<PAGE> 1
Date Filed: February 10, 1997
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 DECEMBER 31, 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, SUITE 1502,TORONTO, ONTARIO, CANADA M5G 1Z8
(Address of principal executive offices) (Zip Code)
(416) 595-6222
(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 1 of 41 pages
<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 February 5, 1997, the Registrant had outstanding 16,580,789
shares of common stock, par value $0.001 per share, and 4,892,537 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 December 31, 1996, and March
31, 1996, and the related consolidated statements of operations for the three
and nine month periods ended December 31, 1996 and 1995, respectively, and the
consolidated shareholders' equity (deficit) for the nine month period ended
December 31, 1996, and for the period from inception (May 6, 1993) through
December 31, 1996 and consolidated statement of cash flows for the nine month
period ended December 31, 1996 and 1995, respectively, and for the period from
inception (May 6, 1993) through December 31, 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
FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1996
-4-
<PAGE> 5
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
-------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 163,363 $ 78,844
Short-term investment 177,768 221,190
Accounts receivable 77,115 7,361
Prepaid expenses and deposits 238,542 168,345
Inventory 80,421 115,612
Deferred charges 1,910,941 73,750
------------ ------------
Total current assets 2,648,150 665,102
Due from shareholders 60,725 58,226
Deferred charges 408,133 66,234
Fixed assets (net) 349,226 353,729
Long-term investment -- 50,451
------------ ------------
Total assets $ 3,466,234 $ 1,193,742
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 657,441 $ 551,553
Accrued liabilities 382,952 266,837
Deferred revenue 2,815,015 115,241
Debentures 114,808 --
Convertible subordinated debentures 682,908 1,460,000
------------ ------------
Total current liabilities 4,653,124 2,393,631
Deferred revenue 671,142 178,883
Commitments (Note 12)
Shareholders' equity (deficit)
$1000 6% convertible preferred stock, $.001 par value, 500,000 shares
authorized, nil (nil - March 31, 1996) shares issued and outstanding -- --
Common stock, $.001 par value, 30,000,000 shares authorized,
15,650,100 (6,130,929 - March 31, 1996) shares issued and outstanding 15,650 6,131
Class B voting common stock, $0.00000007 par value, 20,000,000
shares authorized, 4,898,257 (6,126,362 - March 31, 1996) issued -- --
and outstanding
Paid-in capital 15,146,789 14,013,062
Other capital (407,110) (1,954,327)
Accumulated deficit (16,298,537) (13,202,738)
Cumulative translation adjustment (314,824) (240,900)
------------ ------------
Total shareholders' equity (deficit) (1,858,032) (1,378,772)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 3,466,234 $ 1,193,742
============ ============
</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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
--------------------------------------------------------------------
3 MONTHS ENDED 9 MONTHS ENDED FROM INCEPTION
DECEMBER 31, DECEMBER 31, (MAY 6, 1993)
------------------------------ -------------------------------- THROUGH
1996 1995 1996 1995 DEC. 31, 1996
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 651,357 $ 22,932 $ 895,245 $ 67,198 $ 1,011,954
Cost of sales 445,808 10,366 560,415 28,432 604,674
------------ ------------ ------------ ------------ ------------
Gross profit 205,549 12,566 334,830 38,766 407,280
------------ ------------ ------------ ------------ ------------
Development Costs
Operational 185,998 131,478 471,828 466,706 1,901,649
Information systems 91,073 62,043 210,143 198,964 1,096,189
Sales and marketing (59,045) 431,905 723,076 535,452 4,097,826
General and administrative 860,388 943,947 2,025,582 3,528,353 9,610,153
------------ ------------ ------------ ------------ ------------
Total development costs 1,078,414 1,569,373 3,430,629 4,729,475 16,705,817
------------ ------------ ------------ ------------ ------------
Net loss applicable to common stock $ (872,865) $ (1,556,807) $ (3,095,799) $ (4,690,709) $(16,298,537)
============ ============ ============ ============ ============
Loss per share of common stock $ (0.05) $ (0.14) $ (0.19) $ (0.45) $ (1.73)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding 19,153,898 10,834,219 16,007,825 10,418,946 9,443,543
============ ============ ============ ============ ============
</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 CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
FOR 9 MONTHS ENDED (MAY 6, 1993)
DECEMBER 31, THROUGH
-------------------------------- DEC. 31,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ (3,095,799) $ (4,690,709) $(16,298,537)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 91,091 87,342 326,437
Loss on sale of long-term investment 13,414 -- 13,414
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 1,232,696 2,234,907 5,105,497
Changes in assets and liabilities:
Prepaid expenses and deposits (70,197) 263,392 (255,815)
Accounts receivable (69,754) (1,762) (77,115)
Short-term investment 43,422 (221,730) (177,768)
Debentures receivable -- -- --
Inventory 35,191 (35,035) (80,421)
Deferred charges (2,179,090) (139,125) (2,319,074)
Deferred revenue 3,192,033 64,818 3,486,157
Accounts payable and accrued liabilities 222,003 (753,380) 1,055,038
------------ ------------ ------------
Net cash used in operating activities (584,990) (3,191,282) (9,222,187)
------------ ------------ ------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (83,853) (4,504) (673,798)
Loan to shareholders (2,499) (4,675) (417,137)
Repayment of loans to shareholders -- 138,957 356,412
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 37,037 -- 2,287,958
------------ ------------ ------------
Net cash from (used in) investing activities (49,315) 297,199 (747,937)
------------ ------------ ------------
Cash flows from (used in) financing activities:
Issuance of common shares -- 1,260,217 8,922,530
Issuance of preferred shares 1,050,000 -- 1,050,000
Issuance of convertible subordinated debentures -- 1,905,000 2,189,529
Repayment of debentures and convertible subordinated debentures (32,284) -- (32,284)
Due to shareholder -- -- 108,390
Repayment to shareholder -- -- (108,390)
Share issue costs (224,741) (232,667) (1,684,735)
------------ ------------ ------------
Net cash from financing activities 792,975 2,932,550 10,445,040
------------ ------------ ------------
Effect of exchange rate changes (74,151) 31,977 (311,553)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents during 84,519 70,444 163,363
the period
Cash and cash equivalents, beginning of period 78,844 107,091 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 163,363 $ 177,535 $ 163,363
============ ============ ============
</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.
