("Common Stock")
("stock split"), and increasing the number of authorized shares of Common
Stock to thirty million (30,000,000);
(ii) Approving a Plan of Merger (the "Merger") whereby Leapfrog Smart Products,
Inc. (hereinafter referred to as "LEAPFROG") will be merged into Leapfrog
Merger, Inc. ("Albara Subsidiary" or "Merger Surviving Corporation"), a
wholly-owned subsidiary of ALBARA, trading under the symbol "ALBR" on the
Over-the-Counter Bulletin Board ("OTC:BB");
Page 2
Albara Shareholders
January 18, 2000
______________________
(iii)electing a new Board of Directors; and
(iv) restating and amending the Company's incentive stock option plan.
Certain officers, directors and affiliates of ALBARA who own in excess of
50.00% of the outstanding voting shares of the Company have advised the
Company that they intend to vote in favor of each item set forth above.
Consequently, the proposals will be approved at the annual meeting of
stockholders.
Although ALBARA is not a party to the merger with LEAPFROG, the transaction is
never the less being submitted to its shareholders because of the significance
and material effect on the Company. As a result ALBARA hereby offers its
shareholders Dissenter's Rights as provided for in Article 7-113-101 through
7-113-302 of the Colorado Business Corporation Act ("CBCA"), as amended. If an
ALBARA shareholder elects to exercise their Dissenter's Rights in accordance
with Article 7-113-204, said shareholder of ALBARA will be paid the fair value
thereof as determined by the Board of Directors. The Board of Directors has
determined the fair value of each share of Common Stock to be $0.05. The
determination of the per share fair value was computed based on a number of
considerations including the following:
(i) the Company has had no operations for approximately two years;
(ii) the Company has negative book value and no assets as of September 30,
1999;
(iii)the bid price for most of 1998 and 1999 prior to the announcement
of this potential transaction was between $0.01 and $0.04 per share;
(iv) other similar public shell companies have in effect been sold in the
marketplace for cash consideration of $150,000 to $200,000 which would
result in a fully diluted per share value of approximately $0.05 per
share.
In the event a shareholder elects to exercise Dissenters' Rights, such
shareholder must comply with the applicable procedures set forth in Sections
7-113-201 through 7-113-209 of the CBCA in order to receive payment of
the fair value of any Common Shares. In compliance with Section 7-113-201
of the CBCA, a copy of Article 113 of the CBCA is set forth at Item 3 of the
accompanying Information Statement filed on Schedule 14 C (the "Information
Statement") dated January 18, 2000.
The Company is also including herewith a copy of its Annual Report on Form
10-KSB, filed as an exhibit to the Information Statement. If there are any
questions or any further information is required with respect to the meeting
and the transactions contemplated thereby, please contact me at (409) 441-2650
or Mark T. Thatcher, Esq., Nadeau & Simmons, P.C., 1250 Turks Head Building,
Providence, RI 02903 (401) 272-5800.
Warmest regards,
/s/ Real Provencher
REAL PROVENCHER,
Chairman
DATED: January 18, 2000
DEFINITIVE COPY
ALBARA CORPORATION
610 SOUTH FRAZIER
CONROE, TEXAS 77301
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
ALBARA CORPORATION
Dated as of January 18, 2000
______________________________________________________________________________
To the Stockholders of ALBARA:
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned, being the Secretary of ALBARA CORPORATION, provides that:
______________________________________________________________________________
Notice is hereby given that the annual meeting (the "Meeting") of the
stockholders of ALBARA CORPORATION (hereinafter referred to as "ALBARA"
and/or the "Company"), a Colorado corporation, will be held at the Company
headquarters, 610 South Frazier Conroe, Texas 77301, on January 28, 2000, at
10:00 a.m., Central Daylight Time ("CDT").
______________________________________________________________________________
The purpose of this meeting is to consider, discuss, vote and act upon
the following:
(i) Restating and amending the Company's Articles of Incorporation in order to
change its name from ALBARA CORPORATION to "LEAPFROG SMART PRODUCTS, INC."
("name change"), effecting a 1-for-7 (1:7) reverse stock split in the
outstanding shares of ALBARA common stock, no par value ("Common Stock")
("stock split"), and increasing the number of authorized shares of Common
Stock to thirty million (30,000,000);
(ii) Approving a Plan of Merger (the "Merger") whereby Leapfrog Smart
Products, Inc. (hereinafter referred to as "LEAPFROG") will be merged
into Leapfrog Merger, Inc. ("Albara Subsidiary" or "Merger Surviving
Corporation"), a wholly-owned subsidiary of ALBARA, trading under the
symbol "ALBR" on the Over-the-Counter Bulletin Board ("OTC:BB");
(iii)electing a new Board of Directors; and
(iv) restating and amending the Company's incentive stock option plan.
<PAGE>
Certain officers, directors and affiliates of the Company own in excess of
50.00% of the Voting Shares of the Company and have advised the Company that
they intend to vote in favor of the Proposals. Consequently, the Proposals
will be approved at the Meeting.
Although ALBARA is not a party to the merger with LEAPFROG, the transaction is
never the less being submitted to its shareholders because of the significance
and material effect on the Company. As a result ALBARA hereby offers its
shareholders Dissenter's Rights as provided for in Article 7-113-101 through
7-113-302 of the Colorado Business Corporation Act ("CBCA"), as amended. If an
ALBARA shareholder elects to exercise their Dissenter's Rights in accordance
with Article 7-113-204, said shareholder of ALBARA will be paid the fair
value thereof as determined by the Board of Directors.
The Board of Directors has determined the fair value of each share of Common
Stock to be $0.05. The determination of the per share fair value was computed
based on a number of considerations including the following: (i) the Company
has had no operations for approximately two years; (ii) the Company has
negative book value and no assets as of September 30, 1999; (iii) the bid price
for most of 1998 and 1999 prior to the announcement of this potential
transaction was between $0.01 and $0.04 per share; (iv) other similar public
shell companies have in effect been sold in the marketplace for cash
consideration of $150,000 to $200,000 which would result in a fully diluted
per share value of approximately $0.05 per share.
In the event a shareholder elects to exercise Dissenters' Rights, such
shareholder must comply with the applicable procedures set forth in Sections
7-113-201 through 7-113-209 of the CBCA in order to receive payment of
the fair value of any Common Shares. In compliance with Section 7-113-201 of
the CBCA, a copy of Article 113 of the CBCA is set forth at Item 3 of the
accompanying Information Statement filed on Schedule 14 C (the "Information
Statement") dated January 18, 2000.
In order to obtain the fair value payment for ALBARA shares, a shareholder
must mail or deliver their intention no later than February 18, 2000, to the
following address:
The Board of Directors
Albara Corporation
P.O. Box 541,
Conroe, Texas
77305-0541
The Board of Directors of the Company believe that the Merger will be in the
best interest of the ALBARA shareholders. However, shareholders are entitled
to assert the above stated Dissenter's Rights (fair value of $0.05 per share)
no later than February 18, 2000, as a result of this transaction as explained
in Section 7-111 of the CBCA. We are not asking you for a proxy in conjunction
with this Meeting, but you are urged to attend the Meeting to vote your
shares in person.
<PAGE>
Upon the approval of the Proposals, the Albara Subsidiary and LEAPFROG will
immediately file appropriate Articles of Merger in accordance with Florida law
to effect the Merger and file articles of amendment to the Articles of
Incorporation of ALBARA in accordance with Colorado law to effect a change in
the issued outstanding Common Stock of ALBARA. The Merger will become effective
upon the completion of both filings. Subject to the reverse stock split to be
considered at the Meeting, at the completion of the proposed Merger, each
ALBARA shareholder will maintain their current shares of ALBARA Common.
The Board of Directors of the Company believes that the Proposals will be in
the best interest of ALBARA shareholders and recommends their adoption.
The Company is also including herewith a copy of its Annual Report on
Form 10-KSB, filed as an exhibit to the Information Statement.
If there are any questions or further information is required with respect to
the Proposals, please contact Real Provencher at P.O. Box 541, Conroe, Texas
77305-0541, 409-441-2650.
By order of the Board of Directors,
/s/ Barbara Provencher
___________________________________
BARBARA PROVENCHER,
Secretary
DATED: January 18, 2000
<PAGE> 1
_______________________________
INFORMATION STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held January 28, 1999
_______________________________
ALBARA CORPORATION
610 SOUTH FRAZIER
CONROE, TEXAS 77301
January 28, 1999
GENERAL INFORMATION
This Information Statement is furnished in connection with an Annual Meeting
of Stockholders called by the Board of Directors (the "Board") of Albara
Corporation ("ALBARA"), to be held at 610 South Frazier, Conroe, Texas 77301,
at 10:00 a.m. local time on January 28, 2000, and at any and all
postponements, continuations or adjournments thereof (collectively the
"Meeting"). This Information Statement and the accompanying Notice of Annual
Meeting will be first mailed or given to ALBARA's stockholders on or about
January 28, 2000.
All shares of ALBARA's common stock, no par value, and all shares of Preferred
Series C stock, no par value, (the "Voting Shares") represented in person
will be eligible to be voted at the Meeting.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
<PAGE> 2
ITEM 1. DATE, TIME AND PLACE INFORMATION
The enclosed information statement is provided by the Board of ALBARA for use
at the Annual Meeting of Stockholders to be held at the Company's headquarters
at 610 South Frazier, Conroe, Texas 77301 at 10:00 a.m. on January 28, 2000,
and at any adjournment or adjournments thereof.
Stockholders of record at the close of business on November 19, 1999 (the
"Record Date") will be entitled to vote at the meeting or any adjournment or
adjournments thereof. On that date the Company had outstanding 2,361,503
shares of Common Stock entitled to one (1) vote per share and 185 shares of
Preferred Series C entitled to 10,352 votes per share (the "Voting Shares").
The affirmative vote of the holders of a majority of the Company's Voting
Shares is required to approve each of the Proposals.
The presence of the holders of a majority of the issued and outstanding shares
of Voting Shares voting as a single class, entitled to vote at the meeting is
necessary to constitute a quorum for the transaction of business at the
meeting.
BACKGROUND INFORMATION
A Plan and Agreement of Merger (the "Agreement") was executed on October 25,
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, 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
<PAGE> 3
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.
PROPOSAL ONE
AMENDMENT TO ARTICLES OF INCORPORATION
The Board of Directors has unanimously approved, and recommends for
shareholder approval, the restatement and amendment of the Company's Articles
of Incorporation in order to change the Company's name to "Leapfrog Smart
Products, Inc.", amending the Company's Articles of Incorporation to effect a
1-for-7 (1:7) reverse stock split in ALBARA common stock ("stock split");
and amending the Company's Articles of Incorporation to increase the number of
common shares authorized from 6,666,667 to 30,000,000. Approval of the
restatement and amendment will not result in any other material amendment or
change to the Company's Articles of Incorporation. The restatement and
amendment is required to effect the Company's acquisition of LEAPFROG.
