<PAGE> 1
Date Filed: July 15, 1996
FORM 10-QA
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ................... to .......................
Commission file number 0-24944
THE TRACKER CORPORATION OF AMERICA
(Exact name of Registrant as specified in charter)
DELAWARE 86-0767918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 DUNDAS STREET WEST, TORONTO, ONTARIO, CANADA M5G 1Z8
(Address of principal executive offices) (Zip Code)
(602) 265-7100
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 13, 1996, the Registrant had outstanding 5,080,906
shares of common stock, par value $0.001 per share, and 7,271,727 shares of the
Registrant's Class B voting common stock, no par value.
<PAGE> 2
PART I
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
- --------------------------------------------------------------------------------
The Tracker Corporation of America (the "Registrant") files herewith
balance sheets of the Registrant as of December 31, 1995, and March 31, 1995,
and the related statements of operations for the three and nine month period
ended December 31, 1995 and December 31, 1994, respectively, and the
shareholders' equity for the nine month period ended December 31, 1995, and for
the period from inception (May 6, 1993) through December 31, 1995 and statement
of cash flows for the six month period ended December 31, 1995 and December 31,
1994, respectively, and for the period from inception (May 6, 1993) through
December 31, 1995. In the opinion of management of the Registrant, the financial
statements reflect all adjustments, all of which are normal recurring
adjustments, necessary to fairly present the financial condition of the
Registrant for the interim periods presented. The financial statements included
in this report on Form 10-Q should be read in conjunction with the audited
financial statements of the Registrant and the notes thereto included in the
annual report of the Registrant on Form 10-K for the year ended March 31, 1995.
On July 12, 1994, the Registrant (then called Ultra Capital Corp.)
completed a corporate reorganization with The Tracker Corporation ("Tracker
Canada"), an Ontario corporation, pursuant to which the Registrant, a Delaware
corporation, acquired all voting shares of Tracker Canada in exchange for newly
authorized shares of the Registrant's Class B voting common stock representing
approximately 90% of the total voting power of the Registrant. The corporate
reorganization and several related proposals, including a forward stock split
and change in the domicile of the Registrant, were submitted to and approved by
the Registrant's shareholders at a special shareholders' meeting held June 30,
1994. Information with respect to the reorganization and such proposals is
included in the Registrant's report on Form 10-K for the year ended March 31,
1995 filed on July 31, 1995 and in the Registrant's report on Form 8-K dated
July 25, 1994.
2
<PAGE> 3
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
Prior to the reorganization discussed in Item 1 above, the Registrant
(then Ultra Capital Corp.) had been inactive for the preceding several years and
had conducted no significant operations or activities. Tracker Canada, which
originated the present line of business (i.e., the marketing, sale and
operations of an international personal property identification and recovery
system), was founded in May 1993. During the period from inception to December
31, 1994, the Company was engaged in organizational efforts, including the
hiring of technical and management personnel. During that time, the Company
focused on the research and development of advanced bar code and laser scanning
technology, entered into agreements with key suppliers, prepared the business
and marketing plan, programmed the software and filed for patent and trademark
protection in Canada and the United States. The Registrant is a development
stage company that has developed and has begun to market, sell and operate a
personal property identification and recovery system. In October 1994, the
Company introduced its services in Canada and currently is pursuing a similar
rollout in the United States. To date, the Company has generated modest sales
and is anticipating additional revenues as the introductory launch in the USA
unfolds and the Canadian expansion continues. The Company has been unprofitable
since inception and expects to continue to incur losses for the next 2 quarters.
As of December 31, 1995, the Company had an accumulated deficit of
$11,934,342 (as at March 31, 1995 the Company had an accumulated deficit of
$7,112,008). The Company has financed its research and development activities
and operations primarily through the sale of a series of private placements of
15% one-year convertible subordinated debentures aggregating a total of
$1,905,000 and total of 1,810,000 shares of authorized but restricted common
stock in two private placement offerings on March 15, 1995 for 500,000 shares
for total gross proceeds to the Registrant of $350,000 and on May 1, 1995 for
250,000 shares for total gross proceeds to the Registrant of $250,000 as well as
offerings pursuant to Regulation S under the Securities Act of 1933 (the
"Securities Act") on September 16, 1994 for 785,000 shares (200,000 shares of
which were returned to the Company, leaving a balance of 585,000 shares) for net
gross proceeds to the Registrant of $2,351,700, in the form of cash and prepaid
media relation services and on February 9, 1995 for 275,000 shares for total
gross proceeds to the Registrant of $550,000 to three separate overseas buyers
and on July 11, 1995 for 200,000 shares for proceeds to the Registrant of
$83,000. Additionally, since March 31, 1995, the Company's wholly-owned
subsidiary (Tracker Canada), has sold a total of 849,803 exchangeable preference
shares, through the conversion of warrants, for total gross proceeds to Tracker
Canada of $619,166. The Company has introduced its service in a test market in
Toronto, Canada and is slowly continuing to expand its service throughout Canada
over the next year. The Company has just recently begun its testing within the
USA marketplace. The Company is currently airing its test TV commercials in 17
different States and has begun to introduce its services to various communities
within the USA through the use of telemarketers and network referral marketers.
3
<PAGE> 4
While management believes there's a substantial market for its service, no
assurance can be given that the Company will achieve any significant take up
rates and revenues therefrom.
