<PAGE> 1
Date Filed: August 12, 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 JUNE 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 [ ]
<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 August 5, 1997, the Registrant had outstanding 16,942,595 shares
of common stock, par value $0.001 per share, and 4,830,394 shares of the
Registrant's Class B voting common stock, no par value.
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q
The Tracker Corporation of America (the "Registrant") files herewith
consolidated balance sheets of the Registrant as of June 30, 1997, and March 31,
1997, and the related consolidated statements of operations for the three month
period ended June 30, 1997 and 1996, respectively, and the consolidated
shareholders' equity (deficit) for the three month period ended June 30, 1997,
and for the period from inception (May 6, 1993) through June 30, 1997 and
consolidated statement of cash flows for the three month period ended June 30,
1997 and 1996, respectively, and for the period from inception (May 6, 1993)
through June 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.
<PAGE> 4
THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT
STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
<PAGE> 5
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
------------ ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 113,242 $ 105,213
SHORT-TERM INVESTMENT -- --
ACCOUNTS RECEIVABLE 54,166 133,613
PREPAID EXPENSES AND DEPOSITS 513,283 359,526
INVENTORY 9,112 24,338
DEFERRED CHARGES 3,695,907 2,820,064
------------ ------------
TOTAL CURRENT ASSETS 4,385,710 3,442,754
DUE FROM SHAREHOLDERS 62,258 61,487
DEFERRED CHARGES 282,217 315,837
PROPERTY AND EQUIPMENT (NET) 433,073 418,267
LONG-TERM INVESTMENT -- --
------------ ------------
TOTAL ASSETS $ 5,163,258 $ 4,238,345
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 471,085 $ 468,764
ACCRUED LIABILITIES 533,144 373,687
DEFERRED REVENUE 5,699,410 4,509,401
DEBENTURE PAYABLE 52,805 83,991
CONVERTIBLE DEBENTURES 522,231 590,746
------------ ------------
TOTAL CURRENT LIABILITIES 7,278,675 6,026,589
DEFERRED REVENUE 563,671 613,131
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, $.001 PAR VALUE, 30,000,000 SHARES AUTHORIZED,
16,112,192 (15,925,505 - MARCH 31, 1997) SHARES ISSUED AND OUTSTANDING 16,112 15,925
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, 4,862,537 (4,862,537 - MARCH 31, 1997) ISSUED
AND OUTSTANDING -- --
PAID-IN CAPITAL 15,237,759 15,207,895
OTHER CAPITAL (381,556) (394,333)
ACCUMULATED DEFICIT (17,256,788) (16,910,816)
CUMULATIVE TRANSLATION ADJUSTMENT (294,615) (320,046)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,679,088) (2,401,375)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 5,163,258 $ 4,238,345
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 6
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
(MAY 6, 1993)
FOR 3 MONTHS ENDED JUNE 30, THROUGH
1997 1996 JUNE 30,1997
---- ---- ------------
<S> <C> <C> <C>
REVENUE $ 2,213,660 $ 65,872 $ 4,678,538
COST OF SALES 1,660,043 13,545 3,335,724
------------ ------------ ------------
GROSS PROFIT 553,617 52,327 1,342,814
------------ ------------ ------------
DEVELOPMENT COSTS
OPERATIONAL 237,544 144,083 2,307,227
INFORMATION SYSTEMS 100,233 60,545 1,275,831
SALES AND MARKETING 109,323 563,683 4,390,166
GENERAL AND ADMINISTRATIVE 452,489 546,728 10,626,378
------------ ------------ ------------
TOTAL DEVELOPMENT COSTS 899,589 1,315,039 18,599,602
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (345,972) $ (1,262,712) $(17,256,788)
============ ============ ============
LOSS PER SHARE OF COMMON STOCK $ (0.02) $ (0.10) $ (1.62)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 20,874,564 12,874,322 10,637,910
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 7
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
(MAY 6, 1993)
THROUGH
FOR 3 MONTHS ENDED JUNE 30, THROUGH JUNE 30,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS $ (345,972) $(1,262,712) $(17,256,788)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 51,077 27,218 418,203
LOSS ON SALE OF LONG-TERM INVESTMENT -- -- 13,414
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 42,828 556,505 5,161,102
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (153,757) 59,940 (530,556)
ACCOUNTS RECEIVABLE 79,447 (16,848) (54,166)
SHORT-TERM INVESTMENT -- 1,080 --
INVENTORY 15,226 15,919 (9,112)
DEFERRED CHARGES (842,223) (170,865) (3,978,125)
DEFERRED REVENUE 1,140,549 388,891 6,263,081
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 161,778 (123,562) 1,018,874
----------- ------------------------------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 148,953 (524,434) (8,954,073)
----------- ------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS (65,883) (8,617) (850,515)
LOAN TO SHAREHOLDERS -- (443) (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 (65,883) (9,060) (925,416)
