<PAGE> 1
Date Filed: August 14, 1996
FORM 10-Q
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 JUNE 30, 1996
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 [ ]
<PAGE> 2
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 July 22, 1996, the Registrant had outstanding 12,121,038 shares
of common stock, par value $0.001 per share, and 5,209,762 shares of the
Registrant's Class B voting common stock, no par value.
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
- --------------------------------------------------------------------------------
The Tracker Corporation of America (the "Registrant") files herewith
consolidated balance sheets of the Registrant as of June 30, 1996, and March 31,
1996, and the related consolidated statements of operations for the three month
period ended June 30, 1996 and 1995, respectively, and the consolidated
shareholders' equity (deficit) for the three month period ended June 30, 1996,
and for the period from inception (May 6, 1993) through June 30, 1996 and
consolidated statement of cash flows for the three month period ended June 30,
1996 and 1995, respectively, and for the period from inception (May 6, 1993)
through June 30, 1996. 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, 1996.
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,
1996 filed on July 15, 1996 and in the Registrant's report on Form 8-K dated
July 25, 1994.
3
<PAGE> 4
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
Assets
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 214,543 $ 78,844
Short-term investment 220,110 221,190
Accounts receivable 24,209 7,361
Prepaid expenses and deposits 108,405 168,345
Inventory 99,693 115,612
Deferred charges 67,099 73,750
------------ ------------
Total current assets 734,059 665,102
Due from shareholders 58,669 58,226
Deferred charges 243,750 66,234
Fixed assets (net) 332,232 353,729
Long-term investment 50,451 50,451
------------ ------------
Total assets $ 1,419,161 $ 1,193,742
============ ============
Liabilities & Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $ 572,804 $ 551,553
Accrued liabilities 122,024 266,837
Deferred revenue 210,956 115,241
Convertible subordinated debentures 1,150,000 1,460,000
------------ ------------
Total current liabilities 2,055,784 2,393,631
Deferred revenue 472,059 178,883
Commitments (Note 12)
Shareholders' equity (deficit)
$1000 6% Convertible preferred stock, $.001 par value, 500,000 shares
authorized, 350 (Nil - March 31, 1996) shares issued and outstanding -- --
Common stock, $.001 par value, 30,000,000 shares authorized,
9,908,078 (6,130,929 - March 31, 1996) shares issued and outstanding 9,908 6,131
Class B voting common stock, $0.00000007 par value, 20,000,000
shares authorized, 5,204,762 (6,126,362 - March 31, 1996) issued -- --
and outstanding
Paid-in capital 15,128,387 14,013,062
Other capital (1,523,004) (1,954,327)
Accumulated deficit (14,465,450) (13,202,738)
Cumulative translation adjustment (258,523) (240,900)
------------ ------------
Total shareholders' equity (deficit) (1,108,682) (1,378,772)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 1,419,161 $ 1,193,742
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From Inception
For 3 months ended June 30, (May 6, 1993)
---------------------------------- through
1996 1995 June 30, 1996
----------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 65,872 $ 15,905 $ 182,581
Cost of goods sold 13,545 8,460 57,804
----------------------------------------------------------
Gross profit 52,327 7,445 124,777
----------------------------------------------------------
Development costs
Operational 144,083 181,152 1,573,904
Information systems 60,545 68,744 946,591
Sales and marketing 563,683 (195,516) 3,938,433
General and administrative 546,728 1,834,042 8,131,299
----------------------------------------------------------
Total development costs 1,315,039 1,888,422 14,590,227
----------------------------------------------------------
Net loss applicable to common stock $ (1,262,712) $ (1,880,977) $(14,465,450)
===========================================================
Loss per share of common stock $ (0.10) $ (0.21) $ (1.77)
===========================================================
Weighted average number of shares
outstanding 12,874,322 9,100,593 8,159,695
===========================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
---------------------------------------------
Class B
Preferred Common Common
Stock Stock Stock
---------------------------------------------
<S> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) 5,089,286
Shares issued for cash (Cash - $4,714,188) 884,729
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 60,871
Share issue costs
Translation adjustment
Net loss
---------------------------------------------
Balance at March 31, 1994 6,034,886
---------------------------------------------
Shares issued for cash (Cash - $1,175,797) 234,517
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 5,777
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219
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) (Cash -$1,505,000) 860,000
Share proceeds to be received subsequent to March 31, 1995
Shares issued for consulting and marketing services (note 12) (Cash-$Nil) 825,000 78,005
Less: consulting and marketing services not yet received (814,583)*
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500,000
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 25,063
Share issue costs
Translation adjustment
Net loss
---------------------------------------------
Balance at March 31, 1995 - 2,109,636 6,378,248
---------------------------------------------
AMOUNTS
------------------------------------------------
Paid-in
Capital in
Preferred Common Excess Other
Stock Stock of Par Capital
------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) $ - $ - $ - $ -
Shares issued for cash (Cash - $4,714,188) 4,714,188
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 324,344
Share issue costs (466,142)
Translation adjustment
Net loss
-------------------------------------------------
Balance at March 31, 1994 - - 4,572,390 -
-------------------------------------------------
Shares issued for cash (Cash - $1,175,797) 1,175,797
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 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) (Cash -$1,505,000) 860 2,900,840
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 12) (Cash-$Nil) 825 2,204,153
Less: consulting and marketing services not yet received (815) (2,086,685)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500 349,500
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 74,409
Share issue costs (779,495)
Translation adjustment
Net loss
---------------------------------------------------
Balance at March 31, 1995 - 2,109 9,707,617 (2,086,685)
---------------------------------------------------
AMOUNTS
---------------------------------------------------
Deficit
Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
---------------------------------------------------
<S> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) $ - $ - $ -
Shares issued for cash (Cash - $4,714,188) 4,714,188
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 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 (129,098) (2,043,425) 2,399,867
---------------------------------------------------
Shares issued for cash (Cash - $1,175,797) 1,175,797
Shares issued in lieu of rent (note 11-xi) (Cash - $Nil) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 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) (Cash -$1,505,000) 2,901,700
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 12) (Cash-$Nil) 2,204,978
Less: consulting and marketing services not yet received (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 350,000
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 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 (288,124) (7,112,008) 222,909
---------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
---------------------------------------------------
Class B
Preferred Common Common
Stock Stock Stock
--------------------------------------------------
<S> <C> <C> <C>
Share proceeds received re Regulation S offering
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 14,582 *
before March 31, 1995 (note 11-xi) (Cash - $ Nil)
Marketing services received re shares issued 266,664 *
to LL Knickerbocker Co. (note 12) (Cash - $ Nil)
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 98,858
Shares issued to Amerasia for marketing services (note 11-xi) (Cash - $Nil) 30,000
Less: services not yet received (12,500)*
Shares cancelled (Cash - $Nil) (171)
Shares issued pursuant to S-8 for employees, consultants and 770,000
a director (note 11-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (340,939)*
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less: shares proceeds to be received
Share proceeds received from private placement (Cash - $250,000) 250,000
Shares issued upon exercise of warrants at Canadian $1 per share 849,803
(Cash - $619,166)
Shares issued to officers (note 11-iv) (Cash - $Nil) 630,000
Shares issued to a consultant (note 11-xi) (Cash - $Nil) 7,500
Shares issued for investor relation services (note 11-vi) (Cash - $Nil) 200,000
Less: services not yet received (200,000)*
Shares issued to employees for employment services (note 11-xi) 14,176
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 1,133,365 (1,133,365)
Shares issued for conversion from debenture holders (Cash -$Nil) 991,434
Share issue cost from April 1, 1995 to March 31, 1996
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
--------------------------------------------------
Balance as at March 31, 1996 - 6,130,929 6,126,362
==================================================
AMOUNTS
--------------------------------------------------------
Paid in
Capital in
Preferred Common Excess Other
Stock Stock of Par Capital
--------------------------------------------------------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ - $ - $ 819,459 $
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 14 87,486