-7-
<PAGE> 8
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Shares Amounts
------------------------------------ -----------------------------------
Paid-in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
<S> <C> <C> <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-xi)(Cash - $Nil) 60,871 324,344
Shares issue costs (466,142)
Translation adjustments
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-xi)(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 service not yet received (814,583) (815)
Share proceeds received from private placement on
March 15, 1995 (Cash-$350,000) 500,000 500 349,500
Shares issued to employees for employment services
(note 11-xi)(Cash-$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
---------------------------------------------------------------------
<CAPTION>
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-xi)(Cash - $Nil) 324,344
Share issue costs (466,142)
Translation adjustments (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 service not yet received (2,086,685) (2,087,500)
Share 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 (2,086,685) (288,124) (7,112,008) 222,909
--------------------------------------------------------------------
</TABLE>
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 EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------ ---------------------
Class B
Preferred Common Common Preferred Common
Stock Stock Stock Stock Stock
------------------------------------ --------------------
<S> <C> <C> <C> <C> <C>
Share proceeds received
re Regulation S offering made
before March 31, 1995
(Cash - $225,280) $ -- $ --
Consulting services received re
shares issued before March 31, 1995
(note 11-xi)(Cash-$ Nil) 14,582* 14
Marketing services received re
shares issued to L.L.
Knickerbocker Co.
(note 12) (Cash-$ Nil) 266,664* 265
Shares issued to Directors as
compensation (note 11-xi)
(Cash-$Nil) 98,858 99
Shares issued to Amerasia for
marketing services (note 11-xi)
(Cash-$Nil) 30,000
Less: services not yet received (12,500)*
Shares cancelled (Cash-$Nil) (171) 1
Shares issued pursuant to S-8 for
employees, consultants and a
director (note 11-vii)(Cash-$Nil) 770,000 770
Less: employment and consulting
services not yet received (340,939) (341)
Shares issued to R. Zuk
(Cash - $83,000)
Less: shares proceeds to be received 200,000 200
Share proceeds received from private
placement (Cash - $250,000) 250,000 250
Shares issued upon exercise of
warrants at Canadian $1 per
share (Cash - $619,166) 849,803
Shares issued to officers
(note 11-iv)(Cash-$Nil) 630,000 630
Shares issued to a consultant
(note 11-xi)(Cash-$Nil) 7,500 8
Shares issued for investor relation
services (note 11-vi)(Cash-$Nil) 200,000 200
Less: services not yet received (200,000) (200)
Shares issued to employees for
employment services
(note 11-xi)(Cash-$Nil) 14,176
Shares exchanged at per exchange
agreement (Cash-$Nil) 1,133,365 (1,133,365) 1,134
Shares issued for conversion
from debenture holders
(Cash-$Nil) 991,434 992
Share issued cost from April 1,
1995 to March 31, 1996
Translation adjustment
Net loss from April 1, 1995 to
March 31, 1996
------------------------------------------ -------------------------
Balances as at March 31, 1996 -- 6,130,929 6,126,362 $ -- $6,131
------------------------------------------ -------------------------
<CAPTION>
AMOUNTS
------------------------------------------------------------------------------
Paid in Deficit Accumulated
Capital in Cumulative During
Excess Other Translation Development
of Par Capital Adjustment Stage Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share proceeds received
re Regulation S offering made
before March 31, 1995
(Cash - $225,280) $819,459 $ -- $ -- $ -- $819,459
Consulting services received re
shares issued before March 31, 1995
(note 11-xi)(Cash-$ Nil) 87,486 87,500
Marketing services received re
shares issued to L.L.
Knickerbocker Co.