----------- ------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES -- -- 8,922,530
ISSUANCE OF PREFERRED SHARES -- 850,000 1,050,000
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES -- -- 2,189,529
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (99,653) -- (229,916)
DUE TO SHAREHOLDER -- -- --
REPAYMENT TO SHAREHOLDER -- -- --
SHARE ISSUE COSTS -- (166,574) (1,684,735)
----------- ------------------------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (99,653) 683,426 10,247,408
----------- ------------------------------
EFFECT OF EXCHANGE RATE CHANGES 24,612 (14,233) (254,677)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 8,029 135,699 113,242
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 105,213 78,844 --
----------- ------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 113,242 $ 214,543 $ 113,242
=========== ==============================
</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.
<PAGE> 8
<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
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, 1994 (129,098) (2,043,425) 2,399,867
---------------------------------------------------
Shares issued for cash (Cash-$1,175,797) 1,175,797
Shares issued in lieu of rent (note 9-x)(Cash-$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) (159,026)
Net loss (5,068,583) (5,068,583)
---------------------------------------------------
Balance at March 31, 1995 (288,124) (7,112,008) 222,909
---------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 9
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
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) 14,582* 14 87,486
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $Nil) 266,664* 265 666,400
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 47,224
Net loss from April 1, 1995 to March 31, 1996 (6,090,730) (6,090,730)
--------------------------------------------
Balance as at March 31, 1996 $(240,900) $(13,202,738) $(1,378,772)
--------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------- ------------------------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS OTHER
STOCK STOCK STOCK STOCK STOCK OF PAR CAPITAL
------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash-$Nil) 133,336* $ - $ 135 $ (999,600) $1,332,800
Shares issued to Directors as compensation
(note 9-x) (Cash-$Nil) 34,445 34 15,446
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
----------------------------- ---------------------------------------------
- 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
------------------------------ ---------------------------------------------
- 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)
---------------------------------------------
$(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)
---------------------------------------------
$(290,288) $(17,172,642) $(2,604,891)
=============================================
</TABLE>
<PAGE> 11
<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 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
-------------------------------- ------------------------------------------
- 16,112,192 4,862,537 $ -- $16,112 $15,237,759 $(381,615)
================================ ==========================================
<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)
---------------------------------------------
$(294,615) $(17,256,788) $(2,679,088)
=============================================
(*) 678,940 common shares have been subscribed for but remain unissued as at June 30, 1997
The accompanying notes are integral parts of these consolidated financial statements.
</TABLE>
<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"), has developed and is
marketing, selling and operating a unique system to aid in the recovery of lost
or stolen items using advanced bar code and laser scanning technologies. The
Company is also marketing a card registration service utilizing the
infrastructure of this unique system.
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 shares 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 labeled item is recovered, the Company's
technology allows for the identification of the item's owner. After
identification, the Company's 24-hour service network coordinates the return of
the item to its owner via an international courier network. The Company's
Worldwide Identification & Recovery Service is endorsed by the International
Association of Chiefs of Police.
<PAGE> 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 period end.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for Company services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided, are recorded as
deferred revenue. The average length of the membership agreement varies from
monthly to a five-year period.
<PAGE> 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>
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.
