SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE TRACKER CORPORATION OF AMERICA
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(Name of Small Business Issuer in Its Charter)
DELAWARE 7299 86-0767918
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(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code Number) Number)
1120 FINCH AVE. WEST, SUITE 303, NORTH YORK, ONTARIO CANADA M3J 3H8;
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800-822-8757
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(Address and Telephone Number of Principal Executive Offices)
ARKIN MEROLLA LLP, ONE SECURITIES CENTRE, SUITE 302,
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3490 PIEDMONT ROAD, ATLANTA GEORGIA 30305; 404-467-5244
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(Name, Address and Telephone Number of Agent For Service)
Approximate Date of Commencement of Proposed Sale to the Public: December
15, 1999
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
Under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
Under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Proposed Proposed
Of Securities To Amount to Offering Price Per Aggregate Offering Amount of
Be Registered Be Registered Unit(6) Price Registration Fee
- --------------------- ------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock(1) 15,000,000 .20 $ 3,000,000.00 $ 834.00
$.001 par value
Common Stock(2) 3,350,000 .20 $ 670,000.00 $ 186.26
Common Stock(3) 400,000 .20 $ 80,000.00 $ 22.24
Common Stock(4) 750,000 .20 $ 150,000.00 $ 41.70
Common Stock(5) 15,000,000 .20 $ 3,000,000.00 $ 834.00
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34,500,000 $ 6,900,000.00 $ 1,918.20
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<FN>
(1) Represents Common Stock available for conversion of the Series 1 Bridge Notes
(2) Represents Common Stock available for the exercise of Repricing Warrants
(3) Represents Common Stock underlying Purchase Warrants
(4) Represents Common Stock underlying Sovereign Warrants
(5) Represents Common Stock underlying Callable Warrants
(6) Arbitrary value used solely for purposes of computing the registration fee, based upon a
bona fide estimate of the maximum offering price pursuant to Rule 457
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
DECEMBER 10, 1999 PRELIMINARY PROSPECTUS
THE TRACKER CORPORATION
OF AMERICA
UP TO 34,500,000 SHARES $.001 PAR VALUE COMMON STOCK
We hereby offer up to 34,500,000 shares of our Common Stock, through: (i)
conversion of up to $3,000,000 of Series 1 Bridge Notes (up to 15,000,000
shares); (ii) the exercise of Repricing Warrants (up to 3,350,000 shares); (iii)
the exercise of Purchase Warrants (up to 400,000 shares); (iv) the exercise of
Sovereign Warrants (up to 750,000 shares); and (v) the exercise of Callable
Warrants (up to 15,000,000 shares). For a description of the respective
offering prices, see DETERMINATION OF OFFERING PRICE. This Offering shall
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continue until the earlier of (i) June 1, 2000, or such later date as we may
select, or (ii) we terminate this Offering. Our Common Stock is quoted on the
OTC Bulletin Board under the symbol "TRKR." We will immediately utilize funds
tendered for the purchase of the Series 1 Bridge Notes and the Common Stock.
This is a "best efforts" offering. The minimum unit investment in the Series 1
Bridge Notes is $50,000 and there is no minimum number of shares required to be
sold. See RISK FACTORS.
---
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
Title of Each Class Proposed Proposed
Of Securities To Amount to Offering Price Aggregate Proceeds to
Be Registered Be Registered Per Unit(6) Offering Price Commissions(7) Company(8)
- --------------------- ------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock(1) 15,000,000 .20 $ 3,000,000.00 $ 390,000.00 $ 2,610,000.00
$.001 par value
Common Stock(2) 3,350,000 .20 $ 670,000.00 $ 0.00 $ 670,000.00
Common Stock(3) 400,000 .20 $ 80,000.00 $ 0.00 $ 80,000.00
Common Stock(4) 750,000 .20 $ 150,000.00 $ 0.00 $ 150,000.00
Common Stock(5) 15,000,000 .20 $ 3,000,000.00 $ 0.00 $ 3,000,000.00
------------- --------------- --------------- --------------
34,500,000 $ 6,900,000.00 $ 390,000.00 $ 6,510,000.00
------------- --------------- --------------- --------------
<FN>
(1) Represents Common Stock available for conversion of the Series 1 Bridge Notes
(2) Represents Common Stock available for the exercise of Repricing Warrants
(3) Represents Common Stock underlying Purchase Warrants
(4) Represents Common Stock underlying Sovereign Warrants
(5) Represents Common Stock underlying Callable Warrants
(6) Arbitrary value used solely for purposes of computing the registration fee, based upon a bona
fide estimate of the maximum offering price pursuant to Rule 457
(7) Reflecting finders fee payable to Sovereign Capital Advisors, LLC. Neither we nor any of our
executive officers will receive any addition remuneration for any sales
(8) Before deducting expenses of this Offering payable by us, estimated at approximately $60,000
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF THIS OFFERING . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 3
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 9
DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . . 10
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 12
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS . 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 15
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . 16
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES . . . . . . . . . . . . . 17
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . 25
DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 28
MARKET FOR COMMON EQUITY . . . . . . . . . . . . . . . . . . . 29
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 30
CHANES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . 38
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by the more detailed information, including risk factors, and
financial statements and notes thereto appearing elsewhere in this Prospectus
and the Exhibits attached hereto.
ISSUER: The Tracker Corporation of America is a development stage company
that develops, markets, sells, and operates global property tracking systems and
recovery services using advanced bar code and laser scanning technology, known
as The Tracker System. Our principal offices are located at 1120 Finch Avenue
West, Suite 303, North York, Ontario M3J 3H7.
PURPOSE OF THIS OFFERING: Working capital, capital expenditures and
repayment of indebtedness.
THE INVESTMENT: Up to $3,000,000 in Series 1 Bridge Notes, to be purchased
in an amount no less than $50,000 per unit.
THE OFFERING: We hereby offer up to 34,500,000 shares of our Common Stock,
par value $.001 per share, through: (i) conversion of Series 1 Bridge Notes (up
to 15,000,000 shares); (ii) the exercise of Repricing Warrants (up to 3,350,000
shares); (iii) the exercise of Purchase Warrants (up to 400,000 shares); (iv)
the exercise of the Sovereign Warrants (up to 750,000 shares); and (v) the
exercise of Callable Warrants (up to 15,000,000 shares).
OFFERING PRICE: SEE "DETERMINATION OF OFFERING PRICE."
OFFERING PERIOD: Until the earlier of (i) June 1, 2000, or such later date
as we may select, or (ii) we terminate this Offering.
SECURITY: Any Purchaser of Series 1 Bridge Notes has a general and
continuing security interest for the repayment and/or performance under the
terms of the promissory note in our accounts receivable, inventory, equipment,
chattel paper, documents of title, securities and instruments, intangibles, and
proceeds. As additional security, our President, Jay S. Stulberg, has pledged
250,000 shares of his Common Stock in our company, his 100 shares (representing
all the issued and outstanding shares) of an affiliate, The Global Tracker
Corporation, an Ontario corporation, and his right to acquire 1,244,289
additional shares of our Common Stock pursuant to his Option rights. Our Chief
Executive Officer, Bruce I. Lewis, has also pledged 600,000 shares of his Common
Stock in our company, and his right to acquire 1,244,289 additional shares of
our Common Stock pursuant to his Option rights as additional security to the
Series 1 Bridge Notes.
1
<PAGE>
BEST EFFORTS: No minimum number of shares is required to be issued. We will
immediately utilize funds tendered.
MARKET FOR COMMON STOCK: Our 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." Because of the limited brokerage and news coverage on
the OTC Bulletin Board, it may be difficult to obtain accurate quotations as to
the value of our Common Stock. We cannot assure that a more active market will
develop, or if developed, that it will be maintained. See "Risk Factors" and
"Market for Common Equity."
RISK FACTORS: SEE "RISK FACTORS."
ABSENCE OF DIVIDENDS We do not currently intend to pay regular cash
dividends on our Common Stock. We will review this policy from time to time in
light of, among other things, our earnings and financial position. We do not
anticipate paying dividends on our Common Stock in the foreseeable future.
TRANSFER AGENT: Atlas Stock Transfer Corporation is our transfer agent.
FOR MORE INFORMATION: Contact Bruce I. Lewis at (800) 822-8757 x-230 or
(416) 593-2604
2
<PAGE>
RISK FACTORS
The Securities offered herein involve a high degree of risk. In addition
to the other information contained in this Prospectus, you should consider the
following risk factors before making an investment. The occurrence of any the
following risks could materially adversely affect our business, financial
condition and results of operations. Additional risks and uncertainties not
presently known to us or that we currently view as immaterial might also
materially adversely affect our business, financial condition or results of
operations. In such a case, the value of your investment could decline and you
may lose all or part of your investment.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in such forward-looking statements as a result of a variety of
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
IMMEDIATE AND SUBSTANTIAL DILUTION; USE OF PROCEEDS
Any conversion of the Series 1 Bridge Notes (the "Notes") will result in
the immediate and substantial dilution of the book value of the Common Stock.
Furthermore, should any or all of the warrants be exercised (which include the
Repricing Warrants, Purchase Warrants, Callable Warrants, and Sovereign
Warrants, collectively referred to as the "Warrants"), or if we issue additional
shares of Common Stock in the future, the book value of the Common Stock will
experience further dilution. Any proceeds received by us upon any exercise of
Warrants will be used for general corporate purposes and for working capital,
which may include payment of salaries, research and development, and marketing
expenses.
SUBSTANTIAL COMPETITION
We compete with a large number of competitors that have substantially
greater financial, technical, marketing, and management resources. As a result,
demand and market acceptance for our products and services are subject to a high
level of uncertainly. We currently have limited financial, personnel and other
resources to undertake the extensive activities necessary to produce and market
our products and services. Our failure to compete effectively could materially
adversely affect our business, financial condition or results of operation.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
Our success is largely dependent on our ability to attract and retain key
management and operating personnel. We particularly depend on the efforts and
skills of Bruce I. Lewis, Jay S. Stulberg, Christopher Creed, and Tizio Panara.
We have entered into employment agreements with Mr. Lewis and Mr. Stulberg and
are planning to enter into one with Mr. Creed and Mr. Panara in the future. The
loss, incapacity, or unavailability of any of these individuals could materially
adversely affect our business, financial condition or results of operation. In
addition, it may be necessary for us to attract and retain additional
individuals to support the growth of our business or to replace key personnel in
the event of their termination of employment. Because qualified individuals are
in high demand and are often subject to competing offers, we cannot assure that
we can attract and retain qualified personnel needed for our business. The
inability to hire additional personnel as needed could materially adversely
affect our business, financial condition or results of operation.
3
<PAGE>
LIMITED MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Our Common Stock is traded in the over-the-counter market and is quoted on
the OTC Bulletin Board. The market for the Common Stock must be characterized
as extremely 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 and the market
price of the Common Stock may not reflect our true value. As a result, you may
find it difficult to dispose of, or to obtain accurate quotations as to the
value of, the Common Stock. Over the past eighteen months our stock has traded
at a low price of $.05 per share and a high price of $.41 per share. We cannot
assure that the over-the-counter market for our 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 otherwise. Factors such as technological
innovations, new product developments, general trends in our industry, quarterly
variations in our results of operations, and market conditions in general may
cause the market price of the Common Stock to fluctuate significantly. The
stock markets have experienced extreme price and volume fluctuations that may
adversely affect the market price of the Common Stock. Sales of substantial
amounts of shares of Common Stock in the public market pursuant to conversion of
the Notes, exercise of the Warrants, and additional capital financing
transactions that we may undertake in the future, could materially adversely
affect the market price of our Common Stock. Such sales may also limit our
ability to raise equity capital in the future and may make it more difficult for
you to liquidate your investment.
PENNY STOCK RULES
The Common Stock is subject to the penny stock rules (the "Penny Stock
Rules")
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Penny Stock Rules regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that the exchange or system provides current price and volume information with
respect to transactions in such securities). The Penny Stock Rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
Securities and Exchange Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effectuating the transaction and must be
given to the customer in writing before or with the customer's confirmation. In
addition, the Penny Stock Rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the Common Stock and you may find
it more difficult to sell the Common Stock in the over-the-counter market.
CONCENTRATION OF OWNERSHIP; EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Our directors, officers, principal stockholders and their affiliates will
continue to beneficially own approximately 13% of the Common Stock immediately
following this Registration, assuming the full exercise of currently exercisable
options and warrants and the conversion of outstanding convertible debentures.
As a result of such ownership, our directors, officers, principal stockholders
and their affiliates will effectively have the ability to maintain control and
direct our business and affairs. Such concentration of ownership may have the
effect of delaying, deferring or preventing a change in control. In addition,
our Certificate of Incorporation and Bylaws contain provisions that have the
effect of retaining the control of current management and that may discourage
any acquisition bids. Such provisions could limit the price that investors
might be willing to pay in the future for shares of the Common Stock and impede
the ability of stockholders to replace management even if factors warrant such a
change.
4
<PAGE>
UNCERTAINTY OF MARKET ACCEPTANCE
Our future success entirely depends on the successful development,
commercialization and market acceptance of The Tracker System, the complete
efficacy of which has not yet been demonstrated. Our initial marketing efforts,
which focused primarily on consumer applications for The Tracker System, were
not successful. Penetrating other markets that will respond more favorably to
our products and services will present marketing and financial challenges for us
and we are experimenting with new business models, which are speculative and
untested to date. We cannot assure that we will gain a significant level of
commercial acceptance of our products and services in other markets and the
failure to do so could materially adversely affect our business, financial
condition or results of operation.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
We have generated only modest revenue and have sustained significant
operating losses each year since our inception. In fact, we have not generated
any significant revenue since September 1997 and have accumulated a deficit of
$18,213,000 as of September 30, 1999. We cannot assure that we can attract
significant outside financing on terms acceptable to us or that we will achieve
profitable operations. If we are unable to attract such financing or achieve
profitable operations, we may be forced to cease or significantly limit our
operations. We may never generate substantial operating revenue or achieve
profitability. Our ability to generate revenue from operations and achieve
profitability is largely dependent upon the successful commercialization of The
Tracker System and our successful transition from a development stage company
to a fully operating company.
DEVELOPMENT STAGE OF COMPANY
We are a development stage company and have generated minimal sales. Our
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, we must successfully market and sell our
products and services and efficiently manage our operations and we cannot assure
that we will be able to do so.
RISK OF TECHNOLOGICAL OBSOLESCENCE
We cannot assure that our competitors and potential competitors will not
succeed in developing or marketing technologies and products that will be more
accepted in the marketplace than The Tracker System or that would render our
technology obsolete or noncompetitive. Most of our competitors and potential
competitors have substantially greater capital resources, research and
development staffs and facilities than us. The market for our products and
services is marked by rapid technological change, frequent new product
introductions, uncertain product life cycles, changes in client demands and
evolving industry standards. Most of our competitors and potential competitors
have substantially greater experience than us in research and new product
development and manufacturing and marketing personal property marking and
monitoring systems, identification devices and scanning and retrieval systems.