(note 12) (Cash-$ Nil) 666,400 666,665
Shares issued to Directors as
compensation (note 11-xi)
(Cash-$Nil) 86,402 86,501
Shares issued to Amerasia for
marketing services (note 11-xi)
(Cash-$Nil) 44,496 44,496
Less: services not yet received (18,630) (18,630)
Shares cancelled (Cash-$Nil) (1) --
Shares issued pursuant to S-8 for
employees, consultants and a
director (note 11-vii)(Cash-$Nil) 769,230 770,000
Less: employment and consulting
services not yet received (340,598) (340,939)
Shares issued to R. Zuk
(Cash - $83,000) 199,800 200,000
Less: shares proceeds to be received (117,000) (117,000)
Share proceeds received from private
placement (Cash - $250,000) 249,750 250,000
Shares issued upon exercise of
warrants at Canadian $1 per
share (Cash - $619,166) 619,166 619,166
Shares issued to officers
(note 11-iv)(Cash-$Nil) 826,245 826,875
Shares issued to a consultant
(note 11-xi)(Cash-$Nil) 9,836 9,844
Shares issued for investor relation
services (note 11-vi)(Cash-$Nil) 262,300 262,500
Less: services not yet received (262,300) (262,500)
Shares issued to employees for
employment services
(note 11-xi)(Cash-$Nil) 22,716 22,716
Shares exchanged at per exchange
agreement (Cash-$Nil) (1,134) --
Shares issued for conversion
from debenture holders
(Cash-$Nil) 728,537 729,529
Share issued cost from April 1,
1995 to March 31, 1996 (214,357) (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 $14,013,062 $(1,954,327) $(240,900) $13,202,738 $(1,378,772)
-----------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 10
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 L.L. 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 (note 11-xiii)
(Cash - $Nil) (500) 1,611,156
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
------------------------------------------
Marketing services received re shares issued
to L.L. Knickerbocker Co. (note 12)
(Cash - $Nil) 100,000*
Marketing services received from Amerasia
(note 11-xi) (Cash - $Nil) 5,000*
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) 47,059
Preferred shares issued from private placement
(note 11-xii) (Cash - $200,000) 200
Common shares issued for conversion from
preferred stockholder (note 11-xiii)
(Cash - $Nil) (350) 1,426,636
Shares exchanged as per exchange agreement
(Cash - $Nil) 146,100 (146,100)
Shares issued for consulting services
(note 11-xi) (Cash - $Nil) 40,000
Shares issued for office rental expense
(note 11-xi) (Cash - $Nil) 615,780
Less: rental expense not amortized yet (615,780)*
Shares issued to employee for employment
services (note 11-xi) (Cash - $Nil) 2,000
Share issue cost from July 1, 1996 to
Sept. 30, 1996
Translation adjustment
Net loss from July 1, 1996 to Sept. 30, 1996
------------------------------------------
Balance as at Sept. 30, 1996 200 11,340,342 5,063,662
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Amounts
---------------------------------------------------------------------------------------------
Paid in Deficit Accumulated
Capital in Cumulative During
Preferred Common Excess Other Translation Development
Stock Stock of Par Capital Adjustment Stage Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marketing services received
re shares issued to L.L.
Knickerbocker Co. (note 12)
(Cash - $Nil) $ -- $ 100 $ -- $ 249,900 $ -- $ -- $ 250,000
Shares issued to Directors as
compensation (note 11-xi)
(Cash - $Nil) 34 15,466 15,500
Marketing services received
from Amerasia (note 11-xi)
(Cash - $Nil) 11,124 11,124
Employment and consulting services
received re S-8 (note 11-vii)
(Cash - $Nil) 170 170,299 170,469
Shares issued for conversion from
debenture holders (note 11-x)
(Cash - $Nil) 743 309,257 310,000
Preferred shares issued from
private placement (note 11-xii)
(Cash - $850,000) 1 849,999 850,000
Common shares issued for
conversion from preferred
stockholder (note 11-xiii)
(Cash - $Nil) (1) 1,611 (1,610) --
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 12,000
Shares issued in lieu of finder
fee for debenture holders
(note 11-xi) (Cash - $Nil) 53 52,853 52,906
Shares issued in lieu of finder
fee for preferred stockholders
(note 11-xi) (Cash - $Nil) 113 44,887 45,000
Share issue cost from April 1,
1996 to June 30, 1996 (166,574) (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 $ -- $9,908 $15,128,387 $(1,523,004) $(258,523) $(14,465,450) $(1,108,682)
---------------------------------------------------------------------------------------------
Marketing services received
re shares issued to L.L.
Knickerbocker Co. (note 12)
(Cash - $Nil) $ -- $ 100 $ -- $ 249,900 $ -- $ -- $ 250,000
Marketing services received
from Amerasia (note 11-xi)
(Cash - $Nil) 7,506 7,506
Employment and consulting
services received re S-8
(note 11-vii) (Cash - $Nil) 171 170,299 170,470
Shares issued for conversion
from debenture holders
(note 11-x) (Cash - $Nil) 47 49,953 50,000
Preferred shares issued from
private placement (note 11-xii)
(Cash - $200,000) 200,000 200,000
Common shares issued for
conversion from preferred
stockholder (note 11-xiii)
(Cash - $Nil) 1,426 (1,426) --
Shares exchanged as per
exchange agreement
(Cash - $Nil) 146 (146) --
Shares issued for consulting
services (note 11-xi)
(Cash - $Nil) 40 9,960 10,000
Shares issued for office rental
expense (note 11-xi)
(Cash - $Nil) 616 153,329 153,945
Less: rental expense not
amortized yet (616) (153,329) (153,945)
Shares issued to employee for
employment services (note 11-xi)
(Cash - $Nil) 2 498 500
Share issue cost from July 1,
1996 to Sept. 30, 1996 (58,167) (58,167)
Translation adjustment (50,383) (50,383)
Net loss from July 1, 1996
to Sept. 30, 1996 (960,222) (960,222)
---------------------------------------------------------------------------------------------
Balance as at Sept. 30, 1996 $ -- $11,840 $15,482,388 $(1,248,628) $(308,906) $(15,425,672) $(1,488,978)
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
<PAGE> 11
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>
Reversal of marketing expenses
from recovering 400,000 shares
from L.L. Knickerbocker Co.
