DATE FILED: JULY 17, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended MARCH 31, 2000, or
----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________________________
Commission file number 0-24944
-------
THE TRACKER CORPORATION OF AMERICA
----------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1120 FINCH AVENUE WEST, SUITE 303, NORTH YORK, ONTARIO, CANADA M5G 1Z8
--------------------------------------------------------------- -------
(Address and Zip Code of Principal Executive Offices) (Zip Code)
(800) 822-8757
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934: NONE
----
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934: NONE
----
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Our revenues for fiscal year 2000: $44,732
<PAGE>
As of June 30, 2000, there were issued and outstanding 56,634,651 shares of
our capital stock, consisting of 56,634,651 shares of common stock, par value
$0.001 per share. Non-affiliates hold 54,732,651 shares of our common stock.
The aggregate market value of the shares of our common stock held by
non-affiliates at such date was $9,578,214 (calculated on the basis of $0.175
per share which was the average of the high bid and low asked quotations for our
common stock on the OTC Bulletin Board on June 30, 2000).
Transitional Small Business Disclosure Format: Yes [ ] No [x]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference. We identify the
part of this Form 10-KSB into which the document is incorporated.
Exhibits 2.1, 2.2, 3.1, 3.2, 4.1, 9.1, 9.2, 10.2, 10.3, 10.10, 10.11, 10.18
and 10.19 to our Registration Statement on Form S-1 (No. 33-99686) is
incorporated by reference in Part III.
Exhibit 10.30 to our Annual Report on Form 10-K dated March 31, 1996 (filed
July 15, 1996) is incorporated by reference in Part III.
Exhibits 10.36 and 10.37 to our Annual Report on Form 10-K dated March 31,
1997 (filed July 3, 1997) is incorporated by reference in Part III.
Exhibits 10.38 and 10.39 to our Annual Report on Form 10-K dated March 31,
1998 (filed November 4, 1998) is incorporated by reference in Part III.
Exhibits 10.41, 10.42 and 10.43 to our Annual Report on Form 10-K dated
March 31, 1999 (filed August 17, 1999) is incorporated by reference in Part III.
Exhibits 10.44 and 10.45 to our Amended Quarterly Report on Form 10-QSB
dated September 30, 1999 (filed January 11, 2000) is incorporated by reference
in Part III.
Exhibits 10.47, 10.48, 10.49, 10.50, 10.51 and 10.52 to our Registrant's
Registration Statement on Form S-8 concerning the 1994 Amended and Restated
Stock Option Plan (filed March 28, 2000) is incorporated by reference in Part
III.
Exhibit 10.53 to our Registrant's Registration Statement on Form S-8
concerning the 2000 Stock Wage and Fee Payment Plan (filed March 28, 2000) is
incorporated by reference in Part III.
Exhibit 10.46 to our Registration Statement on Form SB-2/A (filed July 10,
2000) is incorporated by reference in Part III.
ii
<PAGE>
TABLE OF CONTENTS
PART I
-------
1. Business 1
2. Description of Property 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
--------
5. Market for Common Equity and Related Stockholder Matters 8
6. Management's Discussion and Analysis 9
7. Financial Statements 14
8. Changes in and Disagreements With Accountants on Accounting
And Financial Disclosure 14
PART III
---------
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 15
10. Executive Compensation 17
11. Security Ownership of Certain Beneficial Owners and Management 20
12. Certain Relationships and Related Transactions 22
13. Exhibits, List and Reports on Form 8-K 22
SIGNATURES 27
----------
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
-----------------------------------------------
iii
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
CORPORATE HISTORY
We develop, market, sell and operate a personal property marking and
monitoring system. Our technology utilizes advanced bar code and laser scanning
technology that interfaces with a computer database and scanning network to
create an identification system. Our website is located at www.tracker.com.
Our current business began in July 1994 through a reorganization in which
we acquired all of the issued and outstanding voting shares of 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 line of personal property
identification systems, was incorporated in May 1993 and, until February 1998,
was our operating subsidiary. Tracker Canada supported the development,
marketing and sale of our products and services. Its functions also included
personnel recruitment and management, advanced bar code and laser scanning
technology research and development, proprietary software development, key
supplier relationships, and business and marketing planning.
Until 1995, the operations of Tracker Canada generated our only 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 now discontinued credit card
registration service.
FTC LAWSUIT; BOARD OF DIRECTORS AND OFFICER RESIGNATIONS
In September 1997, the Federal Trade Commission filed a lawsuit against us
in 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 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.
<PAGE>
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.
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 declared itself insolvent and a trustee in
bankruptcy was appointed to liquidate its assets. The trustee sold the assets
of Tracker Canada in February 1998.
GLOBAL TRACKER
On February 10, 1998, Global Tracker acquired substantially all of Tracker
Canada's assets in an arm's length transaction from the bankruptcy trustee. On
July 30, 1998, we entered into a license agreement with Global Tracker. Under
the agreement, we have 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.
THE PRODUCT
Our technology consists of an identification device and a relational
database that, depending on how it is applied, works in tandem with a scanning
network and 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 may be
attached to an article by adhesive, thermal transfer or laser etching onto
metal, plastic or nylon textile. It contains a specially encoded insignia in
advanced two-dimensional redundant bar code form, otherwise known as 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.
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.
2
<PAGE>
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.
Recovery System
----------------
After the scanner reads the identification device, it transfers the data
via modem to our central database. We can then notify a user of an item's
location and arrange for its retrieval. As of March 31, 2000, utilization of
our technology has resulted in over 1200 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 been met with only limited market
acceptance. We presently do not have any current sources of income. 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 our technology,
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 our technology 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 our products and services to date, there is a
risk that a competitor could enter the market and capture a substantial market
share to our detriment.
3
<PAGE>
In May 1997, we entered into an agreement with Schwinn Cycling & Fitness, a
United States manufacturer of quality bicycles and accessories. In February
2000, Schwinn placed an additional order for 27,000 Tracker labels to be
combined with bicycle locks Schwinn manufactures in Taiwan. Furthermore, in
June 2000 we continued discussions with Schwinn on an OEM application of
identifying bicycle ownership in addition to continuing label sales in bicycle
accessory packs.
Business Asset Management
---------------------------
We also believe our products and services can provide an efficient method
for tracking and managing fixed assets. Manufacturers can use our technology by
laser etching or otherwise applying a serial number containing specially coded
insignia directly onto or into products during the manufacturing process.
Possible applications for this service include computer chips, bicycles, power
tools, electronic equipment, cameras and auto parts. 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 the manufacturers will absorb the cost of
laser etching. However, we currently do not have a contract with any
manufacturer to laser etch or otherwise apply coded insignia at the point of
manufacture.
We believe our products and services can assist consumer products
manufacturers combat long-term warranty fraud. This can be done through
identifying the proper owner of the product warranty and then refuse to honor
claims to which no obligation exists. The business asset management industry is
relatively new and contains hundreds of competitors. Because there is a low
cost of 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. As Sony is an alpha and beta site for this
new product, we are continuing to develop the additional functionality that Sony
requires. When completed and approved by Sony, it will be designed and
incorporated into our new asset management system scheduled for release in
August 2000. We plan to present the system to public and private sector clients
as a portable solution for asset movement and individual accountability. The
asset management system comprises of three components:
(1) a desktop multiple document interface application;
(2) a portable data collection and audit application; and
(3) a communication utility that allows for the exchange of data between
the desktop and portable device
We incurred approximately $150,000 in costs to date. These costs are
associated with the writing of functional specifications for the applications,
the development of desktop applications by third party software developers and
the installation and subsequent updates at our alpha and beta site. We estimate
the release of the system for sale to the public can provide significant revenue
over the next three years.
MARKETING AND DISTRIBUTION
4
<PAGE>
Our long-term strategy is to introduce applications of our technology in
select market niches and establish the system as a dominant brand name.
Currently, we are considering an international pet registry lost and found, a
cellular phone registry lost and found, a key return service and a bike
registration program.
We hope to establish credibility and confidence in the marketplace through
affiliations, alliances, sponsorships, and promotional programs with well
recognized, stable and reputable organizations. We are also marketing our
products and services to police departments who have a need to inventory and
warehouse lost and stolen bicycles. On March 22, 2000, we entered into a
five-year license agreement with the Florida Police Chiefs Foundation to
collaborate on a statewide Operation Bicycle Identification Program. This
agreement will link our products and services to local and regional law
enforcement agencies and is fundamental to the distribution of our products and
services.