<PAGE> 15
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
NEW ACCOUNTING PRONOUNCEMENTS
Other pronouncements issued by the Financial Accounting Standards Board adopted
during the year are not material to the consolidated financial statements of the
Company. Further, pronouncements with future effective dates are either not
applicable or not material to the consolidated financial statements of the
Company.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Security deposit for merchant facility $434,434 $300,000
Other 78,849 59,526
-------- --------
$513,283 $359,526
======== ========
</TABLE>
NOTE 5 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6 - DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Current:
Deferred sales commission $2,674,395 $ 2,658,446
Other 1,021,512 161,618
---------- -----------
$3,695,907 $ 2,820,064
========== ===========
Long term:
Deferred sales commission $ 229,949 $ 281,163
Other 52,268 34,674
---------- -----------
$ 282,217 $ 315,837
========== ===========
</TABLE>
<PAGE> 16
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Scanning equipment $129,065 $120,737
Computer equipment 342,043 310,047
Computer software 34,046 32,501
Office furniture and equipment 184,029 163,979
Leasehold improvements 103,572 99,608
Kiosk equipment 63,789 63,789
-------- --------
Total original cost 856,544 790,661
Less: Accumulated depreciation 423,471 372,394
-------- --------
$433,073 $418,267
======== ========
</TABLE>
Depreciation expense for the three months ended June 30, 1997 was $ 51,077 and
was $131,780 for the year ended March 31, 1997.
NOTE 8 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Directors fees $ 27,399 $ 27,399
Others 505,745 346,288
-------- --------
$533,144 $373,687
======== =========
</TABLE>
NOTE 9 - 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) 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.
<PAGE> 17
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK (CONT'D):
(iii) (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.
(iii) (b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
FOR THREE FOR YEAR
MONTHS ENDED
ENDED EXERCISE MARCH 31, EXERCISE
JUNE 30, PRICE 1997 PRICE
1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS:
Opening 40,000 n/a 40,000 $7.95
Granted during the period (*) 0 0 $1.81
Exercised during the period 0 0 n/a
Expired/cancelled during period 0 0 $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 THREE FOR YEAR
MONTHS ENDED
ENDED EXERCISE MARCH 31, EXERCISE
JUNE 30, PRICE 1997 PRICE
1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK AND CLASS B):
Opening 750,000 n/a 767,348 n/a
Issued during the period 0 0 $5.00
Exercised during the period 0 0 Cdn$1.00
Expired during the period 0 (17,348) Cdn$14.00
--------------- ---------------
Closing 750,000 750,000
=============== ===============
</TABLE>
(iv) On May 1, 1995, the Company entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted common
shares and 250,000 warrants to purchase 250,000 restricted common shares to
Reynold Kern. 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.
<PAGE> 18
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK (CONT'D):
(v) 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.
(vi) In October 1995, the Company issued 770,000 shares of common stock pursuant
to the registration statement on S-8 to six key employees and one director as
payment in lieu of prior accrued salaries and fees and as an advance of their
salaries and fees up to September 30, 1996. The shares issued were all valued at
$1.00 per share.
(vii) On November 1, 1995, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from 20,000,000
to 30,000,000 shares.
(viii) Other capital
As at June 30, 1997, 678,940 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 THREE MONTHS ENDED FROM INCEPTION
JUNE 30, (MAY 6, 1993)
THROUGH JUNE 30,
1997 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received $ 1,332,800 $ 1,332,800 $ -
Deferred compensation costs 340,599 340,599 -
Deferred consulting costs 280,928 280,928 -
Rent - - -
---------------------------------------------------------------
1,954,327 1,954,327 $ -
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received (999,600) - 999,600
Deferred compensation costs 441,734 125,182 2,222,174
Deferred consulting costs 116,201 - 1,809,224
Rent 153,329 - 507,794
---------------------------------------------------------------
(288,336) 125,182 5,538,792
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received 333,200 249,900 999,600
Deferred compensation costs 782,333 295,481 2,222,174
Deferred consulting costs 134,629 11,124 1,546,724
Rent 34,273 - 388,738
---------------------------------------------------------------
1,284,435 556,505 5,144,459
CLOSING,
Marketing services not yet received - 1,082,900 -
Deferred compensation costs - 170,300 -
Deferred consulting costs 262,500 269,804 262,500
Rent 119,056 - 119,056
---------------------------------------------------------------
$ 381,556 $ 1,523,004 $ 381,556
===============================================================
</TABLE>
<PAGE> 19
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK (CONT'D):
(ix) For the three months ended June 30, 1997, nil common shares were issued
pursuant to the conversion of convertible subordinated debentures totaling
$655,000. In May 1997, all holders of the convertible subordinated debentures
were requested to extend the maturity date from June 1, 1997 to December 1, 1997
on same terms and conditions. As of March 31, 1997 there remains outstanding
$522,231 ($590,746 at March 31, 1997) in convertible subordinated debentures
with a maturity date of December 1, 1997. The remaining balance of $ 52,805
($83,991 at March 31, 1997) has been reclassified as debentures which have
repayment terms over 12 months at a 4.75% interest rate.