(note 12) (Cash - $ Nil)
- reversal of expenses (66,664)*
- cancellation of 400,000 shares
Employment and consulting services
received re S-8 (note 11-xv)
(Cash - $ Nil) 1,104,087
Shares issued for conversion from
debenture holders (note 11-x)
(Cash - $ Nil) 617,144
Common shares issued for conversion
from preferred stockholder
(note 11-xiii) (Cash - $ Nil) (200) 1,327,344
Shares exchanged as per exchange
agreement (Cash - $ Nil) 165,405 (165,405)
Retail expense recognized
(note 11-xi) (Cash - $ Nil) 34,210*
Shares issued pursuant to
William Marches S-8 stock
payment plan (note 11-xvi)
(Cash - $ Nil) 234,982
Shares issued to Directors as
compensation (note 11-xv)
(Cash - $ Nil) 250,000
Shares issued for consulting services
(note 11-xi) (Cash - $ Nil) 143,250
Translation adjustment
Net loss from Oct. 1, 1996 to
Dec. 31, 1996
__________________________________________________
Balance as at Dec. 31, 1996 -- 15,650,100 4,898,257
==================================================
</TABLE>
(*) 781,570 common shares have been subscribed for but remain unissued as of
Dec. 31, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
AMOUNTS
____________________________________________________________________________________
Detail
Paid in Accumulated
Capital in Cumulative During
Preferred Common Excess Other Translation Development
Stock Stock of Par Capital Adjustment Stage Total
____________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Reversal of marketing expenses
from recovering 400,000 shares
from L.L. Knickerbocker Co.
(note 12) (Cash - $ Nil)
- reversal of expenses $ (65) $(166,600) $(166,665)
- cancellation of 400,000 shares $(999,600) 999,600
Employment and consulting services
received re S-8 (note 11-xv)
(Cash - $ Nil) 1,104 255,146 256,250
Shares issued for conversion from
debenture holders (note 11-x)
(Cash - $ Nil) 617 269,383 270,000
Common shares issued for conversion
from preferred stockholder
(note 11-xiii) (Cash - $ Nil) 1,327 (1,327) --
Shares exchanged as per exchange
agreement (Cash - $ Nil) 165 (165) --
Retail expense recognized
(note 11-xi) (Cash - $ Nil) 34 8,518 8,552
Shares issued pursuant to
William Marches S-8 stock
payment plan (note 11-xvi)
(Cash - $ Nil) 235 57,765 58,000
Shares issued to Directors as
compensation (note 11-xv)
(Cash - $ Nil) 250 49,750 50,000
Shares issued for consulting services
(note 11-xi) (Cash - $ Nil) 143 33,449 33,592
Translation adjustment (5,918) (5,918)
Net loss from Oct. 1, 1996 to
Dec. 31, 1996 (872,865) (872,865)
_____________________________________________________________________________________
Balance as at Dec. 31, 1996 $ -- $15,650 $15,146,789 $(407,110) $(314,824) $(16,298,537)$(1,858,032)
=====================================================================================
</TABLE>
-11-
<PAGE> 12
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.
-12-
<PAGE> 13
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, allowances and
25% cancellation reserve. 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.
-13-
<PAGE> 14
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>
<CAPTION>
<S> <C> <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 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.
-14-
<PAGE> 15
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 net amount of $177,768 ($221,190 at March 31, 1996) 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 less a 20% reserve provision.
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Security deposit for merchant facility $197,540 $ -
Marketing and celebrity - 120,992
Other 41,002 47,353
-------- --------
$238,542 $168,345
======== ========
</TABLE>
-15-
<PAGE> 16
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>
Dec. 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Current:
Deferred sales commission $1,499,181 $47,222
Other 411,760 26,528
---------- -------
$1,910,941 $73,750
========== =======
Long term:
Deferred sales commission $ 270,104 $61,680
Other 138,029 4,554
---------- -------
$ 408,133 $66,234
========== =======
</TABLE>
NOTE 8 - FIXED ASSETS:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Scanning equipment $120,737 $106,471
Computer equipment 286,314 257,189
Computer software 32,237 31,988
Office furniture and equipment 78,203 67,254
Leasehold improvements 98,546 66,840
Kiosk equipment 63,789 63,496
-------- --------
Total original cost 679,826 593,238
Less: Accumulated depreciation 330,600 239,509
-------- --------
$349,226 $353,729
======== ========
</TABLE>
Depreciation expense for the nine months ended December 31, 1996 was $91,091 and
was $111,070 for the year ended March 31, 1996.
-16-
<PAGE> 17
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM INVESTMENT:
In October 1996, the Company sold its 11.96% interest in C.E.M. Centry
Electronic Monitoring Corporation ("Centry"), a publicly listed Canadian company
trading on the Vancouver Stock Exchange for $37,037 cash, resulting in a loss of
$13,414. Executive management believed it was in the best interest of the
Company to help management focus on its core businesses.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Directors fees $ 33,000 $ 11,000
Finder fees for convertible debentures - 52,906
Net reserve for subscriber cancellations 232,187 -
Others 117,765 202,931
-------- --------
$382,952 $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 December 31, 1996, all outstanding warrants to acquire exchangeable
preference shares of the Canadian subsidiary at Canadian $14 per share had
expired.
(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.
-17-
<PAGE> 18
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 9
MONTHS FOR YEAR
ENDED ENDED
DEC. 31, EXERCISE MARCH 31, EXERCISE
1996 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 9
MONTHS FOR YEAR
ENDED ENDED
DEC. 31, 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 (17,348) (318,729) Cdn$14.00
-------- ---------
Closing 750,000 767,348
======== =========
</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.