RESULTS OF OPERATIONS
During the three and nine month periods ended December 31, 1995, the
Company incurred a net loss of $1,688,432 and $4,822,334, respectively
($1,755,469 and $4,084,386 for the three and nine month periods ended December
31, 1994, respectively), which included developmental costs in the amounts of
$1,700,998 and $4,861,100, respectively ($1,759,872 and $4,088,789 for the three
and nine month periods ended December 31, 1994, respectively), consisting of
$131,478 and $466,706, respectively ($186,444 and $479,237 for the three and
nine month periods ended December 31, 1994, respectively) for operations,
$62,043 and $198,964, respectively ($104,153 and $368,009 for the three and nine
month periods ended December 31, 1994, respectively) for information systems,
$431,905 and $535,452, respectively ($806,357 and $1,642,124 for the three and
nine month periods ended December 31, 1994, respectively) for sales and
marketing and $1,075,572 and $3,659,978, respectively ($662,918 and $1,599,419
for the three and nine month periods ended December 31, 1994, respectively), for
general and administrative costs.
Included in the deficit for the quarter ended December 31, 1995 are
non-operating expenditures in the amount of (1) $445,635 for investor media and
public relations services, (2) $138,000 for legal and audit & tax professional
costs associated with the Company entering the process of filing a required
registration statement on Form S-1 with the Securities and Exchange Commission,
(3) $68,003 in interest expense incurred as a result of raising capital through
convertible debentures, (4) $421,838 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $349,076 associated with the development of our
direct selling commercial through our contract with The L.L. Knickerbocker
Company and the costs associated with fees to cover our celebrity spokesperson,
Angie Dickinson, (b) $53,262 relating to the amortization of rent, and (c)
$19,500 associated with the administration services provided under the Centry
contract, and (5) $2,500 relating the amortization of deferred charges on the
commission incurred from the securing of investors for the Company's Convertable
Subordinated Debentures. All other major expense groups have been reduced since
the last quarter and the Company is continuing in its efforts to minimize its
operating cash "burn" rate.
Sales revenues are slowly increasing and should continue to do so as
the Company begins its launch into the USA marketplace. The reader should be
cognizant of the Company's revenue recognition and deferred revenue policy. As
described in Note 3, the Company only recognizes that portion of revenue for
which the Company's service has been provided. Thus, since the Company currently
offers its services in memberships for terms of between 12 to 60 months, revenue
is recognized proportionately over the term of the membership as the service is
provided. The reader should expect a slow but steady increase on a month to
month basis as the Company expands its sales and marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company has received approximately
$9,349,226 in net proceeds from equity and debt financings as noted in Item 2 -
Overview.
4
<PAGE> 5
During the nine month period ending December 31, 1995, the Company's
cash used in operations was $3,098,238 ($3,208,939 for the nine-month period
ended December 31, 1994). The cash used in operations was devoted primarily to
funding the development of identification and recovery systems and software,
labels, packaging and marketing and advertising materials plans as well as
developing the necessary scanning network and initial sales and promotional
commitments leading and subsequent to the Canadian market launch and the buildup
for the test launch into the USA marketplace.
As of December 31, 1995, the Company had total current assets of
$945,730 ($1,192,783 at March 31, 1995) consisting of cash in the amount of
$177,535 ($107,091 at March 31, 1995), short term investments in the amount of
$221,730 ($nil at March 31, 1995), accounts receivable in the amount of $6,743
($4,981 at March 31, 1995), prepaid expenses and deposits in the amount of
$281,040 ($544,432 at March 31, 1995), inventories in the amount of $201,038
($166,003 at March 31, 1995), a note receivable in the amount of $nil ($178,350
at March 31, 1995), and receivables from stockholders in the amount of $57,644
($191,926 at March 31, 1995). At such date, the Company had deferred charges
totaling $7,500 ($nil at March 31, 1995), and net fixed assets totaling $374,533
($437,147 at March 31, 1995) and long-term investments in the amount of $50,451
($39,522 at March 31, 1995). As of December 31, 1995, the Company had
liabilities of $2,662,981 ($1,446,543 at March 31, 1995), consisting of accounts
payable in the amount of $544,995 ($1,101,424 at March 31, 1995), accrued
liabilities in the amount of $137,170 ($334,121 at March 31, 1995), deferred
revenues in the amount of $75,816 ($10,998 at March 31, 1995) and convertible
subordinated debentures in the amount of $1,905,000 ($nil at March 31, 1995).
For the nine month period ended December 31, 1995, the Company raised
capital from the issuance of 849,803 of its wholly-owned subsidiary's (Tracker
Canada's) exchangeable preference shares as a result of the exercising of
849,803 warrants for an amount of $619,166 in cash and through the sale of
private placements of 15% one-year convertible subordinated debentures
aggregating a total of $1,905,000.
In October 1994, the Company launched its service in the Canadian
marketplace. The metropolitan area of Toronto was selected as an appropriate
staging ground for the rollout across Canada, which is anticipated to last
through the balance of 1996 and into 1997. The Company has recently begun
introducing its service in various test cities within the USA via its direct
selling commercial and other direct selling marketing programs. Management
further anticipates launching the Company's service on a national scale into the
United States marketplace throughout 1996 and into 1997. The Company expects to
incur substantial additional costs relating to the implementation of its
marketing strategy and its business plan. No assurance can be given that the
Company will generate revenues sufficient to cover expenses. The Company intends
to complete its private placements of 15% one-year convertible subordinated
debentures aggregating to a total of $3,000,000 and where necessary sell its
equity securities in an effort to raise the required additional funds to meet
the Company's operating and capital requirements. No assurance can be given that
such additional funds will be available on terms acceptable to the Company, if
at all. If adequate funds are not available, the Company's business will be
materially and adversely affected.
