<PAGE> 1
Date Filed: June 3, 1996
FORM 10-QA
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...........to .............
Commission file number 0-24944
THE TRACKER CORPORATION OF AMERICA
--------------------------------------------------
(Exact name of Registrant as specified in charter)
DELAWARE 86-0767918
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 DUNDAS STREET WEST, TORONTO, ONTARIO, CANADA M5G 1Z8
- - ------------------------------------------------ -------
(Address of principal executive offices) (Zip Code)
(602) 265-7100
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 13, 1996, the Registrant had outstanding 5,080,906
shares of common stock, par value $0.001 per share, and 7,271,727 shares of the
Registrant's Class B voting common stock, no par value.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
The Tracker Corporation of America (the "Registrant") files herewith
balance sheets of the Registrant as of December 31, 1995, and March 31, 1995,
and the related statements of operations for the three and nine month period
ended December 31, 1995 and December 31, 1994, respectively, and the
shareholders' equity for the nine month period ended December 31, 1995, and for
the period from inception (May 6, 1993) through December 31, 1995 and statement
of cash flows for the six month period ended December 31, 1995 and December 31,
1994, respectively, and for the period from inception (May 6, 1993) through
December 31, 1995. In the opinion of management of the Registrant, the financial
statements reflect all adjustments, all of which are normal recurring
adjustments, necessary to fairly present the financial condition of the
Registrant for the interim periods presented. The financial statements included
in this report on Form 10-Q should be read in conjunction with the audited
financial statements of the Registrant and the notes thereto included in the
annual report of the Registrant on Form 10-K for the year ended March 31, 1995.
On July 12, 1994, the Registrant (then called Ultra Capital Corp.)
completed a corporate reorganization with The Tracker Corporation ("Tracker
Canada"), an Ontario corporation, pursuant to which the Registrant, a Delaware
corporation, acquired all voting shares of Tracker Canada in exchange for newly
authorized shares of the Registrant's Class B voting common stock representing
approximately 90% of the total voting power of the Registrant. The corporate
reorganization and several related proposals, including a forward stock split
and change in the domicile of the Registrant, were submitted to and approved by
the Registrant's shareholders at a special shareholders' meeting held June 30,
1994. Information with respect to the reorganization and such proposals is
included in the Registrant's report on Form 10-K for the year ended March 31,
1995 filed on July 31, 1995 and in the Registrant's report on Form 8-K dated
July 25, 1994.
2
<PAGE> 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Prior to the reorganization discussed in Item 1 above, the Registrant
(then Ultra Capital Corp.) had been inactive for the preceding several years and
had conducted no significant operations or activities. Tracker Canada, which
originated the present line of business (i.e., the marketing, sale and
operations of an international personal property identification and recovery
system), was founded in May 1993. During the period from inception to December
31, 1994, the Company was engaged in organizational efforts, including the
hiring of technical and management personnel. During that time, the Company
focused on the research and development of advanced bar code and laser scanning
technology, entered into agreements with key suppliers, prepared the business
and marketing plan, programmed the software and filed for patent and trademark
protection in Canada and the United States. The Registrant is a development
stage company that has developed and has begun to market, sell and operate a
personal property identification and recovery system. In October 1994, the
Company introduced its services in Canada and currently is pursuing a similar
rollout in the United States. To date, the Company has generated modest sales
and is anticipating additional revenues as the introductory launch in the USA
unfolds and the Canadian expansion continues. The Company has been unprofitable
since inception and expects to continue to incur losses for the next 2 quarters.
As of December 31, 1995, the Company had an accumulated deficit of
$11,802,717 (as at March 31, 1995 the Company had an accumulated deficit of
$7,112,008). The Company has financed its research and development activities
and operations primarily through the sale of a series of private placements of
15% one-year convertible subordinated debentures aggregating a total of
$1,905,000 and total of 1,810,000 shares of authorized but restricted common
stock in two private placement offerings on March 15, 1995 for 500,000 shares
for total gross proceeds to the Registrant of $350,000 and on May 1, 1995 for
250,000 shares for total gross proceeds to the Registrant of $250,000 as well as
offerings pursuant to Regulation S under the Securities Act of 1933 (the
"Securities Act") on September 16, 1994 for 785,000 shares (200,000 shares of
which were returned to the Company, leaving a balance of 585,000 shares) for net
gross proceeds to the Registrant of $2,351,700, in the form of cash and prepaid
media relation services and on February 9, 1995 for 275,000 shares for total
gross proceeds to the Registrant of $550,000 to three separate overseas buyers
and on July 11, 1995 for 200,000 shares for proceeds to the Registrant of
$83,000. Additionally, since March 31, 1995, the Company's wholly-owned
subsidiary (Tracker Canada), has sold a total of 849,803 exchangeable preference
shares, through the conversion of warrants, for total gross proceeds to Tracker
Canada of $619,166. The Company has introduced its service in a test market in
Toronto, Canada and is slowly continuing to expand its service throughout Canada
over the next year. The Company has just recently begun its testing within the
USA marketplace. The Company is currently airing its test TV commercials in 17
different States and has begun to introduce its services to various communities
within the USA through the use of telemarketers and network referral marketers.
While management believes there's a substantial market for its service, no
assurance can be given that the Company will achieve any significant take up
rates and revenues therefrom.
3
<PAGE> 4
RESULTS OF OPERATIONS
During the three and nine month periods ended December 31, 1995, the
Company incurred a net loss of $1,556,807 and $4,690,709, respectively
($1,755,469 and $4,084,386 for the three and nine month periods ended December
31, 1994, respectively), which included developmental costs in the amounts of
$1,569,373 and $4,729,475, respectively ($1,759,872 and $4,088,789 for the three
and nine month periods ended December 31, 1994, respectively), consisting of
$131,478 and $466,706, respectively ($186,444 and $479,237 for the three and
nine month periods ended December 31, 1994, respectively) for operations,
$62,043 and $198,964, respectively ($104,153 and $368,009 for the three and nine
month periods ended December 31, 1994, respectively) for information systems,
$431,905 and $535,452, respectively ($806,357 and $1,642,124 for the three and
nine month periods ended December 31, 1994, respectively) for sales and
marketing and $943,947 and $3,528,353, respectively ($662,918 and $1,599,419 for
the three and nine month periods ended December 31, 1994, respectively), for
general and administrative costs.