New products based on new technologies or new industry standards can rapidly
render existing products obsolete and unmarketable. Over the past two years we
have invested minimal capital to maintain and update our technology and any
delays in developing, testing and releasing enhanced or new products could
materially adversely affect our business, operating results and financial
condition.
5
<PAGE>
SOURCES OF SUPPLY; LACK OF FORMAL AGREEMENTS WITH SUPPLIERS
Our ability to market, sell and operate The Tracker System partly depends
on our ability to procure necessary goods and services. Although we have
preliminary understandings or agreements with suppliers, these are generally
informal and may be difficult to enforce and are subject to termination. We
cannot assure that we will achieve and maintain product quality and reliability
when producing The Tracker System in the quantities required for commercial
operations or within a period that will permit us to introduce our products in a
timely fashion. We also cannot assure that we will be able to assemble and
manufacture our products at an acceptable cost. The failure to do so could
materially adversely affect our business, operating results and financial
condition.
FUTURE RELATIONSHIP WITH SYMBOL TECHNOLOGIES, INC.
We procure scanning equipment from Symbol Technologies, Inc. ("Symbol"),
particularly the PDF 1000 laser scanner, which is the first laser scanner to
read two-dimensional bar code. On May 18, 1999 we entered into an agreement
with Symbol whereby we were granted the exclusive right to use the PDF 1000
laser scanners in the United States, Canada, and Europe for personal property
identification and recovery purposes. This contract is subject to a minimum
annual purchase requirement of 5000 laser scanner units, having a purchase price
effect of at least ten million dollars ($10,000,000). We will likely not meet
this requirement and Symbol will be permitted to terminate the contract should
it so choose.
FUTURE RELATIONSHIP WITH THE FLORIDA POLICE CHIEFS FOUNDATION
We are presently negotiating an agreement with the Florida Police Chiefs
Foundation (FCPF) to collaborate on a statewide Operation Bicycle Identification
Partnership. We agreed with FPCF to extend the deadline for the completion of
the arrangement pending our resolution of an outstanding contract issue with
another law enforcement group. Our failure to resolve this issue and enter into
the agreement with FPCF could materially adversely affect our business,
operating results and financial condition.
RISK OF PRODUCT INCOMPATIBILITY WITH MAJOR PLATFORMS
Our product is required to interoperate with web servers and database
servers and we must, therefore, continually modify and enhance our products to
keep pace with changes in operating systems and servers. If our product were to
be incompatible with a new operating system, web server or database server that
achieved sufficient market penetration, our business would be harmed. In
addition, uncertainties related to the timing and nature of new product
announcements, introductions or modifications by vendors of operating systems or
browsers could also materially adversely affect our business, operating results
and financial condition.
6
<PAGE>
LENGTHY SALES CYCLES
We typically experience long sales cycles that generally vary by customer
from three to six months. Because the implementation of our products involves
significant capital expenditures by the customer, our sales process is subject
to lengthy approval processes and delays. We often devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations, and feasibility studies without any
assurance that the prospective customer will decide to purchase our products.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
Our success partly depends on our ability to obtain patent protection for
our proposed products and processes, to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. We 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 our personal property
identification and recovery system. In addition, we have filed an international
patent application pursuant to the Patent Cooperation Treaty for our personal
property identification and recovery system. We cannot assure, however, that
these will mature into an issued patent or that any patent, trademark or service
mark obtained or licensed by us will be held valid and enforceable if asserted
by us against another party. In addition, these protections may not preclude
competitors from developing systems competitive with our system in the future or
that third parties will not assert infringement claims against us. The
successful assertion of such claims could materially adversely affect our
business, operating results and financial condition.
We also rely on unpatented trade secrets that may be independently
developed or otherwise acquired by our competitors. In addition, even if our
pending patent is ultimately issued, other parties may hold or receive patents
that contain claims covering The Tracker System. Should this occur, it may
delay or prevent the sale of The Tracker System or require licenses resulting
in the payment of fees or royalties by us in order to continue operations. We
cannot assure that needed or potentially useful licenses will be available to us
in the future on acceptable terms.
An adverse determination in any litigation could subject us to significant
liabilities to third parties. In such a case, we may be required to seek
licenses from, or pay royalties to, third parties or be prevented from
manufacturing, selling or using our proposed products, any of which could
materially adversely affect our business, operating results and financial
condition.
ABILITY TO OPERATE A LARGE INFORMATION SYSTEMS DATABASE; NO EXPERIENCE OF
EXISTING PERSONNEL CONCERNING OPERATING OR MAINTAINING A LARGE DATABASE
Although we do not expect to encounter any difficulty in operating or
maintaining a large database, our existing personnel have not previously
operated or maintained any other large database and therefore our experience is
limited. To ensure the security and integrity of our databases, we use a
combination of program design, technology and company policies. No security
system or procedures are foolproof and many aspects of our operations involve
some degree of security risk. Any material breach of security could materially
adversely affect our business, operating results and financial condition.
7
<PAGE>
MANAGEMENT OF FUTURE GROWTH
If we are successful in marketing, selling and operating The Tracker
System, the resulting growth will place a strain on our management, operational
and financial resources. Our ability to achieve profitable operations and to
manage future growth will depend on our ability to implement appropriate
operational, financial and accounting systems, to attract and retain highly
qualified personnel to manage our future growth, and to expand, train and manage
our employee base. The failure to effectively manage our future growth could
materially adversely affect our business, operating results and financial
condition.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
We will require additional funds in order to successfully market and sell
our products and services and operate our business. Our inability to obtain
financing or to raise additional capital when needed and in amounts and on terms
favorable to us, could prevent or delay the marketing, sale and operation of our
products and services and could materially adversely affect our business,
operating results and financial condition. Insufficient funds may require us to
delay, scale back or eliminate some or all of our programs designed to
facilitate the commercial introduction of The Tracker System or prevent such
commercial introduction altogether.
ABSENCE OF DIVIDENDS
We do not anticipate paying dividends on the Common Stock in the
foreseeable future. Any future dividends will depend on our earnings, if any,
our financial requirements, and other factors.
MAINTENANCE OF CURRENT PROSPECTUS
In order for the warrant holders to exercise the Warrants, we must maintain
a current prospectus. We cannot assure that we will have the resources to
prepare the necessary documentation and warrant holders may not be able to
exercise their warrants when desired, if at all.
8
<PAGE>
USE OF PROCEEDS
The net proceeds from the issuance of the Series 1 Bridge Notes are
estimated at $2,550,000 if the maximum is issued and $1,250,000 if the target is
achieved, after deducting estimated offering expenses and commissions. The
following represents our best estimate of the proceeds of this Offering based on
present planning and business conditions. If we issue less than the maximum, we
will endeavor to apply the proceeds on a proportionate basis. We reserve the
right to change the use of proceeds and redirect our priorities at any time.
<TABLE>
<CAPTION>
IF MAXIMUM SOLD IF TARGET SOLD
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
TOTAL PROCEEDS $3,000,000 100% $1,500,000 100%
========== ======== ========== ========
LESS ESTIMATED OFFERING EXPENSES:
Finders Fee 390,000 13.0% 195,000 13.0%
Legal and Accounting 50,000 1.7% 45,000 3.0%
Miscellaneous(1) 10,000 0.3% 10,000 0.7%
---------- -------- ---------- --------
Total Offering Expenses $ 450,000 15.0% $ 250,000 20.7%
---------- -------- ---------- --------
Amount Available for Investment $2,550,000 85.0% $1,250,000 83.3%
---------- -------- ---------- --------
NET PROCEEDS FROM OFFERING:
Repayment of Indebtedness 250,000 9.8% 250,000 20.0%
Development, Sales and Marketing
Of New Products and Services 1,000,000 39.2% 750,000 40.0%
Working Capital 1,300,000 51.0% 250,000 20.0%
---------- -------- ---------- --------
Total Amount Invested $2,550,000 100.0% $1,250,000 100.0%
---------- -------- ---------- --------
TOTAL PROCEEDS(2) $3,000,000 100% $1,500,000 100%
========== ======== ========== ========
<FN>
(1) Includes expenses incurred in connection with this Offering, filing fees
and other miscellaneous expenses.
(2) Should any Warrants be exercised, those additional funds will be used to
further develop, sell, and market new products and services.
</TABLE>
9
<PAGE>
DETERMINATION OF OFFERING PRICE
CONVERSION OF SERIES 1 BRIDGE NOTES
We have authorized the issuance, sale, and delivery of up to $3,000,000 in
original principal amount of the Series 1 Bridge Notes, which may occur through
any number of closings, given the unit amount issued exceeds $50,000. The
offering period shall continue until June 1, 2000 or such other date as we may
select. There is no escrow account and any and all proceeds will be deposited
directly into our operating account.
Interest on the Series 1 Bridge Notes is payable at a rate of eight percent
(8%) per annum from the date of each closing (the "Original Issue Date") until
the one hundred twentieth (120th) day after the Original Issue Date (the
"Maturity Date"), at which time interest is payable at the rate of eleven (11%)
per annum. On or after the Maturity Date for each closing, the redemption price
shall be equal to 112.5% of the then outstanding principal amount of the Series
1 Bridge Note plus accrued and unpaid interest thereon at the applicable rates
(the "Redemption Price"). The number of shares of Common Stock issuable in
payment of the Redemption Price (the "Conversion Shares") on the date of
conversion (the "Conversion Date") for each closing is equal to the following
formula:
CONVERSION SHARES = Redemption Price
-----------------
Average Market Price 5 days prior to Original Issue Date
We may issue up to 15,000,000 shares of Common Stock upon conversion of the
Series 1 Bridge Notes.
REPRICING WARRANTS
Each Series 1 Bridge Note carries an Attached Repricing Warrant, which may
be exercised after the twenty-first (21st) trading day after the Conversion Date
(the "Repricing Date"). The ability to exercise the Repricing Warrant expires
on the ninetieth (90th) day after the Repricing Date. The exercise price of the
Repricing Warrants is $.001 per share and the number of shares of Common Stock
to which the Repricing Warrant is exercisable (the Repricing Shares") for each
closing is equal to the following formula:
REPRICING SHARES = Number of Conversion Shares * (x)
---
(y)
(x) = (125% of the Redemption Price) - (Average Market Price 5 days prior to
Conversion Date)
(y) = Average Market Price 5 days prior to Conversion Date
The number of shares of Common Stock issuable upon conversion of the
Repricing Warrant for each closing is equal to the following formula:
= Number of Repricing Shares * (Average Market Price 5 days prior to Conversion
-----------------------------------------------------------------------------
Date - .001)
- --------------
Average Market Price 5 days prior to Conversion Date
We may issue up to 3,350,000 shares of Common Stock pursuant to the
Repricing Warrants.
10
<PAGE>
PURCHASE WARRANTS
Every investor shall receive an exercisable Purchase Warrant at the rate of
20,000 shares of Common Stock for each $100,000 in principal amount of the
Series 1 Bridge Notes purchased and issued (the "Purchase Warrant Shares"). The
Exercise Price of the Purchase Warrant Shares for each closing is equal to the
greater of the following:
(i) 120% of the Closing Bid Price on the Original Issue Date; or
(ii) 75% of the Average Closing Bid Price for the 5 trading days immediately
prior to the date the Purchase Warrant is exercised (the "Effective Date")
The number of shares of Common Stock issuable upon conversion of the
Purchase Warrant for each closing is equal to the following formula:
= Number of Purchase Warrant Shares * (x)
---
(y)
(x) (Average Market Price 5 days prior to Effective Date) - (Exercise Price)
(y) Average Market Price 5 days prior to Effective Date
We may issue up to 400,000 shares of Common Stock pursuant to the Purchase
Warrants.
CALLABLE WARRANTS
Every investor shall receive an exercisable Callable Warrant at the rate of
$100,000 worth of shares of Common Stock for each $100,000 in principal amount
of the Series 1 Bridge Notes purchased and issued (the "Callable Warrant
Shares"). The expiration date for the Callable Warrants is one year following
the Original Issue Date for each closing. The Exercise Price of the Callable
Warrant Shares is equal to 80% of the average Closing Bid Price for the five (5)
trading days immediately prior to the Exercise Date. We may redeem the Callable
Warrants at the rate of $.001 for each Callable Warrant Share.
We may issue up to 15,000,000 shares of Common Stock pursuant to the
Callable Warrants.
SOVEREIGN WARRANTS
Sovereign Capital Advisors, LLC ("Sovereign"), as our exclusive agent in
connection with the issuance and sale of the Series 1 Bridge Notes, shall
receive a warrant (the "Sovereign Warrant)" at each closing during the offering
to purchase a number of shares of Common Stock equal to five percent (5%) of the
principal amount of the Series 1 Bridge Notes issued at each closing. The
exercise price of each warrant shall be equal to the greater of the following:
(i) 120% of the Closing Bid Price on the date of each closing; or
(ii) 75% of the Average Closing Bid Price for the 5 trading days immediately
prior to the date the Sovereign Warrant is exercised
We may issue up to 750,000 shares of Common Stock pursuant to the Sovereign
Warrants.
11
<PAGE>
PLAN OF DISTRIBUTION
We appointed Sovereign Capital Advisors, LLC ("Sovereign") as our exclusive
agent in connection with the issuance and sale of the Series 1 Bridge Notes of
up to $3,000,000. Sovereign agreed to introduce us to prospective investors on
a "best efforts" basis in return for finder's fee of ten percent (10%) of the
gross proceeds derived from the offer, sale, and issuance of the securities plus
a non-accountable expense allowance of three percent (3%) of the gross proceeds.
In addition, Sovereign shall receive a warrant at each closing (the "Sovereign
Warrants") during the offering to purchase a number of shares of Common Stock
equal to five percent (5%) of the principal amount of the Series 1 Bridge Notes
issued at each closing. Sovereign may receive up to 750,000 shares of Common
Stock pursuant to the Sovereign Warrants, depending on the total amount of
Series 1 Bridge Notes issued. Sovereign also has a right of first refusal to
act as placement agent for any future private financing.
LEGAL PROCEEDINGS
We are not a party to any material litigation and are not aware of any
pending or threatened litigation that could materially adversely affect our
business, operating results or financial condition.
12
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to our
executive officers and directors as of September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- --------------------------------------------------------------
<S> <C> <C>
Bruce I. Lewis 59 Chief Executive Officer and Chairman of the Board of Directors
Jay S. Stulberg 49 President, Chief Operating Officer, Chief Financial Officer
and Director
Dr. H. Joseph Greenberg 77 Director
Carl J. Corcoran 62 Director
David G.R. Butler 63 Director
</TABLE>
________________________
BRUCE I. LEWIS has been our Chairman of the Board of Directors and Chief
Executive Officer since June 30, 1994, and our President from August 12, 1995 to
December 22, 1998. For the period from 1980 through May 1990, Mr. Lewis was
President and a Director of Albert Berg Limited and its subsidiaries. Its
creditors petitioned Albert Berg into bankruptcy 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. From May 1993 until its
dissolution in February 1998, Mr. Lewis served as the Chief Executive Officer
and Chairman of the Board of Directors of Tracker Canada. From November 1997 to
December 22, 1998, Mr. Lewis served as interim Chief Financial Officer.