(x) The Company has, from inception to present, issued shares in exchange for:
(a) employment services, (b) consulting and marketing services, and (c)
consideration in lieu of rental payments.
(xi) On October 21, 1996, Amendment No. 4 to the Company's Registration
Statement on Form S-1 was declared effective by Securities and Exchange
Commission at 4:00 p.m. (Eastern time).
(xii) 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. 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. The Company issued 468,644 shares of common stock pursuant to the
registration statement on S-8 to Consultant as payment for consulting fees. The
shares were carried at an aggregate value of $ 118,000.
NOTE 10 - 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. The Company has leased space in Smyrna,
Georgia to house its fulfillment and processing center as well as a
telemarketing and verification center. The term of the lease is for three (3)
years, which commenced on May 15, 1997. The lease requires payment of an annual
base rent of $41,772.
Rental expense for the three months ended June 30, 1997 amounted to $ 32,737 and
$214,470 for the year ended March 31, 1997.
<PAGE> 20
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS (CONT'D):
EXCLUSIVE DISTRIBUTION RIGHTS
The Company amended its arrangement with Symbol Technologies Inc. for the
exclusive right to use its PDF bar code scanner technology within the property
identification and recovery industry in Canada, the United States and Europe.
The commitment under this arrangement is as follows:
<TABLE>
<CAPTION>
Units Amount
----- ------
<S> <C> <C>
1997 500 $450,000
</TABLE>
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>
0 - 1,000,000 $0.20
1,000,001 - 5,000,000 $0.10
More than 5,000,000 $0.075
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS:
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management agreed to receive 5,089,286 exchangeable preference shares
in consideration for the assignment of international patents covering the
Tracker Canada system and as inducements to join the Company, respectively. No
value has been assigned to these shares.
The Company currently retains certain key management personnel under contract.
Included in expenses are consulting and management fees paid under the
aforementioned contracts totaling, in the aggregate, $ 139,736 for the three
months ended June 30, 1997 and $648,231 for the year ended March 31, 1997.
<PAGE> 21
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES:
The estimated deferred tax asset of $4,244,000 and $4,127,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to June 30, 1997 and March 31, 1997 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $12,125,000 ($11,800,000 as
at March 31,1997) expire starting in 2001; the benefit of these losses has not
been reflected in these consolidated financial statements.
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 4,244,000 4,127,000
----------- -----------
4,244,000 4,127,000
Valuation allowance (4,244,000) (4,127,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $ 117,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at June 30, 1997 convertible subordinated debentures
in the amount of $522,231 ($590,746 as at March 31, 1997) bearing interest at
15% annually, which are repayable within one year on December 1, 1997. 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, 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
192,231 $0.9375 per share of common stock 205,046
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
-------- -------
$522,231 717,303
======== =======
</TABLE>
Total interest paid and included in general and administrative expenses for the
three months ended June 30, 1997 is $ 19,322 and $ 222,791 for the year ended
March 31, 1997.
<PAGE> 22
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SUBSEQUENT EVENTS:
In July 1997, the Company issued 62,500 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for June 1997 administrative
expense. The shares were valued at $0.16 per share. See Note 9 (xii) - Capital
Stock.
In July 1997, the Company granted a total of 50,000 options at a price of $0.13
each, to the Company's five (5) non-employee outside directors pursuant to the
amendment of the 1994 Stock Incentive Plan approved by the shareholders on
November 1, 1995. These options related to last year's annual entitlement of the
existing non-employee outside directors. These options vest over a period of
three years and are exercisable within a ten-year period. The shares of common
stock underlying these options are "restricted securities" under United States
Securities laws.
In August 1997, the Company issued 56,818 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for July 1997 administrative
expense. The shares were valued at $0.176 per share.
