<PAGE> 1
DATE FILED: NOVEMBER 23, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period year ended SEPTEMBER 30, 1998, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission file number 0-24944
THE TRACKER CORPORATION OF AMERICA, INC.
(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 1505, TORONTO, ONTARIO, CANADA M5G 1Z8
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (416) 493-2604
Indicate by check [check graphic] 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 [ ] No [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date:
Classes of Common Stock Outstanding at October 30, 1998
$0.001 par value 22,340,638
<PAGE> 2
THE TRACKER CORPORATION OF AMERICA, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1998 and
March 31, 1998 4
Consolidated Statement of Operations for the three and six
months ended September 30, 1998 and 1997 and for the period from
May 6, 1993 (inception) through September 30, 1998 5
Consolidated Statement of Cash Flows for the six months ended
September 30, 1998 and 1997 and for the period from May 6, 1993
(inception) through September 30, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 3. Defaults upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 23
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<PAGE> 4
THE TRACKER CORPORATION OF AMERICA, INC.
( A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ -- $ --
Short-term investment -- --
Accounts receivable 23,651 --
Prepaid expenses and deposits -- --
Inventory -- --
Deferred charges 115,059 1,187,699
------------ ------------
Total current assets 138,709 1,187,699
Due from Stockholders 14,072 14,072
Deferred charges 201,225 275,043
Property and equipment (net) -- --
Long-term investment -- --
------------ ------------
Total assets $ 354,006 $ 1,476,814
============ ============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 764,099 $ 440,835
Accrued liabilities 578,786 528,399
Deferred revenue 197,684 1,798,727
Debenture payable 31,809 31,809
Convertible debentures 475,790 475,790
------------ ------------
Total current liabilities 2,048,168 3,275,560
Deferred revenue 314,026 412,846
Stockholders' equity (deficit)
$1000 6% Convertible preferred stock, $.001 par value, 500,000 shares
authorized, NIL (NIL - March 31, 1997) shares issued and outstanding -- --
Common stock, $.001par value, 30,000,000 shares authorized,
23,782,128 (22,340,628 - March 31, 1998) shares issued and outstanding 21,160 19,718
Paid-in capital 15,415,481 15,371,641
Other capital (356,002) (356,002)
Accumulated deficit (16,893,069) (17,001,283)
Cumulative translation adjustment (195,758) (245,666)
------------ ------------
Total stockholders' equity (deficit) (2,008,188) (2,211,592)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 354,006 $ 1,476,814
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 5
THE TRACKER CORPORATION OF AMERICA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
From Inception
(May 6, 1993)
For 3 months ending For 6 months ending through
September 30 September 30 September 30,
---------------------------- ---------------------------- --------------
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 21,431 $ 23,942 $ 93,513 $ 35,721 $ 400,235
Cost of sales 9,041 14,151 51,423 17,089 151,717
------------ ------------ ------------ ------------ ------------
Gross profit 12,390 9,790 42,090 18,632 248,518
------------ ------------ ------------ ------------ ------------
Development Costs
Operational 28,559 2,019 108,454 3,363 1,630,313
Information systems 3,561 730 10,712 1,317 940,743
Sales and marketing 26,343 509 59,719 1,190 3,496,763
General and administrative 85,075 4,154 134,768 8,075 7,970,999
------------ ------------ ------------ ------------ ------------
Total development costs $ 143,538 $ 7,412 $ 313,653 $ 13,945 $ 14,038,819
Gain (Loss) from continuing operations (131,148) 2,378 (271,563) 4,687 (13,790,302)
Gain (Loss) from Discontinued Operation (208,434) (95,086) 379,778 (443,367) (3,102,767)
------------ ------------ ------------ ------------ ------------
Net profit (loss) applicable to common stock $ (339,581) $ (92,708) $ 108,215 $ (438,680) $(16,893,069)
============ ============ ============ ============ ============
PROFIT (LOSS) PER SHARE OF COMMON STOCK
Loss from continuing operations (0.0058) $ 0.0001 (0.0119) $ 0.0002 $ (0.652)
Gain (Loss) from Discontinued Operation (0.0091) (0.0045) 0.0167 (0.0212) (0.1466)
------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS) (0.0149) (0.0044) 0.0047 (0.0210) (0.7984)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 22,802,142 21,092,036 22,802,142 20,874,564 21,159,644