5
<PAGE> 6
International operations are subject to inherent risks including
unexpected changes in regulatory requirements, exchange rates, tariffs and other
barriers, difficulties in staffing and managing foreign operations and
potentially adverse tax consequences. There can be no assurance that these
factors will not have a material adverse impact on the Company's ability to
market its system on an international basis and on its future operating results.
CAPITAL REQUIREMENTS
Until such time as revenues generate sufficient cashflows, the Company
will continue to require substantial additional capital in order to implement
its business plan in the manner contemplated. The acquisition of equipment,
establishment of distribution channels and conduct of a comprehensive marketing
and advertising campaign are considered key to the Company's success. The
Company will require additional debt or equity funding to conduct and complete
such activities. Although the Company anticipates the need for substantial
additional funding, no assurances can be given that such funding will be
available to the Company on acceptable terms or at all. If the Company does not
receive sufficient funding on acceptable terms, this could prevent or delay the
marketing, sale and operation of the Company's personal property identification
and recovery system and could have a material adverse effect on the Company's
business, operating results and financial condition. The Company is exploring
several equity and debt financing options.
INFLATION
While inflation has not had a material impact on operating results and
management does not expect inflation to have a material impact on operating
results, there can be no assurance the business of the Company, on a
consolidated basis, will not be affected by inflation in the future.
6
<PAGE> 7
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
EXHIBITS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Exhibit SEC Reference Title of Document Page No.
No. No.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 2 Reorganization Agreement Incorporated By Reference*
- ----------------------------------------------------------------------------------------------------------------------
2 10 Share Purchase Agreement between The Tracker Corporation Incorporated By
and Page-Direct Ltd. and Marc Bombenon and Marc Bombenon Reference**
Enterprises Ltd.and 614593 Alberta Ltd., dated July 29, 1994
- ----------------------------------------------------------------------------------------------------------------------
27 27 Financial Data Schedule Filed herewith
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Incorporated by reference from the Registrant's report on Form 8-K dated July
12, 1994 (filed on July 25, 1994) (Commission File No. 2-33368-D).
**Incorporated by reference from the Registrant's report on Form 8-K dated July
29, 1994 (filed on August 12, 1994 (Commission File No. 2-33368-D) and report on
Form 8-K dated June 16, 1995 (filed on June 29, 1995 (Commission File No.
2-33368-D).
REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, the Registrant did not file
any reports on Form 8-K.
7
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: July 15, 1996
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Mark J Gertzbein
------------------------------------
Mark J. Gertzbein, Secretary and Treasurer
(Principal Accounting and Financial Officer)
8
<PAGE> 9
THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT
STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1995
<PAGE> 10
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------- -----------
(Audited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 177,535 $ 107,091
Short-term investment 221,730 0
Accounts receivable 6,743 4,981
Prepaid expenses and deposits 281,040 544,432
Inventory 201,038 166,003
Note receivable 0 178,350
Due from shareholders 57,644 191,926
------------ ----------
Total current assets 945,730 1,192,783
------------ ----------
Deferred charges 7,500 0
Fixed assets (net) 374,533 437,147
Long-term investment 50,451 39,522
------------ ----------
Total assets $ 1,378,214 $1,669,452
============ ==========
Liabilities & Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $544,995 $1,101,424
Accrued liabilities 137,170 334,121
Deferred revenue 75,816 10,998
Convertible subordinated debentures 1,905,000 0
------------ ----------
Total liabilities 2,662,981 1,446,543
------------ ----------
Commitments (Note 12)
Shareholders' equity (deficit)
Preferred stock, $.001 par value, 500,000 shares 0 0
authorized, no shares issued and outstanding
Common stock, $.001 par value, 30,000,000 shares
authorized, 3,736,162 shares issued and outstanding 3,736 2,109
Class B voting common stock, $0.00000007 par value, 0 0
20,000,000 shares authorized, 7,251,727 issued and
outstanding
Paid-in capital 13,267,347 9,707,617
Other capital (2,385,585) (2,086,685)
Accumulated deficit (11,934,342) (7,112,008)
Cumulative translation adjustment (235,923) (288,124)
------------ ----------
Total shareholders' equity (deficit) (1,284,767) 222,909
------------ ----------
Total liabilities and shareholders' equity (deficit) $ 1,378,214 $1,669,452
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the period
-----------------------------------------------------------
3 months ended 9 months ended From inception
December 31, December 31, (May 6, 1993)
----------------------------------------------------------- through
1995 1994 1995 1994 Dec 31, 1995
----------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 22,932 $ 4,403 $ 67,198 $ 4,403 $ 77,385
Cost of Goods Sold 10,366 0 28,432 0 32,461
----------------------------------------------------------- ------------
Gross Profit 12,566 4,403 38,766 4,403 44,924
----------------------------------------------------------- ------------
Development costs
Operational 131,478 186,444 466,706 479,237 1,303,647
Information systems 62,043 104,153 198,964 368,009 822,068
Sales and marketing 431,905 806,357 535,452 1,642,124 2,879,161
