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Date Filed: July 3, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended MARCH 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________________________
Commission file number 0-24944
THE TRACKER CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its 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 Officer) (Zip Code)
(416) 595-6222
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of June 30, 1997, there were issued and outstanding 16,823,277 shares
of the Registrant's Common Stock, par value $0.001 per share, and 4,830,394
shares of the Registrant's Class B Voting Common Stock, par value $0.00000007
per share. Thus, in aggregate, as of June 30, 1997, there were issued and
outstanding 21,653,671 shares of the Registrant's common and Class B voting
shares, of which 16,963,905 shares of the Registrant's voting stock are held by
non-affiliates. The aggregate market value of the common and Class B voting
shares held by non-affiliates at such date was $2,544,586 (calculated on the
basis of $0.15 per share which was the average of the high bid and low asked
quotations for the Registrant's common stock on the OTC Bulletin Board on such
date).
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; (3) any prospectus filed pursuant to rule 424(b) or (c)
under the Securities Act of 1933 ("Securities Act"). The listed documents should
be clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
-- None --
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TABLE OF CONTENTS
Item Number and Caption Page
PART I
1. Business 4
2. Properties 19
3. Legal Proceedings 20
4. Submission of Matters to a
Vote of Security Holders 20
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 20
6. Selected Consolidated Financial Data 22
7. Management's Discussion and Analysis
of Financial Condition and Results of Operation 22
7A. Quantitative and Qualitative Disclosures About Market Risk 32
8. Financial Statements and Supplementary Data 32
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 32
PART III
10. Directors and Executive Officers of Registrant 32
11. Executive Compensation 35
12. Security Ownership of Certain Beneficial Owners
and Management 46
13. Certain Relationships and Related Transactions 47
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 53
15. Signatures 56
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 58
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PART I
ITEM 1. BUSINESS
CORPORATE HISTORY
Tracker U.S.'s predecessor was originally incorporated in Utah in February
1986 under the name Equitec Capital Corporation to serve as a vehicle to acquire
or merge with an operating company. It changed its name to E-Tech Capital
Corporation in March 1986 and to E-Tech, Incorporated in February 1987. In July
1992, Tracker U.S.'s predecessor changed its state of incorporation from Utah to
Nevada through a change in domicile merger and, in connection therewith, changed
its name to Ultra Capital Corp. Prior to the Reorganization discussed in the
next paragraph, Tracker U.S.'s predecessor had been inactive for the preceding
several years and had conducted no significant operations or activities.
In July 1994, Tracker U.S. changed its state of incorporation from Nevada
to Delaware through a change in domicile merger and, in connection therewith,
changed its name to The Tracker Corporation of America and changed its fiscal
year end from December 31 to March 31. Also in July 1994, Tracker U.S. succeeded
to its current line of business through a reorganization (the "Reorganization")
in which it acquired all of the issued and outstanding voting shares of The
Tracker Corporation, an Ontario, Canada corporation ("Tracker Canada"), in
exchange for shares of Tracker U.S.'s capital stock representing, at the time,
approximately 90% of the total voting shares of Tracker U.S. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Reorganization."
Tracker Canada, which originated the Company's present line of business,
was incorporated in May 1993 and is now a wholly-owned subsidiary of Tracker
U.S. Prior to the Reorganization, Tracker Canada engaged in organizational
efforts, including the hiring of technical and management personnel, 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.
BUSINESS OVERVIEW
The Company is a development stage company that has developed and has begun
to market, sell and operate a personal property identification and recovery
system which uses advanced bar code and laser scanning technology to aid in the
identification and recovery of lost or stolen personal possessions.
The Company launched its service in a limited test market in Toronto,
Canada in October 1994 and is slowly continuing to expand its service throughout
Canada. The Company 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, selected retailers, direct
response, telemarketers, and network referral marketers. To facilitate its
identification and
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recovery service, the Company is attempting to organize a network of strategic
partnerships and scanning locations in high traffic public areas, including
courier companies, law enforcement agencies, lost and found departments and
major tourist attractions. There can be no assurance, however, that the Company
will be able to establish and maintain such a network or successfully market its
service through such channels. In addition, there can be no assurance that
competitors will not enter the market with similar or superior products and
services. See "BUSINESS - Competition". The continuation of the Canadian and
United States roll-outs and the development of future markets will depend on
certain factors, including demand for the Company's service and adequate
financing and capital, over which the Company may have little control.
The Company's longer-term strategy is to develop an umbrella of recovery
services ranging from the current identification and recovery service packages
to laser etching the Company's symbology at point of manufacture. There can be
no assurance, however, that the Company will be able to implement its
longer-term strategy. See "BUSINESS - The Company's Solution".
In addition to recovery services, the Company has implemented and offers a
card registration service.
The following diagram illustrates the corporate structure of Tracker U.S. and
its subsidiary:
---------------------------
| The Tracker Corporation |
| of America |
| ("Tracker U.S.") |
---------------------------
|
---------------------------
| The Tracker Corporation |
| ("Tracker Canada") |
|(wholly-owned subsidiary |
| of Tracker U.S.) |
---------------------------
|
---------------------------
| 614593 Alberta Limited |
| ("614593 Alberta") |
|(wholly-owned subsidiary |
| of Tracker Canada) |
---------------------------
Tracker U.S. is the parent company of Tracker Canada and generally provides
management, accounting, tax and capital raising functions. Sales and contractual
relationships are made through both Tracker U.S. and Tracker Canada. Tracker
Canada is a wholly-owned subsidiary of Tracker U.S. and generally provides all
support services and operational functions to support sales activities,
including staffing and facilities. 614593 Alberta is a wholly-owned subsidiary
of Tracker Canada which has no material assets and conducts no activities.
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NEED FOR THE COMPANY'S PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM
The Company believes that only a portion of the population has taken steps
to label or otherwise identify its belongings in the past because of skepticism
concerning the possibility of recovery and the value of taking measures to
increase the likelihood of recovery. In addition, the Company believes that
various existing methods of labeling or otherwise identifying valuables have not
achieved mass market acceptance, create concerns for security conscious owners,
or have been ineffective in returning valuables to their owners because many
owners record only the serial numbers of their possessions, thus making it
almost impossible for the police or a "Good Samaritan" to trace the owners and
return the possessions.
THE COMPANY'S SOLUTION
Based upon research conducted by the Company, management believes that
there is a need for a personal property identification and recovery service
that:
* makes it convenient for members to identify their possessions;
* enables members to identify their possessions without placing personal
information on the possessions;
* provides a better method of identification that will remain on
possessions and will remain intact;
* provides a system that will make the identification process easy;
* motivates more people who find valuables to be "Good Samaritans" by
returning the valuables to their rightful owners; and
* thereby improves the chances that members will recover their lost or
stolen possessions.
The Company believes that its personal property identification and recovery
system meets these needs.
The Company plans to expand its recovery service by having manufacturers of
products such as computer chips, bicycles, power tools, electronic equipment,
cameras and auto parts apply the Company's coding, through laser etching or
other methods, directly onto or into products at the source of manufacture. The
Company believes that this expansion of its service will be attractive to
manufacturers because (i) it will add value to their products by showing that
they care about their customers and their customers' ability to recover lost or
stolen items and (ii) the coding will enhance the ability of manufacturers and
distributors to combat retail and warranty fraud. Currently, however, the
Company does not have a contract with any manufacturer to laser etch the
Company's coding or to directly apply the coding at the source of manufacture
using any other method. The Company anticipates that if such contracts are
procured, the manufacturers will absorb the cost of laser etching either
directly or indirectly (i.e. in the unit price charged to the manufacturers by
the Company). There can be no assurance, however, that the Company will be able
to successfully expand its service in this fashion.
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THE COMPANY'S PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM
The Company provides a totally integrated personal property identification
and recovery system. The Company's strategy is to provide a personal property
identification and recovery system that does not merely provide another method
of identifying articles, but instead provides a simpler method of identifying
articles as well as a complete identification and recovery service that will
help return the articles back to members when the articles are located. The
Company's system is comprised of four key elements: (1) an identification
device; (2) a scanning network; (3) a computer database; and (4) a pick up and
delivery system.
THE IDENTIFICATION DEVICE. The Company offers its members special encoded
labels that are attached to the members' personal possessions and contain
ownership information in advanced bar code form (PDF 417 symbology). In addition
to the coding, a North American 1-800 number, a toll free worldwide number, and
the "call to action" phrase "IF FOUND CALL TRACKER" are printed on the labels.
The Company believes that its labels provide a better method of identification
that will remain on possessions and will remain intact because the labels: (i)
use a 1.0 mil strong, permanent acrylic adhesive; (ii) have high cohesion; (iii)
have good resistance to heat, cold and ultraviolet rays; (iv) have good
quick-stick, peral and shear strength; (v) include a hard layer coating on the
exterior of the label for abrasion resistance and resistance to solvents; and
(vi) are read by PDF 417 technology which allows scanning even if the labels are
partially defaced. There can be no assurance, however, that the Company's labels
will not be removed. Any failure of the labels to adhere properly could damage
the credibility of the Company's property identification and recovery service
and could have a material adverse effect on the Company's business, operating
results and financial condition.
THE SCANNING NETWORK. The Company has begun to locate the scanning
equipment required to scan the PDF 417 encoded labels at key points of recovery
in major metropolitan areas in North America. The average cost to the Company to
install scanning equipment is $2,500 per installation. Scanning locations are
expected to include police stations, major transportation lost and founds, and
certain high traffic public facilities, such as theme parks and other tourist
attraction venues. In addition, arrangements have been made with a national
courier company in Canada, Purolator Courier Ltd. ("Purolator"), to maintain
scanning locations. As of June 30, 1997, the Company had placed scanners into 39
police stations and other sites in Canada (15 in Ontario and 24 outside
Ontario). Negotiations to place scanners in the United States have begun. As of
June 30, 1997, the Company had letters of intent from more than 125 police and
sheriff locations throughout the United States to accept the Company's scanners,
and had already installed 29 scanners in the United States pursuant to those
letters of intent. There can be no assurance that these letters of intent will
result in additional placed scanners or that the Company will be able to
continue to establish strategic or centrally located scanners throughout a wide
geographic area. Any failure to place additional scanners could damage the
credibility of the Company's property identification and recovery system and
could have a material adverse effect on the Company's business, operating
results and financial condition.
THE COMPUTER DATABASE. After a member's lost item has been found and then
scanned, the labels are linked electronically to a central computer database.
Each label is registered to a particular member, and the computer database
contains membership information
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that permits the Company to identify the member who owns a retrieved article.
The Company's computer database operates in a fast, multiple-user environment
with easy-to-read and easy-to-fill-in screens that accommodate multiple member
service entries and minimize member waiting times.
To ensure the security and integrity of its membership and recovery code
databases, the Company uses a combination of program design, technology and
Company policies. The integrity of the label/member relational link is critical
to the proper operation of the Company's personal property identification and
recovery system as it provides the facility through which the rightful owner of
a recovered item is identified, thus enabling the Company to return the
recovered property to the member. The Company uses five methods to establish a
secure member/label relation: (i) the Company policy of "zero tolerance" for
matching errors; (ii) the use of two secure servers, an NT member database
server and unix label database server; (iii) the use of FoxPro database software
across all platforms; (iv) the process of linking and verifying the member ID
number and summary or "master" recovery code during order assembly and
fulfillment on two levels using a bar code scanner to reduce the risk of human
error; and (v) the use of a data entry screen with mandatory prompts and a
verification algorithm by the link established during direct response
activation.
The privacy and protection of the membership and recovery code databases
are secured through: (i) the Company policy not to release membership
information to any third party (other than police agencies); (ii) the use of
four levels of system redundancy -- tape backup, equipment replacement
inventory, off-site redundant system, and hard copy record keeping; and (iii)
the prevention of unauthorized server access through the use of (a) serialized,
password protected copy written proprietary software used by recovery terminals;
(b) a separate communication server for remote access; (c) distinct
communication and network protocols between the remote access server and the
membership database server; and (d) a system audit by an independent third party
which indicated that the membership database could not be accessed remotely and
that system integrity is high.
No security system or procedures are foolproof. Any material breach of
security may damage the credibility of the Company's personal property
identification and recovery service and could have an adverse effect on the
Company's business, operating results and financial condition.
THE PICK UP AND DELIVERY SYSTEM. Once the label has been scanned and the
computer database has notified a Company service representative of the location
and owner of an article, a Company service representative then notifies the
member that his or her possession has been found and informs the member of the
item's location. The identified item may then be picked up by the member or,
upon the member's request, delivered to the member safely and promptly by
courier.
THE COMPANY'S CARD REGISTRATION SERVICE
In addition to the Company's personal property identification and recovery
system, the Company has implemented and is currently offering a card
registration service marketed through
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telemarketers. This service permits a member, with a single toll free phone
call, to: (i) cancel all of the member's lost or stolen cards (whether they be
debit cards, gas cards, automated bank teller cards, department store cards or
other credit cards); (ii) request replacement cards; (iii) request a change of
address for all cards; (iv) receive $15,000 in travel insurance on common
carriers; (v) receive $2,000 in Accidental Death & Dismemberment insurance; (vi)
receive $500 in airline discounts; and (vii) be covered on fradulent charges up
to $10,000.
PRODUCT DEFINITIONS
The following describes many of the products offered by the Company. The
typical retail pricing for the basic 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.
BASIC 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.
TRACKER CARD REGISTRATION SERVICE. The Company offers members of this
program the benefit and convenience of card registration. For a description of
the Company's card registration business, see "BUSINESS - The Company's Card
Registration Service". This 1 year renewable 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, adding "Tracker
Plus" to their membership, which covers the full cost of returning possessions
to members, 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 Basic
Service" package to parents for added protection for their children. The package
includes 8 possession labels, 24 clothing labels, an assortment of 10 shoe, key,
and luggage tags, a photo and fingerprint kit and special safety tips for
parents and kids.
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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 manufacturer 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 successfully expand its service
in this fashion.
THE IACP ENDORSEMENT
The Company has secured, for its personal property identification system,
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 Subscriber 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>
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THE COMPANY'S MARKETING STRATEGY
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company is
attempting to position itself as a credible and worthwhile, but not fail safe,
service that provides peace of mind (like insurance) and has a favorable
price-to-value relationship. The guiding principle behind the Company's
marketing strategy is that the Company is in the business of providing a totally
integrated personal property identification and recovery service, not merely
selling identification labels. The benefit of this service to the Company's
members is an increase in the probability of recovery of the members' lost and
stolen possessions. Thus, one key to the Company's long-term success will be the
effectiveness of the Company's personal property identification and recovery
system in helping to improve the existing low recovery rates. There can be no
assurance, however, that the Company will be able to achieve any particular
increase in these recovery rates for its members or to increase the overall
recovery rate for lost and stolen items in general. As of May 31, 1997, the
Company had made 136 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. Any inability by the Company to do so may have an
adverse effect on the Company's business, operating results and financial
condition.
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 May 31, 1997, the Company had assisted 190 members
within its credit card registration program. See "BUSINESS - Competition".
THE COMPANY'S PLAN OF DISTRIBUTION
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company is
approaching the distribution of subscriptions to its personal property
identification and recovery service in several ways.
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First, the Company is selling its service at the "grass roots" level via
direct marketing. The Company anticipates that this direct marketing will be
through door-to-door canvassing in major urban high density locales, through
telemarketing, through direct mail solicitations, through multi-level marketing
or through a combination of more than one of these techniques. On April 8, 1996,
the Company entered into a marketing agreement with Tracker Referral Network
International, Inc. ("Tracker Referral"), a direct sales company in the business
of marketing through independent distributors using a proprietary marketing
plan. Under the agreement, Tracker Referral was appointed as the Company's
exclusive multi-level marketing company in the United States and was granted
non-exclusive rights to make direct commercial sales to third party businesses
in the United States, in both cases provided that certain sales quotas are
achieved. The agreement is for an initial term of five years and automatically
renews for an additional five years upon Tracker Referral's attainment of the
specified sales quotas. Additionally, the Company is obligated to provide the
Company's products and marketing materials to Tracker Referral at prices
specified in the agreement.
Second, the Company is beginning to establish promotional programs with
retailers of consumer specialty products that have a high potential for loss
such as home electronics, luggage, sporting goods, bicycles, cameras and higher
valued fashion items. For example, the Company has entered into an agreement
with Samsonite Canada, Inc. ("Samsonite") pursuant to which the Company will
supply to Samsonite 70,000 tags that Samsonite will affix to its merchandise to
provide Samsonite customers an explanation of the benefits of the Company's
personal property identification and recovery system and receive a free luggage
tag with a Tracker recovery label. The Company agreed to reimburse Samsonite for
the cost of affixing and shipping the tags and granted exclusivity to Samsonite
in the luggage industry in Canada through March 6, 1997. Upon achievement of
certain sales quotas, Samsonite may continue the promotion and its exclusivity
in Canada for an additional year. To date, Samsonite is still waiting to
evaluate program results due to a late start of the program (i.e. Nov. 1996).
The Company also has entered into an agreement with Sony of Canada Ltd.
("Sony") pursuant to which Sony store representatives will resell to Sony's
retail customers kits purchased from the Company by Sony. For the life of the
program, Sony will include a write up on the program in each of its monthly
newsletters. Sony also will include a feature on the program in a one-quarter
page advertisement within Sony's national brochure. Under the agreement, the
Company is obligated to provide to Sony a yearly commission equal to 20% of the
renewal revenues received by the Company related to kits sold by Sony for two
renewal terms. The agreement also provides the Company with the right, subject
to Sony's ability to cancel such right at any time, to promote the kits using
the name "Sony." To date, subscribers under this program are not up for renewal
as yet.
The Company also has 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. Liberty
plans to launch with the introduction of Tracker in the Summer of 1997.
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The Company also has 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.
The Company also plans to establish promotional programs with other
selected national retail chains chosen for their potential to lend credibility
to the Company's service and for their reach in selected markets. The Company
believes its service adds value to retailers' products because the service shows
that the retailers care about their customers and their customers' ability to
recover lost or stolen items. To encourage such retailers to promote the
Company's service as a value added to the items purchased from the retailers,
the Company may provide retailers with commissions, limited time exclusivity
within a particular market, cooperative marketing and advertising funding, and
special timed promotions. In addition, the Company has entered into an agreement
with Merchant Partners Limited Partnership ("Merchant Partners") through which
Merchant Partners will actively introduce and promote the Company to, among
others, Montgomery Ward & Co. Incorporated ("Montgomery Ward"), ValueVision
International, Inc., and all subsidiaries of Montgomery Ward (collectively,
"Prospects"). To date, the Company has not entered into any agreements with the
Prospects. There can be no assurance that the agreement with Merchant Partners
will result in any sales to the Prospects.
Third, although the Company does not anticipate that such programs will
constitute a large percentage of its sales, the Company is developing other
joint promotions (such as the arrangement with Samsonite described above), a
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
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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 and there can be no assurance that it will be able to
develop any such relationships. See "BUSINESS - Competition".
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.
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.
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.
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<PAGE> 15
The Company does not engage in any hedging contracts because it receives
the majority of its cash flows in United States dollars.
KEY SUPPLIERS
The Company's ability to market, sell and operate its personal property
identification and recovery system depends in part on its ability to procure the
necessary scanning equipment, labels and courier services. In this regard, the
Company has agreements or preliminary understandings in place with Symbol
Technologies Inc. ("Symbol"), Purolator Courier Inc. ("Purolator"), Mail Boxes
Etc. USA ("Mail Boxes Etc."), and DHL International Express Ltd. ("DHL").
Although the Company has preliminary understandings and agreements with
suppliers of such equipment, labels and services, the Company's agreements or
understandings tend to be informal, may be difficult to enforce, and may be
subject to termination. Accordingly, there can be no assurance that such
equipment, labels and services will be available when needed by the Company or
on terms favorable to the Company. Any unavailability of such equipment, labels
or services on terms favorable to the Company could prevent or delay the
development, marketing, sale, operation and effectiveness of the Company's
personal property identification and recovery system and could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company procures scanning equipment from Symbol. Symbol's PDF 417 is an
advanced two-dimensional stacked symbology. In 1992, Symbol introduced the PDF
1000 laser scanner, the first laser scanner to read this two-dimensional bar
code. The PDF 1000 laser scanner scans thirty times faster than current
conventional scanners, decodes in a rastering pattern across and down the PDF
417 symbol, reads both PDF 417 (two-dimensional codes) and linear bar codes
(one-dimensional codes), and is able to read poorly printed or damaged codes
that have been defaced up to 60%. The Company has a preliminary understanding
with Symbol whereby, subject to certain minimum annual purchase requirements,
the Company was granted the exclusive right to use, for personal property
identification and recovery purposes, Symbol's PDF 1000 laser scanners in
Canada, the United States and Europe through the end of calendar year 1996.
Pursuant to its original understanding with Symbol, the Company was required to
purchase specified numbers and dollar amounts of laser scanners during each of
calendar years 1994, 1995 and 1996 in order to maintain its exclusive right. The
Company did not meet the minimum commitment level for 1994, 1995 or 1996.
Although it does not have a formal agreement to do so, the Company has been
working in conjunction with Symbol and has obtained an informal understanding to
maintain the Company's exclusive right provided the Company purchases at least
500 laser scanners during calendar year 1997. As of June 30, 1997 the Company
had purchased 30 scanners during the 1997 calendar year. There can be no
assurance that the Company will be able to meet this commitment. Further, the
Company's understandings with Symbol are informal, may be difficult to enforce,
may be subject to early termination, and are set to expire at the end of
calendar year 1997 in any event. Thus, there can be no assurance that the
Company has an enforceable exclusive right to use, for personal property
identification and recovery purposes, Symbol's PDF 1000 laser scanners in these
geographic areas. The Company believes that it will be able to continue its
relationship with Symbol after the current understanding expires at the end of
1997. If the Company is unable to do so, the Company believes that comparable
scanning equipment will be available from other
15
<PAGE> 16
sources. However, there can be no assurance that the Company will be able to
procure scanning equipment form Symbol or another manufacturer after such time.
In the United States, the Company has entered into an agreement with Mail
Boxes Etc. pursuant to which Mail Boxes Etc. will accept, pack and ship items
for the Company. For courier services, the Company uses Purolator in Canada,
uses UPS (through Mail Boxes Etc.) in the United States and has engaged DHL for
use in other parts of the world.
COMPETITION
The Company is aware of one company that it believes is planning to
introduce a personal property identification and recovery system similar to the
Company's. The Company believes that this competitor may offer a service that
provides labels for identification purposes and an 800-number through which the
finder and the owner of an item may be put in contact with each other to make
their own arrangements for the return of the item to the owner. The Company
believes that this company will not offer an integrated system, like the
Company's, which not only provides a means of identifying an item, but also
provides a complete pick-up and delivery system.
The successful introduction of such services by this or any other
competitors, or the introduction by competitors of ineffective systems that
damage the credibility of the Company's industry as a whole, may have a material
adverse effect on the Company's business, operating results and financial
condition. Moreover, the expansion of services or an increase in the level of
competition by this competitor, or the entry of new competitors, could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
compete successfully with existing or new competitors in the personal property
identification and recovery business.
The Company also may face competition from alternative personal property
identification methods, such as tracking by serial number or by the personal
property owner's imprinted name and address or from conventional forms of
insurance that reimburse consumers for lost items. Such insurance typically also
provides reimbursement for items that are destroyed by fire, flood or acts of
God. Further, conventional insurance has high market acceptance and conventional
insurance companies typically have substantial resources to market their
products effectively and aggressively. Although the Company's personal property
identification and recovery service differs from conventional insurance in that
its objective is to return its members' personal possessions, there can be no
assurance that the Company will be able to compete effectively with conventional
insurance providers.