============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 6
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
(May 6, 1993) For 6 months For 6 months
through ended ended
September 30 September 30 September 30
1998 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net gain (loss) $(16,893,068) $ 108,215 $ (438,680)
Adjustments to reconcile net gain (loss) to net cash from
operating activities:
Depreciation $ 380,019 -- 97,410
Loss on sale of long-term investment $ 13,414 -- --
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares $ 5,284,144 -- 86,456
Changes in assets and liabilities:
Prepaid expenses and deposits $ (17,273) -- (232,274)
Accounts receivable $ (23,651) (23,651) 45,234
Short-term investment -- -- --
Inventory -- -- (79,001)
Deferred charges $ (316,284) 1,146,458 (294,401)
Deferred revenue $ 511,710 (1,699,863) 1,175,268
Accounts payable and accrued liabilities $ 1,071,942 88,063 73,458
------------ ------------ ------------
Net cash used in operating activities (9,989,047) (380,778) 433,470
------------ ------------ ------------
Cash flows from (used in) investing activities:
Due to Global Tracker 285,588 285,588 --
Acquisition of fixed assets $ 6,028 -- (242,831)
Loan to stockholders $ (370,484) -- --
Repayment of loans to stockholders $ 356,412 -- --
Note receivable $ (200,317) -- --
Repayment of note receivable $ 200,317 -- --
Long-term investment $ (2,301,372) -- --
Unwind of long-term investment $ 2,287,958 -- --
------------ ------------ ------------
Net cash from (used in) investing activities 264,130 285,588 (242,831)
------------ ------------ ------------
Cash flows from (used in) financing activities:
Issuance of common shares $ 8,997,811 45,281 --
Issuance of preferred shares $ 1,050,000 -- --
Issuance of convertible subordinated debentures $ 2,189,529 -- --
Repayment of debentures and convertible subordinated debentures $ (297,401) -- (167,138)
Due to stockholder $ 0 -- --
Repayment to stockholder $ 0 -- --
Share issue costs $ (1,684,735) -- --
------------ ------------ ------------
Net cash from (used in) financing activities 10,255,204 45,281 (167,138)
------------ ------------ ------------
Effect of exchange rate changes $ (530,287) 49,909 (21,146)
Increase (decrease) in cash and cash equivalents during 0 -- 2,355
the period
Cash and cash equivalents, beginning of period -- -- 105,213
------------ ------------ ------------
Cash and cash equivalents, end of period 0 -- $ 107,568
============ ============ ============
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 Stockholders' Equity (Deficit)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION:
The accompanying financial statements, which are unaudited except for the
balance sheet as of March 31, 1998, have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes from the Company's Annual Report on
Form 10-K for the year ended March 31, 1998 filed with the Securities and
Exchange Commission.
NOTE 2 - NET (GAIN) LOSS PER SHARE:
Net (gain) loss per share is computed using the weighted average number of
shares of common stock outstanding during the periods presented. In 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share. Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
NOTE 3 - CAUTIONARY STATEMENT:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "believes," "anticipates," "expects," "intends," "will likely
result," "estimates," "projects" or similar expressions are intended to identify
such forward-looking statements, but are not the exclusive means of identifying
such statements. These forward-looking statements involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to, the following: risks
associated with the development of a new technology; dependence on the
Tracker(TM) System and the uncertainty of market acceptance; history of
operating losses and expectation of future losses; limited sales and marketing
experience; heightened competition and risk of technological obsolescence; risks
associated with the lack of manufacturing capability and dependence on contract
manufacturers and suppliers; risks associated with the Company's dependence on
proprietary technology, including those related to adequacy of patent and trade
secret protection; risks associated with retaining key
1
<PAGE> 8
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
personnel and attracting additional qualified skilled personnel; and the risks
associated with raising additional funds.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Such
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under "Cautionary Statement" filed as Exhibit 99.1 to
this Form 10-Q.
