SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period year ended JUNE 30, 2000, or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission file number 0-24944
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THE TRACKER CORPORATION OF AMERICA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1120 FINCH AVENUE WEST, SUITE 303, NORTH YORK, ONTARIO, CANADA M3J 3H8
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (416) 663-8222
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Indicate by check X whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date:
Classes of Common Stock Outstanding at August 10, 2000
------------------------- ------------------------------
Common Stock, $0.001 par value 56,627,509
Class B Common Stock, $0.00000007 par value 0
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THE TRACKER CORPORATION OF AMERICA, INC.
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheet as of June 30, 2000
and March 31, 2000 2
Consolidated Statement of Operations for the three
months ended June 30, 2000 and 1999 and for the period
from May 6, 1993 (inception) through June 30, 2000 3
Consolidated Statement of Cash Flows for the three months
ended June 30, 2000 and 1999 and for the period from
May 6, 1993 (inception) through June 30, 2000 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 15
Item 6. Exhibits and Reports on Form 8-K 15
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
1
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THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
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CONSOLIDATED BALANCE SHEET
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ASSETS
JUNE 30, MARCH 31,
2000 2000
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CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 95,801 $ 497,749
ACCOUNTS RECEIVABLE - -
DEFERRED CHARGES 101,684 114,065
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TOTAL CURRENT ASSETS 197,485 611,814
DUE FROM SHAREHOLDERS 1,434 1,434
DEFERRED CHARGES - 21,514
PROPERTY AND EQUIPMENT (NET) -
------------- -------------
TOTAL ASSETS $ 198,920 $ 634,763
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 456,948 $ 434,223
ACCRUED LIABILITIES 538,581 487,114
DUE TO RELATED PARTIES 13,324 13,324
DEFERRED REVENUE 161,433 192,135
CONVERTIBLE BRIDGE NOTES 1,700,000 1,700,000
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 465,790 465,790
------------- -------------
TOTAL CURRENT LIABILITIES 3,367,884 3,324,394
DEFERRED REVENUE - 23,109
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 56,628
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 16,981,878
OTHER CAPITAL (60,000) (60,000)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (20,021,203) (19,564,979)
COMPREHENSIVE INCOME (NOTE 3) (126,267) (126,267)
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TOTAL SHAREHOLDERS' DEFICIT (3,168,965) (2,712,741)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 198,920 $ 634,763
============= =============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
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THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
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CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION
(MAY 6, 1993) FOR 3 MONTHS
THROUGH JUNE 30 ENDING JUNE 30
2000 2000 1999
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REVENUE $ 447,847 $ 14,251 $ 33,783
COST OF SALES 181,312 9,389 2,298
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GROSS PROFIT 266,535 4,863 31,485
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DEVELOPMENT COSTS
OPERATIONAL 3,176,637 66,201 86,526
INFORMATION SYSTEMS 1,596,512 61,922 13,404
SALES AND MARKETING 5,161,936 178,566 30,212
GENERAL AND ADMINISTRATIVE 13,067,802 174,315 30,183
------------- ------------ ------------
TOTAL DEVELOPMENT COSTS 23,002,886 481,003 160,325
LOSS FROM CONTINUING OPERATIONS (22,736,351) (476,140) (128,841)
DISCONTINUED OPERATIONS:
GAIN FROM OPERATION 4,684,179 19,916 1,510
GAIN (LOSS) ON DISPOSAL OF CPS SEGMENT (157,088) - -
------------- ------------ ------------
4,527,091 19,916 1,510
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(18,209,260) $ (456,224) $ (127,331)
============= ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS $ (1.10) $ (0.01) $ (0.00)
GAIN (LOSS) FROM DISCONTINUED OPERATION $ 0.23 $ 0.00 $ 0.00
------------- ------------ ------------
NET LOSS $ (0.87) $ (0.01) (0.00)
============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 20,726,774 56,627,509 50,388,579
============= ============ ============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
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THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
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CONSOLIDATED STATEMENT OF CASH FLOWS
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FROM INCEPTION
(MAY 6, 1993) PERIOD ENDED PERIOD ENDED
THROUGH JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999
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CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS ($20,021,203) $(456,224) $(127,331)
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 - -
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
DEFERRED CHARGES (101,684) 33,895 30,113
DEFERRED REVENUE 161,433 (53,811) (49,465)
DUE TO RELATED PARTIES 13,324 -
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1,010,174 74,192 48,841
-------------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (12,705,753) (401,948) $ 0
-------------- ---------- ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS 6,028 - -
LOAN TO SHAREHOLDERS (357,847) - -
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) - -
-------------- ---------- ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES 10,443,177 -
ISSUANCE OF PREFERRED SHARES 1,050,000 - -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (307,401) - -
ISSUANCE OF CONVERTIBLE BRIDGE NOTES 1,700,000 -
SHARE ISSUE COSTS (1,684,735) - -
-------------- ---------- ----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 13,390,570 - -
-------------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES (580,196) - -
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 95,800 (401,949) -
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 497,749 -
-------------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 95,800 $ 95,800 $ 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)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
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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 that 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.