PROPOSAL TWO
APPROVAL OF PLAN AND AGREEMENT OF MERGER
The Board of Directors has unanimously approved, and recommends for
shareholder approval, a Plan of Merger (the "Merger"), whereby LEAPFROG will
be merged into LEAPFROG MERGER, INC., a wholly-owned subsidiary of ALBARA.
PROPOSAL THREE
ELECTION OF DIRECTORS
At the Meeting, the successors to the current Board of Directors will be
elected for a term of office, such term to commence on the effective date of
the Merger. The nominee directors who are chosen to fill vacancies on the
Board shall hold office until the next election for which those nominee
directors are chosen, and until their successors are duly elected by the
stockholders.
The following table sets forth the ages of and positions and offices presently
held by each nominee director of the Company. For information about
ownership of the Company's Voting Securities by each nominee director, see
"BENEFICIAL OWNERSHIP OF VOTING SECURITIES."
<PAGE> 4
<TABLE>
<CAPTION>
Date First
Became Positions and Offices
Name Age Director With the Company
- -------------------- ---- ---------- ---------------------
<S> <C> <C> <C>
Ron Breland * N/A None
Washington, D.C.
Dr. William Campion * N/A None
El Paso, Texas
Jim Grebey * N/A None
Orlando, Florida
Dale Grogan * N/A None
Orlando, Florida
Bruce Starling * N/A None
Orlando, Florida
Van Staton * N/A None
Ocala, Florida
George Stuart * N/A None
Orlando, FL
Randolph Tucker * N/A None
Orlando, Florida
- ------------------------------------------------------
<FN>*Nominees for election at this meeting.
Please see personal biographies at Item. 7
</FN>
</TABLE>
<PAGE> 5
PROPOSAL FOUR
AMENDMENT TO INCENTIVE STOCK OPTION PLAN
On February 26, 1988, the Company adopted an Incentive Stock Option Plan (the
"Plan"), under which options granted are intended to qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan was further modified by vote of the Company's
shareholders at the annual Company shareholder's meeting which was held on
June 3, 1989. The purpose of this Plan is to advance the interests of the
Company and its stockholders by helping the Company obtain and retain the
services of employees upon whose judgment, initiative and efforts the Company
is substantially dependent, and to provide those persons with further
incentives to advance the interests of the Company.
The Board of Directors has unanimously approved, and recommends for shareholder
approval, the restatement and amendment of the Company's Incentive Stock Option
Plan in order to increase the aggregate number of shares that may be issued
pursuant to this Plan from 166,667 to 350,000 restricted shares and change the
Plan such that options granted by the Board of Directors shall be subject to
the limitation that (i) the exercise price cannot be less than 110% of the
market value of the Common Stock on the date of the grant; (ii) no option can
have a term in excess of 5 years measured from the grant date; (iii) no option
may vest in a period of less than eighteen (18) months from the grant date;
(iv) all options granted to an individual shall expire 30 days after the
termination of employment, with or without cause, from the Company; and
(v) options once granted by the Board of Directors may not have their terms
altered in any way but may by mutual consent with the option holder be
canceled.
ITEM 2. REVOCABILITY OF PROXY
Not Applicable
ITEM 3. DISSENTERS' RIGHT OF APPRAISAL
Although ALBARA is not a party to the merger with LEAPFROG, the transaction is
never the less being submitted to its shareholders because of the significance
and material effect on the Company. As a result ALBARA hereby offers its
shareholders Dissenter's Rights as provided for in Article 7-113-101 through
7-113-302 of the CBCA. If an ALBARA shareholder elects to exercise their
Dissenter's Rights in accordance with Article 7-113-204, said shareholder of
ALBARA will be paid the fair value thereof as determined by the Board of
Directors.
<PAGE> 6
The Board of Directors has determined the fair value of each share
of Common Stock to be $0.05. The determination of the per share fair value
was computed based on a number of considerations including the following:
(i) the Company has had no operations for approximately two years;
(ii) the Company has negative book value and no assets as of September 30,
1999;
(iii)the bid price for most of 1998 and 1999 prior to the announcement of
this potential transaction was between $0.01 and $0.04 per share;
(iv) other similar public shell companies have in effect been sold in the
marketplace for cash consideration of $150,000 to $200,000 which would
result in a fully diluted per share value of approximately $0.05 per
share.
The Board of Directors of the Company believe that the Merger will be in the
best interest of ALBARA shareholders. However, shareholders are entitled to
assert their Dissenter's Rights (fair market value of $.05 per share) no later
than February 18, 2000, as a result of this transaction as explained in
Section 7-111 of the CBCA.
In order to obtain the fair market value payment for ALBARA shares, a
shareholder must mail or deliver their intention to the following address:
The Board of Directors
Albara Corporation
P.O. Box 541
Conroe, Texas 77305-0541
Pursuant to Article 113 of the CBCA, each shareholder has the right and is
entitled to dissent from the consummation of the Merger and receive payment
of the fair value of the Common Shares owned by any such shareholder
("Dissenters' Rights"). In the event a shareholder elects to exercise
Dissenters' Rights, such shareholder must comply with the applicable
procedures set forth in Sections 7-113-201 through 7-113-209 of the CBCA, as
summarized below, in order to receive payment of the fair value of any Common
Shares. In compliance with Section 7-113-201 of the CBCA, a copy of Article
113 of the CBCA and its summary are set forth below.
<PAGE> 7
Summary of Article 113 of the CBCA
THE FOLLOWING IS ONLY A SUMMARY OF THE PROCEDURES FOR
DISSENTING SHAREHOLDERS PRESCRIBED BY SECTIONS 7-113-101 THROUGH
7-113-302 OF THE CBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF ARTICLE 113 OF THE CBCA AS SET FORTH BELOW
Section 7-113-102 of the CBCA provides that each record or beneficial
shareholder of the Company is entitled to dissent from the Merger and demand
payment of the fair value of the shares of Common Stock owned by such
shareholder. In accordance with Section 7-113-202 of the CBCA, in order for
a shareholder to exercise Dissenters' Rights, such shareholder must, prior to
the taking of the vote of the shareholders on the Merger, deliver to the
Company written notice of such shareholder's intent to demand payment for
shares in the event the Merger is approved and shall not vote such
shareholder's shares in favor of the Merger.
In accordance with Section 7-113-203 of the CBCA, within ten days after
the Merger is effected, the Company must deliver a written dissenter's
notice ("Dissenter's Notice") to all shareholders who satisfy the
requirements of Section 7-113-202 of the CBCA. The Dissenter's Notice must
state that the Merger was authorized and the effective date of the Merger,
set forth the address at which the Company will receive payment demands
and where stock certificates shall be deposited, supply a form for
demanding payment, which form shall request an address from the
dissenting shareholder to which payment is to be made, and set the date
by which the Company must receive the payment demand and stock certificates,
which date shall not be less than 30 days after the date the Dissenter's
Notice was delivered. Furthermore, the Dissenter's Notice may require
that all beneficial shareholders, if any, certify as to the assertion of
Dissenters' Rights, and be accompanied by Article 113 of the CBCA.
Pursuant to Section 7-113-204 of the CBCA, a shareholder receiving the
Dissenter's Notice must demand payment in writing and deposit such shareholder's
stock certificates in accordance with the terms of the Dissenter's Notice.
A shareholder who does not comply with the foregoing requirements is not
entitled to the fair value of such shareholder's shares under Article 113 of the
CBCA.
Upon the later of the effective date of the Merger, or upon receipt of
a demand for payment by a dissenting shareholder, the Company must pay
each dissenting shareholder who complies with Section 7-113-204 the
amount the Company estimates to be the fair value of such shares, plus
accrued interest in accordance with Section 7-113-206 of the CBCA. The
payment must be accompanied by (i) the Company's balance sheet as of the
fiscal year ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of change in
shareholders' equity for that year, and the latest available interim
financial statement; (ii) a statement of the Company's estimate of the
fair value of the shares; (iii) an explanation by the Company of how the
interest was calculated; (iv) a statement of the dissenting
shareholder's right to demand payment under Section 7-113-209 of the CBCA;
and (v) a copy of Article 113 of the CBCA.
In the event a dissenting shareholder is dissatisfied with the Company's
payment or offer of payment, such dissenting shareholder, pursuant to
Section 7-113-209 of the CBCA, may notify the Company in writing within 30
days after the Company makes or offers to pay each dissenting
shareholder, of such shareholder's own estimate of the fair value of such
shares and the amount of interest due, and demand payment of such
shareholder's estimate, less any payment already made by the Company
under Section 7-113-206, or reject the Company's offer under
Section 7-113-208 and demand payment for the fair value of the shares and
interest due. A dissatisfied dissenting shareholder may effect the
foregoing if: (i) the dissenting shareholder believes that the amount paid
or offered is less than the fair value of the shares or that the interest due
is incorrectly calculated; (ii) the Company has failed to make payment
within 60 days after the date set for demanding payment; or (iii)
the Company does not return the deposited stock certificates within the
time specified by Section 7-113-207 of the CBCA. In the event a demand for
payment under Section 7-113-209 remains unresolved, the Company may commence
a court proceeding to determine the fair value of the shares and accrued
interest within 60 days after receiving the payment demand from a dissenting
shareholder.
TITLE 7. COLORADO BUSINESS CORPORATION ACT
ARTICLE 113. DISSENTERS' RIGHTS
PART 1. RIGHT OF DISSENT - PAYMENT FOR SHARES
C.R.S. 7-113-101 (1996)
7-113-101. Definitions
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in
a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7- 113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
that exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares that are registered in the name of a nominee to the extent such
owner is recognized by the corporation as the shareholder as provided in
section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. Right to dissent
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is
required for the merger by section 7-111-103 or 7-111-104
or by the articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its
parent corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation
for which a shareholder vote is required under section 7-112-102
(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity
controlled by the corporation if the shareholders of the
corporation were entitled to vote upon the consent of the
corporation to the disposition pursuant to section 7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class
or series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended,
or on the national market system of the national association of securities
dealers automated quotation system, or were held of record by more than two
thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the
corporate action; or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities
Exchange Act of 1934", as amended, or on the national market
system of the national association of securities dealers automated
quotation system, or will be held of record by more than two
thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, 30, effective June 1, 1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided
under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair value
of the shareholder's shares in the event of any corporate action to the extent
provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this article may not challenge the corporate action creating
such entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
7-113-103. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any
one person and causes the corporation to receive written notice which states
such dissent and the name, address, and federal taxpayer identification
number, if any, of each person on whose behalf the record shareholder asserts
dissenters' rights. The rights of a record shareholder under this
subsection (1) are determined as if the shares as to which the record
shareholder dissents and the other shares of the record shareholder were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the
beneficial shareholder and the record shareholder or record shareholders of
all shares owned beneficially by the beneficial shareholder have asserted,
or will timely assert, dissenters' rights as to all such shares as to which
there is no limitation on the ability to exercise dissenters' rights. Any such
requirement shall be stated in the dissenters' notice given pursuant to
section 7-113-203.
