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 September 30, 1997
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 [ ]
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 October 31, 1997, the Registrant had outstanding 19,879,456 shares
of common stock, par value $0.001 per share, and 2,537,484 shares of the
Registrant's Class B voting common stock, no par value.
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 September 30, 1997, and
March 31, 1997, and the related consolidated statements of operations for the
three and six month periods ended September 30, 1997 and 1996, respectively, and
the consolidated shareholders' equity (deficit) for the six month period ended
September 30, 1997, and for the period from inception (May 6, 1993) through
September 30, 1997 and consolidated statement of cash flows for the six month
period ended September 30, 1997 and 1996, respectively, and for the period from
inception (May 6, 1993) through September 30, 1997. The consolidated financial
statements are unaudited but, in the opinion of management of the Registrant,
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 consolidated 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, 1997.
THE TRACKER CORPORATION OF AMERICA
( A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------------- ----------
( Unaudited) ( Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $107,568 $105,213
Short-term investment -- --
Accounts receivable 88,379 133,613
Prepaid expenses and deposits 591,800 359,526
Inventory 103,339 24,338
Deferred charges 3,232,082 2,820,064
--------- ---------
Total current assets 4,123,168 3,442,754
========= =========
Due from shareholders 63,040 61,487
Deferred charges 198,220 315,837
Property and equipment (net) 554,668 418,267
Long-term investment -- --
---------- ----------
Total assets $4,939,096 $4,238,345
Liabilities & Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $605,358 $468,764
Accrued liabilities 310,550 373,687
Deferred revenue 5,784,491 4,509,401
Debenture payable 31,809 83,991
Convertible debentures 475,790 590,746
--------- ---------
Total current liabilities 7,207,998 6,026,589
Deferred revenue 513,309 613,131
Commitments (Note 10) -- --
Shareholders' equity (deficit)
$1000 6% Convertible preferred stock, $.001 par value, 500,000 shares
authorized, Nil (Nil - March 31, 1997) shares issued and outstanding -- --
Common stock, $.001par value, 30,000,000 shares authorized,
18,581,823 (15,925,505 - March 31, 1997) shares issued and outstanding 14,238 15,925
Class B voting common stock, $0.00000007 par value, 20,000,000
shares authorized, 2,622,484 (4,862,537 - March 31, 1997) issued
and outstanding -- --
Paid-in capital 15,270,484 15,207,895
Other capital (368,779) (394,333)
Accumulated deficit (17,349,496) (16,910,816)
Cumulative translation adjustment (348,658) (320,046)
------------ ------------
Total shareholders' equity (deficit) (2,782,211) (2,401,375)
------------ ------------
Total liabilities and shareholders' equity (deficit) $4,939,096 $4,238,345
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
THE TRACKER CORPORATION OF AMERICA
( A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From Inception
For the period ending ( May 6, 1993)
---------------------------------------------------------------- through
3 months ending September 30, 6 months ending September 30, 30-Sep-97
----------------- --------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 2,939,050 $ 178,016 $ 5,152,710 $ 243,888 $ 7,617,588
Cost of sales 2,121,831 101,062 3,781,874 114,607 5,457,555
-------------- ---------- -------------- ---------- -----------
Gross profit 817,219 76,954 1,370,836 129,281 2,160,033
-------------- ---------- -------------- ---------- -----------
Development Costs
Operational 247,786 141,747 485,330 285,830 2,555,013
Information systems 89,662 58,525 189,995 119,070 1,365,493
Sales and marketing 62,529 218,438 171,752 782,121 4,452,695
General and administrative 509,950 618,466 962,439 1,165,194 11,136,328
-------------- ---------- -------------- ---------- -----------
Total development costs 909,927 1,037,176 1,809,516 2,352,215 19,509,529
-------------- ---------- -------------- ---------- -----------
Net profit (loss) applicable to common stock $ (92,708) $ (960,222) $ (438,680) $(2,222,934) $ (17,349,496)
============== =========== =============== =========== =============
Profit (Loss) per share of common stock $ (0.004) $ (0.060) $ (0.021) $ (0.154) $ (1.572)
============== =========== =============== =========== =============
Weighted average number of shares
outstanding 21,092,036 15,995,255 20,983,300 14,434,789 11,038,493
============== =========== =============== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
From inception
( May 6, 1993)
For 6 months ended September 30, through
September 30,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ (438,680) $ (2,222,934) $ (17,349,496)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 97,410 56,182 464,536
Loss on sale of long-term investment - - 13,414
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 86,456 994,668 5,204,730
Changes in assets and liabilities:
Prepaid expenses and deposits (232,274) 108,983 (609,073)
Accounts receivable 45,234 (119,230) (88,379)
Short-term investment - 21,201 -
Inventory (79,001) 32,059 (103,339)
Deferred charges (294,401) (899,140) (3,430,302)
Deferred revenue 1,175,268 1,467,354 6,297,800
Accounts payable and accrued liabilities 73,458 (90,548) 930,554
------------ ------------ -------------
Net cash from (used in) operating activities 433,470 (651,405) (8,669,555)
------------ ------------ -------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (242,831) (18,739) (1,027,464)
Loan to shareholders - (1,746) (417,899)
Repayment of loans to shareholders - - 356,412
Note receivable - - (200,317)
Repayment of note receivable - - 200,317
Long-term investment - - (2,301,372)
Unwind of long-term investment - - 2,287,958
------------ ------------ -------------
Net cash from (used in) investing activities (242,831) (20,485) (1,102,365)
------------ ------------ -------------
Cash flows from (used in) financing activities:
Issuance of common shares - - 8,922,530
Issuance of preferred shares - 1,050,000 1,050,000
Issuance of convertible subordinated debentures - - 2,189,529
Repayment of debentures and convertible subordinated debentures (167,138) - (297,401)
Due to shareholder - - -
Repayment to shareholder - - -
Share issue costs - (224,741) (1,684,735)
------------ ------------ -------------
Net cash from (used in) financing activities (167,138) 825,259 10,179,923
------------ ------------ -------------
Effect of exchange rate changes (21,146) (69,934) (300,435)
Increase (decrease) in cash and cash equivalents during 2,355 83,435 107,568
the period
Cash and cash equivalents, beginning of period 105,213 78,844 -
------------ ------------ -------------
Cash and cash equivalents, end of period $ 107,568 $ 162,279 $ 107,568
============ ============ =============
</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.