With respect to the Company's card registration service, the Company's
market share is small and the market is highly competitive. Competitors include
Signature, CUC International, American Express and others. These competitors
have longer operating histories, benefit from substantially greater market
recognition and have substantially greater financial and marketing resources
than the Company. In addition, certain competitors have contractual
relationships with credit card issuers for sales of subscriptions to the
issuers' cardholders. Competition in this third
16
<PAGE> 17
party endorsed segment of the credit card industry is intense. Factors affecting
the outcome of competition with respect to the third party endorsed segment
include the quality and reliability of the services offered, subscriber
acquisition strategy and expertise (which is highly dependent upon creative
talents), operational capability, reputation, financial stability of the company
supplying the services, the confidence of credit card issuers in the company's
management, the compensation or fee paid to the credit card issuer and the
security maintained by the company with respect to the credit card and credit
data of which it has custody. As of the date of this Report, the Company had no
contractual relationships with any credit card issuers and there can be no
assurance that it will be able to develop any such relationships. This may place
the Company at a competitive disadvantage with respect to its card registration
service. In addition, an increase in the level of competition from existing
competitors, or the entry of new competitors, may have a material adverse effect
on the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully with
existing or new competitors in the card registration business.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
The Company's success will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. The Company will rely on a combination of
trade secret and trademark laws, nondisclosure and other contractual agreements,
and technical measures to protect the confidential information, know-how and
proprietary rights relating to its personal property identification and recovery
system. The Company has filed for trademark and service mark protection in the
United States and Canada over the following: (i) "All is not lost(TM)"; (ii)
"Use it or lose it(TM)"; (iii) "Tracker: The Ultimate Warranty(TM)"; (iv)
"Tracker(TM)"; and (v) the Tracker logo. The applications in the United States
for all marks except "Tracker(TM)" and the Tracker logo have been restricted to
services only as opposed to goods. In addition, the Company has filed an
international patent application pursuant to the Patent Cooperation Treaty for
its personal property identification and recovery system. There can be no
assurance, however, that these will mature into an issued patent or issued
trademarks or service marks or that any patent, trademark or service mark
obtained or licensed by the Company will be held valid and enforceable if
asserted by the Company against another party. In addition, the above
protections may not preclude competitors from developing a personal property
identification and recovery system that is competitive with the Company's
system. The Company does not believe that its products and trademarks and other
confidential and proprietary rights infringe upon the proprietary rights of
third parties. One patent infringement claim has been filed against the Company,
however. See "Item 3. Legal Proceedings." In addition, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future. The successful assertion of such claims would have a material
adverse effect on the Company's business, operating results and financial
condition.
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
17
<PAGE> 18
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
additional 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 cash flows from revenues will not be
sufficient to fund the business plan until January 1998. In addition, there can
be no assurance that cash flows from revenues will be sufficient to fund the
business plan in the timeframe anticipated by the Company, if at all. 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. For a complete discussion on
capital requirements, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Capital Requirements".
EMPLOYEES
As of June 30, 1997, the Company employed a total of 55 persons, including
4 in management, 8 in administration and accounting, 36 in operations (29 of
whom are part-time), 3 in sales and marketing and 4 in information systems. The
Company's future success will depend in large part on its ability to attract,
train and retain highly skilled and qualified personnel. There can be no
assurance that the Company will be successful in attracting, training and
retaining such personnel.
None of the Company's employees is represented by a labor union. The
Company has experienced no work stoppages, and the Company believes that its
relations with its employees are excellent.
GOVERNMENTAL REGULATIONS
Except as described in the next paragraph, the Company is not subject to
any governmental regulations other than those applicable to businesses
generally. Although the Company believes it is in compliance with all currently
applicable regulations, additional regulations could be enacted in the future
that could have an adverse effect on the Company's business, operating results
and financial condition.
The Company is marketing its services through the use of telemarketing and
may be subject to state regulation of telemarketing if it is deemed to be a
telemarketer within the meaning of such regulations. Although such regulations
vary greatly from state to state, they generally require telemarketers (as
defined in the regulations) to (i) apply for and obtain a state registration or
license before conducting telemarketing; (ii) disclose certain information to
consumers (for example, the identity of the telemarketer, information regarding
gifts or premiums that customers
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<PAGE> 19
may be eligible to receive, and that sales made as a result of a telephone
solicitation are not final unless followed by a signed contract); and/or (iii)
file a surety bond or a certificate of deposit with the state. Further, state
regulations typically confer on consumers certain rights, such as the right to
cancel a sales agreement made with a telemarketer. A telemarketer's failure to
comply with the regulations may result in civil and/or criminal liability.
In addition, the Company, through Tracker Referral pursuant to a marketing
agreement with Tracker Referral, is marketing its personal property
identification and recovery services through the use of multi-level marketing.
See "BUSINESS - The Company's Plan of Distribution - The Personal Property
Identification and Recovery System." Tracker Referral's multi-level marketing
system is or may be subject to or affected by extensive government regulation,
including but not limited to federal and state regulation (which varies from
state to state) of the offer and sale of business franchises, business
opportunities and securities. Various governmental agencies monitor multi-level
marketing activities. Although such multi-level marketing is performed by
Tracker Referral rather than by the Company, and although the Company believes
that Tracker Referral's multi-level system is in substantial compliance with all
currently applicable regulations, there can be no assurance that Tracker
Referral will be found to be in compliance with existing regulations as a
result of, among other things, misconduct by independent contractors over whom
Tracker Referral has limited control, the ambiguous nature of certain of the
regulations, and the considerable interpretive and enforcement discretion given
to regulators. Any assertion or determination that Tracker Referral or its
independent contractors are not in compliance with existing regulations, or the
enactment of additional regulations in the future, could have a material
adverse effect on the Company's business, operating results and financial
condition. Further, any failure to comply could cause Tracker Referral or the
Company to pay fines as well as to quit doing business in any state where it is
out of compliance.
The Company believes that compliance with federal, state or provincial, and
local provisions which have been enacted regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, will not have any material effect upon the Company's capital
expenditures, earnings and competitive position. The Company does not believe
that it will incur any material capital expenditures for environmental control
facilities for the remainder of its current fiscal year and the next fiscal
year.
ITEM 2. PROPERTIES
Tracker Canada currently leases office premises in Toronto and has entered
into a lease agreement for these premises. The term of the lease is ten (10)
years, which commenced on January 1, 1994. The lease requires payment of an
annual base rent of $22,000 for the first five years. Thereafter the lease calls
for rent at market value less twenty percent (20%). If the present lease cannot
be renewed or if Tracker Canada elects not to renew the lease, Tracker Canada
does not anticipate any difficulty in securing adequate new space. Tracker US
has leased space in Smyrna, Georgia to house its fulfillment and processing
center as well as a telemarketing and
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<PAGE> 20
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.
The Company believes that suitable additional space will be available as
needed if future expansion is required.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
During the fourth quarter of the fiscal year ended March 31, 1997, no
matters were submitted to a vote of the security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market, is
quoted on the OTC Bulletin Board and is quoted in the "pink sheets" under the
symbol "TRKR". Quotations for the Company's common stock were first listed on
the OTC Bulletin Board on May 5, 1993. The market for the Company's Common Stock
must be characterized as extremely
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<PAGE> 21
limited due to the low trading volume and the small number of brokerage firms
acting as market makers. Additionally, stocks traded on the OTC Bulletin Board
generally have limited brokerage and news coverage. Thus, the market price of
the Common Stock may not reflect the value of the Company. As a result, an
investor may find it difficult to dispose of, or to obtain accurate quotations
as to the value of, the Common Stock. No assurance can be given that the
over-the-counter market for the Company's securities will continue, that a more
active market will develop or that the prices in any such market will be
maintained at their current levels or increased.
The following table sets forth, for the periods indicated, the high and low
bid quotations for the Company's Common Stock as reported by the National
Quotation Bureau, Inc. These quotations reflect inter-dealer prices, without
adjustments for retail markups, markdowns or commissions, and do not represent
actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
June 30, 1995 $ 3.0625 $ 0.6250
September 30, 1995 $ 2.8750 $ 0.3750
December 31, 1995 $ 2.6250 $ 0.5000
March 31, 1996 * $ 0.8125 $ 0.0625
June 30, 1996 $ 0.8750 $ 0.0625
September 30, 1996 $ 0.2200 $ 0.0625
December 31, 1996 $ 0.2200 $ 0.0625
March 31, 1997 $ 0.2500 $ 0.0625
</TABLE>
- ----------
* Excludes January 8, 1996, for which the National Quotation Bureau, Inc. was
unable to provide information.
On June 30, 1997, the high and low bid quotations for the Company's Common
Stock on the OTC Bulletin Board were $0.1415 and $0.0625, respectively. As of
June 30, 1997, there were 16,823,277 shares of Common Stock outstanding held by
approximately 335 holders of record, including broker-dealers and clearing
corporations holding common shares on behalf of their customers, and 4,830,394
shares of Class B Voting Common Stock outstanding held by Montreal Trust Company
of Canada, as Trustee, on behalf of approximately 78 holders of record.
The Company has never paid any cash dividends on its Common Stock and does
not intend to pay any cash dividends in the foreseeable future. Future earnings,
if any, will be retained to fund the development and growth of the Company's
business. In addition, Tracker U.S. has agreed not to declare and pay cash
dividends on its Common Stock unless it also causes Tracker Canada to declare
and pay cash dividends on the Tracker Canada Exchangeable Preference Shares at
the same time and in the same manner as the dividends paid on the Common Stock
of Tracker U.S. Tracker U.S. must provide Tracker Canada with adequate funds,
through a contribution to capital surplus, to pay such dividends. Further, state
law restricts the Company's ability to pay dividends until its financial
condition improves. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investment by Saturn Investments, Inc."
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<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented below
should be read in conjunction with the detailed information and financial
statements appearing elsewhere in this Report. The selected consolidated
financial data at March 31, 1994, 1995, 1996 and 1997 and for the years ended
March 31, 1995, 1996 and 1997 and the period from inception at May 6, 1993
through March 31, 1994 have been derived from the audited consolidated financial
statements of the Company which have been audited by Price Waterhouse LLP,
independent accountants.
For accounting purposes, the Reorganization with Tracker Canada is being
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 exceeded those of Ultra Capital Corp. (Tracker
U.S.'s predecessor) and the shareholders of Tracker Canada control Tracker U.S.
after the Reorganization. The Reorganization is being treated for accounting and
financial reporting purposes as an issuance of shares by Tracker Canada. Thus,
pro forma information is not presented as the Reorganization is not a business
combination. The historical consolidated financial statements prior to July 12,
1994 are those of Tracker Canada. Tracker Canada was organized on May 6, 1993.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Reorganization" and Note 1
of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
INCEPTION (MAY 6,
1993) TO MARCH 31, FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
CONSOLIDATED STATEMENT OF OPERATIONS 1994 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997
DATA
<S> <C> <C> <C> <C>
Revenues $ -- $ 10,187 $ 106,522 $ 2,348,169
Net income (loss) (2,043,425) (5,068,583) (6,090,730) (3,708,078)
Net income (loss) per share of common stock (0.38) (0.71) (0.57) (0.22)
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA MARCH 31, 1994 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997
<S> <C> <C> <C> <C>
Total assets $ 2,675,527 $ 1,669,452 $ 1,193,742 $ 4,238,345
Total current liabilities 275,660 1,446,543* 2,393,631* 6,026,589*
Long-term debt -- -- -- --
Stockholders' equity (deficit) 2,399,867 222,909 (1,378,772) (2,401,375)
Working capital 2,195,349 (445,686) (1,728,529) (2,583,835)
</TABLE>
* Included in total current liabilities for March 31, 1997 are $590,746 of
convertible subordinated debentures and $4,509,401 of current deferred revenues
(as compared with $1,460,000 of convertible subordinated debentures and $115,241
of current deferred revenues for March 31, 1996 and $0 of convertible
subordinated debentures and $10,998 of deferred revenues for March 31, 1995).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company believes that the information contained in this Report which
does not constitute historical facts constitutes "forward-looking statements"
within the meaning of Section
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<PAGE> 23
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. 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.,
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<PAGE> 24
Tracker Referral Network International, Inc. selling home-based business
opportunities utilizing the Company's products and services).
The Company has been generating gross cash receipts from sales of
approximately $1,000,000 per month since December 31, 1996 and management
believes there is a substantial market for the Company's service. However, there
can be no assurance that sales made by the Company will be at volumes and prices
sufficient for the Company to achieve profitable operations.
The Company has been unprofitable since inception. During the fiscal year
ended March 31, 1997, the Company incurred a net loss of $3,708,078 and, at the
end of such period, had an accumulated deficit of $16,910,816. The Company
expects to continue to incur lossess through at least the 4th quarter of fiscal
1998. From the date of inception (May 6, 1993) through March 31, 1997, the
Company had realized revenues of $2,464,878. Although the Company has begun to
achieve ongoing significant cash sales (approximately $1,000,000 per month since
December 1996, which are all absorbed in their entirety by cash flows used in
operating activities as noted in the Consolidated Statement of Cash Flows), the
Company will require additional capital in order to implement its business plan
in the manner contemplated. See "Capital Requirements" below. There can be no
assurance that the Company will be able to obtain such financing on terms
acceptable to the Company, or at all, or that the Company will be able to
achieve profitable operations. If the Company is unable to obtain such financing
or achieve profitable operations, it may be forced to cease or significantly
limit its operations.
Historical financial information prior to the Reorganization effective July
12, 1994 is that of Tracker Canada. Revenue for Company services is recognized
on a straight-line basis over the term of service offered. Amounts received for
which service has not yet been provided are recorded as deferred revenue. As of
March 31, 1997, the amount of deferred revenue (current and long term) was
$5,122,532 compared with $294,124 as of March 31, 1996.
The Company continues to develop its website on the internet under the
address "www.tracker.com" which will enable clients, subscribers, suppliers,
shareholders, brokers and investors, access to information about the Company and
its current activities on a 24 hour basis. The Company's website was operational
at the end of November 1996.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996.
Cash sales for the fiscal year ended March 31, 1997 increased to $7,977,881
as compared to $382,632 for the fiscal year ended March 31, 1996. Because the
Company recognizes these cash sales on a straight-line basis over the term of
service offered, recorded revenues for the fiscal year ended March 31, 1997
increased to $2,348,169 as compared to $106,522 for the fiscal year ended March
31, 1996. The increase in revenues during the year was due primarily to the
increase in sales of the Company's card registration service.
24
<PAGE> 25
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Cash Sales $ 7,977,881 $ 382,632
Revenue $ 2,348,169 $ 106,522
Net Income(losses) $ (3,708,078) $(6,090,730)
</TABLE>
During the fiscal year ended March 31, 1997, the Company incurred a net
loss of $3,708,078 as compared to a net loss of $6,090,730 for the fiscal year
ended March 31, 1996. These losses included total development costs in the
amount of $4,442,825 for the fiscal year ended March 31, 1997 as compared to
$6,157,022 for the fiscal year ended March 31, 1996.
Included in the net loss for the year ended March 31, 1997 are
non-operating expenditures in the amount of (1) $222,791 in interest expense
incurred as a result of raising capital through convertible debentures; (2)
$199,336 relating to legal, audit and printing fees for the filing of the
Registration Statement on Form S-1 and amendments thereto, for which the
Company received no proceeds; (3) $472,956 reflecting non-cash outlays which
included (a) $454,326 associated with the development of the Company's direct
selling commercial through its contract with The L.L. Knickerbocker Company
("Knickerbocker") and the costs associated with fees to cover its celebrity
spokesperson, Angie Dickinson, and (b) $18,630 associated with the services
provided under the Amerasia contract; (4) $221,190 for a writedown provision on
the Company's short-term investment; and (5) $137,842 associated with the
non-cash outlay relating to the issuance of 541,822 shares of Common Stock to
outside consultants as payment in lieu of fees.
In November 1996, the Company opened a processing and fulfillment
center in Atlanta, Georgia. The decision to expand to Atlanta was made to help
facilitate the Company's growth plans by supporting operations currently housed
in Toronto and managing and operating the Company's fulfillment and card
processing functions.
In December 1996, the Company entered into an agreement to end its
relationship with Knickerbocker. The Company received 400,000 of the 800,000
restricted common shares back from Knickerbocker. These shares were immediately
canceled in treasury.
The Company is continuing in its efforts to minimize its operating cash
"burn" rate and has reduced its expenditures by an additional 28% when comparing
the fiscal year ended March 31, 1997 to the fiscal year ended March 31, 1996.
The largest reduction in expenditures when comparing the fiscal year ended March
31, 1997 to the fiscal year ended March 31, 1996 can be noted in the General and
Administrative category of Development Costs as the Company reduced its
expenditures in all expense categories and primarily focused on reducing
expenditures in the investor and public relations area.
25
<PAGE> 26
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995. During the fiscal year ended March 31, 1996, the Company had net revenues
of $106,522 as compared to $10,187 net revenues for the fiscal year ended March
31, 1995. Cost of goods sold for the fiscal year ended March 31, 1996 was
$40,230 as compared to $4,029 cost for the fiscal year ended March 31, 1995.
This resulted in a gross profit of $66,292 for the fiscal year ended March 31,
1996 as compared to $6,158 gross profit for the fiscal year ended March 31,
1995.
During the fiscal year ended March 31, 1996, the Company incurred a net
loss of $6,090,730 as compared to a net loss of $5,068,583 for the fiscal year
ended March 31, 1995. These losses included expenses in the amount of $6,157,022
for the fiscal year ended March 31, 1996 as compared to $5,074,741 for the
fiscal year ended March 31, 1995. These expenses consisted of operational costs
of $592,880 for the fiscal year ended March 31, 1996 as compared to $687,681 for
the fiscal year ended March 31, 1995, information systems costs of $262,942 for
the fiscal year ended March 31, 1996 as compared to $465,827 for the fiscal year
ended March 31, 1995, sales and marketing costs of $1,031,041 for the fiscal
year ended March 31, 1996 as compared to $1,737,438 for the fiscal year ended
March 31, 1995, and general and administrative costs of $4,270,159 for the
fiscal year ended March 31, 1996 as compared to $2,183,795 for the fiscal year
ended March 31, 1995.
Included in the deficit for the fiscal year ended March 31, 1996 are
non-operating expenditures in the amount of (1) $1,059,447 for investor, media
and public relations services; (2) $138,000 for legal, audit and tax
professional costs associated with the Company entering the process of filing a
required registration statement with the Securities and Exchange Commission; (3)
$181,311 in interest expense incurred as a result of raising capital through
convertible debentures; (4) $1,078,785 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $912,273 associated with the development of the
Company's direct selling commercial through its contract with The L.L.
Knickerbocker Company and the costs associated with fees to cover its celebrity
spokesperson, Angie Dickinson, (b) $118,360 relating to the amortization of
rent, and (c) $48,152 associated with the administration services provided under
the Centry contract; (5) $85,646 relating to the amortization of deferred
charges on the commission incurred from the securing of investors for the
Company's Convertible Debentures; (6) $826,875 associated with the non-cash
outlay relating to the issuance of 630,000 shares of Common Stock, restricted as
to transferability, to certain officers of the Company; and (7) $429,061
associated with the non-cash outlay relating to the issuance of 770,000 shares
of Common Stock to six key employees and one director as payment in lieu of
prior accrued salaries and fees and as an advance of their salaries and fees
through September 30, 1996 (at March 31, 1996 the unamortized portion was
$340,939). All other major expense groups for the fiscal year ended March 31,
1996 have been reduced in comparison to the fiscal year ended March 31, 1995 and
the Company is continuing in its efforts to minimize its operating cash "burn"
rate.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1994. During the fiscal year ended March 31, 1995, the Company had net revenues
of $10,187 as compared to no net revenues for the fiscal year ended March 31,
1994. Cost of goods sold for the year ended March 31, 1995 was $4,029 as
compared to no cost for the fiscal year ended March 31,
26
<PAGE> 27
1994. This resulted in a gross profit of $6,158 for the fiscal year ended March
31, 1995 as compared to no gross profit for the fiscal year ended March 31,
1994.
During the fiscal year ended March 31, 1995, the Company incurred a net
loss of $5,068,583 as compared to a net loss of $2,043,425 for the fiscal year
ended March 31, 1994. These losses included developmental costs in the amount of
$5,074,741 for the fiscal year ended March 31, 1995 as compared to $2,043,425
for the fiscal year ended March 31, 1994. These developmental costs consisted of
operational costs of $687,681 for the fiscal year ended March 31, 1995 as
compared to $149,260 for the fiscal year ended March 31, 1994, information
systems costs of $465,827 for the fiscal year ended March 31, 1995 as compared
to $157,277 for the fiscal year ended March 31, 1994, sales and marketing costs
of $1,737,438 for the fiscal year ended March 31, 1995 as compared to $606,271
for the fiscal year ended March 31, 1994, and general and administrative costs
of $2,183,795 for the fiscal year ended March 31, 1995 as compared to $1,130,617
for the fiscal year ended March 31, 1994.
The results of operations stated above for the fiscal year ended March 31,
1994 are not for a full year, but instead are for the period from May 6, 1993
(the date of inception of Tracker Canada) through March 31, 1994. Accordingly,
results for the fiscal years ended March 31, 1995 and March 31, 1994 are not
necessarily comparable.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through March 31, 1997, the Company has
received approximately $10,347,061 in net cash from financing activities, some
of which are noted below.
During the year ended March 31, 1997, the Company's net cash used in
operations was $465,828 as compared to $3,501,557 for the year ended March 31,
1996. The cash used in operations was devoted primarily to funding the
development of identification and recovery systems and software, a card
registration service, labels, packaging, marketing and advertising materials and
plans, and the procurement and installation of additional recovery and scanning
stations for the Company's scanning network.
As of March 31, 1997, the Company had total current assets of $3,442,754 as
compared to $665,102 at March 31, 1996. Current assets consisted of cash in the
amount of $105,213 as of March 31, 1997 as compared to $78,844 at March 31,
1996, short-term investments in the amount of $0 as of March 31, 1997 as
compared to $221,190 at March 31, 1996, accounts receivable in the amount of
$133,613 as of March 31, 1997 as compared to $7,361 at March 31, 1996, prepaid
expenses and deposits in the amount of $359,526 as of March 31, 1997 as compared
to $168,345 at March 31, 1996, inventories in the amount of $24,338 as of March
31, 1997 as compared to $115,612 at March 31, 1996, and current deferred charges
in the amount of $2,820,064 as of March 31, 1997 as compared to $73,750 at March
31, 1996. As of March 31, 1997, the Company had amount due from stockholders in
the amount of $61,487 as compared to $58,226 at as of March 31, 1996, long-term
deferred charges totaling $315,837 as compared to $66,234 at March 31, 1996, net
property and equipment totaling $418,267 as compared to $353,729 at March 31,
1996, and long-term investments in the amount of $nil as compared to $50,451
at March 31, 1996. As of March
27
<PAGE> 28
31, 1997, the Company had liabilities of $6,026,589 as compared to $2,393,631 at
March 31, 1996. Such liabilities consisted of accounts payable in the amount of
$468,764 as of March 31, 1997 as compared to $551,553 at March 31, 1996, accrued
liabilities in the amount of $1,161,942 as of March 31, 1997 as compared to
$266,837 at March 31, 1996, deferred revenues in the amount of $4,509,401 as of
March 31, 1997 as compared to $115,241 at March 31, 1996, debentures in the
amount of $83,991 as of March 31, 1997 as compared to $0 at March 31, 1996, and
convertible subordinated debentures in the amount of $590,746 as of March 31,
1997 as compared to $1,460,000 at March 31, 1996. The Company had long-term
deferred revenues in the amount of $613,131 as of March 31, 1997 as compared to
$178,883 at March 31, 1996.
The increased sales activity of the Company caused material changes to the
Company's long-term deferred charges and long-term deferred revenues. During the
year ended March 31, 1997, the Company experienced rapid growth of sales
activity with respect to its card registration service. For the year ended March
31, 1997, the Company experienced cash sales of approximately the following
amounts: card registration service - $7,882,785, and personal property
identification and recovery services - $95,006. The Company anticipates,
however, that sales of its personal property identification and recovery
services will continue to increase and ultimately will surpass the card
registration service as the Company's largest source of revenues. Although
management believes that sales activity will continue to grow, there can be no
assurance that the Company's sales will increase or that these trends will
continue.
As of March 31, 1997 and March 31, 1996, respectively, the Company had
accumulated deficits of $16,910,816 and $13,202,738. To date, the Company has
financed its research and development activities and operations primarily
through ongoing sales of its card registration program and the private placement
by Tracker U.S. of First Series Convertible Debentures aggregating $1,000,000
from July to October 1995, the private placement by Tracker U.S. of Second
Series Convertible Debentures aggregating $1,189,529 through March 1996, the
sale by Tracker U.S. of a total of 1,810,000 shares of Common Stock in private
placements, and the sale by Tracker U.S. pursuant to Regulation S under the
Securities Act of 1,050 shares of Preferred Stock for $1,050,000 during April,
May and August 1996.
The sales of the 1,810,000 shares of Common Stock are described in the
remainder of this paragraph. On September 16, 1994, Tracker U.S. issued,
pursuant to Regulation S under the Securities Act, 785,000 shares of Common
Stock (200,000 shares of which were returned to the Company) for total gross
proceeds to Tracker U.S. of $2,351,700, $955,000 of which was received by
Tracker U.S. in the form of cash and the remainder of which was in the form of
payments by the buyer of the shares of Common Stock to third parties in
cancellation of indebtedness owed by the Company to such third parties. On
February 9, 1995, Tracker U.S. issued to two separate overseas buyers, pursuant
to Regulation S, 275,000 shares of Common Stock for total proceeds to the
Company of $550,000. On March 15, 1995, Tracker U.S. issued 500,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase Common
Stock, for total gross proceeds to the Company of $350,000. On May 1, 1995,
Tracker U.S. issued 250,000 units, each unit consisting of one share of Common
Stock and one warrant to purchase Common Stock, for total gross proceeds to the
Company of $250,000. Tracker U.S. also issued 200,000 shares of Common Stock to
a buyer for $200,000, of which only $83,000 has been paid to Tracker U.S. by the
buyer. The Company has filed suit against the investor to attempt to collect the
remaining
28
<PAGE> 29
$117,000 and the suit is still pending. There can be no assurance, however,
that the Company will be successful in the lawsuit or will be able to collect
such amount.