7-113-201. Notice of dissenters' rights
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting, the notice of
the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this article and shall be accompanied by a copy
of this article and the materials, if any, that, under articles 101 to 117 of
this title, are required to be given to shareholders entitled to vote on the
proposed action at the meeting. Failure to give notice as provided by this
subsection (1) shall not affect any action taken at the shareholders' meeting
for which the notice was to have been given, but any shareholder who was
entitled to dissent but who was not given such notice shall not be precluded
from demanding payment for the shareholder's shares under this article by
reason of the shareholder's failure to comply with the provisions of section
7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall
be accompanied or preceded by a written notice stating that shareholders are or
may be entitled to assert dissenters' rights under this article, by a copy of
this article, and by the materials, if any, that, under articles 101 to 117 of
this title, would have been required to be given to shareholders entitled to
vote on the proposed action if the proposed action were submitted to a vote at
a shareholders' meeting. Failure to give notice as provided by this subsection
(2) shall not affect any action taken pursuant to section 7-107-104 for which
the notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from
demanding payment for the shareholder's shares under this article by reason
of the shareholder's failure to comply with the provisions of section
7-113-202 (2).
7-113-202. Notice of intent to demand payment
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting and if notice
of dissenters' rights has been given to such shareholder in connection with
the action pursuant to section 7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is
effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201 (2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203. Dissenters' notice
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their shares
under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall
not be less than thirty days after the date the notice required by
subsection (1) of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. Procedure to demand payment
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance
with the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203 (2) (d),
duly completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the
right to receive payment for the shares after the effective date of such
corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205. Uncertificated shares
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. Payment
(1) Except as provided in section 7-113-208, upon the effective date of
the corporate action creating dissenters' rights under section 7-113-102 or
upon receipt of a payment demand pursuant to section 7-113-204, whichever is
later, the corporation shall pay each dissenter who complied with section
7-113-204, at.
7-113-302. Court costs and counsel fees
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation; except that the court may
assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this
article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to said counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
ITEM 4. PERSONS MAKING THE SOLICITATION
The enclosed information statement is distributed by the Board of Directors
(the "Board of Directors") of ALBARA. The cost of distribution will be borne
by the Company. In addition to the distribution by mail, officers and
employees of the Company may distribute in person. The Company may reimburse
brokers or persons holding stock in their names, or in the names of their
nominees, for their expenses in sending the information statement to the
beneficial owners.
ITEM 5. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Not Applicable
ITEM 6. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of January 3, 2000 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director, and (iii) all executive officers and directors as a
group. Each person has sole voting and sole investment or dispositive power
with respect to the shares shown except as noted.
<TABLE>
<CAPTION>
PREFERRED PROFORMA(4)
STOCK COMMON STOCK
COMMON STOCK SERIES C Adj. For
Reverse Split
- -------------------------------------------------------------------------------
Name and address #of %of #of %of #of %of
of beneficial owner(1) shares Class Shares Class Shares Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barbara A. Provencher(3) 0 0 0 0 0 0
610 South Frazier
Conroe, Texas 77301
Real Provencher(2) 1,091,370 46% 185 100%(a) 429,499 7%
610 South Frazier
Conroe, Texas 77301
All Executive Officers 1,091,370 46% 185 100%(a) 429,499 7%
and Directors as a
Group (2 persons)
Total Shares
Outstanding 2,361,503 100% 185 100% 5,926,996 100%
</TABLE>
<TABLE>
<CAPTION>
Voting Control
- --------------------------------------------------------------------------------
Percent of Total Votes in
Number of Votes in Matters Matters Submitted to
Name Submitted to Shareholders Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Provencher 3,006,490(a) 70%
Barbara A. Provencher 0 0
All Executive Officers and
Directors as a Group 3,006,490(a) 70%
(2 persons)
Total Votes 4,276,623(a) 100%
<FN>
(a) Each share of Series C Convertible Preferred Stock has the right to
10,352 votes, in all matters that come before the shareholders. Mr.
Provencher is the owner of all of the issued and outstanding shares of
Series C Convertible Preferred Stock.
(1) The Company currently has two series of Preferred Stock: Series C,
and Series F Convertible Preferred Stock. The shares of Series F
Convertible Preferred Stock do not have any voting rights. None of
the issued and outstanding shares of Series F Convertible Preferred
Stock are owned or beneficially held by a director, officer or person known
by the Company to be a beneficial owner of more than five percent of any
class of equity stock of the Company as of the date hereof.
(2) The amounts of Common Stock listed do not include shares of Common Stock
to be received upon conversion of the Series C Convertible Preferred Stock.
(3) Ms. Provencher owns, as community property, one half of the shares of
stock set forth beside the name of her husband, Mr. Provencher, and may be
deemed the beneficial owner of such shares.
(4) The data provided in this column was prepared as if: (i) the merger with
LEAPFROG had occurred; (ii) the 1-for-7 reverse stock split proposal had
been approved; and all of the outstanding Series C Convertible Preferred Stock
had been converted to Common Stock as of the Closing Date of the LEAPFROG
Merger.
</TABLE>
Management of ALBARA has advised that they may acquire additional shares of
ALBARA Common Stock from time to time in the open market at prices prevailing
at the time of such purchases.
BENEFICIAL OWNERSHIP OF LEAPFROG SECURITIES
The following table sets forth certain information regarding beneficial
ownership of LEAPFROG Common Stock as of January 3, 2000 by (i) each person
known by LEAPFROG to own beneficially more than 5% of the outstanding Common
Stock, (ii) each director, and (iii) all executive officers and directors as a
group. Each person has sole voting and sole investment or dispositive power
with respect to the shares shown except as noted.
<TABLE>
<CAPTION>
<S> <C> <C>
Ron Breland 0 0.00% 240,000
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
William Campion 325,681 7.13% 3,971
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
Jim Grebey 5,000 0.11% 30,000
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
COMMON STOCK
--------------------------------------
Name and address # of %of
of beneficial owner shares Class Options
- --------------------------------------------------------------------------
Dale Grogan 309,500 6.78% 43,574
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
Bruce Starling 139,858 3.06% -
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
Van Staton 304,858 6.67% -
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
George Stuart 130,730 2.86% 52,307
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
COMMON STOCK
------------------------------------
Name and address # of %of
of beneficial owner shares Class Options
- ------------------------------------------------------------------------
Randolph Tucker 490,500 10.74% 70,052
C/O Leapfrog Smart Products, Inc.
545 Delaney Avenue
Orlando, FL 32801
</TABLE>
PRICE RANGE OF COMMON STOCK
During the 1997 through 1999 period, 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 "Bulletin Board". The range of high and low
bid quotations for the Common Stock for the two most recently completed fiscal
years and the current fiscal year are 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.
<TABLE>
<CAPTION>
1997 Fiscal Year High Bid Low Bid
- --------------------------------------------------------------
<S> <C> <C>
First Quarter $ 0.18 $ 0.09
Second Quarter $ 0.18 $ 0.09
Third Quarter $ 0.18 $ 0.09
Fourth Quarter $ 0.09 $ 0.01
1998 Fiscal Year
- ----------------------
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
</TABLE>
On January 3, 2000, the reported bid for the Company's Common Stock was
$0.34. The number of record holders of the Company's Common Stock on
January 3, 2000, was 182.
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.
ITEM 7. DIRECTORS AND EXECUTIVE OFFICERS
In 1998 and 1999, the Board of Directors met informally on a number of
occasions, voting on corporate actions by written consent.
THE DIRECTORS AND EXECUTIVE OFFICERS OF ALBARA
The directors and executive officers of the Company, their ages and positions
held in the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company Since
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Barbara A. Provencher 42 Secretary and Director Nov. 1988
Real Provencher 46 President, Chief Executive Nov. 1988
Officer, Chief Financial
Officer, Director
</TABLE>
All directors of the Company will hold office until the next annual meeting
of the shareholders and until their successors have been elected and
qualified.
The officers of the Company are elected by the Board of Directors at the
first meeting after each annual meeting of the Company's shareholders, and
hold office until their successors are elected and shall have qualified, or
until resignation or removal from office.
Summary of Experience and Responsibilities
- -------------------------------------------------------
Real Provencher - Mr. Provencher has served as President, Chief Executive
Officer, Chief Financial Officer and Director of the Company since November
1988, of Hardware That Fits since August 1989 and of Helix Technologies since
March 1992. In addition to his responsibilities as President, Mr.
Provencher owns and operates a franchise called "The Alternative Board"
specializing in small business consulting and CEO coaching. Mr. Provencher
possesses a Master of Management Science degree from Stevens Institute of
Technology, as well as Bachelor and Master degrees in Civil Engineering from
Tufts University.
Barbara A. Provencher- Ms. Provencher was elected as a director of the
Company in November 1988 and has been employed as a sales manager by the
Company's former subsidiary, Hardware That Fits, from August 1989 through
March, 1995. Since 1995, Ms. Provencher has owned and operated a privately
held company called "Rolisher & Associates, Inc." which specializes in direct
marketing of services to consumers on a national basis. Ms. Provencher is
the wife of Mr. Provencher.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------
Section 16(a) of the Exchange Act, requires the Company's officers,
directors and persons who beneficially own more than ten percent of the
Common Stock to file reports of securities ownership and changes in such
ownership with the Securities and Exchange Commission. Officers, directors
and greater than ten percent beneficial owners also are required by rules
promulgated by the Securities and Exchange Commission to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely upon review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required,
the Company believes that during 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with except that Mr. Provencher inadvertently failed to
file a Form 4 with the Securities and Exchange Commission on a timely basis
with respect to the conversion in October of 50 shares of Series E Convertible
Preferred stock into 66,667 shares of Common Stock. A Form 4 regarding such
transaction was filed by Mr. Provencher in May, 1999.
Committees of the Board
- -------------------------------
The Board of Directors delegates certain of its authority to a Compensation
Committee and an Audit Committee. There are currently vacancies on both of
these committees. The Board expects to fill such vacancies after it has
filled the vacancies on the Board of Directors.
The primary function of the Compensation Committee will be to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Company's
Incentive Stock Option Plan.
The function of the Audit Committee is to review and approve the scope of
audit procedures employed by the Company's independent auditors, to review
and approve the audit reports rendered by both the Company's independent
auditors and to approve the audit fee charged by the independent auditors.
The Audit Committee will report to the Board of Directors with respect to
such matters and recommends the selection of independent auditors.
Board and Committee Attendance
- -------------------------------------------
In 1998 and 1999, the Board of Directors met informally on a number of
occasions, voting on corporate actions by written consent. At the Meeting,
the successors to the current Board of Directors will be elected for a term of
office, such term to commence on the effective date of the Merger. The
nominee directors who are chosen to fill vacancies on the Board shall hold
office until the next election for which those nominee directors are chosen,
and until their successors are duly elected by the shareholders.