Included in the deficit for the quarter ended December 31, 1995 are
non-operating expenditures in the amount of (1) $270,135 for investor media and
public relations services, (2) $138,000 for legal and audit & tax professional
costs associated with the Company entering the process of filing a required
registration statement on Form S-1 with the Securities and Exchange Commission,
(3) $68,003 in interest expense incurred as a result of raising capital through
convertible debentures, (4) $421,838 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $349,076 associated with the development of our
direct selling commercial through our contract with The L.L. Knickerbocker
Company and the costs associated with fees to cover our celebrity spokesperson,
Angie Dickinson, (b) $53,262 relating to the amortization of rent, and (c)
$19,500 associated with the administration services provided under the Centry
contract, and (5) $46,375 relating the amortization of deferred charges on the
commission incurred from the securing of investors for the Company's Convertable
Subordinated Debentures. All other major expense groups have been reduced since
the last quarter and the Company is continuing in its efforts to minimize its
operating cash "burn" rate.
Sales revenues are slowly increasing and should continue to do so as
the Company begins its launch into the USA marketplace. The reader should be
cognizant of the Company's revenue recognition and deferred revenue policy. As
described in Note 3, the Company only recognizes that portion of revenue for
which the Company's service has been provided. Thus, since the Company currently
offers its services in memberships for terms of between 12 to 60 months, revenue
is recognized proportionately over the term of the membership as the service is
provided. The reader should expect a slow but steady increase on a month to
month basis as the Company expands its sales and marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company has received approximately
$10,009,239 in net proceeds from equity and debt financings as noted in Item 2 -
Overview.
During the nine month period ending December 31, 1995, the Company's
cash used in operations was $3,005,782 ($3,971,832 for the year ended March 31,
1995). The cash used in operations was devoted primarily to funding the
development of identification and recovery systems and software, labels,
packaging and marketing and advertising materials plans as well as developing
the necessary scanning network and initial sales and promotional commitments
leading and subsequent to the Canadian market launch and the buildup for the
test launch into the USA marketplace.
4
<PAGE> 5
As of December 31, 1995, the Company had total current assets of
$945,730 ($1,192,783 at March 31, 1995) consisting of cash in the amount of
$177,535 ($107,091 at March 31, 1995), short term investments in the amount of
$221,730 ($nil at March 31, 1995), accounts receivable in the amount of $6,743
($4,981 at March 31, 1995), prepaid expenses and deposits in the amount of
$281,040 ($544,432 at March 31, 1995), inventories in the amount of $201,038
($166,003 at March 31, 1995), a note receivable in the amount of $nil ($178,350
at March 31, 1995), and receivables from stockholders in the amount of $57,644
($191,926 at March 31, 1995). At such date, the Company had deferred charges
totaling $139,125 ($nil at March 31, 1995), and net fixed assets totaling
$374,533 ($437,147 at March 31, 1995) and long-term investments in the amount of
$50,451 ($39,522 at March 31, 1995). As of December 31, 1995, the Company had
liabilities of $2,662,981 ($1,446,543 at March 31, 1995), consisting of accounts
payable in the amount of $544,995 ($1,101,424 at March 31, 1995), accrued
liabilities in the amount of $137,170 ($334,121 at March 31, 1995), deferred
revenues in the amount of $75,816 ($10,998 at March 31, 1995) and convertible
subordinated debentures in the amount of $1,905,000 ($nil at March 31, 1995).
For the nine month period ended December 31, 1995, the Company raised
capital from the issuance of 849,803 of its wholly-owned subsidiary's (Tracker
Canada's) exchangeable preference shares as a result of the exercising of
849,803 warrants for an amount of $619,166 in cash and through the sale of
private placements of 15% one-year convertible subordinated debentures
aggregating a total of $1,905,000.
In October 1994, the Company launched its service in the Canadian
marketplace. The metropolitan area of Toronto was selected as an appropriate
staging ground for the rollout across Canada, which is anticipated to last
through the balance of 1996 and into 1997. The Company has recently begun
introducing its service in various test cities within the USA via its direct
selling commercial and other direct selling marketing programs. Management
further anticipates launching the Company's service on a national scale into the
United States marketplace throughout 1996 and into 1997. The Company expects to
incur substantial additional costs relating to the implementation of its
marketing strategy and its business plan. No assurance can be given that the
Company will generate revenues sufficient to cover expenses. The Company intends
to complete its private placements of 15% one-year convertible subordinated
debentures aggregating to a total of $3,000,000 and where necessary sell its
equity securities in an effort to raise the required additional funds to meet
the Company's operating and capital requirements. No assurance can be given that
such additional funds will be available on terms acceptable to the Company, if
at all. If adequate funds are not available, the Company's business will be
materially and adversely affected.
International operations are subject to inherent risks including
unexpected changes in regulatory requirements, exchange rates, tariffs and other
barriers, difficulties in staffing and managing foreign operations and
potentially adverse tax consequences. There can be no assurance that these
factors will not have a material adverse impact on the Company's ability to
market its system on an international basis and on its future operating results.
CAPITAL REQUIREMENTS
Until such time as revenues generate sufficient cashflows, the Company
will continue to require substantial additional capital in order to implement
its business plan in the manner contemplated. The acquisition of equipment,
establishment of distribution channels and conduct of a comprehensive marketing
and advertising campaign are considered key to the Company's success. The
Company will require additional debt or equity funding to conduct and complete
such activities. Although the Company anticipates the need for substantial
additional funding, no assurances can be given that such funding will
5
<PAGE> 6
be available to the Company on acceptable terms or at all. If the Company does
not receive sufficient funding on acceptable terms, this could prevent or delay
the marketing, sale and operation of the Company's personal property
identification and recovery system and could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
is exploring several equity and debt financing options.
INFLATION
While inflation has not had a material impact on operating results and
management does not expect inflation to have a material impact on operating
results, there can be no assurance the business of the Company, on a
consolidated basis, will not be affected by inflation in the future.
6
<PAGE> 7
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Exhibit SEC Title of Document Page No.
No. Reference No.
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 2 Reorganization Agreement Incorporated By
Reference*
- - ------------------------------------------------------------------------------------------
2 10 Share Purchase Agreement between The Tracker Incorporated By
Corporation and Page-Direct Ltd. and Marc Reference**
Bombenon and Marc Bombenon Enterprises Ltd. and
614593 Alberta Ltd., dated July 29, 1994
- - ------------------------------------------------------------------------------------------
27 27 Financial Data Schedule Filed herewith
- - ------------------------------------------------------------------------------------------
</TABLE>
* Incorporated by reference from the Registrant's report on Form 8-K dated July
12, 1994 (filed on July 25, 1994) (Commission File No. 2-33368-D).