General and administrative 1,075,572 662,918 3,659,978 1,599,419 6,974,390
----------------------------------------------------------- ------------
Total development costs 1,700,998 1,759,872 4,861,100 4,088,789 11,979,266
----------------------------------------------------------- ------------
Net loss applicable to common stock $(1,688,432) $(1,755,469) $(4,822,334) $(4,084,386) $(11,934,342)
=========================================================== ============
Loss per share of common stock $(0.16) $(0.22) $(0.46) $(0.59) $(1.61)
=========================================================== ============
Weighted average number of shares outstanding 10,834,219 7,944,784 10,418,946 6,970,587 7,424,035
=========================================================== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 12
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For 9 months ended From inception
---------------------------------- (May 6, 1993)
December 31, December 31, through
1995 1994 Dec 31, 1995
-----------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $(4,822,334) $(4,084,386) $(11,934,342)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 87,342 57,394 211,618
Amortization of deferred charges 2,500 0 2,500
Share of net earnings from an associated company 0 (19,963) 0
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 2,317,951 129,526 3,441,544
Changes in assets and liabilities:
Prepaid expenses and deposits 263,392 (514,051) (298,313)
Accounts receivable (1,762) (2,046) (6,743)
Short-term investment (221,730) 0 (221,730)
Inventory (35,035) (143,441) (201,038)
Deferred revenue 64,818 14,573 75,816
Accounts payable and accrued liabilities (753,380) 1,353,455 696,810
----------------------------------------------------
Net cash used in operating activities (3,098,238) (3,208,939) (8,233,878)
----------------------------------------------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (4,504) (302,991) (581,443)
Deferred charges on financing activities (10,000) 0 (10,000)
Loan to shareholders (4,675) (206,455) (410,402)
Repayment of loans to shareholders 138,957 55,398 352,758
Note receivable 0 (21,967) (200,317)
Repayment of note receivable 178,350 0 200,317
Long-term investment (10,929) (2,211,433) (2,301,372)
Unwind of long-term investment 0 0 2,250,921
----------------------------------------------------
Net cash from (used in) investing activities 287,199 (2,687,448) (699,538)
----------------------------------------------------
Cash flows from (used in) financing activities:
Issuance of common shares 1,177,445 4,714,445 8,922,530
Issuance of convertible subordinated debentures 1,905,000 0 1,905,000
Due to shareholder 0 108,390 108,390
Repayment to shareholder 0 0 (108,390)
Share issue costs (232,667) (575,390) (1,478,304)
----------------------------------------------------
Net cash from financing activities 2,849,778 4,247,445 9,349,226
----------------------------------------------------
Effect of exchange rate changes 31,705 (47,100) (238,275)
----------------------------------------------------
Increase (decrease) in cash and cash equivalents during 70,444 (1,696,042) 177,535
the period
Cash and cash equivalents, beginning of period 107,091 2,012,984 0
----------------------------------------------------
Cash and cash equivalents, end of period $ 177,535 $ 316,942 $ 177,535
====================================================
</TABLE>
Supplemental schedule of noncash financing activitites
The Company issued certain shares of its Class B 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.
<PAGE> 13
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
-------------------------- ---------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
-------------------------- ---------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) 5,089,286
Shares issued for cash (Cash - $4,714,188) 884,729 $4,714,188
Shares issued in lieu of rent (note 11-x) (Cash - $Nil) 60,871 324,344
Share issue costs (466,142)
Translation adjustment
Net loss
-------------------------- ---------------------
Balance at March 31, 1994 6,034,886 $4,572,390
-------------------------- ---------------------
Shares issued for cash (Cash - $1,175,797) 234,517 1,175,797
Shares issued in lieu of rent (note 11-x) (Cash - $Nil) 5,777 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219 739 (639)
Shares issued from Regulation S offering (including
79,658 shares at $7 per share for consulting
services and 3,571 shares at $5.50 per share for
the purchase of fixed assets) (Cash-$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services
(note 12) (Cash-$Nil) 825,000 78,005 825 2,204,153
Less: consulting and marketing services not yet received (814,583)* (815)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500,000 500 349,500
Shares issued to employees for employment services
(note 11-x) (Cash-$Nil) 25,063 74,409
Share issue costs (779,495)
Translation adjustment
Net loss
-------------------------- ---------------------
Balance at March 31, 1995 2,109,636 6,378,248 $2,109 $9,707,617
-------------------------- ---------------------
AMOUNTS AMOUNTS
------------------------------------------------ -----------
Deficit Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
------------------------------------------------ -----------
<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-x) (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 $ 0 $(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-x) (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 (2,086,685) (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000)
350,000
Shares issued to employees for employment services
(note 11-x) (Cash-$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 $(2,086,685) $(288,124) $(7,112,008) $ 222,909
--------------------------------------------------- -----------
</TABLE>
<PAGE> 14
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Deficit) (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
----------------------- --------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------- --------------------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering 819,459