THE NOMINEE DIRECTORS
The following table sets forth the ages of and positions and offices
presently held by each nominee director of the Company. For information about
ownership of the Company's Securities by each nominee director, see
"BENEFICIAL OWNERSHIP OF LEAPFROG SECURITIES."
<TABLE>
<CAPTION>
Date First
Became Positions and Offices
Name Age Director With the Company
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Ron Breland* N/A None
Washington, D.C.
Dr. William Campion* N/A None
El Paso, Texas
Jim Grebey* N/A None
Orlando, Florida
Dale Grogan* N/A None
Orlando, Florida
Bruce Starling* N/A None
Orlando, Florida
Van Staton* N/A None
Ocala, Florida
George Stuart* N/A None
Orlando, Florida
Randolph Tucker* N/A None
Orlando, Florida
- ----------------------------------------------------------------
<FN>* Nominees for election at this meeting.
</FN>
</TABLE>
Personal Biographies and Summary of Experience
- ----------------------------------------------------------------
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.
RANDOLPH TUCKER, CEO/Chairman
Mr. Tucker has practiced business law for more than 25 years, consummating
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 communications 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.
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 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.
BILL CAMPION Ph.D., Director.
Dr. Bill Campion attended the University of Texas at El Paso where he received
a B.A. (1963) and M.A. (1968). He later received an E.D.D. from Texas A&M
University in 1977.
Dr. Campion recently retired as the President of the Central Florida Community
College where he was credited with revitalizing the community college as well
as increasing local involvement and endowments. Currently Dr. Campion is the
President of Cashback, Inc., a multi-level marketing company that distributes
Excel telecommunications products. He has served on the Board of the Company
since 1996.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
ITEM 8. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE FOR ALBARA
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(#) ($) ($)
_____________________________________________________________________________
Real
Provencher 1998 $120,000 0 - 0 -
Chief
Executive 1997 120,000 0 - 0 -
Officer 1996 120,000 0 - 0 -
Robert
Shumate(2) 1996 106,000 0 - 0 -
President,
Helix
Technologies
[FN]
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is the lessor of $50,000 or 10% of the total of annual
salary and bonus reported for the named executive officer.
(2) Mr. Shumate resigned from the Company in August, 1997.
License Agreement
- ------------------------
In July 1989, the Company entered into a license agreement with Mr.
Provencher, President of the Company, covering the license of the tradenames
"Software That Fits", "Hardware That Fits" and "Software and Hardware That
Fits" by the Company during a ten year period for the sum of $120,000 to be
paid monthly at the rate of $1,000 per month. In 1996, and 1997, Mr.
Provencher was paid $12,000 per year in connection with this license
agreement. This cash license fee was in addition to the compensation shown
above. This liability was retained by the Company's former subsidiary when
it was disposed of on December 31, 1997. Therefore, no payment was made by
the Company to Mr. Provencher in 1998 in connection with this obligation.
Accrued and unpaid Compensation
- -------------------------------------------
At December 31, 1996, 1997 and 1998, the unpaid but accrued balance associated
with salaries, bonus and vacation was approximately $51,000, $75,000 and
$142,000 respectively. On July 1, 1999 the Company agreed to issue 600,000
shares of common stock to Mr. Provencher, President of the Company, to resolve
the Company's outstanding accrued compensation balance of $130,853 at June
30, 1999. Based on the bid and ask prices of its stock on the date awarded,
the shares were recorded as having a value of $15,000. The remaining $115,853
was recorded in the financial records of the Company as an extraordinary gain.
Employment Agreement
- ------------------------------
In July 1995, the Board of Directors approved a three year employment
agreement (the "Employment Agreement") with Mr. Provencher to act as its
President and Chief Executive Officer which includes a base salary of
$120,000 per year. The Employment Agreement also provides Mr. Provencher
with, among other items, an automobile allowance, disability insurance, life
insurance and major medical insurance. Although this employment agreement
has expired, the Company continues to operate as if the agreement had been
extended.
As a condition to entering into the Employment Agreement, the Company agreed
to revise the conversion provisions of the Preferred Convertible Series C
stock that is exclusively held by Mr. Provencher. Each share of Series C
stock is convertible into 10,352 shares of common stock of the Company at the
option of the holder conditioned on: (a) the Company achieving certain
profitability targets; or (b) the Company disposing of substantially all of
its assets; or (c)a change of control of the Company. In return, Mr.
Provencher agreed to forfeit all stock options which had been previously
awarded to him by the Company (i.e., approximately 83,500).
Deferred Compensation Plan
- -------------------------------------
On July 1, 1995, the Company adopted a Deferred Compensation Plan. The
purpose of the Plan is to provide a means by which certain key employees may
elect to defer receipt of designated percentages or amounts of their
compensation and to provide a means for certain other deferrals of
compensation. The Plan is intended to be a plan which is unfunded within the
meaning of Sections 201(2) and 301(a)(3) of the ERISA Act of 1974. In 1996,
1997 and 1998, Mr. Provencher elected to defer $12,000 per year of the
compensation shown above pursuant to this plan.
Incentive Stock Option Plan
- ----------------------------------
On February 26, 1988, the Company adopted an Incentive Stock Option Plan (the
"Plan"), under which options granted are intended to qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan was further modified by vote of the Company's
shareholders at the annual Company shareholder's meeting which was held on
June 3, 1989. Pursuant to the modified Plan, options to purchase up to
166,667 shares of the Company's Common Stock may be granted to employees of
the Company. The Plan is administered by the Board of Directors, which is
empowered to determine the terms and conditions of each option, subject to
the limitation that the exercise price cannot be less than the market value
of the Common Stock on the date of the grant (110% of the market value in the
case of options granted to an employee who owns 10% or more of the Company's
outstanding Common Stock) and no option can have a term in excess of 10
years (5 years in the case of options granted to an employee who owns 10% or
more of the Company's outstanding Common Stock).
None of the options granted under this plan have been exercised. Furthermore,
all outstanding option grants under this plan expired in 1997.
Non-employee Director Compensation
- -------------------------------------------------
One of the Company's directors in 1996, Mr. Robert Vallis, was not an employee
of the Company. Mr. Vallis' term as a director expired in July, 1996.
On January 30, 1995, as part of his compensation, Mr. Vallis was issued three
warrants to purchase 15,000 shares in the aggregate of the Company's common
stock at a price of $0.50 per share. These three warrants have been issued
for time in service in each of three successive years: 1995, 1996 and 1997.
Each such warrant became fully vested on the last day of its respective
calendar year, became immediately exercisable on the first business day of
the following year, and would expire ten years after becoming vested. Since
Mr. Vallis' term as a director expired in July, 1996, warrants for service
in 1997 were automatically terminated upon the completion of Mr. Vallis' term
in 1996.
Indemnification and Limitation of Liability
- ----------------------------------------------------
The Company's Articles of Incorporation include provisions which eliminate or
limit the personal liability of the Company's directors except in situations
when a director shall be liable for (i) a breach of Section 7-5-114 of the
Colorado Business Corporation Act, including liability for improper dividends
or distributions; (ii) a breach of loyalty; (iii) failure to act in good
faith; (iv) intentional misconduct or knowing violation of the law; or (v)
obtaining an improper personal benefit. In addition, the Articles of
Incorporation allow for the indemnification of any director or officer to
the fullest extent permitted by the Colorado Corporation Code as in effect at
the time of the conduct of such person.
In addition to the general indemnification provisions discussed above, the
Company's employment agreement with Mr. Provencher includes an
indemnification provision in which the Company agrees to indemnify, defend
and hold harmless Mr. Provencher against and in respect to any and all claims,
actions, demands, judgments, losses, costs, expenses, liabilities and
penalties connected, directly or indirectly with any personal guaranty
entered into or executed by Mr. Provencher guaranteeing indebtedness or
obligations of the Company or its subsidiaries.
No employee of the Company receives any additional compensation for his
services as a director. The Company has no retirement, pension or profit
sharing program for the benefit of its directors, officers or other
employees. The Board of Directors may recommend one or more such programs
for adoption in the future.
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
ITEM 9. INDEPENDENT PUBLIC ACCOUNTANTS
The Company hereby incorporates by reference any of the information required
by paragraph (d) of this Item, that is contained in the Company's Form
10-KSB, Item 9, filed with the Securities and Exchange Commission on June 10,
1999.
A representative of Thomas Leger & Co. is expected to be pre paid or
distributed. Proposal Four addresses the following:
On February 26, 1988, the Company adopted an Incentive Stock Option Plan
(the "Plan"), under which options granted are intended to qualify as
"incentive stock options" under Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"). The Plan was further modified by vote of the
Company's shareholders at the annual Company shareholder's meeting which was
held on June 3, 1989. The purpose of this Plan is to advance the interests of
the Company and its stockholders by helping the Company obtain and retain the
services of employees upon whose judgment, initiative and efforts the Company
is substantially dependent, and to provide those persons with further
incentives to advance the interests of the Company.
The Board of Directors has unanimously approved, and recommends for
shareholder approval, the restatement and amendment of the Company's
Incentive Stock Option Plan in order to increase the aggregate number of
shares that may be issued pursuant to this Plan from 166,667 to 350,000
restricted shares and change the Plan such that options granted by the Board
of Directors shall be subject to the limitation that (i) the exercise price
cannot be less than 110% of the market value of the Common Stock on the date
of the grant; (ii) no option can have a term in excess of 5 years measured
from the grant date; (iii) no option may vest in a period of less than
eighteen (18) months from the grant date; (iv) all options granted to an
individual shall expire 30 days after the termination of employment, with or
without cause, from the Company; and (v) options once granted by the Board of
Directors may not have their terms altered in any way but may by mutual
consent with the option holder be canceled.
No employees have yet been designated to receive securities under the Plan.
ITEM 11. AUTHORIZATION OR ISSUANCE OF SECURITIES OTHERWISE THAN FOR EXCHANGE
Action will be taken by the shareholders with respect to the restatement and
amendment of the Company's Articles of Incorporation to effect a 1-for-7
(1:7) reverse stock split in Company Common Stock ("stock split"); and the
Company's Articles of Incorporation will be amended to increase the number
of common shares authorized from 6,666,667 to 30,000,000. Such increase in
the authorized number of shares is being made to satisfy the Company's
obligations under the Agreement, and to have such shares available for future
equity/debt financing, employee stock option incentive plans and issuances
that may be made in connection with potential business combination
transactions. Currently, there are no plans, proposals or arrangements to use
any of the additional authorized shares. No other action is to be taken by
the Company with respect to the authorization or issuance of any class of
securities of the Company, otherwise than for exchange.
ITEM 12. MODIFICATION OR EXCHANGE OF SECURITIES
No action is to be taken by the Company with respect to the modification of
any class of securities of the Company, or the issuance or authorization for
issuance of securities of the Company in exchange for outstanding securities
of the Company.