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
SHARES AMOUNTS
----------------------------- ------------------------------------------
Paid-in
Class B Capital in
Preferred Common Common Preferred Common Excess Other
Stock Stock Stock Stock Stock of Par Capital
----------------------------- ------------------------------------------
<S> <C> <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 9-x) (Cash - $Nil) 60,871 324,344
Share issue costs (466,142)
Translation adjustment
Net loss
---------------------------- -----------------------------------------
Balance at March 31, 1994 6,034,886 -- -- 4,572,390 --
---------------------------- -----------------------------------------
Shares issued for cash (Cash - $1,175,797) 234,517 1,175,797
Shares issued in lieu of rent (note 9-x) (Cash - $Nil) 5,777 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219 739 (639)
Shares issued from Regulation S offering (including
79,658 shares at $7 per share for consulting services and
3,571 shares at $5.50 per share for the purchase of fixed
assets) (Cash -$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent to March 31,
1995 (819,459)
Shares issued for consulting and marketing services
(Cash-$Nil) 825,000 78,005 825 2,204,153
Less: consulting and marketing services not yet received (814,583)* (815) (2,086,685)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500,000 500 349,500
Shares issued to employees for employment services
(note 9-x) (Cash-$Nil) 25,063 74,409
Share issue costs (779,495)
Translation adjustment (159,026)
Net loss
---------------------------- -----------------------------------------
Balance at March 31, 1995 -- 2,109,636 6,378,248 -- 2,109 9,707,617 (2,086,685)
---------------------------- -----------------------------------------
<CAPTION>
Amounts
----------------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
----------------------------------------------------
<S> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) $ -- $ -- $ --
Shares issued for cash (Cash - $4,714,188) 4,714,188
Shares issued in lieu of rent (note 9-x) (Cash - $Nil) 324,344
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
---------------------------- ----------------------
Balance at March 31, 1995 (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 9-x) (Cash - $Nil) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 100
Shares issued from Regulation S offering (including
79,658 shares at $7 per share for consulting services and
3,571 shares at $5.50 per share for the purchase of fixed
assets) (Cash -$1,505,000) 2,901,700
Share proceeds to be received subsequent to March 31,
1995 (819,459)
Shares issued for consulting and marketing services
(Cash-$Nil) 2,204,978
Less: consulting and marketing services not yet received (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 350,000
Shares issued to employees for employment services
(note 9-x) (Cash-$Nil) 74,409
Share issue costs (779,495)
Translation adjustment (159,026)
Net loss (5,068,583) (5,068,583)
---------------------------- ----------------------
Balance at March 31, 1995 (7,112,008) 222,909
---------------------------- ----------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
===============================================================================
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
---------------------------------- -------------------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess Other
Stock Stock Stock Stock Stock of Par Capital
---------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ - $ - $ 819,459 $ -
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 14,582* 14 87,486
before March 31, 1995 (note 9-x) (Cash - $ Nil)
Marketing services received re shares issued 266,664* 265 666,400
to LL Knickerbocker Co. (Cash - $ Nil)
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 98,858 99 86,402
Shares issued to Amerasia for marketing services
(note 9-x) (Cash - $Nil) 30,000 44,496
Less: services not yet received (12,500)* (18,630)
Shares cancelled (Cash - $Nil) (171) 1 (1)
Shares issued pursuant to S-8 for employees,
consultants and a director (Cash - $Nil) 770,000 770 769,230
Less: employment and consulting services not
yet received (340,939)* (341) (340,598)
Shares issued to R. Zuk (Cash - $83,000) 200,000 200 199,800
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement
(Cash - $250,000) 250,000 250 249,750
Shares issued upon exercise of warrants at Canadian
$1 per share (Cash - $619,166) 849,803 619,166
Shares issued to officers (note 9-iiii(a))
(Cash - $Nil) 630,000 630 826,245
Shares issued to a consultant (note 9-x)
(Cash - $Nil) 7,500 8 9,836
Shares issued for investor relation services
(note 9-v) (Cash - $Nil) 200,000 200 262,300
Less: services not yet received (200,000)* (200) (262,300)
Shares issued to employees for employment
services (note 9-x) (Cash - $Nil) 14,176 22,716
Shares exchanged as per exchange agreement
(Cash - $Nil) 1,133,365 (1,133,365) 1,134 (1,134)
Shares issued for conversion from debenture
holders (Cash -$Nil) 991,434 992 728,537
Share issue cost from April 1, 1995 to
March 31, 1996 (214,357)
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
---------------------------------- -------------------------------------------
Balance as at March 31, 1996 - 6,130,929 6,126,362 $- $6,131 $14,013,062 $(1,954,327)
---------------------------------- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Amounts
--------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
--------------------------------------------
<S> <C> <C> <C>
Share proceeds received re Regulation S offering
made before March 31, 1995 (Cash - $225,280) $ - $ - $ 819,459
Consulting services received re shares issued
before March 31, 1995 (note 9-x) (Cash - $Nil) 87,500
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) 666,665
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 86,501
Shares issued to Amerasia for marketing
services (note 9-x) (Cash - $Nil) 44,496
Less: services not yet received (18,630)
Shares cancelled (Cash - $Nil) -
Shares issued pursuant to S-8 for employees,
consultants and a director (Cash - $Nil) 770,000
Less: employment and consulting services not
yet received (340,939)
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement
(Cash - $250,000) 250,000
Shares issued upon exercise of warrants at
Canadian $1 per share (Cash - $619,166) 619,166
Shares issued to officers (note 9-iiii(a))
(Cash - $Nil) 826,875
Shares issued to a consultant (note 9-x)
(Cash - $Nil) 9,844
Shares issued for investor relation services
(note 9-v) (Cash - $Nil) 262,500
Less: services not yet received (262,500)
Shares issued to employees for employment
services (note 9-x) (Cash - $Nil) 22,716