NOTE 4 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
The Company has been in the development stage since its formation. Its present
line of business originated in 1994 with the development, marketing, sale and
operation of the "Tracker(TM) System". The Tracker(TM) System is a personal
property marking and monitoring system that utilizes advanced bar code and laser
scanning technology to create an identification device which interfaces with a
computer database and scanning network (the "Technology").
From inception through September 30, 1998, the Company has incurred losses
totaling approximately $16.9 million, including approximately $1.6 million in
operational costs, $941,000 in research and development expenses, $3.5 million
for sales and marketing expenses and $8 million in general and administrative
expenses. The Company's activities have consisted primarily of research and
product development, product design, and the development and implementation of
marketing strategies needed for the introduction of the Tracker(TM) System.
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the Tracker(TM) System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company is currently focused on reassessing and
developing new marketing strategies and lines of business.
The Company has generated limited revenue and has sustained significant
operating losses each year since inception. The Company expects such losses to
continue for at least the next two years.
In September 1997, the U.S. Federal Trade Commission (the "FTC") filed a lawsuit
in federal district court against the Company alleging that the Company's credit
card registration service
2
<PAGE> 9
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
violated Section 5 of the Federal Trade Commission Act and the FTC Trade
Regulator Telemarketing Sales Rule in telemarketing credit card protection
services in the United States. Shortly following initiation of the lawsuit, four
of the Company's five Board members and its Chief Financial Officer resigned.
After an internal investigation, the Company terminated its credit card
registration business.
The Company settled the FTC lawsuit on July 28, 1998. Pursuant to the
settlement, the U.S. District Court entered a Stipulated Final Judgment and
Order for Injunction that, among other things, permanently barred the Company,
and its Chief Executive Officer, Bruce Lewis, from engaging directly or
indirectly, in the business of credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service had a
negative effect on the financial condition of the Company. On January 27, 1998,
the Company's sole operating subsidiary, Tracker Canada filed a notice with the
Ontario Courts declaring its insolvency and seeking the appointment of a
bankruptcy trustee to liquidate its assets and dissolve the corporation. The
liquidation and dissolution occurred in February 1998.
On February 10, 1998, the Global Tracker Corporation ("Global Tracker"), a newly
formed Ontario, Canada corporation, acquired substantially all of Tracker
Canada's assets at arm's length in a bankruptcy proceeding. Shortly thereafter,
Global Tracker entered into an agreement in principle with the Company which
permitted the Company to use personnel retained by Global Tracker and assets
formerly owned or leased by Tracker Canada to continue the business formerly
conducted by Tracker Canada. As a result of this arrangement, Tracker U.S. has
continued on a limited basis the business formerly operated by Tracker Canada
without a complete cessation of operations.
On July 30, 1998, the Company entered into a License Agreement with Global
Tracker. The License Agreement grants the Company an exclusive worldwide license
to commercially exploit the technology formerly owned by, and benefit from any
copyrights or patents and applications therefor formerly held by, Tracker
Canada. The license is for a renewable seven-year term and provides for payment
of a 12% royalty on gross revenues commencing in the second year of the license.
Contemporaneously, Global Tracker entered into a proposed General Consulting
Agreement and a proposed Equipment Rental Agreement with TCA Management, Inc.
("TCA"), a wholly-owned subsidiary of the Company. Under the proposed General
Consulting Agreement, TCA provides management services, research and development
and customer support. Under the proposed Equipment Rental Agreement, TCA rents
office equipment, including computers, local area network, telephone system,
copier and fax, and furniture which it makes available to the Company.