ITEM 13. FINANCIAL AND OTHER INFORMATION
The Company hereby incorporates by reference any of the information required
by paragraph (a) of this Item, that is contained in the annual report to
security holders and the Company's Form 10KSB, Item 8, filed with the
Securities and Exchange Commission on June 10, 1999, and interim reports
filed on Form 10QSB for the periods ended March 31, 1998, June 30, 1999 and
September 30, 1999.
The Company and Leapfrog hereby provides the information as required by
paragraph (a) of this Item as follows:
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements have
been prepared to reflect the reverse acquisition of ALBARA and Albara
Subsidiary by LEAPFROG through the issuance of 5,316,049 shares of no par
value stock to the LEAPFROG shareholders in exchange for 100% of the
outstanding common stock of LEAPFROG. The pro forma consolidated financial
statements have been prepared as if the reverse acquisition had occurred as of
September 30, 1999 with respect to the pro forma consolidated balance sheet,
and as of January 1, 1999 and January 1, 1998 with respect to the pro forma
consolidated statement of operations. The acquisition is accounted for as a
reverse acquisition with LEAPFROG as the accounting acquirer since the
shareholders of LEAPFROG will obtain voting control of ALBARA pursuant to the
transaction. The historical consolidated financial information for ALBARA has
been adjusted to reflect a 1-for-7 reverse stock split and the authorization
of additional shares of stock. See ITEM 14 for additional information
regarding the transaction. In the opinion of management of ALBARA, the pro
forma financial statements should be read in conjunction with the historical
financial statements of ALBARA and LEAPFROG and the notes thereto. In the
opinion of management of ALBARA and LEAPFROG (the "Management"), all
adjustments necessary to present fairly such pro forma unaudited consolidated
financial statements have been made. These statements are provided for
informational purposes only and are not necessarily indicative of what the
actual financial results of operation would have been had the transaction
occurred on the dates indicated above nor do they attempt to represent the
financial results which would have occurred had the merger been consummated on
the dates indicated.
Albara Corporation and Subsidiary and
Leapfrog Smart Products, Inc. and Subsidiary
Pro Forma Consolidated Balance Sheet
Nine Month Period Ended September 30, 1999
Albara Pro Forma
As Restated Leapfrog Adjustments Pro Forma
ASSETS
Current Assets:
Cash $ 450 $ $ 450
Accounts receivable 8,585 8,585
Related party receivables 50,692 50,692
Inventory 17,500 17,500
Prepaid expenses 22,600 22,600
450 99,377 $ 99,827
Property and equipment,net$ 228,965 $ 228,965
Capitalized software 273,000 273,000
Goodwill, net 28,000 28,000
Other assets 7,110 7,110
450 636,452 $ 636,902
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ $ 9,363 $ $ 9,363
Accounts payable 14,925 290,957 20,500 3 326,382
Accrued payroll taxes
and interest 58,554 58,554
Notes payable 388,673 388,673
Related party payables 1,540,334 1,540,334
14,925 2,287,881 2,323,306
Minority interest (11,770) (11,770)
Stockholders' Deficit:
Preferred stock 14,625 14,625
Common Stock 3,936,288 46,555 (46,555) 1 2,468,406
(1,467,882) 2
Additional paid-in capital 2,450,951 (3,918,833) 1
1,467,882 2
Accumulated deficit (3,965,388) (4,137,165) 3,965,388 1 (4,157,665)
(20,500) 3
Total Shareholder's
Deficit (14,475) (1,639,659) (20,500) (1,674,634)
$ 450 636,452 636,902
Albara Corporation and Subsidiary and
Leapfrog Smart Products, Inc. and Subsidiary
Pro Forma Consolidated Statement of Operations
Nine Month Period Ended September 30, 1999
Albara Pro Forma
As Restated Leapfrog Adjustments Pro Forma
Net revenue $ 71,834 $ 71,834
Cost of sales 57,061 57,061
Gross profit 14,773 14,773
Selling, general and
administrative
expenses 94,461 1,424,387 20,500 1,539,348
Loss from operations (94,461)(1,409,614) (1,524,575)
Other Income (expense)
Other income 5,116 5,116
Interest income 944 944
Interest expense (66) (315,298) (315,364)
Minority interest in loss 752 752
Loss before
extraordinary gain (88,467)(1,724,160) (1,833,127)
Extraordinary gain-
Frgiveness of debt 109,853 109,853
Net Loss 21,386 (1,724,160) $20,500 (1,723,274)
Loss Per Common
and Common Equivalent
Basic
Loss before
extraordinary gain $ (0.35) (0.41) (0.31)
Extraordinary gain 0.44 0.02
Net Loss 0.09 (0.41) (0.29)
Diluted
Loss before
extraordinary gain $ (0.35) (0.41) (0.31)
Extraordinary gain 0.44 0.02
Net loss 0.09 (0.41) (0.29)
Average number of
common and common
equivalent shares
outstanding
Basic 251,643 4,166,032 5,841.293
Diluted 254,429 4,166,032 5,844.079
Albara Corporation and Subsidiary and
Leapfrog Smart Products, Inc and Subsidiary
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1998
Albara Pro Forma
As Restated Leapfrog Adjustments Pro Forma
Net revenue $ 86,360 $ $ 86,360
Cost of Sales 65,906 65,906
Gross profit 20,454 20,454
Selling, general and
administrative expenses 190,430 1,509,184 20,500 3 1,720,114
Loss from operations (190,430) (1,488,730) (1,699,660)
Other income (expense) (26,729) 4,859 (21,870)
Interest income 1,013 388 1,401
Interest expense (16,360) (36,312) (52,672)
Minority interest in loss 2,046 2,046
Net loss (232,506) (1,517,749) 20,500 (1,770,755)
Loss Per Common
And Common Equivalent
Basic net loss $ (1.11) $ (0.49) $ (0.31)
Diluted net loss $ (1.10) $ (0.49) $ (0.31)
Average Number
of Common and
Common Equivalent
Shares Outstanding
Basic 208,786 3,125,793 5,798,437
Diluted 211,571 3,125,793 5,801,223
Notes to Pro Forma Financial Statements
1. Adjustment to record common stock issued to acquire net assets of Albara
and recapitalize Leapfrog with the capital structure of Albara.
2. Adjustment to reflect the excess of acquisition cost over the fair value
of assets received as a reduction of common stock since there is an
accumulated deficit.
3. Adjustment for the estimated expense of the merger.
LEAPFROG SMART PRODUCTS, INC.
AND SUBSIDIARY
(A Corporation in the Development Stage)
FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
(UNAUDITED)
AND FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997
(AUDITED)
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
Table of Contents
Report of Independent Certified Public Accountants 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in
Stockholders' Deficit 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 16
<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 sheet of Leapfrog Smart
Products, Inc. (a corporation in the development stage) and Subsidiary as of
December 31, 1998 and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the years ended December
31, 1998 and 1997. 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 the consolidated results of their
operations and cash flows for the years ended December 31, 1998 and 1997
in conformity with generally accepted accounting principles.
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Consolidated Balance Sheets
Nine
Month Period
Ended September 30, Year Ended
1999 December 31,
(Unaudited) 1998
Assets
Current assets:
Cash $ 0 $ 40,872
Accounts receivable 8,585 3,000
Related party receivables(Note 2) 50,692 35,792
Inventory 17,500 31,500
Prepaid expense 22,600 2,000
Total current assets 99,377 113,164
Property and equipment, net (Note 3) 228,965 201,788
Goodwill, net 28,000 0
Capitalized Software 273,000 0
Other assets 7,110 4,210
Total Current Assets $ 636,452 $ 319,162
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdraft $ 9,363 $ 0
Accounts payable 290,957 365,340
Accrued payroll taxes
and interest 58,554 36,186
Notes payable (Note 4) 388,673 482,490
Related party payables (Note 5) 1,540,334 44,258
Convertible notes payable (Note 6) 0 25,000
Deferred income (Note 7) 0 11,500
Total current liabilities 2,287,881 964,774
Commitments and contingencies (Note 10) 0 0
Minority interest (11,770) (11,018)
Stockholders' deficit (Note 9):
Common stock, $.01 par value, 5,000,000 shares
issued and authorized, 4,655,554 and 3,767,219
shares outstanding 46,555 37,672
Additional paid-in capital 2,450,951 1,740,739
Accumulated deficit (4,137,165) (2,413,005)
Total stockholders' deficit (1,639,659) (634,594)
$ 636,452 $ 319,162
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Consolidated Statements of Operations
For the Nine
Months
Ended September 30, For the Year
1999 1998 Ended December 31,
(Unaudited) (Unaudited) 1998 1997
Net revenue $ 71,834 $ 60,100 $ 86,360 $ 672,897
Cost of sales 57,061 62,722 65,906 480,324
Gross profit 14,773 (2,622) 20,454 192,573
Selling, general and
administrative expenses 1,424,387 1,125,932 1,509,184 833,904
Loss from operations (1,409,614)(1,128,554) (1,488,730) (641,331)
Other income (expense)
Other income 0 3,381 4,859 4,542
Interest income 0 0 388 0
Interest expense (315,298) (4,634) (36,312) (22,010)
Loss before minority interest (1,724,912)(1,129,807) (1,519,795) (658,799)
Minority interest in loss 752 1,367 2,046 8,972
Net loss $ (1,724,160)(1,128,440) (1,517,749)$ (649,827)
Net loss per share of
common stock $ (0.41) $ (0.38) $ (0.49) $ (0.37)
Weighted average common
shares and share equivalents
outstanding 4,166,032 2,998,520 3,125,793 1,734,305
The accompanying notes are an integral part of these consolidated financial
statements.
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Consolidated Statements of Changes in Stockholders' Deficit
Deficit
Additional Accumulated Total
Common Stock Paid-in During the Stockholders'
Shares Par Value Capital Development Stage Equity
Common stock
issued to
founding
stockholders
on April 11,
1996 1,414,000 $14,140 $ 153,960 $ 0 $ 168,100
Net loss
(Unaudited) 0 0 0 (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 0 429,500
Net loss 0 0 0 (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 0 964,811
Issuance of
common stock
for conversion
of notes payable 216,000 2,160 213,840 - 216,000
Net loss 0 0 0 (1,517,749) (1,517,749)
Balance,
December 31,
1998 3,767,219 37,672 1,740,739 (2,413,005) (634,594)
The accompanying notes are an integral part of these consolidated financial
statements.