** Incorporated by reference from the Registrant's report on Form 8-K dated July
29, 1994 (filed on August 12, 1994 (Commission File No. 2-33368-D) and
report on Form 8-K dated June 16, 1995 (filed on June 29, 1995 (Commission
File No. 2-33368-D).
REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, the Registrant did not file
any reports on Form 8-K.
7
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: June 3, 1996
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Mark J. Gertzbein
------------------------------
Mark J. Gertzbein, Secretary and Treasurer
(Principal Accounting and Financial Officer)
8
<PAGE> 9
THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT
STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1995
<PAGE> 10
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ -----------
Assets (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 177,535 $ 107,091
Short term investment 221,730 0
Accounts receivable 6,743 4,981
Prepaid expenses and deposits 281,040 544,432
Inventory 201,038 166,003
Note receivable 0 178,350
Due from shareholders 57,644 191,926
------------ -----------
Total current assets 945,730 1,192,783
------------ -----------
Deferred charges 139,125 0
Fixed assets (net) 374,533 437,147
Long-term investment 50,451 39,522
------------ -----------
Total assets $ 1,509,839 $ 1,669,452
============ ===========
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable $ 544,995 $ 1,101,424
Accrued liabilities 137,170 334,121
Deferred revenue 75,816 10,998
Convertible subordinated debentures 1,905,000 0
------------ -----------
Total liabilities 2,662,981 1,446,543
------------ -----------
Commitments (Note 12)
Shareholders' equity
Preferred stock, $.001 par value, 500,000 0 0
shares authorized, no shares issued and
outstanding
Common stock, $.001 par value, 30,000,000
shares authorized, 3,736,162 shares issued
and outstanding 3,736 2,109
Class B Voting Common stock, $0.00000007 par 0 0
value, 20,000,000 shares authorized, 7,251,727
issued and outstanding
Paid-in capital 13,267,347 9,707,617
Other capital (2,385,585) (2,086,685)
Deficit accumulated during development stage (11,802,717) (7,112,008)
Cumulative translation adjustment (235,923) (288,124)
------------ -----------
Total shareholders' equity (1,153,142) 222,909
------------ -----------
Total liabilities and shareholders' equity $ 1,509,839 $ 1,669,452
============ ===========
</TABLE>
the accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
----------------------------------------------------
3 MONTHS ENDED 9 MONTHS ENDED FROM INCEPTION
DECEMBER 31, DECEMBER 31, (MAY 6, 1993)
---------------------------------------------------- THROUGH
1995 1994 1995 1994 DEC 31,1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 22,932 $ 4,403 $ 67,198 $ 4,403 $ 77,385
Cost of Goods Sold 10,366 0 28,432 0 32,461
---------------------------------------------------------------------
Gross Profit 12,566 4,403 38,766 4,403 44,924
---------------------------------------------------------------------
Development costs
Operational 131,478 186,444 466,706 479,237 1,303,647
Information systems 62,043 104,153 198,964 368,009 822,068
Sales and marketing 431,905 806,357 535,452 1,642,124 2,879,161
General and administrative 943,947 662,918 3,528,353 1,599,419 6,842,765
---------------------------------------------------------------------
Total development costs 1,569,373 1,759,872 4,729,475 4,088,789 11,847,641
---------------------------------------------------------------------
Net loss applicable to common stock ($1,556,807) ($1,755,469) ($4,690,709) ($4,084,386) ($11,802,717)
=====================================================================
Loss per share of common stock and
common stock equivalents
- Primary ($0.14) ($0.22) ($0.45) ($0.59) ($1.59)
====================================================================
- Fully Diluted ($0.11) ($0.22) ($0.39) ($0.59) ($1.50)
====================================================================
Weighted average number of shares
outstanding
- Primary 10,834,219 7,944,784 10,418,946 6,970,587 7,424,035
====================================================================
- Fully Diluted 13,793,069 7,944,784 11,986,185 6,970,587 7,869,193
====================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 12
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For 9 months ended From inception
---------------------------------- (May 6, 1993)
December 31, December 31, through
1995 1994 Dec 31, 1995
----------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss ($4,690,709) ($4,084,386) ($11,802,717)
Adjustments to reconcile net loss to net cash from
Operating activities:
Depreciation 87,342 57,394 211,618
Amortization of deferred charges 46,375 0 46,375
Share of net earnings from an associated company 0 (19,963) 0
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 2,234,907 162,172 2,781,259
Changes in assets and liabilities:
Prepaid expenses and deposits 263,392 (514,051) (298,313)
Accounts receivable (1,762) (2,046) (6,743)
Short term investment (221,730) 0 (221,730)
Inventory (35,035) (143,441) (201,038)
Deferred revenue 64,818 14,573 75,816
Accounts payable and accrued liabilities (753,380) 1,353,455 696,810
----------- ----------- ------------
Net cash used in operating activities (3,005,782) (3,176,293) (8,718,663)
----------- ----------- ------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (4,504) (302,991) (581,443)
Deferred charges on financing activities (185,500) 0 (185,500)
Loan to shareholders (4,675) (206,455) (410,402)
Repayment of loans from shareholders 138,957 55,398 352,758
Due to shareholder 0 108,390 108,390
Repayment to shareholder 0 0 (108,390)
Note receivable 0 (21,967) (200,317)
Repayment of note receivable 178,350 0 200,317
Long term investment (10,929) (2,211,433) (2,301,372)
Unwind of long term investment 0 0 2,250,921
----------- ----------- ------------
net cash from (used in) investing activities 111,699 (2,579,058) (875,038)
----------- ----------- ------------
Cash flows from (used in) financing activities:
Issuance of common shares 1,260,217 4,681,799 9,582,543
Issuance of convertible subordinated debentures 1,905,000 0 1,905,000
Share issue costs (232,667) (575,390) (1,478,304)
----------- ----------- ------------
Net cash from financing activities 2,932,550 4,106,409 10,009,239
----------- ----------- ------------
Effect of exchange rate changes 31,977 (47,100) (238,003)
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents 70,444 (1,696,042) 177,535
during the period
Cash and cash equivalents beginning of period 107,091 2,012,984 0
----------- ----------- ------------
Cash and cash equivalents end of period $ 177,535 $ 316,942 $ 177,535
=========== =========== ============
</TABLE>
Supplemental schedule of noncash financing activitites
The Company issued certain shares of its Class B common stock for
service and for nominal values.