before March 31, 1995 (note 11-xi) (Cash - $ Nil)
Marketing services received re shares issued 265 666,400
to LL Knickerbocker Co. (note 12) (Cash - $ Nil)
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 99 86,402
Shares issued to Amerasia for marketing services (note 11-xi) (Cash - $Nil) 44,496
Less: services not yet received (18,630)
Shares cancelled (Cash - $Nil) 1 (1)
Shares issued pursuant to S-8 for employees, consultants and 770 769,230
a director (note 11-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (341) (340,598)
Shares issued to R. Zuk (Cash - $83,000) 200 199,800
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement (Cash - $250,000) 250 249,750
Shares issued upon exercise of warrants at Canadian $1 per share 619,166
(Cash - $619,166)
Shares issued to officers (note 11-iv) (Cash - $Nil) 630 826,245
Shares issued to a consultant (note 11-xi) (Cash - $Nil) 8 9,836
Shares issued for investor relation services (note 11-vi) (Cash - $Nil) 200 262,300
Less: services not yet received (200) (262,300)
Shares issued to employees for employment services (note 11-xi) 22,716
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 1,134 (1,134)
Shares issued for conversion from debenture holders (Cash -$Nil) 992 728,537
Share issue cost from April 1, 1995 to March 31, 1996 (214,357)
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
--------------------------------------------------------
Balance as at March 31, 1996 $ - $6,131 $14,013,062 $(1,954,327)
========================================================
AMOUNTS
----------------------------------------------------
Deficit
Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
----------------------------------------------------
<S> <C> <C> <C>
Share proceeds received re Regulation S offering $ - $ - $ 819,459
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 87,500
before March 31, 1995 (note 11-xi) (Cash - $ Nil)
Marketing services received re shares issued 666,665
to LL Knickerbocker Co. (note 12) (Cash - $ Nil)
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 86,501
Shares issued to Amerasia for marketing services (note 11-xi) (Cash - $Nil) 44,496
Less: services not yet received (18,630)
Shares cancelled (Cash - $Nil) -
Shares issued pursuant to S-8 for employees, consultants and 770,000
a director (note 11-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (340,939)
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement (Cash - $250,000) 250,000
Shares issued upon exercise of warrants at Canadian $1 per share 619,166
(Cash - $619,166)
Shares issued to officers (note 11-iv) (Cash - $Nil) 826,875
Shares issued to a consultant (note 11-xi) (Cash - $Nil) 9,844
Shares issued for investor relation services (note 11-vi) (Cash - $Nil) 262,500
Less: services not yet received (262,500)
Shares issued to employees for employment services (note 11-xi) 22,716
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) -
Shares issued for conversion from debenture holders (Cash -$Nil) 729,529
Share issue cost from April 1, 1995 to March 31, 1996 (214,357)
Translation adjustment 47,224 47,224
Net loss from April 1, 1995 to March 31, 1996 (6,090,730) (6,090,730)
----------------------------------------------------
Balance as at March 31, 1996 $(240,900) $(13,202,738) $(1,378,772)
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
---------------------------------------
Class B
Preferred Common Common
Stock Stock Stock
---------------------------------------
<S> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (note 12) (Cash - $ Nil) 100,000 *
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 34,445
Marketing services received from Amerasia (note 11-xi) (Cash - $Nil) 7,500 *
Employment and consulting services received re S-8 (note 11-vii) (Cash - $Nil) 170,469 *
Shares issued for conversion from debenture holders (note 11-x) (Cash -$Nil) 742,573
Preferred shares issued from private placement (note 11-xii) (Cash - $850,000) 850
Common shares issued for conversion from preferred stockholder (note11-xiii) (500) 1,611,156
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 929,100 (929,100)
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 24,000
Shares issued in lieu of finder fee for debenture holders (note 11-xi) (Cash -$Nil) 52,906
Shares issued in lieu of finder fee for preferred stockholders (note 11-xi) (Cash -$Nil) 112,500
Share issue cost from April 1, 1996 to June 30, 1996
Translation adjustment
Net loss from April 1, 1996 to June 30, 1996
------------------------------------
Balance as at June 30, 1996 350 9,908,078 5,204,762
====================================
AMOUNTS
-------------------------------------------
Paid in
Capital in
Preferred Common Excess Other
Stock Stock of Par Capital
-------------------------------------------
<S> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (note 12) (Cash - $ Nil) $ - $ 100 $ - $ 249,900
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 34 15,466
Marketing services received from Amerasia (note 11-xi) (Cash - $Nil) 11,124
Employment and consulting services received re S-8 (note 11-vii) (Cash - $Nil) 170 170,299
Shares issued for conversion from debenture holders (note 11-x) (Cash -$Nil) 743 309,257
Preferred shares issued from private placement (note 11-xii) (Cash - $850,000) 1 849,999
Common shares issued for conversion from preferred stockholder (note11-xiii) (1) 1,611 (1,610)
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 929 (929)
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 24 11,976
Shares issued in lieu of finder fee for debenture holders (note 11-xi) (Cash -$Nil) 53 52,853
Shares issued in lieu of finder fee for preferred stockholders (note 11-xi)
(Cash -$Nil) 113 44,887
Share issue cost from April 1, 1996 to June 30, 1996 (166,574)
Translation adjustment
Net loss from April 1, 1996 to June 30, 1996
------------------------------------------
Balance as at June 30, 1996 $ - $9,908 $15,128,387 $(1,523,004)
==========================================
AMOUNTS
----------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
----------------------------------------------
<S> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (note 12) (Cash - $ Nil) $ - $ - $250,000
Shares issued to Directors as compensation (note 11-xi) (Cash - $Nil) 15,500
Marketing services received from Amerasia (note 11-xi) (Cash - $Nil) 11,124
Employment and consulting services received re S-8 (note 11-vii) (Cash - $Nil) 170,469
Shares issued for conversion from debenture holders (note 11-x) (Cash -$Nil) 310,000
Preferred shares issued from private placement (note 11-xii) (Cash - $850,000) 850,000
Common shares issued for conversion from preferred stockholder (note11-xiii)
(Cash - $Nil) -
Shares exchanged as per exchange agreement (Cash - $Nil) -
Shares issued to employees for employment services (note 11-xi) (Cash-$Nil) 12,000
Shares issued in lieu of finder fee for debenture holders (note 11-xi) (Cash -$Nil 52,906
Shares issued in lieu of finder fee for preferred stockholders (note 11-xi)
(Cash -$Nil) 45,000
Share issue cost from April 1, 1996 to June 30, 1996 (166,574)
Translation adjustment (17,623) (17,623)
Net loss from April 1, 1996 to June 30, 1996 (1,262,712) (1,262,712)
---------------------------------------------
Balance as at June 30, 1996 $ (258,523) $(14,465,450) $(1,108,682)
=============================================
</TABLE>
(*) 803,807 common shares and 5,000 Class B voting common shares have been
subscribed for but remain unissued as at June 30, 1996
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE> 9
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
From inception
For 3 months ended (May 6, 1993)
June 30, through
--------------------------- June 30,
1996 1995 1996
------------ -----------------------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $(1,262,712) $(1,880,977) $(14,465,450)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 27,218 29,649 262,564
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 556,505 1,468,392 4,429,306
Changes in assets and liabilities:
Prepaid expenses and deposits 59,940 (201,606) (125,678)
Accounts receivable (16,848) (20,247) (24,209)
Short-term investment 1,080 (218,580) (220,110)
Inventory 15,919 21,130 (99,693)
Deferred charges (170,865) - (310,849)
Deferred revenue 388,891 38,247 683,015
Accounts payable and accrued liabilities (123,562) (590,751) 709,473
------------ -----------------------------
Net cash used in operating activities (524,434) (1,354,743) (9,161,631)
------------ -----------------------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (8,617) 4,668 (598,562)
Loan to shareholders (443) (2,470) (415,081)
Repayment of loans to shareholders - 138,956 356,412
Note receivable - - (200,317)
Repayment of note receivable - 178,350 200,317
Long-term investment - (10,929) (2,301,372)
Unwind of long-term investment - - 2,250,921
------------ -----------------------------
Net cash from (used in) investing activities (9,060) 308,575 (707,682)
------------ -----------------------------
Cash flows from (used in) financing activities:
Issuance of common shares - 1,094,445 8,922,530
Issuance of preferred shares 850,000 - 850,000
Issuance of convertible subordinated debentures - - 2,189,529
Due to shareholder - - 108,390
Repayment to shareholder - - (108,390)
Share issue costs (166,574) (100,989) (1,626,568)
------------ -----------------------------
Net cash from financing activities 683,426 993,456 10,335,491
------------ -----------------------------
Effect of exchange rate changes (14,233) (10,466) (251,635)
------------ -----------------------------
Increase (decrease) in cash and cash equivalents during 135,699 (63,178) 214,543
the period
Cash and cash equivalents, beginning of period 78,844 107,091 -
------------ -----------------------------
Cash and cash equivalents, end of period $ 214,543 $ 43,913 $ 214,543
============ =============================
</TABLE>
Supplemental schedule of noncash financing activities
The Company issued certain shares of its Class B voting common stock for
service and for nominal values.