Shares exchanged as per exchange agreement
(Cash - $Nil) -
Shares issued for conversion from debenture
holders (Cash -$Nil) 729,529
Share issue cost from April 1, 1995 to
March 31, 1996 (214,357)
Translation adjustment 47,224
Net loss from April 1, 1995 to March 31, 1996 (6,090,730) (6,090,730)
--------------------------------------------
Balance as at March 31, 1996" - "6,130,929 " "6,126, $(240,900) $(13,202,738) $(1,378,772)
--------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
---------------------------------- -------------------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess Other
Stock Stock Stock Stock Stock of Par Capital
---------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) 133,336* $ - $ 135 $ (999,600) $1,332,800
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 34,445 34 15,466
Marketing services received from Amerasia
(note 9-x) (Cash - $Nil) 5,000 (11,124) 18,630
Employment and consulting services and
Directors' fees received re S-8 (Cash - $Nil) 1,740,938* 1,741 316,054 340,598
Shares issued for conversion from debenture
holders (note 9-ix) (Cash -$Nil) 1,433,443 " 1,434 653,566
Preferred shares issued from private
placement (Cash - $1,050,000) 1,050 1 1,049,999
Common shares issued for conversion from
preferred stockholder (Cash - $Nil) (1,050) 4,365,136 (1) 4,364 (4,363)
Shares exchanged as per exchange agreement
(Cash - $Nil) 1,268,825 (1,268,825) 1,269 (1,269)
Shares issued to employees for employment services
(note 9-x) (Cash-$Nil) 26,000 26 12,474
Shares issued for consulting services (note 9-x)
(Cash-$Nil) 208,250 208 49,634
Shares issued in lieu of finder fee for debenture
holders (note 9-x) (Cash -$Nil) 52,906 53 52,853
Shares issued in lieu of finder fee for preferred
stockholders (note 9-x) (Cash -$Nil) 112,500 113 44,887
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 333,272 332 87,668
Shares issued for office rental expense ( Cash $ Nil) 615,780 616 153,329
Less: rental expense not yet amortized (530,255)* (531) (132,034)
Share issue cost from April 1, 1996 to
March 31, 1997 (224,741)
Translation adjustment
Net loss from April 1, 1996 to
March 31, 1997
---------------------------------- -------------------------------------------
Balance as at March 31, 1997 - 15,925,505 4,862,537 $ - $15,925 $15,207,895 $(394,333)
================================== ===========================================
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 35,714 36 9,964
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 17,105 17 4,259
Translation adjustment
Net loss from April 1, 1997
to April 30, 1997"
---------------------------------- -------------------------------------------
Balance as at March 31, 1997" - 15,978,324 4,862,537 $ - $15,978 $15,217,859 $(390,074)
================================== ===========================================
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 43,478 43 9,957
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 17,105 17 4,259
Translation adjustment
Net loss from May 1, 1997 to May 31, 1997
---------------------------------- -------------------------------------------
Balance as at May 31, 1997 - 16,038,907 4,862,537 $ - $16,038 $15,227,816 $(385,815)
================================== ===========================================
<CAPTION>
Amounts
--------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
--------------------------------------------
<S> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) $ - $ - $ 333,335
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 15,500
Marketing services received from Amerasia
(note 9-x) (Cash - $Nil) 7,506
Employment and consulting services and Directors'
fees received re S-8 (Cash - $Nil) 658,393
Shares issued for conversion from debenture
holders (note 9-ix) (Cash -$Nil) 655,000
Preferred shares issued from private placement
(Cash - $1,050,000) 1,050,000
Common shares issued for conversion from preferred
stockholder (Cash - $Nil) -
Shares exchanged as per exchange agreement
(Cash - $Nil) -
Shares issued to employees for employment
services (note 9-x) (Cash-$Nil) 12,500
Shares issued for consulting services (note 9-x)
(Cash-$Nil) 49,842
Shares issued in lieu of finder fee for debenture
holders (note 9-x) (Cash -$Nil) 52,906
Shares issued in lieu of finder fee for preferred
stockholders (note 9-x) (Cash -$Nil) 45,000
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 88,000
Shares issued for office rental expense
( Cash $ Nil) 153,945
Less: rental expense not yet amortized (132,565)
Share issue cost from April 1, 1996 to
March 31, 1997 (224,741)
Translation adjustment (79,146) (79,146)
Net loss from April 1, 1996 to March 31, 1997 (3,708,078) (3,708,078)
-----------------------------------------
Balance as at March 31, 1997 $(320,046) $(16,910,816) $(2,401,375)
=========================================
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 10,000
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 4,276
Translation adjustment 25,781 25,781
Net loss from April 1, 1997
to April 30, 1997 (153,560) (153,560)
-----------------------------------------
Balance as at April 30, 1997 $(294,265) $(17,064,376) $(2,514,878)
=========================================
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 10,000
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 4,276
Translation adjustment 3,977 3,977
Net loss from May 1, 1997 to May 31, 1997 (108,266) (108,266)
-----------------------------------------
Balance as at May 31, 1997 $(290,288) $(17,172,642) $(2,604,891)
=========================================
</TABLE>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
---------------------------------- -------------------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess Other
Stock Stock Stock Stock Stock of Par Capital
---------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 56,180 57 9,943
Shares issued for office rental expense ( note 9-x)
( Cash $ Nil) 17,105 17 4,259
Translation adjustment
Net loss from June 1, 1997 to June 30, 1997
---------------------------------- -------------------------------------------
Balance as at June 30, 1997 - 16,112,192 4,862,537 $ - $16,112 $15,237,759 $(381,556)
---------------------------------- -------------------------------------------
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) - 62,500 63 9,937
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 17,105 17 4,259
Shares exchanged as per exchange agreement
(Cash - $Nil) 32,143 (32,143) 32 (32)
Translation adjustment
Net loss from July 1, 1997 to July 31, 1997
---------------------------------- -------------------------------------------
Balance as at July 31, 1997 - 16,223,940 4,830,394 $ - $16,224 $15,247,664 $(377,297)