-18-
<PAGE> 19
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, 1996, 781,570 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,
---------------------------------------------------------------
1996 1995 1996 1995 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPENING,
Marketing services not yet received $ 833,000 $1,832,600 $1,332,800 $1,999,200 $ -
Deferred compensation costs - - 340,599 - -
Deferred consulting costs 262,299 315,585 280,928 87,485 -
Rent 153,329 - - - -
-------------------------------------------------------------------------------
1,248,628 2,148,185 1,954,327 2,086,685 $ -
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received (999,600) - (999,600) - 999,600
Deferred compensation costs 304,896 769,230 430,576 769,230 2,211,016
Deferred consulting costs 91,214 - 101,174 306,796 1,794,197
Rent - - 153,329 - 507,794
-------------------------------------------------------------------------------
(603,490) 769,230 (314,521) 1,076,026 5,512,607
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received (166,600) 249,900 333,200 416,500 999,600
Deferred compensation costs 304,896 258,333 771,175 258,333 2,211,016
Deferred consulting costs 91,214 23,597 119,803 102,293 1,531,898
Rent 8,518 - 8,518 - 362,983
-------------------------------------------------------------------------------
238,028 531,830 1,232,696 777,126 5,105,497
CLOSING,
Marketing services not yet received - 1,582,700 - 1,582,700 -
Deferred compensation costs - 510,897 - 510,897 -
Deferred consulting costs 262,299 291,988 262,299 291,988 262,299
Rent 144,811 - 144,811 - 144,811
-------------------------------------------------------------------------------
$ 407,110 $2,385,585 $ 407,110 $2,385,585 $ 407,110
===============================================================================
</TABLE>
(x) For the three months ended December 31, 1996, 617,144 common shares were
issued pursuant to the conversion of convertible subordinated debentures
totalling $270,000. In November 1996, all holders of the convertible
subordinated debentures were requested to extend maturity date from December 1,
1996 to June 1, 1997 on same terms and conditions. As at December 31, 1996 there
remains outstanding $682,908 in convertible subordinated debentures with a
maturity date of June 1, 1997. The remaining balance of $114,808 has been
reclassified as debentures which have repayment terms over 12 months at a 4.75%
interest rate.
-19-
<PAGE> 20
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(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.
(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"). During
August, 1996, the Company issued 200 additional shares of Series B $1,000
Cumulative 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.
-20-
<PAGE> 21
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
For nine months ended December 31, 1996, the Company paid $136,500 to a third
party as finders fees in connection with the Company's private equity placement
of the convertible preferred stock and the amount are included as a reduction in
paid-in capital.
(xiii) As at December 31, 1996, 4,365,136 common shares were issued due to the
conversion of 1,050 shares of convertible preferred stock totalling $1,050,000.
As at December 31, 1996, no convertible preferred stock remains outstanding.
(xiv) On October 21, 1996, the Company's Prospectus on Amendment No. 4 of the
Registration Statement on Form S-1 was declared effective by Securities and
Exchange Commission at 4:00 pm (Eastern time).
(xv) In October 1996, the Company issued 677,083 shares of common stock pursuant
to the registration statement on S-8 to five key employees and five outside
(non-employee) directors as payment in lieu of salaries and consulting fees for
the month of October, 1996 and annual fees. The shares were all valued at $0.18
per share. In November 1996, the Company issued 382,464 shares of common stock
pursuant to the registration statement on S-8 to five key employees as payment
in lieu of salaries and consulting fees for the month of November, 1996. The
shares were all valued at $0.201 per share. In December 1996, the Company issued
294,540 shares of common stock pursuant to the registration statement on S-8 to
five key employees as payment in lieu of salaries and consulting fees for the
month of December, 1996. The shares were all valued at $0.348 per share.
(xvi) In October 1996, the Company entered into a one-year consulting agreement
(the "Consulting Agreement") with a Consultant who was retained to provide
advice to the Company concerning the Company's growth strategy, financial public
relations obligations and future capital structure. Under the terms of the
Consulting Agreement, the Company has agreed to pay the Consultant one hundred
thousand (100,000) shares of the Company's common stock. As additional
consideration, the Company has granted to the Consultant certain options to
purchase up to a total of 900,000 shares of the Company's Common Stock (the
"Options") for the price of the par value of the Common stock, $.001 per share.
In addition, the Company has agreed to pay the Consultant $10,000 per month, for
administrative expenses. The Company shall reimburse the Consultant for all
other pre-approved expenses. In October 1996, the Company issued 100,000 shares
of common stock pursuant to the registration statement on S-8 to Consultant as
payment for consulting fees. The shares were valued at $0.28 per share. In
November 1996, the Company issued 43,104 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for October administrative
expense. The shares were valued at $0.232 per share. In December 1996, the
Company issued 91,878 shares of common stock pursuant to the registration
statement on S-8 to the Consultant for administrative expense. The shares were
valued at $0.2177 per share.
-21-
<PAGE> 22
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 nine months ended December 31, 1996 amounted to $150,286 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:
<TABLE>
<CAPTION>
Units Amount
------------------------ ------------------------
<S> <C> <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.
On December 11, 1996, the Company entered into an agreement to end its
relationship with Knickerbocker. The Company received 400,000 of the 800,000
restricted common shares back from Knickerbocker. These shares were immediately
cancelled in treasury. As a result, the Company made an $166,666 credit
adjustment to sales and marketing expenses in December 1996 and is reflected in
the Consolidated Statement of Operations.