In addition to the above described private placements, the Company raised
$619,166 during the year ended March 31, 1996 through the issuance of 849,803 of
Tracker Canada's Exchangeable Preference Shares pursuant to outstanding warrants
to purchase such Exchangeable Preference Shares. Further, the Company has issued
shares to employees and third parties in lieu of compensation to such employees
or payments to such third parties for products or services provided to the
Company.
Tracker U.S., the parent corporation, is dependent upon the liquidity of
its subsidiary, Tracker Canada. The terms of the Exchangeable Preference Shares
restrict, under certain limited circumstances, Tracker Canada's ability to fund
the liquidity requirements of Tracker U.S. by paying dividends or making other
distributions to Tracker U.S. The Company believes that such terms have no
material impact on Tracker Canada's ability to fund the liquidity requirements
of Tracker U.S., however, because such terms prohibit Tracker Canada from making
a distribution to Tracker U.S. without the consent of the holders of the
Exchangeable Preference Shares only if all dividends accrued on the Exchangeable
Preference Shares have not been declared and paid in full or an amount set aside
for such payment. Because dividends on the Exchangeable Preference Shares do not
accrue unless and until a dividend is declared on the Tracker U.S. Common Stock,
and because Tracker U.S. has never paid any cash dividends on its Common Stock
and does not intend to pay any cash dividends in the foreseeable future (see
"MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS"), the
Company believes it is extremely unlikely that there will ever be any
prohibition on distributions by Tracker Canada to Tracker U.S.
The Company has decided to writedown its short-term investment, recorded at
the Company's original cost of $221,190 (CDN$1.04 per share), in 288,462 shares
of Stratcomm Media Ltd. ("Stratcomm") to $0 in 1997 as the shares have been
delisted from the Vancouver Stock Exchange.
In July 1994 and January 1995, the Company entered into two separate
agreements to acquire interests in other companies, Page-Direct Ltd.
("Page-Direct") and C.E.M. Centry Electronic Monitoring Corporation ("Centry"),
which management believed at that time could enhance the Company's
infrastructure and marketing capabilities. As further described in "Aborted
Acquisitions; Acquisition Policy," these investments were subsequently aborted
without burdening the Company's cash flows too significantly. Management is now
focusing its attention on its core businesses.
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 additional distribution channels and the conducting of a
29
<PAGE> 30
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 and
advertising campaign during the next twelve months. However, if the Company does
not receive sufficient funding on acceptable terms, this could 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 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.
A critical element in management's plan to overcome the Company's
present financial condition is to mitigate the need for additional outside
funding. Management plans to do this in two ways. First, to minimize the
Company's cash requirements, the Company has: (i) reduced staff to minimal safe
operating levels; (ii) when required, compensated certain members of senior
management in stock rather than cash; and (iii) sought to control expenses.
Second, and particularly critical to the long-term viability of the Company, the
Company must decrease the need for additional outside funding by generating cash
internally, i.e., through sales. Although no assurance can be given that any
sales made by the Company will be at volumes and prices sufficient for the
Company to achieve significant revenues, eliminate or decrease the need for
additional outside financing, and achieve profitable operations, management
believes it is likely that its marketing and sales efforts will, in the
long-term, result in sufficient sales to decrease the need for additional
outside financing and achieve profitable operations.
ABORTED ACQUISITIONS; ACQUISITION POLICY
On July 22, 1994, the Company entered into an agreement to acquire
Page-Direct, a wireless communications company. Prior to cancellation of the
agreement, the Company had issued 271,052 Tracker Canada Exchangeable Preference
Shares to the owner of Page-Direct for 46.2% of the outstanding shares of
Page-Direct and had advanced $178,350 to Page-Direct at an interest rate equal
to the Royal Bank of Canada prime rate plus 2%. In June 1995, the owner of
Page-Direct exercised his option under the agreement to re-acquire his interest
in Page-Direct, he returned the Exchangeable Preference Shares to the Company,
Page-Direct repaid the loan, and the agreement was canceled. The Company
recorded the exercise of the reversionary option by the owner of Page-Direct as
if it had occurred as of March 31, 1995.
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<PAGE> 31
By agreement dated January 31, 1995, the Company, through Tracker Canada,
committed to purchase up to 35.9% of the voting common shares of Centry through
a private placement of an 8% convertible debenture in the principal amount of
$405,260 (CDN $575,000). Tracker Canada advanced certain funds to Centry under
the debenture and agreed to provide, over nine months, administrative services
in the amount of $50,746 (CDN $72,000). In consideration therefor, Tracker
Canada received 510,275 common shares of Centry, which represented
approximately 9.87% of Centry's common shares then issued. Tracker Canada also
secured a voting trust and option agreement over 1,248,087 common shares
(approximately 17.2%) of Centry from the founders of Centry and prepaid
consulting services agreements in exchange for 78,005 Exchangeable Preference
Shares. The agreement contemplated that as payments were made under the
debenture, Tracker Canada would receive additional shares in Centry such that
upon payment of the entire convertible debenture, Tracker Canada would have
voting control of 53.1% of Centry.
Tracker Canada advanced $50,451 under the debenture to Centry and received
a further 122,727 common shares for a total of 633,002 common shares
representing approximately 11.96% of Centry's common shares issued.
Subsequently, the Company entered into agreements with Centry which released the
Company from its obligation to fund the balance under the debenture and which
provided that the Company would receive a 3% commission of total gross revenues
on any deal entered into by Centry with certain companies, while Tracker gave
up the voting trust and option agreement. The Company has satisfied all of its
administrative services obligations to Centry. In October 1996, the Company sold
its interest in Centry for $37,037 as management wished to keep focused on its
core businesses and Centry did not fit into future plans.
The above-described acquisitions were completely independent. To the
Company's knowledge, no common ownership or management exists between Centry and
Page-Direct and their principals or promoters. The Company's original purpose in
entering into the acquisitions was to acquire companies which the Company at the
time believed would assist it in advancing its longer-term strategy of locating
lost or stolen possessions through real-time asset tracking technologies. The
acquisitions were aborted because the Company was unable to generate sufficient
capital to support both its own marketing launch and the capital requirements of
the acquisitions. Since making these acquisitions, management has determined
that it is in the best interests of the Company to concentrate on the
development of its core business (i.e., its personal property identification and
recovery system and its card registration service) and to use its capital and
other resources to support the development of that business. Accordingly , the
Company has no present plans to make other acquisitions in the future.
INFLATION; SEASONALITY
While inflation has not had a material impact on operating results and
management does not expect inflation to have a material impact on operating
results, there can be no assurance that the business of the Company, on a
consolidated basis, will not be affected by inflation in the future. While the
Company's business to date has not been seasonal and management does not expect
that its business will be seasonal in the future, there can be no assurance that
the business of the Company, on a consolidated basis, will not be seasonal in
the future.
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<PAGE> 32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Pursuant to Item 305(e) of Regulation S-K, this Item is not applicable to
the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements for the year ended March
31, 1997 are included beginning at page 53.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-- None --
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers and directors as of June 30, 1997:
NAME AGE POSITION
I. Bruce Lewis 56 Tracker U.S.: Chief Executive Officer, President
and Chairman of the Board of Directors; Tracker
Canada: President, Chief Operating Officer, Chief
Executive Officer and Chairman of the Board of
Directors
Mark J. Gertzbein 42 Tracker U.S.: Executive Vice President, Chief
Financial Officer, Secretary, Treasurer and Deputy
Chairman of the Board of Directors; Tracker
Canada: Senior Vice President of Finance, Chief
Financial Officer, Secretary and Director
Ed J. Korhonen 61 Tracker U.S.: Director
Quincy A.S. McKean III 41 Tracker U.S.: Director
Wolfgang Kyser 50 Tracker U.S.: Director
Leonard Yakobovits 38 Tracker U.S.: Director
I. BRUCE LEWIS has been the Chairman of the Board of Directors and Chief
Executive Officer of Tracker U.S. since June 30, 1994. Mr. Lewis has also served
Tracker U.S. as President since August 12, 1995. Mr. Lewis also serves Tracker
Canada as its Chief Executive Officer and Chairman of the Board of Directors and
has so served since May 1993. For the period from 1980
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<PAGE> 33
through May 1990, Mr. Lewis was President and a Director of Albert Berg Limited
and its subsidiaries. Albert Berg was petitioned into bankruptcy by its
creditors in May 1990. From June 1988 to August 1990, he served as the Chief
Executive Officer of Cape Breton Chemical Corporation, a start-up PVC flexible
stretch wrap manufacturer. From May 1990 through May 1993, Mr. Lewis was also a
consultant to various companies in the areas of management and acquisition
financing.
MARK J. GERTZBEIN has been the Deputy Chairman of the Board of Directors,
the Executive Vice President and the Chief Financial Officer, Secretary and
Treasurer of Tracker U.S. since June 30, 1994. In addition, Mr. Gertzbein has
served as the Senior Vice President of Finance, the Chief Financial Officer and
Secretary of Tracker Canada since his appointment in July 1993 and as a Director
of Tracker Canada since May 1993. From August 1984 to June 1988, he served
Albert Berg Limited as Vice President, Finance and Administration. Albert Berg
was petitioned into bankruptcy by its creditors in May 1990. From June 1988 to
August 1990, he served as the Chief Financial Officer of Cape Breton Chemical
Corporation, a start-up PVC flexible stretch wrap manufacturer. From August 1990
to June 1991, Mr. Gertzbein consulted various companies on administrative,
accounting and tax related issues. From June 1991 to July 1993, he served as the
Corporate Controller for Summit Cosmetics, Inc., an exclusive warehouse and
distributor in the cosmetics and fragrance industry.
ED J. KORHONEN has been a Director of Tracker U.S. since November 1, 1995.
He was the President, Chief Operating Officer and a Director of Tracker Canada
from May 1993 through May 1996. Since resigning from his positions with Tracker
Canada in May 1996, Mr. Korhonen has been the Executive Vice President of Eco
Logic International Inc. Mr. Korhonen served Nabisco Brands Limited as President
of Confectionery, Industrial Products and Grocery Divisions from 1977 to 1988
and was President of Maple Leaf Flour Products from 1989 to 1991. He has
subsequently engaged in business consulting with a company, Ed Korhonen
Management, he founded in 1991 and was a partner in the management consulting
firm of Sniderman & Wood from January 1992 through May 1993. Mr. Korhonen also
consults with Tracker Canada.
QUINCY A.S. MCKEAN III has been a Director of Tracker U.S. since June 30,
1994. Mr. McKean was a director of Ultra Capital Corp., the predecessor entity
of the Company, from February 1992 to June 1994. From January 1987 through March
1990, Mr. McKean was employed by First Fidelity Bank, N.A./First Fidelity
Brokers of Newark, New Jersey, where he managed retail and institutional
accounts. From March 1990 through July 1994, he was a registered representative
with Kidder Peabody & Co. in New York City. Since July 1994, Mr. McKean has been
associated, as a registered representative, with the New York securities firm of
Mercer, Bokert, Buckman and Reid, Inc.
WOLFGANG H. KYSER has been a Director of Tracker U.S. since June 30, 1994.
Since 1986 Mr. Kyser has been a principal and the Chief Executive Officer of KHB
Investments Corporation, which deals with foreign investments in Canada and the
United States. Since 1995, Mr. Kyser has been a principal and the President of
Kyser Pacific Group, which invests in and develops real estate. From December
1987 through September 1992, he was the sole director of "687292", an Ontario
company which held real estate. In November 1992, "687292" was petitioned into
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<PAGE> 34
bankruptcy by its creditors. Mr. Kyser also is a Director of AEG Sorting
Systems, Inc. and Olympia Business Machines Ltd.
LEONARD YAKOBOVITS has been a Director of Tracker U.S. since September 8,
1995. Since 1985 Mr. Yakobovits has been the President of Dezco Holding &
Trading, a North American clear-out specialist and distributor for branded
consumer products. Mr. Yakobovits also consults with Tracker Canada.
CLASSIFICATION OF BOARD OF DIRECTORS OF TRACKER U.S.
Tracker U.S.'s Certificate of Incorporation and Bylaws provide that the
Board of Directors is divided into three classes of directors, with the classes
to be as nearly equal in number as possible. The Certificate of Incorporation
and Bylaws provide that approximately one-third of the directors of Tracker U.S.
will continue to serve until the 1997 annual meeting of stockholders,
approximately one-third will continue to serve until the 1998 annual meeting of
stockholders, and approximately one-third will continue to serve until the 1999
annual meeting of stockholders. Messrs. Lewis, Gertzbein and Yakobovits have
been elected to serve until the 1997 Annual Meeting of Stockholders. Messrs.
Kyser and Korhonen have been elected or appointed to serve until the 1998 Annual
Meeting of Stockholders. Mr. McKean has been elected to serve until the 1999
Annual Meeting of Stockholders.
The classification of the Board of Directors would make it more difficult
for stockholders to change the composition of the Board of Directors and could
discourage a third party from attempting to obtain control of Tracker U.S..
COMMITTEES OF THE BOARD OF DIRECTORS OF TRACKER U.S.
The Executive Committee is comprised of I. Bruce Lewis and Mark J.
Gertzbein. The Audit Committee, which is comprised of Messrs. Korhonen, McKean
and Gertzbein (Chairman), is responsible for: (i) reviewing and recommending the
engagement each year of the Company's independent auditors; (ii) consulting with
the independent auditors on the adequacy of the Company's internal controls;
(iii) reviewing, with the independent auditors, the auditors' reports on the
Company's financial statements; and (iv) taking such other steps as the Audit
Committee deems necessary to carry out the normal functions of an audit
committee. The Ethics Committee is comprised of Messrs. Kyser (Chairman) and
Yakobovits. The Compensation Committee, which is comprised of Messrs. Yakobovits
(Chairman) and McKean, is responsible for: (i) determining the compensation of
the Company's senior officers; (ii) reviewing recommendations by management as
to the compensation of other officers and key personnel; and (iii) reviewing
management's succession program. Further, the Compensation Committee
administers the Company's 1994 Stock Incentive Plan (the "1994 Plan").
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company does not have a class of equity securities registered pursuant
to Section 12 of the Exchange Act. Accordingly, its directors, officers and 10%
beneficial owners are not required to file reports pursuant to Section 16(a) of
the Exchange Act.
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ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of the
Board of Directors or a committee meeting and an annual retainer of $10,000. On
May 3, 1996, the Company issued 10,000 shares of Common Stock to each of Messrs.
Coronella and McKean in lieu of $4,500 compensation owed to them for their
services as directors, issued 5,556 shares of Common Stock to Mr. Kyser in lieu
of $2,500 compensation for his service as a director, and issued 8,889 shares of
Common Stock to Mr. Yakobovits in lieu of $4,000 for his service as a director.
On October 16, 1996, the Company issued 83,333 shares of Common Stock to each of
Messrs. Yakobovits and Kyser in lieu of $10,000 compensation owed to each of
them for their annual fees as directors and 41,667 shares of Common Stock to
each of Messrs. McKean and Korhonen in lieu of $5,000 compensation owed to each
of them for one-half of their annual fee as a director. On January 17, 1997, the
Company issued 45,913 shares of Common Stock to Mr. Coronella in lieu of $5,601
compensation owed to him by the Company for his service as a director. Mr.
Coronella resigned on May 17, 1997. In addition, non-employee directors are
eligible to receive options to purchase shares of the Company's Common Stock.
See "EXECUTIVE COMPENSATION - 1994 Stock Incentive Plan - Stock Options for
Non-employee Directors."
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth the compensation paid in cash or shares or
accrued by the Company to the Chief Executive Officer and to the other executive
officer (the "Named Executive Officers") for services rendered in all capacities
to the Company during the fiscal year ended March 31, 1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Fiscal Annual Restricted
Name and Principal Position Year Compensation Stock
Ended Salary Award(s)
March 31, ($) ($)
<S> <C> <C> <C>
I. Bruce Lewis, Chief Executive Officer & President(1) 1997 175,000 --
I. Bruce Lewis, Chief Executive Officer(1) 1996 175,000 --
I. Bruce Lewis, Chief Executive Officer(1) 1995 178,350 --
Mark J. Gertzbein, Chief Financial Officer & Executive Vice President(2) 1997 175,000 --
Mark J. Gertzbein, Chief Financial Officer & Executive Vice President(2) 1996 175,000 413,437
Mark J. Gertzbein, Chief Financial Officer & Executive Vice President(2) 1995 178,350 --
</TABLE>
(1) Through BL Consulting Services, Mr. Lewis contracted with Tracker Canada
for annual compensation in the amount of $178,350. In connection with the
Reorganization, the Company and Mr. Lewis entered into a
stockholder-approved
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<PAGE> 36
employment agreement which originally provided for base annual salary in
the amount of $440,000. The Company had amended the employment agreement
with Mr. Lewis, and coordinated the consulting agreement between Tracker
Canada and BL Consulting Services, to terminate the consulting agreement
between Tracker Canada and BL Consulting Services as of the effective date
of the employment agreement between the Company and Mr. Lewis, to provide
for a total compensation for the year ended March 31, 1995 in the amount of
$178,350 and to reduce the annual base salary under the employment
agreement between the Company and Mr. Lewis to $175,000 effective April 1,
1995. On September 24, 1996, the Company entered into a three year
agreement with Mr. Lewis, which provides for an annual base salary of
$175,000, with increases of $37,500 each year based upon certain
performance criteria beginning April 1, 1997.
(2) Through MJG Management Accounting Services Ltd., Mr. Gertzbein contracted
with Tracker Canada for annual compensation in the amount of $178,350. In
connection with the Reorganization, the Company and Mr. Gertzbein entered
into a stockholder-approved employment agreement which originally provided
for base annual salary in the amount of $350,000. The Company had amended
the employment agreement with Mr. Gertzbein, and coordinated the consulting
agreement between Tracker Canada and MJG Management Accounting Services
Ltd., to terminate the consulting agreement between Tracker Canada and MJG
Management Accounting Services Ltd. as of the effective date of the
employment agreement between the Company and Mr. Gertzbein, to provide for
a total compensation for the year ended March 31, 1995 in the amount of
$178,350 and to reduce the annual base salary under the employment
agreement between the Company and Mr. Gertzbein to $175,000 effective April
1, 1995. On April 11, 1995, the Compensation Committee granted Mr.
Gertzbein 315,000 shares of restricted stock under the 1994 Plan. On
September 24, 1996, the Company entered into a three year agreement with
Mr. Gertzbein, which provides for an annual base salary of $175,000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
On June 30, 1994, the Company, in connection with the Reorganization,
entered into stockholder approved employment agreements with Messrs. Lewis and
Gertzbein. The agreements originally provided for base salaries at annual rates
equal to $440,000 and $350,000, respectively. Effective July 12, 1995, upon
recommendation of the Compensation Committee of the Board of Directors and with
the agreement of each of Messrs. Lewis and Gertzbein, each of these employment
agreements was amended to reduce annual base salaries to $175,000, with a
maximum relocation allowance of $25,000 and a maximum car allowance of $10,000.
In addition, each such person is eligible for discretionary bonuses.
The agreements for Messrs. Lewis and Gertzbein have an initial term of
three years with one year renewal terms thereafter, and provide for the payment
of a relocation allowance equal to the lesser of the actual relocation expenses
or $25,000 per each occurrence. Each agreement provides that the executive is
entitled to participate in any stock option, stock purchase, annual bonus,
pension, profit sharing, life insurance and medical benefit plans and such other
fringe benefits that may be applicable to the Company's senior executive
employees.
If either Mr. Lewis' or Mr. Gertzbein's employment is terminated by the
Company for cause (as defined in the executive's employment agreement) or by the
executive for any reason (other than for good reason (also as defined)), the
executive will be entitled to his compensation through the date of termination.
If, prior to a change of control of the Company (as defined), employment is
terminated due to the executive's death or disability, by the Company other than
for cause or by the executive for good reason, the executive would be entitled
to receive all compensation through the date of termination, plus the
continuation of base salary for the greater of one year or the remainder of the
term of the agreement. In addition, the Company will maintain for Messrs. Lewis
and Gertzbein for 12 months, or, if earlier, through the date the executive
obtains alternative employment, such executive's participation in the employee
benefit plans of the Company in which the executive was eligible to participate
immediately before termination, to the
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<PAGE> 37
extent permissible under such plans. The executive (or his legal representative)
also will have the right to exercise all vested stock options outstanding at the
termination date in accordance with the plans governing those options. The
Company will use its best efforts to remove the restrictions from any restricted
stock held by the executive at termination. If the executive's employment is
terminated after a change of control, either by the executive for good reason
or by the Company without cause, the executive will receive all the benefits he
would have received for such a termination prior to a change of control, and all
unvested stock options held by the executive shall become immediately fully
vested. Payments made in conjunction with a change of control are limited to an
amount that will not result in either a loss of the income tax deduction of the
Company under Internal Revenue Code Section 280G or an excise tax under Code
Section 4999.
The Company entered into a Consulting Agreement with its former President,
Gregg C. Johnson, which took effect upon his resignation as President of the
Company on August 12, 1995. The Consulting Agreement provides for: (a) a monthly
fee of $10,000 until March 31, 1996; (b) a commission of 10% on funds raised for
the Company; (c) a commission of 5% of net sales, if any, generated by the
Company from certain marketing arrangements up to July 12, 1997, to a maximum of
$500,000; (d) a commission of up to 8% of net sales generated from any other
sales arrangement introduced and negotiated (subject to Company prior approval)
by Mr. Johnson, up to July 12, 1998; (e) release by the Company from his $56,786
(as of August 31, 1995) indebtedness to the Company upon his returning to the
Company 2,986 shares of the Company's Common Stock; and (f) reimbursement of
preapproved business related expenses. To date, the Company has not paid any
compensation to Mr. Johnson under the Consulting Agreement and Mr. Johnson has
not returned the 2,986 shares to the Company.
1994 STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the stockholders approved the 1994 Stock
Incentive Plan and on November 1, 1995 the stockholders approved certain
amendments to the 1994 Stock Incentive Plan (collectively, the "1994 Plan"). The
1994 Plan is intended to enable Tracker U.S. to attract, retain and motivate
officers, other key employees and non-employee directors of and consultants to
Tracker U.S. and to provide such persons with incentives and rewards for
superior performance more directly linked to profitability of the Company's
business and increases in shareholder value. Individuals are selected for
participation in the 1994 Plan by a Compensation Committee of the Board of
Directors (the "Committee"). An aggregate of 1,250,000 shares of Common Stock
have been reserved for issuance under the 1994 Plan, subject to adjustment in
the event of a stock split, stock dividend or other change in the Common Stock
or the capital structure of Tracker U.S. The Company intends to submit to its
stockholders at its Annual Meeting presently scheduled for August 22, 1997 a
proposal to increase the number of shares available under the Plan to 5,000,000.
The total number of persons who may receive grants under the 1994 Plan is
estimated by Tracker U.S. to be approximately twenty-one (21). The total number
of non-employee directors who may receive grants under the 1994 Plan is
estimated to be approximately four (4). In no event shall the aggregate number
of shares covered by grants and awards to any one individual participating in
the 1994 Plan exceed 315,000 shares per year or 315,000 shares over the term of
the 1994 Plan. Options that expire unexercised may again be issued under the
1994 Plan subject to the foregoing limitations. The 1994 Plan is administered
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<PAGE> 38
by the Committee, which has the exclusive power to determine whether to grant,
and the terms and conditions of any grant of, stock options, stock appreciation
rights, performance shares, performance units, restricted shares or deferred
shares to participants and to resolve all questions relating to the
administration of the 1994 Plan. Members of the Committee are not eligible to
receive grants or awards under the 1994 Plan other than the automatic grants to
non-employee directors. See "EXECUTIVE COMPENSATION - 1994 Stock Incentive Plan
- - Stock Options for Non-Employee Directors."
STOCK OPTIONS. Under the 1994 Plan, the Committee may grant options to
purchase shares of Common Stock, including options qualifying as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to employees as additional compensation for their services
to Tracker U.S. Options may be granted prior to termination of the 1994 Plan,
which will occur on the earlier of June 29, 2004 or the date on which all awards
available for issuance in the last year of the 1994 Plan will have been issued
or canceled. Options granted are subject to adjustment in the event of a stock
split, stock dividend or other change in the Common Stock or the capital
structure of Tracker U.S.