See Consolidated Statement of Shareholders' Equity (Deficit)
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE> 10
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 reincorporated in Delaware on July 1, 1994. Effective July 12,
1994, the Company merged with Tracker Canada. Concurrent with the merger
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 shares of the
common stock of the Company beginning July 12, 1995 through July 12, 2002. An
equal number of Class B voting common stock ("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 cancelled upon the exchange of the
exchangeable preference shares for the Company's common stock.
For accounting purposes, the merger was 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 was 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.
The Company utilizes state of the art proprietary technology providing a service
to aid in the recovery of lost or stolen possessions. The Company's members
receive a series of individualized, digitally-encoded labels that can be applied
to personal belongings. In the event a labelled item is recovered, the Company's
technology allows for the identification of the item's owner. After
identification, the Company's 24-hour service network coordinates the return of
the item to its owner via an international courier network. The Company's
Worldwide Identification & Recovery Service is endorsed by the International
Association of Chiefs of Police.
10
<PAGE> 11
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN:
The Company has been in a development stage since May 6, 1993, its inception.
The Company's successful launch to the marketplace, and ultimately to the
attainment of profitable operations, is dependent on its ability to obtain
adequate sources of financing and revenue generation. Management is currently
working to secure adequate sources of capital through private placements of
securities. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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 predominantly 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 year or period end.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions and costs of sales
and are amortized on a straight-line basis over the term of the related
agreement.
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 yet been provided, are recorded as
deferred revenue. The average length of the membership agreement varies from
monthly to a five-year period.
11
<PAGE> 12
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets as follows:
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
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the fiscal year or period end exchange rate while revenues,
expenses and cash flows are translated at average rates in effect for the
period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried in the accompanying consolidated financial
statements at amounts that approximate fair value unless separately disclosed.
EARNINGS PER SHARE
Primary earnings per share are calculated based on net profit (loss) divided by
the weighted average number of shares of common stock and Class B voting common
stock 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.
12
<PAGE> 13
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", establishes financial and reporting standards for stock-based
employee compensation plans. This statement defines the 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 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. The Company
has not completed an evaluation of the effect of this statement.
NOTE 4 - SHORT-TERM INVESTMENT:
The amount of $220,110 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 common
shares owned by the Company were restricted from trading for a period of 12
months starting May 30, 1995. The investment, which is carried as available for
sale, is carried at cost which approximates fair value.
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Marketing and celebrity 30,248 120,992
Other 78,157 47,353
------------ -------------
$ 108,405 $ 168,345
========== ============
</TABLE>
13
<PAGE> 14
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 7 - DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
Current: 1996 1996
-------- --------
<S> <C> <C>
Deferred sales commission $ 43,106 $ 47,222
Other 23,993 26,528
-------- --------
$ 67,099 $ 73,750
======== ========
Long term:
Deferred sales commission $210,150 $ 61,680
Other 33,600 4,554
-------- --------
$243,750 $ 66,234
======== ========
</TABLE>
NOTE 8 - FIXED ASSETS:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Scanning equipment $111,470 $106,471
Computer equipment 259,031 257,189
Computer software 31,832 31,988
Office furniture and equipment 66,926 67,254
Leasehold improvements 66,514 66,840
Kiosk equipment 63,186 63,496
------ ------
Total original cost 598,959 593,238
Less: Accumulated depreciation 266,727 239,509
------- -------
$332,232 $353,729
======== ========
</TABLE>
Depreciation expense for the period ended June 30, 1996 was $27,218 and was
$111,070 for the year ended March 31, 1996.
14
<PAGE> 15
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM INVESTMENT:
The amount of $50,451 represents the original cost to acquire 633,002 common
shares of C.E.M. Centry Electronic Monitoring Corporation ("Centry"), a publicly
listed Canadian company trading on the Vancouver Stock Exchange, which
approximates fair value. This investment, which is carried as available for
sale, represents approximately 11.96% of Centry's total common shares issued.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Director fees $ 0 $ 11,000
Finder fees for convertible debentures 0 52,906
Others 122,024 202,931
-------- --------
$122,024 $266,837
======== ========
</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.
(ii) At June 30, 1996, outstanding warrants had been issued and were outstanding
to acquire 15,577 exchangeable preference shares (17,348 at March 31, 1996) of
the Canadian subsidiary at Canadian $14 per share. These warrants expire two
years after the date of issuance.
(iii) 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 during the
one-year period commencing July 12, 1995 to July 12, 1996 at a price of $5.00
per share. In the event that the common stock underlying the warrants cannot be
purchased legally on margin at a marginable price, then the exercise period will
be extended until the first day that the common stock becomes marginable. In
order to secure registration rights of the restricted shares, KGI must exercise
the warrants on a 1:1 basis with the common shares.
(iv) (a) During the year ended March 31, 1995, the Company adopted a plan that
allows for the granting of options, appreciation rights, restricted stock and
certain other stock-based performance incentives to certain officers as
determined at the discretion of the compensation committee of the board of
directors. 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.
15
<PAGE> 16
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(iv) (b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
FOR 3
MONTHS FOR YEAR
ENDED JUNE ENDED
30, 1996 EXERCISE MARCH 31, EXERCISE
PRICE 1996 PRICE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPTIONS:
Opening 40,000 n/a 40,000 $7.95
Granted during the period (*) 0 10,000 $1.81
Exercised during the period 0 0 n/a
Expired/cancelled during period 0 (10,000) $7.95
------------ ------------
Closing 40,000 40,000
============ ============
</TABLE>
(*): 40,000 options were issued in July 1994 and 10,000 options were
issued in September 1995 to non-employee directors and vest
proportionately over a period of three years.
<TABLE>
<CAPTION>
FOR 3
MONTHS FOR YEAR
ENDED ENDED
JUNE 30, EXERCISE MARCH 31, EXERCISE
1996 PRICE 1996 PRICE
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK AND CLASS B):
Opening 767,348 n/a 1,685,880 n/a
Issued during the period 0 250,000 $5.00
Exercised during the period 0 (849,803) Cdn$1.00
Expired during the period (1,771) (318,729) Cdn$14.00
------------ ------------
Closing 765,577 767,348
============ ============
</TABLE>
(v) 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. The warrants are exercisable during the one-year period commencing
July 12, 1995 to July 12, 1996 at a price of $5.00 per share. In the event that
the common stock underlying the warrants cannot be purchased legally on margin
at a marginable price, then the exercise period will be extended until the first
day that the common stock becomes marginable.
(vi) In June 1995, the Company issued 200,000 shares of common stock, restricted
as to transferability for a period of two years from date of issuance, to Robert
Zuk for certain investor relations services for the Company.
(vii) 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 issued were all
valued at $1.00 per share.
(viii) 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.