Although the Company continues to believe that The Tracker(TM) System has
significant commercial potential, the Company's present financial circumstances
and past experience require a more narrowly focused and less costly marketing
strategy. The Company is currently examining strategies for applying most
advantageously the limited resources the Company anticipates it will have at its
disposal if it can obtain additional financing.
3
<PAGE> 10
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is in the process of identifying markets it believes will prove
most responsive to the Company's initiatives.
NOTE 5 - GOING CONCERN:
The Company has been in a development stage since its inception on May 6, 1993.
The likelihood that the Company will attain profitability depends on many
factors, including its ability to obtain adequate financing and generate
sufficient revenues. Management is currently working to secure adequate capital
through the private placement of securities. The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern, although the reports of its former independent accountant as
of and for each of the years ended March 31, 1997 and 1996, and its current
independent accountant as of and for the year ended March 31, 1998, express
doubt as to the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 6 - SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its former wholly owned subsidiary, Tracker Canada. 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
4
<PAGE> 11
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for Company services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided, are recorded as
deferred revenue. The average length of the services agreement varies from
monthly to a five-year period.
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:
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
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of Tracker Canada 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 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
5
<PAGE> 12
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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.
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 7 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 8- DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
Sept. 30, March 31,
---------- ----------
1998 1998
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve) $ 80,309 $ 776,055
Other 34,750 411,644
---------- ----------
$ 115,059 $1,187,699
---------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ 129,562 $ 183,041
Other 71,662 92,002
---------- ----------
$ 201,225 $ 275,043
---------- ----------
</TABLE>
NOTE 9 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
Sept. 30, March 31,
1998 1998
--------- ---------
<S> <C> <C>
Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 109,172 58,785
Others 445,182 445,182
-------- --------
$578,786 $528,399
======== ========
</TABLE>
6
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
During the prior fiscal year, we derived substantial revenue from our
credit card registration service. The period-to-period comparisons that appear
below adjust retroactively the results of operations for the six months ended
September 30, 1997, to account for the discontinuance of credit card
registration service business.
Six Months Ended September 30, 1998 Compared to Six Months Ended September
30, 1997
Our cash sales for the six months ended September 30, 1998 increased 262%
to $93,513 as compared to $35,721 a year ago, This increase results primarily
from the recognition of prior sales made during earlier periods, and not from
material increases in sales volume.
We incurred a net gain of $108,215 for the six months ended September 30,
1998, as compared to a net loss of $438,680 for the six months ended September
30, 1997. This result includes increased development costs in the amount of
$313,653 for the six months ended September 30, 1998 as compared to $13,945 for
the six months ended September 30, 1997, reflecting our commitment to a more
narrowly focused product development and marketing strategy aimed at selected
niche markets.
<TABLE>
<CAPTION>
Six months ended Six months ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash Sales $ 93,513 $ 35,721
Net Income (loss) $ 108,215 $ (438,680)
</TABLE>
<PAGE> 14
Liquidity and Capital Resources
From inception at May 6, 1993 through September 30, 1998, the Company
has received approximately $10,255,204 in net cash from financing activities,
net of discontinued operations, some of which are noted below.
During the six months ended September 30, 1998, the Company's net cash
used in operations was $(380,778) as compared to $433,470 for the year ended
March 31, 1998. The cash used in operations was devoted primarily to funding the
development of identification and recovery systems and software, labels,
packaging, marketing and advertising.
At September 30, 1998, the Company had total current assets of $138,709
as compared to $1,187,699 at March 31, 1998. Current assets consisted of
accounts receivable in the amount of $23,651 as compared to $NIL at March 31,
1998, and current deferred charges in the amount of $115,059 as compared to
$1,187,699 at March 31, 1998.
At September 30, 1998, the Company had amount due from stockholders in
the amount of $14,072 as compared to the same at March 31, 1998, and long-term
deferred charges totaling $201,225 as compared to $275,043 at March 31, 1998.