Options are exercisable over such period as determined by the Committee,
but no incentive stock option may be exercised after ten years from the date of
grant. However, the option term of incentive stock options which are granted to
holders of ten percent or more of Tracker U.S.'s combined voting power shall not
exceed five years from the date of grant. Options may be exercisable in
installments as determined by the Committee and are evidenced by option
agreements. No option may be transferred other than by will or by the laws of
descent and distribution. Options generally cannot be exercised after the
termination of service, except under certain circumstances where such
termination of service is with the consent of the Committee or due to
retirement, disability or death, in which event the Committee (subject in any
case to the foregoing limitation on the maximum term of incentive stock options)
may take any action it deems equitable or in the best interests of Tracker U.S.
The purchase price of Common Stock subject to an incentive stock option cannot
be less than 100% of the fair market value of such Common Stock on the date of
grant. The purchase price of Common Stock subject to a nonqualified option may
be less than, equal to or greater than the fair market value of such Common
Stock on the date of grant. However, if any individual to whom an incentive
stock option is granted is the owner of stock (as determined under Section
424(d) of the Code) possessing 10% or more of the total combined voting power of
all classes of Stock of Tracker U.S. or any subsidiary of Tracker U.S., then the
purchase price per share shall not be less than 110% of the fair market value of
such Common Stock on the date of grant. The option price may be due upon
exercise of the option and may be paid in cash, check, shares of Common Stock or
other consideration acceptable to the Committee (including restricted stock), or
may be deferred through a sale and remittance procedure with a
Company-designated brokerage firm. Grants may also provide for reload option
rights upon the exercise of options, provided that the term of any such reload
option will not extend beyond the term of the option originally exercised.
APPRECIATION RIGHTS. The Committee may also grant appreciation rights in
tandem with an option or freestanding and unrelated to an option. An
appreciation right entitles the
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<PAGE> 39
participant to receive from Tracker U.S. an amount payable in cash, shares of
Common Stock or a combination of cash and Common Stock equal to the positive
difference between the fair market value of a share of Common Stock on the date
of exercise and the appreciation right grant price, subject to any ceiling that
may be imposed by the Committee. The Committee may specify that a grant of an
appreciation right: (i) is subject to a waiting period before becoming
exercisable; (ii) may be exercised within specified periods of time; or (iii)
may be exercised only upon the occurrence of certain events, including a Change
of Control (as defined below) or a Corporate Transaction (as defined below).
Additionally, with respect to a tandem appreciation right, the Committee may
provide that such right may be exercised only when the related option, or
similar right, is exercisable and the per share market value of Tracker U.S.'s
Common Stock on the date of exercise of the appreciation right exceeds the
exercise price of the related option. In no event shall the aggregate
appreciation rights granted to any one individual participating in the 1994 Plan
exceed 315,000 per year or 315,000 over the term of the 1994 Plan.
PERFORMANCE SHARES AND PERFORMANCE UNITS. Performance shares and
performance units entitle the participant to receive cash or shares of Common
Stock, or a combination thereof, based upon the degree of achievement of
pre-established management objectives over a pre-established performance period
determined by the Committee in its discretion. The Committee may adjust the
management objectives, and the related minimum acceptable level of achievement,
after the date of grant to avoid distortion that would otherwise result from
events not related to the performance of the participants occurring after the
date of grant. Management objectives are fixed by the Committee in its
discretion on the basis of such criteria and to accomplish such objectives as
the Committee may select. The Committee has sole discretion to determine the
participants eligible for performance shares or performance units, the duration
of each performance period, the value of each performance unit and the number of
shares or units earned on the basis of Tracker U.S.'s performance relative to
the established objectives. At the end of the performance period, the Committee
will determine the number of performance shares and the number of performance
units which have been earned on the basis of Tracker U.S.'s performance in
relation to the performance objectives. Generally, a participant must be an
employee at the end of the performance period to receive the performance shares
or units; provided, however, that if the participant dies, retires, becomes
disabled or ceases to be an employee prior to the end of the period with the
Committee's consent, and in certain other circumstances, the Committee may take
any action it deems equitable or in the best interests of Tracker U.S. The
number of performance units that are granted under the 1994 Plan shall not
exceed 750,000 in the aggregate over the term of the 1994 Plan.
RESTRICTED STOCK. A grant of restricted stock consists of a specified
number of shares of Common Stock that is contingently awarded in amounts
determined by the Committee and is subject to forfeiture to Tracker U.S. under
such conditions and at such times as the Committee may determine. An employee
who has been awarded restricted shares may vote and receive dividends, if any,
on restricted shares, but may not sell, assign, transfer, pledge or otherwise
encumber restricted shares during the restricted period. If a participant's
employment ceases prior to the end of the restricted period either with the
consent of Tracker U.S. or upon the occurrence of his death, disability or
retirement, the restrictions may lapse with respect to some portion or all of
the restricted stock as determined by the Committee. If a participant's
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<PAGE> 40
employment terminates prior to the end of the restricted period for any other
reason, all of the participant's restricted shares and restricted units are
forfeited. Grants may be without additional consideration or in consideration
of a payment by the participant that is less than the fair market value of the
restricted stock on the grant date. On April 11, 1995, Tracker U.S. granted
315,000 shares of restricted Common Stock to each of Gregg C. Johnson and Mark
J. Gertzbein pursuant to the 1994 Plan.
DEFERRED SHARES. The Committee may grant deferred shares to participants
under the 1994 Plan. Each grant or sale of deferred shares will be subject to
the fulfillment of conditions and a deferral period specified by the Committee.
During the deferral period, the participant will have no right to transfer the
award, no right of ownership in the deferred shares, and no right to vote the
deferred shares. The Committee, however, may authorize payment of dividend
equivalents on the deferred shares in cash or shares of Common Stock of Tracker
U.S. on a current, deferred or contingent basis. Grants may be made without
additional consideration or in consideration of a payment by the participant
that is less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the 1994 Plan as originally
adopted, each non-employee director elected or appointed on or after the
effective date of the 1994 Plan was, upon election, automatically granted an
option to purchase 10,000 shares of Common Stock. The price per share to be paid
at the time such option is exercised by a non-employee director equals 100% of
the fair market value of the Common Stock on the date of the grant of the
option. The 1994 Plan provides that options granted to non-employee directors
have a maximum term of ten years and are exercisable ratably in annual
installments over three years. The option price is due upon exercise of the
option and may be paid in cash, check, shares of Common Stock or other
consideration acceptable to the Committee or may be deferred through a sale and
remittance procedure with a Company-designated brokerage firm. All options
granted to a non-employee director who dies or becomes disabled while serving as
a director will become immediately and fully exercisable at the time of such
termination of service as a director, and all of his options may be exercised
within twelve months after such cessation of service. If a former non-employee
director should die within six months after cessation of Board service, the
personal representative of such former director's estate may exercise those
options in which the former director was vested at the time of death for a
twelve month period following the death of the former director. If a
non-employee director's service terminates for any reason other than those
stated above, options which are not then exercisable will be canceled and
options which are then exercisable may be exercised at any time within six
months after the date of such termination (but not later than the expiration
date of the respective options). All options granted to non-employee directors
vest immediately upon a "Change of Control" of Tracker U.S. (as defined below).
The portion of the 1994 Plan applicable to non-employee directors is designed
to be self-executing. Effective July 12, 1994, four such grants with an exercise
price of $7.95 per share were made to the four initial non-employee directors.
As a result of one directors' resignation after serving one year on the Board of
Directors, he holds vested options to purchase 3,333 shares; the balance of the
options were cancelled. Effective September 8, 1995 a grant of options to
purchase 10,000 shares at an exercise price of $1.81 per share was made to a
newly
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appointed director. As a result of one directors' resignation after serving
three years on the Board of Directors, he holds vested options to purchase
10,000 shares.
The amendments to the 1994 Plan approved by the stockholders on November 1,
1995 provide for automatic stock option grants for 10,000 shares each year to
Eligible Directors (defined below). This Automatic Option Grant Program would be
limited to those persons who serve as non-employee members of the Board and who
do not beneficially own, directly or indirectly, or represent any stockholder
that beneficially owns, directly or indirectly, more than 5% of the Company's
Common Stock outstanding from time to time ("Eligible Directors"). Each
individual who first becomes an Eligible Director after the date of approval of
the amendment to the 1994 Plan by the stockholders would automatically be
granted a nonqualified option to purchase 10,000 shares of Common Stock. On
every anniversary (after December 31, 1995) of his initial election or
appointment, each person who is at that time serving as an Eligible Director
would automatically be granted a nonqualified option to purchase 10,000 shares
of Common Stock. There would be no limit on the number of automatic option
grants that any one Eligible Director may receive. In addition to the amendment
to the automatic grant provisions, the amendments to the 1994 Plan provide that
the exercise price of options granted pursuant to such automatic grants would be
reduced to a price 25% below the average trading price of the Company's Common
Stock for the 30 days immediately prior to the grant date.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The Committee has the discretion
to accelerate benefits under the 1994 Plan in the event of a Change of Control
or a Corporate Transaction.
Under the 1994 Plan, "Change of Control" is a change in ownership or
control of Tracker U.S. effected through either of the following transactions:
a. the direct or indirect acquisition by any person or related group of
persons (other than Tracker U.S. or a person that directly or
indirectly controls, is controlled by, or is under common control
with, Tracker U.S.) of beneficial ownership (within the meaning of
Rule 13d-3 of the Exchange Act) of securities possessing more than 50%
of the total combined voting power of the outstanding securities of
Tracker U.S. pursuant to a tender or exchange offer made directly to
Tracker U.S.'s stockholders or other transaction, in each case which
the Board does not recommend that Tracker U.S.'s stockholders accept;
or
b. a change in the composition of the Board over a period of 36
consecutive months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (i) have been Board members continuously since
the beginning of such period or (ii) have been elected or nominated
for election as Board members during such period by at least a
majority of the Board members described in clause (i) who were still
in office at the time such election or nomination was approved by the
Board.
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Under the 1994 Plan, "Corporate Transaction" means any of the following
stockholder-approved transactions to which Tracker U.S. is a party:
a. a merger or consolidation in which Tracker U.S. is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which Tracker U.S. is incorporated;
b. the sale, transfer or other disposition of all or substantially all of
the assets of Tracker U.S. in complete liquidation or dissolution of
Tracker U.S.; or
c. any reverse merger in which Tracker U.S. is the surviving entity but
in which securities possessing more than 50% of the total combined
voting power of the outstanding securities of Tracker U.S. are
transferred to a person or persons different from the persons holding
those securities immediately prior to such merger.
TERMINATION, AMENDMENT AND ACCELERATION. The Board of Directors of Tracker
U.S. may amend, suspend or terminate the 1994 Plan at any time, but no such
action may in any way impair the rights of recipients under any options or
shares of restricted stock previously granted or any agreement executed under
the 1994 Plan. Further, no amendment may increase the total number of shares,
appreciation rights or performance units (or shares) which may be issued under
the 1994 Plan, reduce the minimum purchase price for shares subject to options,
extend the maximum period during which options may be exercised or change the
employees eligible to participate in the plan without the approval of the
holders of a majority of the shares of Tracker U.S. Common Stock present or
represented at a meeting duly called and held for such purpose; provided,
however, that such shareholder approval is required only to the extent that Rule
16b-3, as promulgated by the Securities and Exchange Commission under the
Exchange Act, requires the approval of the stockholders of a company of any
material amendment to any employee benefit plan of such company.
LOAN PROGRAM. The Committee may, in its discretion, permit Tracker U.S. to
finance the exercise of Company options and the payment of related taxes by
means of loans to the participants. The Committee may also allow participants to
pay the exercise price or purchase price in installments or may authorize the
payment of a cash bonus to allow participants to exercise options and rights
under the 1994 Plan. Each loan will be evidenced by a promissory note to be
entered into by the participant in favor of Tracker U.S. Each loan, including
extensions, will be on such terms as the Committee determines. Loans or
installment payments may be authorized with or without security or collateral.
The maximum credit available will be the exercise or purchase price of the
acquired shares (less the par value of the shares) plus any related federal,
state and local income and employment tax liability, subject to any applicable
margin borrowing limitation. The Committee also has the authority to forgive all
or a portion of the borrower's indebtedness in circumstances it deems
appropriate; provided, however, that the Committee may not forgive that portion
of a loan owed to cover par value.
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RESTRICTIONS ON GRANTS OF OPTIONS. The Company will not grant options in
excess of 20% of the outstanding shares to directors, officers or employees
unless ratified or approved by a majority of the shareholders, excluding
directors, officers, employees and their spouses. Further, the Company will not
grant options to directors, officers or employees with an exercise price less
than 85% of fair market value on the date of grant unless ratified or approved
by a majority of the shareholders, excluding directors, officers, employees and
their spouses.
REGISTRATION. Tracker U.S. plans to file a registration statement to
register the shares of Common Stock reserved for issuance under the 1994 Plan.
Shares issued upon exercise of outstanding stock options and sold after the
effective date of any such registration statement generally will be available
for resale in the public market.
As of June 30, 1997, no grants had been made under the 1994 Plan, other
than the automatic option grants to the non-employee directors and the grants
totalling 630,000 shares of restricted stock discussed above.
CASH BONUS ARRANGEMENT
Tracker U.S.'s Discretionary Cash Bonus Arrangement (the "Cash Bonus
Arrangement") is designed to provide a mechanism to allow specified employees to
share in the profits of Tracker U.S. Employees of Tracker U.S. who customarily
work at least 35 hours per week and have been employed for at least 12
consecutive months, and have been designated for participation by the
Compensation Committee are eligible to receive cash bonuses under the Cash Bonus
Arrangement. Tracker U.S. estimates that approximately twenty-one (21) employees
are eligible to participate in the Cash Bonus Arrangement. Bonuses may be based
on merit, production or other individualized criteria, or may be paid based on
each Eligible Employee's (as defined in the 1994 Plan) assigned portion of a
bonus pool established in the discretion of the Compensation Committee. If
bonuses are to be paid based on a bonus pool, the Compensation Committee will
determine the criteria upon which the amount of each year's bonus pool will be
based prior to the beginning of any such year. The Committee may also divide
Eligible Employees into classes and may designate the portion of any bonus pool
to be assigned to each such class. Any bonuses will be paid not later than 45
days after the end of the fiscal year for which the bonus is awarded. No bonuses
have been paid yet under the Cash Bonus Arrangement.
1995 STOCK WAGE AND FEE PAYMENT PLAN
The Company's Board of Directors adopted a 1995 Stock Wage and Fee Payment
Agreement (the "Wage Plan") on September 28, 1995. The purpose of the Wage Plan
was to retain and motivate participants in the Wage Plan and to provide them
with incentives and rewards more directly linked to the profitability of the
Company's business and increases in stockholder value.
Six employees and one director of the Company were eligible to, and elected
to, participate in the Wage Plan. Under the Wage Plan, the participants agreed
to receive an
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aggregate of 770,000 shares of the Company's Common Stock in lieu of certain
wage payments or fees that the participants had earned before October 1, 1995
but had not yet been paid and in lieu of all of their respective wage payments
or fees for the period from October 1, 1995 through September 30, 1996. The
number of shares granted to the participants was based upon a price per share of
Common Stock of $1.00.
No fees, commissions or other charges will be paid by the participants in
connection with the grants of shares to such persons under the Wage Plan. The
Wage Plan may not be altered, amended or modified except by written agreement
signed by the participants, Tracker U.S. and Tracker Canada. As the Wage Plan is
a contract among the participants, Tracker U.S. and Tracker Canada relating to a
designated issuance of shares in lieu of wages or fees and is not an ongoing
employee benefits program pursuant to which grants or awards can be made on an
ongoing basis or pursuant to which plan funds are invested for the benefit of
participants, there is no separate administration of the Wage Plan. The Company
has registered the shares issued under the Wage Plan under the Securities Act of
1933, as amended (the "Act").
1996 STOCK WAGE AND FEE PAYMENT PLAN
The Board of Directors recently approved a 1996 Stock Wage and Fee Payment
Plan (the "1996 Wage Plan") for the period October 1, 1996 through January 31,
1997. The purpose of the 1996 Wage Plan was to reduce the Company's need for
cash and to retain and motivate participants and provide them with incentives
and rewards more directly linked to the profitability of the Company's business
and increases in stockholder value. The Company filed on October 16, 1996 a
registration statement on Form S-8 concerning the shares to be issued under the
1996 Wage Plan. Under the 1996 Wage Plan, the Company could designate certain
months during the period October 1, 1996 through January 31, 1997 as months in
which it may compensate certain full-time employees and non-employee (outside)
directors in the form of stock, in lieu of cash, in whole or in part (the
"Designated Months"). Each full-time employee of the Company and Tracker Canada
and non-employee (outside) director of the Company may elect, after a
registration statement on form S-8 relating to the 1996 Wage Plan was filed, to
receive his or her compensation for the Designated Months in any combination of
the following three Options: (a) cash ("Option (a)"), (b) 50% discounted Common
Stock ("Option (b)"), or (c) Common Stock at market value, with a guaranteed
three times future value ("Option (c)").
Before the beginning of each calendar month in the period October 1996
through January 1997, the Company had notified each full-time employee or
non-employee (outside) director who had elected Option (b) or Option (c) whether
the month will be a Designated Month. If it was, then the affected employee or
director received his or her compensation for the Designated Month in the
previously elected form.
An employee or director who elected Option (b) received on the first
business day of each Designated Month (or shortly thereafter) a number of shares
equal to his or her compensation for the month, divided by one-half of the
"Month's Original Price." The "Month's Original Price" means the average quoted
closing bid price for the last five business days of the previous month. The
employee or director agreed that if he terminates service before the end of the
Designated
44
<PAGE> 45
Month, he would return to the Company the portion of shares (or their then-cash
value) that corresponds to the remainder of the Designated Month. However, in
the case of an employee who was laid off or otherwise terminated by the Company
(other than for cause) before the end of the Designated Month, he would not be
obligated to return any such shares or cash value.
An employee or director who elected Option (c), would receive on the first
business day of each Designated Month (or shortly thereafter) the number of
shares equal to his or her compensation for the month, divided by the Month's
Original Price. The employee or director must agree that if he terminates
service before the end of the Designated Month, he would return to the Company
the proportion of shares (or their cash value) that correspond to the remainder
of the Designated Month. However, in the case of an employee who was laid off or
otherwise terminated by the Company (other than for cause) before the end of the
Designated Month, he would not be obligated to return any such shares or cash
value.
If an employee or director did not dispose of any Option (c) shares for 30
months after the shares were allocated and remains an employee or director of
Tracker for such period, then the Company will make a payment to the employee or
director equal to the excess, if any, of (1) three times the amount of cash
compensation that the employee or director elected to receive in the form of
Option (c) shares for all the Designated Months (the "Guaranty Price") minus (2)
the product of (A) the average quoted bid price for the five business days
before the conclusion of the 30 month period (the "30 Month Price") and (B) the
number of Option (c) shares. In the case of an employee, the condition that he
still be an employee at the end of the 30-month period does not apply if the
employee is laid off or otherwise terminated by Tracker (other than for cause)
before the end of the period. The Company has the option to pay the excess in
the form of cash, additional stock, or both, or to purchase Option (c) shares
for the Guaranty Price.
The Company registered 1,400,000 shares for the 1996 Wage Plan. No fees,
commissions or other charges will be paid by participants in connection with the
grants of shares to such persons under the 1996 Wage Plan. The 1996 Wage Plan
may not be altered, amended or modified except by written agreement signed by
the participants, Tracker U.S. and Tracker Canada. As the 1996 Wage Plan is a
contract among the participants, Tracker U.S. and Tracker Canada relating to a
designated issuance of shares in lieu of compensation and is not an ongoing
employee benefits program pursuant to which grants or awards can be made on an
ongoing basis or pursuant to which plan funds are invested for the benefit of
participants, there is no separate administration of the 1996 Wage Plan.
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<PAGE> 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997 by (i) each person known to
the Company to own beneficially more than 5% of the total voting stock of the
Company (i.e., Common Stock and Class B Voting Common Stock), (ii) the Chief
Executive Officer and the other executive officers of the Company named in the
Summary Compensation Table, (iii) each of the Company's directors, and (iv) all
directors and officers of the Company as a group. Except as otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock, except
to the extent that authority is shared by spouses under applicable law. The
Common Stock and the Class B Voting Common Stock, from which the holders of
Exchangeable Preference Shares acquire their voting rights, are the only
outstanding classes of equity securities of Tracker U.S. As of June 30, 1997,
there were 335 record holders of Common Stock and 78 record holders of Class B
Voting Common Stock.
<TABLE>
<CAPTION>
Number of Number of Shares
Beneficial Owner Shares of of Class B Voting Total Percentage of
Common Stock Common Stock Number of Total Number
Shares of Shares(1)
<S> <C> <C> <C> <C>
I. Bruce Lewis(2)(3) .................................. 728,578 2,210,668 2,939,246 12.1%
180 Dundas Street West,
Suite 1502, Toronto, Ontario,
Canada M5G 1Z8
Mark J. Gertzbein ..................................... 628,578 0 628,578 2.6%
180 Dundas Street West,
Suite 1502, Toronto, Ontario,
Canada M5G 1Z8
Ed J. Korhonen(2) ..................................... 101,750 142,864 244,614 1.0%
2206 Pineneedle Row,
Mississauga, Ontario, Canada
L5C 1V3
Quincy A.S. McKean III(8) ............................. 91,082 0 91,082 *
75 West Front Street
Red Bank, New Jersey 07701
Leonard Yakobovits .................................... 8,989 0 8,989 *
P. O. Box 243
Concord, Ontario, Canada L4K
1B4
Wolfgang H. Kyser(4)(8) ............................... 121,841 2,858 124,699 1.0%
121 Richmond Street West, #1000
Toronto, Ontario, Canada M5H 2K1
Saturn Investments, Inc.(2)(5) ........................ 0 1,052,564 1,052,564 4.3%
c/o Anthony Bonanno, Esq
Gibson, Dunn & Crutcher
1050 Connecticut Ave. N.W
Washington, D.C. 20036-5306
Ismail A. Abudawood(2)(6)(9) .......................... 228,572 1,052,564 1,281,136 5.3%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
Number of Number of Shares
Beneficial Owner Shares of of Class B Voting Total Percentage of
Common Stock Common Stock Number of Total Number
Shares of Shares(1)
<S> <C> <C> <C> <C>
Ayman I. Abudawood(2)(6) .............................. 0 1,073,264 1,073,264 4.4%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Osama I. Abudawood(2)(6) .............................. 0 1,115,564 1,115,564 4.6%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Anas I. Abudawood(2)(6) ............................... 0 1,067,264 1,067,264 4.4%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Executive officers and directors ...................... 1,052,240 2,356,390 3,408,630 14.1%
as a group including those named
above (six persons)(2)(7)
</TABLE>
* Less than 1% of the outstanding Common Stock.
(1) Percentage of ownership is based upon 24,230,307 shares of Common Stock
beneficially owned on June 30, 1997, including 16,823,277 shares of Common
Stock, 4,830,394 shares of Class B Voting Common Stock ("Voting Stock"),
currently exercisable warrants to purchase 750,000 shares of Common Stock,
currently exercisable options to purchase 13,332 shares of Common Stock,
713,304 shares reserved for issuance under the Company's currently
convertible Convertible Debentures, 200,000 shares reserved for issuance
under the Toda Option and 900,000 shares reserved for issuance under the
Merchant Partners Option.
(2) Pursuant to that certain Exchange Agency and Trust Agreement dated July 12,
1994 among the Company, Tracker Canada and Montreal Trust Company
("Trustee"), the Trustee holds, for the benefit of the holders of
Exchangeable Preference Shares, that number of shares of Voting Stock as
are held by the owners of Exchangeable Preference Shares. By contractual
agreement, prior to the exchange of the Exchangeable Preference Shares,
holders of Exchangeable Preference Shares receive their voting rights from
the Voting Stock held by the Trustee.
(3) Includes 767,150 Common and Exchangeable Preference Shares over which Mr.
Lewis has voting power pursuant to agreements with Mr. Gertzbein, Mr.
Johnson and Mr. Jonathan Lewis, Mr. Lewis' son.
(4) Includes 2,858 shares of Class B Voting Common Stock held by Kyser
Investment Corporation, a company of which Mr. Kyser is a stockholder.
(5) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn. In
addition, Saturn has a contractual right, which to date it has not
exercised, to have one representative on the Company's Board of Directors,
which representative may be removed only with the written consent of
Saturn. Saturn also has the right to attend Board meetings and to receive
certain information regarding the Company.