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Consolidated Statements of Cash Flows
For the Nine Months
Ended September 30, For the Year
1999 1998 Ended December 31,
(Unaudited) (Unaudited) 1998 1997
Cash flows from operating
activities:
Net loss (1,724,160) (1,128,440)(1,157,749)(649,827)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Issuance of common stock in
connection with the
issuance of related party
notes payable 286,096 0 0 0
Issuance of common stock
consulting services 37,500 0 0 0
Issuance of common stock for
conversion of notes payable 2,000 0 16,000 0
Issuance of c 45,354 24,395
Cash provided by (used for):
Accounts receivable (5,585) (411) (3,000) 0
Inventory 14,000 0 (31,500) 24,000
Prepaid expenses and other assets (23,500) (450) (2,450) (1,212)
Bank overdrafts 9,363 1,949 0 (1,208)
Accounts payable (74,383) 124,932 281,503 83,837
Accrued expenses 22,368 36,400 18,961 13,309
Deferred revenue (11,500) (32,789) (21,289) 32,789
Minority interest in loss (752) (1,367) (2,046) (8,972)
Net cash used by operations (1,434,507) (974,377)(1,212,966)(486,269)
Cash flows from investing activities:
Net increase in related party
receivables (14,900) (18,684) (32,070) 0
Purchases of property and
equipment (57,723) (91,356) (85,626)(146,837)
Capitalized Software 273,000 0 0 0
Proceeds from sale of vehicle 0 0 0 8,473
Net cash used for investing
activities (345,623) (110,040) (117,696)(138,364)
Cash flows from financing activities:
Proceeds from issuance of
common stock 336,999 781,860 964,811 429,500
Proceeds from issuance of
convertible notes payable 0 35,000 25,000 200,000
Net proceeds(payments)from notes
payable (93,817) 239,732 335,890 (3,400)
Net proceeds from related party
payables 1,496,076 15,150 33,158 11,100
Net cash provided by financing
activities 1,739,258 1,071,742 1,358,859 637,200
Increase in cash (40,872) (12,675) 28,197 12,567
Cash, beginning of period 40,872 12,675 12,675 108
Cash, end of period $ 0 0 $ 40,872 $ 12,675
Supplemental disclosures of cash flow information:
Interest paid $ 22,815 $7,575 $ 20,655 $18,013
Conversion of notes payable
plus interest into common stock $ 27,000 $ 0 $216,000 $ 0
Issuance of common stock in
connection with the acquisition
of additional shares of Conduit
Healthcare Solutions, Inc. $30,000 $0 $ 0 $0
The accompanying notes are an integral part of these consolidated financial
statements.
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Activities - Leapfrog Smart Products, Inc. ("Leapfrog") and
Subsidiary (the "Company") was incorporated as a Florida corporation on April
11, 1996 originally under the name Telephones! Telephones!, Inc. and later
changed its name to Leapfrog Smart Products, Inc. The Company focuses on the
design, development, licensing and marketing 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 a myriad of
accessible data retrievable on demand and capable of fully integrating a
variety of everyday functions with security features.
At December 31, 1997, Leapfrog owned 80% of the common stock of Leapfrog
Health Care Products, Inc., which was incorporated January 2, 1997 as a
Florida corporation. Leapfrog's ownership increased to 96% during 1998.
Principles of Consolidation - The consolidated financial statements include
the accounts of Leapfrog Smart Products, Inc. and its majority owned
subsidiary, Leapfrog Health Care Products, Inc. All material intercompany
transactions and balances have been eliminated with the offsetting creation
of minority interest.
Liquidity - The Company has sustained losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations
in the ordinary course of business is dependent upon its ability to raise
additional financing through public or private equity financings, establish
profitable operations, enter into collaborative or other arrangements with
corporate sources, or secure other sources of financing to fund operations.
Management intends to raise working capital through additional equity and/or
debt financings in the near future. If anticipated financing transactions and
operating results are not achieved, management has the intent and believes 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. In light of management's ability to delay and
reduce expenditures, it is believed by management that it will be able to
continue in business for the next 12 months.
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Smart 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 consumers, 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.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Development Stage Company - For the period from inception (April 11, 1996)
through December 31, 1998, the Company was a development stage enterprise, as
planned principal operations had not yet begun to generate significant
revenue. In its development stage, all pre-operating costs have been
expensed as incurred.
Cash Equivalents - The Company considers all highly liquid investments with
an original maturity of three months or less as cash equivalents.
Inventory - Inventory consists primarily of software purchased for resale and
is stated at the lower of cost or market determined on a first-in, first-out
basis.
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 assets. Expenditures for repairs and maintenance are
charged to operating expense when incurred. Expenditures for major renewals
and betterments, which extend the useful lives of existing equipment, are
capitalized and depreciated. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the statements of
operations.
Software Development Costs - Software development costs incurred prior to the
establishment of technological feasibility are expensed as incurred. Software
development costs incurred subsequent to the feasibility are capitalized, if
material. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs require considerable judgment
by management with respect to certain external factors, including, but not
limited to, anticipated future gross product revenue, estimated economic
product lives and changes in software and hardware technology.
Revenue Recognition - The Company develops Smart card applications for its
clients that are often specifically developed internally or through
third-party vendors. The Company recognizes revenue when the product is
delivered to the customer.
Income Taxes - The Company follows the provisions of Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", which requires the
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that have been included in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between financial statement
and tax basis of assets and liabilities using enacted tax rates in effect
when these differences are expected to reverse. Valuation allowances are
established when appropriate, to reduce deferred tax assets to the amount
expected to be realized.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions by management in determining the reported amounts of assets and
liabilities and disclosures 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.
Long-Lived Assets - Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company has adopted
this statement and determined that no impairment loss need be recognized for
applicable assets of continuing operations.
Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
Earnings Per Share - During 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", which requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS"). The computation of Basic EPS is computed by
dividing income available to common stockholders by the weighted average
number of outstanding common shares during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period.
The computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on
earnings.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The shares used in the computation are as follows:
December 31, 1998 1997
Basic EPS 3,125,793 1,734,305
Diluted EPS 3,125,793 1,734,305
Capital Structure - In 1998, the Company has adopted Statement of Financial
Accounting Standards No. 129 ("SFAS No. 129"), "Disclosure of Information
about Capital Structure". Capital structure disclosures required by SFAS 129
include liquidation preferences of preferred stock, information about the
pertinent rights and privileges of the outstanding equity securities, and the
redemption amounts for all issues of capital stock that are redeemable at
fixed or determinable prices on fixed or determinable dates. As of December
31, 1998 and 1997, the Company has no items which would be affected by this
disclosure requirement.
Comprehensive Income - In June 1997, Statement of Financial Accounting
Standards No. 130, ("SFAS No. 130") "Reporting Comprehensive Income", was
issued. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. As of
December 31, 1998 and 1997, the Company has no items that represent
comprehensive income, and therefore, has not included a schedule of
comprehensive income in the consolidated financial statements.
Fair Value Of Financial Instruments - The carrying value of cash and cash
equivalents, accounts receivable, related party receivables, accounts payable,
accrued payroll and interest, notes payable, related party payables,
convertible notes payable, and deferred income approximates fair value due to
the relatively short maturity of these instruments.
Impact of Year 2000 Issue - During the year ended December 31, 1998, the
Company conducted an assessment of issues related to the Year 2000 and
determined that it was not necessary to modify or replace portions of its
software in order to ensure that its computer systems will properly utilize
dates beyond December 31, 1999. At this time, the Company cannot determine
the impact the Year 2000 will have on its key customers or suppliers. If the
Company's customers or suppliers do not convert their systems to become Year
2000 compliant, the Company may be adversely impacted. The Company is
addressing these risks in order to reduce the impact on the Company.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Recent Accounting Pronouncements - During 1998, the Financial Accounting
Standards Board ("FASB") issued statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), "Disclosure About Segments of an Enterprise and
Related Information" which changes the way public companies report information
about segments. SFAS 131 establishes standards for the way public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. This statement is effective for
the Company's 1998 fiscal year. Management is in the process of evaluating
the Computer Software Developed or Obtained for Internal Use". SOP 98-1
is effective for fiscal years beginning after December 15, 1998. Management
believes that the Company is substantially in compliance with this
pronouncement and that the implementation of this pronouncement will not have
a material effect on the Company's financial position, results of operations
or cash flows.
In 1998, the FASB issued Statement of Financial Accounting Standards No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting guidelines
for derivatives and requires an establishment to record all derivatives as
assets or liabilities on the balance sheet at fair value. Additionally, this
statement establishes accounting treatment for four types of hedges: hedges
of changes in the fair value of assets or liabilities, firm commitments,
forecasted transactions and hedges of foreign currency exposures of net
investments in foreign operations. Any derivative that qualifies as a hedge,
depending upon the nature of that hedge, will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. SFAS No. 133 is effective for years beginning
after June 15, 2000. The Company does not currently participate in these
types of financing activities and does not anticipate that the adoption of
this statement will have a material impact on its consolidated balance
sheets, statements of operations, or cash flows.
Unaudited Interim Statements - The financial statements as of September 30,
1999 and for the nine months ended September 30, 1999 and 1998 are unaudited;
however, in the opinion of the management of the Company, all adjustments
(consisting solely of normal recurring adjustments) necessary to a fair
presentation of the financial statements for these interim periods have been
made. The results for the interim period ended September 30, 1999 are not
necessarily indicative of the results to be obtained for a full year.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 2 - RELATED PARTY RECEIVABLES
The Company has various notes and balances receivable from employees,
stockholders and/or directors. Some balances are in the form of advances and
others have notes with interest rates ranging from 6% to 8%. All balances
are due within one year and are considered fully collectible by management.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31,:
Estimated
Useful
Lives In
Years
- ------------------------------------------------------------------------
Computer hardware 5 $ 175,937
Computer software 3 32,253
Furniture and fixtures 7 32,118
Leasehold improvements 4 7,000
Construction in progress - 26,830
274,138
Less - accumulated depreciation 72,350
Property and equipment, net $201,788
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 4 NOTES PAYABLE
Notes payable consist of the following:
December 31, 1998
- -----------------------------------------------------------------------------
Note payable to bank, interest due in monthly
installments at the bank's prime rate, principal
due April 20, 1998, guaranteed
by certain stockholders
and officers. $-
Note payable to bank, interest due in monthly
installments at the bank's prime rate plus 1%,
principal due October 5, 1999, guaranteed by certain
stockholders and officers, secured by all company assets. 150,000
Note payable to bank, interest due in monthly
installments at the bank's prime rate plus 1%,
principal due August 18, 1999, guaranteed by certain
stockholders and officers, secured by all company assets. 100,000
Note payable to bank, interest due in monthly
installments at the bank's prime rate plus 1%,
principal due February 21, 1999, guaranteed by certain
stockholders and officers, secured by all company assets. 50,000
Note payable to bank, interest due in monthly
installments at the bank's prime rate plus 1%,
principal due September 4, 1999, guaranteed by certain
stockholders and officers, secured by all company assets. 50,000
Two $50,000 notes payable to Publicker, due
October 9, 1999 and September 18, 1999,
with no interest. 100,000
Note payable of $15,333 to Career Concepts, Inc.,
6% interest, $750 monthly payments. This note
became delinquent on August 15, 1998. 14,083
Note payable of $11,424 to Executive Press,
10% interest, $500 monthly payments. This note
became delinquent on August 13, 1999. 10,174
Note payable of $11,783 to Worldwide Plastics, Inc.,
10% interest, $500 monthly payments.