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 6,250* 6
before March 31, 1995 (note 11-x) (Cash - $Nil)
Share proceeds received from private placement (Cash-$250,000) 250,000 250 249,750
Shares issued upon exercise of warrants at 849,803 619,166
Canadian $1 per share (Cash-$619,166)
Shares issued to officers (note 11-iv) (Cash - $Nil) 630,000 630 826,245
Shares issued to a consultant (note 11-x) (Cash - $Nil) 7,500 8 9,836
Shares issued for investor relation services (note 11-vi) (Cash - $Nil) 200,000 200 262,300
Less: services not yet received (200,000)* (200)
Share issue cost from April 01, 1995 to June 30, 1995 (100,989)
Translation adjustment
Net loss from April 01, 1995 to June 30, 1995
----------------------- --------------------
Balance at June 30, 1995 3,003,386 7,228,051 $3,003 $12,393,384
Consulting services received re shares issued (note 11-x) 2,083* 2
before March 31, 1995 (Cash - $Nil)
Shares issued to R. Zuk (Cash - $83,000) 200,000 200 199,800
Less: Shares proceeds to be received (117,000)
Share issue cost from July 01, 1995 to July 31, 1995 (27,238)
Translation adjustment
Net loss from July 01, 1995 to July 31, 1995
----------------------- --------------------
Balance at July 31, 1995 3,205,469 7,228,051 $3,205 $12,448,946
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-------------------------------------------------------------------
Deficit Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
----------------------------------------------- ------------
<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 37,494 37,500
before March 31, 1995 (note 11-x) (Cash - $Nil)
Share proceeds received from private placement 250,000
(Cash-$250,000)
Shares issued upon exercise of warrants at 619,166
Canadian $1 per share (Cash-$619,166)
Shares issued to officers (note 11-iv) (Cash - $Nil) 826,875
Shares issued to a consultant (note 11-x) (Cash - $Nil) 9,844
Shares issued for investor relation services 262,500
(note 11-vi) (Cash - $Nil)
Less: services not yet received (262,300) (262,500)
Share issue cost from April 01, 1995 to June 30, 1995 (100,989)
Translation adjustment 2,330 2,330
Net loss from April 01, 1995 to June 30, 1995 (1,880,977) (1,880,977)
----------------------------------------------- ------------
Balance at June 30, 1995 $(2,311,491) $(285,794) $(8,992,985) $806,117
Consulting services received re shares issued 12,498 12,500
(note 11-x) before March 31, 1995 (Cash - $Nil)
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less: Shares proceeds to be received (117,000)
Share issue cost from July 01, 1995 to July 31, 1995 (27,238)
Translation adjustment 5,541 5,541
Net loss from July 01, 1995 to July 31, 1995 (339,087) (339,087)
----------------------------------------------- -----------
Balance at July 31, 1995 $(2,298,993) $(280,253) $(9,332,072) $ 540,833
</TABLE>
<PAGE> 15
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Deficit) (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
----------------------- -----------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
----------------------- -----------------------
<S> <C> <C> <C> <C>
Shares issued to employees for employment services (note 11-x) (Cash - $Nil) 3,580 $ 7,000
Shares exchanged as per exchange agreement (Cash - $Nil) 500 (500) 1 (1)
Consulting services received re shares issued (note 11-x) (Cash - $Nil) 2,083 * 2
Marketing services received re shares issued 33,333 * 33
to LL Knickerbocker Co. (note 12) (Cash - $Nil)
Shares issued to Directors as compensation (note 11-x) (Cash-$Nil) 72,572 73 63,427
Share issue cost from Aug 01, 1995 to Aug 31, 1995 (13,306)
Translation adjustment
Net loss from Aug 01, 1995 to Aug 31, 1995
----------------------- -----------------------
Balance at Aug 31, 1995 3,313,957 7,231,131 $3,314 $12,506,066
Shares issued for compensation to employees (note 11-x) (Cash - $Nil) 10,596 15,716
Consulting services received re shares issued (note 11-x) (Cash - $Nil) 2,083 * 2
Shares issued to Amerasia for marketing services (note 11-x) (Cash-$Nil) 30,000 44,496
Less: services not yet received (27,500)*
Marketing services received re shares issued (note 12) (Cash - $Nil) 33,333 * 33
to LL Knickerbocker Co.
Shares issued to Director as compensation (note 11-x) (Cash - $Nil) 26,286 26 22,974
Shares cancelled (Cash - $Nil) (171) 1 (1)
Share issue cost from Sept 01, 1995 to Sept 30, 1995 (20,276)
Translation adjustment
Net loss from Sept 01, 1995 to Sept 30, 1995
----------------------- -----------------------
Balance at Sept 30, 1995 3,375,488 7,244,227 $3,376 $12,568,975
----------------------- -----------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
---------------------------------------------------
Deficit Accumulated
Cumulative During AMOUNTS
Other Translation Development ---------
Capital Adjustment Stage Total
--------------------------------------------------- ---------
<S> <C> <C> <C> <C>
Shares issued to employees for employment services $ 7,000
(note 11-x) (Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 0
Consulting services received re shares issued 12,498 12,500
(note 11-x) (Cash - $Nil)
Marketing services received re shares issued 83,300 83,333
to LL Knickerbocker Co. (note 12) (Cash - $Nil)
Shares issued to Directors as compensation 63,500
(note 11-x) (Cash-$Nil)
Share issue cost from Aug 01, 1995 to Aug 31, 1995 (13,306)
Translation adjustment 21,053 21,053
Net loss from Aug 01, 1995 to Aug 31, 1995 (441,307) (441,307)
--------------------------------------------------- ---------
Balance at Aug 31, 1995 $(2,203,195) $(259,200) $ (9,773,379) $ 273,606
Shares issued for compensation to employees 15,716
(note 11-x) (Cash - $Nil)
Consulting services received re shares issued 12,498 12,500
(note 11-x) (Cash - $Nil)
Shares issued to Amerasia for marketing services 44,496
(note 11-x) (Cash-$Nil)
Less: services not yet received (40,788) (40,788)
Marketing services received re shares issued 83,300 83,333
(note 12) (Cash - $Nil) to LL Knickerbocker Co.