---------------------------------- -------------------------------------------
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 56,818 57 9943 10,000
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 17,105 17 4259
Shares exchanged as per exchange agreement
(Cash - $Nil) 35,814 (35,814) 36 (36)
Shares issued to employee for employment
services (note-x) 4,000 4 796
Translation adjustment
Net Profit (loss) from August 1, 1997 to
August 31, 1997
---------------------------------- -------------------------------------------
Balance as at August 31, 1997 - 16,337,677 4,794,580 $ - $16,338 $15,258,367 $(373,038)
---------------------------------- -------------------------------------------
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 54,945 55 9,945
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 17,105 17 4,259
Shares exchanged as per exchange agreement
(Cash - $Nil) 2,172,096 (2,172,096) (2,172) 2,172
Translation adjustment
Net Profit (loss) from September 1, 1997 to
September 30, 1997
---------------------------------- -------------------------------------------
Balance as at September 30, 1997 - 18,581,823 2,622,484 $ - $14,238 $15,270,484 $(368,779)
---------------------------------- -------------------------------------------
<CAPTION>
Amounts
--------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Adjustment Stage Total
--------------------------------------------
<S> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 10,000
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 4,276
Translation adjustment (4,327) (4,327)
Net loss from June 1, 1997 to June 30, 1997 (84,146) (84,146)
--------------------------------------------
Balance as at June 30, 1997 $(294,615) $(17,256,788) $(2,679,088)
--------------------------------------------
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 10,000
Shares issued for office rental expense
( note 9-x) ( Cash $ Nil) 4,276 8,552
Shares exchanged as per exchange agreement (Cash - $Nil) -
Translation adjustment 360 360
Net loss from July 1, 1997 to July 31, 1997 (10,368) (10,368)
--------------------------------------------
Balance as at July 31, 1997 $(289,979) $(17,267,156) $(2,670,544)
--------------------------------------------
Shares issued pursuant to W.Marches S-8 stock payment
plan (note 9-xii) 10,000
Shares issued for office rental expense ( note 9-x)
( Cash $ Nil) 8,552
Shares exchanged as per exchange agreement
(Cash - $Nil) -
Shares issued to employee for employment services (note-x) 800
Translation adjustment (18795) (18,795)
Net Profit (loss) from August 1, 1997 to August 31, 1997 1,308 1,308
--------------------------------------------
Balance as at August 31, 1997 $(304,498) $(17,265,848) $(2,668,679)
--------------------------------------------
Shares issued pursuant to W.Marches S-8 stock payment
plan (note 9-xii) 10,000
Shares issued for office rental expense ( note 9-x)
( Cash $ Nil) 4,276
Shares exchanged as per exchange agreement (Cash - $Nil) -
Translation adjustment (44,160) (44,160)
Net Profit (loss) from September 1, 1997 to
September 30, 1997 (83,648) (83,648)
--------------------------------------------
Balance as at September 30, 1997 $(348,658) $(17,349,496) $(2,782,211)
--------------------------------------------
</TABLE>
"(*) 627,625 common shares have been subscribed for but remain unissued as at
September 30, 1997"
The accompanying notes are integral parts of these consolidated financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company believes that 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, the risk of an adverse
result in a patent infringement case pending against the Company and the risk
that third parties may assert infringement claims against the Company in the
future; the risk that the Company may not be able to compete with existing or
new competitors; the risks inherent in international operations; and other risks
detailed in this Report and in the Company's other filings with the Securities
and Exchange Commission.
There can be no assurance that the forward-looking information contained
in this Report will prove to be accurate. The risks and uncertainties discussed
above increase the uncertainty inherent in such forward-looking information.
Accordingly, there may be differences between the actual results or plans and
the predicted results or plans. Actual results or plans may be materially
different than those indicated in the forward-looking information contained in
this Report.
Overview
Prior to the Reorganization effective July 12, 1994, Tracker U.S. (then
Ultra Capital Corp.) had been inactive for the preceding several years and had
conducted no significant operations or activities. Tracker Canada, which
originated the present line of business, had its inception on May 6, 1993.
During the period from inception to September 30, 1994, the Company was engaged
in organizational efforts, including the hiring of technical and management
personnel. During that time, the Company focused on the research and
development of advanced bar code and laser scanning technology, entered into
agreements or understandings with key suppliers, prepared the business and
marketing plan, programmed the software and filed for patent and trademark
protection in Canada and the United States. The Company is a development stage
company that has developed and begun to market, sell and operate a personal
property identification and recovery system and, until recently, 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
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.,
Schwinn Cycling & Fitness Inc., Samsonite Canada, Inc.), network referral
marketers (i.e., Tracker Referral Network International, Inc. selling home-based
business opportunities utilizing the Company's products and services) and, until
recently, outbound telemarketing (i.e., credit card protection program).
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. To date, the Company has made over 150 successful recoveries
of its members' personal possessions. In addition, although the Company's
service is not predicated on reports of losses, the Company encourages its
members to notify the Company of any such losses.
Another aspect 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 Tracker labels or laser-etched insignia in the
marketplace, the Company hopes to establish a de facto "identification"
standard. The Company believes that this can be done if (1) the distribution of
Tracker labels or laser-etched insignia 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 Tracker labels or laser-etched insignia to establish a
leading and sustainable market position or that the Company will be able to
establish credibility and confidence in the marketplace.