This note became delinquent on March 15, 1999. 8,233
$482,490
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 5 - NOTES PAYABLE TO RELATED PARTIES
On July 20, 1998 a $15,000 note was issued to a stockholder at 6% interest
with interest and principal due November 1, 1998. This note was past due at
December 31, 1998, but during 1999 it was repaid in cash and stock. A vendor,
also a stockholder, was issued a note for $5,000 during 1998 in lieu of an
outstanding accounts payable balance. During 1998, a $12,958 note was issued
to an employee and stockholder at 10% interest due November 1, 1999. A
$10,000 note was issued to a director and stockholder during 1997 and is still
outstanding. There were other balances due to related parties of $1,300 and
$1,100 as of December 31, 1998.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
The Company issued notes payable to seven stockholders totaling $200,000
during 1997. The notes were issued at 8% interest, interest not due for one
year, principal due in 36 months. The notes were convertible at $1.00, $1.50
and $2.00 per share at the end of year's one, two and three, respectively.
All of these notes were converted into 216,000 shares of common stock during
1998 on the one-year anniversary of each of the notes at $1.00 per share
including interest payable for the year.
During 1998, another convertible note was issued for $25,000. This note is
convertible into stock as stated above, but had not been converted as of
December 31, 1998.
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 8- INCOME TAXES
The components of the net deferred tax assets consist of the following:
December 31, 1998
Deferred tax assets:
Net operating loss carryforwards $662,000
Other 155,000
Gross deferred income tax assets 817,000
Valuation allowance (803,000)
Total deferred income tax assets 14,000
Total deferred income tax liabilities (14,000)
Net deferred income tax assets -
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
December 31, 1998
Federal income taxes at statutory rates (34.0%)
State taxes, net of federal benefit (5.0%)
Losses without tax benefits 39.0%
Income taxes at effective rate
Unused net operating losses for income tax purposes, expiring in various
amounts through 2018, of approximately $1,700,000 are available at December
31, 1998, for carryforward against future years' taxable income. Under
Section 382 of the Internal Revenue Code, the annual utilization of this loss
may be limited due to changes in ownership. The tax benefit of these losses
of approximately $662,000 has been offset by a valuation allowance due to it
being more likely than not that the deferred tax assets will not be
realized.
The valuation allowance increased $551,000 for the year ended December 31,
1998.
NOTE 9 - STOCKHOLDERS' EQUITY
On July 2, 1998, the Company completed a two for one stock split with respect
to its common stock. All common share information, included in the
accompanying consolidated financial statements, has been retroactively
adjusted to give effect to the stock split.
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation," requires the Company to provide pro forma
information regarding net income and earnings per share as if compensation
cost for the Company's stock options had been determined in accordance with
the fair value based method prescribed in SFAS 123. The Company estimates
the fair value of each stock option at the grant date by using a Black-Scholes
option-pricing model with the following assumptions used for grants in the
1998 option-pricing model as follows: no dividend yield, no market for stock,
risk-free interest rate of 6.3% and expected lives ranging from two to five
years. Assumptions used in the year ended 1997 option-pricing model are as
follows: no dividend yield, no market for stock, risk-free interest rates
ranging from 5.3% to 6.5%, and expected lives ranging from three to five
years. Had compensation cost been determined based on the fair value of
options at their grant dates in accordance with SFAS 123, the Company would
have had no effect on net operations for fiscal 1998 or 1997 as the option
exercise price was higher than the determined fair value.
The following table summarizes information about non-plan stock option
activity for the years ended December 31, 1998 and 1997:
Weighted-Average Weighted-Average
Exercise Price Fair Value of
Shares Per Share Options Granted
Balance, December 31, 1996 764,295 $ - $ -
Granted - at market 137,000 .84 -
Exercised (260,846) .25 -
Canceled - - -
Balance, December 31, 1997 640,449 .84 -
Granted - at market 172,000 1.21 -
Exercised (367,390) 1.00 -
Canceled - - -
Balance, December 31, 1998 445,059 $1.16 $ -
The following table summarizes information about non-plan stock options
outstanding and exercisable at December 31, 1998:
Range of Number Options Weighted- Number Weighted-
Exercise Outstanding Outstanding Average Exercisable Average
Prices Weighted- Exercise Exercise
Average Price Price
Remaining Life
$0.25-1.75 445,059 3 years $ 1.16 445,059 $ 1.16
<PAGE>
LEAPFROG SMART PRODUCTS, INC. AND SUBSIDIARY
(A Corporation in the Development Stage)
Notes to Consolidated Financial Statements
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases three locations of office space under various leases. The
company also leases one vehicle. Rental expense under the operating leases
for the years ended December 31, 1998 and 1997 amounted to $50,352 and
$35,928, respectively. The Company's future minimum lease payments as of
December 31, 1998 were as follows:
Year ending December 31, Minimum
Commitments
1999 $30,126
2000 26,030
2001 1,850
Total $58,006
NOTE 11 - EMPLOYMENT AGREEMENTS
The Company had an employment agreement in effect with an employee for 12
months beginning July 1, 1997. The contract has expired and has not been
renewed.
The Company currently has an employment agreement with another employee for a
term of 24 months beginning January 6, 1998. The base annual salary under
this agreement is $115,000 per year. The agreement also granted 20,000 stock
options at $1.00 per share which vest at the end of 12 months of employment.
NOTE 12 - SUBSEQUENT EVENTS
On September 3, 1999, the Company entered into a letter of intent with Albara
Corp. ("Albara") whereby Albara shall acquire all of the issued and
outstanding common stock of Leapfrog in consideration for 6,000,000 shares of
Albara common stock. Additionally, Albara will issue 30,000 shares of its
common stock to a consultant in consideration for services rendered in
relation to this transaction. As of November 17, 1999, no closing has
occurred.
On October 18, 1999, the Company changed the name of its subsidiary, Leapfrog
Health Care Products, Inc., to Conduit Healthcare Solutions, Inc.
LEAPFROG 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 related notes thereto included elsewhere in this section.
PLAN OF OPERATION
LEAPFROG does not currently have any external sources of working capital.
LEAPFROG'S Management has not entered into any commitments for significant
capital expenditures. Furthermore, there are no plans to hire additional
employees unless Management is successful in securing a substantial capital
infusion.
On October 25, 1999, LEAPFROG entered into an Agreement to be acquired by
ALBARA. This transaction will be structured as a reverse acquisition whereby
the existing shareholders of LEAPFROG will obtain control of ALBARA. Upon
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 will be required to either seek additional
debt or equity financing or obtain funding from third parties, in exchange for
which the combined companies might be required to issue a substantial equity
position. There is no assurance that the combined companies will be able to
obtain additional financing on terms acceptable to the combined companies. 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 and to
finance research, development and advancement of intellectual property
concerns. A description of the LEAPFROG business is provided in ITEM 14.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues and Gross Profits:
LEAPFROG is a development stage company with virtually no revenues. Revenues for
the nine months ended September 30, 1999 increased $12,000, from $60,000 to
$72,000, a 20% increase compared to the first nine months of 1998. Revenues are
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 nine months ended
September 30, 1999 increased to 21% from a negative 4% in the same period of
1998. In 1998, LEAPFROG initiated its pilot programs by providing hardware at
cost and in some cases below cost. In 1999, Management has focused on selling
these items at a small but positive gross margin to ensure that handling costs
are covered.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the nine month period ending September 30, 1999
increased $298,000 from $1,126,000 to $1,424,000, a 26% increase compared
to the first nine months of 1998. This increase is net of $273,000 in software
development expenditures that have been capitalized during the nine month
period ending September 30, 1999. This increase 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 roll-out in 2000.
Other Income: Interest expense for the nine month period ending September 30,
1999 increased $310,000 from $5,000 to $315,000 when compared to the first
nine months of 1998. In May 1999, LEAPFROG completed a debt offering to a
select group of accredited investors providing net proceeds of $1,496,000.
As additional consideration LEAPFROG provided these note holders 381,461
shares of common stock. For accounting purposes, these shares of common stock
were valued at $286,000 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.
Net Loss: Net loss for the nine month period ending September 30, 1999 increased
$596,000 from $1,128,000 to $1,724,000, a 53% increase compared to the first
nine months of 1998. This increase is net of $273,000 in software development
expenditures that have been capitalized during the nine month period ending
September 30, 1999. This increase 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 roll-out in
2000. Net loss per share of common stock increased from $0.38 per share in
1997 to $0.48 per share in 1998. 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 2,998,520 in the first nine months of
1998 to 4,166,032 in the same period of 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues and Gross Profits:
Revenues for the year ended December 31, 1998 decreased $587,000, from $673,000
to $86,000, an 87% decrease compared to 1997. In early 1997, LEAPFROG's revenues
were primarily generated through the sale of long distance calling cards. As
Management began to focus on developing an improved product offering in the
long distance calling card industry, a decision was made to redirect the
company in an effort to develop Smart card technology. As a result, 1998
revenues are 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, 1998 decreased to a negative 4% compared to 29% in the same
period of 1997. In 1998, LEAPFROG initiated its pilot programs by providing
hardware at cost and in some cases below cost. In 1997, gross margins were
generated from the sale of long distance calling cards and are typical of that
industry.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the year ended December 31, 1998 increased
$675,000 from $834,000 to $1,509,000, an 81% increase compared to 1997. This
increase is primarily associated with expenses incurred in establishing
technical feasibility for LEAPFROG's "Plug and Play" architecture technology.
Beginning mid-year 1997, as the technology development progressed, a
significantly larger portion of LEAPFROG's financial resources were focused on
establishing technical feasibility.
Other Income: Interest expense for year ended December 31, 1998 increased
$14,000 from $22,000 to $36,000 when compared to 1997. This increase is directly
related to the $194,000 increase in debt financing incurred in 1998 from an
aggregate of $358,000 in 1997 to $552,000 in 1998.
Net Loss: Net loss for the year ended December 31, 1998 increased $868,000 from
$650,000 to $1,518,000, a 134% increase compared to 1997. This increase is
primarily associated with expenses incurred in establishing technical
feasibility for LEAPFROG's "Plug and Play" architecture technology. Beginning
mid-year 1997, as the technology set by an increase in the weighted average
number of common shares outstanding from 1,734,305 in 1997 to 3,125,793 in
1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities increased $460,000 from $974,000 for the
nine months ended September 30, 1998 to $1,434,000 for the nine months ended
September 30, 1999. Net cash provided by financing activities increased
$667,000 from $1,072,000 for the nine months ended September 30, 1998 to
$1,739,000 for the nine months ended September 30, 1999. Financing activities
in the first nine months of 1999 included the issuance of common stock
providing $337,000 in the aggregate and the issuance of notes payable which
provided a net of $1,496,000 offset by a $94,000 repayment of existing notes
payable. Financing activities in the first nine months of 1998 included the
issuance of common stock providing $782,000 in the aggregate and the issuance
of notes payable that provided a net of $290,000.