(6) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn. Ismail
A. Abudawood is the sole stockholder, and Ayman I. Abudawood, Osama I.
Abudawood, and Anas I. Abudawood are directors of Saturn. Accordingly, they
may be deemed to be beneficial owners of such shares.
(7) Includes currently exercisable options to acquire 13,332 shares of Company
Common.
(8) Includes currently exercisable options to acquire 6,666 shares of Company
Common.
(9) Includes Convertible Debentures which are currently convertible into
228,572 shares of Tracker Common and which are held by Wafr Holdings N.V.
("Wafr"). Ismail A. Abudawood beneficially owns Wafr. Accordingly, he may
be deemed to be a beneficial owner of the shares issuable pursuant to the
Convertible Debentures.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
The Company has entered into employment agreements containing severance
arrangements with certain of its executive officers, which provide for payment
under certain circumstances to each officer of compensation through the
remainder of the terms of the agreements. See
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<PAGE> 48
"EXECUTIVE COMPENSATION - Employment Contracts, Termination of Employment and
Change of Control." The Company's Certificate of Incorporation and By-laws
provide for indemnification of all Directors and officers. In addition, each
Director of the Company has entered into a separate indemnification agreement
with the Company.
The Company has agreed with certain state regulatory authorities that so
long as the Company's securities are registered in such states, or one year
after October 21, 1996, whichever is longer, the Company will not make loans to
its officers, directors, employees, or principal shareholders, except for loans
made in the ordinary course of business, such as travel advances, expense
account advances, relocation advances, or reasonable salary advances.
Further, all future transactions between the Company and its executive
officers, Directors, employees, 5% stockholders and affiliates (including for
example future loans and any forgiveness of loans, none of which is
contemplated) will be subject to the approval of a majority of the independent,
disinterested members of the Board of Directors. In addition, such future
transactions will be for bona fide business purposes and will be on terms that
are no less favorable to the Company than those that could be negotiated with
unaffiliated parties.
REORGANIZATION
On July 12, 1994, Tracker U.S. (then Ultra Capital Corp., a Nevada
corporation) and Tracker Canada completed the Reorganization contemplated by the
Reorganization Agreement, dated as of May 26, 1994, by and among Tracker U.S.,
Jeff W. Holmes, R. Kirk Blosch and Tracker Canada, as amended (the
"Reorganization Agreement"). The Reorganization resulted in a change in control
of Tracker U.S. Pursuant to the Reorganization Agreement, Tracker U.S. acquired
all the issued and outstanding voting shares of Tracker Canada in exchange for
shares of Tracker U.S.'s capital stock representing, at the time, approximately
90% of the total voting shares of Tracker U.S. As part of the Reorganization,
Tracker U.S. (then Ultra Capital Corp.) changed its domicile from Nevada to
Delaware and changed its corporate name to "The Tracker Corporation of America."
Pursuant to the Reorganization Agreement, Tracker U.S. authorized a new
series of Class B Voting Common Stock ("Voting Stock") having full voting
rights, which were conferred upon the Tracker Canada shareholders as part of the
Reorganization in each case equal to the number of Exchangeable Preference
Shares held by the Tracker Canada shareholder. See "DESCRIPTION OF SECURITIES
Class B Voting Common Stock." Tracker U.S. delivered 6,235,225 shares of its
newly authorized Voting Stock to Montreal Trust Company of Canada ("Montreal
Trust") to be held pursuant to the terms of an Exchange Agency and Voting Trust
Agreement (the "Exchange Agreement"). The Exchange Agreement permits the Tracker
Canada shareholders to direct the voting of the Voting Stock.
The common shares of Tracker Canada, other than the Class A common shares
issued to Tracker U.S., were reclassified into Exchangeable Preference Shares, a
new class of Tracker Canada stock. The Exchangeable Preference Shares are
exchangeable for Reserved Common Shares (as defined below) of Tracker U.S. on a
one-to-one basis commencing July 12, 1995. On July 12, 2002, all of the
Exchangeable Preference Shares then outstanding shall be automatically
48
<PAGE> 49
exchanged for shares of Tracker U.S. Common Stock. Upon any exchange of
Exchangeable Preference Shares for Common Stock, whether voluntary or automatic,
the Exchangeable Preference Shares will be canceled and a corresponding number
of shares of the Voting Stock will be returned to Tracker U.S.
The holders of the Exchangeable Preference Shares have voting, dividend and
liquidation rights that are in parity with those of the shares of the Tracker
U.S. Common Stock. These parallel rights were created in the following manner:
a. Tracker U.S. placed 6,235,225 shares of the Voting Stock with Montreal
Trust for the benefit of the holders of the Exchangeable Preference
Shares. The beneficial owners of the Voting Stock (i.e., the holders
of the Exchangeable Preference Shares) have the right to vote the
Voting Stock under procedures set forth in the Exchange Agreement and
collectively controlled approximately 90% of the voting power of
Tracker U.S. at the time of the closing of the Reorganization
Agreement. Although the Voting Stock is redeemable by Tracker U.S.,
Tracker U.S. has agreed not to redeem the Voting Stock until such time
as the Exchangeable Preference Shares are exchanged into Reserved
Common Shares (as defined below).
b. Tracker U.S. irrevocably reserved 6,235,225 shares of its authorized,
unissued Common Stock for issuance to holders of Exchangeable
Preference Shares. Under the terms of the Reorganization Agreement,
these shares will be used for the exchange of the Exchangeable
Preference Shares into shares of the Tracker U.S. Common Stock on a
one-to-one basis. These reserved and unissued shares are referred to
herein as the "Reserved Common Shares."
c. The exchange of the Exchangeable Preference Shares for the Reserved
Common Shares will be accomplished through an exchange trust created
under the Exchange Agreement. Under the Exchange Agreement, Montreal
Trust, as Trustee, has agreed, at any time on or after July 12, 1995,
to (i) exchange with any holder of the Exchangeable Preference Shares
any or all of the Exchangeable Preference Shares held by such holder
for Reserved Common Shares on a one-to-one basis, and (ii) return to
Tracker U.S. a certificate representing the corresponding number of
shares of Voting Stock.
d. Under the Exchange Agreement, Tracker U.S. has agreed not to declare
and pay any cash dividends on its Common Stock unless it also causes
Tracker Canada to declare and pay cash dividends on the Exchangeable
Preference Shares at the same time and in the same manner as the
dividends paid on the Tracker U.S. Common Stock. Additionally, under a
Guarantee Agreement with Tracker Canada, Tracker U.S. must provide
Tracker Canada with adequate funds, through a contribution to capital
surplus, to pay such dividends to the holders of the Exchangeable
Preference Shares. The Guarantee Agreement also obligates Tracker U.S.
to satisfy the liquidation value of the Exchangeable Preference Shares
in the event of the liquidation of Tracker Canada. Under the Guarantee
Agreement, the liquidation value per share is calculated as if Tracker
U.S. were liquidated on the same date and
49
<PAGE> 50
each issued and outstanding Exchangeable Preference Share were an
issued and outstanding share of Tracker U.S. Common Stock. Tracker
U.S. has the option to pay the liquidation value of the Exchangeable
Preference Shares in cash or in Reserved Common Shares.
In the Reorganization Agreement, Tracker U.S. agreed to file a registration
statement relating to the Reserved Common Shares.
At a special meeting of stockholders held June 30, 1994, the stockholders
of Tracker U.S. (then Ultra Capital Corp.) approved the Reorganization and
several corporate proposals, including the change in domicile from Nevada to
Delaware, the change in corporate name, the adoption of the Delaware certificate
of incorporation and bylaws, employment agreements with senior management and
the 1994 Plan.
INVESTMENT BY SATURN INVESTMENTS, INC.
In March 1994, prior to the Reorganization, Tracker Canada received an
investment of CDN $3,350,000 from Stalia Holdings B.V. ("Stalia") for units
consisting of common shares of Tracker Canada and warrants to purchase common
shares of Tracker Canada. In connection with that investment by Stalia, Tracker
Canada on March 14, 1994 entered into a Stock Option Agreement with Stalia (the
"Stalia Option Agreement") and Tracker Canada and certain of its stockholders
entered into a Right of First Refusal, Co-Sale and Voting Agreement with Stalia
(the "Stalia Agreement"). As described below, Stalia has transferred its shares
and its rights under the Stalia Option Agreement and the Stalia Agreement to
Saturn Investments, Inc. ("Saturn"). On May 27, 1997, Tracker Canada and Saturn
entered into a Modification agreement ("Modification Agreement") which
immediately terminated the Stalia Option Agreement. On May 27, 1997, Tracker
Canada and Saturn entered into a Modification Agreement which immediately
terminated the rights of co-sale set forth in Article III of the Stalia
Agreement.
In the Stalia Agreement, Tracker Canada granted to Stalia a right of first
refusal to purchase its pro rata share of all New Securities which Tracker
Canada may from time to time propose to issue and sell. The Stalia Agreement
defines "New Securities" to mean any capital stock, rights to purchase capital
stock, and securities of any type convertible into capital stock; provided,
however, that "New Securities" does not include: (i) securities issued pursuant
to a stock dividend, stock split, combination or other reclassification; (ii)
securities covered by a registration statement declared effective by the
Commission or a final prospectus for which a receipt has been issued by the
relevant securities regulatory authority in each of the Provinces of Canada
where the securities are issued and sold; (iii) certain shares issued pursuant
to the exercise of warrants; and (iv) certain shares issued for a specified
price pursuant to a private placement underwritten by an investment banker. This
right of first refusal could make it more difficult for the Company to raise
additional equity financing under terms satisfactory to the Company. On May 27,
1997, Tracker Canada and Saturn entered into a Modification Agreement which
amended the definition of New Securities so as to exclude securities covered by
a registration statement which has been declared effective under the 1933 Act or
securities issued pursuant to an employee stock option, stock purchase, stock
wage or other similar plan or securities issued after May 27, 1997, relating
50
<PAGE> 51
to Convertible Securities that were outstanding as of the date of the
Modification Agreement or securities issued to any person not party to the
Modification Agreement for the consideration other than cash.
The Stalia Agreement also provides Stalia with the right (which to date has
not been exercised) to have one representative on Tracker Canada's Board of
Directors, which representative may be removed only with the written consent of
Stalia. Certain controlling shareholders agreed to vote their shares in favor of
the election of Stalia's representative to the Board of Directors. Stalia's
representative may be removed from the Board of Directors only with the written
consent of Stalia. Upon any resignation or removal of Stalia's representative,
certain controlling stockholders of the Company must exercise their best efforts
to replace such director as soon as possible with another nominee of Stalia. In
addition, by Modification Agreement, the Company confirmed that the Company and
Tracker Canada agrees to (a) allow Stalia or a nominee to attend Board meetings;
(b) provide Stalia, or its designee with copies of all communications regularly
made to the directors; (c) use best efforts to elect a nominee of Stalia to the
Company's Board; (d) provide monthly updates on the Company's business and
affairs; and (e) provide Stalia's counsel with all documentation relating to
issues which may affect Stalia.
The Stalia Agreement, as amended by the Modification Agreement, further
provides, as a protective provision in favor of Stalia, that, without first
obtaining the written consent of Saturn, certain controlling shareholders,
subject to their fiduciary duties under Delaware law, shall not vote for, and
shall exercise their best efforts as significant shareholders of the Company to
ensure that the Board does not approve: (a) the liquidation of dissolution of
the Company; (b) the declaration or payment of any dividends (excluding
dividends declared in connection with any class of the Company's Preferred
Stock) or the making of any distribution out of the ordinary course of the
Company's business, whether in cash or any other property, to the holders of the
Common Stock of the Company; or (c) any material alteration in the rights,
preferences, privileges and restrictions of the Common Shares."
The Stalia Agreement terminates upon the earlier of (a) the date on which a
registration statement of the Company registering any equity securities of the
Company for sale to the general public in a primary offering under the 1933 Act
is declared effective or (b) March 14, 1999.
Although the Stalia Option Agreement and the Stalia Agreement originally
were between Tracker Canada and Stalia, Stalia's consent to the Reorganization
was necessary pursuant to the terms of the Stalia Agreement. Thus, at or about
the time of the Reorganization, in connection with obtaining Stalia's consent to
the Reorganization, Tracker U.S., Tracker Canada and certain controlling
shareholders agreed that all obligations under the Stalia Agreement applicable
to Tracker Canada also apply to Tracker U.S., that references to Tracker Canada
in the Stalia Agreement shall be deemed to be references to Tracker U.S. as
well, and that references in the Stalia Agreement to common shares of Tracker
Canada shall be deemed to be references to the common stock of Tracker Canada as
well as the Common Stock of Tracker U.S. In addition, Tracker Canada confirmed
to Stalia that none of Stalia's rights under the Stalia Option Agreement or the
Stalia Agreement would be adversely affected by the Reorganization.
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<PAGE> 52
Accordingly, all the provisions discussed above apply to Tracker U.S. as well as
Tracker Canada notwithstanding that the original Stalia Option Agreement and
Stalia Agreement were between Stalia and Tracker Canada.
As of January 31, 1996, Stalia transferred its Tracker Canada Exchangeable
Preference Shares to Saturn, an affiliate of Stalia. Stalia also transferred to
Saturn all of Stalia's rights under the Stalia Option Agreement and the Stalia
Agreement. Thus, references above to Stalia's rights shall be deemed to be
references to Saturn's rights.
CORPORATE RELATIONS GROUP
The Company had obtained investor relations services from the Corporate
Relations Group ("CRG"), a stockholder of the Company. Pursuant to its
arrangements with CRG, the Company has paid, or caused to be paid, to CRG
$1,316,780 in cash and stock for investor relations services through June 25,
1996. On November 20, 1995, the Company entered into an agreement pursuant to
which CRG agreed to provide services to the Company for a period of one year and
the Company agreed to pay to CRG $570,000 or 326,000 freely tradeable shares of
Common Stock upon execution of the agreement and to issue options to CRG to
purchase shares of Common Stock as follows: 100,000 shares at $2.00 per share
one year from the date of the agreement, 100,000 shares at $2.40 per share two
years from the date of the agreement, 100,000 shares at $2.60 per share three
years from the date of the agreement, 100,000 shares at $2.80 per share five
years from the date of the agreement, and 100,000 shares at $3.00 per share five
years from the date of the agreement.
On November 4, 1996, the Company exercised an option within the agreement
and terminated the services of CRG. CRG had not provided any services under the
agreement and the Company had not made any payment to CRG.
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<PAGE> 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
a. THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IMMEDIATELY FOLLOWING
THIS REPORT:
1. Financial Statements
Page No.
--------
Report of Independent Accountants 59
Consolidated Balance Sheet 60
Consolidated Statement of Operations 61
Consolidated Statement of Cash Flows 62
Consolidated Statement of Shareholders' Equity (Deficit) 63
Notes to Financial Statements 66
2. Financial Statement Schedules
- None -
3. See (c) for exhibits filed as part of this report
b. REPORTS ON FORM 8-K
During the three months ended March 31, 1997, the Company filed no reports
on Form 8-K.
c. EXHIBITS
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
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<PAGE> 54
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
54
<PAGE> 55
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
23 Consent of Independent Accountants
- -------------------
+ 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).
55
<PAGE> 56
ITEM 15. SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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 thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ I. Bruce Lewis
--------------------------------------------------------------
I. Bruce Lewis, Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)
Dated: July 3, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: July 3, 1997 By: /s/ I. Bruce Lewis
------------------------------
I. Bruce Lewis
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Dated: July 3, 1997 By: /s/ Mark J. Gertzbein
------------------------------
Mark J. Gertzbein
Executive Vice President,
Secretary, Treasurer, Chief
Financial Officer and Director
(Principal Financial Officer and
Principal Accounting Officer)
Dated: July 3, 1997 By: /s/Leonard Yakobovits
------------------------------
Leonard Yakobovits
Director
56
<PAGE> 57
Dated: July 3, 1997 By: /s/ Quincy A.S. McKean III
------------------------------
Quincy A.S. McKean, III
Director
Dated: July 3, 1997 By: /s/ Wolfgang H. Kyser
------------------------------
Wolfgang H. Kyser
Director
Dated: July 3, 1997 By: /s/ Ed J. Korhonen
------------------------------
Ed J. Korhonen
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrant has not sent out proxy materials to security-holders for
the fiscal year ended March 31, 1997. A copy of this Report and proxy materials
will be sent out to security-holders subsequent to the filing of this Report.
The Registrant is not providing any annual report (other than this Report) to
security-holders. The Registrant will furnish the proxy materials to the
Commission when they are sent out to the security-holders. Such materials shall
not be deemed to be "filed" with the Commission or otherwise subject to the
liabilities of Section 18 of the Act.
57
<PAGE> 58
THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT
STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1997 and 1996
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
June 24, 1997
To the Board of Directors and Shareholders of
The Tracker Corporation of America
In our opinion, the accompanying consolidated balance sheet and the related
statements of operations, of cash flows and of shareholders' equity present
fairly, in all material respects, the financial position of The Tracker
Corporation of America and its subsidiary at March 31, 1997 and 1996, and the
results of their operations and their cash flows for the three years ended March
31, 1997 and the periods from inception at May 6, 1993 through March 31, 1997,
1996 and 1995 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is a development stage company
and had not yet been able to obtain significant outside financing. As a result,
there is substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
<PAGE> 60
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 105,213 $ 78,844
SHORT-TERM INVESTMENT -- 221,190
ACCOUNTS RECEIVABLE 133,613 7,361
PREPAID EXPENSES AND DEPOSITS 359,526 168,345
INVENTORY 24,338 115,612
DEFERRED CHARGES 2,820,064 73,750
------------ ------------
TOTAL CURRENT ASSETS 3,442,754 665,102
DUE FROM SHAREHOLDERS 61,487 58,226
DEFERRED CHARGES 315,837 66,234
PROPERTY AND EQUIPMENT (NET) 418,267 353,729
LONG-TERM INVESTMENT -- 50,451
------------ ------------
TOTAL ASSETS $ 4,238,345 $ 1,193,742
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 468,764 $ 551,553
ACCRUED LIABILITIES 373,687 266,837
DEFERRED REVENUE 4,509,401 115,241
DEBENTURE PAYABLE 83,991 --
CONVERTIBLE DEBENTURES 590,746 1,460,000
--------------------------------
TOTAL CURRENT LIABILITIES 6,026,589 2,393,631
DEFERRED REVENUE 613,131 178,883
COMMITMENTS (NOTE 12) -- --
SHAREHOLDERS' EQUITY (DEFICIT)
$1000 6% CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE, 500,000 SHARES
AUTHORIZED, NIL (NIL - MARCH 31, 1996) SHARES ISSUED AND OUTSTANDING -- --
COMMON STOCK, $.001PAR VALUE, 30,000,000 SHARES AUTHORIZED,
15,925,505 (6,130,929 - MARCH 31, 1996) SHARES ISSUED AND OUTSTANDING 15,925 6,131
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, 4,862,537 (6,126,362 - MARCH 31, 1996) ISSUED
AND OUTSTANDING -- --
PAID-IN CAPITAL 15,207,895 14,013,062
OTHER CAPITAL (394,333) (1,954,327)
ACCUMULATED DEFICIT (16,910,816) (13,202,738)
CUMULATIVE TRANSLATION ADJUSTMENT (320,046) (240,900)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,401,375) (1,378,772)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 4,238,345 $ 1,193,742
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 61
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ 2,348,169 $ 106,522 $ 10,187
COST OF SALES 1,613,422 40,230 4,029
----------- ----------- ----------
GROSS PROFIT 734,747 66,292 6,158
----------- ----------- ----------
DEVELOPMENT COSTS
OPERATIONAL 639,862 592,880 687,681
INFORMATION SYSTEMS 289,552 262,942 465,827
SALES AND MARKETING 906,093 1,031,041 1,737,438
GENERAL AND ADMINISTRATIVE 2,607,318 4,270,159 2,183,795
----------- ----------- ----------
TOTAL DEVELOPMENT COSTS 4,442,825 6,157,022 5,074,741
----------- ----------- ----------
NET LOSS APPLICABLE TO COMMON STOCK $(3,708,078) $(6,090,730) $(5,068,583)
=========== =========== ===========
LOSS PER SHARE OF COMMON STOCK $ (0.22) $ (0.57) $ (0.71)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 17,177,476 10,637,237 7,100,488
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION ( MAY 6, 1993)
THROUGH MARCH 31,
-------------------------------------------------------
1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C>
REVENUE $ 2,464,878 $ 116,709 $ 10,187
COST OF SALES 1,657,681 44,259 4,029
-------------------------------------------------------
GROSS PROFIT 807,197 72,450 6,158
-------------------------------------------------------
DEVELOPMENT COSTS
OPERATIONAL 2,069,683 1,429,821 836,941
INFORMATION SYSTEMS 1,175,598 886,046 623,104
SALES AND MARKETING 4,280,843 3,374,750 2,343,709
GENERAL AND ADMINISTRATIVE 10,191,889 7,584,571 3,314,412
-------------------------------------------------------
TOTAL DEVELOPMENT COSTS 17,718,013 13,275,188 7,118,166
-------------------------------------------------------
NET LOSS APPLICABLE TO COMMON STOCK $(16,910,816) $(13,202,738) $(7,112,008)
=======================================================
LOSS PER SHARE OF COMMON STOCK $ (1.66) $ (1.70) $ (1.14)
=======================================================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,161,648 7,755,584 6,255,379
=======================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 62
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS $(3,708,078) $(6,090,730) $(5,068,583)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 131,780 111,070 94,161
LOSS ON SALE OF LONG-TERM INVESTMENT 13,414 -- --
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 1,245,473 2,749,208 799,249
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (191,181) 376,087 (219,317)
ACCOUNTS RECEIVABLE (126,252) (2,380) (4,981)
SHORT-TERM INVESTMENT 221,190 (221,190) --
INVENTORY 91,274 50,391 (166,003)
DEFERRED CHARGES (2,995,917) (139,984) --
DEFERRED REVENUE 4,828,408 283,126 10,998
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 24,061 (617,155) 1,159,885
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (465,828) (3,501,557) (3,394,591)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS (194,688) (13,006) (329,840)
LOAN TO SHAREHOLDERS (3,261) (8,911) (211,022)
REPAYMENT OF LOANS TO SHAREHOLDERS -- 142,611 152,006
NOTE RECEIVABLE -- -- (200,317)
REPAYMENT OF NOTE RECEIVABLE -- 178,350 21,967
LONG-TERM INVESTMENT -- (10,929) (2,290,443)
UNWIND OF LONG-TERM INVESTMENT 37,037 -- 2,250,921
----------- ----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (160,912) 288,115 (606,728)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES -- 1,177,445 3,030,897
ISSUANCE OF PREFERRED SHARES 1,050,000 -- --
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES -- 2,189,529 --
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (130,263) -- --
DUE TO SHAREHOLDER -- -- 108,390
REPAYMENT TO SHAREHOLDER -- -- (108,390)
SHARE ISSUE COSTS (224,741) (214,357) (779,495)
----------- ----------- -----------
NET CASH FROM FINANCING ACTIVITIES 694,996 3,152,617 2,251,402
---------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (41,887) 32,578 (155,976)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 26,369 (28,247) (1,905,893)
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 78,844 107,091 2,012,984
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 105,213 $ 78,844 $ 107,091
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FROM INCEPTION (MAY 6, 1993)
THROUGH MARCH 31,
--------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS (16,910,816) $(13,202,738) $(7,112,008)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 367,126 235,346 124,276
LOSS ON SALE OF LONG-TERM INVESTMENT 13,414 -- --
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 5,118,274 3,872,801 1,123,593
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (376,799) (185,618) (561,705)
ACCOUNTS RECEIVABLE (133,613) (7,361) (4,981)
SHORT-TERM INVESTMENT -- (221,190) --
INVENTORY (24,338) (115,612) (166,003)
DEFERRED CHARGES (3,135,901) (139,984) --
DEFERRED REVENUE 5,122,532 294,124 10,998
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 857,096 833,035 1,450,190
------------ ------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (9,103,025) (8,637,197) (5,135,640)
------------- ------------- ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS (784,633) (589,945) (576,939)
LOAN TO SHAREHOLDERS (417,899) (414,638) (405,727)
REPAYMENT OF LOANS TO SHAREHOLDERS 356,412 356,412 213,801
NOTE RECEIVABLE (200,317) (200,317) (200,317)
REPAYMENT OF NOTE RECEIVABLE 200,317 200,317 21,967
LONG-TERM INVESTMENT (2,301,372) (2,301,372) (2,290,443)
UNWIND OF LONG-TERM INVESTMENT 2,287,958 2,250,921 2,250,921
------------ ------------- ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (859,534) (698,622) (986,737)
------------ ------------- ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES 8,922,530 8,922,530 7,745,085
ISSUANCE OF PREFERRED SHARES 1,050,000 -- --
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 2,189,529 --
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (130,263) -- --
DUE TO SHAREHOLDER -- 108,390 108,390
REPAYMENT TO SHAREHOLDER -- (108,390) (108,390)
SHARE ISSUE COSTS (1,684,735) (1,459,994) (1,245,637)
------------ ------------- ------------
NET CASH FROM FINANCING ACTIVITIES 10,347,061 9,652,065 6,499,448
------------ ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES (279,289) (237,402) (269,980)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 105,213 78,844 107,091
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- -- --
--------------------------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 105,213 $ 78,844 $ 107,091
================================= ============
</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> 63
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES
-----------------------------------------
CLASS B
PREFERRED COMMON COMMON
STOCK STOCK STOCK
-----------------------------------------
<S> <C> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) 5,089,286
SHARES ISSUED FOR CASH (CASH - $4,714,188) 884,729
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 60,871
SHARE ISSUE COSTS
TRANSLATION ADJUSTMENT
NET LOSS
-----------------------------------------
BALANCE AT MARCH 31, 1994 6,034,886
-----------------------------------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 234,517
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 5,777
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 739,219
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING 79,658 SHARES
AT $7 PER SHARE FOR CONSULTING SERVICES AND 3,571 SHARES AT $5.50
PER SHARE FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 860,000
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995
SHARES ISSUED FOR CONSULTING AND MARKETING SERVICES (NOTE 11) (CASH-$NIL) 825,000 78,005
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (814,583)*
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 500,000
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 25,063
SHARE ISSUE COSTS
TRANSLATION ADJUSTMENT
NET LOSS
-----------------------------------------
BALANCE AT MARCH 31, 1995 -- 2,109,636 6,378,248
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
------------------------------------------
PAID-IN
CAPITAL IN
PREFERRED COMMON EXCESS
STOCK STOCK OF PAR
------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) $-- $ -- $ --
SHARES ISSUED FOR CASH (CASH - $4,714,188) 4,714,188
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT
NET LOSS
------------------------------------------
BALANCE AT MARCH 31, 1994 -- -- 4,572,390
------------------------------------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 739 (639)
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING 79,658 SHARES
AT $7 PER SHARE FOR CONSULTING SERVICES AND 3,571 SHARES AT $5.50
PER SHARE FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 860 2,900,840
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND MARKETING SERVICES (NOTE 11) (CASH-$NIL) 825 2,204,153
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (815)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 500 349,500
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT
NET LOSS
------------------------------------------
BALANCE AT MARCH 31, 1995 -- 2,109 9,707,617
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-----------------------------
CUMULATIVE
OTHER TRANSLATION
CAPITAL ADJUSTMENT
-----------------------------
<S> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) -- $ --
SHARES ISSUED FOR CASH (CASH - $4,714,188)
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL)
SHARE ISSUE COSTS
TRANSLATION ADJUSTMENT (129,098)
NET LOSS
-----------------------------
BALANCE AT MARCH 31, 1994 -- (129,098)
-----------------------------
SHARES ISSUED FOR CASH (CASH - $1,175,797)
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL)
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $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 -$1,505,000)
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995
SHARES ISSUED FOR CONSULTING AND MARKETING SERVICES (NOTE 11) (CASH-$NIL)
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (2,086,685)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL)
SHARE ISSUE COSTS
TRANSLATION ADJUSTMENT (159,026)
NET LOSS
-----------------------------
BALANCE AT MARCH 31, 1995 (2,086,685) (288,124)
-----------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-------------------------------------
DEFICIT ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
-------------------------------------
<S> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) $ -- $ --
SHARES ISSUED FOR CASH (CASH - $4,714,188) 4,714,188
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT (129,098)
NET LOSS (2,043,425) (2,043,425)
-------------------------------------
BALANCE AT MARCH 31, 1994 (2,043,425) 2,399,867
-------------------------------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 11-XI) (CASH - $NIL) 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 100
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING 79,658 SHARES
AT $7 PER SHARE FOR CONSULTING SERVICES AND 3,571 SHARES AT $5.50
PER SHARE FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 2,901,700
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND MARKETING SERVICES (NOTE 11) (CASH-$NIL) 2,204,978
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (2,087,500)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 350,000
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT (159,026)
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.