JAY S. STULBERG has been our President, Chief Operating Officer and Chief
Financial Officer, and a Director, since December 22, 1998 for the term expiring
at the 2001 annual meeting of stockholders. Since February 1998, Mr. Stulberg
has been the sole shareholder, director and officer of Global Tracker Corp.
Since approximately 1984, Mr. Stulberg has served on the Board of Directors of
two privately held family holding companies. From 1992 to 1994, Mr. Stulberg
served as the Controller of Enershare Technology Corp. From 1994 to mid-1996,
Mr. Stulberg served as the Group Controller of Algorithmics, Inc.
H. JOSEPH GREENBERG has been a Director since December 22, 1998 for a term
expiring at the 2002 annual meeting of stockholders. Dr. Greenberg has engaged
in the practice of medicine since his graduation from medical school in 1952.
He has been a director of Genevest, Inc. since 1993.
CARL J. CORCORAN has been a Director since December 22, 1998 for a term
expiring at the 2000 annual meeting of stockholders. IBM Corporation employed
Mr. Corcoran in various capacities from 1951 to 1988, including General Manager
of Operations of IBM Japan and President of IBM Canada. Mr. Corcoran is
currently an officer and director of several family-held businesses, including
Corcair Farms, Ltd., CorProperties, Inc., Cor Source Water Corporation,
Corcorvest Corporation and CJC Bottling, Ltd. He is also a director of the
Accessible Software Corporation, a publicly traded corporation, and A.A.B.
Building Systems, Inc., a private company.
13
<PAGE>
DAVID G. R. BUTLER has been a Director since December 22, 1998 for a term
expiring at the 2001 annual meeting of stockholders. Mr. Butler is the chief
executive officer and sole shareholder of Holiday Breaks International, Inc.,
which offers stay-free hotel accommodations to companies as sales and marketing
incentives; MF Incentives, Inc., which offers travel coupons as sales incentives
for manufacturers' products; and Newfound Communications, Inc., which offers
premium incentive promotions. From 1978 until its sale in 1994, Mr. Butler was
the sole shareholder and chief executive officer of Marshall Fenn Limited, a
public relations and advertising agency. At Marshall Fenn, Mr. Butler
established several affiliated enterprises referred to as the Marshall Fenn
Group of Companies, including Holiday Breaks International, Inc., MF Incentives,
Inc., and Newfound Communications, Inc.
CLASSIFICATION OF BOARD OF DIRECTORS
Our 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 will continue to serve
until the 2000 annual meeting of stockholders, approximately one-third will
continue to serve until the 2001 annual meeting of stockholders, and
approximately one-third will continue to serve until the 2002 annual meeting of
stockholders. This classification of the Board of Directors makes 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee is comprised of Messrs. Lewis and Stulberg. The
Audit Committee, comprised of Messrs. Butler and Stulberg, is responsible for:
(i) reviewing and recommending the engagement each year of our independent
auditors; (ii) consulting with the independent auditors on the adequacy of our
internal controls; (iii) reviewing, with the independent auditors, the auditors'
reports on our 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 Mr. Corcoran (Chairman) and Dr.
Greenberg. The Compensation Committee, which is comprised of Messrs. Butler
(Chairman) and Corcoran, is responsible for: (i) determining the compensation of
our 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 our amended and restated 1994 Stock Incentive Plan (the "Stock
Incentive Plan").
14
<PAGE>
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 November 8, 1999 by: (i) each person known
to us to own beneficially more than 5% of our total voting stock; (ii) the Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table; (iii) each of our directors; and (iv) all of our directors
and officers as a group. Except as otherwise indicated below, to our knowledge,
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 is our only outstanding class of
equity securities. As of November 8, 1999, there were approximately 353 record
holders of Common Stock.
Number of Percentage
Shares of of Total
Beneficial Owner Common Stock Shares(1)
- -------------------------------- -------------- ----------
Bruce I. Lewis 5,445,955(2) 9.28%
180 Dundas Street W., 15th Floor
Toronto, Ontario
Canada M5G 1Z8
Jay S. Stulberg 2,209,005(3) 3.77%
180 Dundas Street W., 15th Floor
Toronto, Ontario
Canada M5G 1Z8
H. Joseph Greenberg, M.D. 207,122 0.35%
180 Dundas Street W., 15th Floor
Toronto, Ontario
Canada M5G 1Z8
Executive Officers and Directors 7,862,082 13.40%
as a group, including those
named above (three persons)
(1) Percentage of ownership is based upon 53,988,579 issued and outstanding
shares of Common Stock beneficially owned on November 8, 1999, including
currently exercisable warrants to purchase 1,250,000 shares of Common Stock,
currently exercisable options to purchase 40,000 shares of Common Stock, options
to purchase 3,188,577 shares of Common Stock that become exercisable on January
1, 2000, and 200,000 shares reserved for issuance under the Toda Option.
(2) Number of shares includes the option to purchase 1,535,955 shares of
Common Stock that become exercisable on January 1, 2000. Furthermore, Mr. Lewis
has pledged 600,000 shares of Common Stock and the option to purchase an
additional 1,244,289 shares of Common Stock as security to the Series 1 Bridge
Notes.
(3) Number of shares includes the option to purchase 1,452,622 shares of
Common Stock that become exercisable on January 1, 2000. Furthermore, Mr.
Stulberg has pledged 250,000 shares of Common Stock and the option to purchase
an additional 1,244,289 shares of Common Stock as security to the Series 1
Bridge Notes.
15
<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of Capital Stock, of which
93,400,000 shares are Common Stock, par value $.001 per share, 100,000 shares
are Class B Common Stock, par value $.00000007 per hare, and 6,500,000 shares
are undesignated shares of Preferred Stock, par value $.001 per share. No Class
B Common Stock or Preferred Stock is issued and outstanding as of November 8,
1999.
COMMON STOCK
As of November 8, 1998, there were 53,988,579 shares of Common Stock
outstanding, held of record by approximately 353 stockholders.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, subject to the
dividend preferences of the Preferred Stock, if any. Upon our liquidation,
dissolution, or winding up, whether voluntary or involuntary, the holders of
Common Stock are entitled to share ratably in all of our assets available for
distribution after payment of all liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights and no rights to convert their Common Stock into any
other securities.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further action of our stockholders, to issue from time to time
such shares of Preferred Stock in one or more classes or series, to establish
the number of shares to be included in each such class or series, to fix or
alter the designations, preferences, limitations and relative, participating,
optional or other special rights and qualifications or restrictions of the
shares of each such class or series, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any class or series or the designations of such
class or series. The issuance of Preferred Stock could adversely affect, among
other things, the rights of existing stockholders or could delay or prevent a
change in our control without further action by the stockholders. The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock and could make the removal of our
present management more difficult.
16
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
We shall indemnify to the fullest extent permitted by, and in the manner
permissible under the laws of the State of Delaware, any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he/she is or
was our director, officer or employee, or served any other enterprise as
director, officer or employee at our request. The Board of Directors, in its
discretion, shall have the power on our behalf, to indemnify any person, other
than a director or officer, made a party to any action, suit or proceeding by
reason of the fact that he/she was our employee.
Pursuant to our bylaws, we have the right to indemnify, to purchase
indemnity insurance for, and to pay and advance expenses to, directors, officers
and other persons who are eligible for, or entitled to, such indemnification,
payments or advances, in accordance with and subject to the provisions of the
Delaware General Corporation Law and any amendments thereto, to the extent such
indemnification, payments or advances are either expressly required by such
provisions or are expressly authorized by the Board of Directors within the
scope of such provisions. Our right to indemnify such persons shall include,
but not be limited to, our authority to enter into written agreements for
indemnification with such provisions.
Subject to the provisions of the Delaware General Corporation Law and any
amendments thereto, our directors shall not be liable to the company or our
shareholders for monetary damages for an act or omission in the director's
capacity of a director, as long as the director acted in good faith.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than our payment of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING US FOR LIABILITIES ARISING
UNDER THE ACT IS HELD TO BE AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE
COMMISSION, AND IS THEREFORE UNENFORCEABLE.
17
<PAGE>
BUSINESS
CORPORATE HISTORY
We develop, market, sell and operate a personal and corporate property
marking and monitoring system ("The Tracker (TM) System"). The Tracker (TM)
System utilizes advanced bar code and laser scanning technology that interfaces
with a computer database and scanning network to create an identification system
(the "Technology"). Our website is located at www.tracker.com.
Our current business began in July 1994 through a reorganization (the
"Reorganization") in which we acquired all of the issued and outstanding voting
shares of The Tracker Corporation, an Ontario, Canada corporation ("Tracker
Canada"), in exchange for approximately 90% of our total voting shares as of
that date. Our predecessor was incorporated as a Utah corporation in 1986, and
changed its state of incorporation to Nevada in 1992 and Delaware in 1994
through change in domicile mergers. Concurrent with the effective date of the
reorganization, we changed our fiscal year-end from December 31 to March 31.
BACKGROUND
Tracker Canada, which originated our present line of business, was
incorporated in May 1993 and, until February 1998, was our operating subsidiary.
Tracker Canada supported the development, marketing and sale of The Tracker (TM)
System. Its functions also included personnel recruitment and management,
advanced bar code and laser scanning technology research and development
(including proprietary software development), key supplier relationships and
business and marketing planning.
Until 1995, the operations of Tracker Canada generated our sole source of
revenue. During the fiscal year ended March 31, 1996, we introduced a credit
card registration service marketed by independent telemarketing firms.
Subsequently, cash sales increased from $382,632 for the 1995-96 fiscal year to
$7,977,881 for the fiscal year ended March 31, 1997. The increase in cash sales
(and the corresponding increase in recorded revenues) for the 1996-97 fiscal
year was due primarily to the increase in sales from our credit card
registration service.
FTC LAWSUIT; BOARD OF DIRECTORS AND OFFICER RESIGNATIONS
In September 1997, the U.S. Federal Trade Commission (the "FTC") filed a
lawsuit against us in the U.S. District Court, Northern District of Georgia
alleging our credit card registration service had violated Section 5 of the
Federal Trade Commission Act and the FTC Trade Regulator Telemarketing Sales
Rule. The FTC obtained a temporary restraining order ("TRO") halting the
further sale of credit card registration services and an injunction freezing our
assets. Upon completing an internal investigation, we elected to discontinue
credit card registration service operations.
Following commencement of the lawsuit, four members of our five-member
Board of Directors, including all non-employee, outside directors, tendered
their resignations. Subsequently, our Chief Financial Officer resigned as an
executive officer, leaving Bruce I. Lewis, the Chief Executive Officer, as our
sole Director and executive officer.
We settled the FTC lawsuit on July 28, 1998. The settlement, among other
things, permanently barred Mr. Lewis and us from engaging directly or
indirectly, in the business of credit card registration or promotion.
18
<PAGE>
TRACKER CANADA BANKRUPTCY; CESSATION OF OPERATIONS
The FTC lawsuit and the cessation of the credit card registration service
had a negative effect on our financial condition and that of Tracker Canada. On
January 27, 1998, 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.
GLOBAL TRACKER
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 with us which permitted the use of
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, we continued on a limited basis the business
formerly operated by Tracker Canada.
Since February 26, 1998, Global Tracker has expended approximately $110,000
to support our business operations. Jay S. Stulberg, our President, Chief
Operating Officer and Chief Financial Officer, has personally loaned Global
Tracker approximately $50,000 (USD) in operating capital. Jay S. Stulberg is
Global Tracker's sole shareholder.
On July 30, 1998, we entered into a License Agreement with Global Tracker.
The License Agreement grants us an exclusive worldwide license to commercially
exploit the technology formerly owned 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 short-term agreements with
us to provide (i) management services, research and development and customer
support, and (ii) office equipment, including computers, local area network,
telephone system, copier, fax and furniture.
THE PRODUCT
THE TRACKER (TM) SYSTEM
The Tracker (TM) System consists of an identification device and a
relational database that, depending upon how it is applied, works in tandem with
a scanning network and a recovery system.
Identification Device
----------------------
The identification device consists of a label displaying a serial number
that is resistant to partial destruction or defacement. The label, which
attaches to an article by adhesive, thermal transfer (onto metal, plastic or
nylon textile) or laser etching, contains specially encoded insignia in advanced
two dimensional redundant bar code form (PDF 417 symbology). The PDF 417
symbology permits multiple repetitions of the alphanumeric number within the
advanced bar code. Partial destruction or defacement of the insignia does not
impair the ability of our laser scanners to read the label and communicate the
information to our database.
19
<PAGE>
Relational Database
--------------------
The relational database is a depository we maintain to index correlating
identification information and other data entries to codes identified with the
corresponding identification device. Although we make substantial efforts to
protect data, avoid human error and ensure system security, privacy and
integrity, no system is foolproof. Any material loss of information or security
breach could damage our credibility and could materially adversely affect our
business, operating results and financial condition.
Scanning Network
-----------------
We have developed a network consisting of a series of PDF 417-capable
scanners. The laser scanner reads the serial number displayed on the
identification device and transmits that information to our relational database.
Scanners are also utilized with our inventory control and asset management
systems. As of September 30, 1999, we had placed scanners in 35 police stations
and other sites in Canada and 22 sites in the United States, as compared to 39
placements in Canada and 25 in the United States as of September 30, 1998.
Recovery System
----------------
The recovery system is the method, after the scanner reads the
identification device and transfers the data via modem to the central database,
by which we notify a user of an item's location and arranges for its retrieval.
As of September 30, 1999, utilization of The Tracker (TM) System had
resulted in over 1000 successful recoveries. While these recoveries demonstrate
the effectiveness of the system, to date the system has not generated sufficient
sales volume.
STRATEGIC FOCUS
Prior to Tracker Canada's bankruptcy, our marketing efforts focused
primarily on the consumer market for personal property identification and
recovery. Although we believe the system has significant commercial potential,
the marketing efforts undertaken to date have failed, have not been fully
realized, or have been met with only limited market acceptance. Initially, we
developed a personal property security kit that included 24 possession labels,
eight clothing labels and 10 assorted shoe, key, luggage, and pet tags. We
packaged the initial purchase as a membership service term and marketed the
system indirectly as a value-added service offered by third parties.
PRESENT OPERATIONS
While management conceived other potential applications for The
Tracker (TM) System, our past experience and present financial circumstances
dictate a more narrowly focused strategy. Consequently, we recently altered our
business plan to divide our operations into two sectors: Personal Property
Registration and Business Asset Management.
Personal Property Registration
--------------------------------
We still believe that The Tracker (TM) System provides an efficient method
for tracking inventory and accessing related information. Presently, this type
of central registration/identification system is mainly done through local
initiatives and no national or regional industry leader exists to date. Given
our failure to effectively market The Tracker (TM) System to date, there is a
risk that a competitor could enter the market and capture a substantial market
share to our detriment.
20
<PAGE>
In May 1997, we entered into an agreement with Schwinn Cycling & Fitness
Inc. ("Schwinn"), a United States manufacturer of quality bicycles and
accessories. In February 1999, Schwinn placed an additional order for 50,000
Tracker labels to be combined with bicycle locks Schwinn manufactures in Taiwan.