Should the pilot program prove successful, we plan to expand this program
to other states 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. We intend to approach 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. These factors may 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 our products and services 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 such unavailability of equipment, supplies or services
could prevent or delay the development, marketing, sale, operation and
effectiveness of our products.
5
<PAGE>
We procure scanning equipment from Symbol Technologies. Symbol's PDF 417
is an advanced two-dimensional, stacked symbology. In 1992, Symbol introduced
the PDF 1000 laser scanner. This is the first laser scanner to read
two-dimensional bar code. The PDF 1000 laser scanner is 30 times faster than
conventional scanners. It also decodes in a specialized pattern across and down
the PDF 417 symbol and reads both two-dimensional and one-dimensional bar codes.
It 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 we were
granted the exclusive right to use Symbol's PDF 1000 laser scanners for personal
property identification and recovery purposes 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 are not meeting this requirement. As such, Symbol
can terminate the contract if it so chooses. Nevertheless, we are currently
working with Symbol on the design and development of a custom mobile
registration application using two-dimensional 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.
COMPETITION
We have a large number of competitors with substantially greater financial,
technical, marketing, and management resources. The alternative methods used by
our competitors presently include: (1) tracking by serial number; (2) tracking
by the owner's imprinted name and address; and (3) 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 successfully
compete with existing or new competitors.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
We rely on a combination of applicable patent laws, 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. In addition, our
international patent application pursuant to the Patent Cooperation Treaty for
our personal property identification and recovery system was recently approved.
However, these 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. Furthermore, we do not
have any active trademark or service mark applications pending with the U.S.
Patent and Trademark Office or with other regulatory authorities.
EMPLOYEES
As of March 31, 2000 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, including two part-time,
three in sales and marketing and two in information systems, one of which is
part-time. Our future success will depend in large part on our ability to
attract, train and retain highly skilled and qualified personnel.
6
<PAGE>
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.
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 SEC a registration statement under the Securities
Exchange Act of 1933 with respect to the securities offered herein. 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 SEC. 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 SEC. These reports include: (1)
an annual report on Form 10-K containing financial information examined and
reported upon by our certified public accountants; (2) quarterly reports on Form
10-Q containing unaudited financial statements for each of the first three
quarters of the fiscal year; and (3) additional information on Form 8-K
concerning our business and operations deemed appropriate by our board of
directors
You may read and copy any materials we file with the SEC 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 SEC's internet
website that contains reports, proxy and information statements, and other
information at http://www.sec.gov.
------------------
ITEM 2. DESCRIPTION OF PROPERTY.
We currently occupy approximately 3,700 square feet of office premises
leased by Global Tracker for us on a month-to-month basis at a rate of $3,800
per month. Under the sublease, we may withhold rent payments to Global Tracker
for the lesser of up to six consecutive months or such earlier date as the
parties may terminate the sublease. Lease payments due and unpaid accrue at the
rate of 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.
7
<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year ended March 31, 2000, we did
not submit any matter to a vote of the security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded in the over-the-counter market on the OTC
Bulletin Board under the symbol "TRKR." Quotations for our common stock were
first listed 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
or Bloomberg. These quotations reflect inter-dealer prices, without adjustments
for retail markups, markdowns or commissions, and do not represent actual
transactions.
<TABLE>
<CAPTION>
QUARTER ENDED High Low
------------------ ------- -------
<S> <C> <C>
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
December 31, 1999 $0.210 $0.1025
March 31, 2000 $0.875 $0.1025
</TABLE>
8
<PAGE>
On March 31, 2000, the high and low bid quotations for our common stock on
the OTC Bulletin Board were $0.46875 and $0.3850, respectively. As of June 30,
2000, there were 56,64,651shares of common stock outstanding held by
approximately 364 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
GENERAL
We have been in the development stage since formation. We primarily
market, sell and operate a personal property marking and monitoring system. Our
system utilizes advanced bar code and laser scanning technology to create an
identification device that interfaces with a computer database and scanning
network. We also sell, install and support corporate asset tracking and
management software.
We have not generated any significant revenue since we cancelled our credit
card registration program in September 1997. Our ability to generate revenue
from operations and achieve profitability is largely dependent on the successful
commercialization of our products and services. This has not happened to date.
In order to achieve success, we will require significant additional financing to
penetrate new markets for our products and services. For these reasons, in its
most recent report our independent auditor has expressed substantial doubt that
we can continue as a going concern.
We believe the societal trend towards using the internet for purchasing
goods and services will have a positive effect on our future financial results
through enhanced sales and a reduction in costs. In April 2000, we upgraded our
website to enable e-commerce applications for the sale of our products and
services. The website enables existing customers to upgrade our applications.
We hope to reduce costs through the introduction of web-based activation of our
tags and labels by end users and resellers. Currently, the tags and labels must
be activated by either mail or telephone.
We are presently focusing our resources on the development of our products
and services rather than sales. During the past two fiscal years ended we spent
$3,325,683 on development costs. The associated costs may have a detrimental
effect on our short-term financial results and cash flow. However, these costs
are necessary to our becoming commercially viable.
9
<PAGE>
Given our focus on development rather than sales, we have no source of
current income. Although our agreements with Schwinn and Sony may prove
fruitful in the future, we are not currently generating any income from them.
Similarly, we are not generating any income from the bicycle identification
program. Furthermore, our future success is largely dependent on the retention
of Symbol Technologies as our supplier of portable bar-code scanning equipment.
Because we have not satisfied Symbol's minimum annual purchase requirements to
date, we cannot guarantee Symbol will support our sales effort in accordance
with our agreement. The termination of the Symbol contract would directly
affect our general viability as a going concern.
OVERVIEW
TREATMENT OF DISCONTINUED OPERATIONS
Our profit and loss from discontinued operations appears as a single line
item in our statement of operations as required by generally accepted accounting
principals. The balance of deferred revenue and expenses from our discontinued
operations appearing on our balance sheet will be written off over the next two
years and will continue to appear as a single line item on our statement of
operations. Consequently, the only future impact of activities related to
discontinued operations will be the recognition of deferred revenue and deferred
charges. Their impact on our overall financial performance is not material to
our present and future financial performance. As such, we limit our discussion
in this section to only continuing operations.
REVENUES
Since the discontinuation of the credit card registration program in
September 1997 our only source of revenue has been from our personal property
registration program and our nascent business information systems program. We
have generated minimal sales to date. The revenue reported on our financial
statements is mainly derived from the sale of our personal property registration
kits through a variety of retail outlets and corporate affinity programs.
COST OF SALES
The costs of sales primarily consists of costs associated with the
construction and packaging of the personal property registration kits.
OPERATIONAL
Operational costs contain wages paid to staff employees to maintain call
centers servicing our current customer base. This includes subscribers to our
personal property registration kit as well as residual clients from our
discontinued credit card registration program.
INFORMATION SYSTEMS
The costs associated with information systems primarily relate to our
efforts to maintain and update our operational systems to be year 2000
compliant.
10
<PAGE>
SALES AND MARKETING
We sell our personal property registration kit primarily through our direct
sales forces. Selling and marketing expenses consist mostly of personnel costs,
travel and promotional events such as trade shows, advertising, market research
and public relations programs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include executive compensation, legal
and accounting fees and administrative costs associated with our facilities such
as rent, office supplies, telephone expenses and corporate travel.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
REVENUES. Revenues from our personal property registration kits decreased
by 65% to $44,732 for the year ended March 31, 2000 compared to $126,875 for the
year ended March 31, 1999. The decrease in revenues was primarily due to our
shift in emphasis from sales to the development of new products and services.
We expect revenues for fiscal year end March 31, 2001 to increase due to our
roll out of new products and services to the public.
COSTS OF SALES. Costs of sales decreased by 347% to $7,156 for the year
ended March 31, 2000 compared to $71,630 for the year ended March 31, 1999.
This decrease is commensurate with the decrease in revenues between the two
years from the sale of personal property registration kits. We expect costs of
sales to increase in accordance with the expected improvement in revenue for
fiscal year end March 31, 2001.
OPERATIONAL. Operational costs decreased by 18% to $264,615 for the year
ended March 31, 2000 compared to $323,560 for the year ended March 31, 1999.
This decrease reflects an overhaul of the old corporate structure with the
discontinuance of the CPS division and subsequent refocus of our efforts to
build a new infrastructure to support our development and roll out of new
products and services. We do not expect this trend to continue for fiscal year
end March 31, 2001.