See Note 9 (xii) - Capital Stock.
<PAGE> 23
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 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.
<PAGE> 24
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., Samsonite Canada, Inc.), selected retailers (i.e., Sony of Canada Ltd.),
telemarketers (i.e., Datatrack, Inc., Executive Industries Ltd., Metro Marketing
Inc., and Quest Enterprises) selling the Company's 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. 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 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.
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. As of August 7, 1997, the Company had assisted 320 members
within its credit card registration program. Currently, the Company piggybacks
on the infrastructure that it has established for its personal property
identification and recovery system and is generating approximately 98% of its
revenue from this service.
THE COMPANY'S PLAN OF DISTRIBUTION
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. First, the
Company is selling its service at the "grass roots" level via direct marketing.
The Company anticipates that this direct
<PAGE> 25
marketing will be through door-to-door canvassing in major urban high density
locales, through telemarketing, through direct mail solicitations, through
multi-level marketing or through a combination of more than one of these
techniques. On April 8, 1996, the Company entered into a marketing agreement
with Tracker Referral Network International, Inc. ("Tracker Referral"), a direct
sales company in the business of marketing through independent distributors
using a proprietary marketing plan. Under the agreement, Tracker Referral was
appointed as the Company's exclusive multi-level marketing company in the United
States and was granted non-exclusive rights to make direct commercial sales to
third party businesses in the United States, in both cases provided that certain
sales quotas are achieved. The agreement is for an initial term of five years
and automatically renews for an additional five years upon Tracker Referral's
attainment of the specified sales quotas. Additionally, the Company is obligated
to provide the Company's products and marketing materials to Tracker Referral at
prices specified in the agreement.
Second, the Company is beginning to establish promotional programs with
retailers of consumer specialty products that have a high potential for loss
such as home electronics, luggage, sporting goods, bicycles, cameras and higher
valued fashion items. For example, the Company has entered into an agreement
with Samsonite Canada, Inc. ("Samsonite") pursuant to which the Company will
supply to Samsonite 70,000 tags that Samsonite will affix to its merchandise to
provide Samsonite customers an explanation of the benefits of the Company's
personal property identification and recovery system and receive a free luggage
tag with a Tracker recovery label. The Company agreed to reimburse Samsonite for
the cost of affixing and shipping the tags and granted exclusivity to Samsonite
in the luggage industry in Canada through March 6, 1997. Upon achievement of
certain sales quotas, Samsonite may continue the promotion and its exclusivity
in Canada for an additional year. To date, Samsonite is still waiting to
evaluate program results due to a late start of the program (i.e. Nov. 1996).
On May 15, 1997, the Company entered into an agreement with Liberty
Health, a division of Liberty Mutual Insurance Company ("Liberty"), to provide
its travel insurance customers with the added protection of the Tracker recovery
system. Under the one year agreement, the Company will not offer its recovery
service to any other provider of individual travel health insurance in Canada.
As of the date of this Report, Liberty has just began to launch with the
introduction of Tracker.
On May 22, 1997, the Company entered into a one year agreement with
Schwinn Cycling & Fitness Inc. ("Schwinn"), a United States manufacturer of
quality bicycles and accessories which plans to promote the Tracker service
along with its bicycle protection kits. The Company has granted Schwinn an
exclusive for the Tracker service in the bicycle accessory industry in the
United States for the term of the agreement. The Company has also granted
Schwinn a one year exclusive in the entire bicycle industry in the United
States, during which time the Company will not sell its laser etching symbology
to any manufacturer in the bicycle industry in the United States. Schwinn
anticipates launching with the introduction of Tracker in the Fall of 1997.
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
<PAGE> 26
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 marketing its service in
conjunction with Montgomery Ward's Home Protection Program through Signature
Group, Inc., its subsidiary.
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), and a
sales program in which the Company would sell its service in bulk to, for
example, product manufacturers, and a fixed asset management program.
The Company's long-term strategy is to become (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.
THE CARD REGISTRATION SERVICE. The Company is currently marketing
subscriptions in its card registration service through telemarketing. The
Company also plans to attempt to develop contractual relationships with credit
card issuers for sales of subscriptions to the issuers' cardholders. As of the
date of this Report, however, the Company had no contractual relationships with
any credit card issuers
<PAGE> 27
and there can be no assurance that it will be able to develop any such
relationships.