The Company's long-term strategy is to become a name-brand global
"Information Company" making its insignia a powerful informational tool for
manufacturers, distributors and retailers by becoming (i) the name-brand
provider of property and inventory control for individuals, businesses and
organizations, and (ii) the branded product consumers think of when looking for
the added assurance of protection provided by a property identification and
recovery system. There can be no assurance, however, that the Company will be
able to achieve its long-term strategy. Ultimately, if successful, the Company
could offer a complete outsourcing service for the following:
1. Inventorying property of individuals and organizations
2. Monitoring and controlling inventory distribution channels from
manufacturer to final consumer purchase
3. Monitoring and controlling the date individual items are sold by
retailers to their final customers and the exact expiration of
warranty obligations relating to each individual product sold
4. Providing customers with a value-added service by marking
individual items with their own unique identifying alphanumeric
bar code that is registered at Tracker with identifying ownership
data in order to aid in the recovery of property that may be lost
or stolen and recovered
Typical products amenable to utilizing Tracker's service include
(i) high dollar value items such as laptop computers, cellular telephones,
cameras, luggage, electronic goods and sports equipment; (ii) items frequently
transported including calendars, day-timers, electronic organizers and key
chains; (iii) sentimental items such as photographs, family memorabilia and
children's stuffed animals; and (iv) furniture and electronic goods in high
traffic areas such as hotels, offices, airports and tourist attractions.
Discontinued Operation
The Card Registration Service. Until recently, the Company was gaining
a small market share in the card registration industry. To provide a
distinctive competitive advantage, the Company added the extra feature of its
recovery services to the list of benefits offered to members of the card
registration service. As of October 29, 1997, the Company had assisted 420
members within its credit card registration program. The Company piggybacked on
the infrastructure that it has established for its personal property
identification and recovery system and up until recently was generating a
majority of its revenue from this service. On October 29, 1997, the Company
ceased selling its credit card registration program through third party
independent outbound telemarketing firms and its own outbound telemarketing room
in Atlanta, as the effects of the Federal Trade Commission's Temporary
Restraining Order on September 12, 1997 and the subsequent Preliminary
Injunction with asset freeze on September 15, 1997, adversely impaired the
Company from continuing to offer the program. All existing card registration
members are and will continue to be fully serviced by the Company's member
services department as are regular Tracker members. For futher explanation see
Item 2. "Results of Operations" of Part I - Financial Information and Item 1.
"Legal Proceedings" of Part II - Other Information.
General
The Company has no material backlog of orders because the Company fills
orders for its personal property identification and recovery system as received
out of existing inventory.
The Company has granted, and may grant in the future, commissions and
other payments in connection with the distribution of its services. Although
such arrangements generally call for commissions or other payments only out of
sales actually made, certain arrangements call for certain guaranteed payments.
The Company's internet address "www.tracker.com" gives clients,
subscribers, suppliers, shareholders, brokers and investors access to
information about the Company and its current activities on a 24 hour basis.
In addition, the Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the SEC. Copies of such materials can be obtained by mail from the Public
Reference Section of the SEC, at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such reports and
other information can be inspected and copied at the public reference facility
referenced above and at the SEC's regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1400, New York, New York 10048. The SEC maintains a web site
(http:www.sec.gov) that contains reports and other information regarding
registrants, such as the Company, that file electronically with the SEC.
Results of Operations
Six Months Ended September 30, 1997 Compared to Six Months Ended September
30, 1996.
Cash sales for the six months ended September 30, 1997 increased to
$6,900,768 as compared to $1,709,925 a year ago. Because the Company
recognizes these cash sales on a straight-line basis over the term of service
offered, recorded revenues for the six months ended September 30, 1997 increased
2100% to $5,152,710 as compared to $243,888 a year ago. The increase in the six
month revenues was due primarily to the increase in sales of the Company's card
registration service.
Six months ended Six months ended
September 30, 1997 September 30, 1996
Cash Sales $ 6,900,768 $ 1,709,925
Revenue $ 5,152,710 $ 243,888
Net Income (loss) $ (440,757) $ (2,222,934)
During the six months ended September 30, 1997, the Company incurred a
net loss of $440,757 as compared to a net loss of $2,222,934 for the six months
ended September 30, 1996. These losses included total development costs in the
amount of $912,005 for the six months ended September 30, 1997 as compared to
$2,352,215 for the six months ended September 30, 1996. Included in the deficit
for the six months ended September 30, 1997 are non-operating expenditures in
the amount of (1) $36,953 in interest expense incurred as a result of raising
capital through convertible debentures; (2) $60,000 associated with the non-cash
outlay relating to the issuance of 309,635 shares of Common Stock to an outside
consultant as payment in lieu of fees.
On October 29, 1997, the Company ceased selling its Card Registration
program via telemarketing as the impact of the Federal Trade Commission
Temporary Restraining Order then subsequent Preliminary Injunction with asset
freeze was too great for the Company resources to overcome. As a result, the
Company lost substantially all of its sales generation capacity and within a
month it became economically prudent to cease the entire telemarketing
operation. Thus, in an effort to restructure, the Company has closed down its
Atlanta fulfillment, processing and telemarketing center and has dramatically
reduced expenses and staffing in its head office in Toronto. The Company is
currently seeking to raise additional funds through equity or debt financing in
an effort to maintain its current operating status. The Company is also
continuing to seek strategic relationships in an effort to support its strategic
marketing plans for the future of expanding its personal property identification
and recovery system. For futher explanation see Item 2. "Discontinued
Operation" of Part I -Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 1. "Legal Proceedings" of Part II -
Other Information.
During this period, the Company continued in its efforts to minimize its
operating cash "burn" rate and reduced its expenditures by an additional 23%
from $2,352,215 to $1,811,594 when comparing the six months ended September
30, 1997 to the six months ended September 30, 1996. With the cessation of
selling the credit card registration program via telemarketing as noted above,
the Company is focusing on raising the necessary working capital to maintain
operating and continue selling its personal property identification and recovery
system through various channels. No assurances can be given that the Company
will raise the necessary funding or achieve profitable results within the next
fiscal year.
Liquidity and Capital Resources
From inception at May 6, 1993 through September 30, 1997, the Company
has received approximately $10,143,189 in net cash from financing activities,
some of which activities are noted below.