Shares issued to Director as compensation 23,000
(note 11-x) (Cash - $Nil)
Shares cancelled (Cash - $Nil)
Share issue cost from Sept 01, 1995 to Sept 30, 1995 (20,276)
Translation adjustment 5,035 5,035
Net loss from Sept 01, 1995 to Sept 30, 1995 (472,531) (472,531)
--------------------------------------------------- ---------
Balance at Sept 30, 1995 $(2,148,185) $(254,165) $(10,245,910) $ (75,909)
--------------------------------------------------- ---------
</TABLE>
<PAGE> 16
The Tracker Corporation of America
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity (Deficit) (Cont'd)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------ -----------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
------------------------ -----------------------
<S> <C> <C> <C> <C>
Shares issued pursuant to S-8 for employees, consultants and 770,000 770 769,230
a director (note 11-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (625,054)* (625)
Consulting services received re shares issued 2,083 * 2
for a consultant (note 11-x) (Cash - $Nil)
Marketing services received from Amerasia (note 11-x) (Cash- $Nil) 2,500 *
Marketing services received re shares issued 33,333 * 33
to LL Knickerbocker Co. (note 12) (Cash-$Nil)
Share issue cost from Oct 01, 1995 to Oct 31, 1995 (6,146)
Translation adjustment
Net loss from Oct 01, 1995 to Oct 31, 1995
------------------------ -----------------------
Balance as at October 31, 1995 3,555,850 7,246,727 $3,556 $13,332,059
------------------------ -----------------------
Employee, consulting services received re S-8 (note 11-vii) (Cash-$Nil) 113,646 * 114
Marketing services received from Amerasia (note 11-x) (Cash-$Nil) 5,000 *
Marketing services received re shares issued 66,666 * 66
to LL Knickerbocker Co. (note 12) (Cash-$Nil)
Share issue cost from Nov 01, 1995 to Dec 31, 1995 (64,712)
Translation adjustment
Net loss from Nov 01, 1995 to Dec 31, 1995
------------------------ -----------------------
Balance as at December 31, 1995 3,736,162 7,251,727 $3,736 $13,267,347
------------------------ -----------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
---------------------------------------------------
Deficit Accumulated
Cumulative During AMOUNTS
Other Translation Development -----------
Capital Adjustment Stage Total
--------------------------------------------------- -----------
<S> <C> <C> <C> <C>
Shares issued pursuant to S-8 for employees, consultants 770,000
and a director (note 11-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (624,429) (625,054)
Consulting services received re shares issued 12,498 12,500
for a consultant (note 11-x) (Cash - $Nil)
Marketing services received from Amerasia 3,708 3,708
(note 11-x) (Cash- $Nil)
Marketing services received re shares issued 83,300 83,333
to LL Knickerbocker Co. (note 12) (Cash-$Nil)
Share issue cost from Oct 01, 1995 to Oct 31, 1995 (6,146)
Translation adjustment 19,773 19,773
Net loss from Oct 01, 1995 to Oct 31, 1995 (444,228) (444,228)
----------------------------------------------- -----------
Balance as at October 31, 1995 $(2,673,108) $(234,392) $(10,690,138) $(262,023)
----------------------------------------------- -----------
Employee, consulting services received re S-8
(note 11-vii) (Cash-$Nil) 113,532 113,646
Marketing services received from Amerasia
(note 11-x) (Cash-$Nil) 7,391 7,391
Marketing services received re shares issued 166,600 166,666
to LL Knickerbocker Co. (note 12) (Cash-$Nil)
Share issue cost from Nov 01, 1995 to Dec 31, 1995 (64,712)
Translation adjustment (1,531) (1,531)
Net loss from Nov 01, 1995 to Dec 31, 1995 (1,244,204) (1,244,204)
------------------------------------------------- -----------
Balance as at December 31, 1995 $(2,385,585) $(235,923) $(11,934,342) $(1,284,767)
------------------------------------------------- -----------
</TABLE>
(*) 1,344,744 common shares and 20,000 Class B common shares have been
subscribed for but remain unissued as at December 31, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 17
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS/CORPORATE HISTORY:
The Tracker Corporation of America (the "Company"), through a wholly-owned
subsidiary, The Tracker Corporation ("Tracker Canada"), is engaged in the
development, marketing and operation of a unique system to aid in the recovery
of lost or stolen items using advanced bar code and laser scanning technologies.
The Company was formed under the name Ultra Capital Corp. ("Ultra") in February
1986 under the laws of the State of Nevada to serve as a vehicle to acquire or
merge with an operating company. The Company changed its name from Ultra on July
1, 1994 when, as more fully discussed below, Ultra merged with Tracker Canada.
The Company was 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.
<PAGE> 18
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 the period or year end.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions 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.
<PAGE> 19
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:
<TABLE>
<S> <C>
Scanning equipment and computer hardware 5 years
Computer software 1 year
Office furniture and equipment 5 years
Leasehold improvements term of the lease
Kiosk equipment 5 years
</TABLE>
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the December 31, 1995 exchange rate while revenues, expenses and
cash flows are translated at average rates in effect for the period.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform to
the current period presentation.
<PAGE> 20
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 $221,730 represents a short-term investment in 288,462 shares of
Stratcomm Media Ltd., which is a publicly traded company on the Vancouver Stock
Exchange, and represents less than a 4% interest in the company. The 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>
Dec 31, March 31,
1995 1995
-------- --------
<S> <C> <C>
Investor relations $ 0 $325,267
Marketing and celebrity 211,735 0
Rent 450 115,147
Other 68,855 104,018
-------- --------
$281,040 $544,432
======== ========
</TABLE>
<PAGE> 21
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - NOTE RECEIVABLE:
At March 31, 1995, the Company had advanced $178,350 to Page-Direct Ltd. (a
wireless communications company for which the Company had entered into an
agreement to purchase). The related note receivable bore interest at the Royal
Bank of Canada prime rate plus 2% and was payable on demand. The note was repaid
in June 1995 in conjunction with the cancellation of the subject agreement.