-22-
<PAGE> 23
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:
<TABLE>
<CAPTION>
Number of Subscribers Per Capita Amount
--------------------- -----------------
<S> <C> <C>
0 - 1,000,000 $0.20
1,000,001 - 5,000,000 $0.10
More than 5,000,000 $0.075
</TABLE>
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
On November 4, 1996, the Company exercised its option and terminated the
services of Corporate Relations Group, Inc. ("CRG"). CRG had never provided
services under the agreement and the Company had not made any payment to CRG.
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.
-23-
<PAGE> 24
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS (CONT'D):
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, $351,436 for nine months
ended December 31, 1996 and $589,390 for the year ended March 31, 1996.
Finders fees amounting to $25,870 for nine months ended December 31, 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 nine months ended December 31, 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 $3,910,000 and $3,696,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to December 31, 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 $11,200,000 expire starting
in 2001; the benefit of these losses has not been reflected in these
consolidated financial statements.
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,910,000 3,696,000
---------- -----------
3,910,000 3,696,000
Valuation allowance (3,910,000) (3,696,000)
---------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $214,000 during nine months ended December
31, 1996.
-24-
<PAGE> 25
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at December 31, 1996 convertible subordinated
debentures in the amount of $682,908 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> <C>
$150,000 $0.4375 per share of common stock 342,858
352,908 $0.9375 per share of common stock 376,436
75,000 $1.00 per share of common stock 75,000
30,000 $1.06 per share of common stock 28,302
20,000 $1.0625 per share of common stock 18,824
30,000 $1.10 per share of common stock 27,273
25,000 $1.25 per share of common stock 20,000
-------- -------
$682,908 888,693
======== =======
</TABLE>
Total interest paid and included in general and administrative expenses is
$203,329 for nine months ended December 31, 1996 and $181,311 for year ended
March 31, 1996.
NOTE 16 - SUBSEQUENT EVENTS:
In January 1997, the Company issued 39,370 shares of common stock pursuant to
the registration statement on S-8 to the Consultant for December 1996
administrative expense. The shares were valued at $0.254 per share. See Note 11
(xvi) - Capital Stock.
In January 1997, the Company issued 45,913 shares of common stock pursuant to
the registration statement on S-8 to one outside (non-employee) director as
payment in lieu of annual fees. The shares were all valued at $0.244 per share.
See Note 11 (xv) - Capital Stock
In February 1997, the Company issued 31,447 shares of common stock pursuant to
the registration statement on S-8 to the Consultant for January 1997
administrative expense. The shares were valued at $0.318 per share. See Note 11
(xvi) - Capital Stock
-25-
<PAGE> 26
- --------------------------------------------------------------------------------
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
-26-
<PAGE> 27
has developed and begun to market, sell and operate a personal property
identification and recovery 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,
door-to-door canvassing, telemarketers (i.e., Datatrack, Inc., Executive
Industries Limited, and GEP Limited 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 February 4, 1997, the
Company had made 185 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.
-27-
<PAGE> 28
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. Currently, the Company piggybacks on the infrastructure
that it has established for its personal property identification and recovery
system and is currently generating approximately 98% of its revenue from this
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 one or more 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
-28-
<PAGE> 29
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 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"). As a result of the Merchant Partners agreement, Tracker is
currently test marketing its service in conjunction with Montgomery Ward's Home
Protection Program.
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. In addition to the Company's personal
property identification and recovery system, the Company has implemented and is
currently offering a card registration service marketed through telemarketers.
This service permits a member, with a single toll free phone call, to: (i)
cancel all of the member's lost or stolen cards (whether they be debit cards,
gas cards, automated bank teller cards, department store cards or credit cards);
(ii) request replacement cards; (iii) request a change of address for all cards;
(iv) receive $15,000 in travel insurance on common carrier; (v) receive $2,000
in AD&D insurance; (vi) receive $500 in airline discounts; and (vii) be covered
on fraudulent charges up to $10,000.
PRODUCT DEFINITIONS
The following describes many of the products offered by the Company.
The typical retail pricing for the Tracker service is $39.95. The consumer
usually pays for the Company's services unless the consumer receives the service
in connection with a promotional deal with a manufacturer or retailer. The
product configurations offered vary and are subject to change.
TRACKER SERVICE. This is a service to aid in the identification and
recovery of members' lost or stolen possessions. The initial purchase is
packaged as a membership service term, typically between one to three years, and
a supply of Tracker identification products.
-29-
<PAGE> 30
Subsequent purchases of Tracker products or membership term renewals and
upgrades are sold separately. The package includes 24 possession labels, 8
clothing labels and an assortment of 10 shoe, key, luggage, and pet tags. This
service has recently been upgraded to include the cost of returning possessions
to members.
TRACKER CARD REGISTRATION SERVICE. The Company offers members of this
program the benefit and convenience of card registration. With one phone call, a
member can (a) cancel all his lost or stolen cards (whether they be debit cards,
gas cards, automated bank teller cards, department store cards or credit cards),
(b) request replacement cards, (c) request a change of address for all his
cards, (d) receive $15,000 in travel insurance on common carrier, (e) receive
$2,000 in AD&D insurance, (f) receive $500 in airline discounts and (g) be
covered on fraudulent charges up to $10,000. This service includes 24
identification labels, a card registration form and an indemnification
certificate.
RENEWALS. Membership may be renewed for a specified period of time for
which there is a renewal fee. The renewal terms offered by the Company vary but
are typically between one to three years. To induce members to renew their
service, the Company may offer, from time to time, extra items or incentive
renewal bonuses.