<PAGE> 64
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES
------------------------------------------------
CLASS B
PREFERRED COMMON COMMON
STOCK STOCK STOCK
------------------------------------------------
<S> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED 14,582 *
BEFORE MARCH 31, 1995 (NOTE 11-XI) (CASH - $ NIL)
MARKETING SERVICES RECEIVED RE SHARES ISSUED 266,664 *
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL)
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 98,858
SHARES ISSUED TO AMERASIA FOR MARKETING SERVICES (NOTE 11-XI) (CASH - $NIL) 30,000
LESS: SERVICES NOT YET RECEIVED (12,500)*
SHARES CANCELLED (CASH - $NIL) (171)
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES, CONSULTANTS AND 770,000
A DIRECTOR (NOTE 11-VII) (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING SERVICES NOT YET RECEIVED (340,939)*
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000
LESS: SHARES PROCEEDS TO BE RECEIVED
SHARE PROCEEDS RECEIVED FROM PRIVATE PLACEMENT (CASH - $250,000) 250,000
SHARES ISSUED UPON EXERCISE OF WARRANTS AT CANADIAN $1 PER SHARE 849,803
(CASH - $619,166)
SHARES ISSUED TO OFFICERS (NOTE 11-IV) (CASH - $NIL) 630,000
SHARES ISSUED TO A CONSULTANT (NOTE 11-XI) (CASH - $NIL) 7,500
SHARES ISSUED FOR INVESTOR RELATION SERVICES (NOTE 11-VI) (CASH - $NIL) 200,000
LESS: SERVICES NOT YET RECEIVED (200,000)*
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) 14,176
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) 1,133,365 (1,133,365)
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (CASH -$NIL) 991,434
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996
------------------------------------------------
BALANCE AS AT MARCH 31, 1996 -- 6,130,929 6,126,362
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
----------------------------------------
PAID IN
CAPITAL IN
PREFERRED COMMON EXCESS
STOCK STOCK OF PAR
----------------------------------------
<S> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING -- - $ 819,459
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED 14
BEFORE MARCH 31, 1995 (NOTE 11-XI) (CASH - $ NIL)
MARKETING SERVICES RECEIVED RE SHARES ISSUED 265
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL)
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 99 86,402
SHARES ISSUED TO AMERASIA FOR MARKETING SERVICES (NOTE 11-XI) (CASH - $NIL) 44,496
LESS: SERVICES NOT YET RECEIVED
SHARES CANCELLED (CASH - $NIL) 1 (1)
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES, CONSULTANTS AND 770 769,230
A DIRECTOR (NOTE 11-VII) (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING SERVICES NOT YET RECEIVED (341)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200 199,800
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM PRIVATE PLACEMENT (CASH - $250,000) 250 249,750
SHARES ISSUED UPON EXERCISE OF WARRANTS AT CANADIAN $1 PER SHARE 619,166
(CASH - $619,166)
SHARES ISSUED TO OFFICERS (NOTE 11-IV) (CASH - $NIL) 630 826,245
SHARES ISSUED TO A CONSULTANT (NOTE 11-XI) (CASH - $NIL) 8 9,836
SHARES ISSUED FOR INVESTOR RELATION SERVICES (NOTE 11-VI) (CASH - $NIL) 200 262,300
LESS: SERVICES NOT YET RECEIVED (200)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) 22,716
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) 1,134 (1,134)
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (CASH -$NIL) 992 728,537
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996
----------------------------------------
BALANCE AS AT MARCH 31, 1996 $-- $6,131 $14,013,062
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
---------------------------------
CUMULATIVE
OTHER TRANSLATION
CAPITAL ADJUSTMENT
---------------------------------
<S> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING $ -- $ --
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED 87,486
BEFORE MARCH 31, 1995 (NOTE 11-XI) (CASH - $ NIL)
MARKETING SERVICES RECEIVED RE SHARES ISSUED 666,400
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL)
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL)
SHARES ISSUED TO AMERASIA FOR MARKETING SERVICES (NOTE 11-XI) (CASH - $NIL)
LESS: SERVICES NOT YET RECEIVED (18,630)
SHARES CANCELLED (CASH - $NIL)
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES, CONSULTANTS AND
A DIRECTOR (NOTE 11-VII) (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING SERVICES NOT YET RECEIVED (340,598)
SHARES ISSUED TO R. ZUK (CASH - $83,000)
LESS: SHARES PROCEEDS TO BE RECEIVED
SHARE PROCEEDS RECEIVED FROM PRIVATE PLACEMENT (CASH - $250,000)
SHARES ISSUED UPON EXERCISE OF WARRANTS AT CANADIAN $1 PER SHARE
(CASH - $619,166)
SHARES ISSUED TO OFFICERS (NOTE 11-IV) (CASH - $NIL)
SHARES ISSUED TO A CONSULTANT (NOTE 11-XI) (CASH - $NIL)
SHARES ISSUED FOR INVESTOR RELATION SERVICES (NOTE 11-VI) (CASH - $NIL)
LESS: SERVICES NOT YET RECEIVED (262,300)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI)
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL)
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (CASH -$NIL)
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996
TRANSLATION ADJUSTMENT 47,224
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996
---------------------------------
BALANCE AS AT MARCH 31, 1996 $(1,954,327) $(240,900)
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-----------------------------------
DEFICIT ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
-----------------------------------
<S> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING $ -- $ 819,459
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED 87,500
BEFORE MARCH 31, 1995 (NOTE 11-XI) (CASH - $ NIL)
MARKETING SERVICES RECEIVED RE SHARES ISSUED 666,665
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL)
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 86,501
SHARES ISSUED TO AMERASIA FOR MARKETING SERVICES (NOTE 11-XI) (CASH - $NIL) 44,496
LESS: SERVICES NOT YET RECEIVED (18,630)
SHARES CANCELLED (CASH - $NIL) --
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES, CONSULTANTS AND 770,000
A DIRECTOR (NOTE 11-VII) (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING SERVICES NOT YET RECEIVED (340,939)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM PRIVATE PLACEMENT (CASH - $250,000) 250,000
SHARES ISSUED UPON EXERCISE OF WARRANTS AT CANADIAN $1 PER SHARE 619,166
(CASH - $619,166)
SHARES ISSUED TO OFFICERS (NOTE 11-IV) (CASH - $NIL) 826,875
SHARES ISSUED TO A CONSULTANT (NOTE 11-XI) (CASH - $NIL) 9,844
SHARES ISSUED FOR INVESTOR RELATION SERVICES (NOTE 11-VI) (CASH - $NIL) 262,500
LESS: SERVICES NOT YET RECEIVED (262,500)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) 22,716
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) --
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (CASH -$NIL) 729,529
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
TRANSLATION ADJUSTMENT 47,224
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996 (6,090,730) (6,090,730)
-----------------------------------
BALANCE AS AT MARCH 31, 1996 $(13,202,738) $(1,378,772)
-----------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 65
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES
------------------------
PREFERRED COMMON
STOCK STOCK
------------------------
<S> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL) 133,336 *
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 34,445
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL)
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL) 1,740,938 *
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL) 1,433,443
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000) 1,050
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII) (1,050) 4,365,136
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) 1,268,825
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 26,000
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL) 208,250
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL) 52,906
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL) 112,500
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI) 333,272
SHARES ISSUED FOR OFFICE RENTAL EXPENSE ( NOTE 11-XII) ( CASH -$ NIL) 615,780
LESS: RENTAL EXPENSE NOT YET AMORTIZED (530,255)*
SHARE ISSUE COST FROM APRIL 1, 1996 TO MARCH 31, 1997
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
-----------------------
BALANCE AS AT MARCH 31, 1997 -- 15,925,505
======== ==========
</TABLE>
<TABLE>
<CAPTION>
SHARES
----------
CLASS B
COMMON
STOCK
----------
<S> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL)
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL)
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL) 5,000
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL)
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL)
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000)
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII)
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) (1,268,825)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL)
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL)
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL)
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL)
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI)
SHARES ISSUED FOR OFFICE RENTAL EXPENSE ( NOTE 11-XII) ( CASH $ NIL)
LESS: RENTAL EXPENSE NOT YET AMORTIZED
SHARE ISSUE COST FROM APRIL 1, 1996 TO MARCH 31, 1997
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
----------
BALANCE AS AT MARCH 31, 1997 4,862,537
==========
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
---------------------
PREFERRED COMMON
STOCK STOCK
---------------------
<S> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL) $-- $ 135
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 34
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL)
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL) 1,741
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL) 1,434
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000) 1
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII) (1) 4,364
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) 1,269
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 26
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL) 208
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL) 53
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL) 113
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI) 332
SHARES ISSUED FOR OFFICE RENTAL EXPENSE ( NOTE 11-XII) ( CASH $ NIL) 616
LESS: RENTAL EXPENSE NOT YET AMORTIZED (531)
SHARE ISSUE COST FROM APRIL 1, 1996 TO MARCH 31, 1997
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
------------------
BALANCE AS AT MARCH 31, 1997 -- $15,925
==================
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-------------------------------
PAID IN
CAPITAL IN
EXCESS OTHER
OF PAR CAPITAL
-------------------------------
<S> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL) $ (999,600) $1,332,800
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 15,466
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL) (11,124) 18,630
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL) 316,054 340,598
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL) 653,566
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000) 1,049,999
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII) (4,363)
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) (1,269)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 12,474
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL) 49,634
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL) 52,853
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL) 44,887
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI) 87,668
SHARES ISSUED FOR OFFICE RENTAL EXPENSE ( NOTE 11-XII) ( CASH $ NIL) 153,329
LESS: RENTAL EXPENSE NOT YET AMORTIZED (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 $15,207,895 $(394,333)
===============================
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-------------
CUMULATIVE
TRANSLATION
ADJUSTMENT
-------------
<S> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL) $ --
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL)
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL)
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL)
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL)
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000)
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII)
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL)
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL)
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL)
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL)
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL)
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI)
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (NOTE 11-XII) ( CASH $ NIL)
LESS: RENTAL EXPENSE NOT YET AMORTIZED
SHARE ISSUE COST FROM APRIL 1, 1996 TO MARCH 31, 1997
TRANSLATION ADJUSTMENT (79,146)
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
---------
BALANCE AS AT MARCH 31, 1997 $(320,046)
=========
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-----------------------------------
DEFICIT ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
-----------------------------------
<S> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (NOTE 11) (CASH - $ NIL) $ -- $ 333,335
SHARES ISSUED TO DIRECTORS AS COMPENSATION (NOTE 11-XI) (CASH - $NIL) 15,500
MARKETING SERVICES RECEIVED FROM AMERASIA (NOTE 11-XI) (CASH - $NIL) 7,506
EMPLOYMENT AND CONSULTING SERVICES AND DIRECTORS' FEES RECEIVED RE S-8
(NOTES 11-VII AND 11-XV) (CASH - $NIL) 658,393
SHARES ISSUED FOR CONVERSION FROM DEBENTURE HOLDERS (NOTE 11-X) (CASH -$NIL) 655,000
PREFERRED SHARES ISSUED FROM PRIVATE PLACEMENT (NOTE 11-XII) (CASH - $1,050,000) 1,050,000
COMMON SHARES ISSUED FOR CONVERSION FROM PREFERRED STOCKHOLDER (NOTE 11-XIII) -
(CASH - $NIL)
SHARES EXCHANGED AS PER EXCHANGE AGREEMENT (CASH - $NIL) -
SHARES ISSUED TO EMPLOYEES FOR EMPLOYMENT SERVICES (NOTE 11-XI) (CASH-$NIL) 12,500
SHARES ISSUED FOR CONSULTING SERVICES (NOTE 11-XI) (CASH-$NIL) 49,842
SHARES ISSUED IN LIEU OF FINDER FEE FOR DEBENTURE HOLDERS (NOTE 11-XI) (CASH -$NIL) 52,906
SHARES ISSUED IN LIEU OF FINDER FEE FOR PREFERRED STOCKHOLDERS (NOTE 11-XI) (CASH -$NIL) 45,000
SHARES ISSUED PURSUANT TO W.MARCHES S-8 STOCK PAYMENT PLAN (NOTE 11-XVI) 88,000
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (NOTE 11-XII) ( 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)
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997 (3,708,078) (3,708,078)
-----------------------------------
BALANCE AS AT MARCH 31, 1997 $(16,910,816) $(2,401,375)
===================================
</TABLE>
(*) 730,255 COMMON SHARES HAVE BEEN SUBSCRIBED FOR BUT REMAIN UNISSUED AS AT
MARCH 31, 1997
THE ACCOMPANYING NOTES ARE INTEGRAL PARTS OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 66
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS/CORPORATE HISTORY:
The Tracker Corporation of America (the "Company"), through a wholly-owned
subsidiary, The Tracker Corporation ("Tracker Canada"), is engaged in the
development, marketing and operation of a unique system to aid in the recovery
of lost or stolen items using advanced bar code and laser scanning technologies.
The Company was formed under the name Ultra Capital Corp. ("Ultra") in February
1986 under the laws of the State of Nevada to serve as a vehicle to acquire or
merge with an operating company. The Company changed its name from Ultra on July
1, 1994 when, as more fully discussed below, Ultra merged with Tracker Canada.
The Company was reincorporated in Delaware on July 1, 1994. Effective July 12,
1994, the Company merged with Tracker Canada. Concurrent with the merger
effective date, Ultra changed its name to The Tracker Corporation of America and
changed its year end from December 31 to March 31. In conjunction with the
merger, the common stock of Tracker Canada was reclassified as exchangeable
preference stock which is exchangeable on a one-for-one basis for shares of the
common stock of the Company beginning July 12, 1995 through July 12, 2002. An
equal number of Class B voting common stock ("Class B shares") is held in trust
for exchangeable preference shareholders who can direct the voting of the Class
B shares. The Class B shares will be cancelled upon the exchange of the
exchangeable preference shares for the Company's common stock.
For accounting purposes, the merger was treated as a reverse merger/acquisition
with recapitalization of Tracker Canada as the acquirer because, among other
factors, the assets and operations of Tracker Canada significantly exceed those
of Ultra and the shareholders of Tracker Canada control the Company after the
merger. The merger was treated for accounting and financial reporting purposes
as an issuance of shares by Tracker Canada and, accordingly, pro forma
information is not presented as the merger is not a business combination. The
historical consolidated financial statements prior to July 12, 1994 are those of
Tracker Canada. The merger has been recorded at the value of Ultra's net
tangible assets as of the effective date. The accumulated deficit of Tracker
Canada is carried forward and the common stock and paid-in capital of Tracker
Canada prior to the merger have been retroactively restated for the equivalent
number of shares received in the merger and carried forward.
The Company utilizes state of the art proprietary technology providing a service
to aid in the recovery of lost or stolen possessions. The Company's members
receive a series of individualized, digitally-encoded labels that can be applied
to personal belongings. In the event a labelled item is recovered, the Company's
technology allows for the identification of the item's owner. After
identification, the Company's 24-hour service network coordinates the return of
the item to its owner via an international courier network. The Company's
Worldwide Identification & Recovery Service is endorsed by the International
Association of Chiefs of Police.
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.
<PAGE> 67
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of The Tracker
Corporation of America and its wholly-owned subsidiary, The Tracker Corporation.
All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with an original maturity of three
months or less to be cash equivalents.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
INVENTORY
The inventory is stated at the lower of cost or market value with cost being
determined by the average cost method. Inventory predominantly consists of raw
materials as the Company fulfills its sales orders on a just in time basis, when
received. No significant work-in-progress or finished goods were held by the
Company at year or period end.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions net of a 30%
cancellation reserve,and 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> 68
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets as follows:
<TABLE>
<S> <C>
Scanning equipment and computer hardware 5 years
Computer software 1 year
Office furniture and equipment 5 years
Leasehold improvements term of the lease
Kiosk equipment 5 years
</TABLE>
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the 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> 69
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 - SHORT-TERM INVESTMENT:
The short-term investment represents 288,462 shares of Stratcomm Media Ltd., a
public company on the Vancouver Stock Exchange ("VSE"), and represents less than
a 4% interest in the company. The common shares owned by the Company were
restricted from trading for a period of 12 months starting May 30, 1995. Due to
a permanent decline in value as the underlying shares were delisted from the
VSE, in fiscal 1997 the Company wrote off this investment ($ 221,190 at March
31, 1996).
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
-------- --------
<S> <C> <C>
Security deposit for merchant facility $300,000 $ --
Marketing and celebrity -- 120,992
Other 59,526 47,353
-------- --------
$359,526 $168,345
======== ========
</TABLE>
<PAGE> 70
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 7 - DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---------- -------
<S> <C> <C>
Current:
Deferred sales commission $2,658,446 $47,222
Other 161,618 26,528
---------- -------
$2,820,064 $73,750
========== =======
Long term:
Deferred sales commission $ 281,163 $61,680
Other 34,674 4,554
---------- -------
$ 315,837 $66,234
========== =======
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT (NET):
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
-------- --------
<S> <C> <C>
Scanning equipment $120,737 $106,471
Computer equipment 310,047 257,189
Computer software 32,501 31,988
Office furniture and equipment 163,979 67,254
Leasehold improvements 99,608 66,840
Kiosk equipment 63,789 63,496
-------- --------
Total original cost 790,661 593,238
Less: Accumulated depreciation 372,394 239,509
-------- --------
$418,267 $353,729
======== ========
</TABLE>
Depreciation expense for the year ended March 31, 1997 was $ 131,780 and was
$111,070 for the year ended March 31, 1996.
<PAGE> 71
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM INVESTMENT:
In October 1996, the Company sold its 11.96% interest in C.E.M. Centry
Electronic Monitoring Corporation ("Centry"), a publicly listed Canadian company
trading on the Vancouver Stock Exchange for $37,037 cash, resulting in a loss of
$13,414.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---------- --------
<S> <C> <C>
Directors fees $ 27,399 $ 11,000
Finder fees for convertible debentures -- 52,906
Others 346,288 202,931
---------- --------
$ 373,687 $266,837
========== ========
</TABLE>
NOTE 11 - CAPITAL STOCK:
(i) The common stock and Class B voting common stock share ratably as to
dividends. The Class B voting common stock is held in trust pursuant to the
terms of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary. The agreement permits
the persons holding the exchangeable shares to direct the voting of the Class B
common shares and provides a mechanism for the exchange of exchangeable shares
for a like number of common shares.
(ii) At March 31, 1997, all outstanding warrants to acquire exchangeable
preference shares of the Canadian subsidiary at Canadian $14 per share had
expired.
(iii) On March 15, 1995, the Company entered into an agreement and sold, for net
proceeds of $350,000, 500,000 units comprised of 500,000 restricted common
shares and 500,000 warrants to purchase 500,000 restricted common shares to
Kuplen Group Investment ("KGI"). The warrants are exercisable during the
one-year period commencing July 12, 1995 to July 12, 1996 at a price of $5.00
per share. In the event that the common stock underlying the warrants cannot be
purchased legally on margin at a marginable price, then the exercise period will
be extended until the first day that the common stock becomes marginable. In
order to secure registration rights of the restricted shares, KGI must exercise
the warrants on a 1:1 basis with the common shares.
(iv) (a) During the year ended March 31, 1995, the Company adopted a plan that
allows for the granting of options, appreciation rights, restricted stock and
certain other stock-based performance incentives to certain officers as
determined at the discretion of the compensation committee of the board of
directors. On April 11, 1995, the Company issued stock, pursuant to stock
grants, of 630,000 shares of common stock, restricted as to transferability, to
certain officers of the Company.
<PAGE> 72
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(iv) (b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH. 31, EXERCISE MARCH 31, EXERCISE
1997 PRICE 1996 PRICE
-----------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS:
Opening 40,000 n/a 40,000 $7.95
Granted during the period (*) 0 10,000 $1.81
Exercised during the period 0 0 n/a
Expired/cancelled during period 0 (10,000) $7.95
------ ------
Closing 40,000 40,000
====== ======
</TABLE>
(*): 40,000 options were issued in July 1994 and 10,000 options were issued
in September 1995 to non-employee directors and vest proportionately
over a period of three years.