INFORMATION SYSTEMS. Informational systems costs increased by 247% to
$156,633 for the year ended March 31, 2000 compared to $45,181 for the year
ended March 31, 1999. This increase primarily resulted from the necessity to
have our computer systems year 2000 compliant. We expect these costs to
increase for fiscal year end March 31, 2001 due to our hiring a chief
information officer to explore and develop e-commerce applications for our
products and services.
SALES AND MARKETING. Sales and marketing expenses increased by 210% to
$392,239 for the year ended March 31, 2000 compared to $126,601 for the year
ended March 31, 1999. This increase in sales and marketing expenses reflects
the increase in costs associated with the development of new marketing ideas.
Until we find a significant market niche for our products and services, we
expect these expenses to grow for fiscal year end March 31, 2001 if our cash
flow allows it.
11
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 23% to $1,113,207 for the year ended March 31, 2000 compared to $903,646 for
the year ended March 31, 1999. The increase in general and administrative
expenses primarily resulted from the necessity to build an infrastructure to
support our development of new products and services. These costs are expected
to slightly increase for fiscal year end March 31, 2001 as we continue to build
infrastructure to support new sales initiatives.
LIQUIDITY AND CAPITAL RESOURCES
From our inception, we have primarily financed our operations through funds
generated from the sale of capital stock, notes and debentures. Our losses
since inception total approximately $19,564,979 as of March 31, 2000. Since
August 1999, we have received approximately $1,400,000 in venture capital
funding from off shore investors through the issuance of convertible bridge
financing notes and associated warrants. We have used these funds primarily to
fund the development of our new products and services. We plan to immediately
convert these notes into common stock upon the registration of the underlying
common stock to the notes and warrants. Thereafter, we may call, and the
security holders may exercise, the outstanding warrants. We estimate that we
could receive up to an additional $1,500,000 through the exercise of the
warrants over the next twelve months.
As of March 31, 2000, we are in default under the terms of our convertible
debentures in the principal amount of $475,790 plus accrued interest at 15% per
annum. Under the default, the debenture holders have the same rights as any
unsecured creditor. Based on preliminary negotiations, we believe that some of
the debenture holders are still inclined to convert the outstanding debt into
common stock. We estimate the balance will be retired over the next twenty-four
months through either conversion or future income streams. Our financial
statements presently account for the fact that the debenture holders will not
convert the outstanding debt. Consequently, if they do decide to convert their
debt into common stock, our liquidity will improve.
We are in default under a three-year real property lease that commenced on
May 15, 1997. The lease requires an annual payment of $41,772. We negotiated a
final settlement in the amount of $10,000, which currently remains unpaid.
Our operating activities have used cash in each of the last two fiscal
years. Cash used in operating activities totaled $1,899,790 and $795,745 for
the years ended March 31, 2000 and 1999, respectively. This resulted from net
losses of $1,811,943 and $751,754 for the years ended March 31, 2000 and 1999,
respectively.
Cash from investing activities was $12,637 and $NIL for the years ended
March 31, 2000 and 1999, respectively. The cash from investing activities for
this period realized through the partial repayment of a loan to shareholders.
12
<PAGE>
Cash provided by financing activities amounted to $2,384,902 and $795,745
for the year ended March 31, 2000 and 1999, respectively. During the year ended
March 31, 2000, we received $694,902 from the sale of common stock and
$1,700,000 from the issuance of convertible bridge financing notes. We also
repaid $10,000 of debentures and convertible subordinated debentures. During
the year ended March 31, 1999, we received $795,745 from the sale of common
stock.
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 our
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 could affect our ability to continue as a going concern.
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
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 our technology and
have assessed the impact of year 2000 issues on all software and hardware. We
determined that all existing hardware equipment is year 2000 compliant, except
for certain equipment that we plan to retire. We implemented software vender
upgrades and modifications to ensure that our accounting operations, database
management and general business systems remain functional with the year 2000.
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.
We did not experience any disruptions due to year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. This requires costs of start-up activities and organization costs to
be expensed as incurred. Adoption is not expected to have a material effect on
our consolidated financial statements.
13
<PAGE>
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. This is effective for fiscal years beginning
after June 15, 1999 and requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income.
This depends on whether a derivative is designed as part of a hedge transaction
and, if it is, the type of hedge transaction. We do not expect this standard to
have a material impact on our consolidated financial statements since we do not
currently hold any derivative instruments.
ITEM 7. FINANCIAL STATEMENTS.
Our consolidated financial statements for the years ended March 31, 2000
and March 31, 1999 are included beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 15, 1998, 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 SEC. 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.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information with respect to our
executive officers and directors as of March 31, 2000:
NAME AGE POSITION
--------------------------------------------------------------------------------
Bruce I. Lewis 59 Chief Executive Officer and Chairman of the
Board of Directors
Jay S. Stulberg 50 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
________________________
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. His term on our Board of Directors expires at the 2000
annual meeting of stockholders. 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.
15
<PAGE>
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.
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 be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Currently, those provisions mandate that
approximately one-third of the directors will continue to serve until the 2000
annual meeting of stockholders, one-third will continue to serve until the 2001
annual meeting and one-third will continue to serve until the 2002 annual
meeting. 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 board of directors currently has four committees:
The Executive Committee comprises of Messrs. Lewis and Stulberg and is
responsible for:
- supervising our day-to-day operations
- strategic planning
- recruiting outside directors.
16
<PAGE>
The Audit Committee comprises of Messrs. Butler and Stulberg and is responsible
for:
- reviewing and recommending the engagement of our independent auditors
- consulting with the independent auditors on the adequacy of internal
controls
- reviewing the auditors' reports on our financial statements
The Ethics Committee comprises of Mr. Corcoran and Dr. Greenberg and is
responsible for:
- reviewing corporate policies and procedures
- insuring the dissemination of material information to all key
managers
The Compensation Committee comprises of Messrs. Butler and Corcoran and is
responsible for:
- determining the compensation of our senior officers
- reviewing recommendations by management as to the compensation of
other officers and key personnel
- reviewing management's succession program
- administer the stock incentive plan
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We do not have any class of equity securities registered pursuant to
Section 12 of the Exchange Act. Accordingly, our directors, officers and 10%
beneficial owners are not required to file reports pursuant to Section 16(a) of
the Exchange Act.
ITEM 10. 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 $100,000 for services rendered
in all capacities to us for the most recent three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Annual Compensation Restricted Securities
Stock Under-Lying LTIP All Other
Name and then- Fiscal Salary Bonus Other Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($)(1) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
BRUCE I. LEWIS, CEO 2000 30,000 10,000 145,000 500,000
1999 0 10,000 175,000 2,488,578
1998 45,750 10,000 131,250 0
JAY S. STULBERG,
President, COO & CFO 2000 36,250 10,000 88,750 600,000
1999 40,000 10,000 85,000 2,488,578
(1) Automobile Allowance
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Percent Of
Number of Total
Securities Options/SARs
Underlying Granted To
Option/SARs Employees In Exercise Price of Base Price
Name Granted (#) Fiscal Year ($$/Sh) Expiration Date
(a) (b) (c) (d) (e)
------------------ ------------ ------------- ----------------------------- ----------------
<S> <C> <C> <C> <C>
Bruce I. Lewis 600,000(1) 27.3% .118 2009
Jay S. Stulberg 600,000(1) 27.3% .118 2009
<FN>
(1) Non-qualified stock option granted for a ten-year term exercisable sequentially in three
annual installments beginning January 2001, and fully vesting beginning January
2003.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised In-The-
Unexercised Options/SARs At Money Options/SARs At FY-
Shares Acquired FY-End (#) Exercisable/ End ($) Exercisable/
Name On Exercise (#) Value Realized Unexercisable Unexercisable
(a) (b) (c) (d) (e)
------------------ ---------------- --------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Bruce I. Lewis 0 N/A 1,244,289/3,044,289 $ 437,368/$622,468
Jay S. Stulberg 0 N/A 1,244,289/1,844,289 $ 437,368/$622,468
</TABLE>
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.
18
<PAGE>
If Mr. Lewis' employment is terminated for cause or if he terminates for
any reason, he will be entitled to compensation through the date of termination.
If, prior to a change of control, employment is terminated due to his death or
disability, by us other than for cause or by him for good reason, he is entitled
to receive all compensation through the date of termination. He also receives
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 12 months, or
through the date he obtains alternative employment, whichever is earlier, his
participation in our employee benefit plans in which he was eligible to
participate immediately before termination to the extent permissible under such
plans. He will also 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 him at termination. If his 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. 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.
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.