Furthermore, in September 1999 we initiated a discussion with Schwinn on an OEM
application of identifying bicycle ownership in addition to continuing label
sales in bicycle accessory packs.
On July 1, 1998, we signed a two-year agreement with Warrantech Additive,
Inc. ("Warrantech"), a wholly-owned subsidiary of Warrantech Automotive, Inc.,
to provide personal property identification labels and global recovery services
to automobile dealers participating in Warrantech's vehicle service contract
business. Through the labels, we provide immediate access to vehicle service
information contained in our relational database. Because sales have thus far
not met expectations, Warrantech is reviewing and exploring enhancements to the
program.
Business Asset Management
---------------------------
We also believe The Tracker (TM) System can provide an efficient method for
tracking and managing fixed assets. Manufacturers of products, such as computer
chips, bicycles, power tools, electronic equipment, cameras and auto parts, can
use The Tracker System by laser etching or otherwise applying a serial number
containing specially coded insignia directly onto or into products during the
manufacturing process. We believe that the coded insignia adds value to a
product by increasing the likelihood of recovery in the event of loss or theft.
We anticipate that the manufacturers will absorb the cost of laser etching
either directly or indirectly (i.e. in the unit price we charge to the
manufacturers). Currently, however, we do not have a contract with any
manufacturer to laser etch or otherwise apply coded insignia at the point of
manufacture.
Moreover, The Tracker (TM) System can assist consumer products
manufacturers combat long-term warranty fraud through identifying the proper
owner of the product warranty and thereby refuse to honor claims to which they
have no obligation. We are actively negotiating with manufacturers and
distributors, including Fortune 500 Companies. The business asset management
industry is relatively new and contains hundreds of competitors. Because there
is a low cost to entry and basically no market barriers, software providers
could achieve significant market share through a predatory pricing strategy.
We recently installed a customized asset tracking management application at
Sony Computer Entertainment America, Inc. ("Sony"). As Sony is an alpha and
beta site for this new product, we are continuing to develop the additional
functionality that Sony requires. These additional functions, when completed
and approved by Sony, will be designed and incorporated into our new Asset
Management System, which is scheduled for release in February 2000. We plan to
present to system to public and private sector clients as a portable solution
for asset movement and individual accountability.
MARKETING AND DISTRIBUTION
Our long-term strategy is to introduce applications of The Tracker (TM)
System in select market niches and establish the system as a dominant brand
name therein. Currently, we are attempting to identify niches we believe will
prove most responsive to our initiatives. Among the niches we are considering
are an international pet registry lost and found, a key return service, and a
bike registration program.
21
<PAGE>
We hope to establish credibility and confidence in the marketplace by,
among other things, affiliations, alliances, sponsorships, and promotional
programs with well recognized, stable and reputable organizations. We are also
marketing The Tracker (TM) System to police departments who have a need to
inventory and warehouse lost and stolen bicycles and plan to institute a pilot
program with the Florida Police Chiefs Foundation (FPCF). On July 15, 1999 we
agreed in writing with the FPCF to extend the deadline for the completion of
this potential agreement subject to the FPCF's requirement that we resolve
an outstanding contract issue with the International Association of Chiefs of
Police. We re actively pursuing a solution to that issue, and expect this
impediment to be soon removed.
Should the pilot program prove successful, we plan to expand to a
municipality in some other state and then establish a national program. We are
also beginning to establish promotional programs with manufacturers of consumer
specialty products that have a high potential for loss and intend on approaching
affinity groups, such as charities and police benevolent societies, to market
our labels as promotional incentives. Finally, we are exploring the feasibility
of the establishment of an international pet registry marketed through
veterinarians, animal shelters and humane societies.
We presently have no material backlog of orders. We have granted, and may
grant in the future, commissions and other payments in connection with the
distribution of our products.
INTERNATIONAL OPERATIONS
We presently maintain operations in Canada and the United States.
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. We cannot assure that these factors will
not have a material impact on our ability to market products and services on an
international basis. We do not engage in any hedging contracts because we
receive a majority of our cash flow in United States dollars.
KEY SUPPLIERS
Our ability to market and sell The Tracker (TM) System depends in part on
our ability to procure necessary equipment, supplies and services. These
agreements or understandings tend to be informal, may be difficult to enforce,
and may be subject to termination. Accordingly, we cannot assure that equipment,
supplies or services will be available when needed or on terms favorable to us.
Any unavailability of such equipment, supplies or services on terms favorable to
Us could prevent or delay the development, marketing, sale, operation and
effectiveness of our products and could materially adversely affect on our
business, operating results and financial condition.
We procure scanning equipment from Symbol Technologies, Inc. ("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
two-dimensional bar code. The PDF 1000 laser scanner scans 30 times faster than
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%. On May 18, 1999, we entered into an agreement
with Symbol whereby, subject to certain minimum annual purchase requirements, we
were 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. This contract is subject to a minimum annual purchase
requirement of 5000 laser scanner units, having a purchase price effect of at
least ten million dollars ($10,000,000). We will likely not meet this
requirement and Symbol will be permitted to terminate the contract should it so
choose. Nevertheless, we are currently working with Symbol on the design and
development of a custom mobile registration application using 2-D barcodes as
well as mobile enhancements to our current Asset Management System. Symbol is
compiling a functional specification on applications identified from our
initiated research.
22
<PAGE>
COMPETITION
We compete with a large number of competitors that have substantially
greater financial, technical, marketing, and management resources. The
alternative methods utilized by our competitors include tracking by serial
number or by the owner's imprinted name and address and conventional forms of
insurance that reimburse consumers for lost items. As a result, demand and
market acceptance for our products and services are subject to a high level of
uncertainty. We currently have limited financial, personnel and other resources
to undertake the extensive activities necessary to produce and market our
products and services. We cannot assure that we will be able to compete
successfully with existing or new competitors.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
We will rely on a combination of patent laws (if applicable), trade secret
laws, nondisclosure and other contractual agreements, and technical measures to
protect the confidential information, know-how and proprietary rights relating
to our personal property identification and recovery system. The above
protections may not preclude competitors from developing a personal property
identification and recovery system that is competitive with our system. We do
not believe that our products and other confidential and proprietary rights
infringe upon the proprietary rights of third parties. However, we cannot
assure that third parties will not assert infringement claims against us in the
future. The successful assertion of such claims could materially adversely
affect our business, operating results and financial condition.
We have no registered trademarks or service marks, nor any active trademark
or service mark applications pending with the U.S. Patent and Trademark Office
or with other regulatory authorities.
EMPLOYEES
As of October 31, 1999, through contractual arrangements with Global
Tracker, we employ a total of 14 persons, including two in management, two in
administration and accounting, five in operations (two part-time), three in
sales and marketing and two in information systems (one part-time). Our future
success will depend in large part on our ability to attract, train and retain
highly skilled and qualified personnel. We cannot assure that we will be
successful in attracting, training and retaining such personnel.
None of our employees are represented by a labor union. We have
experienced no work stoppages, and we believe that the relationship with our
employees is excellent.
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<PAGE>
GOVERNMENTAL REGULATIONS
We are not subject to any governmental regulations other than those
applicable to businesses generally. Although we believe we are in compliance
with all currently applicable regulations, additional regulations could be
enacted in the future that could materially adversely affect our business,
operating results and financial condition. We are not currently affected or
bear any costs associated with federal, state or local environmental laws.
REPORTS TO SECURITY HOLDERS
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Exchange Act of 1933
with respect to the securities offered herein (the "Registration Statement").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the Rules and Regulations of the Commission. We will provide at no charge to
any person upon written or oral request a copy of any such information.
Requests should be directed to Bruce I. Lewis, 1120 Finch Avenue West, Suite
303, North York, Ontario Canada M3J 3H7.
We are required to file reports with the Commission. These reports
include: (i) an annual report containing financial information examined and
reported upon by our certified public accountants (Form 10-K); (ii) quarterly
reports containing unaudited financial statements for each of the first three
quarters of the fiscal year (Form 10-Q); and (iii) additional information
concerning our business and operations deemed appropriate by our Board of
Directors (Form 8-K).
You may read and copy any materials we file with the Commission by visiting
the Public Reference Room located at 450 Fifth Street, N.W., Washington, D.C.
20549 or by calling the Commission at 1-800-SEC-0330. Since we are an
electronic filer, you may also receive information about us through the
Commission's internet website that contains reports, proxy and information
statements, and other information at http://www.sec.gov.
------------------
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
We have been in the development stage since formation. We primarily
market, sell and operate The Tracker (TM) System, a personal property marking
and monitoring system we developed. The Tracker (TM) System utilizes advanced
bar code and laser scanning technology to create an identification device that
interfaces with a computer database and scanning network.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Cash sales for the fiscal year ended March 31, 1999 decreased to $126,875
(NIL from discontinued operations) as compared to $5,731,777 ($5,680,226 from
discontinued operations) for the fiscal year ended March 31, 1998. Because we
recognized these cash sales on a straight-line basis over the term of service
offered, recorded revenues for the fiscal year ended March 31, 1999 decreased to
$1,925,602 as compared to $8,642,737 for the fiscal year ended March 31, 1998.
The decrease in revenues during the year was due primarily to our recognition of
deferred revenues from the now discontinued credit card registration service.
During the fiscal year ended March 31, 1999, we incurred a net loss of
$1,030,979 as compared to a net loss of $152,517 for the fiscal year ended March
31, 1998. In order to generate new initiatives to replace revenues from
discontinued operations, we had to increase our expenditures by an additional
592% when comparing the fiscal year ended March 31, 1999 to the fiscal year
ended March 31, 1998. Development costs totaled $1,086,223 for the fiscal year
ended March 31, 1999 as compared to $183,408 for the fiscal year ended March 31,
1998, with the largest increase in expenditures occurring in the Operations
category of Development Costs. We continued to service customers from the
discontinued operations as well as invested in the development of new
applications of The Tracker System.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
Our gross profit increased by 17% to $49,424 for the six months ending
September 30, 1999, as compared to the same period in 1998. The increase
resulted from payments derived from our contract with Sony Computer
Entertainment America, Inc. Although revenue decreased 41% during this period
(due to our decision to focus our limited resources on the development of new
product lines rather than the marketing and sale of existing products), costs of
sales were reduced by 89% to $5,461 for the six months ending September 30,
1999, from $51,423 for the comparable period in 1999. The decrease in costs of
sales resulted from an increase in software sales and a decrease in label
product sales.
Our net loss, including the net loss from discontinued operations, totaled
$333,700 during the six months ended September 30, 1999 (as compared to a gain
of $108,215 during the same period in 1998). Our net loss from continuing
operations totaled $372,300 during the six months ended September 30, 1999, as
compared to a net loss of $271,563 during the same period in 1998. The increase
in our net loss results primarily from development costs associated with renewed
marketing initiatives required to implement our new business plan. Development
costs increased by approximately 34% to $421,724 for the six months ended
September 30, 1999, compared to $313,653 for the similar 1998 period.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our operations since inception have been funded by net proceeds from the
sale of Capital Stock, notes and debentures totaling approximately $17,711,534
net of discontinued operations.
During the year ended March 31, 1999, our net cash used in operations was
$795,745 as compared to $505,244 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.
As of March 31, 1999, we had total current assets of $332,248 as compared
to $1,187,699 at March 31, 1998. The decrease in current assets resulted mostly
from the amortization of deferred charges remaining from discontinued operations
after the liquidation of Tracker Canada's assets in February 1998. The decrease
in net property and equipment also resulted from the Tracker Canada liquidation
since Tracker Canada held those assets.
As of March 31, 1999, we had liabilities of $1,748,376 as compared to
$3,275,560 at March 31, 1998. The difference is mainly attributable to the
decrease in deferred revenues in the amount of $197,602 as compared to
$1,798,727 at March 31, 1998.
During the six months ended September 30, 1999, our net cash used in
operations was ($569,348) as compared to ($380,778) for the comparable 1998
period. We were able to finance our operations through the recent issuance of
convertible bridge notes in the amount of $1,000,000 from the first closing (the
"First Closing") under an agreement with Sovereign Capital Advisors, LLC to
provide up to $3,000,000 in convertible bridge notes. Cash used in operations
was devoted primarily to funding the development of identification and recovery
systems and software, labels, packaging, marketing and advertising.
As of September 30, 1999, we increased our total current assets from March
31, 1999 to $515,614, mainly attributable to funds received from the First
Closing in the amount $1,000,000 (less associated closing costs). The long-term
deferred charges reflect the reduced deferred commission expense resulting from
discontinuance of the discontinued operations. As of September 30, 1999, we
increased our liabilities from March 31, 1999 to $2,453,329, due to the issuance
of the convertible bridge notes.
As of March 31, 1999 and March 31, 1998, respectively, we had accumulated
deficits of $17,753,037 and $17,001,283. As of September 30, 1999, our
accumulated deficit totaled $18,213,000. The increase in the deficit resulted
from obligations we continued to incur as we develop and roll out new product
lines. To date, we have financed our research and development activities and
operations primarily through sales generated by discontinued operations, private
placements of debt and equity securities, the sale of equity securities pursuant
to Regulation S, and loans from third parties.
CAPITAL REQUIREMENTS
Our current cash projections indicate that our short-term annual funding
requirements will be approximately $1.5 million for the next twelve months. We
anticipate that future cash sales and equity or debt financing will cover
long-term cash needs, but this might not occur. No assurance can be given that
the necessary funding will be available to us 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 would affect
our ability to continue as a going concern.
26
<PAGE>
INFLATION; SEASONABLITY
While inflation has not had a material impact on operating results and we
do not expect inflation to have a material impact on operating results, we
cannot assure that our business will not be affected by inflation in the future.
While our business to date has not been seasonal and we do not expect that our
business will be seasonal in the future, we cannot assure that our business, on
a consolidated basis, will not be seasonal in the future.
YEAR 2000 COMPLIANCE REQUIREMENTS
We use various packaged software applications as tools in running our
accounting operations, database management and general business functions. We
use certain proprietary software programs as tools to run The Tracker (TM)
System and have assessed the impact of year 2000 issues on all software and
hardware. We have determined that all existing hardware equipment is year 2000
compliant, except for certain equipment scheduled to be retired. We are in the
process of implementing the 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 cost thereof is not
expected to exceed $20,000. Our proprietary software programs were developed on
year 2000 compliant platforms and we are not dependent on computer systems
of any significant customers, vendors or other third parties in the course of
normal business.
27
<PAGE>
DESCRIPTION OF PROPERTY
We currently occupy approximately 3,700 square feet of office premises in
Toronto leased by Global Tracker for us on a month-to-month basis at a rate of
$5,000 per month. Under the sublease, we may withhold rent payments to Global
Tracker for the lesser of up to six (6) consecutive months or such earlier date
as the parties may terminate the sublease. Lease payments due and unpaid accrue
at the rate of ten percent (10%) per annum. We do not anticipate any difficulty
in securing adequate new space in the event Global Tracker terminates the
sublease. We believe that suitable additional space will be available as needed
if future expansion is required.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
We have entered into employment agreements containing severance
arrangements with certain executive officers, which provide for compensation
payments under certain circumstances to each officer through the remainder of
the term of the agreements. Our Certificate of Incorporation and bylaws provide
for indemnification of all directors and officers. In addition, each director
nominee, when elected, will enter into separate indemnification agreements with
us.