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1997 PRICE 1996 PRICE
-----------------------------------------------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK AND CLASS B):
Opening 767,348 n/a 1,685,880 n/a
Issued during the period 0 250,000 $5.00
Exercised during the period 0 (849,803) Cdn$1.00
Expired during the period (17,348) (318,729) Cdn$14.00
------- -------
Closing 750,000 767,348
======= =======
</TABLE>
(v) On May 1, 1995, the Company entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted common
shares and 250,000 warrants to purchase 250,000 restricted common shares to
Reynold Kern. The warrants are exercisable during the one-year period commencing
July 12, 1995 to July 12, 1996 at a price of $5.00 per share. In the event that
the common stock underlying the warrants cannot be purchased legally on margin
at a marginable price, then the exercise period will be extended until the first
day that the common stock becomes marginable.
(vi) In June 1995, the Company issued 200,000 shares of common stock, restricted
as to transferability for a period of two years from date of issuance, to Robert
Zuk for certain investor relations services for the Company.
(vii) In October 1995, the Company issued 770,000 shares of common stock
pursuant to the registration statement on S-8 to six key employees and one
director as payment in lieu of prior accrued salaries and fees and as an advance
of their salaries and fees up to September 30, 1996. The shares issued were all
valued at $1.00 per share.
<PAGE> 73
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(viii) On November 1, 1995, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from 20,000,000
to 30,000,000 shares.
(ix) Other capital
As at March 31, 1997, 730,255 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>
YEAR ENDED
--------------------------- FROM INCEPTION
MARCH 31, (MAY 6, 1993)
--------------------------- THROUGH MAR 31,
1997 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received $ 1,332,800 $1,999,200 $ --
Deferred compensation costs 340,599 -- --
Deferred consulting costs 280,928 87,485 --
Rent -- -- --
----------- ---------- ----------
1,954,327 2,086,685 $ --
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received (999,600) -- 999,600
Deferred compensation costs 441,734 1,706,031 2,222,174
Deferred consulting costs 116,201 910,819 1,809,224
Rent 153,329 -- 507,794
----------- ---------- ----------
(288,336) 2,616,850 5,538,792
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received 333,200 666,400 999,600
Deferred compensation costs 782,333 1,365,432 2,222,174
Deferred consulting costs 134,629 717,376 1,546,724
Rent 21,496 -- 375,961
----------- ---------- ----------
1,271,658 2,749,208 5,144,459
CLOSING,
Marketing services not yet received -- 1,332,800 --
Deferred compensation costs -- 340,599 --
Deferred consulting costs 262,500 280,928 262,500
Rent 131,833 -- 131,833
----------- ---------- ----------
$ 394,333 $1,954,327 $ 394,333
=========== ========== ==========
</TABLE>
(x) For the year ended March 31, 1997, 1,433,433 common shares were issued
pursuant to the conversion of convertible subordinated debentures totalling
$655,000. In November 1996, all holders of the convertible subordinated
debentures were requested to extend the maturity date from December 1, 1996 to
June 1, 1997 on same terms and conditions. As of March 31, 1997 there remains
outstanding $590,746 ($1,460,000 at March 31, 1996) in convertible subordinated
debentures with a maturity date of June 1, 1997. The remaining balance of
$83,991 ($Nil at March 31, 1996) has been reclassified as debentures which have
repayment terms over 12 months at a 4.75% interest rate.
<PAGE> 74
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
(xi) The Company has, from inception to present, issued shares in exchange for:
(a) employment services, (b) consulting and marketing services, and (c)
consideration in lieu of rental payments.
(xii) During the year ended March 1997, the Company issued 1,050 shares of
$1,000 6% Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock"). The Convertible Preferred Stock is not redeemable and, except as
otherwise provided by law, is non-voting. Subject to the prior right of the
holders of any shares of any series of Preferred Stock ranking prior to the
shares of Convertible Preferred Stock with respect to dividends, the holders of
the Convertible Preferred Stock are entitled to receive when, as and if declared
by the Board of Directors: (i) quarterly dividends payable in cash out of funds
legally available for such purpose on the last day of July 1996 and October 1996
(each such date being referred to herein as a "Quarterly Dividend Payment Date")
at an annual rate of $60 per share; or, (ii) at the sole option of the Company,
quarterly dividends payable on each Quarterly Dividend Payment Date in
additional shares of Convertible Preferred Stock at an annual rate of 0.06
additional shares per share of Convertible Preferred Stock then outstanding.
In the event of any liquidation, dissolution or winding up of the Company, the
holders of the Convertible Preferred Stock are entitled to receive, prior to any
distribution of any of the assets or funds of the Company to the holders of the
Common Stock or any other shares of stock of the Company ranking as to such a
distribution junior to the Convertible Preferred Stock, an amount equal to
$1,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus an amount equal to any accrued but unpaid
dividends thereon to the date fixed for payment of such distribution. Upon
payment of the full preferential amount, the holders of the Convertible
Preferred Stock are not entitled to any further participation in any
distribution of assets by the Company.
Each share of Convertible Preferred Stock is convertible, at the option of the
holder, without the payment of any additional consideration, and at any time,
into such number of shares of Common Stock as is determined by dividing $1,000
plus the amount of any accrued but unpaid dividends through the date such
holder's conversion notice is received by the Company by the Conversion Price
(as hereafter defined). The "Conversion Price" shall be equal to that amount
which is 33% less than the average of the published OTC Bulletin Board closing
bid prices for the Company's Common Stock for the five (5) trading days
preceding, at the election of the holder, the date such holder's subscription to
purchase the Convertible Preferred Stock was accepted by the Company or the date
such holder's conversion notice is received by the Company; provided, however,
that the Conversion Price shall in no event be less than $0.15. If the number of
shares of Common Stock outstanding at any time after the date of issuance of the
Convertible Preferred Stock is increased or decreased by a stock dividend, stock
split, or combination or reclassification of the outstanding shares of Common
Stock, the Conversion Price shall be appropriately decreased or increased so
that the number of shares of Common Stock issuable on conversion shall be
increased or decreased in proportion to such increase or decrease in the
outstanding shares of Common Stock.
During May 1996, the Company issued 250 shares of Series B $1,000 6% Cumulative
Convertible Preferred Stock (the "Series B Convertible Preferred Stock"). During
August, 1996, the Company issued 200 additional shares of Series B $1,000
Cumulative Convertible Preferred Stock. The Series B Convertible Preferred Stock
is identical in all material respects to the Convertible Preferred Stock except
that the Quarterly Dividend Payment Dates are August 1996 and November 1996
rather than July 1996 and October 1996.
<PAGE> 75
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK (CONT'D):
For the year ended March 31, 1997, the Company paid $136,500 to a third party as
finders fees in connection with the Company's private equity placement of the
convertible preferred stock and the amount are included as a reduction in
paid-in capital.
(xiii) As at March 31, 1997, 4,365,136 common shares were issued due to the
conversion of 1,050 shares of convertible preferred stock totalling $1,050,000.
As at March 31, 1997, no convertible preferred stock remains outstanding.
(xiv) On October 21, 1996, the Company's Prospectus on Amendment No. 4 of the
Registration Statement on Form S-1 was declared effective by Securities and
Exchange Commission at 4:00 pm (Eastern time).
(xv) During the year ended March 31, 1997, the Company issued 1,740,938 shares
of common stock amounting to $658,393 pursuant to the registration statement on
S-8 to five key employees and five outside (non-employee) directors as payment
in lieu of salaries and consulting fees.
(xvi) In October 1996, the Company entered into a one-year consulting agreement
(the "Consulting Agreement") with a Consultant who was retained to provide
advice to the Company concerning the Company's growth strategy, financial public
relations obligations and future capital structure. Under the terms of the
Consulting Agreement, the Company has agreed to pay the Consultant one hundred
thousand (100,000) shares of the Company's common stock. As additional
consideration, the Company has granted to the Consultant certain options to
purchase up to a total of 900,000 shares of the Company's Common Stock (the
"Options") for the price of the par value of the Common stock, $.001 per share.
In addition, the Company has agreed to pay the Consultant $10,000 per month, for
administrative expenses. The Company shall reimburse the Consultant for all
other pre-approved expenses. The Company issued 333,272 shares of common stock
pursuant to the registration statement on S-8 to Consultant as payment for
consulting fees. The shares were carried an aggregate value of $ 88,000.
NOTE 12 - COMMITMENTS:
LEASES
The Company has a lease agreement for its current office premises. The term of
the lease is ten years which commenced January 1, 1994 and requires payment of
an annual base rent of $22,000 for the first five years and thereafter market
value less 20%. In addition, the Company is required to pay its share of
property taxes and all operating costs. 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 year ended March 31, 1997 amounted to $ 214,470 and
$233,705 for the year ended March 31, 1996.
<PAGE> 76
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - 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>
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker"), which provides for
a television and radio marketing campaign to be initially launched in the
California marketplace. As part of the compensation for services to be performed
by Knickerbocker, the Company has paid Knickerbocker a fee of $212,975 and
issued 800,000 restricted common shares, valued at $2.50 per share based on the
trading price of the Company's shares on the date of the agreement. These common
shares bear a legend restricting Knickerbocker from selling them for two years
from March 15, 1995, without the prior written consent of the Company.
On December 11, 1996, the Company entered into an agreement to end its
relationship with Knickerbocker. The Company received 400,000 of the 800,000
restricted common shares back from Knickerbocker. These shares were immediately
cancelled in treasury.
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>
<PAGE> 77
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS ( CONT'D):
INVESTOR MEDIA AND PUBLIC RELATIONS
The Company entered into an agreement dated November 20, 1995 with Corporate
Relations Group, Inc. ("CRG") of Winter Park, Florida to provide advertising,
printing and investor relations for investor media and public relations support
to the Company with services to commence in mid 1996. The agreement covers a
twelve-month period and may be cancelled without penalty at the Company's
option. As consideration for the services to be provided by CRG, the Company
will pay to CRG, at the Company's option, either $570,000 in cash or the
equivalent number of common shares assigned a value of $1.75 on the agreement
date. The Company has also agreed to issue options to purchase a total of
500,000 common shares noted as follows:
100,000 common shares at $2.00 1 year from the date of the agreement
100,000 common shares at $2.40 2 years from the date of the agreement
100,000 common shares at $2.60 3 years from the date of the agreement
100,000 common shares at $2.80 4 years from the date of the agreement
100,000 common shares at $3.00 5 years from the date of the agreement
On November 4, 1996, the Company exercised its option and terminated the
services of Corporate Relations Group, Inc. ("CRG"). CRG had never provided
services under the agreement and the Company had not made any payment to CRG.
NOTE 13 - RELATED PARTY TRANSACTIONS:
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management agreed to receive 5,089,286 exchangeable preference shares
in consideration for the assignment of international patents covering the
Tracker Canada system and as inducements to join the Company, respectively. No
value has been assigned to these shares.
The Company currently retains certain key management personnel under contract.
Included in expenses are consulting and management fees paid under the
aforementioned contracts totalling, in the aggregate, $ 648,231 for the year
ended March 31, 1997 and $589,390 for the year ended March 31, 1996.
Finders fees amounting to $25,870 for year ended March 31, 1997 and $Nil for the
year ended March 31, 1996 paid to related parties in connection with the
Company's private equity placement are included as a reduction in paid-in
capital.
Commissions amounting to $Nil for year ended March 31, 1997 and $85,646 for the
year ended March 31, 1996 were paid to related parties in connection with the
issuance of convertible subordinated debentures.
See also Note 11(iv) and (vii).
<PAGE> 78
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES:
The estimated deferred tax asset of $4,127,000 and $3,696,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1997 and March 31, 1996 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $11,800,000 ($10,561,000 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>
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 4,127,000 3,696,000
----------- -----------
4,127,000 3,696,000
Valuation allowance (4,127,000) (3,696,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $ 431,000 during the year.
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at March 31, 1997 convertible subordinated
debentures in the amount of $590,746 ($ 1,460,000 as at March 31, 1996) bearing
interest at 15% annually, which are repayable within one year. The interest
payments are payable monthly in advance. The principal amount may be converted,
at the holder's option, into shares of the Company's common stock, in whole or
in part, 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>
$ 150,000 $0.4375 per share of common stock 342,858
260,746 $0.9375 per share of common stock 278,128
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
----------- --------
$ 590,746 790,385
=========== ========
</TABLE>
Total interest paid and included in general and administrative expenses is $
222,791 and $181,311 for the years ended March 31, 1997 and 1996, respectively.
<PAGE> 79
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SUBSEQUENT EVENTS:
In April 1997, the Company issued 35,714 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for March 1997 administrative
expense. The shares were valued at $0.28 per share. See Note 11(xvi) - Capital
Stock.
In May 1997, the Company issued 43,478 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for April 1997 administrative
expense. The shares were valued at $0.23 per share.See Note 11 (xvi) - Capital
Stock.
In June 1997, the Company issued 56,180 shares of common stock pursuant to the
registration statement on S-8 to the Consultant for May 1997 administrative
expense.The shares were valued at $0.178 per share. See Note 11 (xvi) - Capital
Stock.
<PAGE> 1
Exhibit 10.34
EXCLUSIVE AGENT LICENCE AGREEMENT
This agreement ("Agreement") dated this 4th day of April, 1997 by and
between The Tracker Corporation of America with offices at 180 Dundas Street
West, Suite 1502, Toronto, Ontario Canada M5G 1Z8 (hereinafter called "Tracker")
and Executive Trading Ltd., with offices at Kriemhildenweg 3, 46357 Dinslaken,
Germany (hereinafter called "Executive") do hereby resolve and agree to the
following:
1) For the term of this Agreement, Tracker appoints Executive as its
exclusive sales agent and agrees to make available its full line of
products and services. Tracker will not knowingly sell any of its
products and services to any other person or entity in Executive's
exclusive territory of Germany, Switzerland and Austria (hereinafter
called "Territory"), provided that Executive is not in default of any
material term or covenant as further defined in Paragraph 13 herein.
2) Tracker agrees to sell to Executive and Executive agrees to purchase a
combination of Tracker INSIGNIAS (at point of manufacture) and/or
Tracker Labels printed in German in strings of varying lengths for a fee
of $0.25 per unit as outlined in Schedule A. Tracker will sell
Executive an annual renewal for its customers on a per number basis for
$0.25 per year. Tracker agrees to provide a numbered licence sequence to
fulfill each Executive sales contract or purchase order. Tracker agrees
to provide Executive with 150,000 labels upon execution of this
Agreement at no cost to Executive. Tracker agrees to provide as soon as
possible a toll-free 800 customer service number answered in German for
Executive's activating customers. Executive agrees to produce all
collateral and label carrier marketing materials to support the sale of
Tracker INSIGNIAS and Labels in the Territory.
3) As consideration for Tracker granting Executive the exclusivity for the
Territory, Executive agrees to pay a one-time exclusivity ("Fee") to
Tracker of U.S. $500,000.00. This Fee is payable as follows:
Six (6) months from date of this Agreement, 90 day grace
period U.S. $50,000
On the first anniversary date of this Agreement, 60 day
grace period U.S. $50,000
On each subsequent anniversary date of this Agreement U.S. $50,000
<PAGE> 2
4) Executive agrees to help Tracker arrange to register both the name
"Tracker" and the Tracker "Logo" in the Territory. This registration is
to be the property of Tracker. Executive will have the authorized use of
the Tracker name and logo in the Territory as long as Executive is the
exclusive sales agent for the Territory. All costs relating to
registering will be borne by Tracker.
5) Executive will use its best efforts to promote the sale of Tracker
Labels and the Tracker INSIGNIA at point of manufacture and through
service industries.
6) Executive may produce the Tracker INSIGNIA on its own label provided the
specifications of the label meet Tracker standards or Executive may
arrange for manufacturers to laser etch the Tracker INSIGNIA directly on
the product. All labels supplied by Tracker will be written in German
with a toll-free 800 customer service number answered in German,
including the 150,000 free labels mentioned in Paragraph 2.
7) Tracker will notify Executive on all leads and inquiries concerning the
Territory.
8) a. Tracker will supply and install ten (10) recovery scanning
stations at strategic lost and found locations in the Territory at
no charge. The selection of the scanning locations will be
determined by Executive.
b. The parties agree that Executive will help in establishing German
based fulfillment and processing centers ("Fulfillment Center") to
be owned by Tracker.
c. Tracker will supply technical assistance to Executive upon request
particularly related to the integration of the Tracker INSIGNIA or
as part of the Executive Label production process.
9) TERM
The Term of this Agreement is for ten (10) years and Executive shall
have the exclusive option to renew for an additional ten (10) years
under the same terms and conditions. Executive shall provide ninety
(90) days written notice prior to the expiration of the initial term to
renew Agreement.
<PAGE> 3
10) ACCOUNTING
Tracker and Executive shall maintain accurate records and accounts of
all transactions pertaining to this Agreement. Each party agrees to
provide information pertaining to this Agreement upon the request of
the other party.
11) NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
In consideration for Tracker entering into this Agreement, Executive
agrees that the following items used in Tracker's business are secret,
confidential, unique, and valuable, were developed by Tracker at great
cost and over a long period of time, and disclosure of any of the items
to anyone other than Tracker's officers, agents, or authorized
employees will cause Tracker irreparable injury.
a. Non public financial information, accounting information,
plans of operation, possible mergers or acquisitions prior to the
public announcement;
b. Customer lists, call lists, and other confidential
customer data;
c. Memoranda, notes, records concerning the technical
processes conducted by Tracker;
d. Sketches, plans, drawings and other confidential research
and development data.
Neither party shall disclose or otherwise reveal to any third party
without the express written consent of the other party the specific
terms or existence of this Agreement, except where required by law.
12) INDEMNIFICATION
a. Tracker shall indemnify and hold Executive harmless, from and
against any and all claims, losses, liabilities, expenses, and
damages, joint or several (including any and all
investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) to which
Executive may become a party as a result of its association
with Tracker or it's affiliates with respect to its
obligations herein, except for any adjudicated negligence or
willful wrongdoing on the part of Executive in respect
thereto.
<PAGE> 4
b. Executive shall indemnify and hold Tracker harmless, from and
against any and all claims, losses, liabilities, expenses, and
damages, joint or several (including any and all
investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) to which
Tracker may become a party as a result of its association with
Executive or it's affiliates with respect to its obligations
herein, except for any adjudicated negligence or willful
wrongdoing on the part of Tracker in respect thereto.
13) SEVERABILITY
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. Should
Executive be in default of this Agreement, it shall have 30 days from
date of written notice to correct the default, otherwise Tracker may
terminate this Agreement without further notice.
14) ASSIGNABILITY
This Agreement may be assigned by any of the parties without the prior
written consent of the other as long as the terms of this Agreement are
not violated.
15) ENTIRE AGREEMENT
This Agreement sets forth the entire Agreement between the parties
hereto and may be amended or modified at any time and in any manner,
but only by an instrument in writing executed by the parties hereto.
16) CONTROLLING LAW
The validity, interpretation and performance of this Agreement shall be
controlled by and construed under the laws of the Province of Ontario,
Country of Canada.
<PAGE> 5
17) MUTUAL COOPERATION
The parties hereby agree to cooperate with each other to achieve the
purpose of this Agreement and shall execute each other and further
documents and take such other and further actions as may be necessary
or convenient to effect the transactions described herein.
18) All Funds are U.S. dollars.
PER: /S/ GIGI LIPTON DATE: APRIL 4, 1997
-------------------------------------------------- -------------
THE TRACKER CORPORATION
PER: /S/ ANDREAS HASSEL DATE: APRIL 4, 1997
-------------------------------------------------- -------------
EXECUTIVE TRADING LTD.
<PAGE> 6
SCHEDULE A
MINIMUM PURCHASE REQUIREMENTS AND TERMS AND CONDITIONS TO MAINTAIN EXCLUSIVITY:
- --------------------------------------------------------------------------------
Terms:
Order paid by irrevocable letter of credit or wire transfer Drawn on
sight upon shipment of tape cassette friendly to Client laser equipment
or receipt of Tracker Kit inventory
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price List:
Tracker Kit Labels US $/unit
8 labels $2.00
24 labels $6.00
Annual Renewal per number per year $0.25
Tracker "Insignia"/Label $0.25
- --------------------------------------------------------------------------------
Timing and quantity of Minimum order requirements:
- --------------------------------------------------------------------------------
Exclusivity MINIMUM LABELS @ $0.25
Fee INSIGNIA AND RENEWALS
- --------------------------------------------------------------------------------
Year 1 $50K 0
Year 2 $50K 500,000
Year 3 $50K 1,000,000
Year 4 $50K 1,500,000
Year 5 $50K 1,500,000
Year 6 $50K 2,000,000
Year 7 $50K 2,000,000
Year 8 $50K 2,500,000
Year 9 $50K 2,500,000
Year 10 $50K 2,500,000
---------------------------------------------
$500K 16,000,000
4 MILLION DOLLARS
IF ACTUAL LABEL, INSIGNIA AND RENEWAL PURCHASES EXCEED THE MINIMUM PURCHASE
REQUIREMENT IN ANY YEAR, THEN EXECUTIVE SHALL RECEIVE A $0.02 DISCOUNT PER
LABEL, INSIGNIA AND RENEWAL ON THE AMOUNTS PURCHASED EXCEEDING THE MINIMUM
PURCHASE REQUIREMENT IN THAT YEAR.
<PAGE> 1
Exhibit 10.35
AGREEMENT-IN-PRINCIPLE
May 15,1997
Mr. Wally Thompson
Director of Marketing
LIBERTY HEALTH
3500 Steeles Avenue East
Markham, Ontario L3R 0X4
Dear Mr. Thompson:
This letter shall serve as an agreement between the Tracker Corporation
("Tracker") and Liberty Health. The terms and conditions of this agreement are
as follows:
1) Liberty Health will launch the Tracker promotion on June 23, 1997.
2) Tracker will supply Liberty Health with 60,000 labels mounted on carrier
cards (buckslips) at a cost of $0.45 each and Liberty Health will ship one-label
carrier card with each travel health policy. Tracker will warehouse buckslips.
3) Tracker and Liberty Health will mutually prepare and agree upon all graphics
and copy for the above. Liberty Health will provide finished art to Tracker and
Tracker will print and affix labels.
4) Tracker will offer two (2) coverage terms: One (1) year for annual
policyholders and two (2) months for per-trip coverage policyholders. Liberty
Health will be billed $0.74 per activated label for per-trip coverage
policyholders and $2.22 per activated label for annual plan policyholders.
5) Liberty Health will modem transfer on a daily basis policyholder information
to be linked to the Tracker label at the time of activation.
<PAGE> 2
6) Tracker will pay Liberty Health 10% of all revenues received from additional
label sales and renewals. Tracker and Liberty Health will mutually agree on the
content, frequency and channels used to communicate with Tracker members
registered through this promotion.
7) Tracker will not offer its recovery service to any other provider of
Individual Travel Health Insurance coverage in Canada for a period of one year.
8) All customer information acquired by Tracker through the Liberty Health
promotion will be considered privileged. Tracker cannot and will not share this
information with any third party unless it involves a police investigation.
We trust this agreement meets with your approval. Please sign on the appropriate
line below.
We are looking forward to a long and prosperous business relationship.
Yours truly,
/s/ Gigi Lipton /s/ Wally Thompson
- ------------------------- ---------------------------
GIGI LIPTON WALLY THOMPSON
VICE PRESIDENT DIRECTOR OF MARKETING
INFORMATION SYSTEMS/ CONSUMERS AND SMALL
BUSINESS DEVELOPMENT BUSINESS MARKETS
DATE MAY 15/ 97
------------
<PAGE> 1
Exhibit 10.36
AGREEMENT
THIS AGREEMENT is entered as of the 22nd day of May,1997 by and between
SCHWINN CYCLING & FITNESS INC., ("SCHWINN") whose principal offices are located
at 1690 38th Street, Boulder, Colorado 80301-2602, and THE TRACKER CORPORATION
OF AMERICA ("TRACKER") whose principal offices are located at 180 Dundas Street
West, 15th Floor, Toronto, Ontario, Canada M5G 1Z8.
WHEREAS, SCHWINN is a manufacturer and distributor of bicycles,
accessories and other fitness products.
WHEREAS, TRACKER owns and operates a labeling and recovery service for
the identification and pre-paid return of recovered lost and stolen possessions
("Service"), which it desires to make available to customers of SCHWINN.
WHEREAS, SCHWINN and TRACKER desire to offer the Service to add value
to SCHWINN branded bicycles locks ("Product") in accordance with and subject to
the terms of this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
set forth in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which the parties acknowledge, SCHWINN and TRACKER
agrees as follows:
1. OFFER. TRACKER will provide to SCHWINN at no charge a sufficient
quantity of TRACKER (approximately, 120,000) labels and label carriers which
SCHWINN will include in each Product's package for the term of this Agreement.