During the six months ended September 30, 1997, the Company's net cash
from (used in) operations was $439,921 as compared to $(651,405) for the six
months ended September 30, 1996. The cash from (used in) operations was
generated from the increase in the cash receipts of sales in the card
registration program and was devoted primarily to funding the development of
identification and recovery systems and software, its card registration service,
labels, packaging, marketing and advertising materials and plans, the
development of a scanning network, and sales and promotional commitments.
As of September 30, 1997, the Company had total current assets of
$4,258,827 as compared to $3,442,754 at March 31, 1997. Current assets
consisted of cash in the amount of $107,568 as of September 30, 1997 as
compared to $105,213 at March 31, 1997, accounts receivable in the amount of
$88,379 as of September 30, 1997 as compared to $133,613 at March 31, 1997,
prepaid expenses and deposits in the amount of $591,800 as of September 30, 1997
as compared to $359,526 at March 31, 1997, inventories in the amount of
$103,339 as of September 30, 1997 as compared to $24,338 at March 31, 1997, and
current deferred charges in the amount of $3,367,741 as of September 30, 1997 as
compared to $2,820,064 at March 31, 1997. As of September 30, 1997, the Company
had amount due from stockholders in the amount of $63,040 as compared to $61,487
at as of March 31, 1997, long-term deferred charges totaling $211,588 as
compared to $315,837 at March 31, 1997, and net fixed assets totaling $554,668
as compared to $418,267 at March 31, 1997. As of September 30, 1997, the
Company had liabilities of $7,365,577 as compared to $6,026,589 at March 31,
1997. Such liabilities consisted of accounts payable in the amount of $773,381
as of September 30, 1997 as compared to $468,764 at March 31, 1997, accrued
liabilities in the amount of $300,106 as of September 30, 1997 as compared to
$373,687 at March 31, 1997, deferred revenues in the amount of $5,784,491 as of
September 30, 1997 as compared to $4,509,401 at March 31, 1997, debentures in
the amount of $31,809 as of September 30, 1997 as compared to $83,991 at March
31, 1997, and convertible subordinated debentures in the amount of $475,790 as
of September 30, 1997 as compared to $590,746 at March 31, 1997. The Company
had long-term deferred revenues in the amount of $513,309 as of September 30,
1997 as compared to $613,131 at March 31, 1997.
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 six months ended September 30, 1997, the Company experienced its
fastest rate of growth yet in terms of sales activity with respect to sales of
its card registration service. For the six month period ended September 30,
1997, the Company experienced sales activity at approximately the following
amounts: card registration service - $6,856,357 and all other personal property
identification and recovery services - $44,411. However, as a result of
discontinuing the selling of its credit card registration program, the Company
is currently refocusing on selling its personal property identification and
recovery system through various channels and raising the necessary working
capital through equity or debt financing. 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.
As of September 30, 1997 and March 31, 1997, respectively, the Company
had accumulated deficits of $17,351,574 and $16,910,816. To date, the Company
had primarily funded its operations through sales of its credit card
registration program and now is currently seeking capital through the
capital/debt markets.
Capital Requirements
With the cessation of its credit card registration program via
telemarketing, the Company is currently focusing on selling its personal
property identification and recovery system through various channels.
Unfortunately, the revenue stream of the personal property identification and
recovery system has a much longer selling cycle and thus the Company anticipates
that it will require additional capital in order to meet the needs for its
strategic 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 the conducting of a comprehensive
marketing 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 will have a material adverse effect on the
Company's business, operating results and financial condition.
Management's current cash projections indicate that its short term
annual funding requirements will be approximately $2 million for the next twelve
months. Longer term cash needs are anticipated to be covered by future cash
sales and capital or debt financing. There can be no assurance, however, that
the Company's actual short and long term liquidity requirements will be
consistent with management's projections. During the upcoming twelve months,
the Company plans to seek additional equity/debt financing to conduct such
activities as it is anticipated that additional capital will be needed to
enhance current cashflows.
Management is attempting to obtain additional debt or equity funding.
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.
Any failure to receive sufficient funding when needed, in sufficient amounts,
and on acceptable terms could prevent or delay the marketing, sale and operation
of the Company's personal property identification and recovery system and will
have a material adverse effect on the Company's business, operating results and
financial condition. Moreover, the report of independent accountants covering
the Company's financial statements expressed substantial doubt about its ability
to continue as a going concern because it is a development stage company and has
not yet been able to attract significant outside financing or generate
significant revenues. Failure to obtain sufficient funding on acceptable terms
could affect the Company's ability to continue as a going concern.
International Operations
In April 1997, the Company signed an exclusive licence agreement with
Executive Trading Ltd. ("Executive") pursuant to which Executive will sell the
Company's products and services on an exclusive basis in the countries of
Germany, Switzerland and Austria. The Company has recently received its first
group of orders from Executive. It is anticipated that Executive will meet its
sales targets for its first full year.
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 impact on the Company's or its exclusive
agent's ability to market its products and services on an international basis.
The Company does not engage in any hedging contracts because it receives
the majority of its cash flows in United States dollars.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K, this Item is not applicable to the
Company.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, along with Symbol Technologies, Inc. ("Symbol"), has
recently been served with a complaint filed by Datastrip (IOM) Limited
("Datastrip") in the United States District Court for the District of Delaware.
Datastrip alleges that the Company is infringing on Datastrip's U.S. Patent No.
4,782,221, relating to certain data-encoding technology allegedly developed by
Datastrip and that Symbol is inducing infringement of the patent. The complaint
seeks injunctive relief and unspecified damages. The Company and Symbol
believe, based on advice of Symbol's counsel, that they have no liability to
Datastrip and that the claim is frivolous and without merit. Symbol, the
supplier of automated card readers to the Company, has agreed to vigorously
defend itself and the Company against Datastrip's claim. Symbol, however, has
not agreed to indemnify the Company from any losses that may result from this
claim. No new developments have occurred since last reported.