16
<PAGE> 17
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(ix) Other capital
As at June 30, 1996, 803,807 common shares and 5,000 Class B 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
3 MONTHS ENDED JUNE 30, FROM INCEPTION
(MAY 6, 1993)
-------------------------------- THROUGH JUN 30,
1996 1995 1996
--------------- ---------------- -------------------
<S> <C> <C> <C>
OPENING,
Marketing services not yet $1,332,800 $1,999,200 $0
received
Deferred compensation costs 340,599 0 0
Deferred consulting costs 280,928 87,485 0
Rent 0 0 0
--------------- ---------------- -------------------
$1,954,327 2,086,685 0
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet 0 0 1,999,200
received
Deferred compensation costs 125,182 826,875 1,905,622
Deferred consulting costs 0 866,323 1,693,023
Rent 0 0 354,465
--------------- ---------------- -------------------
125,182 1,693,198 5,952,310
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet 249,900 0 916,300
received
Deferred compensation costs 295,481 826,875 1,735,322
Deferred consulting costs 11,124 641,517 1,423,219
Rent 0 0 354,465
--------------- ---------------- -------------------
556,505 1,468,392 4,429,306
CLOSING,
Marketing services not yet 1,082,900 1,999,200 1,082,900
received
Deferred compensation costs 170,300 0 170,300
Deferred consulting costs 269,804 312,291 269,804
Rent 0 0 0
--------------- ---------------- -------------------
$1,523,004 $2,311,491 $1,523,004
=============== ================ ===================
</TABLE>
(x) 742,573 common shares were issued due to the conversion of subordinated
debentures totalling $310,000; $1,150,000 in subordinated debentures remain
outstanding as at June 30, 1996.
(xi) 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.
17
<PAGE> 18
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(xii) During April and May 1996, the Company issued 600 shares of $1,000 6%
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock"). The
Convertible Preferred Stock is not redeemable and, except as otherwise provided
by law, is non-voting. Subject to the prior right of the holders of any shares
of any series of Preferred Stock ranking prior to the shares of Convertible
Preferred Stock with respect to dividends, the holders of the Convertible
Preferred Stock are entitled to receive when, as and if declared by the Board of
Directors: (i) quarterly dividends payable in cash out of funds legally
available for such purpose on the last day of July 1996 and October 1996 (each
such date being referred to herein as a "Quarterly Dividend Payment Date") at an
annual rate of $60 per share; or, (ii) at the sole option of the Company,
quarterly dividends payable on each Quarterly Dividend Payment Date in
additional shares of Convertible Preferred Stock at an annual rate of 0.06
additional shares per share of Convertible Preferred Stock then outstanding.
In the event of any liquidation, dissolution or winding up of the Company, the
holders of the Convertible Preferred Stock are entitled to receive, prior to any
distribution of any of the assets or funds of the Company to the holders of the
Common Stock or any other shares of stock of the Company ranking as to such a
distribution junior to the Convertible Preferred Stock, an amount equal to
$1,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus an amount equal to any accrued but unpaid
dividends thereon to the date fixed for payment of such distribution. Upon
payment of the full preferential amount, the holders of the Convertible
Preferred Stock are not entitled to any further participation in any
distribution of assets by the Company.
Each share of Convertible Preferred Stock is convertible, at the option of the
holder, without the payment of any additional consideration, and at any time,
into such number of shares of Common Stock as is determined by dividing $1,000
plus the amount of any accrued but unpaid dividends through the date such
holder's conversion notice is received by the Company by the Conversion Price
(as hereafter defined). The "Conversion Price" shall be equal to that amount
which is 33% less than the average of the published OTC Bulletin Board closing
bid prices for the Company's Common Stock for the five (5) trading days
preceding, at the election of the holder, the date such holder's subscription to
purchase the Convertible Preferred Stock was accepted by the Company or the date
such holder's conversion notice is received by the Company; provided, however,
that the Conversion Price shall in no event be less than $0.15. If the number of
shares of Common Stock outstanding at any time after the date of issuance of the
Convertible Preferred Stock is increased or decreased by a stock dividend, stock
split, or combination or reclassification of the outstanding shares of Common
Stock, the Conversion Price shall be appropriately decreased or increased so
that the number of shares of Common Stock issuable on conversion shall be
increased or decreased in proportion to such increase or decrease in the
outstanding shares of Common Stock.
During May 1996, the Company issued 250 shares of Series B $1,000 6% Cumulative
Convertible Preferred Stock (the "Series B Convertible Preferred Stock"). The
Series B Convertible Preferred Stock is identical in all material respects to
the Convertible Preferred Stock except that the Quarterly Dividend Payment Dates
are August 1996 and November 1996 rather than July 1996 and October 1996.
For three months ended June 30, 1996, the Company paid $110,500 to a third party
as finders fees in connection with the Company's private equity placement of the
convertible preferred stock and the amoount are included as a reduction in
paid-in capital.
18
<PAGE> 19
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(xiii) As at June 30, 1996, 1,611,156 common shares were issued due to the
conversion of 500 shares of convertible preferred stock totalling $500,000.
NOTE 12 - COMMITMENTS:
LEASES
The Company has a lease agreement for its current office premises. The term of
the lease is ten 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 three months ended June 30, 1996 amounted to $45,068 and
$233,705 for the year ended March 31, 1996.
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. The commitment under this arrangement is as follows:
Units Amount
----------------------- -----------------------
1996 830 $554,000
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. These common
shares bear a legend restricting Knickerbocker from selling them for two years
from March 15, 1995, without the prior written consent of the Company.
19
<PAGE> 20
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS (CONT'D):
THE IACP ENDORSEMENT
The Company has secured the endorsement of the International Association of
Chiefs of Police ("IACP"), a nonprofit organization of approximately 14,000
members from the world's law enforcement community founded in 1893. The
Company's present license agreement with the IACP began in February 1996 and
runs through February 1999. Under the agreement, the Company has agreed to pay
IACP, on a quarterly basis in arrears, the greater of $100,000 per year or a fee
based on the total number of subscribers of the Company calculated as follows:
Number of Subscribers Per Capita Amount
--------------------- -----------------
0 - 1,000,000 $0.20
1,000,001 - 5,000,000 $0.10
More than 5,000,000 $0.075
INVESTOR MEDIA AND PUBLIC RELATIONS
The Company entered into an agreement dated November 20, 1995 with Corporate
Relations Group, Inc. ("CRG") of Winter Park, Florida to provide advertising,
printing and investor relations for investor media and public relations support
to the Company with services to commence in mid 1996. The agreement covers a
twelve-month period and may be cancelled without penalty at the Company's
option. As consideration for the services to be provided by CRG, the Company
will pay to CRG, at the Company's option, either $570,000 in cash or the
equivalent number of common shares assigned a value of $1.75 on the agreement
date. The Company has also agreed to issue options to purchase a total of
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. No
value has been assigned to these shares.
The Company currently retains certain key management personnel under contract.
Included in expenses are consulting and management fees paid under the
aforementioned contracts totalling, in the aggregate, $93,868 for three months
ended June 30, 1996 and $589,390 for the year ended March 31, 1996.
20
<PAGE> 21
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS (CONT'D):
Finders fees amounting to $25,870 for three months ended June 30, 1996 and $Nil
for the year ended March 31, 1996 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 $Nil for three months ended June 30, 1996 and $85,646
for the year ended March 31, 1996 were paid to related parties in connection
with the issuance of convertible subordinated debentures.
See also Note 11(iv) and (vii).
NOTE 14 - INCOME TAXES:
The estimated deferred tax asset of $3,510,000 and $3,696,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to June 30, 1996 and March 31, 1996 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $10,036,000 expire starting
in 2001; the benefit of these losses has not been reflected in these
consolidated financial statements.
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,510,000 3,696,000
----------- -----------
3,510,000 3,696,000
Valuation allowance (3,510,000) (3,696,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance decreased by $186,000 during three months ended June 30,
1996.
21
<PAGE> 22
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at June 30, 1996 convertible subordinated debentures
in the amount of $1,150,000 bearing interest at 15% annually, which 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 following lists the conversion rates:
<TABLE>
<CAPTION>
No. of shares
Principal Conversion rate on conversion
--------- --------------- -------------
<S> <C> <C>
$ 420,000 $0.4375 per share of common stock 960,002
375,000 $0.9375 per share of common stock 400,000
125,000 $1.00 per share of common stock 125,000
30,000 $1.06 per share of common stock 28,302
70,000 $1.0625 per share of common stock 65,883
30,000 $1.10 per share of common stock 27,273
75,000 $1.20 per share of common stock 62,499
25,000 $1.25 per share of common stock 20,000
------------ ----------
$1,150,000 1,688,959
========== ==========
</TABLE>
Total interest paid and included in general and administrative expenses is
$88,739 for three months ended June 30, 1996 and $181,311 for year ended March
31, 1996.