See Consolidated Statement of Shareholders' Equity.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 13
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------------- ----------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------- -----------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception 5,089,286
Shares issued for cash 884,729 $ 4,714,188
Shares issued in lieu of rent (note 11-ix) 60,871 324,344
Share issue costs (466,142)
Translation adjustment
Net loss ----------------------- ----------------------
Balance at March 31, 1994 6,034,886 $ 4,572,390
----------------------- ----------------------
Shares issued for cash 234,517 1,175,797
Shares issued in lieu of rent (note 11-ix) 5,777 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 739,219 739 (639)
Shares issued from Regulation S offering
(including 79,658 shares at $7 per share for
consulting services and 3,571 shares at $5.50
per share for the purchase of fixed assets) 860,000 860 2,900,840
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 12) 825,000 78,005 825 2,204,153
Less: consulting and marketing services not yet received (814,583)* (815)
Shares proceeds received from private placement
on March 15, 1995 500,000 500 349,500
Shares issued to employees for employment services (note 11-ix) 25,063 74,409
Share issue costs (779,495)
Translation adjustment
Net loss
------------------------ -----------------------
Balance at March 31, 1995 2,109,636 6,378,248 $2,109 $ 9,707,617
------------------------ -----------------------
Amounts
-----------------------------------------------------------
Deficit Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception
Shares issued for cash $ 4,714,188
Shares issued in lieu of rent (note 11-ix) 324,344
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
------------------------------------------------------------
Balance at March 31, 1994 $ 0 $(129,098) $(2,043,425) $ 2,399,867
------------------------------------------------------------
Shares issued for cash 1,175,797
Shares issued in lieu of rent (note 11-ix) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 100
Shares issued from regulation s offering
(including 79,658 shares at $7 per share for
consulting services and 3,571 shares at $5.50
per share for the purchase of fixed assets) 2,901,700
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 12) 2,204,978
Less: consulting and marketing services not yet received (2,086,685) (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 350,000
Shares issued to employees for employment services (note 11-ix) 74,409
Share issue costs (779,495)
Translation adjustment (159,026) (159,026)
Net loss (5,068,583) (5,068,583)
------------------------------------------------------------
Balance at March 31, 1995 $(2,086,685) $(288,124) $(7,112,008) $ 222,909
------------------------------------------------------------
</TABLE>
<PAGE> 14
The Tracker Ccorporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Shares Amounts
----------------------- ------------------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------- ------------------------------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering 819,459
made before March 31, 1995
Consulting services received re shares issued 6,250 * 6
before March 31, 1995 (note 11-ix)
Share proceeds received from private placement 250,000 250 249,750
Shares issued upon exercise of warrants at 849,803 619,166
canadian $1 per share
Shares issued to officers (note 11-iii) 630,000 630 826,245
Shares issued to a consultant (note 11-ix) 7,500 8 9,836
Shares issued for investor relation services (note 11-v) 200,000 200 262,300
Less: services not yet received (200,000)* (200)
Share issue cost from April 01, 1995 to June 30, 1995 (100,989)
Translation adjustment
Net loss from April 01, 1995 to June 30, 1995
-------------------------- ----------------------------
Balance at June 30, 1995 3,003,386 7,228,051 $ 3,003 $ 12,393,384
Consulting services received re shares issued (note 11-ix) 2,083 * 2
before March 31, 1995
Shares issued to R. Zuk for cash 200,000 200 82,800
Share issue cost from July 01, 1995 to July 31, 1995 (27,238)
Translation adjustment
Net loss from July 01, 1995 to July 31, 1995
-------------------------- ----------------------------
Balance at July 31, 1995 3,205,469 7,228,051 $ 3,205 $ 12,448,946
Amounts
--------------------------------------------------------------
Cumulative Deficit Accumulated
Other Translation During Development
Capital Adjustment Stage Total
--------------------------------------------------------------
Share proceeds received re Regulation S offering 819,459
made before March 31, 1995
Consulting services received re shares issued 37,494 37,500
before March 31, 1995 (note 11-ix)
Share proceeds received from private placement 250,000
Shares issued upon exercise of warrants at 619,166
Canadian $1 per share
Shares issued to officers (note 11-iii) 826,875
Shares issued to a consultant (note 11-ix) 9,844
Shares issued for investor relation services (note 11-v) 262,500
Less: services not yet received (262,300) (262,500)
Share issue cost from April 01, 1995 to June 30, 1995 (100,989)
Translation adjustment 2,330 2,330
Net loss from April 01, 1995 to June 30, 1995 (1,880,977) (1,880,977)
---------------------------------------------------------------
Balance at June 30, 1995 $(2,311,491) $ (285,794) $(8,992,985) $ 806,117
Consulting services received re shares issued (note 11-ix) 12,498 12,500
before March 31, 1995
Shares issued to R. Zuk for cash 83,000
Share issue cost from July 01, 1995 to July 31, 1995 (27,238)
Translation adjustment 5,541 5,541
Net loss from July 01, 1995 to July 31, 1995 (339,087) (339,087)
---------------------------------------------------------------
Balance at July 31, 1995 $(2,298,993) $ (280,253) $(9,332,072) $ 540,833
</TABLE>
<PAGE> 15
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Shares Amounts
----------------------- ------------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------- ------------------------
<S> <C> <C> <C> <C>
Shares issued to employees for employment services (note 11-ix) 3,580 $ 7,000
Shares exchanged as per exchange agreement 500 (500) 1 (1)
Consulting services received re shares issued (note 11-ix) 2,083* 2
Marketing services received re shares issued 33,333* 33
to LL Knickerbocker Co. (note 12)
Shares issued to directors as compensation (note 11-ix) 72,572 73 63,427
Share issue cost from Aug 01, 1995 to Aug 31, 1995 (13,306)
Translation adjustment
Net loss from Aug 01, 1995 to Aug 31, 1995
----------------------- -----------------------
Balance at Aug 31, 1995 3,313,957 7,231,131 $3,314 $12,506,066
Shares issued for compensation to employees (note 11-ix) 10,596 15,716
Consulting services received re shares issued (note 11-ix) 2,083* 2
Shares issued to Amerasia for marketing services (note 11-ix) 30,000 44,496
Less: services not yet received (27,500)*
Marketing services received re shares issued (note 12) 33,333* 33
to LL Knickerbocker Co.