On Friday, September 12, 1997, the Federal Trade Commission (the "FTC"),
in a civil action (Civil Action File No. 1:97-CV-2554-JEC) obtained a Temporary
Restraining Order ("TRO") in favor of the FTC against the Registrant. The TRO
prohibited the Registrant from selling or offering for sale credit card
registration or protection services ("Credit Card Services") to consumers in the
United States and dissipating or otherwise depleting its assets. The TRO also
required all financial institutions holding or receiving funds belonging to the
Registrant to freeze those funds. The TRO was entered on an ex parte basis,
preventing the Registrant from disputing or providing evidence adverse to the
statements made by the FTC in its application for the TRO before the TRO was
entered. On Monday, September 15, 1997, at 4:40 pm (EST) the parties executed,
and the court entered a Stipulation and Order for Preliminary Injunction with
Asset Freeze and Other Equitable Relief (the "Stipulated Order"). In the
Stipulated Order, the Registrant made no admission or denial as to the truth of
the FTC's allegations. The Stipulation Order effectively replaced and dissolved
the TRO, and the Registrant resumed selling its Credit Card Services. The
Stipulated Order provides that the Registrant may not: (1) make false or
misleading representations concerning (a) the Registrant's affiliation with a
credit card issuer, (b) the Registrant's existing business relationship with a
consumer, (c) the amount of time a consumer has to report the loss or theft of
any credit card, or (d) a consumer's liability for any unauthorized use of a
credit card; (2) failure to disclose to an inquiring consumer that federal law
limits liability to $50 per credit card for unauthorized chages and that, in
some instances, consumers have no liability for such charges; (3) refer to any
governmental agency in any contact with consumers unless required by law; or
(4) violate the FTC's Telemarketing Sales Rules. The items which the Registrant
agreed to be restrained from representing to consumers are those which the law
prohibits of all telemarketing concerns. In addition, they are items which the
Registrant routinely attempted to prevent being told to consumers by third party
independent telemarketers representing the Registrant.
The Stipulated Order also provided that the funds held by the
Registrant's banks were to continue to be frozen until such time as the Court
dissolved the Stipulated Order or the Registrant posted a performance bond in
the amount of funds held. On October 20, 1997, the Court ordered the frozen
funds to be released immediately, as the judge ruled that it was in the public's
best interest to do so. The Registrant's Atlanta litigation counsel believes
the Registrant has not violated any law or regulation regarding sales to
consumers by telephone and, therefore, the Registrant denies any wrongdoing and
intends to vigorously contest the FTC action. If the Registrant were ordered to
make or pay material amounts of restitution, damages, cost or legal fees, its
business, financial condition and results of operations may be materially and
adversely affected.
The Company is not a party to any other material litigation and is not
aware of any pending or threatened litigation that would have a material adverse
effect upon the Company's business, operating results or financial condition.
The Securities and Exchange Commission is investigating trading in the Company's
securities. The Company has no reason to believe that any activity of the
Company will result in any liability of the Company under the federal securities
laws.
ITEM 2. CHANGES IN SECURITIES
This Item is not applicable to the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of November 3, 1997, the Registrant is in default in the payment of interest
to its subordinated convertible debenture holders in the aggregate amount of
$13,612.50 and is in default in the payment of principle and interest to its
subordinated debenture holders in the aggregate amount of $102,598.53. All
subordinated convertible debenture holders and subordinated debenture holders
have been contacted by written correspondence by the Chief Executive Officer of
the Company and have been asked to be patient in awaiting for their payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
During the last quarter ended September 30, 1997, the Registrant held its annual
general meeting of shareholders' for the year ended March 31, 1997 on August
22, 1997 to vote on election of directors, a proposal to approve increase the
authorized number of shares of Common Stock and decrease the authorized number
of shares of Class B Voting Common Stock, a proposal to approve the Amendment of
the 1994 Stock Incentive Plan, and to ratify the appointment of auditors. The
matters that were voted upon at the annual general meeting of shareholders' on
August 22, 1997, and the number of votes cast for, against or withheld, as well
as the number of abstentions and broker non-votes, as to each such matter, where
applicable, are set forth in the table below:
Votes Votes Votes Abstention Broker
For Against Withheld Non-Votes
1. Election of
Directors:
I. Bruce Lewis 15,834,389 - 117,056 - -
Mark Gertzbein 15,834,389 - 11,000 - -
Leonard Yakobovits 15,834,389 - 107,556 - -
2. Proposal to approve
the Amendment of the 15,568,268 505,167 - 24,225 -
Certificate of the
Corporation
3. Proposal to approve
the Amendment of the 8,887,670 607,927 - 174,357 -
1994 Stock Incentive
Plan
4. Ratification of the
appointment of Price 15,893,235 196,000 - 8,425 -
Waterhouse as
Independent Auditors
ITEM 5. OTHER INFORMATION
On October 31, 1997, Quincy A.S. McKean III resigned as a director of
the Registrant citing personal reasons. On November 3, 1997, Mr. Ed Korhonen
resigned as a director of the Registrant citing personal reasons. With these
two resignations, only Mr. I. Bruce Lewis remains as a director of the
Registrant and currently is attempting to find adequate replacements for the
Board of Directors.
On October 21, 1996, Amendment No. 4 to the Company's Registration
Statement on Form S-1 was declared effective by the Securities and Exchange
Commision. Pursuant to the terms of the Reorganization Agreement, the Company
was to exercise its best efforts to maintain the effectiveness of such
registration statement for one year. As this one year period has now expired,
Selling Securityholders are advised to consult with counsel as to their ability
to sell the shares, it currently holds from the registration statement, in
accordance with applicable state and provincial or territorial laws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
No exhibits are filed with this report Form 10-Q for the three months ended
September 30, 1997.