We have agreed with certain state regulatory authorities that so long as
our securities are registered in such states, we will not make loans to our
officers, directors, employees, or principal stockholders, 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 us and our 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 us than those that could be negotiated with unaffiliated parties.
GLOBAL TRACKER
In February 1998, Global Tracker Corporation, a newly organized Ontario,
Canada corporation, acquired substantially all of the assets of Tracker Canada
in a bankruptcy proceeding. Jay S. Stulberg, our Chief Financial Officer and
Director, is the sole shareholder, officer and Director of Global Tracker.
Following the bankruptcy proceeding, Global Tracker made the assets formerly
owned by Tracker Canada available to us in order to permit us to carry on
Tracker Canada's business. Since February 1998, Global Tracker has expended
approximately $110,000 to support our business operations. Furthermore, Mr.
Stulberg has personally loaned Global Tracker approximately $50,000 (USD) in
operating capital. Under a license agreement with Global Tracker, we will pay
Global Tracker a 12% gross royalty on our sales.
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<PAGE>
MARKET FOR COMMON EQUITY
Our 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 our Common Stock were first listed on the OTC Bulletin Board on
May 5, 1993. The market for our Common Stock must be characterized as extremely
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 our true value. As a result, you may find it
difficult to dispose of, or to obtain accurate quotations as to the value of,
the Common Stock. We cannot assure that the over-the-counter market for our
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
otherwise.
The following table sets forth, for the periods indicated, the high and low
bid quotations for our Common Stock as reported by the National Quotation
Bureau, Inc. or Bloomberg L.P. These quotations reflect inter-dealer prices,
without adjustments for retail markups, markdowns or commissions, and do not
represent actual transactions.
Quarter Ended High Low
- ------------------ ------- -------
June 30, 1997 $0.1415 $0.0625
September 30, 1997 $0.3700 $0.1300
December 31, 1997 $0.2100 $0.0450
March 31, 1998 $0.0725 $0.0130
June 30, 1998 $0.1150 $0.0150
September 30, 1998 $0.09 $0.075
December 31, 1998 $0.11 $0.05
March 31, 1999 $0.1775 $0.0725
June 30, 1999 $0.35 $0.10
September 30, 1999 $0.40 $0.18
On September 30, 1999, the high and low bid quotations for our Common Stock
on the OTC Bulletin Board were $0.185 and $0.175, respectively. As of September
30, 1999, there were 53,988,579 shares of Common Stock outstanding held by
approximately 355 holders of record, including broker-dealers and clearing
corporations holding common shares on behalf of their customers.
We have never paid any cash dividends on our Common Stock and do 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 our business.
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<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table provides certain information concerning the
compensation earned by our Chief Executive Officer and other then-executive
officers who received compensation in excess of $100,000 for services rendered
in all capacities to us for the most recent three fiscal years (the "Named
Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Restricted Securities
Stock Under-Lying LTIP All Other
Name and then- Fiscal Salary Bonus Other Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($)(1) ($) (#) ($) ($)
- ----------------------- ------- ------------------------- ------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BRUCE I. LEWIS, CEO 1999(2) 0 0 175,000 2,488,578
1998 43,750 10,000 131,250
1997 175,000 10,000
- ----------------------- ------- ------------------------- ------------------------------------- ------------
JAY S. STULBERG,
President, COO & CFO 1999(2) 40,000 85,000 2,488,578
- ----------------------- ------- ------------------------- ------------------------------------- ------------
MARK J. GERTZBEIN, CFO
& Executive VP 1998 175,000 10,000
- ----------------------- ------- ------------------------- ------------------------------------- ------------
<FN>
(1) Automobile allowance
(2) Estimated
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value At Assumed Annual Alternative to
Rates of Stock Price (f) and (g)
Appreciation For Option Grant Date
INDIVIDUAL GRANTS Term Value
- ------------------ -------------------------------------------------------- ----------------------- ---------------
Percent Of
Number of Total
Securities Options/
Underlying SARs Granted Exercise of Grant Date
Option/SARs To Employees Base Price Expiration Present Value
Name Granted (#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($) $
(a) (b) (c) (d) (e) (f) (g) (h)
- ------------------ -------------------------------------------------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce I. Lewis(1). 2,488,578(3) 46.3% .075 2003 51,566 62,909
- ------------------ -------------------------------------------------------- ----------------------- ---------------
Jay S. Stulberg(2) 2,488,578(3) 46.3% .075 2008 117,379 131,856
- ------------------ -------------------------------------------------------- ----------------------- ---------------
<FN>
(1) Incentive stock option granted for a five-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(2) Incentive stock option granted for a ten-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(3) Mr. Lewis and Mr. Stulberg have each pledged their option rights to purchase an additional 1,244,289
shares of Common Stock as security to the Series 1 Bridge Notes.
</TABLE>
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. In
addition, non-employee directors are eligible to receive options to purchase
shares of our Common Stock.
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<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
BRUCE LEWIS
On December 18, 1998, we entered into an employment agreement with Mr.
Lewis, pursuant to which Mr. Lewis serves as our Chief Executive Officer. The
agreement provides for an annual base salary of $175,000, with increases of
$37,500 each year based upon certain performance criteria beginning April 1,
2000, a maximum automobile allowance of $10,000 and eligibility for
discretionary bonuses.
The initial term for Mr. Lewis' agreement is three years with one-year
renewal terms thereafter, and provides for the payment of a relocation allowance
equal to the lesser of the actual relocation expenses or $25,000 per each
occurrence. The agreement provides that Mr. Lewis 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 our senior executive employees.
If Mr. Lewis' employment is terminated by us for cause (as defined in the
employment agreement) or by Mr. Lewis for any reason (other than for good reason
(also as defined)), Mr. Lewis will be entitled to his compensation through the
date of termination. If, prior to a change of control (as defined), employment
is terminated due to Mr. Lewis' death or disability, by us other than for cause
or by Mr. Lewis for good reason, Mr. Lewis is 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, we will maintain for Mr. Lewis for 12 months, or, if
earlier, through the date he obtains alternative employment, his participation
in our employee benefit plans in which he was eligible to participate
immediately before termination, to the extent permissible under such plans. Mr.
Lewis (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. We will use our best efforts to remove the
restrictions from any restricted stock held by Mr. Lewis at termination. If Mr.
Lewis' employment is terminated after a change of control, either by the
executive for good reason or by us without cause, he 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 him 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 our income tax deduction
under Internal Revenue Code Section 280G or an excise tax under Code Section
4999.
JAY STULBERG
On December 18, 1998, we entered into an employment agreement with Mr.
Stulberg, pursuant to which Mr. Stulberg serves as our President, Chief
Operating Officer and Chief Financial Officer and Secretary. The agreement
provides for an annual base salary of $125,000, with increases of $37,500 each
year based upon certain performance criteria beginning April 1, 2000, a maximum
automobile allowance of $10,000 and eligibility for discretionary bonuses.
The initial term of Mr. Stulberg's agreement is three years with one-year
renewal terms thereafter, and provides for the payment of a relocation allowance
equal to the lesser of the actual relocation expenses or $25,000 per each
occurrence. The agreement provides that Mr. Stulberg 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 our senior executive employees.
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<PAGE>
If Mr. Stulberg's employment is terminated by us for cause (as defined in
the employment agreement) or by Mr. Stulberg for any reason (other than for good
reason (also as defined)), Mr. Stulberg will be entitled to his compensation
through the date of termination. If, prior to a change of control (as defined),
employment is terminated due to Mr. Stulberg's death or disability, by us other
than for cause or by Mr. Stulberg for good reason, Mr. Stulberg is 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, we will maintain for Mr. Stulberg for 12 months, or, if
earlier, through the date he obtains alternative employment, his participation
in our employee benefit plans in which he was eligible to participate
immediately before termination, to the extent permissible under such plans. Mr.
Stulberg (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. We will use our best efforts to remove the
restrictions from any restricted stock held by Mr. Stulberg at termination. If
Mr. Stulberg's employment is terminated after a change of control, either by the
executive for good reason or by us without cause, he 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 him 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 our income tax deduction
under Internal Revenue Code Section 280G or an excise tax under Code Section
4999.
STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the shareholders approved the 1994 Stock
Incentive Plan and on November 1, 1995, August 22, 1997, and August 27, 1999 the
shareholders approved certain amendments (collectively, the "Stock Incentive
Plan"). The Stock Incentive Plan is intended to attract, retain and motivate
officers, other key employees, non-employee directors and consultants to us, and
to provide such persons with incentives and rewards for superior performance
more directly linked our profitability and increases in stockholder value.
Individuals are selected for participation in the 1994 Incentive Plan by a
Compensation Committee of the Board of Directors (the "Committee"). An
aggregate of 10,000,000 shares of Common Stock are reserved for issuance under
the Stock Incentive Plan, subject to adjustment in the event of a stock split,
stock dividend or other change in the Common Stock or capital structure. We
anticipate no more than twelve people may receive grants under the 1994
Incentive Plan, with no more than three non-employee directors involved.
Unexercised options that expire may again be issued under the Stock Incentive
Plan subject to the foregoing limitations. The Committee administers the Stock
Incentive Plan and has the exclusive power to determine whether to grant them.
The Committee also determines 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 Stock Incentive Plan. Members
of the Committee are not eligible to receive grants or awards under the Stock
Incentive Plan other than the automatic grants to non-employee directors.
STOCK OPTIONS. Under the Stock Incentive 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. Options
may be granted prior to termination of the Stock Incentive 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 Stock Incentive 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 our capital
structure.
32
<PAGE>
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 that are granted to
holders of ten percent or more of our 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 the Committee consents to such
termination of service 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
our best interests. 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 our Stock or any subsidiary, 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 brokerage firm
designated by us. 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. During the fiscal
year ended March 31, 1999, options for 5,377,157 shares, vesting over a
three-year period, were granted at fair market value.
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 participant to receive from us 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 our
Common Stock on the date of exercise of the appreciation right exceeds the
exercise price of the related option.
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 our 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 that have been earned on the basis of our 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 our best interests.
33
<PAGE>
RESTRICTED STOCK. A grant of restricted stock consists of a specified
number of shares of Common Stock that is awarded in amounts determined by the
Committee and subject to forfeiture 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 our consent 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 employment terminates prior to the end of the restricted period
for any other reason, the participant's entire 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.
DEFERRED SHARES. The Committee may grant deferred shares to participants
under the Stock Incentive 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 our shares of Common
Stock on a current, deferred or contingent basis. The participant may make
without additional consideration or in consideration of payment grants that are
less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the Stock Incentive Plan
as originally adopted, each non-employee director elected or appointed on or
after the effective date of the Stock Incentive 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 is 100% of the fair market value of the Common Stock on
the date of the grant of the option. The Stock 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 brokerage firm
designated by us. 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" (as defined below). The
portion of the Stock Incentive Plan applicable to non-employee directors is
designed to be self-executing.
34
<PAGE>
The amendments to the Stock Incentive 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
our outstanding Common Stock outstanding (the "Eligible Directors"). Each
individual who first becomes an Eligible Director after the date of approval of
the amendment to the Stock Incentive 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 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 Stock
Incentive 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 our Common Stock for the 30 days immediately prior to the grant date.
On December 22, 1998, options were granted to our three outside directors.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The Committee has the discretion
to accelerate benefits under the Stock Incentive Plan in the event of a Change
of Control or a Corporate Transaction.
Under the Stock Incentive Plan, "Change of Control" is a change in
ownership or control of us effected through either of the following
transactions:
a. the direct or indirect acquisition by any person or related group of
persons (other than by us or a person that directly or indirectly controls, is
controlled by, or is under common control with, us) 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 our outstanding securities
pursuant to a tender or exchange offer made directly to our shareholders or
other transaction, in each case which the Board does not recommend that our
shareholders 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.
Under the Stock Incentive Plan, "Corporate Transaction" means any of the
following shareholder-approved transactions to which we are a party:
35
<PAGE>
a. a merger or consolidation in which we are not the surviving entity,
except for a transaction the principal purpose of which is to change the state
in which we are incorporated;
b. the sale, transfer or other disposition of all or substantially all our
assets in our complete liquidation or dissolution; or
c. any reverse merger in which we are the surviving entity but in which
securities possessing more than 50% of the total combined voting power of our
outstanding securities 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 may amend,
suspend or terminate the Stock Incentive 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 Stock
Incentive Plan. Furthermore, no amendment may increase the total number of
shares, appreciation rights or performance units (or shares) which may be issued
under the Stock Incentive 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 our 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 shareholders of a company of any
material amendment to any employee benefit plan of such company.
LOAN PROGRAM. The Committee may, in its discretion, permit us to finance
the exercise of our 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
Stock Incentive Plan. Each loan will be evidenced by a promissory note to be
entered into by the participant in our favor. 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.
RESTRICTIONS ON GRANTS OF OPTIONS. We 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, we 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. We plan to file a registration statement to register the
shares of Common Stock reserved for issuance under the Stock Incentive 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.
36
<PAGE>
CASH BONUS ARRANGEMENT
Our Discretionary Cash Bonus Arrangement (the "Cash Bonus Arrangement") is
designed to provide a mechanism to allow specified employees to share in our
profits. Our employees 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. We estimate that approximately six 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 Stock Incentive 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.
1999 STOCK WAGE AND FEE PAYMENT PLAN
Our Board of Directors adopted a 1999 Stock Wage and Fee Payment Plan (the
"1999 Wage Plan") on December 22, 1998. The purpose of the 1999 Wage Plan is to
retain and motivate participants and to provide them with incentives and rewards
more directly linked to our profitability and increases in stockholder value.
Nine of our employees and three consultants were eligible to, and elected
to, participate in the 1999 Wage Plan. Under the 1999 Wage Plan, the
participants agreed to receive an aggregate of 13,175,996 shares of our Common
Stock in lieu of certain wage payments or fees. The number of shares granted to
the participants was based upon a price per share of Common Stock of $.06. We
registered the shares issued under the 1999 Wage Plan under the Securities Act.
37
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On June 15, 1999, PricewaterhouseCoopers LLP, our then-independent
accountant, declined to stand for re-election as our independent accountant for
the fiscal year ended March 31, 1998. During the previous year,
PricewaterhouseCoopers LLP did not issue on our behalf any financial statement
that contained an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope, or accounting principles, except
that their report on the financial statements as of and for the year ended March
31, 1997 included an explanatory paragraph expressing doubt as to our ability to
continue as a going concern. The decision to change accountants was not
recommended or approved by any committee of the Board of Directors, or by the
Board of Directors. Additionally, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
On August 18, 1998, we retained Hirsch Silberstein & Subelsky, P.C. as our
independent accountants to audit our financial statements as of, and for the
years ended, March 31, 1998 and March 31, 1999.