At September 30, 1998, the Company had liabilities net of discontinued
operations of $2,048,168 as compared to $3,275,560 at March 31, 1998. Such
liabilities consisted of accounts payable in the amount of $764,099 at September
30, 1998 as compared to $440,835 at March 31, 1998, accrued liabilities in the
amount of $578,786 as compared to $528,399 at March 31, 1998, deferred revenues
in the amount of $197,684 as compared to $1,798,727 at March 31, 1998,
debentures in the amount of $31,809 as compared to the same at March 31, 1998,
and convertible subordinated debentures in the amount of $475,790 as compared to
the same at March 31, 1998. The Company had long-term deferred revenues in the
amount of $314,026 at September 30, 1998 as compared to $412,846 at March 31,
1998.
As of September 30, 1998 and March 31, 1998, respectively, the Company
had accumulated deficits of $16,893,069 and $17,001,283. To date, the Company
has financed its research and development activities and operations primarily
through the sales of its now-discontinued card registration program, private
placements of the Company's debt and equity securities, the sale of equity
securities pursuant to Regulation S, and loans.
<PAGE> 15
CAPITAL REQUIREMENTS
With the cessation of its credit card registration program via
telemarketing, the Company is currently focusing on selling its personal
property identification and recovery system through various channels.
Unfortunately, the revenue stream of the personal property identification and
recovery system has a much longer selling cycle and thus the Company anticipates
that it will require additional capital in order to meet the needs for its
strategic Canadian and United States roll-outs and otherwise implement its
business plan in the manner contemplated. The acquisition of equipment,
establishment of distribution channels and the conducting of a comprehensive
marketing campaign are crucial to the Company's success. The Company will
require additional debt or equity funding to conduct and complete such
activities. No assurance can be given that the necessary funding will be
available to the Company when needed, in sufficient amounts, on acceptable
terms, or at all. If the Company does not receive sufficient funding on
acceptable terms, this could prevent or delay the marketing, sale and operation
of the Company's services and will have a material adverse effect on the
Company's business, operating results and financial condition.
Management's current cash projections indicate that its short term annual
funding requirements will be approximately $2 million for the next twelve
months. Longer term cash needs are anticipated to be covered by future cash
sales and capital or debt financing. There can be no assurance, however, that
the Company's actual short and long term liquidity requirements will be
consistent with management's projections. During the upcoming twelve months, the
Company plans to seek additional equity/debt financing to conduct such
activities as it is anticipated that additional capital will be needed to
enhance current cashflows.
Management is attempting to obtain additional debt or equity funding. No
assurance can be given that the necessary funding will be available to the
Company when needed, in sufficient amounts, on acceptable terms, or at all. Any
failure to receive sufficient funding when needed, in sufficient amounts, and on
acceptable terms could prevent or delay the marketing, sale and operation of the
Company's personal property identification and recovery system and will have a
material adverse effect on the Company's business, operating results and
financial condition. Moreover, the report of independent accountants covering
the Company's financial statements expressed substantial doubt about its ability
to continue as a going concern because it is a
<PAGE> 16
development stage company and has not yet been able to attract significant
outside financing or generate significant revenues. Failure to obtain sufficient
funding on acceptable terms could affect the Company's ability to continue as a
going concern.
INTERNATIONAL OPERATIONS
International operations are subject to inherent risks, including
unexpected changes in regulatory requirements, currency exchange rates, tariffs
and other barriers, difficulties in staffing and managing foreign operations,
and potentially adverse tax consequences. There can be no assurance that these
factors will not have a material impact on the Company's or its exclusive
agent's ability to market its products and services on an international basis.
The Company does not engage in any hedging contracts because it receives
the majority of its cash flows in United States dollars.
INFLATION; SEASONALITY
While inflation has not had a material impact on operating results and
management does not expect inflation to have a material impact on operating
results, there can be no assurance that the business of the Company, on a
consolidated basis, will not be affected by inflation in the future. While the
Company's business to date has not been seasonal and management does not expect
that its business will be seasonal in the future, there can be no assurance that
the business of the Company, on a consolidated basis, will not be seasonal in
the future.