Shares issued to director as compensation (note 11-ix) 26,286 26 22,974
Shares cancelled to treasury (171) 1 (1)
Share issue cost from Sept 01, 1995 to Sept 30, 1995 (20,276)
Translation adjustment
Net loss from Sept 01, 1995 to Sept 30, 1995
----------------------- -----------------------
Balance at Sept 30, 1995 3,375,488 7,244,227 $3,376 $12,568,975
----------------------- -----------------------
Amounts
-----------------------------------------------------
Deficit
Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
------------------------------------------------------
Shares issued to employees for employment services (note 11-ix) $7,000
Shares exchanged as per exchange agreement 0
Consulting services received re shares issued (note 11-ix) 12,498 12,500
Marketing services received re shares issued 83,300 83,333
to LL Knickerbocker Co. (note 12)
Shares issued to directors as compensation (note 11-ix) 63,500
Share issue cost from Aug 01, 1995 to Aug 31, 1995 (13,306)
Translation adjustment 21,053 21,053
Net loss from Aug 01, 1995 to Aug 31, 1995 (441,307) (441,307)
------------------------------------------------------
Balance at Aug 31, 1995 $(2,203,195) $(259,200) $(9,773,379) $273,606
Shares issued for compensation to employees (note 11-ix) 15,716
Consulting services received re shares issued (note 11-ix) 12,498 12,500
Shares issued to Amerasia for marketing services (note 11-ix) 44,496
Less: services not yet received (40,788) (40,788)
Marketing services received re shares issued (note 12) 83,300 83,333
to LL Knickerbocker Co.
Shares issued to director as compensation (note 11-ix) 23,000
Shares cancelled to treasury
Share issue cost from Sept 01, 1995 to Sept 30, 1995 (20,276)
Translation adjustment 5,035 5,035
Net loss from Sept 01, 1995 to Sept 30, 1995 (472,531) (472,531)
------------------------------------------------------
Balance at Sept 30, 1995 $(2,148,185) $(254,165) $(10,245,910) $ (75,909)
------------------------------------------------------
</TABLE>
<PAGE> 16
The Tracker Corporation of America
(A development Stage Company)
Consolidated Statement of Shareholders' Equity (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Shares Amounts
----------------------------- ----------------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Shares issued pursuant to S-8 for employees, consultants 770,000 770 769,230
and a director (note 11-vi)
Less: employment and consulting services not yet received (625,054)* (625)
Consulting services received re shares issued 2,083* 2
for a consultant (note 11-ix)
Marketing services received from Amerasia (note 11-ix) 2,500*
Marketing services received re shares issued 33,333* 33
to LL Knickerbocker Co. (note 12)
Share issue cost from Oct 01, 1995 to Oct 31, 1995 (6,146)
Translation adjustment
Net loss from Oct 01, 1995 to Oct 31, 1995
----------------------------- ---------------------------
Balance at October 31, 1995 3,555,850 7,246,727 $ 3,556 $13,332,059
----------------------------- ---------------------------
Employee, consulting services received re S-8 (note 11-vi) 113,646* 114
Marketing services received from Amerasia (note 11-ix) 5,000*
Marketing services received re shares issued 66,666* 66
to LL Knickerbocker Co. (note 12)
Share issue cost from Nov 01, 1995 to Dec 31, 1995 (64,712)
Translation adjustment
Net loss from Nov 01, 1995 to Dec 31, 1995
----------------------------- ---------------------------
Balance as at December 31, 1995 3,736,162 7,251,727 $ 3,736 $13,267,347
----------------------------- ---------------------------
Amount
------------------------------------------------------------------
Deficit
Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
-----------------------------------------------------------------
Shares issued pursuant to S-8 for employees, consultants 770,000
and a director (note 11-vi)
Less: employment and consulting services not yet received (624,429) (625,054)
Consulting services received re shares issued 12,498 12,500
for a consultant (note 11-ix)
Marketing services received from Amerasia (note 11-ix) 3,708 3,708
Marketing services received re shares issued 83,300 83,333
to LL Knickerbocker Co. (note 12)
Share issue cost from Oct 01, 1995 to Oct 31, 1995 (6,146)
Translation adjustment 19773 19,773
Net loss from Oct 01, 1995 to Oct 31, 1995 (444,228) (444,228)
------------------------------------------------------------------
Balance at October 31, 1995 $(2,673,108) $ (234,392) $(10,690,138) $ (262,023)
------------------------------------------------------------------
Employee, consulting services received re S-8 (note 11-vi) 113,532 113,646
Marketing services received from Amerasia (note 11-ix) 7,391 7,391
Marketing services received re shares issued 166,600 166,666
to LL Knickerbocker Co. (note 12)
Share issue cost from Nov 01, 1995 to Dec 31, 1995 (64,712)
Translation adjustment (1,531) (1,531)
Net loss from Nov 01, 1995 to Dec 31, 1995 (1,112,579) (1,112,579)
------------------------------------------------------------------
Balance at December 31, 1995 $(2,385,585) $ (235,923) $(11,802,717) $(1,153,142)
-----------------------------------------------------------------
</TABLE>
(*) 1,344,744 common shares and 20,000 Class B common shares have been
subscribed for but remain unissued as at December 31, 1995.
the accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 17
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS/CORPORATE HISTORY:
The Tracker Corporation of America (the Company), through a wholly-owned
subsidiary, The Tracker Corporation (Tracker Canada), is engaged in the
development, marketing and operation of a unique system to aid in the recovery
of lost or stolen items using advanced bar code and laser scanning technologies.
The Company was formed under the name "Ultra Capital Corp." (Ultra) in February
1986 under the laws of the State of Nevada to serve as a vehicle to acquire or
merge with an operating company. The Company changed its name from Ultra on July
1, 1994 when, as more fully discussed below, Ultra merged with Tracker Canada.
The Company was incorporated in Delaware on July 1, 1994. Effective July 12,
1994, the Company merged with Tracker Canada. Concurrent with the effective
date, Ultra changed its name to The Tracker Corporation of America and changed
its year-end from December 31 to March 31. In conjunction with the merger, the
common stock of Tracker Canada was reclassified as exchangeable preference stock
which is exchangeable on a one-for-one basis for Class B Voting Common Stock
(Class B shares) of the Company beginning July 12, 1995 through July 12, 2002.
An equal number of Class B shares is held in trust for exchangeable preference
shareholders who can direct the voting of the Class B shares. The Class B shares
will be canceled upon the exchange of the exchangeable preference shares for the
Company's common stock. For accounting purposes, the merger is being treated as
a reverse merger/acquisition with recapitalization of Tracker Canada as the
acquirer because, among other factors, the assets and operations of Tracker
Canada significantly exceed those of Ultra and the shareholders of Tracker
Canada control the Company after the merger. The merger is being treated for
accounting and financial reporting purposes as an issuance of shares by Tracker
Canada and, accordingly, pro forma information is not presented as the merger is
not a business combination. The historical consolidated financial statements
prior to July 12, 1994 are those of Tracker Canada. The merger has been recorded
at the value of Ultra's net tangible assets as of the effective date. The
accumulated deficit of Tracker Canada is carried forward and the common stock
and paid in capital of Tracker Canada prior to the merger have been
retroactively restated for the equivalent number of shares received in the
merger and carried forward.