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. 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,
<PAGE> 28
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.
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>
<PAGE> 29
GENERAL
The Company has no material backlog of orders because the Company fills
orders for its personal property identification and recovery system and card
registration service 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 continues to update its website on the internet under the
address "www.tracker.com" which gives 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. 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.
<PAGE> 30
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996.
Cash sales for the three months ended June 30, 1997 increased to
$3,568,796 as compared to $455,448 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 three months ended June 30, 1997 increased 3300% to
$2,213,660 as compared to $65,872 a year ago. The increase in the first quarter
revenues was due primarily to the increase in sales of the Company's card
registration service.
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash Sales $3,568,796 $ 455,448
Revenue $2,213,660 $ 65,872
Net Income (loss) $ (345,972) $(1,262,712)
</TABLE>
During the three months ended June 30, 1997, the Company incurred a net
loss of $345,972 as compared to a net loss of $1,262,712 for the three months
ended June 30, 1996. These losses included total development costs in the amount
of $899,589 for the three months ended June 30, 1997 as compared to $1,315,039
for the three months ended June 30, 1996. Included in the deficit for the three
months ended June 30, 1997 are non-operating expenditures in the amount of (1)
$19,322 in interest expense incurred as a result of raising capital through
convertible debentures; (2) $30,000 associated with the non-cash outlay relating
to the issuance of 135,372 shares of Common Stock to an outside consultant as
payment in lieu of fees.
In May 1997, the Company moved its processing and fulfillment center in
Atlanta, Georgia to a larger premises in Smyrna, Georgia (suburb of Atlanta).
The decision to expand was not only made to help facilitate the Company's growth
plans by increasing operational capacity and manage and operate the Company's
fulfillment and card processing functions but, open and operate its own
telemarketing and verification center.
The Company is continuing in its efforts to minimize its operating cash
"burn" rate and has reduced its expenditures by an additional 30% from
$1,315,039 to $899,589 when comparing the three months ended June 30, 1997 to
the three months ended June 30, 1996. In addition, the Company has generated on
average approximately $1,000,000 per month gross cash sales (i.e. earned and
deferred) since December 1996. Although no assurances can be given, management
expects the sales trend to continue for the next 12 months and anticipates
achieving profitable results in the next few months.
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through June 30, 1997, the Company has
received approximately $10,247,408 in net cash from financing activities, some
of which activities are noted below.
During the three months ended June 30, 1997, the Company's net cash
from (used in) operations was $148,953 as compared to $(524,434) for the three
months ended June 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 initial sales and promotional commitments.
As of June 30, 1997, the Company had total current assets of $4,385,710
as compared to $3,442,754 at March 31, 1997. Current assets consisted of cash in
the amount of $113,242 as of June 30, 1997 as compared to $105,213 at March 31,
1997, accounts receivable in the amount of $54,166 as of June 30, 1997 as
compared to $133,613 at March 31, 1997, prepaid expenses and deposits in the
amount of $513,283 as of June 30, 1997 as compared to $359,526 at March 31,
1997, inventories in the amount of $9,112 as of June 30, 1997 as compared to
$24,338 at March 31, 1997, and current deferred charges in the amount of
$3,695,907 as of June 30, 1997 as compared to $2,820,064 at March 31, 1997. As
of June 30, 1997, the Company had amount due from stockholders in the amount of
$62,258 as compared to $61,487 at as of March 31, 1997, long-term deferred
charges totaling $282,217 as compared to $315,837 at March 31, 1997, and net
fixed assets totaling $433,073 as compared to $418,267 at March 31, 1997. As of
June 30, 1997, the Company had liabilities of $7,278,675 as compared to
$6,026,589 at March 31, 1997. Such liabilities consisted of accounts payable in
the amount of $471,085 as of June 30, 1997 as compared to $468,764 at March 31,
1997, accrued liabilities in the amount of $533,144 as of June 30, 1997 as
compared to $373,687 at March 31, 1997, deferred revenues in the amount of
$5,699,410 as of June 30, 1997 as compared to $4,509,401 at March 31, 1997,
debentures in the amount of $52,805 as of June 30, 1997 as compared to $83,991
at March 31, 1997, and convertible subordinated debentures in the amount of
$522,231 as of June 30, 1997 as compared to $590,746 at March 31, 1997. The
Company had long-term deferred revenues in the amount of $563,671 as of June 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 three months ended June 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 three month period ended June 30, 1997, the
Company experienced sales activity at approximately the following amounts: card
registration service - $3,553,522 and all other personal property identification
and recovery services - $15,274. 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 June 30, 1997 and March 31, 1997, respectively, the Company had
accumulated deficits of $17,256,788 and $16,910,816. To date, the Company has
primarily funded its operations through sales of its credit card registration
program.