Subsequent to March 31, 1995, the owner of Page-Direct Ltd. exercised its option
under the agreement to reacquire its interest in Page-Direct Ltd. Prior to the
exercise of this option, the Company had issued 271,052 exchangeable preference
shares in its Canadian subsidiary to the owner of Page-Direct Ltd. for 46.2% of
the outstanding shares of Page-Direct Ltd. Such exchangeable preference shares
were returned to the Company in June 1995. The Company has recorded the exercise
of the reversionary option by the owner of Page-Direct Ltd. as if it had
occurred as of March 31, 1995.
NOTE 7 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 8 - FIXED ASSETS:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
-------- --------
<S> <C> <C>
Scanning equipment $102,942 $ 99,364
Computer equipment 257,193 250,152
Computer software 32,066 30,845
Office furniture and equipment 63,296 54,950
Leasehold improvements 67,003 64,674
Kiosk equipment 63,651 61,438
-------- --------
Total original cost 586,151 561,423
Less: Accumulated depreciation 211,618 124,276
-------- --------
$374,533 $437,147
======== ========
</TABLE>
Depreciation expense for the nine months ended December 31, 1995 is $87,342 and
was $94,161 for the year ended March 31, 1995.
<PAGE> 22
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>
Dec 31, March 31,
1995 1995
-------- --------
<S> <C> <C>
Payroll and employee benefits $ 0 $178,980
Director fees 10,000 44,500
Others 127,170 110,641
-------- --------
$137,170 $334,121
======== ========
</TABLE>
NOTE 11 - CAPITAL STOCK:
(i) The common stock and Class B voting common stock share ratably as to
dividends. The Class B voting common stock is held in trust pursuant to the
terms of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary. The agreement permits
the persons holding the exchangeable shares to direct the voting of the Class B
common shares and provides a mechanism for the exchange of exchangeable shares
for a like number of common shares.
(ii) At December 31, 1995, outstanding warrants had been issued and were
outstanding to acquire 30,920 exchangeable preference shares (1,185,880 at March
31, 1995) of the Canadian subsidiary at Canadian $14 per share. These warrants
expire two years after the date of issuance.
(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.
<PAGE> 23
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>
NINE EXERCISE MARCH 31, EXERCISE
MONTHS PRICE 1995 PRICE
ENDED
DEC 31,
1995
-----------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS:
Opening 40,000 $ 7.95 0 n/a
Granted during the period (*) 10,000 $ 1.81 40,000 $ 7.95
Exercised during the period 0 n/a 0 n/a
Expired/cancelled during period (10,000) $ 7.95 0 n/a
------- -------
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>
NINE EXERCISE MARCH 31, EXERCISE
MONTHS PRICE 1995 PRICE
ENDED
DEC 31,
1995
--------------------------------------------------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK AND CLASS B):
Opening 1,685,880 n/a 0 n/a
Issued during the period 250,000 $5.00 500,000 $5.00
Issued during the period 0 n/a 1,185,880 Cdn$14.00
Exercised during the period (849,803) Cdn$1.00 0 n/a
Expired during the period (305,157) Cdn$14.00 0 n/a
--------- ---------
Closing 780,920 1,685,880
========= =========
</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.
<PAGE> 24
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - CAPITAL STOCK (CONT'D):
(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.
(ix) Other capital
As at December 31, 1995, 1,344,744 common shares and 20,000 Class B common
shares have been subscribed for but remain unissued as the service for which
these shares were subscribed for have yet to be received.
<TABLE>
<CAPTION>
FOR THE PERIOD
---------------------------------------------------------- FROM INCEPTION
3 MONTHS ENDED DEC 31, 9 MONTHS ENDED DEC 31, (MAY 6, 1993)
---------------------------------------------------------- THROUGH DEC 31,
1995 1994 1995 1994 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPENING,
Marketing services not yet received $1,832,600 $ 0 $1,999,200 $ 0 $ 0
Deferred compensation costs 0 0 0 0 0
Deferred consulting costs 315,585 0 87,485 0 0
Rent 0 0 0 0 0
--------------------------------------------------------------------------
$2,148,185 $ 0 $2,086,685 $ 0 $ 0
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received 0 0 0 0 1,999,200
Deferred compensation costs 770,000 74,409 1,706,031 74,409 1,780,440
Deferred consulting costs 0 149,975 910,820 149,975 1,693,023
Rent 0 0 0 30,121 354,465
--------------------------------------------------------------------------
770,000 224,384 2,616,851 254,505 5,827,128
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received 249,900 0 416,500 0 416,500
Deferred compensation costs 259,103 74,409 1,195,134 74,409 1,269,543
Deferred consulting costs 23,597 24,996 706,317 24,996 1,401,035
Rent 0 0 0 30,121 354,465
--------------------------------------------------------------------------
532,600 99,405 2,317,951 129,526 3,441,543
CLOSING,
Marketing services not yet received 1,582,700 0 1,582,700 0 1,582,700
Deferred compensation costs 510,897 0 510,897 0 510,897
Deferred consulting costs 291,988 124,979 291,988 124,979 291,988
Rent 0 0 0 0 0
--------------------------------------------------------------------------
$2,385,585 $ 124,979 $2,385,585 $ 124,979 $2,385,585
==========================================================================
</TABLE>
(x) 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.