Management believes all normal, recurring adjustments are included in the
unaudited financial information and such financial information is not
necessarily indicative of the results of the full year.
NOTE 2 - GOING CONCERN:
The Company has been in a development state since its inception. The Company's
successful completion of its systems development and its launch to the
marketplace, ultimately to the attainment of profitable operations, is
dependent, in part, on its ability to obtain adequate sources of financing.
Management is currently working to secure adequate sources of capital through
private placements of either debt or securities. Management believes that, with
available cash on hand and potential new sources of capital referred to above,
the Company has the ability to continue as a going concern.
<PAGE> 18
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of The Tracker
Corporation of America and its wholly owned subsidiary, The Tracker Corporation.
All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with an original maturity of three
months or less to be cash equivalents.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
INVENTORY
The inventory is stated at the lower of cost or market value with cost being
determined by the average cost method. Inventory predominately consists of raw
materials as the Company fulfills its sales orders on a just in time basis, when
received. No significant work-in-progress or finished goods were held by the
Company at the period or year end.
DEFERRED CHARGES
Deferred charges relate to the commission incurred on securing investors for the
Company's Convertible Subordinated Debentures and are amortized to expense over
the term of the Convertible Subordinated Debentures.
FIXED ASSETS
Fixed assets are stated at cost less depreciation. Depreciation is determined
using the straight line method over the estimated useful lives of the related
assets as follows:
<TABLE>
<S> <C>
Scanning equipment and computer hardware 5 years
Computer software 1 year
Office furniture and equipment 5 years
Leasehold improvements term of the lease
Kiosk equipment 5 years
</TABLE>
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the December 31, 1995 exchange rate while revenues, expenses and
cash flows are translated at average rates in effect for the period.
<PAGE> 19
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for Company services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not been provided are recorded as
deferred revenue. The average length of the membership revenues varies from
monthly to a 5-year period.
EARNINGS PER SHARE
Primary earnings per share are calculated based on net profit (loss) divided by
the weighted average number of common stock outstanding. Fully diluted earnings
per share are calculated based on net profit (loss) divided by the weighted
average number of common stock and common stock equivalents outstanding. Common
stock equivalents include all warrants and convertible subordinated debentures
outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for inventory
obsolescence, depreciation and amortization, taxes, and contingencies.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The accounting requirements are effective for transactions entered into in
fiscal years beginning after December 15, 1995. The disclosure requirements are
effective for fiscal years beginning after December 31, 1995. Pro forma
disclosures required for entities that elect to continue to measure compensation
cost using APB Opinion No. 25 must include the effects of all awards granted in
fiscal years that begin after December 15, 1994. This statement establishes
financial and reporting standards for stock-based employee compensation plans.
This statement defines fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
not completed an evaluation of the effect of this Statement.
DISCLOSURES OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Effective for fiscal years ending after December 15, 1995, the Statement of
Position 94-6 provides guidance on financial statement disclosures of risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near term. Such risks and uncertainties can stem
from the nature of the Company's operations, from the necessary use of estimates
in the preparation of the
<PAGE> 20
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's financial statements, and from significant concentrations in certain
aspects of the Company's operations. The Company expects to adopt this statement
in fiscal 1996. Management will continue to assess the impact of implementation.
NOTE 4 - SHORT TERM INVESTMENT:
The amount of $221,730 represents a short-term investment in 288,462 shares of
Stratcomm Media Ltd. which is a publicly traded company on the Vancouver Stock
Exchange and represents less than a 4% interest in the company. The shares owned
by the Company are restricted from trading for a period of 12 months starting
May 30, 1995. The investment is carried at cost which approximates fair value.
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
------ ---------
<S> <C> <C>
Investor relations $ 0 $325,267
Marketing & celebrity 211,735 0
Rent 450 115,147
Other 68,855 104,018
-------- --------
$281,040 $544,432
======== ========
</TABLE>
NOTE 6 - NOTE RECEIVABLE:
At March 31, 1995, the Company had advanced $178,350 to Page-Direct Ltd. .(a
wireless communications company for which the Company had entered into an
agreement to purchase) The related note receivable bore interest at the Royal
Bank of Canada prime rate plus 2% and was payable on demand. The note was repaid
in June 1995 in conjunction with the cancellation of the subject agreement. The
owner of Page-Direct Ltd exercised its option under the terms of the original
agreement to re-acquire its interest in Page-Direct. Prior to the exercise of
this option by Page-Direct Ltd., the Company had issued 271,052 exchangeable
preference shares in its Canadian subsidiary to the owner of Page-Direct in
exchange for 46.2% of the outstanding shares of Page-Direct Ltd. Such
exchangeable preference shares were returned to the Company in June 1995.
NOTE 7 - DUE FROM SHAREHOLDERS
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
<PAGE> 21
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FIXED ASSETS
Property and equipment consist of the followings:
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
-------- --------
<S> <C> <C>
Scanning equipment $102,942 $ 99,364
Computer equipment 257,193 250,152
Computer software 32,066 30,845
Office furniture and equipment 63,296 54,950
Leasehold improvements 67,003 64,674
Kiosk equipment 63,651 61,438
-------- --------
Total Original Cost 586,151 561,423
Less: Accumulated Depreciation 211,618 124,276
-------- --------
$374,533 $437,147
======== ========
</TABLE>
Depreciation expense for the nine months period ended December 31, 1995 was
$87,342 and $94,161 for the year ended March 31, 1995.
NOTE 9 - LONG TERM INVESTMENT:
The amount of $50,451 represents the funds advanced to C.E.M. Centry Electronic
Monitoring Corporation ("Centry"), a publicly listed Canadian company trading on
the Vancouver Stock Exchange, in consideration of 633,002 common shares of
Centry, which currently represent approximately 11.96% of Centry's total common
shares issued. The Company also agreed to provide, over 12 months from January
31, 1995, administrative services in the amount of $50,746 (Canadian$72,000) to
Centry. See Note 16.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
------- ---------
<S> <C> <C>
Payroll and employee benefits $ 0 $178,980
Director fees 10,000 44,500
Other 127,170 110,641
-------- --------
$137,170 $334,121
======== ========
</TABLE>
NOTE 11 - CAPITAL STOCK:
(i) The Common Stock and Class B Voting Common Stock share ratably as to
dividends. The Class B Voting Common Stock is held in trust pursuant to the
terms of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary. The agreement permits
the persons holding the exchangeable shares to direct the voting of the Class B
common shares and provides a mechanism for the exchange of exchangeable shares
for a like number of common shares.