UPGRADES. All members, regardless of the program they originally sign
up for, have the opportunity to purchase upgrade products or services offered by
the Company such as increasing the number of years of service, purchasing the
card registration service, or purchasing extra cloth or adhesive labels or shoe,
pet, key, or luggage tags.
CHILD IDENTIFICATION. The Company is offering a special "Tracker
Service" package to parents for added protection for their children. The package
includes 8 possession labels, 24 clothing labels, an assortment of 10 shoe, key,
and luggage tags, a photo and fingerprint kit and special safety tips for
parents and kids.
SAMPLE LABEL PROMOTIONS. Tracker offers businesses an opportunity to
provide their clients or customers a special value added incentive in the form
of Tracker labels.
OP-ID-IACP REGISTRATION SERVICE. Tracker is offering its basic service
to the former members of Operation ID, previously managed by the International
Association of Chiefs of Police, in a special two year program at an
introductory discounted price.
ASSET MANAGEMENT. Tracker offers businesses a simpler method to
inventory and keep track of their fixed assets by providing on-site service for
data collection and off-site service for inventory management and recovery. The
Company provides confidential identification, recovery and asset management
services by linking the label on a corporation's physical assets to the
Company's worldwide 24 hour recovery network, dispatching mobile scanning
technicians on-site, and providing reporting "on-demand." This reduces the
in-house inventory control burden and provides a simpler method of tracking
changes in a company's physical assets inventory.
-30-
<PAGE> 31
LASER ETCHING THE TRACKER RECOVERY INSIGNIA. In order to push demand
through to retail level consumer purchase and registration of marked products,
the Company is encouraging the volume purchase by manufacturers of licenses for
"Recovery Insignia" laser etching on consumer products at point of manufacture
with PDF 417 capable laser drivers. Currently, the Company does not have a
contract with any manufacturers to laser etch the Company's coding or to
directly apply the coding at the source of manufacture using any other method.
There can be no assurance that the Company will be able to expand successfully
its service in this fashion.
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:
<TABLE>
<CAPTION>
Number of
Subscribers Per Capita Amount
----------- -----------------
<S> <C>
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)
</TABLE>
GENERAL
During the nine months ended December 31, 1996, the Company incurred a
net loss of $3,095,799 and, at the end of such period, had an accumulated
deficit of $16,298,537. The Company expects to continue to incur losses through
at least March 31, 1997. From the date of inception (May 6, 1993) through
December 31, 1996, the Company had realized revenues of $1,011,954. Although the
Company has begun to achieve ongoing significant cash flows from sales of
approximately $150,000 per month from January 1996 to June 1996, $400,000 per
month from July 1996 to September 1996 and approximately $800,000 since
September 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 December 31, 1996 the amount of deferred
revenue (current and long term) was $3,486,157 compared with $294,124 as at
March 31, 1996.
-31-
<PAGE> 32
Company is continuing to develop its website on the internet under the
address "WWW.TRACKER.COM" which will enable clients, subscribers, suppliers,
shareholders, brokers and investors, access to information about the Company and
its current activities on a 24 hour basis. The Company's website was operational
at the end of November 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995.
Cash sales for the third quarter ended December 31, 1996 increased to
$2,374,011 as compared to $26,422 a year ago. Since the Company recognizes these
cash sales on a straight-line basis over the term of service offered, recorded
revenues for the third quarter ended December 31, 1996 increased 2700% to
$651,357 as compared to $22,932 a year ago, while recorded revenues for the nine
months ended December 31, 1996 increased 1230% to $895,245 as compared to
$67,198 a year ago. The increase in the third quarter and nine months revenues
was due primarily to the increase in sales of the Company's Card Registration
service.
<TABLE>
<CAPTION>
3rd Qtr Dec 31, YTD (9 mths) Dec 31,
------------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Sales $ 2,374,011 $ 26,422 $ 4,084,640 $ 151,073
Revenue $ 651,357 $ 22,932 $ 895,245 $ 67,198
Net Income(losses) $ (872,865) $(1,556,807) $(3,095,799) $(4,690,709)
</TABLE>
During the nine months ended December 31, 1996, the Company incurred a
net loss of $3,095,799 as compared to a net loss of $4,690,709 for the nine
months ended December 31, 1995. These losses included total development costs in
the amount of $3,430,629 for the nine months ended December 31, 1996 as compared
to $4,729,475 for the nine months ended December 31, 1995. Included in the
deficit for the nine months ended December 31, 1996 are non-operating
expenditures in the amount of (1) $203,328 in interest expense incurred as a
result of raising capital through convertible debentures; (2) $199,336 relating
to legal, audit and printing fees for the filing of the Registration Statement
on Form S-1, and amendments thereto; (3) $472,956 reflecting non-cash outlays
which included (a) $454,326 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 celebrity spokesperson,
Angie Dickinson, and (b) $18,630 associated with the services provided under the
Amerasia contract; (4) $43,422 for a reserve provision on the Company's short
term investment; and (5) $91,592 associated with the non-cash outlay relating to
the issuance of 378,232 shares of Common Stock to outside consultants as payment
in lieu of fees.
In November 1996, the Company opened a processing and fulfillment
center in Atlanta, Georgia. The decision to expand to Atlanta was made to help
facilitate the Company's growth plans by increasing operations currently housed
in Toronto and manage and operate the Company's fulfillment and card processing
functions.