If Mr. Stulberg's employment is terminated for cause or if he terminates
for any reason, he will be entitled to compensation through the date of
termination. If, prior to a change of control, employment is terminated due to
his death or disability, by us other than for cause or by him for good reason,
he is entitled to receive all compensation through the date of termination. He
also receives 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 12
months, or through the date he obtains alternative employment, whichever is
earlier, his participation in our employee benefit plans in which he was
eligible to participate immediately before termination to the extent permissible
under such plans. He will also 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 him at termination. If his
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. 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.
19
<PAGE>
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of the
board of directors or a committee meeting. Non-employee directors also receive
an annual retainer of $10,000. In addition, non-employee directors are eligible
to receive options to purchase shares of our common stock.
Under our 1999 Director Option Plan, each non-employee director is
automatically granted an option to purchase 5,000 shares of common stock upon
election. If the non-employee director is elected Chairman of the Board, the
director is granted an option to purchase 10,000 shares of common stock. On
every anniversary of initial election or appointment, each eligible director is
automatically granted a nonqualified option to purchase an additional 5,000
shares of common stock (10,000 shares if Chairman of the Board). The 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.
All options granted to non-employee directors vest immediately upon a change of
control. The exercise price of options granted pursuant to such automatic
grants is 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,
1999, we granted options to purchase 5,000 shares of our common stock at an
exercise price of $0.098 per share to each Joseph Greenberg, David Butler and
Carl Corcoran.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of June 30, 2000 by:
- Each person known to us to own beneficially more than 5% of our total
voting stock;
- The CEO and the other executive officers named in the summary compensation
table;
- Each of our directors; and
- 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 June 30, 2000, there were approximately 364 record holders of
common stock. Percentage of ownership is based upon 56,634,651 issued and
outstanding shares of common stock beneficially owned on June 30, 2000,
including currently exercisable warrants to purchase 1,250,000 shares of common
stock, currently exercisable options to purchase 40,000 shares of common stock,
currently exercisable options to purchase 2,488,578 shares of common stock,
currently exercisable options to purchase 200,000 shares reserved under an
option issued to Toda Corporation Limited for financial consulting services, and
22,044,855 shares of common stock to be issued upon conversion of the bridge
financing notes and exercise of the repricing warrants at $0.20 per share.
20
<PAGE>
<TABLE>
<CAPTION>
Total Shares Owned
Beneficial Owner and Address As of June 30, 2000 Percentage
--------------------------------------------- ------------------- -------------------
<S> <C> <C>
Bruce I. Lewis, Chief Executive Officer 2,896,289(1) 3.50%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Jay S. Stulberg, Chief Financial Officer 1,494,289(2) 1.81%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
H. Joseph Greenberg, M.D., Director 3,333(3) <0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
David G. R. Butler, Director 3,333(3) <0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Carl J. Cocoran, Director 3,333(3) <0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Executive Officers and Directors as a group, 4,400,578(3) 5.44%
Including those named above (five persons)
<FN>
(1) Number of shares includes the option to purchase 1,244,289 shares of common
stock. 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 bridge financing notes.
(2) Number of shares includes the option to purchase 1,244,289 shares of common
stock. 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 bridge financing notes.
(3) Number of shares includes the currently exercisable option to purchase 3,333
shares of common stock.
</TABLE>
Upon registration of the common stock pursuant to the conversion of the
bridge financing notes and attached repricing warrants, SovCap Equity Partners,
Ltd. will likely become a greater than 5% shareholder in our company. SovCap
Equity Partners, Ltd. address is Cumberland House, #27 Cumberland Street, P.O.
Box CB-13016, Nassau, New Providence, Bahamas and is directed by Barry Herman,
its President. Assuming we convert these notes into common stock at a
conversion price of $0.20 per share, after conversion of the notes and exercise
of the repricing warrants, SovCap Equity Partners, Ltd. would own approximately
9,549,854 shares of our common stock. At that point, SovCap Equity Partners,
Ltd. would be an 11.55% shareholder. Under this scenario, our current
management would beneficially own less than 5.00% of the issued and outstanding
common stock. Should this occur, SovCap Equity Partners, Ltd. may be in a
position to effect a material change in our management. Furthermore, if we
decide to call the remaining warrants, SovCap Equity Partners, Ltd. could be an
even greater security owner if it decides to exercise them.
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT
We have entered into employment agreements containing severance
arrangements with certain executive officers. These agreements 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. This does not
include loans made in the ordinary course of business, such as travel advances,
expense account advances, relocation advances, or reasonable salary advances.
Furthermore, all future transactions with our executive officers,
directors, employees, 5% stockholders and affiliates will be subject to the
approval of a majority of the independent, disinterested members of the board of
directors. Such future transactions must be for bona fide business purposes 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 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 $13,000 to support our business operations. Furthermore,
Mr. Stulberg has personally loaned Global Tracker approximately $120,000 (USD)
in operating capital. Under a license agreement with Global Tracker, we will
pay Global Tracker a 12% gross royalty on our sales.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBITS
NUMBER DESCRIPTION
------ -----------
2.1* Reorganization Agreement Among Ultra Capital Corp. (the predecessor of
the Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker
Corporation dated May 26, 1994, as amended by Amendment Number One
dated June 16, 1994, Amendment Number Two dated June 24, 1994, and
Amendment Number Three dated June 30, 1994, Extension of Closing dated
June 23, 1994, and July 11, 1994 letter agreement
22
<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
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 of America, 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
10.2* Discretionary Cash Bonus Arrangement of The Tracker Corporation of
America
10.3* Form of Indemnification Agreement entered into between the Registrant
and each of its Directors
10.10* Right of First Refusal, Co-Sale and Voting Agreement dated March 14,
1994 between The Tracker Corporation of America, 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 of America 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 of America and Symbol Technologies, Inc., as amended by
letter from The Tracker Corporation of America to Symbol Technologies
Canada, Inc. dated November 23, 1995, and letter from Symbol
Technologies Canada, Inc. to The Tracker Corporation dated November
27, 1995
10.19* Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the
Tracker Corporation of America
10.30** Letter agreement dated March 22, 1996 between The Tracker
Corporation of America and Sony of Canada Ltd.
10.36*** Agreement dated May 22, 1997 between The Tracker Corporation of
America and Schwinn Cycling & Fitness Inc.
23
<PAGE>
10.37*** Modification Agreement dated May 27, 1997 between The Tracker
Corporation of America, Saturn Investments, Inc., 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
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 18, 1999
10.45******1994 Amended and Restated Stock Option Plan
10.46*(9) Placement Agreement dated August 18, 1999 with Sovereign Capital
Advisors, LLC.