On August 27, 1999, our Board of Directors decided to retain the certified
public accounting firm of J.L. Stephan Co., P.C. to replace Hirsch Silberstein &
Subelsky, P.C. as our independent accountants. Hirsch Silberstein & Subelsky,
P.C. has discontinued its audit practice concerning compliance with the
regulations of the Securities and Exchange Commission. We had no disagreements
with Hirsch Silberstein & Subelsky, P.C. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
38
<PAGE>
THE TRACKER CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1999 and 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
------------------------------
To the Board of Directors and Stockholders of
The Tracker Corporation of America
We have audited the accompanying consolidated balance sheet of The Tracker
Corporation of America, Inc. and Subsidiary as of March 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the year then ended. 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 audit. The financial
statements of The Tracker Corporation of America, Inc. and Subsidiary as of
March 31, 1997 and 1996 and from inception at May 6, 1993 through March 31, 1997
were audited by other auditors whose reports dated June 24, 1997 and May 28,
1996 included an explanatory paragraph that described the going concern
uncertainties discussed in Notes 1 and 2 to the consolidated financial
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Tracker Corporation of America, Inc. and Subsidiary as of March 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and
2 to the consolidated financial statements, the Company is in the development
stage and has suffered significant losses since inception. Additionally, the
Company discontinued its telemarketing program for its credit card registration
business. The Company is relying upon affiliated and outside parties to fund
its cash flow deficiencies through debt and equity infusions. Those conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Notes 1 and 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
July 8, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
MARCH 31,
1999
-------------
<S> <C>
CURRENT ASSETS
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,843
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . 120,000
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,405
-------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 332,248
DUE FROM SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,072
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,600
PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . . . -
-------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487,920
=============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 458,352
ACCRUED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,823
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,602
DEBENTURE PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,809
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . 475,790
-------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 1,748,376
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,244
COMMITMENTS (NOTE 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 50,000,000 SHARES AUTHORIZED,
50,388,579 (26,705,053 - MARCH 31, 1998) SHARES ISSUED AND OUTSTANDING. 50,389
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING. . . . . . . . . . . . . . . . . -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, NIL (2,622,484 - MARCH 31, 1998) ISSUED
AND OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
PAID-IN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,777,482
OTHER CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE. . . . . . . . . . . . . (17,753,037)
CUMULATIVE TRANSLATION ADJUSTMENT . . . . . . . . . . . . . . . . . . . . (126,263)
-------------
TOTAL SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . (1,475,700)
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . $ 487,920
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (MAY 6, 1993) FOR THE
THROUGH MARCH 31, YEAR ENDED MARCH 31,
1999 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
REVENUE . . . . . . . . . . . . . . . . . $ 433,596 $ 126,875 $ 51,551
COST OF SALES . . . . . . . . . . . . . . 171,924 71,630 20,660
------------- ------------ ------------
GROSS PROFIT. . . . . . . . . . . . . . . 261,672 55,245 30,891
------------- ------------ ------------
DEVELOPMENT COSTS
OPERATIONAL . . . . . . . . . . . . . . 1,845,420 323,560 53,647
INFORMATION SYSTEMS . . . . . . . . . . 930,032 45,181 26,613
SALES AND MARKETING . . . . . . . . . . 3,563,645 126,601 7,928
GENERAL AND ADMINISTRATIVE. . . . . . . 8,427,111 590,881 95,221
------------- ------------ ------------
TOTAL DEVELOPMENT COSTS . . . . . . . . . $ 14,766,209 $ 1,086,223 $ 183,408
LOSS FROM CONTINUING OPERATIONS . . . . . (14,504,536) (1,030,979) (152,517)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (3,203,320) 279,225 62,050
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK . . . $(17,707,856) $ (751,754) $ (90,467)
============= ============ ============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS . . . . . $ (1.1175) $ (0.0258) $ (0.0042)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (0.2468) 0.0070 0.0029
------------- ------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . $ (1.3643) $ (0.0188) $ (0.0013)
============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING. . . . . . . . . . . . . . 12,979,364 39,929,638 21,480,767
============= ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
----------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
FROM INCEPTION
(MAY 6, 1993) YEAR ENDED YEAR ENDED
THROUGH MARCH 31 MARCH 31 MARCH 31
1998 1999 1998
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,753,037) $ (751,754) ($90,467)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION. . . . . . . . . . . . . . . . . . . . . . . . . 380,019 - 12,893
LOSS ON SALE OF LONG-TERM INVESTMENT. . . . . . . . . . . . . 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE . . . . . . 691,901 691,901
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,284,144 - 165,870
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . (137,273) (120,000) 359,526
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . (97,843) (97,843) 133,613
SHORT-TERM INVESTMENT . . . . . . . . . . . . . . . . . . - - -
INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . - - 24,338
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . (256,005) 1,206,737 1,673,159
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . 412,846 (1,798,727) (2,910,959)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. . . . . . . . . 1,057,820 73,941 126,783
------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . (10,404,014) (795,745) (505,244)
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS . . . . . . . . . . . . . . . . . . 6,028 - 790,661
LOAN TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . (370,484) - 47,415
REPAYMENT OF LOANS TO SHAREHOLDERS. . . . . . . . . . . . . . . 356,412 - -
NOTE RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . (200,317) - -
REPAYMENT OF NOTE RECEIVABLE. . . . . . . . . . . . . . . . . . 200,317 - -
LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . . . . . . (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . 2,287,958 - -
------------------ ------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES. . . . . . . . . . (21,458) - 838,076
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES . . . . . . . . . . . . . . . . . . . 9,748,275 795,745 30,000
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)
SHARE ISSUE COSTS . . . . . . . . . . . . . . . . . . . . . . . (1,684,735) - -
------------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES. . . . . . . . . . 11,005,668 795,745 (137,138)
------------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES . . . . . . . . . . . . . . . . . (580,196) 0 (300,907)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING . . . . . 1 1 (105,213)
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . - - 105,213
------------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . 1 $ 1 $ 0
================== ============ ============
<FN>
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)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
-----------------------------------------------
SHARES AMOUNTS
-------------------------------- ----------------------------------
PAID-IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ---------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) 5,089,286 $ - $ - $ -
SHARES ISSUED FOR CASH (CASH - $4,714,188) 884,729 4,714,188
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 60,871 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT
NET LOSS
BALANCE AT MARCH 31, 1994 6,034,886 - - 4,572,390
--------- ---------- -------- ------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 234,517 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 5,777 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 739,219 739 (639)
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING
79,658 SHARES AT $7 PER SHARE FOR CONSULTING
SERVICES AND 3,571 SHARES AT $5.50 PER SHARE
FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 860,000 860 2,900,840
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND
MARKETING SERVICES (CASH-$NIL) 825,000 78,005 825 2,204,153
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (814,583)* (815)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 500,000 500 349,500
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 25,063 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT
NET LOSS
BALANCE AT MARCH 31, 1995 - 2,109,636 6,378,248 - 2,109 9,707,617
--------- ---------- --------- ---------- -------- ------------
AMOUNTS
----------------------------------------------------------------
DEFICIT ACCUMULATED
CUMULATIVE DURING
OTHER TRANSLATION DEVELOPMENT
CAPITAL ADJUSTMENT STAGE TOTAL
------------ ------------- --------------------- ------------
<S> <C> <C> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) $ - $ - $ - $ -
SHARES ISSUED FOR CASH (CASH - $4,714,188) 4,714,188
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT (129,098) (129,098)
NET LOSS (2,043,425) (2,043,425)
BALANCE AT MARCH 31, 1994 - (129,098) (2,043,425) 2,399,867
------------ ------------- --------------------- ------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 100
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING
79,658 SHARES AT $7 PER SHARE FOR CONSULTING
SERVICES AND 3,571 SHARES AT $5.50 PER SHARE
FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 2,901,700
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND
MARKETING SERVICES (CASH-$NIL) 2,204,978
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (2,086,685) (2,087,500)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 350,000
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT (159,026) (159,026)
NET LOSS (5,068,583) (5,068,583)
BALANCE AT MARCH 31, 1995 (2,086,685) (288,124) (7,112,008) 222,909
------------ ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
---------------------------------- ----------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ---------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING $ - $ - $ 819,459
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED
BEFORE MARCH 31, 1995 (NOTE 9-X) (CASH - $NIL) 14,582 * 14
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 266,664 * 265
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 98,858 99 86,402
SHARES ISSUED TO AMERASIA FOR MARKETING
SERVICES (NOTE 9-X) (CASH - $NIL) 30,000 44,496
LESS: SERVICES NOT YET RECEIVED (12,500)*
SHARES CANCELLED (CASH - $NIL) (171) 1 (1)
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES,
CONSULTANTS AND A DIRECTOR (CASH - $NIL) 770,000 770 769,230
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (340,939)* (341)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000 200 199,800
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $250,000) 250,000 250 249,750
SHARES ISSUED UPON EXERCISE OF
WARRANTS AT CANADIAN $1 PER SHARE
(CASH - $619,166) 849,803 619,166
SHARES ISSUED TO OFFICERS (NOTE 9-IIII(A)) (CASH - $NIL) 630,000 630 826,245
SHARES ISSUED TO A CONSULTANT (NOTE 9-X) (CASH - $NIL) 7,500 8 9,836
SHARES ISSUED FOR INVESTOR RELATION
SERVICES (NOTE 9-V) (CASH - $NIL) 200,000 200 262,300
LESS: SERVICES NOT YET RECEIVED (200,000)* (200)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X)
(CASH - $NIL) 14,176 22,716
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,133,365 (1,133,365) 1,134 (1,134)
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (CASH -$NIL) 991,434 992 728,537
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996
BALANCE AS AT MARCH 31, 1996 - 6,130,929 6,126,362 $ - $ 6,131 $14,013,062
--------- ---------- ----------- ---------- -------- ------------
AMOUNTS
----------------------------------------------------------------
DEFICIT ACCUMULATED
CUMULATIVE DURING
OTHER TRANSLATION DEVELOPMENT
CAPITAL ADJUSTMENT STAGE TOTAL
------------ ------------- --------------------- ------------
<S> <C> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING
MADE BEFORE MARCH 31, 1995 (CASH - $225,280) $ - $ - $ - $ 819,459
CONSULTING SERVICES RECEIVED RE SHARES ISSUED
BEFORE MARCH 31, 1995 (NOTE 9-X) (CASH - $NIL) 87,486 87,500
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 666,400 666,665
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 86,501
SHARES ISSUED TO AMERASIA FOR MARKETING
SERVICES (NOTE 9-X) (CASH - $NIL) 44,496
LESS: SERVICES NOT YET RECEIVED (18,630) (18,630)
SHARES CANCELLED (CASH - $NIL) -
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES,
CONSULTANTS AND A DIRECTOR (CASH - $NIL) 770,000
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (340,598) (340,939)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $250,000) 250,000
SHARES ISSUED UPON EXERCISE OF
WARRANTS AT CANADIAN $1 PER SHARE
(CASH - $619,166) 619,166
SHARES ISSUED TO OFFICERS (NOTE 9-IIII(A)) (CASH - $NIL) 826,875
SHARES ISSUED TO A CONSULTANT (NOTE 9-X) (CASH - $NIL) 9,844
SHARES ISSUED FOR INVESTOR RELATION
SERVICES (NOTE 9-V) (CASH - $NIL) 262,500
LESS: SERVICES NOT YET RECEIVED (262,300) (262,500)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X)
(CASH - $NIL) 22,716
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) -
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (CASH -$NIL) 729,529
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
TRANSLATION ADJUSTMENT 47,224 47,224
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996 (6,090,730) (6,090,730)
--------------------- ------------
BALANCE AS AT MARCH 31, 1996 $(1,954,327) $ (240,900) $ (13,202,738) $(1,378,772)
------------ ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
----------------------------------- ------------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
---------- ----------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 133,336 * $ - $ 135 $ (999,600)
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 34,445 34 15,466
MARKETING SERVICES RECEIVED FROM
AMERASIA (NOTE 9-X) (CASH - $NIL) 5,000 (11,124)
EMPLOYMENT AND CONSULTING SERVICES
AND DIRECTORS' FEES RECEIVED RE S-8
(CASH - $NIL) 1,740,938 * 1,741 316,054
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (NOTE 9-IX) (CASH -$NIL) 1,433,443 1,434 653,566
PREFERRED SHARES ISSUED FROM
PRIVATE PLACEMENT (CASH - $1,050,000) 1,050 1 1,049,999
COMMON SHARES ISSUED FOR
CONVERSION FROM PREFERRED STOCKHOLDER
(CASH - $NIL) (1,050) 4,365,136 (1) 4,364 (4,363)
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,268,825 (1,268,825) 1,269 (1,269)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 26,000 26 12,474
SHARES ISSUED FOR CONSULTING
SERVICES (NOTE 9-X) (CASH-$NIL) 208,250 208 49,634
SHARES ISSUED IN LIEU OF FINDER FEE FOR
DEBENTURE HOLDERS (NOTE 9-X) (CASH -$NIL) 52,906 53 52,853
SHARES ISSUED IN LIEU OF FINDER FEE FOR
PREFERRED STOCKHOLDERS (NOTE 9-X) (CASH -$NIL) 112,500 113 44,887
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 333,272 332 87,668
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (CASH $NIL) 615,780 616 153,329
LESS: RENTAL EXPENSE NOT YET AMORTIZED (530,255)* (531)
SHARE ISSUE COST FROM
APRIL 1, 1996 TO MARCH 31, 1997 (224,741)
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
BALANCE AS AT MARCH 31, 1997 - 15,925,505 4,862,537 $ - $15,925 $15,207,895
---------- ----------- ----------- ----------- -------- ------------
AMOUNTS
---------------------------------------------------------------
DEFICIT ACCUMULATED
CUMULATIVE DURING
OTHER TRANSLATION DEVELOPMENT
CAPITAL ADJUSTMENT STAGE TOTAL
----------- ------------- --------------------- ------------
<S> <C> <C> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) $1,332,800 $ - $ - $ 333,335
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 15,500
MARKETING SERVICES RECEIVED FROM
AMERASIA (NOTE 9-X) (CASH - $NIL) 18,630 7,506
EMPLOYMENT AND CONSULTING SERVICES
AND DIRECTORS' FEES RECEIVED RE S-8
(CASH - $NIL) 340,598 658,393
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (NOTE 9-IX) (CASH -$NIL) 655,000
PREFERRED SHARES ISSUED FROM
PRIVATE PLACEMENT (CASH - $1,050,000) 1,050,000
COMMON SHARES ISSUED FOR
CONVERSION FROM PREFERRED STOCKHOLDER -
(CASH - $NIL)
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) -
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 12,500
SHARES ISSUED FOR CONSULTING
SERVICES (NOTE 9-X) (CASH-$NIL) 49,842
SHARES ISSUED IN LIEU OF FINDER FEE FOR
DEBENTURE HOLDERS (NOTE 9-X) (CASH -$NIL) 52,906
SHARES ISSUED IN LIEU OF FINDER FEE FOR
PREFERRED STOCKHOLDERS (NOTE 9-X) (CASH -$NIL) 45,000
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 88,000
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (CASH $NIL) 153,945
LESS: RENTAL EXPENSE NOT YET AMORTIZED (132,034) (132,565)
SHARE ISSUE COST FROM
APRIL 1, 1996 TO MARCH 31, 1997 (224,741)
TRANSLATION ADJUSTMENT (79,146) (79,146)
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997 (3,708,078) (3,708,078)
--------------------- ------------
BALANCE AS AT MARCH 31, 1997 $ (394,333) $ (320,046) $ (16,910,816) $(2,401,375)
----------- ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
----------------------------------- -----------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ----------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 339,755 $ 341 $ 69,659
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) (CASH $NIL) 153,945 $ 153