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 inter-company accounts and transactions
have been eliminated.
5
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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.
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.
6
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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.
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.
7
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NOTE 6 - DEFERRED CHARGES:
-----------------------------
Deferred charges consist of the following:
June 30, March 31,
2000 2000
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Current:
Deferred sales commission (net of cancellation reserve) $ 67,056 $ 80,309
Other 34,628 33,756
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$ 101,684 $ 114,065
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Long term:
Deferred sales' commission (net of cancellation reserve) $ nil $ 9,099
Other nil 12,415
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$ nil $ 21,514
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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.
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NOTE 8 - ACCRUED LIABILITIES:
---------------------------------
Accrued liabilities comprise the following:
June 30, March 31,
2000 2000
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Interest expense for convertible debentures $ 301,114 $ 267,114
Others 237,467 220,000
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$ 538,581 $ 584,823
========= ==========
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Other accrued liabilities include: professional fees, sales refunds and
commissions, rent, and various trade payables
NOTE 9 - 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.
8
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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 10 - RELATED PARTY TRANSACTIONS:
-----------------------------------------
Prior to the date of incorporation on 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 Tracker, 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 $300,000 for the year ended March 31, 1999.
Our President, Chief Operating Officer and Chief Financial Officer is the
sole shareholder of Global Tracker Corporation. Global Tracker acquired Tracker
Canada's assets at arms' length in an insolvency proceeding. Global Tracker
leases all of such assets to us.
9
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ITEM 2. 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.
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.
10
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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.
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.
11
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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.
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.
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 2000
REVENUES. Revenues from our personal property registration kits decreased
by 58% to $14,251 for the three months ended June 30, 2000 compared to $33,783
for the three months ended June 30, 1999. The decrease in revenues was
primarily due to our total shift in emphasis from sales of personal property
registration kits to the development of new products and services. We expect
revenue to increase due to our roll out of new products and services.
COSTS OF SALES. Costs of sales increased by 309% to $9,389 for the three
months ended June 30, 2000 compared to $2,298 for the three months ended June
30, 1999. We expect cost of sales to increase in accordance with our expected
improvement in revenue.
OPERATIONAL. Operational costs decreased by 23% to $66,201 for the three
months ended June 30, 2000 compared to $86,526 for the three months ended June
30, 1999. This decrease reflects our efforts to build an infrastructure to
support our development and roll out of new products and services. We expect
these costs to increase over the next quarter.
INFORMATION SYSTEMS. Information systems costs increased by 362% to
$61,922 for the three months ended June 30, 2000 compared to $13,404 for the
three months ended June 30, 1999. The increase resulted from the continuing
necessity to have our computer systems year 2000 compliant. We expect these
costs to continue to increase as we explore e-commerce applications for our
products and services.
SALES AND MARKETING. Sales and marketing expenses increased by 491% to
$178,566 for the three months ended June 30, 2000 compared to $30,212 for the
three months ended June 30, 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 continue to grow if our cash flow allows it.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 478% to $174,315 for the three months ended June 30, 2000 compared to $30,183
for the three months ended June 30, 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 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 $20,021,203 as of December 31, 1999. 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 June 30, 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.
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.
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For the three months ended June 30, 2000 and 1999, cash used in operating
activities totaled $401,948 and $NIL, respectively. Net losses were $456,224
and $127,331 for the three months ended June 30, 2000 and 1999, respectively.
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.
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.
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PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of June 30, 2000, we are in default to our subordinated convertible
debenture holders in the principal amount of $475,790, plus accrued interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Number Description
------ -----------
2.1* Reorganization Agreement Among Ultra Capital Corp. (the predecessor of
the Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker
Corporation dated May 26, 1994, as amended by Amendment Number One
dated June 16, 1994, Amendment Number Two dated June 24, 1994, and
Amendment Number Three dated June 30, 1994, Extension of Closing dated
June 23, 1994, and July 11, 1994 letter agreement
2.2* Agreement and Plan of Merger dated July 1, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and the Registrant
3.1* Certificate of Incorporation, as corrected by Certificate of
Correction of Certificate of Incorporation dated March 27, 1995, and
as amended by Certificate of Amendment to the Certificate of
Incorporation dated November 1, 1995, and Certificate of Designation
of Rights, Preferences and Privileges of $1,000.00 6% Cumulative
Convertible Preferred Stock of the Registrant dated April 19, 1996
3.2* Bylaws
4.1* Specimen Common Stock Certificate
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
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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.
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
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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
23.1*(10) Consent of J. L. Stephan Co., P. C.
23.2*(10) Consent of Hirsch Silberstein & Subelsky, P.C.
24.1 Power of Attorney
27 Financial Data Schedule, for the three months ended June 30, 2000
--------------------
* 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)
*(10) Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 2000 (filed July 17, 2000).
(B) REPORTS ON FORM 8-K
No reports were filed on Form 8-K with the SEC for the quarter ended June
30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 14, 2000 THE TRACKER CORPORATION
OF AMERICA, a Delaware
corporation
By: /s/ Bruce I. Lewis
----------------------------
Bruce I. Lewis
Chief Executive Officer
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