NOTE 16 - SUBSEQUENT EVENTS:
Of the warrants issued since inception to acquire exchangeable preference shares
of the Canadian subsidiary at Canadian $14 per share, there remain only 9,006
outstanding as 6,571 warrants have expired since June 30, 1996. As described in
Note 11 (ii), these warrants expire two years after the date of issuance.
Subsequent to June 30, 1996, the Company issued 1,426,636 shares of Common Stock
of which 402,852 shares were issued upon conversion of $100,000 of Series A
Convertible Preferred Stock and 1,023,784 shares issued upon conversion of
$250,000 Series B Convertible Preferred Stock. See note 11 (xii).
Subsequent to June 30, 1996, the Company sold 200 shares of Series B Convertible
Preferred Stock for a consideration of $200,000.
22
<PAGE> 23
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The information contained in this Report which does not constitute
historical facts constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and is subject to the safe harbors
created thereby. Such forward-looking statements involve important risks and
uncertainties, including but not limited to: the risk that the Company may not
be able to successfully market, sell and operate its personal property
identification and recovery system and its card registration service; the risk
that the Company may be unable to obtain additional financing or raise
additional capital when needed and in amounts and on terms favorable to the
Company; the risk that the Company will not be able to continue to implement
operational, financial and accounting systems, to attract and retain highly
qualified personnel to manage the future growth of the Company, and to expand,
train and manage its employee base; the risk that the Company may not be able to
procure the necessary scanning equipment, labels, courier services and scanning
locations when needed and on terms favorable to the Company; the risk that the
Company's intellectual property protection may not preclude competitors from
developing a personal property identification and recovery system that is
competitive with the Company's system and the risk that third parties may assert
infringement claims against the Company in the future; the risk that the Company
may not be able to compete with existing or new competitors; the risks inherent
in international operations; and other risks detailed in this Report and in the
Company's other filings with the Securities and Exchange Commission.
There can be no assurance that the forward-looking information
contained in this Report will prove to be accurate. The risks and uncertainties
discussed above increase the uncertainty inherent in such forward-looking
information. Accordingly, there may be differences between the actual results or
plans and the predicted results or plans. Actual results or plans may be
materially different than those indicated in the forward-looking information
contained in this Report.
OVERVIEW
Prior to the Reorganization effective July 12, 1994, Tracker U.S. (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, had its inception on May 6, 1993.
During the period from inception to September 30, 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 or
understandings 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 Company is a development stage company that has
developed and begun to market, sell and operate a personal property
identification and recovery
23
<PAGE> 24
system and a card registration service. The Company launched its personal
property identification and recovery service in a limited test market in
Toronto, Canada in October 1994 and is slowly continuing to expand its service
throughout Canada. The Company recently began test marketing in the United
States and has begun to introduce its service to various communities in the
United States. The Company offers its services through diverse marketing
channels such as joint promotional partners (i.e., Samsonite Canada, Inc.),
selected retailers (i.e., Sony of Canada Ltd.), direct response (i.e., Donnelley
Marketing, Inc. distribution of a 4.5 million piece drop in May 1996),
door-to-door canvassing (i.e., the Company's Child ID representatives),
telemarketers (i.e., Datatrack, Inc., Sitel Canada, Inc. and PR Response, Inc.
selling the Company's new card registration service) and network referral
marketers (i.e., Tracker Referral Network International, Inc. selling home-based
business opportunities utilizing the Company's products and services).
THE COMPANY'S MARKETING STRATEGY
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company
is attempting to position itself as a credible and worthwhile, but not fail
safe, service that provides peace of mind (like insurance) and has a favorable
price-to-value relationship. The guiding principle behind the Company's
marketing strategy is that the Company is in the business of providing a totally
integrated personal property identification and recovery service, not merely
selling identification labels. The benefit of this service to the Company's
members is an increase in the probability of recovery of the members' lost and
stolen possessions. Thus, one key to the Company's long-term success will be the
effectiveness of the Company's personal property identification and recovery
system in helping to improve the existing low recovery rates. There can be no
assurance, however, that the Company will be able to achieve any particular
increase in these recovery rates for its members or to increase the overall
recovery rate for lost and stolen items in general. As of June 25, 1996, the
Company had received reports of 20 losses and had made 65 successful recoveries
of its members' personal possessions.
Another portion of the Company's marketing strategy is to pursue an
aggressive and preemptive North American roll-out of the Company's service. By
establishing a critical mass of labels in the marketplace, the Company hopes to
establish a de facto "identification" standard. The Company believes that this
can be done if (1) the initial distribution of labels is performed on a large
scale and done quickly and (2) the public is confident that the Company's
personal property identification and recovery system improves recovery rates and
therefore is of value to the consumer. The Company is attempting to establish
credibility and confidence in the marketplace by, among other things, utilizing
fusion marketing through the establishment of affiliations, alliances,
sponsorships, and promotional programs with well recognized, stable and
reputable organizations that have an interest in the protection, security, loss
prevention or insurance industries. There can be no assurance that the Company
will be able to establish a critical mass of labels and a broad network of
compatible scanners early enough to establish a leading and sustainable market
position or that the Company will be able to establish credibility and
confidence in the marketplace. Any inability by the Company to do so could have
a material adverse effect on the Company's business, operating results and
financial condition.
24
<PAGE> 25
THE CARD REGISTRATION SERVICE. The Company is currently gaining a small
market share in the card registration industry. The Company believes that it not
only offers a competitive product, but also adds the extra feature of its
recovery services to the list of benefits offered to members of the card
registration service.
THE COMPANY'S PLAN OF DISTRIBUTION
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company
is approaching the distribution of subscriptions to its personal property
identification and recovery service in several ways.
First, the Company is selling its service at the "grass roots" level
via direct marketing. The Company anticipates that this direct marketing will be
through door-to-door canvassing in major urban high density locales, through
telemarketing, through direct mail solicitations, through multi-level marketing
or through a combination of more than one of these techniques. On April 8, 1996,
the Company entered into a marketing agreement with Tracker Referral Network
International, Inc. ("Tracker Referral"), a direct sales company in the business
of marketing through independent distributors using a proprietary marketing
plan. Under the agreement, Tracker Referral was appointed as the Company's
exclusive multi-level marketing company in the United States and was granted
non-exclusive rights to make direct commercial sales to third party businesses
in the United States, in both cases provided that certain sales quotas are
achieved. The agreement is for an initial term of five years and automatically
renews for an additional five years upon Tracker Referral's attainment of the
specified sales quotas. Additionally, the Company is obligated to provide the
Company's products and marketing materials to Tracker Referral at prices
specified in the agreement.
Second, the Company is beginning to establish promotional programs with
retailers of consumer specialty products that have a high potential for loss
such as home electronics, luggage, sporting goods, bicycles, cameras and higher
valued fashion items. For example, the Company has entered into an agreement
with Samsonite Canada, Inc. ("Samsonite") pursuant to which the Company will
supply to Samsonite 70,000 tags that Samsonite will affix to its merchandise to
provide Samsonite customers an explanation of the benefits of the Company's
personal property identification and recovery system and receive a free luggage
tag with a Tracker recovery label. The Company agreed to reimburse Samsonite for
the cost of affixing and shipping the tags and granted exclusivity to Samsonite
in the luggage industry in Canada through March 6, 1997. Upon achievement of
certain sales quotas, Samsonite may continue the promotion and its exclusivity
in Canada for an additional year.
The Company also has entered into an agreement with Sony of Canada Ltd.
("Sony") pursuant to which Sony store representatives will resell to Sony's
retail customers kits purchased from the Company by Sony. For the life of the
program, Sony will include a write up on the program in each of its monthly
newsletters. Sony also will include a feature on the program in a one-quarter
page advertisement within Sony's national brochure. Under the agreement, the
Company is obligated to provide to Sony a yearly commission equal to 20% of the
renewal revenues received by the Company related to kits sold by Sony for two
renewal terms. The
25
<PAGE> 26
agreement also provides the Company with the right, subject to Sony's ability to
cancel such right at any time, to promote the kits using the name "Sony."