<PAGE> 25
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 the nine month period ended December 31, 1995 amounted to
$188,903 and $219,183 for the year ended March 31, 1995.
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:
<TABLE>
<CAPTION>
Units Amount
----- --------
<S> <C> <C>
1996 830 $554,000
</TABLE>
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker"), which provides for
a television and radio marketing campaign to be initially launched in the
California marketplace. As part of the compensation for services to be performed
by Knickerbocker, the Company has paid Knickerbocker a fee of $212,975 and
issued 800,000 restricted common shares, valued at $2.50 per share based on the
trading price of the Company's shares on the date of the agreement. 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.
<PAGE> 26
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS (CONT'D):
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 development costs are consulting and management fees paid under the
aforementioned contracts totaling, in the aggregate, $404,175 for the nine month
period ended December 31, 1995 and $737,462 for the year ended March 31, 1995.
Placement commissions amounting to $Nil for the nine month period ended December
31, 1995 and $115,282 for the year ended March 31, 1995 paid to related parties
in connection with the Company's private equity placement are included as a
reduction in paid-in capital.
Commissions amounting to $10,000 for the nine month period ended December 31,
1995 and $Nil for the year ended March 31, 1995 paid to related parties in
connection with the issuance of convertible subordinated debentures.
See also Note 11(iv) and (vii).
<PAGE> 27
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - INCOME TAXES:
The estimated deferred tax asset of $3,150,000 and $2,290,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to December 31, 1995 and March 31, 1995, respectively,
has not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $9,020,000 expire starting
in 2001; the benefit of these losses has not been reflected in these
consolidated financial statements.
<TABLE>
<CAPTION>
Dec 31, March 31,
1995 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,150,000 2,290,000
----------- -----------
3,150,000 2,290,000
Valuation allowance (3,150,000) (2,290,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $860,000 during the year.
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at December 31, 1995 convertible subordinated
debentures in the amount of $1,905,000 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 Company paid $10,000 in cash
to finders of arm's length third party private investors. The following lists
the conversion rates:
<TABLE>
<CAPTION>
No. of shares
Principal Conversion rate on conversion
- --------- --------------- -------------
<S> <C> <C>
$1,000,000 $0.4375 per share of common stock 2,285,714
400,000 $0.9375 per share of common stock 426,666
175,000 $1.00 per share of common stock 175,000
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 62,500
125,000 - $1.25 per share of common stock 100,000
- ---------- ---------
$1,905,000 3,171,338
========== =========
</TABLE>
Total interest paid and included in general and administrative expenses is
$90,594 for the nine month period ended December 31, 1995 and $Nil for the year
ended March 31, 1995.
<PAGE> 28
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - SUBSEQUENT EVENTS:
On November 22, 1995, the Company filed a preliminary registration statement on
Form S-1 with the Securities and Exchange Commission and is in the process of
responding to comments. As at February 13, 1996, the Company continues to be in
the necessary "quiet period" relating to disclosure items.
As of January 31, 1996, the Company's administrative services obligation, as
described in Note 9, in the amount of $50,746 (Canadian$72,000) to C.E.M. Centry
Electronic Monitoring Corporation ("Centry") had been completely satisfied. The
Company will not incur any further obligations with respect to this matter.
As at February 13, 1996, the Company issued additional convertible subordinated
debentures in the amount of $199,528.83 bearing interest at 15% annually and are
repayable within one year. The interest payments are payable monthly in advance.
The principal amount may be converted into shares of the Company's common stock,
in whole or in part, beginning on October 1, 1995. Since December 31, 1995, the
Company paid a total of $19,953 in cash and accrued 32,906 restricted common
shares (valued at $32,906) in placement commissions to finders of arm's length
third party private investors. The following lists the conversion rates:
<TABLE>
<CAPTION>
Principal Conversion rate
--------- ---------------
<S> <C>
$ 35,000.00 - $1.00 per share of common stock
$164,528.83 - $1.25 per share of common stock
</TABLE>
As at February 13, 1996, the Company had received and complied with requests to
convert a total of $170,000 in convertible subordinated debenture to 388,572
shares of the Company's common stock at a conversion rate of $0.4375 per share
of common stock as described in Note 15.
As at February 13, 1996, of the warrants issued since inception to acquire
exchangeable preference shares of the Canadian subsidiary at Canadian $14 per
share, there currently remains only 26,634 outstanding as 4,286 warrants have
expired since December 31, 1995. As described in Note 11, these warrants expire
two years after the date of issuance.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 177,535
<SECURITIES> 221,730
<RECEIVABLES> 6,743
<ALLOWANCES> 0
<INVENTORY> 201,038
<CURRENT-ASSETS> 945,730
<PP&E> 586,151
<DEPRECIATION> 211,618
<TOTAL-ASSETS> 1,378,214
<CURRENT-LIABILITIES> 2,662,981
<BONDS> 0
0
0
<COMMON> 13,271,083
<OTHER-SE> (2,385,585)
<TOTAL-LIABILITY-AND-EQUITY> 1,378,214
<SALES> 67,198
<TOTAL-REVENUES> 67,198
<CGS> 28,432
<TOTAL-COSTS> 28,432
<OTHER-EXPENSES> 4,861,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,594
<INCOME-PRETAX> (4,822,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,822,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,822,334)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> 0
</TABLE>