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
10.7 (++++)
Lease dated October 18, 1993 between The Dundas/Edward Centre Inc. and
The Tracker Corporation
10.8 (++++)
Corporate Relations Agreement dated February 24, 1994 between Corporate
Relations Group, Inc. and The Tracker Corporation, as amended by letter
agreement dated January 16, 1995 and by Amendment to Corporate
Relations and Marketing Agreement dated June 22, 1995
10.9 (++++)
Consulting arrangement with Gregg C. Johnson effective August 12, 1995
10.10 (++++)
Right of First Refusal, Co-Sale and Voting Agreement dated March 14,
1994 between The Tracker Corporation, Stalia Holdings B.V., I. Bruce
Lewis, MJG Management Accounting Services Ltd., Spire Consulting Group,
Inc., 1046523 Ontario Limited, Mark J. Gertzbein, Gregg C. Johnson and
Jonathan B. Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994 (contained in Exhibit 9.2)
10.11 (++++)
Stock Option Agreement dated March 14, 1994 between The Tracker
Corporation and Stalia Holdings B.V., as confirmed by letter dated June
22, 1994
10.12 (++++)
Letter from DHL International Express Ltd to The Tracker Corporation
dated March 8, 1994
10.13 (++++)
Agreement dated September 1994 between The Tracker Corporation and
Purolator Courier Ltd.
10.14 (++++)
National Account Agreement dated September 15, 1994 between Mail Boxes
Etc. USA, Inc. and the Registrant, as amended by Amendment to National
Account Agreement dated September 14, 1994
10.15 (++++)
Letter agreement dated March 15, 1995 between The Tracker Corporation
and Black Photo Corporation, as amended by facsimile amendment dated
March 4, 1995
10.16 (++++)
Letter agreement dated September 14, 1995 between The Tracker
Corporation and Amerasia International Holdings Limited
10.17 (++++)
Letter Agreement dated August 31, 1995 between The Tracker Corporation
and Tokai Boeki Co. Ltd.
10.18 (++++)
Letter agreement dated October 5, 1993 between The Tracker Corporation
and Symbol Technologies, Inc., as amended by letter from The Tracker
Corporation to Symbol Technologies Canada, Inc. dated November 23,
1995, and letter from Symbol Technologies Canada, Inc. to The Tracker
Corporation dated November 27, 1995
10.19 (++++)
Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the
Tracker Corporation
10.20 (++++)
Exchange Agency and Trust Agreement dated July 12, 1994 among Ultra
Capital Corp. (the predecessor of the Registrant), The Tracker
Corporation and Montreal Trust Company of Canada
10.21 (++++)
Guarantee Agreement dated July 12, 1994 between Ultra Capital Corp.
(the predecessor of the Registrant) and The Tracker Corporation
10.22 (++++)
1995 Stock Wage and Fee Payment Agreement
10.23 (++++)
Agreement dated August 10, 1995 between The L.L. Knickerbocker Company,
Inc. and the Registrant
10.24 (+++)
Share Purchase Agreement dated July 29, 1994 among The Tracker
Corporation, Page-Direct Ltd., Marc Bombenon, Marc Bombenon Enterprises
Ltd. and 614593 Alberta Ltd.
10.25 (++++)
General Release dated June 15, 1995 among The Tracker Corporation,
614593 Alberta Ltd., 1069232 Ontario Inc., Gowling, Strathy &
Henderson, Page-Direct Ltd., Marc Bombenon Enterprises Ltd. and Mark
Bombenon.
10.26 (+++++)
Agreement Between The International Association of Chiefs of Police and
The Tracker Corporation dated February 13, 1996
10.27 (+++++)
Letter agreement dated January 26, 1996 between The Tracker Corporation
and Consumers Distributing Inc.
10.28 (+++++)
The Tracker Corp./Tracker Referral Network, Int'l Marketing Agreement
dated April 8, 1996 between The Tracker Corporation and Tracker
Referral Network, Int'l
10.29 (+++++)
Letter agreement dated March 7, 1996 between The Tracker Corporation
and Samsonite Canada Inc.
10.30 (+++++)
Letter agreement dated March 22, 1996 between The Tracker Corporation
and Sony of Canada Ltd.
10.31 (+++++)
Lead Generation/Corporate Relations Agreement dated November 20, 1995
between The Tracker Corporation and Corporate Relations Group, Inc.,
as amended by Amendment to the Marketing Agreement between the
Registrant and Corporate Relations Group, Inc. dated December 5, 1995
10.32 (+++++)
Independent Contractor Agreement between The Tracker Corporation and
Datatrack Inc. dated January 12, 1996
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 (++++++)
Exclusive Agent Licence Agreement dated April 4, 1997 between The
Tracker Corporation of America and Executive Trading Ltd.
10.35 (++++++)
Agreement dated May 15, 1997 between The Tracker Corporation and
Liberty Health.
10.36 (++++++)
Agreement dated May 22, 1997 between The Tracker Corporation of America
and Schwinn Cycling & Fitness Inc.
10.37 (++++++)
Modification Agreement dated May 27, 1997 between The Tracker
Corporation of America, Saturn Investments, Inc., The Tracker
Corporation, I. Bruce Lewis, Mark J. Gertzbein, and Jonathan B. Lewis.
21.1 (++++)
List of subsidiaries of the Registrant
+ Incorporated by reference from the Registrant's Current Report on
Form 8-K dated July 12, 1994.
++ Incorporated by reference from the Registrant's Current Report on
Form 8-KA dated February 28, 1995 (filed March 15, 1995).
+++ Incorporated by reference from the Registrant's Current Report on
Form 8-K dated July 29, 1994 (filed August 12, 1994).
++++ Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (No. 33-99686).
+++++ Incorporated by reference from the Registrant's Current Report on
Form 10-K dated March 31, 1996 (filed July 15, 1996)
++++++ Incorporated by reference from the Registrant's Current Report on
Form 10-K dated March 31, 1997 (filed July 3, 1997)
REPORTS ON FORM 8-K
During the quarter ended September 30, 1997, the Registrant filed one
(1) report on Form 8-K, dated September 12, 1997 (filed September 26,
1997), with respect to the civil action of the FTC vs. the Registrant.
See Item 1 for details.
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: November 6, 1997
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ I. Bruce Lewis
I. Bruce Lewis, CEO, President & Secretary
(Principal Executive Officer)
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