10.47* (7) Stock Option Award Agreement dated December 22, 1998 between
Bruce Lewis and The Tracker Corporation of America
10.48* (7) Stock Option Award Agreement dated December 22, 1998 between Jay
Stulberg and The Tracker Corporation of America
10.49*(7) Non-Qualified Stock Option Award Agreement dated December 31,
1999 between Bruce Lewis and The Tracker Corporation of America
10.50*(7) Non-Qualified Stock Option Award Agreement dated December 31, 1999
between Jay Stulberg and The Tracker Corporation of America
10.51*(7) Incentive Stock Option Award Agreement dated December 31, 1999
between Christopher Creed and The Tracker Corporation of America
10.52*(7) Incentive Stock Option Award Agreement dated December 31, 1999
between Tizio Panara and The Tracker Corporation of America
10.53*(8) 2000 Stock Wage and Fee Payment Plan
21.1* List of subsidiaries of the Registrant
23.1 Consent of J. L. Stephan Co., P. C.
23.2 Consent of Hirsch Silberstein & Subelsky, P.C.
24
<PAGE>
24.1 Power of Attorney
--------------------
* 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 Amended Quarterly
Report on Form 10-QSB dated September 30, 1999 (filed January 11,
2000)
*(7) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 concerning the 1994 Amended and Restated Stock Option Plan
(filed March 28, 2000)
*(8) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 concerning the 2000 Stock Wage and Fee Payment Plan (filed
March 28, 2000)
*(9) Incorporated by reference from the Registrant's Registration Statement
on Form SB-2/A (filed July 10, 2000)
25
<PAGE>
(B) REPORTS ON FORM 8-K
During the fourth quarter of the fiscal year ended March 31, 2000, we did
not submit any reports on Form 8-K.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Bruce I. Lewis
-------------------------
Bruce I. Lewis
Chairman of the Board and Chief Executive Officer
Dated: July 14, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Bruce I. Lewis
--------------------------
Bruce I. Lewis
Chairman of the Board and Chief Executive Officer
Dated: July 14, 2000
27
<PAGE>
THE TRACKER CORPORATION OF AMERICA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report dated July 14, 2000. . . . . . . . . . . . . . . . . F-2
Audited Balance Sheet as of March 31, 2000. . . . . . . . . . . . . . . . . . . . F-3
Audited Statement of Income for the Years Ended March 31, 2000 and March 31, 1999 F-4
Audited Statement of Cash Flows for the Years Ended March 31, 2000 and
March 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Audited Statement of Changes in Stockholders' Equity for the Years Ended
March 31, 2000 and March 31, 1999 . . . . . . . . . . . . . . . . . . . . F-6
Notes to Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-11
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
The Tracker Corporation of America
We have audited the accompanying balance sheet of The Tracker Corporation of
America, as of March 31, 2000, and the related statements of operations,
shareholders' deficit, and cash flows for the year ended March 31, 2000. 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 consolidated financial statements of te Tracker Corporation and
Subsidiary as of March 31, 2999 and 1998 and from inception at May 6, 1993
through March 31, 1997 were audited by other auditors whose reports dated July
8, 1999, except for Note 15 as to which date is July 3, 2000 and September 18,
1998, and June 24, 1997, included an explanatory paragraph that described going
concern uncertainties discussed in Notes 1 & 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 audits 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 and Subsidiary as of March 31, 2000, and the
results of its operations and its 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 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.
J. L. Stephan Co., P.C.
Traverse City, Michigan
July 3, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 497,749 $ -
ACCOUNTS RECEIVABLE - 97,843
DEFERRED CHARGES 114,065 114,405
------------- -------------
TOTAL CURRENT ASSETS 611,814 212,248
DUE FROM SHAREHOLDERS 1,434 14,072
DEFERRED CHARGES 21,514 141,600
PROPERTY AND EQUIPMENT (NET) -
------------- -------------
TOTAL ASSETS $ 634,763 $ 367,920
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 434,223 $ 458,352
ACCRUED LIABILITIES 487,114 584,823
DUE TO RELATED PARTIES 13,324 -
DEFERRED REVENUE 192,135 197,602
CONVERTIBLE BRIDGE NOTES 1,700,000
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 465,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES 3,324,394 1,748,376
DEFERRED REVENUE 23,109 215,244
COMMITMENTS (NOTE 12) -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 90,000,000 SHARES AUTHORIZED,
56,627,509 (50,388,579 - MARCH 31, 1999) SHARES ISSUED AND OUTSTANDING 56,628 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, 793,594 (1,072,994 - MARCH 31, 1999) ISSUED
AND OUTSTANDING -
PAID-IN CAPITAL 16,981,878 16,657,482
OTHER CAPITAL (60,000) (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (19,564,979) (17,753,036)
COMPREHENSIVE INCOME (NOTE 3) (126,267) (126,267)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (2,712,741) (1,595,701)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 634,763 $ 367,920
============= =============
</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 OPERATIONS
FROM INCEPTION
(MAY 6, 1993) FOR THE
THROUGH MARCH 31, YEAR ENDED MARCH 31,
2000 2000 1999
------------- ------------ ------------
<S> <C> <C> <C>
REVENUE $ 478,328 $ 44,732 $ 126,875
COST OF SALES 179,079 7,156 71,630
------------- ------------ ------------
GROSS PROFIT 299,249 37,577 55,245
------------- ------------ ------------
DEVELOPMENT COSTS
OPERATIONAL 3,375,051 264,615 323,560
INFORMATION SYSTEMS 1,691,223 156,633 45,181
SALES AND MARKETING 5,375,609 392,239 126,601
GENERAL AND ADMINISTRATIVE 14,006,694 1,113,207 903,646
------------- ------------ ------------
TOTAL DEVELOPMENT COSTS 24,448,578 1,926,695 1,398,988
LOSS FROM CONTINUING OPERATIONS (24,149,329) (1,889,118) (1,343,743)
DISCONTINUED OPERATIONS:
GAIN FROM OPERATION 4,741,438 77,175 591,990
GAIN (LOSS) ON DISPOSAL OF CPS SEGMENT (157,088) - -
------------- ------------ ------------
4,584,350 77,175 591,990
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(19,564,979) $(1,811,943) $ (751,753)
============= ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS $ (1.24) $ (0.03) $ (0.03)
GAIN (LOSS) FROM DISCONTINUED OPERATION $ 0.24 $ 0.00 $ 0.03
------------- ------------ ------------
NET LOSS $ (1.00) $ (0.03) $ (0.01)
============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 19,432,668 54,082,601 21,480,767
============= ============ ============
</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 CASH FLOWS
----------------------------------------
FROM INCEPTION
(MAY 6, 1993) YEAR ENDED YEAR ENDED
THROUGH MARCH 31 MARCH 31 MARCH 31
2000 2000 1999
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS ($19,564,979) $(1,811,943) $ (751,753)
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 571,900 - 571,900
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY SHARES 5,284,144 - -
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (17,273) - -
ACCOUNTS RECEIVABLE 0 97,843 (97,843)
DEFERRED CHARGES (135,579) 120,426 1,206,737
DEFERRED REVENUE 215,244 (197,602) (1,798,727)
DUE TO RELATED PARTIES 13,324 13,324
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 935,982 (121,839) 73,941
------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (12,303,804) (1,899,790) (795,745)
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS 6,028 - -
LOAN TO SHAREHOLDERS (357,847) 12,637 -
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 (8,821) 12,637 -
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES 10,443,177 694,902 795,745
ISSUANCE OF PREFERRED SHARES 1,050,000 - -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (307,401) (10,000) -
ISSUANCE OF CONVERTIBLE BRIDGE NOTES 1,700,000 1,700,000
SHARE ISSUE COSTS (1,684,735) - -
------------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 13,390,570 2,384,902 795,745
------------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES (580,196) - -
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 497,749 497,749 -
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - -
------------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 497,749 $ 497,749 $ 0
================== ============ ============
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-5
<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 5,089,286 $ - $ - $ -
(Cash - $Nil)
Shares issued for cash (Cash - $4,714,188) 884,729 4,714,188
Shares issued in lieu of rent 60,871 324,344
(note 9-x) (Cash - $Nil)
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 5,777 30,121
(note 9-x) (Cash - $Nil)
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 -$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent (819,459)
to March 31, 1995
Shares issued for consulting and 825,000 78,005 825 2,204,153
marketing services (Cash-$Nil)
Less: consulting and marketing (814,583)* (815)
services not yet received
Shares proceeds received from private
placement on March 15, 1995 500,000 500 349,500
(Cash - $350,000)
Shares issued to employees 25,063 74,409
for employment services
(note 9-x) (Cash-$Nil)
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
Other During
Other Comprehensive Development
Capital Income 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 324,344
(note 9-x) (Cash - $Nil)
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 30,121
(note 9-x) (Cash - $Nil)
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 -$1,505,000) 2,901,700
Share proceeds to be received subsequent (819,459)
to March 31, 1995
Shares issued for consulting and 2,204,978
marketing services (Cash-$Nil)
Less: consulting and marketing (2,086,685) (2,087,500)
services not yet received
Shares proceeds received from private
placement on March 15, 1995 350,000
(Cash - $350,000)
Shares issued to employees 74,409
for employment services
(note 9-x) (Cash-$Nil)
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
------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
-----------------------------------------------
SHARES AMOUNTS
------------------------------------ --------------------
CLASS B
PREFERRED COMMON COMMON PREFERRED COMMON
STOCK STOCK STOCK STOCK STOCK
--------- ---------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ - $ -
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 14,582* 14
before March 31, 1995 (note 9-x) (Cash - $Nil)
Marketing services received re shares issued 266,664* 265
to LL Knickerbocker Co. (Cash - $Nil)
Shares issued to Directors as compensation 98,858 99
(note 9-x) (Cash - $Nil)
Shares issued to Amerasia for marketing 30,000
services (note 9-x) (Cash - $Nil)