<PAGE> 22
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ii) At December 31, 1995, outstanding warrants had been issued to acquire
30,920 exchangeable preference shares (1,185,880 at March 31, 1995) of the
Canadian subsidiary at Canadian $14 per share. These warrants expire two years
after the date of issuance. For further discussion on outstanding warrants
refer to Note 16. On March 15, 1995, the Company entered into an agreement and
sold, for net proceeds of $350,000, 500,000 units comprised of 500,000
restricted common shares and 500,000 warrants to purchase 500,000 restricted
common shares to Kuplen Group Investment ("KGI"). The warrants are exercisable
within one (1) year at a price of $5.00 per share. In order to secure
registration rights of the restricted shares, KGI must exercise the warrants
on a 1:1 basis with the common shares.
(iii) During the year ended March 31, 1995, the Company adopted a plan which
allows for the grant of options, appreciation rights, restricted stock and
certain other stock-based performance incentives to certain officers. On April
11, 1995, the Company issued stock, pursuant to stock grants, of 630,000 shares
of common stock, restricted as to transferability, to certain officers of the
Company.
(iv) On May 1, 1995, the Company entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted common
shares and 250,000 warrants to purchase 250,000 restricted common shares to
Reynold Kern ("RK"). The warrants are exercisable within one (1) year at a price
of $5.00 per share.
(v) In June 1995, the Company issued 200,000 shares of common stock, restricted
as to transferability, to Robert Zuk for certain investor relations services for
the Company.
(vi) In October 1995, the Company issued 770,000 shares of common stock pursuant
to the registration statement on S-8 to six key employees and one director as
payment in lieu of prior accrued salaries and fees and as an advance of their
salaries and fees up to September 30, 1996. The shares were all valued at $1.00
per share.
(vii) On November 1, 1995, at its annual general meeting the shareholders
approved the increase of the authorized number of common shares from 20,000,000
to 30,000,000 shares.
<PAGE> 23
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(viii) Other Capital:
As at December 31, 1995, 1,344,744 common shares and 20,000 Class B common
shares have been subscribed for but remain unissued as the service for which
these shares were subscribed for have yet to be received.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
------------------------------------------------------ INCEPTION
3 MONTHS ENDED DEC 31, 9 MONTHS ENDED DEC 31, (MAY 6,
1993)
THROUGH DEC
------------------------------------------------------- 31,
1995 1994 1995 1994 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPENING,
Marketing services not yet $1,832,600 $ 0 $1,999,200 $ 0 $ 0
received
Deferred compensation costs 0 0 0 0 0
Deferred consulting costs 315,585 0 87,485 0 0
------------------------------------------------------------------------
$2,148,185 $ 0 $2,086,685 $ 0 $ 0
SHARES SUBSCRIBED BUT NOT
ISSUED,
Marketing services not yet $ 0 $ 0 $ 0 $ 0 $1,999,200
received
Deferred compensation costs 769,230 0 769,230 0 769,230
Deferred consulting costs 0 149,975 306,796 149,975 456,771
------------------------------------------------------------------------
$ 769,230 $ 149,975 $1,076,026 $ 149,975 $3,225,201
CHARGED TO EXPENSE AS SERVICES
ARE RECEIVED,
Marketing services not yet $ 249,900 $ 0 $ 416,500 $ 0 $ 416,500
received
Deferred compensation costs 258,333 0 258,333 0 258,333
Deferred consulting costs 23,597 24,996 102,293 24,996 164,783
------------------------------------------------------------------------
$ 531,830 $ 24,996 $ 777,126 $ 24,996 $ 839,616
CLOSING,
Marketing services not yet $1,582,700 $ 0 $1,582,700 $ 0 $1,582,700
received
Deferred compensation costs 510,897 0 510,897 0 510,897
Deferred consulting costs 291,988 124,979 291,988 124,979 291,988
------------------------------------------------------------------------
$2,385,585 $ 124,979 $2,385,585 $ 124,979 $2,385,585
========================================================================
</TABLE>
<PAGE> 24
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ix) The Company has, from inception to present, issued shares in exchange for
(a) employment services, (b) consulting and marketing services, and (c)
consideration in lieu of rental payments.
NOTE 12 - COMMITMENTS:
LEASES
The Company has a lease agreement for their current office premises. The term of
the lease is 10 years which commenced January 1, 1994 and requires payment of an
annual base rent of $22,000 for the first five years and thereafter market value
less 20%. In addition, the Company is required to pay its share of property
taxes and all operating costs.
Rental expense for the nine month period ended December 31, 1995 amounted to
$188,903 and $164,494 for the nine month period ended December 31, 1994.
EXCLUSIVE DISTRIBUTION RIGHTS
The Company amended its arrangement with Symbol Technologies Inc. for the
exclusive right to use its PDF bar code scanning technology in Canada, the
United States and Europe, excluding Japan and the Far East. The commitment under
this arrangement is as follows:
<TABLE>
<CAPTION>
Units Amount
----- ------
<S> <C> <C>
1996 830 $554,000
</TABLE>
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker") which provides for
a television and radio marketing campaign to be initially launched in the
California marketplace. As part of the compensation for services to be performed
by Knickerbocker, the Company has paid Knickerbocker a fee of $212,975 and
issued 800,000 restricted common shares, valued at $2.50 per share based on the
trading price of the Company's shares on the date of the agreement. The Company
provided to Knickerbocker 400,000 of the 800,000 common shares immediately and
the balance will be given to Knickerbocker upon the successful completion of the
California test campaign and the commencement of the national and international
campaigns. These common shares bear a restrictive legend barring Knickerbocker
from selling them for two years from March 15, 1995, without the prior written
consent of the Company.