Net cash used by operating activities increased $727,000 from $486,000 for
the year ended December 31, 1997 to $1,213,000 for the year ended December 31,
1998. Net cash provided by financing activities increased $667,000 from
$637,000 for the year ended December 31, 1997 to $1,359,000 for the year ended
December 31, 1998.
Financing activities in 1998 included the issuance of common stock providing
$965,000 in the aggregate and the issuance of notes payable that provided a
net of $394,000. Financing activities in 1997 included the issuance of common
stock providing $430,000 in the aggregate and the issuance of notes payable
that provided a net of $208,000.
LEAPFROG continues to operate with a substantial working capital deficit.
Working capital decreased from a negative $852,000 at December 31, 1998 to a
negative $2,189,000 at September 30, 1999. This decrease is directly related
to the increase in current liabilities from $965,000 at December 31, 1998 to
$2,288,000 at September 30, 1999.
Like many early stage technology companies, the majority of LEAPFROG's assets
are intangible assets such as copyrights, trademarks, and research and develop-
ment costs which by their very nature are not reflected in the Company's balance
sheet as assets. 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 combined companies 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 combined companies
successfully raise 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.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") issued by the Financial Accounting Standards Board ("FASB"), under which
deferred tax assets and liabilities are provided on differences between the
carrying amounts for financial reporting and the tax basis of assets and
liabilities for income tax purposes using the enacted tax rates. Under SFAS
109, deferred tax assets may be recognized for temporary differences that will
result in deductible amounts in future periods. A valuation allowance is
recognized, if on the weight of available evidence, it is more likely than
not that some portion or the entire deferred tax asset will not be realized.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the Impair-
ment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS
121") issued by the FASB, is effective for financial statements for fiscal years
beginning after December 15, 1995.The standard establishes new guidelines
regarding when impairment losses on long-lived assets, which include plant and
equipment, certain identifiable intangible assets, and goodwill, should be
recognized and how impairment losses should be measured.
The Company does not expect adoption to have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") issued by the FASB, is effective
for specific transactions entered into after December 15, 1995. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard established
a fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. The Company does not expect adoption to
have a material effect on its financial position or results of
operations.
FEDERAL INCOME TAX ASPECTS OF INVESTMENT IN THE COMPANY
The discussion contained herein has been prepared by the Company and is based
on existing law as contained in the Code, amended United States Treasury
Regulations ("Treasury Regulations"), administrative rulings and court
decisions as of the date of this Registration Statement. No assurance can be
given that future legislative enactments, administrative rulings or court
decisions will not modify the legal basis for statements contained in this
discussion. Any such development may be applied retroactively to transactions
completed prior to the date thereof, and could contain provisions having an
adverse affect upon the Company and the holders of the Common Stock. In
addition, several of the issues dealt with in this summary are the subjects of
proposed and temporary Treasury Regulations. No assurance can be given that
these regulations will be finally adopted in their present form.
Y2K COMPLIANCE
LEAPFROG has conducted an assessment of issues related to the Year
2000 and determined that all its computer driven systems and software in use
are able to recognize, calculate, and display data-related dates correctly
after the year 1999. At this time, LEAPFROG can not determine the impact the
Year 2000 will have on its key suppliers. However, if LEAPFROG's key suppliers
do not convert their systems to become Year 2000 compliant, LEAPFROG may be
adversely impacted.
FORWARD LOOKING STATEMENT
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 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.
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.
ITEM 14. MERGERS, CONSOLIDATIONS, ACQUISITIONS AND SIMILAR MATTERS
A Plan and Agreement of Merger was executed on October 25, 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, its principal executive office at 1011
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 LEAPFROG Merger shall become effective on the "Effective Date", such
date being the later upon which (i) amended Articles of Incorporation are
filed with the Secretary of State of Colorado and (ii) a Certificate of
Merger is filed with the Secretary of State of Florida. The "Closing Date"
will be on or within one (1) business day of the date the Agreement is
approved by the shareholders of ALBARA.
Effect of LEAPFROG Merger
In all other respects, the identity, existence, purposes, powers, objects,
franchises, rights, and immunities of the Merger Surviving Corporation shall
continue unaffected and unimpaired by the LEAPFROG Merger, and the corporate
identity, existence, purposes, powers, objects, franchises, rights, and
immunities of LEAPFROG shall be wholly merged with and into the Merger
Surviving Corporation, and the Merger Surviving Corporation shall be fully
vested therewith. Accordingly, on the Effective Date, the separate existence
of LEAPFROG, except in so far as continued by statute, shall cease.
The laws of Florida shall continue to govern the Merger Surviving
Corporation. On and after the Effective Date, the articles of incorporation
of LEAPFROG shall be the articles of incorporation of the Merger Surviving
Corporation until further amended in the manner provided by law and in such
articles of incorporation (the "Articles"). On the Effective Date, the
bylaws of LEAPFROG shall be the bylaws of the Merger Surviving Corporation
(the "Restated Bylaws") until altered, amended, or repealed, or until new
bylaws shall be adopted in accordance with the provisions of law, the
Articles, and the Restated Bylaws.
Conversion of LEAPFROG's Stock and Other Securities
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 sixteen thousand
forty-nine (5,316,049) 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 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.
(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;
LEAPFROG Shareholder Dissenter's Rights
The Board of Directors of LEAPFROG shall establish the value of LEAPFROG's
Shares prior to the LEAPFROG Merger, and shall afford to the shareholders of
LEAPFROG all of the rights, and implement the procedures for protection of
dissenters' rights, pursuant to the provisions of the Florida Generally accepted
accounting principles, and the capital surplus and retained earnings
accounts of the Merger Surviving Corporation shall be determined, in
accordance with generally accepted accounting principles, by the board of
directors of the Merger Surviving Corporation. Nothing herein shall prevent
the board of directors of the Merger Surviving Corporation from making any
future changes in its accounts in accordance with law.
The LEAPFROG Merger is intended to qualify as a tax free forward triangular
merger transaction described in Sec. 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended (the "Code") to the shareholders of LEAPFROG.
At the Closing, (a) LEAPFROG shall deliver to ALBARA a statement (in such
form as may be reasonably requested by counsel to ALBARA) conforming to the
requirements of Section 1.897 - 2(h)(1)(i) of the United States Treasury
Regulations, and (b) LEAPFROG shall deliver to the IRS the notification
required under Section 1.897 - 2(h)(2) of the United States Treasury
Regulations.
Investment Representation Letter
At the Closing, each of the LEAPFROG Shareholders shall execute and deliver
to LEAPFROG an investment representation letter statement in such form as
may be reasonably requested by counsel.
Leapfrog Smart Products, Inc.--Description of the Business
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.
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.
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 data
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.
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:
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 stream-
lining 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 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. While Product Development
creates value for the company, the Sales phase of a business is what creates
value for the shareholder.
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.
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.
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.
ITEM 15. ACQUISITION OR DISPOSITION OF PROPERTY
No action is to be taken by the Company with respect to the acquisition or
disposition of any property.
ITEM 16. RESTATEMENT OF ACCOUNTS
No action is to be taken by the Company with respect to the restatement of
any asset, capital, or surplus account of the Company.
ITEM 17. ACTION WITH RESPECT TO REPORTS
No action is to be taken by the Company with respect to any report of the
Company or of its directors, officers, or committees or any minutes of a
meeting of its security holders.
ITEM 18. MATTERS NOT REQUIRED TO BE SUBMITTED
No action is to be taken by the Company with respect to any matter which is
not required to be submitted to a vote of security holders. Management
does not know of any other matters which may come before this meeting.
However, if any other matters are properly presented to the meeting, it is the
intention of the officers and directors named in the accompanying information
statement to vote, or otherwise act, in accordance with their judgment on
such matters.
ITEM 19. AMENDMENT OF ARTICLES, BYLAWS OR OTHER DOCUMENTS
Action will be taken by the Company with respect to the restatement and
amendment of articles of the Company, whereby the name of the company will be
changed from "Albara Corporation" to "Leapfrog Smart Products, Inc.", the
Company's Articles of Incorporation will be amended to effect a 1-for-7
(1:7) reverse stock split in ALBARA Common Stock ("stock split"); and the
Company's Articles of Incorporation will be amended to increase the number of
common shares authroized from 6,666,667 to 30,000,000. Approval of the
restatement and amendment will not result in any other material amendment or
change to the Company's Articles of Incorporation. The restatement and
amendment is proposed in conjunction with the Plan of Merger between ALBARA,
Albara Subsidiary and LEAPFROG. Copies of the proposed Restated and Amended
Articles of Incorporation are available upon request by contacting the Company
in writing at P.O. Box 541, Conroe, Texas 77305-0541.
ITEM 20. OTHER PROPOSED ACTION
No action is to be taken by the Company on any matter not specifically
referred to in this Schedule 14C.
ITEM 21. VOTING PROCEDURES
The Board of Directors has fixed November 19, 1999, as the record date for the
determination of shareholders entitled to vote at the meeting. At the close
of business on that date there were outstanding and entitled to vote
2,361,503 shares of Common Stock entitled to one (1) vote per share and 185
shares of Preferred Series C entitled to 10,352 votes per share (the "Voting
Shares"). The affirmative vote of the holders of a majority of the Company's
Voting Shares is required to approve each of the Proposals.
The directors, officers and affiliates of the Company as a group own or may be
deemed to control 1,091,370 shares of Common Stock and 185 shares of Preferred
Series C, constituting approximately seventy percent (70%) of the outstanding
shares of Voting Shares. Each of the directors, nominated directors and
officers has indicated his or her intent to vote all shares of Voting Shares
owned by him or her in favor of each item set forth herein.
ITEM 22. INFORMATION REQUIRED IN INVESTMENT COMPANY PROXY STATEMENT
Not applicable
THIS INFORMATION STATEMENT IS PROVIDED TO YOU
FOR INFORMATION PURPOSES ONLY. NO ACTION ON YOUR
PART IS SOUGHT OR REQUIRED.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
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. Albara Corporation ("ALBARA" or 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 ALBARA. 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, ALBARA 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.
ALBARA 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.
YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the year 2000 or thereafter without error or interruption
(commonly known as the "Year 2000" problem). The Company has conducted a
review of its business systems, including its computer systems, and is
querying its customers, vendors and resellers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly interrelating and processing date information as the year 2000
approaches and is reached. Through its review, the Company has identified a
number of older legacy systems that will be abandoned in favor of a limited
number of more efficient processing systems, rather than make all the systems
Year 2000 compatible. Customers, vendors and resellers have been identified
and requests for information distributed regarding the Year 2000 readiness of
such parties.
VOLATILITY OF STOCK PRICE
ALBARA believes factors such as the Company's liquidity and financial
resources and quarter to quarter and year to year variations in financial
results could cause the market price of ALBARA 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 ALBARA Common
Stock in any given period. As a result, the market for ALBARA 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.