TRACKER will provide three (3) years of Service for any item to which the
activated label is attached at no charge. SCHWINN will provide the creative
design, in ready to print format for the label carrier. During the term of this
Agreement, SCHWINN will distribute TRACKER Service with each product and by any
other distribution methods upon which the parities agree to in advance. TRACKER
will provide SCHWINN with 25% of all upgrade sales that are realized from
customers calling TRACKER to activate their label as long as the average monthly
upgrade/activation rate remains above 5% and will supply to SCHWINN a monthly
report. TRACKER will begin monitoring first year activation and upgrade rates on
September 1, 1997 to allow SCHWINN sufficient time to distribute the Product.
2. EXCLUSIVITY. In the United States, TRACKER will grant SCHWINN a
exclusivity for the Service in the bicycle accessory industry for the term of
this Agreement, during which time Tracker will not offer its labels for
distribution or sales to any other manufacturer of bicycle accessories. TRACKER
will also grant SCHWINN a one (1) year exclusivity for the entire bicycle
industry, during which time TRACKER will not sell its laser etching symbology to
any other manufacturer of bicycles in the United States. TRACKER will also grant
SCHWINN first right of refusal in the bicycle industry for label distribution.
<PAGE> 2
3. MARKETING. TRACKER and SCHWINN mutually agree to participate in
marketing and sales initiatives, which consist but are not limited to SCHWINN
providing TRACKER, at SCHWINN's discretion with access to and incorporation into
SCHWINN catalogues, trade shows, lock display units, lock packaging and bicycle
manufacturing personnel. TRACKER agrees to provide sufficient training of
SCHWINN sales representatives. Both parties agree that all marketing material
will be approved by each party. Both parties agree to make a joint press release
upon execution of this agreement.
4. TERM AND SEVERABILITY
A. The initial term of this Agreement will begin on the date reflected
at the beginning of this Agreement and will continue for a term of one (1) year.
Unless terminated earlier under the terms stated below, this Agreement will
automatically renew for subsequent terms of one (1) year each.
B. Either party may terminate this Agreement without cause at the
expiration of the initial or any renewal term upon not less than ninety (90)
days prior written notice to the other party. Either party may terminate this
Agreement in the event of a material breach by the other party that remains
uncured thirty (30) days after written notice of such breach. Either party may
terminate this Agreement at any time without advance written notice in the case
of a bankruptcy event. A bankruptcy event will have occurred if either party
suspends or goes out of business or substantially reduces its business
operations or becomes insolvent or unable to meet its debts as they mature,
calls a meeting of its creditors, sends notice of a proposed bulk sale of all or
a substantial part of its business, makes any general assignment or trust
mortgage for the benefit of its creditors, commits an act of bankruptcy, or if
any petition is filed by or against either party initiating a bankruptcy,
arrangement, reorganization, or other proceeding under any provision of the
Bankruptcy Code or similar law, or if any receiver or trustee will be appointed
for either party or for any or all of its property. In the event that TRACKER or
SCHWINN gives notice of termination of this Agreement under this Section 4B for
default or in the event of a bankruptcy event, SCHWINN will discontinue all
distribution of labels for the Service effective immediately.
C. Upon termination of this Agreement, SCHWINN will cease distribution
of labels, and will return all labels issued by TRACKER still in its possession
and not included in the product's packaging. Notwithstanding the termination of
this Agreement, TRACKER will continue to provide the Service for every label
issued to a customer received from the SCHWINN promotion and until SCHWINN sells
through its existing inventory of SCHWINN Product which includes Tracker in the
Product's packaging, according to the terms of the Service.
D. At the end of the first term of this Agreement, TRACKER will grant
to SCHWINN the option of purchasing TRACKER service for $0.20 per label and
label carrier under the same terms of Service if annual service activation and
upgrade rates are below 20% and 5% respectively. TRACKER will begin monitoring
first year activation and upgrade rates on September 1, 1997 to allow SCHWINN
sufficient time to distribute the Product.
<PAGE> 3
5. TRADEMARKS TRACKER grants SCHWINN a limited, nonexclusive license to use
TRACKER'S name and related copyrights, trademarks and service marks, and any
copyrights, trademarks and service marks associated with the Service for
SCHWINN's use in promoting the offers set forth in this Agreement, including,
but not limited to, production and distribution of the labels described in this
Agreement. TRACKER reserves the right to approve all marketing material for
accuracy of content. TRACKER will not use SCHWINN's name or any other name,
copyright, trademark or service mark in which SCHWINN or any entity related to
SCHWINN has an ownership interest without SCHWINN's prior consent.
6. CONFIDENTIALITY
A. In performing its obligations pursuant to this Agreement, each party
will receive or have access to confidential information regarding the other's
operations, including, but not limited to, identifying information regarding
members of the Program, financial and marketing information, business plans, and
other proprietary information ("Confidential Information"). Confidential
Information does not include any information that is or becomes available to
either party by virtue of legitimate sources independent of this Agreement and
without violation of similar restrictions or is otherwise available to the
general public.
B. Each party will receive Confidential Information in confidence for
its own use and will use such information solely for the purpose of and to the
extent necessary to fulfill its obligations pursuant to this Agreement. Neither
party will disclose Confidential Information to any third party except as may be
necessary to perform its obligations pursuant to this Agreement or as otherwise
required by law. Each party will take reasonable measures to prevent its agents,
employees and subcontractors from using or disclosing any Confidential
Information except as permitted by this Agreement and as may be necessary for
that party to perform its obligations pursuant to this Agreement.
C. The provisions of this Section will survive termination of this
Agreement.
7. INDEMNITY
A. TRACKER hereby indemnifies SCHWINN and hold harmless, its parent and
affiliated corporations, and each of their officers, directors, employees,
agents, and representatives, from and against any and all claims and demands of
every kind and nature whether groundless or otherwise, including but not limited
to, any and all actions, causes of action, suits, judgments, controversies,
losses, damages, costs, liens, charges, court costs, reasonable attorneys fees,
payments, liabilities and expenses, occasioned by, resulting from, arising out
of, related to, or in connection with any act or omission of Tracker, its
employees, officers, directors, agents or representatives, or any of them, in
performance of this Agreement, any failure of Tracker to comply with the terms
of this Agreement, or operation or management of the Service.
<PAGE> 4
SCHWINN hereby indemnifies TRACKER and hold harmless, its
parent and affiliated corporations, and each of their officers, directors,
employees, agents, and representatives, from and against any and all claims and
demands of every kind and nature whether groundless or otherwise, including but
not limited to, any and all actions, causes of action, suits, judgments,
controversies, losses, damages, costs, liens, charges, court costs, reasonable
attorneys fees, payments, liabilities and expenses, occasioned by, resulting
from, arising out of, related to, or in connection with any act or omission of
SCHWINN, its employees, officers, directors, agents or representatives, or any
of them, in performance of this Agreement, any failure of SCHWINN to comply with
the terms of this Agreement.
B. Each party will notify the other party of any suit or threat of
suit, except the threat of suit either party might institute against the other,
related in any way to this Agreement or failure of either party to perform in
accordance with the terms and conditions of this Agreement. Neither party will
settle an indemnified claim without the consent of the indemnified party, which
consent will not be unreasonably withheld.
C. The provisions of this Section will survive termination of this
Agreement.
8. RELATIONSHIP OF THE PARTIES The relationship between SCHWINN and
TRACKER established pursuant to this Agreement is that of independent
contractors and neither party will be construed to be the agent or employee of
the other. Except as expressly provided in this Agreement, neither party may
bind or obligate the other in any manner without the prior written consent of
the other.
9. LAW GOVERNING This Agreement will be governed in all respects by
and construed in accordance with the laws of the State of Colorado.
10. ENTIRE AGREEMENT This Agreement contains the entire agreement of
the parties and supersedes any and all previous agreements, whether oral or
written, between them with respect to its subject matter.
11. AMENDMENT This Agreement may not be changed, altered, modified or
affected in any manner except in a written instrument executed by both parties,
which specifically refers to this Agreement and expressly recites the purpose of
the modification.
12. ASSIGNMENT SCHWINN may delegate to any entity that acquires all
or substantially all of the business of SCHWINN cycling division or assign any
of its obligations under this Agreement to any affiliated entity at its
discretion and to any other entity with TRACKER's prior written consent, which
will not be unreasonably withheld. TRACKER may not assign this Agreement, in
whole or in part, without SCHWINN's prior written consent. The terms and
conditions of this Agreement will bind and inure to the benefit of each party's
respective successors and permitted assigns.
13. WAIVER No failure or delay by either party to exercise and no
course of dealing with respect to any right of such party regarding an
obligation of the other
<PAGE> 5
party will operate as a waiver of any such right unless the waiving party so
designates in writing. Any single or partial exercise by either party of any of
its rights will not preclude such party from any other exercise of any such
right or the exercise of any other right. Any single or partial waiver by either
party of any obligation of the other party under this Agreement will constitute
a waiver of such obligation only as specified in such waiver and will not
constitute a waiver of any other obligation.
14. SEVERABILITY If any provision of this Agreement is held to be
invalid or enforceable for any reason, the parties will reform that provision to
the extent necessary to enforce and preserve the parties' original intent,
failing which, it will be severed from this Agreement with the balance of the
Agreement continuing in full force and effect.
15. NOTICES All notices, requests and approvals required by this
Agreement will be in writing, addressed to each party at the address stated for
each on the first page of this Agreement, or to such other address as either
party designates in writing, with a duplicate copy addressed to the attention of
each party's General Counsel at the same address. All notices will be deemed to
have been given either when personally delivered or upon delivery by either
registered or certified mail, postage prepaid with return receipt requested, or
by telex or fax.
16. HEADINGS The Section headings in this Agreement have been inserted as a
matter of convenience in reference only and are not intended nor should they be
construed to convey any substantive content in interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first written above.
<TABLE>
<S> <C>
SCHWINN THE TRACKER CORPORATION OF
AMERICA
/s/Rick C. Bradham /s/Gigi Lipton
- --------------------------------------------- ------------------------------------------------
By: Rick C. Bradham By: Gigi Lipton
---------------------------------------- ------------------------------------------
By: Vice President of Accessories By: Vice President of Information Systems/
Business Development
---------------------------------------- ------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.37
MODIFICATION AGREEMENT
This Modification Agreement (the "Agreement") is entered into
among Saturn Investments, Inc. a Delaware company (the "Investor"), The Tracker
Corporation, an Ontario corporation ("Tracker Canada"), The Tracker Corporation
of America, a Delaware corporation (the "Company"), I. Bruce Lewis, an
individual ("Lewis"), Mark J. Gertzbein, an individual ("Gertzbein"), Jonathan
B. Lewis, an individual ("J. Lewis"), as of the 27th day of May, 1997, (Lewis,
Gertzbein and J. Lewis referred to collectively herein as the "Controlling
Shareholders").
RECITALS
1. In March 1994, Tracker Canada received an investment of CDN
$3,350,000 from Stalia Holdings B.V. ("Stalia") for units consisting of common
shares of Tracker Canada and warrants to purchase common shares of Tracker
Canada. On March 14, 1994, Tracker Canada and the Controlling Shareholders
entered with Stalia into (I) a Stock Option Agreement (the "Option Agreement")
granting to Stalia the right to purchase an additional amount of common shares
that would provide Stalia (when combined with common shares held by Stalia at
the time of exercise) with ownership of 25% of Tracker Canada's issued and
outstanding voting equity securities and (ii) a Right of First Refusal, Co-Sale
and Voting Agreement (the "Voting Agreement") granting to Stalia certain rights
with respect to any issuance of equity securities by Tracker Canada, any sale of
shares by the Controlling Shareholders and certain shareholder voting issues.
2. Since the date of the Voting Agreement, the parties to the
Voting Agreement have changed. As a result of the reorganization of the Company
and Tracker Canada, and pursuant to that certain Agreement dated July 1994 by an
among Stalia, Tracker Canada, the Company and the Controlling Shareholders (the
"July 1994 Agreement"), the Company has assumed all of the obligations of
Tracker Canada under the Voting Agreement and the Option Agreement. Pursuant to
that certain Bill of Sale dated January 31, 1996 (the "Bill of Sale)", Stalia
has transferred to the Investor all of Stalia's rights, title and interest In
certain assets of Stalia, including Stalia's rights under the Voting Agreement
and the Option Agreement.
3. In connection with the registration of the Company's equity
securities pursuant to the registration statement the ("Registration Statement")
that has been filed with the U.S. Securities and Exchange Commission (the "SEC")
and declared effective by the SEC on October 21, 1996 (the "Effective Date"),
the parties now desire to modify the Voting Agreement to, among other things:
(1) incorporate the information and notice obligations set forth in that certain
letter from Gregg C. Johnson ("Johnson"), on behalf of Tracker Canada, to Stalia
dated June 7, 1994 (the "June 1994 Letter"); (2) reflect the changes in the
identity of the parties from Tracker Canada to the Company and from Stalia to
the Investor; (3) clarify the nature of the "public offering" which triggers
termination of all of the provisions of the Voting Agreement
1
<PAGE> 2
and the Option Agreement; and (4) terminate the Option Agreement and right of
co-sale provisions of the Voting Agreement as of the Effective Date.
4. As of June 25, 1996, the Controlling Shareholders each held
the number of shares of Common Stock of the Company and Exchangeable Preference
Shares of Tracker Canada, which are exchangeable for Common Shares of the
Company (collectively, the "Common Shares"), described in the Registration
Statement.
5. Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them in the Voting Agreement.
AGREEMENTS
NOW THEREFORE, on the stated premises and for and in
consideration of the mutual benefits to the parties to be derived herefrom, the
parties hereby agree as follows:
1. The Option Agreement shall be deemed terminated as of the
Effective Date and, as of such date, shall no longer have any legal force or
effect.
2. The rights of co-sale set forth in Article III of the
Voting Agreement shall be deemed terminated as of the Effective Date and, as of
such date, such Article III shall no longer have any legal force or effect.
3. The Voting Agreement shall be amended as follows:
3.1 A new definition shall be added to Article 1 of the
Voting Agreement, as follows:
"Business Day" shall mean any day on which
banks are open for business in New York, New
York, U.S.A.
3.2 The definition of "New Securities" under
Article I of the Voting Agreement shall be
amended to read as follows:
"New Securities" shall mean any capital stock
(including Common Shares or preferred shares) of the
Company, whether now authorized or not, and rights,
options or warrants to purchase capital stock, and
securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that
the term "New Securities" does not include (i)
securities issued pursuant to any stock dividend,
stock split, combination or other reclassification by
the Company of all of its capital stock; (ii)
securities covered by a registration statement which
has been declared effective under the 1933 Act; (iii)
securities issued pursuant to an employee stock
option, stock purchase, stock wage
2
<PAGE> 3
or other similar plan; (iv) securities issued after
the date of this Agreement if such securities are
issued pursuant to the exercise, exchange or
conversion of any options, warrants, evidences of
indebtedness, shares of stock or other securities
which are convertible, exchangeable or exercisable
for Tracker shares, either immediately or upon the
arrival of a specified date or the happening of a
specified event ("Convertible Securities") that are
outstanding as of the date of this Agreement or of
any Convertible Securities that have been authorized
to be issued by the Company's Board of Directors as
of the date of this Agreement; and (v) securities
issued to any person not a party to this Agreement
for consideration other than cash.
3.3 The definitions of "OBCA" and "Warrants" under
Article 1 of the Voting Agreement shall be deleted.
3.4 Section 2.1 under Article II of the Voting
Agreement shall be amended to read as follows:
GRANT OF RIGHTS. The Company hereby grants
to the Investor the right of first to purchase, pro rata, all
New Securities which the Company may, from time to time
propose to sell and issue. The Investor's pro rata share, for
purposes of this right of first refusal, shall be equal to a
fraction (A) the numerator of which is the number of Common
Shares held by the Investor on the date of the Company's
written notice pursuant to Section 2.2 below (the "Notice
Date"); and (B) the denominator of which is the number of
Common Shares outstanding on the Notice Date; and (B) the
denominator of which is the number of Common Shares
outstanding on the Notice Date.
3.5 Section 2.2 under Article II of the Voting
Agreement shall be amended to read as follows:
REQUIRED NOTICES. In the event the Company proposes
to undertake an issuance of New Securities, it shall give the
Investor written notice of its intention, describing the type
of New Securities, the price and the general terms upon which
the Company proposes to issue the same. The Investor shall
have seven (7) Business Days from the date of receipt of any
such notice to agree to purchase any amount of New Securities
up to the Investor's pro rata share of such New Securities for
the price and upon the general terms specified in the notice
by giving written notice to the Company and stating therein
the quantity of New Securities to be purchased.
3.6 Section 2.3 under Article II of the Voting
Agreement shall be amended as follows:
3
<PAGE> 4
COMPANY'S RIGHT TO SELL In the event the Investor
fails to exercise the right of first refusal as to all New
Securities offered within said seven (7) Business Day period,
the Company shall have sixty (60) days thereafter to sell or
enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within
one hundred twenty (120) days from the date of said agreement)
to sell all such New Securities respecting which the
Investor's option was not exercised, at a price and upon
general terms no more favorable in any material respect to the
purchasers thereof than specified in the Company's notice. In
the event the Company has not sold within said sixty (60) day
period or entered into an agreement to sell all such New
Securities within said sixty (60) day period (or sold and
issued all such New Securities in accordance with the
foregoing within one hundred twenty (120) days from the date
of said agreement), the Company shall not thereafter issue or
sell any New Securities, without first offering such
securities to the Investor in the manner provided above.
3.7 Section 2.4 under Article II of the Voting
Agreement shall be amended as follows:
3.8 Section 4.2 under Article IV of the Voting
Agreement shall be amended to read as follows:
PROTECTIVE PROVISIONS In light of the Investor's
financial investment in the Company, without first obtaining
the written consent of the Investor, the Controlling
Shareholders, subject to their fiduciary duties under Delaware
law, shall not vote for, and shall exercise their best efforts
as significant shareholders of the Company to ensure that the
Board does not approve:
(a) the liquidation or dissolution of the
Company;
(b) the declaration or payment of any
dividends or the making of any distribution of any
distribution out of the ordinary course of the Company's
business, whether in cash or any other property, to the
shareholders of the Common Stock of the Company. This Section
4.2 shall not apply to dividends declared or paid in
connection with any class of the Company's Preferred Stock;
and
(c) any material alteration in the rights,
preferences, privileges and restrictions of the Common Shares.
4
<PAGE> 5
3.9 Section 4.4 under Article IV of the Voting
Agreement shall be amended to read as follows:
4.4 Each of the Company and Tracker Canada hereby
acknowledge and agree to (a) provide a designee of the
Investor in the U.S. or Canada with copies of all
communications made to its directors, including notice of any
directors' meetings; (b) allow such designee of the investor
to attend all Board meetings; (c) provide monthly updates on
their business and affairs, including updated cash-flow
reports; and (d) provide the Investor's counsel with all
documentation it may reasonably request relating to issues
which may affect the Investor.
3.10 Section 6.2 under Article IV of the Voting
Agreement shall be amended to read as follows:
NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
deemed given (a) upon receipt if delivered personally, or sent
by facsimile to the numbers indicated below or (b) ten
calendar days after being mailed by airmail, certified or
registered mail, postage prepaid, return receipt requested,
address as follows:
If to the Investor: Saturn Investments Inc.
P.O. Box 227
Jeddah 21411
Kingdom of Saudi Arabia
Attention: Ayman Abudawood
Facsimile: 9662-642-5807
With a copy to: Gibson, Dunn & Crutcher
30/35 Pall Mall
London Swly 5LP
Attention: Anthony Bonanno
Facsimile: 44 171 926 2465
If to the Company: The Tracker Corporation of America
180 Dundas Street West
5
<PAGE> 6
Suite #1502
Toronto, Ontario
Canada M5G 1Z8
Attention: Mark J. Gertzbein
Facsimile: 1 (416) 595-6220
With a copy to: Fennemore Craig
Two North Central Avenue
Suite #2200 Phoenix,
Arizona 85004, U.S.A.
Attention: Robert J. Hackett
Facsimile: (602) 257-8527
If to the Controlling to the address or facsimile numbers
shareholders: set forth beside their signatures
below:
Any party may change the address and/or
facsimile number at which it is to receive notices by
notifying the other party to this Agreement as provided in
this Agreement as provided in this Section 6.2.
3.11 Section 6.13 under Article IV of the Voting
Agreement shall be amended to read as follows:
TERMINATION. This Agreement shall terminate upon the
earlier of (a) the date on which a registration statement of
the Company registering any equity securities of the Company
for sale to the general public in a primary offering under the
1933 Act is declared effective; or (b) March 14, 1999. The
Company shall give the Investor at least thirty (30) days
advance notice of the filing of any registration statement
described in (a) above.
4. AMENDMENT OF THE OPTION AGREEMENT. Section 9 of
the Option Agreement shall be amended to read as follows:
TERMINATION. This Agreement shall terminate
upon the earlier of (a) the date on which a registration
statement of the Company registering any equity securities of
the Company for sale to the general public in a primary
offering under the 1933 Act is declared effective; (b) March
14, 1999; (c) recission by the Investor pursuant to Section
4(c) hereof; or (d) immediately upon consummation of a sale
pursuant to Section 4(b) hereof. The Company shall give
6
<PAGE> 7
the Investor at least thirty (30) days advance notice of the
filing of any registration statement described in (a) above.
5. COMPLETE AGREEMENT. This Agreement, including the
Recitals contains the entire agreement between the parties with respect to the
transaction contemplated herein and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments and
understandings, including but not limited to the July 1994 Agreement and the
June 1994 Letter. Notwithstanding the foregoing provisions, Johnson and Spire
Consulting Group, Inc. ("Spire") are not parties to this Agreement and their
rights and obligations and the rights and obligations of each of the parities to
this Agreement as they relate to Johnson and Spire, shall continue to be
governed by the Voting Agreement, prior to amendment herein, and the July 1994
Agreement.
6. WAIVER. Pursuant to Section 6.1 of the Voting
Agreement, each of the Investor, the Company and the Controlling Shareholders
hereby; (a) waives observance by each of the other parties to the Voting
Agreement of all terms of the Voting Agreement with respect to transactions of
which each such party had actual or constructive (e.g. through the Registration
Statement) knowledge as of the date of this Amendment; and (b) releases each of
the parties to the Voting Agreement from any and all claims that arise out of or
relate in any way to the Voting Agreement, but only if and to the extent that
such releasing party had actual or constructive (e.g., through the Registration
Statement) knowledge of the facts giving rise to any such claim as of the date
of this Amendment.
7. MODIFICATIONS AND AMENDMENTS. The terms of this
Agreement may be amended or modified only upon the written agreement of all of
the parties hereto. Notwithstanding the provisions of Section 6.7 of the Voting
Agreement, the parties to this Agreement hereby consent to the amendments made
herein to the Voting Agreement by this Agreement notwithstanding the fact that
Johnson and Spire are not parties to this Agreement.
8. FURTHER ACKNOWLEDGMENTS. Tracker Canada and the
Controlling Shareholders hereby acknowledge that (a) the Voting Agreement (as
amended herein) shall continue in full force and effect notwithstanding
declaration by the SEC of the effectiveness of the Registration Statement until
such time as the Company publicly offers its securities for cash pursuant to a
registration statement in connection with a primary offering in accordance with
the Voting Agreement or expiration thereof, and (b) nothing contained herein
shall obligate the Investor to provide any further waivers or consent with
respect to its rights under the Option Agreement or the Voting Agreement. The
Company, Tracker Canada and the Controlling Shareholders hereby agree to execute
and deliver (or to cause any party under their control to execute and deliver)
such further documents and instruments and take such other actions (or cause the
same) as the Investor may reasonably request from time to time in order to
protect its
7
<PAGE> 8
rights hereunder.
9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one agreement.
(SIGNATURES APPEAR ON FOLLOWING PAGES)
8
<PAGE> 9
IN WITNESS WHEREOF, the Parties have caused
this Agreement to be duly executed and delivered by their duly authorized
representatives as of the day and year first above written.
SATURN INVESTMENTS, INC.
By: /s/ Ayman I. Abudawood
---------------------------------
Ayman I. Abudawood
Director
THE TRACKER CORPORATION OF AMERICA
By: /s/ I. Bruce Lewis
---------------------------------
I. Bruce Lewis
Chairman & CEO
THE TRACKER CORPORATION
By: /s/ I. Bruce Lewis
---------------------------------
I. Bruce Lewis
Chairman & CEO
By: /s/ I. Bruce Lewis
---------------------------------
I. Bruce Lewis
By: /s/ Mark J. Gertzbein
---------------------------------
Mark J. Gertzbein
By: /s/ Jonathan B. Lewis
---------------------------------
Jonathan B. Lewis
9
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-1 (No. 33-99686) and
the Registration Statements on Form S-8 (Nos. 333-14229 and 333-14685) of The
Tracker Corporation of America of our report dated June 24, 1997 appearing in
this Form 10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
June 24, 1997
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<PERIOD-START> APR-01-1996
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