The Company also plans to establish promotional programs with other
selected national retail chains chosen for their potential to lend credibility
to the Company's service and for their reach in selected markets. The Company
believes its service adds value to retailers' products because the service shows
that the retailers care about their customers and their customers' ability to
recover lost or stolen items. To encourage such retailers to promote the
Company's service as a value added to the items purchased from the retailers,
the Company may provide retailers with commissions, limited time exclusivity
within a particular market, cooperative marketing and advertising funding, and
special timed promotions. In addition, the Company has entered into an agreement
with Merchant Partners Limited Partnership ("Merchant Partners") through which
Merchant Partners will actively introduce and promote the Company to, among
others, Montgomery Ward & Co. Incorporated ("Montgomery Ward"), ValueVision
International, Inc., and all subsidiaries of Montgomery Ward (collectively,
"Prospects"). There can be no assurance that the agreement with Merchant
Partners will result in any sales to the Prospects.
Third, although the Company does not anticipate that such programs will
constitute a large percentage of its sales, the Company is developing other
joint promotions (such as the arrangement with Samsonite described above), a
bulk sales program in which the Company would sell its service in bulk to, for
example, product manufacturers, and a fixed asset management program.
THE CARD REGISTRATION SERVICE. The Company is currently marketing
subscriptions in its card registration service through telemarketing. The
Company also plans to attempt to develop contractual relationships with credit
card issuers for sales of subscriptions to the issuers' cardholders. As of the
date of this Report, however, the Company had no contractual relationships with
any credit card issuers and there can be no assurance that it will be able to
develop any such relationships.
THE IACP ENDORSEMENT
The Company has secured the endorsement of the International
Association of Chiefs of Police (the "IACP"), a nonprofit organization of
approximately 14,000 members from the world's law enforcement community founded
in 1893. The Company's present license agreement with the IACP runs through
February 12, 1999. Under the license agreement with the IACP, the Company has
agreed to pay the IACP the greater of $100,000 per year or a fee based on the
total number of subscribers of the Company calculated as follows:
Number of
Subscribers Per Capita Amount
----------- -----------------
0 - 1,000,000 $0.20 (20 cents)
1,000,001 - 5,000,000 $0.10 (10 cents)
More than 5,000,000 $0.075 (7.5 cents)
26
<PAGE> 27
During the three months ended June 30, 1996, the Company incurred a net
loss of $1,262,712 and, at the end of such period, had an accumulated deficit of
$14,465,450. The Company expects to continue to incur losses through at least
March 31, 1997. From the date of inception (May 6, 1993) through June 30, 1996,
the Company had realized revenues of $182,581. Although the Company has begun to
achieve ongoing significant cash flows (approximately $150,000 per month from
January 1996 to June 1996 and $300,000 per month since June 30, 1996), the
Company will require additional capital in order to implement its business plan
in the manner contemplated. There can be no assurance that the Company will be
able to obtain such financing on terms acceptable to the Company. See "Capital
Requirements" below.
Historical financial information prior to the Reorganization effective
July 12, 1994 is that of Tracker Canada. Revenue for Company services is
recognized on a straight-line basis over the term of service offered (presently
12 to 60 months). Amounts received for which service has not yet been provided
are recorded as DEFERRED REVENUE. As at June 30, 1996 the amount of deferred
revenue (current and long term) was $683,015 compared with $294,124 as at March
31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE
30, 1995. During the three months ended June 30, 1996, the Company had net
revenues of $65,872 as compared to $15,905 net revenues for the three months
ended June 30, 1995. Cost of goods sold for the three months ended June 30, 1996
was $13,545 as compared to $8,460 for the three months ended June 30, 1995. This
resulted in a gross profit of $52,327 for the three months ended June 30, 1996
as compared to $7,445 gross profit for the three months ended June 30, 1995.
During the three months ended June 30, 1996, the Company incurred a net
loss of $1,262,712 as compared to a net loss of $1,880,977 for the three months
ended June 30, 1995. These losses included total development costs in the amount
of $1,315,039 for the three months ended June 30, 1996 as compared to $1,888,422
for the three months ended June 30, 1995. These development costs consisted of
operational costs of $144,083 for the three months ended June 30, 1996 as
compared to $181,152 for the three months ended June 30, 1995, information
systems costs of $60,545 for the three months ended June 30, 1996 as compared to
$68,744 for the three months ended June 30, 1995, sales and marketing costs of
$563,683 for the three months ended June 30, 1996 as compared to $(195,516) for
the three months ended June 30, 1995, and general and administrative costs of
$546,728 for the three months ended June 30, 1996 as compared to $1,834,042 for
the three months ended June 30, 1995.
Included in the deficit for the three months ended June 30, 1996 are
non-operating expenditures in the amount of (1) $88,739 in interest expense
incurred as a result of raising capital through convertible debentures; (2)
$45,000 relating to finders fees for raising capital through placement of
convertible preferred stock (3) $351,868 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $340,744 associated with the development of the
Company's direct selling commercial through its contract with The L.L.
Knickerbocker Company and the costs associated with fees to cover its
27
<PAGE> 28
celebrity spokesperson, Angie Dickinson, and (b) $11,124 associated with the
services provided under the Amerasia contract; (4) $15,500 associated with the
non-cash outlay relating to the issuance of 34,445 shares of Common Stock,
restricted as to transferability, to certain outside directors of the Company;
and (5) $170,469 associated with the non-cash outlay relating to the issuance of
770,000 shares of Common Stock 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 through September 30, 1996. The Company is continuing in its efforts to
minimize its operating cash "burn" rate.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through June 30, 1996, the Company has
received approximately $10,335,491 in net cash from financing activities, some
of which activities are noted below.
During the three months ended June 30, 1996, the Company's net cash
used in operations was $524,434 as compared to $1,354,743 for the three months
ended June 30, 1995. The cash used in operations was devoted primarily to
funding the development of identification and recovery systems and software, a
card registration service, labels, packaging, marketing and advertising
materials and plans, the development of a scanning network, and initial sales
and promotional commitments leading and subsequent to the Canadian market launch
in October 1994 and the buildup for the launch into the United States.
As of June 30, 1996, the Company had total current assets of $734,059
as compared to $665,102 at March 31, 1996. Current assets consisted of cash in
the amount of $214,543 as of June 30, 1996 as compared to $78,844 at March 31,
1996, short-term investments in the amount of $220,110 as of June 30, 1996 as
compared to $221,190 at March 31, 1996, accounts receivable in the amount of
$24,209 as of June 30, 1996 as compared to $7,361 at March 31, 1996, prepaid
expenses and deposits in the amount of $108,405 as of June 30, 1996 as compared
to $168,345 at March 31, 1996, inventories in the amount of $99,693 as of June
30, 1996 as compared to $115,612 at March 31, 1996, and current deferred charges
in the amount of $67,099 as of June 30, 1996 as compared to $73,750 at March 31,
1996. As of June 30, 1996, the Company had amount due from stockholders in the
amount of $58,669 as of March 31, 1996 as compared to $58,226 at June 30, 1996,
long-term deferred charges totaling $243,750 as compared to $66,234 at March 31,
1996, net fixed assets totaling $332,232 as compared to $353,729 at June 30,
1996, and long-term investments in the amount of $50,451 as compared to $50,451
at March 31, 1996. As of June 30, 1996, the Company had liabilities of
$2,055,784 as compared to $2,393,631 at March 31, 1996. Such liabilities
consisted of accounts payable in the amount of $572,804 as of June 30, 1996 as
compared to $551,553 at March 31, 1996, accrued liabilities in the amount of
$122,024 as of June 30, 1996 as compared to $266,837 at March 31, 1996, deferred
revenues in the amount of $210,956 as of June 30, 1996 as compared to $115,241
at March 31, 1996, and convertible subordinated debentures in the amount of
$1,150,000 as of June 30, 1996 as compared to $1,460,000 at March 31, 1996. The
Company had long-term deferred revenues in the amount of $472,059 as of June 30,
1996 as compared to $178,883 at March 31, 1996.
28
<PAGE> 29
As of June 30, 1996 and March 31, 1996, respectively, the Company had
accumulated deficits of $14,465,450 and $13,202,738. To date, the Company has
financed its research and development activities and operations primarily
through the private placement by Tracker U.S. of First Series Convertible
Debentures aggregating $1,000,000 from July to October 1995, the private
placement by Tracker U.S. of Second Series Convertible Debentures aggregating
$1,189,529 through March 1996, the sale by Tracker U.S. of a total of 1,810,000
shares of Common Stock in private placements, and the sale by Tracker U.S.
pursuant to Regulation S under the Securities Act of 850 shares of Preferred
Stock for $850,000 during April and May 1996.