Less: services not yet received (12,500)*
Shares cancelled (Cash - $Nil) (171) 1
Shares issued pursuant to S-8 for employees, 770,000 770
consultants and a director (Cash - $Nil)
Less: employment and consulting services (340,939)* (341)
not yet received
Shares issued to R. Zuk (Cash - $83,000) 200,000 200
Less: shares proceeds to be received
Share proceeds received from private 250,000 250
placement (Cash - $250,000)
Shares issued upon exercise of warrants 849,803
at Canadian $1 per share (Cash - $619,166)
Shares issued to officers (note 9-iiii(a)) 630,000 630
(Cash - $Nil)
Shares issued to a consultant (note 9-x) 7,500 8
(Cash - $Nil)
Shares issued for investor relation services 200,000 200
(note 9-v) (Cash - $Nil)
Less: services not yet received (200,000)* (200)
Shares issued to employees for employment 14,176
services (note 9-x) (Cash - $Nil)
Shares exchanged as per exchange 1,133,365 (1,133,365) 1,134
agreement (Cash - $Nil)
Shares issued for conversion 991,434 992
from debenture holders (Cash -$Nil)
Share issue cost from April 1, 1995
to March 31, 1996
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
Balance as at March 31, 1996 - 6,130,929 6,126,362 $ - $ 6,131
--------- ---------- ------------ ---------- ---------
AMOUNTS
--------------------------------------------------------------------------------
Paid in Deficit Accumulated
Capital in Other During
Excess Other Comprehensive Development
of Par Capital Income Stage Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ 819,459 $ - $ - $ - $ 819,459
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 87,486 87,500
before March 31, 1995 (note 9-x) (Cash - $Nil)
Marketing services received re shares issued 666,400 666,665
to LL Knickerbocker Co. (Cash - $Nil)
Shares issued to Directors as compensation 86,402 86,501
(note 9-x) (Cash - $Nil)
Shares issued to Amerasia for marketing 44,496 44,496
services (note 9-x) (Cash - $Nil)
Less: services not yet received (18,630) (18,630)
Shares cancelled (Cash - $Nil) (1) -
Shares issued pursuant to S-8 for employees, 769,230 770,000
consultants and a director (Cash - $Nil)
Less: employment and consulting services (340,598) (340,939)
not yet received
Shares issued to R. Zuk (Cash - $83,000) 199,800 200,000
Less: shares proceeds to be received (117,000) (117,000)
Share proceeds received from private 249,750 250,000
placement (Cash - $250,000)
Shares issued upon exercise of warrants 619,166 619,166
at Canadian $1 per share (Cash - $619,166)
Shares issued to officers (note 9-iiii(a)) 826,245 826,875
(Cash - $Nil)
Shares issued to a consultant (note 9-x) 9,836 9,844
(Cash - $Nil)
Shares issued for investor relation services 262,300 262,500
(note 9-v) (Cash - $Nil)
Less: services not yet received (262,300) (262,500)
Shares issued to employees for employment 22,716 22,716
services (note 9-x) (Cash - $Nil)
Shares exchanged as per exchange (1,134) -
agreement (Cash - $Nil)
Shares issued for conversion 728,537 729,529
from debenture holders (Cash -$Nil)
Share issue cost from April 1, 1995 (214,357) (214,357)
to March 31, 1996
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 $14,013,062 $(1,954,327) $ (240,900) $ (13,202,738) $(1,378,772)
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $Nil) 133,336* $ - $ 135 $ (999,600)
Shares issued to Directors as compensation 34,445 34 15,466
(note 9-x) (Cash - $Nil)
Marketing services received from Amerasia 5,000 (11,124)
(note 9-x) (Cash - $Nil)
Employment and consulting services
and Directors' fees received re S-8
(Cash - $Nil) 1,740,938* 1,741 316,054
Shares issued for conversion from debenture 1,433,443 1,434 653,566
holders (note 9-ix) (Cash -$Nil)
Preferred shares issued from private placement 1,050 1 1,049,999
(Cash - $1,050,000)
Common shares issued for conversion (1,050) 4,365,136 (1) 4,364 (4,363)
from preferred stockholder
(Cash - $Nil)
Shares exchanged as per exchange agreement 1,268,825 (1,268,825) 1,269 (1,269)
(Cash - $Nil)
Shares issued to employees for employment 26,000 26 12,474
services (note 9-x) (Cash-$Nil)
Shares issued for consulting services 208,250 208 49,634
(note 9-x) (Cash-$Nil)
Shares issued in lieu of finder fee for debenture 52,906 53 52,853
holders (note 9-x) (Cash -$Nil)
Shares issued in lieu of finder fee for preferred 112,500 113 44,887
stockholders (note 9-x) (Cash -$Nil)
Shares issued pursuant to W.Marches S-8 333,272 332 87,668
stock payment plan (note 9-xii)
Shares issued for office rental expense 615,780 616 153,329
( Cash $Nil)
Less: rental expense not yet amortized (530,255)* (531)
Share issue cost from April 1, 1996 (224,741)
to March 31, 1997
Translation adjustment
Net loss from April 1, 1996 to March 31, 1997
------------------------------------ -----------------------------------
Balance as at March 31, 1997 - 15,925,505 4,862,537 $ - $15,925 $15,207,895
------------------------------------ -----------------------------------
AMOUNTS
-----------------------------------------------------------------
Deficit Accumulated
Other During
Other Comprehensive Development
Capital Income 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 15,500
(note 9-x) (Cash - $Nil)
Marketing services received from Amerasia 18,630 7,506
(note 9-x) (Cash - $Nil)
Employment and consulting services
and Directors' fees received re S-8
(Cash - $Nil) 340,598 658,393
Shares issued for conversion from debenture 655,000
holders (note 9-ix) (Cash -$Nil)
Preferred shares issued from private placement 1,050,000
(Cash - $1,050,000)
Common shares issued for conversion -
from preferred stockholder
(Cash - $Nil)
Shares exchanged as per exchange agreement -
(Cash - $Nil)
Shares issued to employees for employment 12,500
services (note 9-x) (Cash-$Nil)
Shares issued for consulting services 49,842
(note 9-x) (Cash-$Nil)
Shares issued in lieu of finder fee for debenture 52,906
holders (note 9-x) (Cash -$Nil)
Shares issued in lieu of finder fee for preferred 45,000
stockholders (note 9-x) (Cash -$Nil)
Shares issued pursuant to W.Marches S-8 88,000
stock payment plan (note 9-xii)
Shares issued for office rental expense 153,945
( Cash $Nil)
Less: rental expense not yet amortized (132,034) (132,565)
Share issue cost from April 1, 1996 (224,741)
to March 31, 1997
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) $(21401,375)
-----------------------------------------------------------------
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
Shares Amounts
----------------------------------- --------------------
Class B
Preferred Common Common Preferred Common
Stock Stock Stock Stock Stock
----------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock payment plan (note 9-xii) 339,755 $ 341
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
Shares issued to employee for employment services 19,303 $ 19
Shares issued for consulting services 539,583 $ 540
Share proceeds received from private placement (Cash - $30,000) 500,000 $ 500
Translation adjustment
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
----------------------------------- --------------------
Shares exchanged as per exchange agreement (Cash - $Nil) 1,549,490 (1,549,490) $ 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
Share proceeds received from private placements (Cash - $795,745) 14,244,063 $14,244
Shares issued pursuant to S-8 for employees 13,175,996 $13,176
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 1,072,994 $ - $50,389
=================================== ====================
Amounts
----------------------------------------------------------------------
Paid In Deficit Accumulated
Capital in Other During
Excess Other Comprehensive Development
of Par Capital Income Stage Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock payment plan
(note 9-xii) $ 69,659 $ 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) $ (2,240) $ 0
Shares issued to employee for employment services $ 2,617 $ 2,636
Shares issued for consulting services $ 64,210 $ 64,750
Share proceeds received from private placement
(Cash - $30,000) $ 29,500 $ 30,000
Translation adjustment $ 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 $15,371,641 $(356,002) $ (245,665) $(17,001,283) $(2,211,591)
----------------------------------------------------------------------
Shares exchanged as per exchange agreement (Cash - $Nil) $ (1,549)
Shares issued for office rental expense ( note 9-x)
( Cash $Nil) $ 49,735 $ 50,407
Shares issued for consulting services $ 72,257 $ 74,685
Share proceeds received from private placements
(Cash - $795,745) $ 781,501 $ 795,745
Shares issued pursuant to S-8 for employees 433,633 446,809
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 (751,753) (751,753)
----------------------------------------------------------------------
Balance as at March 31, 1999 $16,657,482 $(424,267) $ (126,267) $(17,753,036) $(1,595,699)
======================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-9
<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 exchanged as per exchange agreement 279,400 (279,400) $ 279 $ (279)
(Cash - $Nil)
Expense balance of office rental expense
Shares issued for consulting services 100,000 $ 100 $ 17,900
Share proceeds received from private placements 1,500,000 $ 1,500 $ 202,083
(Cash - $203,583)
Shares issued pursuant to S-8 for employees 2,359,530 $ 2,360 $ 352,375
and consultants (Cash - $Nil)
Balance of share proceeds received - R. Zuk
(Cash - $20,000)
Balance of consulting services received 2,000,000 $ 2,000
Share issue cost from April 1, 1999 to March 31, 2000 $ (247,682)
Net Profit (loss) from April 1, 1999 to March 31, 2000
--------- ---------- --------- ---------- ------- ------------
Balance as at March 31, 2000 - 56,627,509 793,594 $ - $56,628 $16,981,878
========= ========== ========= ========== ======= ============
AMOUNTS
-------------------------------------------------------
Deficit Accumulated
Other During
Other Comprehensive Development
Capital Income Stage Total
--------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Shares exchanged as per exchange agreement
(Cash - $Nil)
Expense balance of office rental expense $ 43,767 $ 43,767
Shares issued for consulting services $ 18,000
Share proceeds received from private placements $ 203,583
(Cash - $203,583)
Shares issued pursuant to S-8 for employees 354,735
and consultants (Cash - $Nil)
Balance of share proceeds received - R. Zuk $262,500 262,500
(Cash - $20,000)
Balance of consulting services received $ 58,000 60,000
Share issue cost from April 1, 1999 to March 31, 2000 ($247,682)
Net Profit (loss) from April 1, 1999 to March 31, 2000 (1,811,943) (1,811,943)
--------- --------------- ------------- ------------
Balance as at March 31, 2000 $(60,000) $ (126,267) $(19,564,979) $(2,712,739)
========= =============== ============= ============
</TABLE>
The accompanying notes are integral parts of these consolidated financial
statements.