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 2,240,053 (2,240,053) $ 2,240 $ (2,240)
SHARES ISSUED TO EMPLOYEE
FOR EMPLOYMENT SERVICES 19,303 $ 19 $ 2,617
SHARES ISSUED FOR CONSULTING SERVICES 539,583 $ 540 $ 64,210
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $30,000) 500,000 $ 500 $ 29,500
NET PROFIT (LOSS) FROM
APRIL 1, 1997 TO MARCH 31, 1998
BALANCE AS AT MARCH 31, 1998 - 19,718,144 2,622,484 $ - $19,718 $15,371,641
--------- ----------- ----------- ---------- -------- ------------
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,549,490 (2,622,484) $ 1,549 $ (1,549)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) 672,096 $ 672
SHARES ISSUED FOR CONSULTING SERVICES 2,427,478 $ 2,428 $ 72,257
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) 14,244,063 $14,244 $ 781,501
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 13,175,996 $13,176 553,633
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (2,000,000) $(2,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601,312 $ 601
TRANSLATION ADJUSTMENT
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999
BALANCE AS AT MARCH 31, 1999 - 50,388,579 0 $ - $50,389 $16,777,482
========= =========== =========== ========== ======== ============
AMOUNTS
--------------------------------------------------------------
DEFICIT ACCUMULATED
CUMULATIVE DURING
OTHER TRANSLATION DEVELOPMENT
CAPITAL ADJUSTMENT STAGE TOTAL
---------- ------------- --------------------- ------------
<S> <C> <C> <C> <C>
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) $ 70,000
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) (CASH $NIL) $ 38,331 $ 38,484
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) $ 0
SHARES ISSUED TO EMPLOYEE
FOR EMPLOYMENT SERVICES $ 2,636
SHARES ISSUED FOR CONSULTING SERVICES $ 64,750
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $30,000) $ 30,000
$ 74,381 $ 74,381
NET PROFIT (LOSS) FROM
APRIL 1, 1997 TO MARCH 31, 1998 $ (90,467) ($90,467)
BALANCE AS AT MARCH 31, 1998 $(356,002) $ (245,665) $ (17,001,283) $(2,211,591)
---------- ------------- --------------------- ------------
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) $ 49,735 $ 50,407
SHARES ISSUED FOR CONSULTING SERVICES $ 74,685
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) $ 795,745
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 566,809
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (118,000) (120,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601
TRANSLATION ADJUSTMENT 119,398 119,398
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999 (751,754) (751,754)
--------------------- ------------
BALANCE AS AT MARCH 31, 1999 $(424,267) $ (126,267) $ (17,753,037) $(1,475,700)
========== ============= ===================== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
SEPTEMBER 30, MARCH 31,
1999 1999
--------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . $ 281,372 $ -
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . - 97,843
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . 120,000 120,000
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,272 114,405
--------------- -------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 515,644 332,248
DUE FROM SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,072 14,072
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,513 141,600
PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . . . - -
--------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 611,229 $ 487,920
=============== =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 468,352 $ 458,352
ACCRUED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,932 584,823
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,446 197,602
CONVERTIBLE BRIDGE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 -
DEBENTURE PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,809 31,809
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . 475,790 475,790
--------------- -------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 2,453,329 1,748,376
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,580 215,244
COMMITMENTS (NOTE 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 93,400,000 SHARES AUTHORIZED,
53,988,579 (50,388,579 - MARCH 31, 1999) SHARES ISSUED AND OUTSTANDING. 53,989 50,389
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL (NIL - MARCH 31, 1999) ISSUED AND OUTSTANDING . . . . . - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 100,000
SHARES AUTHORIZED, NIL (NIL - MARCH 31, 1998) ISSUED
AND OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
PAID-IN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,773,881 16,777,482
OTHER CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (573,547) (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE. . . . . . . . . . . . . (18,086,737) (17,753,037)
CUMULATIVE TRANSLATION ADJUSTMENT . . . . . . . . . . . . . . . . . . . . (126,263) (126,263)
--------------- -------------
TOTAL SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . (1,958,680) (1,475,700)
--------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . $ 611,229 $ 487,920
=============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-9
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
- --------------------------------------------------------------------------------
The Tracker Corporation of America, Inc. (sometimes "Tracker U.S." or the
"Company") has been in the development stage since its formation. It primarily
markets, sells and operates a personal property marking and monitoring system
(the "Tracker(TM) System") developed by the Company 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").
The current business of the Company originated in July 1994 through a
reorganization (the "Reorganization") in which the Company acquired all of the
issued and outstanding voting shares of The Tracker Corporation, an Ontario,
Canada corporation ("Tracker Canada"), in exchange for approximately 90% of the
total voting shares of the Company as of that date. The Company's predecessor
was incorporated as a Utah corporation in 1986, and changed its state of
incorporation to Nevada in 1992 and Delaware in 1994 through change in domicile
mergers. Concurrent with the effective date of the reorganization, the Company
changed its year-end from December 31 to March 31.
On July 28, 1998, the Company settled a lawsuit initiated by the U.S. Federal
Trade Commission (the "FTC") alleging the Company's violation of Section 5 of
the Federal Trade Commission Act and the FTC Trade Regulator Telemarketing Sales
Rule. Following initiation of the lawsuit, four of the Company's five Board
members and its Chief Financial Officer resigned. The settlement, among other
things, permanently barred the Company, and its Chief Executive Officer 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
resulted in the insolvency and dissolution of Tracker Canada. 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 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.
NOTE 2 - 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 report of its former independent accountant as
of and for the year ended March 31, 1997, and its current independent accountant
as of and for each of the years ended March 31, 1999 and 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.
F-10
<PAGE>
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 Company and
its former wholly owned subsidiary, Tracker Canada. All significant
intercompany accounts and transactions have been eliminated.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for Company services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided, are recorded as
deferred revenue. The average length of the services agreement varies from
monthly to a five-year period.
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.
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.
F-11
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
Other pronouncements issued by the Financial Accounting Standards Board adopted
during the year are not material to the consolidated financial statements of the
Company. Further, pronouncements with future effective dates are either not
applicable or not material to the consolidated financial statements of the
Company.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS:
- ------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Other $ 120,000 $ NIL
---------- ----------
$ 120,000 $ NIL
========== ==========
</TABLE>
NOTE 5 - DUE FROM SHAREHOLDERS:
- ------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6 - DEFERRED CHARGES:
- -----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Current: . . . . . . . . . . . . . . . . . . . . . . . . $ 80,309 $ 776,055
Deferred sales commission (net of cancellation reserve)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 34,096 411,644
---------- ----------
Long term . . . . . . . . . . . . . . . . . . . . . . . $ 114,405 $1,187,699
---------- ----------
Deferred sales' commission (net of cancellation reserve) $ 52,192 $ 183,041
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 89,408 92,002
---------- ----------
$ 141,600 $ 275,043
---------- ----------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT:
- -------------------------------------
The Company currently leases all of its equipment from Global Tracker under
short term agreements classified as operating leases. Lease payments are
expensed as incurred. See Note 1.
F-12
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 8 - ACCRUED LIABILITIES:
- ---------------------------------
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Directors fees. . . . . . . . . . . . . . . $ 24,432 $ 24,432
Interest expense for convertible debentures 115,209 58,785
Others. . . . . . . . . . . . . . . . . . . 445,182 445,182
---------- ----------
$ 584,823 $ 528,399
========== ==========
</TABLE>
NOTE 9 - CAPITAL STOCK:
- ---------------------------
(i) The Class B voting common stock was 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. Following the liquidation of the
Canadian subsidiary, all Class B Stock converted to Common Stock.
(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 were exercisable during the
one-year period commencing July 12, 1995 to July 12, 1996 at a price of $5.00
per share. Since the common stock underlying the warrants could not be
purchased legally on margin at a marginable price, the exercise period has been
extended until the first day that the common stock becomes marginable. To
secure registration rights of the restricted shares, KGI must exercise the
warrants on a 1:1 basis with the common shares.
(iv) 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.
(v) During the year ended March 31, 1999, the Company amended and restated
the Plan and increased the number of shares reserved for issuance thereunder.
(vi) During the year ended March 31, 1999, the Company adopted a plan
allowing for the issuance of options to outside directors.
(vii) The Company has issued the following options and warrants:
F-13
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1999 PRICE 1998 PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS:
Opening (*). . . . . . . . . . . . 1,890,000 40,000 $ 7.95
Granted during the period (*) 50,000 $ 0.13
Granted during the period (**) 300,000 $ 0.50
Granted during the period (**) 2,400,000 $ 0.75
Granted during the period (***). 5,286,968 $ 0.07
Granted during the period (****) 400,000 $ 0.10
Expired/cancelled during period 900,000
Closing. . . . . . . . . . . . . . 7,176,968 1,890,000
<FN>
(*) 40,000 options were issued in July 1994 and 50,000 options were issued
in July 1997 to non-employee directors and vest proportionately over a
period of three years.
(**) 2,700,000 options were issued in August 1997 to management at various
terms from 4 to 7 years
(***) 5,286,968 options were issued in December 1998 to management at
various terms from 5 to 10 years
(****) 400,000 options were issued in January 1999, vesting proportionately
over four years, to management.
</TABLE>
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1999 PRICE 1998 PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK ):
Opening . . . . . . . . . . . 750,000 N/A 750,000 N/A
Issued during the period. . 200,000 $ 0.40 0
Exercised during the period 0 0
Expired during the period . 0 0 Cdn$14.00
Closing . . . . . . . . . . . 950,000 750,000
--------- ---------
</TABLE>
(viii) 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 were exercisable during the one-year period
commencing July 12, 1995 to July 12, 1996 at a price of $5.00 per share. Since
the common stock underlying the warrants could not be purchased legally on
margin at a marginable price, the exercise period has been extended until the
first day that the common stock becomes marginable.
(ix) 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.
(x) 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.
(xi) In November 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.
(xii) In December 1998, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from 30,000,000
to 50,000,000 shares and the authorization of 6,500,000 shares of blank check
Preferred Stock.
(xiii) In January 1999, the Company issued 13,175,995 shares to employees
and consultants.
F-14
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(xiv) Other capital
At March 31, 1998, 627,625 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,
1999 1998 1999
----- -------- ----------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received. . . . . $ 0 $ 0 $ 0
Deferred compensation costs. . . . . . . . . 0 0 0
Deferred consulting costs 262,500 0
Rent 93,502 0
356,00 0
----- -------- ----------
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received. . . . . 0 0 999,600
Deferred compensation costs. . . . . . . . . 0 0 2,222,174
Deferred consulting costs. . . . . . . . . . 0 0 1,809,224
Rent . . . . . . . . . . . . . . . . . . . . 0 0 507,794
0 0 5,538,792
----- -------- ----------
CHARGED TO EXPENSE AS SERVICES ARE RECEIVED,
Marketing services not yet received. . . . . 0 0 999,600
Deferred compensation costs. . . . . . . . . 0 0 2,222,174
Deferred consulting costs. . . . . . . . . . 0 0 1,546,724
Rent . . . . . . . . . . . . . . . . . . . . 0 0 410,515
0 0 5,182,790
----- -------- ----------
CLOSING,
Marketing services not yet received. . . . . 0 0 0
Deferred compensation costs. . . . . . . . . 0 0 0
Deferred consulting costs 262,500 262,500
Rent 93,502 93,502
$356,002 $ 356,002
</TABLE>
(xv) 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. No additional requests for extension
have been made thereby placing the Company in default under the terms of the
convertible subordinated debenture agreement. As of March 31, 1999 there remains
outstanding $475,790 ($475,790 at March 31, 1998) in convertible subordinated
debentures with a maturity date of June 1, 1997. The remaining balance of $
31,809 ($31,809 at March 31, 1998) has been reclassified as debentures which had
a repayment maturity term of December 1997 at a 4.75% interest rate. Conversion
rights under the convertible subordinated debentures have expired.
F-15
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(xvi) 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.
(xvii) During the year ended March 31, 1997, the Company issued 1,050 shares
of $1,000 6% Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock"). As at March 31, 1997, 4,365,136 common shares were issued due to the
conversion of 1,050 shares of convertible preferred stock totaling $1,050,000.
As at March 31, 1997, no convertible preferred stock remains outstanding.
(xviii) 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.
(xix) During the year ended March 31, 1997, the Company issued 1,740,000
shares of common stock amounting to $658,393 pursuant to the registration
statement on S-8 to five employees and five outside (non-employee) directors as
payment in lieu of salaries and consulting fees.
(xx) In October 1996, the Company entered into a one-year consulting
agreement (the "Consulting Agreement") to obtain advice concerning the Company's
growth strategy, financial public relations obligations and future capital
structure. Under the terms of the Consulting Agreement, the Company agreed to
pay the Consultant 100,000 shares of the Company's common stock. The Company's
obligations with respect to options issued to the Consultant for the purchase of
900,000 additional shares expired in 1999.
(xxi) During the year ended March 31, 1999, the Company issued 13,175,996
shares of common stock amounting to $1,600,883 pursuant to the registration
statement on S-8 to eight employees and two consultants as payment in lieu of
salaries and consulting fees.
NOTE 10 - COMMITMENTS:
- -------------------------
LEASES
The Company leased space in Smyrna, Georgia for a three (3) year term commencing
May 15, 1997. On November 1, 1997, the Company discontinued occupancy of the
leased premises, defaulting under the terms of the lease. The lease requires
payment of an annual base rent of $41,772.
Rental expense for the year ended March 31, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker"), which provided for
a television and radio marketing campaign to be initially launched in the
California marketplace. As compensation for services to be performed by
Knickerbocker, the Company 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. On December 11,
1996, the Company ended its relationship with Knickerbocker and received 400,000
of the 800,000 restricted common shares back from Knickerbocker. These shares
were immediately cancelled in treasury.
F-16
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THE IACP ENDORSEMENT
The Company entered into an agreement with the International Association of
Chiefs of Police ("IACP") in February 1996 that ran through February
1999. Under the agreement, the Company 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. At March 31, 1999, the Company had
defaulted in its payment obligations under the agreement.
NOTE 11 - RELATED PARTY TRANSACTIONS:
- ------------------------------------------
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management received 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 retains certain key management personnel under contract. Included
in expenses are consulting and management fees paid under the aforementioned
contracts totaling, in the aggregate, $ 185,000 for the year ended March 31,
1998 and $648,231 for the year ended March 31, 1997.