The sales of the 1,810,000 shares of Common Stock are described in the
remainder of this paragraph. On September 16, 1994, Tracker U.S. issued,
pursuant to Regulation S under the Securities Act, 785,000 shares of Common
Stock (200,000 shares of which were returned to the Company) for total gross
proceeds to Tracker U.S. of $2,351,700, $955,000 of which was received by
Tracker U.S. in the form of cash and the remainder of which was in the form of
payments by the buyer of the shares of Common Stock to third parties in
cancellation of indebtedness owed by the Company to such third parties. On
February 9, 1995, Tracker U.S. issued to two separate overseas buyers, pursuant
to Regulation S, 275,000 shares of Common Stock for total proceeds to the
Company of $550,000. On March 15, 1995, Tracker U.S. issued 500,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase Common
Stock, for total gross proceeds to the Company of $350,000. On May 1, 1995,
Tracker U.S. issued 250,000 units, each unit consisting of one share of Common
Stock and one warrant to purchase Common Stock, for total gross proceeds to the
Company of $250,000. Tracker U.S. also issued 200,000 shares of Common Stock to
a buyer for $200,000, of which only $83,000 has been paid to Tracker U.S. by the
buyer. The Company has filed suit against the investor to attempt to collect the
remaining $117,000. There can be no assurance, however, that the Company will be
successful in the lawsuit or will be able to collect such amount.
In addition to the above described private placements, the Company
raised $619,166 during the year ended March 31, 1996 through the issuance of
849,803 of Tracker Canada's Exchangeable Preference Shares pursuant to
outstanding warrants to purchase such Exchangeable Preference Shares. Further,
the Company has issued shares to employees and third parties in lieu of
compensation to such employees or payments to such third parties for products or
services provided to the Company.
The Company has a short-term investment, recorded at the Company's
original cost of $220,110 (CDN $1.04 per share), in 288,462 shares of Stratcomm
Media Ltd. ("Stratcomm"). The Company was contractually prohibited from selling
such shares until May 30, 1996, and, therefore, could not recover its investment
in such shares until that date. Absent any unforeseen circumstance such as a
significant decline in the price of the Stratcomm stock, the Company intends to
sell the Stratcomm shares as soon as possible in order to improve its liquidity.
29
<PAGE> 30
In July 1994 and January 1995, the Company entered into two separate
agreements to acquire interests in other companies, Page-Direct Ltd.
("Page-Direct") and C.E.M. Centry Electronic Monitoring Corporation ("Centry"),
which management believed at that time could enhance the Company's
infrastructure and marketing capabilities. As further described in "Aborted
Acquisitions; Acquisition Policy," these investments were subsequently aborted
without burdening the Company's cash flows too significantly. Management is now
focusing its attention on its core businesses. Long-term and short-term cash
needs of the Company are more fully described in "Capital Requirements" below.
CAPITAL REQUIREMENTS
Although the Company has been generating gross cash flows of
approximately $150,000 per month from January 1996 to June 1996 and $300,000 per
month since June 30,1996, the Company will require additional capital in order
to continue the Canadian and United States roll-outs and otherwise 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 crucial to the Company's success. The Company will
require additional debt or equity funding to conduct and complete such
activities. No assurance can be given that the necessary funding will be
available to the Company when needed, in sufficient amounts, 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 services and may have a material adverse effect on the
Company's business, operating results and financial condition.
Management is attempting to obtain additional debt or equity funding
and trying to mitigate the need for such additional funding. One critical
element in management's plan to overcome the Company's present financial
condition is to raise additional debt or equity funding as needed through
private placements or other exempt offerings. For example, the Company raised
$2,189,529 in the second half of calendar 1995 and early calendar 1996 through
the sale of Convertible Debentures and raised $850,000 in April and May 1996 and
$200,000 in August 1996 through the sale of Convertible Preferred Stock.
Although no assurance can be given that the necessary funding will be available
to the Company when needed, in sufficient amounts, on acceptable terms, or at
all, management believes it is likely that the Company will be able to obtain
sufficient funding to support its operations and its planned marketing and
advertising campaign during the twelve months following March 31, 1996.
A second critical element in management's plan to overcome the
Company's present financial condition is to mitigate the need for additional
outside funding. Management plans to do this in two ways. First, to minimize the
Company's cash requirements, the Company (i) has reduced staff to minimal safe
operating levels, (ii) has compensated certain members of senior management in
stock rather than cash, and (iii) has sought to control expenses. Second, and
particularly critical to the long-term viability of the Company, the Company
must decrease the need for additional outside funding by generating cash
internally, i.e., through sales. Although no assurance can be given that any
sales made by the Company will be at volumes and prices sufficient
30
<PAGE> 31
for the Company to achieve significant revenues, eliminate or decrease the need
for additional outside financing, and achieve profitable operations, management
believes it is likely that its marketing and sales efforts will, in the
long-term, result in sufficient sales to decrease the need for additional
outside financing and achieve profitable operations.
ABORTED ACQUISITIONS; ACQUISITION POLICY
On July 22, 1994, the Company entered into an agreement to acquire
Page-Direct, a wireless communications company. Prior to cancellation of the
agreement, the Company had issued 271,052 Tracker Canada Exchangeable Preference
Shares to the owner of Page-Direct for 46.2% of the outstanding shares of
Page-Direct and had advanced $178,350 to Page-Direct at an interest rate equal
to the Royal Bank of Canada prime rate plus 2%. In June 1995, the owner of
Page-Direct exercised his option under the agreement to re-acquire his interest
in Page-Direct, he returned the Exchangeable Preference Shares to the Company,
Page-Direct repaid the loan, and the agreement was canceled. The Company
recorded the exercise of the reversionary option by the owner of Page-Direct as
if it had occurred as of March 31, 1995.
By agreement dated January 31, 1995, the Company, through Tracker
Canada, committed to purchase up to 35.9% of the voting common shares of Centry
through a private placement of an 8% convertible debenture in the principal
amount of $405,260 (CDN $575,000). Tracker Canada advanced certain funds to
Centry under the debenture and agreed to provide, over nine months,
administrative services in the amount of $50,746 (CDN $72,000). In consideration
therefor, Tracker Canada received 510,275 common shares of Centry, which
represented approximately 9.87% of Centry's common shares then issued. Tracker
Canada also secured a voting trust and option agreement over 1,248,087 common
shares (approximately 17.2%) of Centry from the founders of Centry and prepaid
consulting services agreements in exchange for 78,005 Exchangeable Preference
Shares. The agreement contemplated that as payments were made under the
debenture, Tracker Canada would receive additional shares in Centry such that
upon payment of the entire convertible debenture, Tracker Canada would have
voting control of 53.1% of Centry.
Tracker Canada advanced $50,451 under the debenture to Centry and
received a further 122,727 common shares for a total of 633,002 common shares
representing approximately 11.96% of Centry's common shares issued.
Subsequently, the Company entered into agreements with Centry which released the
Company from its obligation to fund the balance under the debenture and which
provided that the Company would receive a 3% commission of total gross revenues
on any deal entered into by Centry with certain companies, while Tracker gave up
the voting trust and option agreement. The Company has satisfied all of its
administrative services obligations to Centry.
The above-described acquisitions were completely independent. To the
Company's knowledge, no common ownership or management exists between Centry and
Page-Direct and their principals or promoters. The Company's original purpose in
entering into the acquisitions was to acquire companies which the Company at the
time believed would assist it in advancing its longer-term strategy of locating
lost or stolen possessions through real-time asset tracking technologies. The
acquisitions were aborted because the Company was unable to generate
31
<PAGE> 32
sufficient capital to support both its own marketing launch and the capital
requirements of the acquisitions. Since making these acquisitions, management
has determined that it is in the best interests of the Company to concentrate on
the development of its core business (i.e., its personal property identification
and recovery system and its card registration service) and to use its capital
and other resources to support the development of that business. Accordingly,
the Company has no present plans to make other acquisitions in the future.