F-10
<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 has been in the development stage since
its formation. We primarily market, sell and operate a personal property
marking and monitoring system we developed that utilizes advanced bar code and
laser scanning technology to create an identification device that interfaces
with a computer database and scanning network. We also sell, install and
support corporate asset tracking management software.
Our current business originated in July 1994 through a reorganization in
which we acquired all of the issued and outstanding voting shares of Tracker
Canada, an Ontario, Canada corporation, 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 year-end from December 31
to March 31. The reorganization was accounted for as a reverse acquisition.
On July 28, 1998, pursuant to an agreement with the FTC we discontinued our
credit card registration service which had been the primary source of our
revenues through September 1997. The FTC agreement 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, 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 have continued on a limited basis the business formerly operated
by Tracker Canada.
NOTE 2 - GOING CONCERN:
---------------------------
We have been in a development stage since its inception on May 6, 1993. The
likelihood that we will attain 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 for the purpose of executing its revised business plan.
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 each of the years ended March 31, 1998 and
1999, and our independent accountant as of and for the year ended March 31,
2000, express substantial 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.
F-11
<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 our accounts and those of our
former wholly owned subsidiary, Tracker Canada, through its date of dissolution
on January 27, 1998. 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 including cost of goods sold;
sales commissions; and telemarketing costs which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for our 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. Typical services provided include assistance with the
recovery of lost and stolen property, cancellation of lost and expired credit
cards as well as continued maintenance of database of all customers' registered
property. The average length of the services agreement varies from monthly to a
five-year period.
STOCK-BASES COMPENSATION
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123, Accounting for
Stock-Based Compensation. APB No. 25 provides that the compensation expense
relative to our employee stock options is measured based on the intrinsic value
of the stock option. SFAS No. 123 requires companies that continue to follow APB
No. 25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of our Canadian operations 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.
F-12
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. We compute basic earnings per share using
the weighted-average number of common shares outstanding during the period. We
compute diluted earnings per share using the weighted-average number of common
and common stock equivalent shares outstanding during the period. We exclude
common equivalent shares from the computation if their affect is anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
As of April 1, 1998 we adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Statement of Shareholder Equity has been restated for all previous years. The
only item of comprehensive income (loss) that we currently report is unrealized
gain on foreign currency translation adjustments.
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
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. Adoption is not
expected to have a material effect on our consolidated financial statements as
our policies are substantially in compliance with SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Adoption is not expected to have material effect on our consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. We do not expect that
the adoption of SFAS No. 133 will have a material impact on our consolidated
financial statements because we do not currently hold any derivative
instruments.
F-13
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - DUE FROM SHAREHOLDERS:
-----------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 5 - DUE TO RELATED PARTIES:
-------------------------------------
Global Tracker Corporation has incurred expenses on behalf of the Company.
The balance represents un-reimbursed portion of these expenses.
NOTE 6 - DEFERRED CHARGES:
-----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve) $ 80,309 $ 80,309
Other 33,756 34,096
---------- ----------
$ 114,065 $ 114,405
---------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ 9,099 $ 52,192
Other 12,415 89,408
---------- ----------
$ 21,514 $ 141,600
---------- ----------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT:
-------------------------------------
We currently lease all of our equipment from Global Tracker under
short-term agreements classified as operating leases. Lease payments are
expensed as incurred. The lease expense for the period was $5,438. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
---------------------------------
Accrued liabilities comprise the following:
March 31, March 31,
2000 1999
---------- ----------
Directors fees $ --- $ 24,432
Interest expense for convertible debentures 267,114 115,209
Others 220,000 445,182
---------- ----------
$ 487,114 $ 584,823
========== ==========
Other accrued liabilities include: professional fees, sales refunds and
commissions, rent, and various trade payables.
F-14
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - BRIDGE NOTE S:
----------------------------
We have outstanding at March 31, 2000 $1,700,000 in venture capital funding
from off shore investors through the issuance of convertible bridge financing
notes and associated warrants. We plan to immediately convert these notes into
common stock upon the registration of the underlying common stock to the notes
and warrants. Thereafter, we may call, and the security holders may exercise,
the outstanding warrants. We estimate that we could receive up to an additional
$1,500,000 through the exercise of the warrants.
Total interest incurred and included in general and administrative expenses
is $ 70,795 for year ended March 31, 2000
In addition to the convertible bridge notes, we issued four types of
warrants. The repricing warrants are attached to the notes and are exercisable
only if the stock price on the date of conversion falls below 125% of the stock
price on the date of each closing. Given the closing stock price on the dates
of the three closings, if the conversion occurs on a date when our stock is
traded at greater than $0.37 per share, no repricing warrants will become
exercisable. Each purchaser also received a callable warrant at the rate of
$100,000 worth of shares of common stock for each $100,000 in principal amount
of notes purchased and issued. Further, each investor received a purchase
warrant at the rate of 20,000 warrants for each $100,000 in principal amount of
notes purchased and issued
In accordance with APB 14.15, we did not assign a separate value to the
stock purchase warrants from the debt because the stock purchase warrants have a
negative value at the time of issue.
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES:
---------------------------------------------------
We have outstanding at March 31, 2000 subordinated debentures in the amount of
$465,790 ($ 475,790 as at March 31, 1999) bearing interest at 15% annually.
Total interest incurred and included in general and administrative expenses is $
68,785 and 72,879 for year ended March 31, 2000 and 1999 respectively. At March
31, 2000, we were in default under the terms of these agreements.
NOTE 11 - 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.
(ii) On March 15, 1995, we 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.
(iii)During the year ended March 31, 1995, we 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.
F-15
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(iv) During the years ended March 311999 and 2000, we amended and restated the
Plan and increased the number of shares reserved for issuance thereunder.
(v) During the year ended March 31, 1999, we adopted a plan allowing for the
issuance of options to outside directors.
(vi) We have issued the following options and warrants:
<TABLE>
<CAPTION>
FOR YEAR WEIGHTED- GRANT FROM WEIGHTED GRANT
ENDED AVERAGE DATE INCEPTION - AVERAGE DATE
MARCH EXERCISE FAIR MAY 6, EXERCISE FAIR
31, 2000 PRICE VALUE 1993 PRICE VALUE
THROUGH
MARCH
31, 1999
<S> <C> <C> <C> <C> <C> <C>
OPTIONS:
Opening (*) 8,476,968
Granted during the period (*) 40,000 $ 7.95 $ 7.95
Granted during the period (*) 50,000 $ 0.13 $ 0.13
Granted during the period (**) 300,000 $ 0.50 $ 0.50
Granted during the period (**) 2,400,000 $ 0.75 $ 0.75
Granted during the period (***) 5,286,968 $ 0.07 $ 0.07
Granted during the period (****) 400,000 $ 0.10 $ 0.10
Granted during the period (*****) 2,200,000 $ 0.115 $0.115
Granted during the period (******) 15,000 $ 0.098 $0.115
Expired/cancelled during period 1,665,000 NIL
--------- ---------
Closing 9,272,838 8,476,968
========= =========
<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. Cancelled in December 1999
(**) 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 and non-employee
directors vesting over two and three years respectively. Exercise rights vary from
5 to 10 years
(****) 400,000 options were issued in January 1999, vesting proportionately over four
years, to management. Exercise rights extend for ten years from date of vesting.