YEAR 2000 COMPLIANCE REQUIREMENTS
Certain computer programs written with two digits rather than four to
define the applicable year may experience problems handling dates near the end
of and beyond the year 1999. This may cause computer applications to fail or to
create erroneous results unless corrective measures are taken. The year 2000
problem can arise at any point in a business' supply, manufacturing, processing,
distribution and financial chains.
The Company uses PC hardware equipment and both packaged and proprietary
software in the operations of its business. The Company has performed an initial
evaluation to assess the impact of year 2000 issues on all software and
hardware. It has determined that all existing hardware equipment is year 2000
compliant, except for certain equipment scheduled to be retired. The Company
uses various packaged software applications as tools in running the Company's
accounting operations, database management and general business functions. It
uses certain proprietary software programs as tools to run The Tracker(TM)
System. Management plans to implement any necessary software vender upgrades and
modifications to ensure that its accounting operations, database management and
general business systems remain functional with the year 2000. The Company's
proprietary software programs were developed on year 2000 compliant platforms;
however, some user screens and sub-routines utilized in its proprietary software
programs are non-year 2000 compliant. The Company is not dependent
<PAGE> 17
upon computer systems of any significant customers, vendors or other third
parties in the course of normal business. At present, management does not expect
that the software upgrade, replacement or development costs it expects to incur
to assure year 2000 compliance will exceed $20,000 (U.S.) in the aggregate. The
Company has not yet established a contingency plan, but intends to formulate one
to address unavoidable risks by July 1999.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, along with Symbol Technologies, Inc. ("Symbol"), has recently
been served with a complaint filed by Datastrip (IOM) Limited ("Datastrip") in
the United States District Court for the District of Delaware. Datastrip alleges
that the Company is infringing on Datastrip's U.S. Patent No. 4,782,221,
relating to certain data-encoding technology allegedly developed by Datastrip
and that Symbol is inducing infringement of the patent. The complaint seeks
injunctive relief and unspecified damages. The Company and Symbol believe, based
on advice of Symbol's counsel, that they have no liability to Datastrip and that
the claim is frivolous and without merit. Symbol, the supplier of automated card
readers to the Company, has agreed to vigorously defend itself and the Company
against Datastrip's claim. Symbol, however, has not agreed to indemnify the
Company from any losses that may result from this claim. No new developments
have occurred since last reported.
<PAGE> 18
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 3. DEFAULTS UPON SENIOR SECURITIES
As of October 30, 1997, the Company is in default in the payment of
interest to its subordinated convertible debenture holders in the aggregate
amount of $475,798.
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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
<PAGE> 20
9.1++++ Agreement dated December 21, 1993 among 1046523 Ontario Limited,
Gregg C. Johnson and Bruce Lewis
9.2++++ Right of First Refusal, Co-Sale and Voting Agreement dated March 14,
1994 between The Tracker Corporation, Stalia Holdings B.V., I. Bruce
Lewis, MJG Management Accounting Services Ltd., Spire Consulting
Group, Inc., 1046523 Ontario Limited, Mark J. Gertzbein, Gregg C.
Johnson and Jonathan B. Lewis, as confirmed by letter dated June 22,
1994 and Agreement dated July 1994
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by Amendment
No. 1 to the 1994 Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
10.3++++ Form of Indemnification Agreement entered into between the
Registrant 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)
<PAGE> 21
10.11++++ Stock Option Agreement dated March 14, 1994 between The Tracker
Corporation and Stalia Holdings B.V., as confirmed by letter dated
June 22, 1994
10.12++++ Letter from DHL International Express Ltd to The Tracker
Corporation dated March 8, 1994
10.13++++ Agreement dated September 1994 between The Tracker Corporation and
Purolator Courier Ltd.