INTERNATIONAL OPERATIONS
The Company has operations in Canada and recently began test marketing
in the United States. In addition, the Company signed a letter agreement with
Amerasia International Holdings Limited ("Amerasia") pursuant to which Amerasia
will assist the Company in selling licenses for overseas markets. Under the
agreement, the Company is obligated to pay to Amerasia 8% of the exclusivity
fee(s) that the Company may receive in good funds from the licensees and 2% of
the ongoing paid sales generated by the Company from the licensees. There can be
no assurance, however, that this letter agreement will result in any sales of
foreign licenses.
International operations are subject to inherent risks, including
unexpected changes in regulatory requirements, currency 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.
INFLATION; SEASONALITY
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 that the business of the Company, on a
consolidated basis, will not be affected by inflation in the future. While the
Company's business to date has not been seasonal and management does not expect
that its business will be seasonal in the future, there can be no assurance that
the business of the Company, on a consolidated basis, will not be seasonal in
the future.
32
<PAGE> 33
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
EXHIBITS
No exhibits are filed with this report Form 10-Q for the three months ended June
30, 1996.
NUMBER DESCRIPTION
2.1++++ Reorganization Agreement Among Ultra Capital Corp. (the
predecessor of the Registrant), Jeff W. Holmes, R. Kirk
Blosch and the Tracker Corporation dated May 26, 1994, as
amended by Amendment Number One dated June 16, 1994,
Amendment Number Two dated June 24, 1994, and Amendment
Number Three dated June 30, 1994, Extension of Closing dated
June 23, 1994, and July 11, 1994 letter agreement.
2.2++++ Agreement and Plan of Merger dated July 1, 1994 between Ultra
Capital Corp. (the predecessor of the Registrant) and the
Registrant
3.1++++ Certificate of Incorporation, as corrected by Certificate of
Correction of Certificate of Incorporation dated March 27,
1995, and as amended by Certificate of Amendment to the
Certificate of Incorporation dated November 1, 1995, and
Certificate of Designation of Rights, Preferences and
Privileges of $1,000.00 6% Cumulative Convertible Preferred
Stock of the Registrant dated April 19, 1996
3.2++++ Bylaws
4.1++++ Specimen Common Stock Certificate
9.1++++ Agreement dated December 21, 1993 among 1046523 Ontario
Limited, Gregg C. Johnson and Bruce Lewis
9.2++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by
Amendment No. 1 to the 1994 Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
33
<PAGE> 34
10.3++++ Form of Indemnification Agreement entered into between the
Registrant and each of its Directors
10.4++++ Employment Agreement dated June 30, 1994 between the
Registrant and I. Bruce Lewis, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.5++++ Employment Agreement dated June 30, 1994 between the
Registrant and Mark J. Gertzbein, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.6++ Marketing Agreement between the Registrant and The L.L.
Knickerbocker Company, Inc. dated March 15, 1995
10.7++++ Lease dated October 18, 1993 between The Dundas/Edward Centre
Inc. and The Tracker Corporation
10.8++++ Corporate Relations Agreement dated February 24, 1994 between
Corporate Relations Group, Inc. and The Tracker Corporation,
as amended by letter agreement dated January 16, 1995 and by
Amendment to Corporate Relations and Marketing Agreement
dated June 22, 1995
10.9++++ Consulting arrangement with Gregg C. Johnson effective August
12, 1995
10.10++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994 (contained in Exhibit 9.2)
10.11++++ Stock Option Agreement dated March 14, 1994 between The
Tracker Corporation and Stalia Holdings B.V., as confirmed by
letter dated June 22, 1994
10.12++++ Letter from DHL International Express Ltd to The Tracker
Corporation dated March 8, 1994
10.13++++ Agreement dated September 1994 between The Tracker
Corporation and Purolator Courier Ltd.
10.14++++ National Account Agreement dated September 15, 1994 between
Mail Boxes Etc. USA, Inc. and the Registrant, as amended by
Amendment to National Account Agreement dated September 14,
1994
10.15++++ Letter agreement dated March 15, 1995 between The Tracker
Corporation and Black Photo Corporation, as amended by
facsimile amendment dated March 4, 1995
10.16++++ Letter agreement dated September 14, 1995 between The Tracker
Corporation and Amerasia International Holdings Limited
10.17++++ Letter Agreement dated August 31, 1995 between The Tracker
Corporation and Tokai Boeki Co. Ltd.
34
<PAGE> 35
10.18++++ Letter agreement dated October 5, 1993 between The Tracker
Corporation and Symbol Technologies, Inc., as amended by
letter from The Tracker Corporation to Symbol Technologies
Canada, Inc. dated November 23, 1995, and letter from Symbol
Technologies Canada, Inc. to The Tracker Corporation dated
November 27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis
to the Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among
Ultra Capital Corp. (the predecessor of the Registrant), The
Tracker Corporation and Montreal Trust Company of Canada
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and The Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L.
Knickerbocker Company, Inc. and the Registrant
10.24+++ Share Purchase Agreement dated July 29, 1994 among The
Tracker Corporation, Page-Direct Ltd., Marc Bombenon, Marc
Bombenon Enterprises Ltd. and 614593 Alberta Ltd.
10.25++++ General Release dated June 15, 1995 among The Tracker
Corporation, 614593 Alberta Ltd., 1069232 Ontario Inc.,
Gowling, Strathy & Henderson, Page-Direct Ltd., Marc Bombenon
Enterprises Ltd. and Mark Bombenon.
10.26* Agreement Between The International Association of Chiefs of
Police and The Tracker Corporation dated February 13, 1996
10.27* Letter agreement dated January 26, 1996 between The Tracker
Corporation and Consumers Distributing Inc.
10.28* The Tracker Corp./Tracker Referral Network, Int'l Marketing
Agreement dated April 8, 1996 between The Tracker Corporation
and Tracker Referral Network, Int'l
10.29* Letter agreement dated March 7, 1996 between The Tracker
Corporation and Samsonite Canada Inc.
10.30* Letter agreement dated March 22, 1996 between The Tracker
Corporation and Sony of Canada Ltd.
10.31* Lead Generation/Corporate Relations Agreement dated November
20, 1995 between The Tracker Corporation and Corporate
Relations Group, Inc., as amended by Amendment to the
Marketing Agreement between the Registrant and Corporate
Relations Group, Inc. dated December 5, 1995
10.32* Independent Contractor Agreement between The Tracker
Corporation and Datatrack Inc. dated January 12, 1996
35
<PAGE> 36
10.33* Services Agreement and Registration Rights Agreement and
Options Agreement dated July 10, 1996 between the Registrant
and Merchant Partners, L.P.
21.1++++ List of subsidiaries of the Registrant
27 Financial Data Schedule
- -------------------
+ Incorporated by reference from the Registrant's Current Report on
Form 8-K dated July 12, 1994.
++ Incorporated by reference from the Registrant's Current Report on
Form 8-KA dated February 28, 1995 (filed March 15, 1995).
+++ Incorporated by reference from the Registrant's Current Report on
Form 8-K dated July 29, 1994 (filed August 12, 1994).
++++ Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (No. 33-99686).
* Incorporated by reference from the Registrant's Report on Form 10-K
dated March 31, 1996 (filed July 15, 1996).
REPORTS ON FORM 8-K
During the quarter ended June 30, 1996, the Registrant did not file any
reports on Form 8-K.
36
<PAGE> 37
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: August 14, 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)
37
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 214,543
<SECURITIES> 220,110
<RECEIVABLES> 24,209
<ALLOWANCES> 0
<INVENTORY> 99,693
<CURRENT-ASSETS> 734,059
<PP&E> 598,959
<DEPRECIATION> 266,727
<TOTAL-ASSETS> 1,419,161
<CURRENT-LIABILITIES> 2,055,784
<BONDS> 0
0
0
<COMMON> 15,138,295
<OTHER-SE> (1,523,004)
<TOTAL-LIABILITY-AND-EQUITY> 1,419,161
<SALES> 65,872
<TOTAL-REVENUES> 65,872
<CGS> 13,545
<TOTAL-COSTS> 13,545
<OTHER-EXPENSES> 1,315,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,739
<INCOME-PRETAX> (1,262,712)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,262,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,262,712)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