These options were cancelled in December 1999.
(*****) 2,100,000 options were issued in December 1999 vesting proportionately over three
years, to management. Exercise rights extend for ten years from date of vesting.
(******) 15,000 options were issued in December 1999 vesting proportionately over three
years, to non employee directors. Exercise rights extend for ten years from date
of vesting. Grant date fair value is based on the average market price for the five
days preceding the grant date.
</TABLE>
The following table summarizes information about options outstanding and
exercisable at March 31, 2000
F-16
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Range of Options Weighted- Weighted- Options Weighted-average
Exercise Prices Outstanding Average Average Exercisable Exercise Price of
Remaining Exercise Price Options Exercisable
Contractual Life
<C> <C> <C> <C> <C> <S>
$ 0.07 -- $0.13 7,747,838 7.02 $ 0.09 2,591,848 0.076
$ 0.50 -- $0.75 1,525,000 9.0 $ 0.708 0 N/a
$ 0.07 -- $0.75 9,272,838 7.34 $ 0.188 2,591,848 0.076
</TABLE>
Pro Forma Disclosure
The Company follows the intrinsic value method in accounting for its stock
options. Had compensation costs been recognized based on the fair value at the
date of grant for options granted in 2000, the pro forma amounts of the
Company's net loss per share for the years ended March 31, 2000, and 1999 would
have been as follows:
YEARS ENDED MARCH 31,
------------------------
2000 1999
Net loss as reported $(1,811,943) $(751,754)
Net loss pro forma $(1,811,943) $(751,754)
Basic and diluted loss per share - as reported $ (0.03) $ (0.02)
Basic and diluted loss per share - pro forma $ (0.03) $ (0.02)
The fair value for each option granted was estimated at the date of grant using
a Black-Scholes option pricing model, assuming the following waited-average
assumptions:
YEARS ENDED MARCH 31,
------------------------
2000 1999
Average risk-free interest rates 6.7% 4.7%
Average expected life in years 3.5 3.5
Volatility 200% 200%
The weighted-average fair value of options granted during the years 2000 and
1999 was $0.11 and $0.06 , respectively.
The pro forma effect of compensation expense on net income and earnings per
share for the 2000 and 1999 grants for stock-based compensation plans in
accordance with provisions of SFAS 123 is immaterial.
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
2000 PRICE 1999 PRICE
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK ):
Opening 950,000 N/A 750,000 N/A
Issued during the period 800,000 $0.11 - $0.14 200,000 $ 0.40
Exercised during the period 0 0
Expired during the period 0 0
--------- ---------
Closing 1,750,000 950,000
========= =========
</TABLE>
(vii)On May 1, 1995, we 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.
F-17
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(viii) In June 1995, we 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 us. A settlement was
reached in June 1999 whereby Mr. Zuk returned $20,000 to the Company and
the balance of future services was expensed.
(ix) In October 1995, we 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.
(x) 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.
(xi) In December 1998, at our 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.
(xii)In 1998 200,000 warrants were issued to Toda Corporation for future
investment relations services. These warrants are exercisable through May
8, 2006 and were issued at $0.40.
(xiii)During the year ended March 31, 1999, we 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
(xiv)In September 1999, at our annual general meeting, the shareholders
approved the increase of the authorized number of common shares from
50,000,000 to 90,000,000 shares
(xv) During the year ended March 31, 2000, the Company issued 2,359,540 shares
of common stock amounting to $278,896 pursuant to the registration
statement on S-8 to four employees and three consultants as payment in lieu
of salaries and consulting fees.
(xvi)In 1999 800,000 warrants were issued at an exercise price equal to the
market price at that time. The price ranged from $0.11 to $0.14 and were
for investor relations and legal services.
(xvii)Other capital - At March 31, 2000, 1,000,000 common shares have been
issued but remain in escrow, as the service for which these shares were
subscribed for have yet to be received. The value of these services per
agreement is set at $60,000.
(xv) We have, 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.
(xvi)During the year ended March 31, 1997, we 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.
F-18
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(xvii)During the year ended March 31, 1997, we 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.
(xviii)In October 1996, we entered into a one-year consulting agreement to
obtain advice concerning our growth strategy, financial public relations
obligations and future capital structure. Under the terms of the agreement,
we agreed to pay the consultant 100,000 shares of our common stock
NOTE 12 - COMMITMENTS:
-------------------------
LEASES
Office space is leased through Global Tracker Corporation. The current
lease requires a monthly payment of $3,800. The lease term is five years,
expiring November 30, 2004. Rental expense for the year ended March 31, 2000
amounted to $ 110,339 and $ 64,132 for the year ended March 31, 1999. Included
in the expenses for the years ended March 31, 2000 and 1999 are un-amortized
portions of rent of previously leased office space.
MARKETING AGREEMENT
On March 22, 2000, we entered into a five-year license agreement with the
Florida Police Chiefs Foundation (FPCF) to collaborate on a statewide Operation
Bicycle Identification Program. Under the agreement, we agreed to pay the FPCF,
on a monthly basis in arrears, the greater of $36,000 per year or a fee based on
the total number of our subscribers residing in the State of Florida.
NOTE 13 - 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, respectively. No value has been
assigned to these shares.
We retain certain key management personnel under contract. Included in
expenses are consulting and management fees paid under the aforementioned
contracts totaling, in the aggregate, $ 325,000 for the year ended March 31,
2000 and $325,000 for the year ended March 31, 1999.
Our President, Chief Operating Officer and Chief Financial Officer, Jay
Stulberg, 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 us.
F-19
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14 - INCOME TAXES:
---------------------------
The estimated deferred tax asset of $4,648,000 and $3,987,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 2000 and March 31, 1999 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $12,357,000 ($11,433,000
as at March 31,1999) expire starting in 2001; the benefit of these losses has
not been reflected in these consolidated financial statements.
March 31, March 31,
2000 1999
------------ -----------
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 4,648,000 3,987,000
------------ -----------
4,648,000 3,987,000
Valuation allowance (4,648,000) (3,987,000)
------------ -----------
$ 0 $ 0
============ ============
The valuation allowance did increase by $661,000 during the year.
NOTE 15 - DISCONTINUED OPERATIONS
-------------------------------------
We discontinued our CPS Program in September 1997. All telemarketing rooms
were closed and the Corporate Telemarketing Centers in Toronto, Canada and in
Smyrna, Georgia were abandoned.
The remaining assets and liabilities of the Discontinued Operation consist of:
2000 1999
Assets:
-------
Deferred charge - current portion $ 114,065 $114,405
Deferred charges - long term $ 21,514 $141,600
--------- --------
Total deferred charges $ 135,579 $256,005
Liabilities:
------------
Deferred revenues - current portion $ 192,135 $197,602
Deferred revenues - long term $ 23,109 $215,244
--------- --------
Total revenues charges $ 215,244 $412,846
F-20
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Summary Statement of Operations from discontinued operations
------------------------------------------------------------------
From Inception (May 6, 1993) For the
Through March 31, Year ended March 31,
2000 2000 1999
Revenue $11,773,923 $197,602 $1,798,727
Cost of sales 8,877,154 120,426 1,206,737
Gross profit 2,896,769 77,176 591,990
Gain (loss) from discontinued operations $ 2,896,769 $ 77,176 $ 591,990
=========== ======== ==========
NOTE 16 - CORRECTION OF ACCOUNTING ERRORS
-----------------------------------------------
In order to properly comply with APB-30, gain (loss) from discontinued
operations has been restated and corporate expenses incurred in the fiscal years
ending March 31, 1997 and March 31, 1998 have been reclassified to their
appropriate expense categories as development costs of continuing operations.
The total expenses reclassified were $3,221,893 and $4,534,200 for the years
ending March 31, 1998 and 1997, respectively.
In order to properly comply with Rule 3-04 of Regulation S-X, at March 31,
1999 shares issued as compensation for future investor relations services in the
amount of $120,000 have been reclassified as a reduction in Paid in Capital in
Excess of Par from Prepaid expenses.
F-21
<PAGE>