10.14++++ National Account Agreement dated September 15, 1994 between Mail
Boxes Etc. USA, Inc. and the Registrant, as amended by Amendment to
National Account Agreement dated September 14, 1994
10.15++++ Letter agreement dated March 15, 1995 between The Tracker
Corporation and Black Photo Corporation, as amended by facsimile
amendment dated March 4, 1995
10.16++++ Letter agreement dated September 14, 1995 between The Tracker
Corporation and Amerasia International Holdings Limited
10.17++++ Letter Agreement dated August 31, 1995 between The Tracker
Corporation and Tokai Boeki Co. Ltd.
10.18++++ Letter agreement dated October 5, 1993 between The Tracker
Corporation and Symbol Technologies, Inc., as amended by letter from
The Tracker Corporation to Symbol Technologies Canada, Inc. dated
November 23, 1995, and letter from Symbol Technologies Canada, Inc.
to The Tracker Corporation dated November 27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to
the Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among
Ultra Capital Corp. (the predecessor of the Registrant), The
Tracker Corporation and Montreal Trust Company of Canada
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and The Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L. Knickerbocker
Company, Inc. and the Registrant
<PAGE> 22
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 License 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.
<PAGE> 23
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.
10.38++++ Agreement dated July 1, 1998 between The Global Tracker Corporation
+++ and Warrantech Additive, Inc.
10.39++++ License Agreement dated as of July 30, 1998 between The Global
+++ Tracker Corporation and the Tracker Corporation of America, Inc.
10.40++++ Employment Agreement dated September 24, 1996 between I. Bruce Lewis
+++ and The Tracker Corporation of America, Inc.
21.1++++ List of subsidiaries of the Registrant
23 ++++ Consent of Independent Accountants
+++
27.1++++ Financial Data Schedule, Fiscal Year Ended March 31, 1998.
+++
27.2++++ Financial Data Schedule, Fiscal Year Ended March 31, 1997 --
+++ Restated
27.3 Financial Data Schedule, Fiscal Quarter Ended September 30, 1998
99.1 Cautionary Statement
+ Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 12, 1994.
++ Incorporated by reference from the Registrant's Current Report on Form
8-KA dated February 28, 1995 (filed March 15, 1995).
+++ Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 29, 1994 (filed August 12, 1994).
++++ Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (No. 33-99686).
+++++ Incorporated by reference from the Registrant's Current Report on Form
10-K dated March 31, 1996 (filed July 15, 1996)
++++++ Incorporated by reference from the Registrant's Current Report on Form
10-K dated March 31, 1997 (filed July 3, 1997)
+++++++ Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 1998 (filed November 4, 1998)
(b) REPORTS ON FORM 8-K
During the three months ended September 30, 1998, the Company filed
Current Reports on Form 8-K with the Securities and Exchange Commission on
September 14, 1998 and September 24, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 23, 1998 THE TRACKER CORPORATION
OF AMERICA, INC., a Delaware
corporation
By: /s/ Bruce I. Lewis
------------------------------------
Bruce I. Lewis
<PAGE> 24
Chairman of the Board,
President, Chief Executive
Officer, Interim Chief
Financial Officer (Principal
Executive Officer, Interim
Principal Financial Officer and
Interim Principal Accounting
Officer)
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 23,651
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 138,709
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 354,006
<CURRENT-LIABILITIES> 2,048,168
<BONDS> 0
0
0
<COMMON> 21,160
<OTHER-SE> (2,008,188)
<TOTAL-LIABILITY-AND-EQUITY> 354,006
<SALES> 93,513
<TOTAL-REVENUES> 93,513
<CGS> 51,423
<TOTAL-COSTS> 313,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,172
<INCOME-PRETAX> 108,215
<INCOME-TAX> 0
<INCOME-CONTINUING> (271,563)
<DISCONTINUED> 379,778
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,215
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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<PAGE> 1
Exhibit 99.1
CAUTIONARY STATEMENT
The Tracker Corporation of America, Inc. ("Tracker" or the "Company"), or
persons acting on behalf of the Company, or outside reviewers retained by the
Company making statements on behalf of the Company, or underwriters, from time
to time, may make, in writing or orally, "forward-looking statements" as defined
under the Private Securities Litigation Reform Act of 1995 (the "Act"). This
Cautionary Statement is for the purpose of qualifying for the "safe harbor"
provisions of the Act and is intended to be a readily available written document
that contains factors which could cause results to differ materially from those
projected in such forward- looking statements. These factors are in addition to
any other cautionary statements, written or oral, which may be made or referred
to in connection with any such forward-looking statement. The following matters,
among others, may have a material adverse effect on the business, financial
condition, liquidity, results of operations or prospects, financial or
otherwise, of the Company. Reference to this Cautionary Statement in the context
of a forward-looking statement shall be deemed to be a statement that any one or
more of the following factors may cause actual results to differ materially from
those which might be projected, forecast, estimated or budgeted by the Company
in such forward-looking statement or statements:
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the Tracker(TM) System,
the complete efficacy of which has not yet been demonstrated.