INVESTOR MEDIA & PUBLIC RELATIONS
The Company entered into an agreement with Corporate Relations Group, Inc., of
Winter Park, Florida ("CRG") to provide advertising, printing and investor
relations for investor media and public relations support for the Company. The
agreement covers a twelve month period, commencing during the first half of
1996. As consideration for the services provided by CRG, the Company will pay to
CRG, at the
<PAGE> 25
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS (CONT'D ):
Company's option, either $570,000 in cash or the equivalent number of common
shares valued as of the date of the agreement at $1.75 per share. The Company
has also agreed to issue options totaling 500,000 common shares noted as
follows:
100,000 common shares at $2.00 1 year from the date of the agreement
100,000 common shares at $2.40 2 years from the date of the agreement
100,000 common shares at $2.60 3 years from the date of the agreement
100,000 common shares at $2.80 4 years from the date of the agreement
100,000 common shares at $3.00 5 years from the date of the agreement
NOTE 13 - RELATED PARTY TRANSACTIONS:
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management agreed to receive 5,089,286 exchangeable preference shares
in consideration for the assignment of international patents covering the
Tracker Canada system and as inducements to join the Company, respectively.
The Company currently retains certain key management personnel under contract
through their respective management or consulting companies. Included in
development costs are consulting and management fees paid under the
aforementioned contracts totaling, in the aggregate, $404,175 for the nine month
period ended December 31, 1995 and $737,462 for the year ended March 31, 1995.
Placement commissions amounting to $0 for the nine month period ended December
31, 1995 and $115,282 for the year ended March 31, 1995 paid to related parties
in connection with the Company's private equity placement are included as a
reduction in paid in capital.
Commissions amounting to $205,500 for the nine month period ended December 31,
1995 and $0 for the year ended March 31, 1995 paid to related parties in
connection with the Company's securing holders of its Convertible Subordinated
Debentures.
<PAGE> 26
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES:
The estimated deferred tax asset of $ 3,150,000 and 2,290,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to December 31, 1995 and March 31, 1995, respectively,
has not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $ 9,020,000 expire starting
in 2001.
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
------- ---------
<S> <C> <C>
Deferred tax liabilities $ -- $ --
Deferred tax assets
Non capital losses 3,150,000 2,290,000
----------- -----------
3,150,000 2,290,000
Valuation allowance (3,150,000) (2,290,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $860,000 during the current period.
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company issued convertible subordinated debentures in the amount of
$1,905,000 bearing interest at 15% annually and are repayable within one year.
The interest payments are payable monthly in advance. The principal amount may
be converted, at the Holder's option, into shares of the Company's common stock,
in whole or in part, beginning on October 1, 1995 at a conversion price as shown
below. The debentures are subordinated to all other indebtedness incurred by the
Company. The Company paid $185,500 in cash and accrued 20,000 restricted common
shares (valued at $20,000) in placement commissions to finders of arm's length
third party private investors. The following lists the conversion rates:
<TABLE>
<CAPTION>
Principal Conversion rate
--------- ---------------
<S> <C>
$1,000,000 - $0.4375 per share of common stock
400,000 - $0.9375 per share of common stock
125,000 - $1.00 per share of common stock
30,000 - $1.06 per share of common stock
70,000 - $1.0625 per share of common stock
30,000 - $1.10 per share of common stock
75,000 - $1.20 per share of common stock
175,000 - $1.25 per share of common stock
----------
$1,905,000
</TABLE>
NOTE 16 - SUBSEQUENT EVENTS:
On November 22, 1995, the Company filed a preliminary registration statement on
Form S-1 with the Securities and Exchange Commission and is in the process of
responding to comments. As at February 13, 1996, the Company continues to be in
the necessary "quiet period" relating to disclosure items.
<PAGE> 27
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of January 31, 1996, the Company's administrative services obligation, as
described in Note 9, in the amount of $50,746 (Canadian$72,000) to C.E.M. Centry
Electronic Monitoring Corporation ("Centry") had been completely satisfied. The
Company will not incur any further obligations with respect to this matter.
As at February 13, 1996, the Company issued additional convertible subordinated
debentures in the amount of $199,528.83 bearing interest at 15% annually and are
repayable within one year. The interest payments are payable monthly in advance.
The principal amount may be converted into shares of the Company's common stock,
in whole or in part, beginning on October 1, 1995. Since December 31, 1995, the
Company paid a total of $19,953 in cash and accrued 32,906 restricted common
shares (valued at $32,906) in placement commissions to finders of arm's length
third party private investors. The following lists the conversion rates:
<TABLE>
<CAPTION>
Principal Conversion rate
- - --------- ---------------
<S> <C>
$ 35,000.00 - $1.00 per share of common stock
$ 164,528.83 - $1.25 per share of common stock
</TABLE>
As at February 13, 1996, the Company had received and complied with requests to
convert a total of $170,000 in convertible subordinated debenture to 388,572
shares of the Company's common stock at a conversion rate of $0.4375 per share
of common stock as described in Note 15.
As at February 13, 1996, of the warrants issued since inception to acquire
exchangeable preference shares of the Canadian subsidiary at Canadian $14 per
share, there currently remains only 26,634 outstanding as 4,286 warrants have
expired since December 31, 1995. As described in Note 11, these warrants expire
two years after the date of issuance.
<PAGE> 28
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE II
<TABLE>
<CAPTION>
AMOUNTS RECEIVABLE FROM RELATED PARTIES
- - ----------------------------------------------------------------------------------------------------
(Unaudited)
Balance at
Deductions December 31, 1995
Balance -------------------------- ----------------------
Debtor March 31, 1995 Additions Collected Written off Current Non-Current
------ -------------- --------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bruce Lewis $138,275 $ 682 $138,957 $ 0 $ 0 $ 0
Gregg Johnson 53,651 3,993 0 0 57,644 0
-------- -------- -------- ----- ------- -----
$191,926 $ 4,675 $138,957 $ 0 $57,644 $ 0
======== ======== ======== ===== ======= =====
</TABLE>
All related party loans are unsecured, bear interest at 5% per annum and are due
on demand.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 177,535
<SECURITIES> 221,730
<RECEIVABLES> 6,743
<ALLOWANCES> 0
<INVENTORY> 201,038
<CURRENT-ASSETS> 945,730
<PP&E> 586,151
<DEPRECIATION> 211,618
<TOTAL-ASSETS> 1,509,839
<CURRENT-LIABILITIES> 2,662,981
<BONDS> 0
0
0
<COMMON> 13,271,083
<OTHER-SE> (2,385,585)
<TOTAL-LIABILITY-AND-EQUITY> 1,509,839
<SALES> 67,198
<TOTAL-REVENUES> 67,198
<CGS> 28,432
<TOTAL-COSTS> 28,432
<OTHER-EXPENSES> 4,729,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,594
<INCOME-PRETAX> (4,690,709)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,690,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,690,709)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.39)
</TABLE>