Finders fees amounting to Nil for years ended March 31, 1999 and March 31, 1998
and $25,870 for the year ended March 31, 1997 paid to related parties in
connection with the Company's private equity placement are included as a
reduction in paid-in capital.
The Company's President, Chief Operating Officer and Chief Financial Officer is
the sole shareholder of Global Tracker Corporation. Global Tracker acquired
Tracker Canada's assets at arms' length in an insolvency proceeding. Global
Tracker leases all of such assets to the Company.
NOTE 12 - INCOME TAXES:
- ---------------------------
The estimated deferred tax asset of $3,987,000 and $3,724,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1999 and March 31, 1998 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $11,433,000 ($10,681,000
as at March 31,1998) expire starting in 2001; the benefit of these losses has
not been reflected in these consolidated financial statements.
F-17
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses . 3,987,000 3,724,000
------------- ------------
3,987,000 3,724,000
Valuation allowance. . ( 3,987,000) (3,724,000)
------------- ------------
$ 0 $ 0
============= ============
</TABLE>
The valuation allowance did increase by $263,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
- ---------------------------------------------------
The Company has outstanding at March 31, 1999 subordinated debentures in the
amount of $475,790 ($ 475,790 as at March 31, 1998) bearing interest at 15%
annually, which are repayable within one year.
Total interest incurred and included in general and administrative expenses is $
72,879 and $42,330 for year ended March 31, 1999 and 1998 respectively.
F-18
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FROM INCEPTION
(MAY 6, 1993)
FOR 3 MONTHS ENDING FOR 6 MONTHS ENDING THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------- -------------
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUE. . . . . . . . . . . . . . . . . . . $ 21,102 $ 21,431 $ 54,885 $ 93,513 $ 361,606
COST OF SALES. . . . . . . . . . . . . . . . 3,163 9,041 5,461 51,423 105,754
------------ ------------ ------------ ------------ -------------
GROSS PROFIT . . . . . . . . . . . . . . . . 17,939 12,390 49,424 42,090 255,852
------------ ------------ ------------ ------------ -------------
DEVELOPMENT COSTS
OPERATIONAL. . . . . . . . . . . . . . . . 39,050 28,559 125,576 108,454 1,647,436
INFORMATION SYSTEMS. . . . . . . . . . . . 30,952 3,561 44,356 10,712 974,387
SALES AND MARKETING. . . . . . . . . . . . 51,325 26,343 81,538 59,719 3,518,582
GENERAL AND ADMINISTRATIVE . . . . . . . . 140,071 85,075 170,254 134,768 8,006,485
------------ ------------ ------------ ------------ -------------
TOTAL DEVELOPMENT COSTS. . . . . . . . . . . $ 261,398 $ 143,538 $ 421,724 $ 313,653 $ 14,146,890
GAIN (LOSS) FROM CONTINUING OPERATIONS . . . (243,459) (131,148) (372,300) (271,563) (13,891,038)
GAIN (LOSS) FROM DISCONTINUED OPERATION. . . 37,090 (208,434) 38,600 379,778 (3,443,945)
------------ ------------ ------------ ------------ -------------
NET PROFIT (LOSS) APPLICABLE TO COMMON STOCK $ (206,369) $ (339,581) $ (333,700) $ 108,215 $(17,334,983)
============ ============ ============ ============ =============
PROFIT (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS. . . . . . . (0.0047) $ (0.0058) (0.0072) $ (0.0119) $ (0.870)
GAIN (LOSS) FROM DISCONTINUED OPERATION. . . 0.0007 (0.0091) 0.0007 0.0167 (0.2157)
------------ ------------ ------------ ------------ -------------
NET LOSS . . . . . . . . . . . . . . . . . . (0.0040) (0.0149) (0.0064) 0.0047 (1.0856)
============ ============ ============ ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING . . . . . . . . . . . . . . . 51,855,246 22,802,142 51,855,246 22,802,142 15,968,528
============ ============ ============ ============ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-19
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
(UNAUDITED)
FROM INCEPTION
(MAY 6, 1993) FOR 6 MONTHS FOR 6 MONTHS
THROUGH ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
1999 1999 1998
---------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . ($18,086,737) $ (333,700) $ 108,215
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION. . . . . . . . . . . . . . . . . . . . . . . . . 380,019 - -
LOSS ON SALE OF LONG-TERM INVESTMENT. . . . . . . . . . . . . 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,976,045 - -
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . (137,273) - -
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . - 97,843 (23,651)
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . (195,785) 60,220 1,146,458
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . 314,026 (98,820) (1,699,863)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. . . . . . . . . 762,928 (294,892) 88,063
---------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . (10,973,362) (569,348) (380,778)
---------------- -------------- --------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
DUE TO GLOBAL TRACKER . . . . . . . . . . . . . . . . . . . . . - - 285,588
ACQUISITION OF FIXED ASSETS . . . . . . . . . . . . . . . . . . 6,028 - -
LOAN TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . (370,484) - -
REPAYMENT OF LOANS TO SHAREHOLDERS. . . . . . . . . . . . . . . 356,412 - -
LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . . . . . . (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . 2,287,958 - -
---------------- -------------- --------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES. . . . . . . . . . (21,458) - 285,588
---------------- -------------- --------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES . . . . . . . . . . . . . . . . . . . 9,748,275 - 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) - -
ISSUANCE OF CONVERTIBLE BRIDGE NOTES. . . . . . . . . . . . . . 1,000,000 1,000,000 -
SHARE ISSUE COSTS . . . . . . . . . . . . . . . . . . . . . . . (1,834,015) (149,280) -
-------------- --------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES. . . . . . . . . . 11,856,388 850,720 45,281
---------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES . . . . . . . . . . . . . . . . . (580,196) - 49,909
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING . . . . . 281,372 281,372 -
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . - - -
---------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . $ 281,372 $ 281,372 $ 0
================ ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-20
<PAGE>
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
- --------------------------------------------------------------------------------
We develop, market, sell and operate a personal and corporate property marking
and monitoring system ("The Tracker System"). The Tracker System utilizes
advanced bar code and laser scanning technology that interfaces with a computer
database and scanning network to create an identification system (the
"Technology").
Our current business began in July 1994 through a reorganization (the
"Reorganization") in which we acquired all of the issued and outstanding voting
shares of The Tracker Corporation, an Ontario, Canada corporation ("Tracker
Canada"), in exchange for approximately 90% of our total voting shares as of
that date. Our predecessor was incorporated as a Utah corporation in 1986, and
changed its state of incorporation to Nevada in 1992 and Delaware in 1994
through change in domicile mergers. Concurrent with the effective date of the
reorganization, we changed our fiscal year-end from December 31 to March 31.
NOTE 2 - GOING CONCERN:
- ---------------------------
We have been in a development stage since inception on May 6, 1993. Our
likelihood for profitability depends on many factors, including our 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 we will continue as a going concern, although the report
of our former independent accountant as of and for the year ended March 31,
1997, and our current independent accountant as of and for each of the years
ended March 31, 1999 and 1998, express doubt as to our 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 3 - SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include our accounts and our former
wholly-owned subsidiary, Tracker Canada. We eliminated all significant inter
company accounts and transactions.
DEVELOPMENT COSTS
We expense development costs as incurred.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales that are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
We recognize revenue for our services on a straight-line basis over the term of
the services offered and we present them net of sales discounts and allowances.
We record as deferred revenue amounts received for services not yet provided.
The average length of the services agreement varies from monthly to a five-year
period.
F-21
<PAGE>
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.
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.
NEW ACCOUNTING PRONOUNCEMENTS
Other pronouncements issued by the Financial Accounting Standards Board adopted
during the year are not material to our consolidated financial statements.
Further, pronouncements with future effective dates are either not applicable or
not material to our consolidated financial statements.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS:
- ---------------------------------------------
Prepaid expenses and deposits comprise the following:
September 30, 1999 March 31, 1999
------------------- --------------
Other $ 120,000 $ 120,000
NOTE 5 - DUE FROM SHAREHOLDERS:
- ------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6 - DEFERRED CHARGES:
- -----------------------------
Deferred charges consist of the following:
<TABLE>
<CAPTION>
Sept. 30, 1999 March 31, 1999
--------------- ---------------
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve). $ 80,309 $ 80,309
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 33,963 34,096
--------------- ---------------
Long term:. . . . . . . . . . . . . . . . . . . . . . . $ 114,272 $ 114,405
--------------- ---------------
Deferred sales' commission (net of cancellation reserve) $ 49,254 $ 52,192
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 32,259 89,408
--------------- ---------------
$ 81,513 $ 141,600
--------------- ---------------
</TABLE>
F-22
<PAGE>
NOTE 7 - PROPERTY AND EQUIPMENT:
- -------------------------------------
We currently lease all of our equipment from Global Tracker under short-term
agreements classified as operating leases. We expense lease payments as
incurred. See Note 3.
NOTE 8 - ACCRUED LIABILITIES:
- ---------------------------------
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------- ---------------
<S> <C> <C>
Directors fees. . . . . . . . . . . . . . . $ 24,432 $ 24,432
Interest expense for convertible debentures 237,667 115,209
Others. . . . . . . . . . . . . . . . . . . 17,833 445,182
------------------- ---------------
$ 279,932 $ 584,823
=================== ===============
</TABLE>
NOTE 9 - COMMITMENTS:
- ------------------------
LEASES
We leased space in Smyrna, Georgia for a three (3) year term commencing May 15,
1997. On November 1, 1997, we discontinued occupancy of the leased premises,
defaulting under the terms of the lease. The lease requires payment of an annual
base rent of $41,772.
Rental expense for the year ended March 31, 1999 amounted to $64,132 and
$120,196 for the year ended March 31, 1998.
THE IACP ENDORSEMENT
We entered into an agreement with the International Association of Chiefs of
Police ("IACP") in February 1996 that ran through February 1999. Under the
agreement, we 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 our subscribers. As
of September 30, 1999, we are in default on our payment obligations under the
agreement.
NOTE 10 - RELATED PARTY TRANSACTIONS:
- ------------------------------------------
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management received 5,089,286 exchangeable preference shares in
consideration for the assignment of international patents covering the Tracker
Canada system and as inducements to join us. No value has been assigned to
these shares.
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to our bylaws, we have the right to indemnify, to purchase
indemnity insurance for, and to pay and advance expenses to, directors, officers
and other persons who are eligible for, or entitled to, such indemnification,
payments or advances, in accordance with and subject to the provisions of the
Delaware General Corporation Law and any amendments thereto, to the extent such
indemnification, payments or advances are either expressly required by such
provisions or are expressly authorized by the Board of Directors within the
scope of such provisions. Our right to indemnify such persons shall include,
but not be limited to, our authority to enter into written agreements for
indemnification with such provisions.
Subject to the provisions of the Delaware General Corporation Law and any
amendments thereto, our directors shall not be liable to the company or our
shareholders for monetary damages for an act or omission in the director's
capacity of a director, as long as the director acted in good faith.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING US FOR LIABILITIES
ARISING UNDER THE SECURITIES ACT OF 1933 IS HELD TO BE AGAINST PUBLIC POLICY BY
THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE UNENFORCEABLE.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Other expenses in connection with this registration that we will pay are
estimated to be substantially as follows:
<TABLE>
<CAPTION>
Item Amount (in US$)
- ---- ----------------
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . $ 1,918.20
State Securities Laws (Blue Sky) Fees and Expenses $ 500.00
Printing and Engraving Fees. . . . . . . . . . . . $ 500.00
Legal Fees . . . . . . . . . . . . . . . . . . . . $ 50,000.00
Accounting Fees and Expenses . . . . . . . . . . . $ 0.00
Transfer Agent's Fees. . . . . . . . . . . . . . . $ 3,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . $ 4,081.80
</TABLE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
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
mended 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.
<PAGE>
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
5.1 Legal Opinion
9.1++++ Agreement dated December 21, 1993 among 1046523 Ontario Limited, Gregg C. Johnson
and Bruce Lewis
9.2++++ Right of First Refusal, Co-Sale and Voting Agreement dated March 14, 1994 between The
Tracker Corporation, Stalia Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario Limited, Mark J. Gertzbein,
Gregg C. Johnson and Jonathan B. Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by Amendment No. 1 to the 1994
Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
10.3++++ Form of Indemnification Agreement entered into between the Registrant and each of its
Directors
10.4++++ Employment Agreement dated June 30, 1994 between the Registrant and I. Bruce Lewis, as
amended by Amendment to Employment Agreement dated July 12, 1995
10.10++++ 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
10.18++++ 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
<PAGE>
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.30+++++ Letter agreement dated March 22, 1996 between The Tracker Corporation and Sony of
Canada Ltd.
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.
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.
10.41++++++++ Employment Agreement dated December 18, 1998 between Bruce I. Lewis and The
Tracker Corporation of America
10.42++++++++ Employment Agreement dated December 18, 1998 between Jay S. Stulberg and The
Tracker Corporation of America
10.43++++++++ Letter Agreement dated May 18, 1999 between Symbol Technologies, Inc. and The
Tracker Corporation of America
10.44+++++++++ Purchase and Security Agreement dated August 19, 1999
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).
<PAGE>
+++ 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 Annual Report on Form 10-K dated March
31, 1996 (filed July 15, 1996).
++++++ Incorporated by reference from the Registrant's Annual 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).
++++++++ Incorporated by reference from the Registrant's Annual Report on Form 10-K dated March
31, 1999 (filed August 17, 1999).
+++++++++ Incorporated by reference from the Registrant's Quarterly Report on Form 10-
QSB dated September 30, 1999 (filed November 15, 1999)
</TABLE>
ITEM 28. UNDERTAKINGS
Pursuant to Rule 461, we hereby request that this registration
statement become effective no later than December 15, 1999.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than our payment of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Bruce I. Lewis
--------------------------------------------------------------
Bruce I. Lewis, Chairman of the Board and Chief
Executive Officer
Dated: December 10, 1999
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
By: /s/ Bruce I. Lewis
-------------------------------
Bruce I. Lewis
Chairman of the Board and Chief Executive
Officer
Dated: December 10, 1999
<PAGE>
ARKIN MEROLLA LLP Exhibit 5.1
ATTORNEYS AT LAW
ONE SECURITIES CENTRE
3490 PIEDMONT ROAD, SUITE 302
ATLANTA, GEORGIA 30305
VOICE: 404. 467.5244
FAX: 404.467.5249
December 10, 1999
The Tracker Corporation of America
180 Dundas Street West
15th Floor
Toronto, Ontario, Canada M5G 1Z8
To Whom It May Concern:
We have acted as special counsel to The Tracker Corporation of America (the
"Company") in connection with the filing of a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act of 1933, as
amended, covering 34,500,000 shares (the "Shares") of the Company's Common
Stock.
We have examined such corporate records and other documents we considered
necessary for the purpose of rendering this opinion. Based on the foregoing,
and having regard to legal considerations which we deem relevant, we are of the
opinion that the Shares, when issued and delivered against payment therefor in
accordance with the terms of the Registration Statement, will be legally issued,
fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement.
Sincerely,
ARKIN MEROLLA LLP
/s/ A. Todd Merolla
----------------------
By: A. Todd Merolla
<PAGE>