LACK OF PUBLIC ACCEPTANCE OF THE COMPANY'S SERVICES
The Company's initial marketing efforts, which focused primarily on consumer
applications for The Tracker(TM) System, were not successful. Penetrating other
markets that will respond more favorably to the Company's products and services
will present marketing and financial challenges for the Company. There can be
no assurance that the Company will gain a significant level of commercial
acceptance of its products and services in other markets.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has generated only modest revenue and has sustained significant
operating losses each year since its inception. During the 12-month period ended
March 31, 1998, the Company incurred a net loss of $90,467 from continuing
operations (net of a $62,050 gain from discontinued operations) and, at the end
of such period, had an accumulated deficit of $17,001,283. The Company expects
to continue to incur losses through at least March 31, 2000. From the date of
inception (May 6, 1993) through March 31, 1998, the Company had realized
<PAGE> 2
revenues of only $306,722 (net of realized revenues from discontinued operations
of $10,800,893). The report of the independent accountants covering the
Company's financial statements for the year ended March 31, 1998 expresses
substantial doubt about its ability to continue as a going concern because it is
a development stage company and has not yet been able to generate significant
revenues or attract outside financing. There can be no assurance that the
Company will be able to attract significant outside financing on terms
acceptable to the Company or that the Company will achieve profitable
operations. If the Company is unable to attract such financing or achieve
profitable operations, it may be forced to cease or significantly limit its
operations. The Company may never generate substantial operating revenue or
achieve profitability. The Company's ability to generate revenue from operations
and achieve profitability is dependent upon successful commercialization of the
Tracker(TM) System and the Company's successful transition from a development
stage company to a fully operating company.
EARLY STAGE OF COMPANY
As noted above, the Company is a development stage company and has generated
only modest sales. The Company's operations and resulting cash flows are subject
to all of the risks inherent in an emerging business enterprise. To achieve
significant revenues and profitable operations on a continuing basis, the
Company must successfully market, sell its products and services and operate its
business. There can be no assurance that the Company will be able to do so. In
addition, although the Company has been generating ongoing revenues since
December 31, 1995, 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.
CREDITOR CLAIMS
Pending the successful completion of the Offering, the Company anticipates that
it will enter into agreements with its major creditors in which the Company
settles approximately $650,000 in unsecured claims for not more than 30 cents on
the dollar (i.e., approximately $200,000) or enters into installment payment
arrangements providing for the full payment of such claims over a four-year
term. If the Company is unable to conclude settlements on this basis, the
Company will consider liquidating the claims of its creditors (to the extent
permitted) by filing for bankruptcy protection and adopting a plan of
reorganization under Chapter 11 of the U.S. bankruptcy laws.
RISK OF TECHNOLOGICAL OBSOLESCENCE
There can be no assurance that the Company's competitors and potential
competitors will not succeed in developing or marketing technologies and
products that will be more accepted in the marketplace than the proposed
Tracker(TM) System or that would render the Company's technology obsolete or
noncompetitive. Most of the Company's competitors and potential competitors have
substantially greater capital resources, research and development staffs and
facilities than the Company. In addition, most of the Company's competitors and
potential competitors have substantially greater experience than
2