<PAGE> 32
CAPITAL REQUIREMENTS
Although the Company has been generating gross cash receipts from sales
of approximately $1,000,000 per month since December 1996, it 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 continual acquisition of equipment,
establishment of distribution channels and the conducting of a comprehensive
marketing campaign will enhance the Company's chances for success. During the
upcoming twelve months, the Company plans to seek additional equity 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 equity funding. Although
no assurance can be given that the necessary funding will be available to the
Company when needed, in sufficient amounts, on acceptable terms, or at all,
management believes it is likely that the Company will be able to obtain
sufficient funding to support its operations and its planned marketing campaign
during the next twelve months.
INTERNATIONAL OPERATIONS
The Company has operations in Canada and began test marketing in the
United States. In addition, the Company has 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 anticipates that
revenues from this agreement will commence in the fourth quarter of fiscal 1998,
although no assurances can be given that the Company will realize any such
revenues.
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.
<PAGE> 33
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.
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
This Item is not applicable to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
This Item is not applicable to the Company.
ITEM 5. OTHER INFORMATION
This Item is not applicable to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
No exhibits are filed with this report Form 10-Q for the three months ended June
30, 1997.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
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
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
<PAGE> 35
10.18++++ Letter agreement dated October 5, 1993 between The Tracker
Corporation and Symbol Technologies, Inc., as amended by
letter from The Tracker Corporation to Symbol Technologies
Canada, Inc. dated November 23, 1995, and letter from Symbol
Technologies Canada, Inc. to The Tracker Corporation dated
November 27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis
to the Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among
Ultra Capital Corp. (the predecessor of the Registrant), The
Tracker Corporation and Montreal Trust Company of Canada
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and The Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L. Knickerbocker
Company, Inc. and the Registrant
10.24+++ Share Purchase Agreement dated July 29, 1994 among The Tracker
Corporation, Page-Direct Ltd., Marc Bombenon, Marc Bombenon
Enterprises Ltd. and 614593 Alberta Ltd.
10.25++++ General Release dated June 15, 1995 among The Tracker
Corporation, 614593 Alberta Ltd., 1069232 Ontario Inc.,
Gowling, Strathy & Henderson, Page-Direct Ltd., Marc Bombenon
Enterprises Ltd. and Mark Bombenon.
10.26+++++ Agreement Between The International Association of Chiefs of
Police and The Tracker Corporation dated February 13, 1996
10.27+++++ Letter agreement dated January 26, 1996 between The Tracker
Corporation and Consumers Distributing Inc.
10.28+++++ The Tracker Corp./Tracker Referral Network, Int'l Marketing
Agreement dated April 8, 1996 between The Tracker Corporation
and Tracker Referral Network, Int'l
10.29+++++ Letter agreement dated March 7, 1996 between The Tracker
Corporation and Samsonite Canada Inc.
10.30+++++ Letter agreement dated March 22, 1996 between The Tracker
Corporation and Sony of Canada Ltd.
10.31+++++ Lead Generation/Corporate Relations Agreement dated November
20, 1995 between The Tracker Corporation and Corporate
Relations Group, Inc., as amended by Amendment to the
Marketing Agreement between the Registrant and Corporate
Relations Group, Inc. dated December 5, 1995
10.32+++++ Independent Contractor Agreement between The Tracker
Corporation and Datatrack Inc. dated January 12, 1996
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
- -------------------
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C>
+ 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)
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, the Registrant filed one (1)
report on Form 8-K, dated May 27, 1997 (filed May 27, 1997), with respect to the
resignation of a director of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: August 12, 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)
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
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0
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