-32-
<PAGE> 33
In December 1996, the Company entered into an agreement to end its
relationship with Knickerbocker. The Company received 400,000 of the 800,000
restricted common shares back from Knickerbocker. These shares were immediately
canceled in treasury. As a result, the Company made an $166,666 credit
adjustment to sales and marketing expenses in December 1996 and is reflected in
the Consolidated Statement of Operations.
The Company is continuing in its efforts to minimize its operating cash
"burn" rate and has reduced its expenditures by an additional 30% when comparing
the nine months ended December 31, 1996 to nine months ended December 31, 1995.
The reader should note that the Company has generated on average approximately
$800,000 per month gross sales (i.e. earned and deferred) since September 30,
1996. Although no assurances can be given, management expects the sales trend to
continue for the next 12 months and anticipates exceeding the break-even point
within the next 2 quarters.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through December 31, 1996, the Company
has received approximately $10,445,040 in net cash from financing activities,
some of which activities are noted below.
During the nine months ended December 31, 1996, the Company's net cash
used in operations was $584,990 as compared to $3,191,282 for the nine months
ended December 31, 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 December 31, 1996, the Company had total current assets of
$2,648,150 as compared to $665,102 at March 31, 1996. Current assets consisted
of cash in the amount of $163,363 as of December 31, 1996 as compared to $78,844
at March 31, 1996, short-term investments in the amount of $177,768 as of
December 31, 1996 as compared to $221,190 at March 31, 1996, accounts receivable
in the amount of $77,115 as of December 31, 1996 as compared to $7,361 at March
31, 1996, prepaid expenses and deposits in the amount of $238,542 as of December
31, 1996 as compared to $168,345 at March 31, 1996, inventories in the amount of
$80,421 as of December 31, 1996 as compared to $115,612 at March 31, 1996, and
current deferred charges in the amount of $1,910,941 as of December 31, 1996 as
compared to $73,750 at March 31, 1996. As of December 31, 1996, the Company had
amount due from stockholders in the amount of $60,725 as compared to $58,226 at
as of March 31, 1996, long-term deferred charges totaling $408,133 as compared
to $66,234 at March 31, 1996, net fixed assets totaling $349,226 as compared to
$353,729 at March 31, 1996, and long-term investments in the amount of $nil as
compared to $50,451 at March 31, 1996. As of December 31, 1996, the Company had
liabilities of $4,653,124 as compared to $2,393,631 at March 31, 1996. Such
liabilities consisted of accounts payable in the amount of $657,441 as of
December 31, 1996 as compared to $551,553 at March 31, 1996, accrued liabilities
in the amount of $382,952 as of December 31, 1996 as compared to $266,837 at
March 31, 1996, deferred revenues in the amount of $2,815,015 as of December 31,
1996 as compared to
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<PAGE> 34
$115,241 at March 31, 1996, debentures in the amount of $114,808 as of December
31, 1996 as compared to $nil at March 31, 1996, and convertible subordinated
debentures in the amount of $682,908 as of December 31, 1996 as compared to
$1,460,000 at March 31, 1996. The Company had long-term deferred revenues in the
amount of $671,142 as of December 31, 1996 as compared to $178,883 at March 31,
1996.
The increased sales activity of the Company, has caused material
changes to the Company's, long-term deferred charges and long-term deferred
revenues. During the nine months ended December 31, 1996, the Company has
experienced the fastest rate of growth in terms of sales activity with respect
to sales of its card registration service. For the nine month period ended
December 31, 1996, the Company had experienced sales activity at approximately
the following amounts: card registration service - $3,997,399, and all other
personal property identification and recovery services - $87,243. Although there
can be no assurance that the Company's sales will increase or that these trends
will continue, management believes that sales activity will continue to grow at
least at its current pace for the next 12 months.
As of December 31, 1996 and March 31, 1996, respectively, the Company
had accumulated deficits of $16,298,537 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 1,050 shares of Preferred
Stock for $1,050,000 during April, May and August 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
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<PAGE> 35
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 $177,768 (which is
the Company's original cost of $220,110 (CDN $1.04 per share) less a 20% reserve
provision), 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.
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 from sales of
approximately $150,000 per month from January 1996 to June 1996, $400,000 per
month from July 1996 to September 1996, and approximately $800,000 per month
since September 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
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<PAGE> 36
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 next twelve months.
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 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
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<PAGE> 37
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.
In October 1996, the Company sold its interest in Centry for $37,037 as
management wished to keep focused on its core businesses and Centry did not fit
into future plans. See Note 9 - Long-Term Investment in the consolidated
financial statements for December 31, 1996.
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 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.
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<PAGE> 38
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
EXHIBITS
Exhibit 27 is the only exhibit filed with this report Form 10-Q for the
three months ended December 31, 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
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
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<PAGE> 39
10.7++++ Lease dated October 18, 1993 between The Dundas/Edward Center
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.
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
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<PAGE> 40
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
10.33* Services Agreement and Registration Rights Agreement and
Options Agreement dated July 10, 1996 between the Registrant
and Merchant Partners, L.P.
10.34++++ 1996 Stock Wage and Fee Payment Plan.
10.35++++ Employment Agreement dated September 24, 1996 between the
Registrant and I. Bruce Lewis.
10.36++++ Employment Agreement dated September 24, 1996 between the
Registrant and Mark J. Gertzbein
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) and amendments thereto.
* 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 December 31, 1996, the Registrant did not file
any reports on Form 8-K.
-40-
<PAGE> 41
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: February 10, 1997
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Mark J. Gertzbein
----------------------------------------
Mark J. Gertzbein, Secretary and
Treasurer
(Principal Accounting and Financial
Officer)
-41-
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